<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1996
Commission File No. 04804
TENNANT COMPANY
Incorporated in Minnesota IRS Emp Id No. 410572550
701 North Lilac Drive
P.O. Box 1452
Minneapolis, Minnesota 55440
Telephone No. 612-540-1200
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
The number of shares outstanding of Registrant's common stock, par value $.375,
on March 31, 1996, was 10,021,292.
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Page 1 of 7
TENNANT COMPANY
Quarterly Report - Form 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1996 1995
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<S> <C> <C>
EARNINGS (note 1)
Net sales $76,823 $74,144
Less:
Cost of sales (note 2) 44,056 42,646
Selling and administrative (note 2) 27,120 25,879
------- -------
Profit from operations 5,647 5,619
Other income and (expense)
Net foreign currency gain (loss) 188 144
Interest income 1,034 997
Interest expense (712) (570)
Miscellaneous income (expense), net (114) (408)
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Total other income (expense) 396 163
------- -------
Earnings before income taxes 6,043 5,782
Taxes on income 2,059 1,913
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Net earnings $ 3,984 $ 3,869
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PER SHARE (note 5)
Net earnings $ .40 $ .39
Dividends $ .17 $ .17
Average number of shares 10,008,300 9,892,200
</TABLE>
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Page 2 of 7
TENNANT COMPANY
Quarterly Report - Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS (continued)
TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS
(Dollars in thousands)
BALANCE SHEET
<TABLE>
<CAPTION>
(Condensed from Audited
(Unaudited) Financial Statements)
ASSETS March 31, 1996 December 31, 1995
-------------- -----------------------
<S> <C> <C>
Cash and cash equivalents $ 2,676 $ 4,247
Receivables 68,909 76,961
Less deferred income from sales finance charges (1,811) (1,840)
Less allowance for doubtful accounts (2,554) (2,610)
---------- ----------
Net receivables 64,544 72,511
Inventories (note 3) 45,014 40,702
Prepaid expenses 854 944
Deferred income taxes, current portion 5,281 5,104
---------- ----------
Total current assets 118,369 123,508
Property, plant, and equipment 139,096 137,213
Less allowance for depreciation (76,279) (73,489)
---------- ----------
Net property, plant, and equipment 62,817 63,724
Net noncurrent installment accounts receivable 7,398 7,510
Deferred income taxes, long-term portion 1,545 1,545
Intangible assets 18,744 18,859
Other assets 681 604
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Total assets $209,554 $215,750
---------- ----------
---------- ----------
<CAPTION>
LIABILITIES & SHAREHOLDERS' EQUITY
(Condensed from Audited
(Unaudited) Financial Statements)
LIABILITIES March 31, 1996 December 31, 1995
-------------- -----------------------
<S> <C> <C>
Current debt $ 16,113 $ 17,349
Accounts payable 16,126 21,436
Accrued expenses 19,567 22,938
---------- ----------
Total current liabilities 51,806 61,723
Long-term debt 23,118 23,149
Employee retirement-related benefits 16,592 16,177
Other long-term liabilities 380 570
---------- ----------
Total liabilities 91,896 101,619
SHAREHOLDERS' EQUITY
Common stock (note 5) 3,758 3,732
Additional paid-in capital (note 5) 4,822 3,166
Equity adjustment from foreign currency translation 3,316 3,532
Common stock subscribed -- 694
Unearned restricted shares (390) (276)
Retained earnings 118,682 116,396
Receivable from ESOP (12,530) (13,113)
---------- ----------
Total shareholders' equity 117,658 114,131
---------- ----------
Total liabilities and shareholders' equity $209,554 $215,750
---------- ----------
---------- ----------
</TABLE>
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Page 3 of 7
TENNANT COMPANY
Quarterly Report - Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS (continued)
TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
STATEMENTS OF CASH FLOWS (Note 4) 1996 1995
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<S> <C> <C>
Net cash flow related to operating activities $ 3,072 $ 737
Cash flow related to investing activities:
Acquisition of property, plant, and equipment (3,882) (4,401)
Acquisition of intangible assets (164)
Acquisition of Castex and Eagle (925)
Proceeds from disposals of property, plant, and
equipment 1,043 1,825
Settlement of foreign currency hedging contracts 210 (261)
------- -------
Net cash flow related to investing activities (2,793) (3,762)
Cash flow related to financing activities:
Net changes in current debt (1,127) (772)
Issuance of long-term debt -- 5,000
Principal payment from ESOP 495 450
Proceeds from employee stock issues 450 409
Repurchase of common stock -- --
Dividends paid (1,698) (1,679)
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Net cash flow related to financing activities (1,880) 3,408
Effect of exchange rate changes on cash 30 (121)
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Net increase (decrease) in cash and cash equivalents (1,571) 262
Cash and cash equivalents at beginning of year 4,247 1,851
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Cash and cash equivalents at end of first quarter $ 2,676 $ 2,113
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</TABLE>
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Page 4 of 7
TENNANT COMPANY
Quarterly Report - Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The Company's Summary of Significant Accounting Policies and other
Related Data and Summary of Stock Plans, Bonuses, and Profit Sharing is
included in the Company's 1995 Annual Report filed as Exhibit 13.1 to
the Company's annual filing on Form 10-K and is incorporated in this
Form 10-Q by reference.
(2) Expenses
Engineering, research and development, and bad debt expenses were charged
to operations for the three months ended March 31, 1996 and 1995, as
follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
(In Thousands)
<S> <C> <C>
Engineering, research and development $3,112 $2,900
------ ------
------ ------
Bad debts $ 199 $ 494
------ ------
------ ------
</TABLE>
The Company also makes accrual adjustments on a regular monthly basis
for bonus and profit sharing expenses which are settled at year-end.
This allows for a fair statement of the results for the interim periods
presented.
Amounts differ from 1995 10-Q report due to the reclassification of
expenses.
(3) Inventories
Inventories are valued at the lower of cost (principally on a last-in,
first-out basis) or market. The composition of inventories at March 31,
1996, and December 31, 1995, is as follows:
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
-------- -----------
(In Thousands)
<S> <C> <C>
FIFO Inventories:
Finished Goods $ 31,695 $ 28,146
All Other 31,824 30,406
LIFO Adjustment (18,505) (17,850)
-------- --------
LIFO Inventories $ 45,014 $ 40,702
-------- --------
-------- --------
</TABLE>
The category "All Other" includes production-related raw materials, parts
and supplies, and work-in-process. The Company's accounting system does
not permit a further breakdown of this category of inventories.
(4) Cash Flow
Income taxes paid during the three months ended March 31, 1996 and 1995,
were $443,000 and $1,323,000, respectively. Interest costs paid during the
three months ended March 31, 1996, and 1995, were $694,000 and $696,000,
respectively.
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Page 5 of 7
TENNANT COMPANY
Quarterly Report - Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Stock Split
On February 16, 1995, the Board of Directors declared a two-for-one
stock split effective April 26, 1995, for shareholders of record on
April 12, 1995. For each share to be issued in connection with the
stock split, an amount equal to the par value of $.375 was transferred
to the common stock amount from additional paid-in capital retroactive
to December 31, 1994. All share and per share data in this report have
been retroactively adjusted to reflect this stock split.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Management's discussion and analysis of financial condition and results of
operations is included in Exhibit 13.1, attached, text portion of Report to
Shareholders for the Three Months Ended March 31, 1996, and is incorporated
in this Form 10-Q by reference.
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Page 6 of 7
TENNANT COMPANY
Quarterly Report - Form 10-Q
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Item # Description Method of Filing
------ ----------- ----------------
3i Articles of Incorporation Incorporated by reference to
Exhibit 4.1 to the Company's
Registration Statement
No. 33-62003, 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.
13.1 Text Portion of Report to Filed herewith electronically.
Shareholders for the Three
Months Ended March 31, 1996.
27.1 Financial Data Schedule. Filed herewith electronically.
(b) Reports on Form 8-K
There were no reports filed on Form 8K filed for the quarter ended
March 31, 1996.
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Page 7 of 7
TENNANT COMPANY
Quarterly Report - Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TENNANT COMPANY
Date: 5/14/96 /s/ Richard A. Snyder
------------------ --------------------------------
Richard A. Snyder
Vice President, Treasurer and
Chief Financial Officer
Date: 5/14/96 /s/ Mahedi A. Jiwani
------------------ --------------------------------
Mahedi A. Jiwani
Corporate Controller and
Principal Accounting Officer
<PAGE>
TO OUR SHAREHOLDERS
Net sales of $76.8 million for the first quarter of 1996 were up 4
percent from the prior year's $74.1 million. Net earnings of $4.0 million, or
40 cents per share, increased 3 percent from the $3.9 million, or 39 cents
per share, for last year's first quarter.
ORDER SLOWDOWN AFFECTS SALES, MARGINS
The quarter's relatively low sales increase resulted from an order
slowdown that began last year. We believe the key factor in our order
performance has been weak conditions in the North American and European
economies, especially in the industrial sectors.
The low level of sales growth for the quarter contributed to a decline
in operating margin to 7.4 percent of sales from 7.6 percent last year.
Despite expense controls implemented early this year, expenses were up
somewhat more than sales primarily due to general inflation, increased
depreciation expense resulting from a higher level of capital spending in
recent years, and continued funding of several projects considered important
to the Company's long-term success.
CAUTIOUSLY OPTIMISTIC FOR REMAINDER OF 1996
The consensus economic view is that we are in the final stages of a "soft
landing" and that growth will resume soon. We believe that Tennant is well
positioned to take advantage of better economic conditions. We have a
significant number of new and updated products in our line, our floor
coatings and export businesses are performing well, and our two subsidiaries,
both of which experienced profitability challenges last year, continue to
show improvement.
Assuming economic growth resumes as expected, we believe Tennant will be
able to improve on last year's record sales and earnings. However, in the
near-term we will continue to face a profitability challenge. We are
therefore instituting additional expense controls that will remain in effect
until orders strengthen.
OPERATING CASH FLOW UP OVER LAST YEAR
Net cash flow related to operating activities was $3.1 million versus
$0.7 million for last year's first quarter. The increase in cash flow
resulted from a reduction in the unusually high level of receivables at
December 31, 1995. While receivables declined, the need to improve on our
collection experience continues.
Inventories increased $4.3 million from year-end 1995. While an increase
during first quarter is normal due to sales and production patterns, this
year's increase was somewhat above normal. The primary reasons for the
increase were the relatively low level of sales for the quarter and a need to
build inventory to support new product introductions.
Based on our outlook for full-year results, we expect to be able to show
productivity improvements for both receivables and inventory by year-end.
This is a key element in our objective to steadily reduce debt as a percent
of capitalization from last year-end's 26%.
Roger L. Hale
CHIEF EXECUTIVE OFFICER April 15, 1996
TENNANT AT A GLANCE
Tennant's strategic mission is to be the preeminent company in
nonresidential floor maintenance equipment, floor coatings and related
product offerings. We expect to maintain and expand our market leadership in
industrial equipment, and continue above-average growth in commercial
equipment and floor coatings, through a commitment to long-term partnerships
with our customers. This partnership commitment, described in our 1995 Annual
Report, is characterized by:
<PAGE>
- - Offering the most complete range of innovative products. Our
industry-leading investment in product development and quality will
continue to yield new, high value offerings.
- - Bringing together our three complementary product lines so we can work
closely with customers to help them develop and implement total solutions
to their floor maintenance needs.
- - Developing a companywide integrated base of information focused on the
customer to improve service levels and become more effective and efficient
in our operations.
We believe this approach will allow us to achieve our long-term financial
goals, as indicated below, and meet our financial mission of providing an
above-average total return to shareholders:
- - 5% real (inflation adjusted) annual sales increases over the long-term.
- - 20% return on beginning shareholders' equity in the growth years of the
economic cycle.
PRODUCTS FOR A CLEANER AND SAFER WORLD
Once again at the cutting edge of cleaning technology, Tennant
introduces the newest generation of compact, battery-powered riding
scrubbers: the 515 Series. Able to clean congested facilities with the power
of larger Tennant scrubbers, the Series comes in both the Model 515 scrubber
and the Model 515 SS sweeper/scrubber.
Each can be tailored to fit individual cleaning needs with a variety of
path sizes and cleaning operations. Each offers features not found on any
competing scrubber: a fully engaged Electronic Monitoring System, Class
1/Division 2 UL Safety Seal, and roll-out batteries.
Truly, the 515 Series marks a new revolution of compact, battery-powered
riding scrubbers.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1996,
AND THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996, PAGES 1 AND 2, AND
FOOTNOTE 2, PAGE 4, OF THIS FORM 10-Q QUARTERLY REPORT, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2676
<SECURITIES> 0
<RECEIVABLES> 67098
<ALLOWANCES> 2554
<INVENTORY> 45014
<CURRENT-ASSETS> 118369
<PP&E> 139096
<DEPRECIATION> 76279
<TOTAL-ASSETS> 209554
<CURRENT-LIABILITIES> 51806
<BONDS> 23118
0
0
<COMMON> 3758
<OTHER-SE> 113900
<TOTAL-LIABILITY-AND-EQUITY> 209554
<SALES> 76823
<TOTAL-REVENUES> 76823
<CGS> 44056
<TOTAL-COSTS> 44056
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 199
<INTEREST-EXPENSE> 712
<INCOME-PRETAX> 6043
<INCOME-TAX> 2059
<INCOME-CONTINUING> 3984
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3984
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
