<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 June 30, 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 June 30, 1996, was 10,054,166.
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Page 2 of 9
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 June 30 Six Months Ended June 30
------------ ------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
EARNINGS (note 1)
Net sales .......................................... $ 86,794 $ 82,797 $ 163,617 $ 156,941
Less:
Cost of sales (note 2) ........................ 51,004 47,009 95,060 89,655
Selling and administrative (note 2) ........... 28,020 28,016 55,140 53,895
------------ ------------ ------------ ------------
Profit from operations ............................. 7,770 7,772 13,417 13,391
Other income and (expense)
Net foreign currency gain (loss) .............. (148) (21) 40 123
Interest income ............................... 1,068 1,068 2,102 2,066
Interest expense .............................. (640) (569) (1,352) (1,141)
Miscellaneous income (expense), net ........... (200) (325) (314) (732)
------------ ------------ ------------ ------------
Total other income (expense) .............. 80 153 476 316
------------ ------------ ------------ ------------
Earnings before income taxes ....................... 7,850 7,925 13,893 13,707
Taxes on income .................................... 2,685 2,647 4,744 4,560
------------ ------------ ------------ ------------
Net earnings ....................................... $ 5,165 $ 5,278 $ 9,149 $ 9,147
============ ============ ============ ============
PER SHARE (note 5)
Net earnings ....................................... $ .51 $ .53 $ .91 $ .92
Dividends .......................................... $ .17 $ .17 $ .34 $ .34
Average number of shares ........................... 10,036,300 9,907,700 10,022,300 9,900,000
</TABLE>
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Page 3 of 9
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 June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 2,686 $ 4,247
Receivables 70,891 76,961
Less deferred income from sales finance charges (1,800) (1,840)
Less allowance for doubtful accounts (2,499) (2,610)
----------- -----------
Net receivables 66,592 72,511
Inventories (note 3) 40,833 40,702
Prepaid expenses 1,029 944
Deferred income taxes, current portion 5,128 5,104
----------- -----------
Total current assets 116,268 123,508
Property, plant, and equipment 143,176 137,213
Less allowance for depreciation (78,264) (73,489)
---------- ----------
Net property, plant, and equipment 64,912 63,724
Net noncurrent installment accounts receivable 7,349 7,510
Deferred income taxes, long-term portion 1,546 1,545
Intangible assets 18,420 18,859
Other assets 582 604
------------ -----------
Total assets $209,077 $215,750
======== ========
<CAPTION>
LIABILITIES & SHAREHOLDERS' EQUITY
(Condensed from Audited
(Unaudited) Financial Statements)
LIABILITIES June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Current debt $ 10,299 $ 17,349
Accounts payable 15,111 21,436
Accrued expenses 21,847 22,938
--------- ---------
Total current liabilities 47,257 61,723
Long-term debt 23,083 23,149
Employee retirement-related benefits 16,997 16,177
Other long-term liabilities 380 570
----------- -----------
Total liabilities 87,717 101,619
SHAREHOLDERS' EQUITY
Common stock (note 5) 3,770 3,732
Additional paid-in capital (note 5) 5,646 3,166
Equity adjustment from foreign currency translation 2,907 3,532
Common stock subscribed -- 694
Unearned restricted shares (660) (276)
Retained earnings 122,139 116,396
Receivable from ESOP (12,442) (13,113)
----------- ----------
Total shareholders' equity 121,360 114,131
--------- ---------
Total liabilities and shareholders' equity $209,077 $215,750
======== ========
</TABLE>
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Page 4 of 9
TENNANT COMPANY
Quarterly Report - Form 10-Q
Item 1 - Financial Statements (continued)
TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS (UNAUDITED)
(Dollars in thousands)
STATEMENTS OF CASH FLOWS (note 4)
<TABLE>
<CAPTION>
Six Months Ended June 30
------------------------
1996 1995
---- ----
<S> <C> <C>
Net cash flow related to operating activities $ 16,015 $ 3,259
Cash flow related to investing activities:
Acquisition of property, plant, and equipment (11,093) (11,295)
Acquisition of intangible assets (179) --
Acquisition of Castex and Eagle -- (1,125)
Proceeds from disposals of property, plant, and equipment 1,920 2,204
Settlement of foreign currency hedging contracts 313 (681)
--------- ---------
Net cash flow related to investing activities (9,039) (10,897)
Cash flow related to financing activities:
Net changes in current debt (6,712) (5,339)
Issuance of long-term debt -- 15,727
Principal payment from ESOP 495 450
Proceeds from employee stock issues 895 826
Dividends paid (3,406) (3,364)
------- -------
Net cash flow related to financing activities (8,728) 8,300
Effect of exchange rate changes on cash 191 (215)
-------- --------
Net increase (decrease) in cash and cash equivalents (1,561) 447
Cash and cash equivalents at beginning of year 4,247 1,851
------- -------
Cash and cash equivalents at end of second quarter $2,686 $2,298
====== ======
</TABLE>
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Page 5 of 9
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 and six months ended June 30, 1996 and 1995,
as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Engineering, research and development $3,164 $3,147 $6,276 $6,047
====== ====== ====== ======
Bad debts $ 322 $ 13 $ 521 $ 507
===== ==== ===== =====
</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 June 30,
1996, and December 31, 1995, is as follows:
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
FIFO Inventories:
Finished Goods $29,910 $28,146
All Other 29,427 30,406
LIFO Adjustment (18,504) (17,850)
--------- --------
LIFO Inventories $40,833 $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.
<PAGE>
Page 6 of 9
TENNANT COMPANY
Quarterly Report - Form 10-Q
Item 1 - Financial Statements (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4) Cash Flow
Income taxes paid during the six months ended June 30, 1996 and 1995,
were $3,137,000 and $5,195,000, respectively. Interest costs paid during
the six months ended June 30, 1996 and 1995, were $1,337,000 and
$1,204,000, respectively.
(5) Stock Split
On February 16, 1995, the Board of Directors declared a two-for-one stock
split effective April 26, 1995, for shareholders of record on April 12,
1995. For each share to be issued in connection with the stock split, an
amount equal to the par value of $.375 was transferred to the common
stock amount from additional paid-in capital retroactive to December 31,
1994. All share and per share data in this report have been retroactively
adjusted to reflect this stock split.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of 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 Six Months Ended June 30, 1996, and is incorporated in this
Form 10-Q by reference.
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Page 7 of 9
TENNANT COMPANY
Quarterly Report - Form 10-Q
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
At the Annual Shareholders' Meeting held on May 2, 1996, the following
matters were submitted to vote:
(a) Election of Directors
Roger L. Hale was elected to serve a three-year term as a director of the
Company. Out of 9,055,545 common shares represented, 7,517,833 voted in
favor and 1,537,712 withheld.
Delbert W. Johnson was elected to serve a three-year term as a director
of the Company. Out of 9,055,545 common shares represented, 7,531,969
voted in favor and 1,523,576 withheld.
Arthur R. Schulze, Jr. resigned from his position as director of the
company on 5/2/96.
The following directors each continued their term of office after the
meeting:
David C. Cox
Arthur D. Collins, Jr.
Andrew P. Czajkowski
William A. Hodder
William I. Miller
(b) Appointment of KPMG Peat Marwick as Auditors
The appointment of KPMG Peat Marwick as independent auditors of the
Company was approved. Out of 9,055,545 common shares represented,
8,931,801 voted in favor, 39,498 against, and 84,246 abstained.
<PAGE>
Page 8 of 9
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 Six
Months Ended June 30, 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
June 30, 1996.
<PAGE>
Page 9 of 9
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: 8/5/96 /s/ Richard A. Snyder
------------------ --------------------------------
Richard A. Snyder
Vice President, Treasurer and
Chief Financial Officer
Date: 8/5/96 /s/ Mahedi A. Jiwani
------------------ --------------------------------
Mahedi A. Jiwani
Corporate Controller and
Principal Accounting Officer
<PAGE>
To our Shareholders
Second quarter earnings of $5.2 million, or 51 cents per share, declined 2
percent from last year on a sales increase of 5 percent. Six-month earnings of
$9.1 million were level with the 1995 period; however, earnings per share of 91
cents compared with 92 cents last year due to an increase in shares outstanding.
Orders Strengthen; Strong Dollar Affects Results
Orders for the second quarter were up 8 percent from the same period last year,
excluding the negative translation effects of a much stronger dollar. This
represented a considerable improvement from the first quarter's 3 percent order
increase. Areas of strongest performance were industrial products in Japan and
Europe, and commercial products in all markets. Industrial equipment orders in
North America also improved, although this came late in the quarter and was
concentrated in newer models. Orders for floor coatings were down for the
quarter.
The U.S. dollar strengthened during the second quarter relative to currencies in
our direct-sales markets in Europe, and especially the yen. This reduced
translated sales $1.6 million, operating margin 0.5 percentage points, and net
earnings $0.5 million, or 5 cents per share. If the dollar continues at present
levels, we estimate a full-year negative impact of $4.0 million in sales
translation, and $0.9 million, or 9 cents per share, in net earnings. This is in
the range of our previous estimate of 6 to 10 cents per share.
Working Capital Position Improved
We improved on our working capital position, especially with regard to
inventories which were reduced by $4 million. As a result, debt was $6 million
lower and now stands at 22 percent of capital versus 26 percent at the end of
last year. Our goal is to finish the year with a debt-to-capital ratio in the
low 20 percent range. Excess cash flow in the second half of the year will be
used to fund a somewhat higher level of capital spending, and we may repurchase
some of Tennant's outstanding stock for compensation plan purposes.
Full-Year Outlook
For some time we have been assuming the U.S. economy would achieve a soft
landing in the spring followed by a resumption of moderate growth through
year-end. This now appears to be the track although, until recently, the
industrial sector had been lagging the overall economy. Internationally, the
economic climate in Japan is much better, but we remain somewhat concerned about
conditions in Europe--especially Germany and France--even though our orders have
recently strengthened.
With the above economic conditions in mind and assuming the value of the dollar
does not increase significantly from present levels, we believe Tennant can show
earnings increases in the remaining two quarters and for the full year 1996.
Expense control actions put in place earlier this year will continue in the
second half.
Roger L. Hale
Chief Executive Officer July 17, 1996
<PAGE>
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:
o 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.
o 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.
o 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:
o 5% real (inflation adjusted) annual sales increases over the long-term.
o 20% return on beginning shareholders' equity in the growth years of the
economic cycle.
Products for a Cleaner and Safer World
Two years ago, the owner of this private corporate hangar in Nevada wanted to
upgrade his floor. The concrete was dull, streaked with skid marks, and
deteriorating from destructive chemicals. After an extensive search, the
facility's Director of Maintenance turned to Tennant's floor coating division.
He decided to put down Tennant CRU (Chemical Resistant Urethane), and soon
colleagues throughout the state were praising the look of his hangar.
CRU is one of the quality floor coatings produced by Tennant--many of which are
ecologically safe. It's just one more way Tennant is making the world a cleaner,
safer, better-looking place.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Earnings for the Six Months Ended June 30, 1996,
and the Consolidated Balance Sheet as of June 30, 1996, pages 2 and 3, and
footnote 2, page 5, 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> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2686
<SECURITIES> 0
<RECEIVABLES> 69091
<ALLOWANCES> 2499
<INVENTORY> 40833
<CURRENT-ASSETS> 116268
<PP&E> 143176
<DEPRECIATION> 78264
<TOTAL-ASSETS> 209077
<CURRENT-LIABILITIES> 47257
<BONDS> 23083
3770
0
<COMMON> 0
<OTHER-SE> 117590
<TOTAL-LIABILITY-AND-EQUITY> 209077
<SALES> 163617
<TOTAL-REVENUES> 163617
<CGS> 95060
<TOTAL-COSTS> 95060
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 521
<INTEREST-EXPENSE> 1352
<INCOME-PRETAX> 13893
<INCOME-TAX> 4744
<INCOME-CONTINUING> 9149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9149
<EPS-PRIMARY> .91
<EPS-DILUTED> .91
</TABLE>
