<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, 1997
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, 1997, was 9,995,490.
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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)
Three Months Ended March 31
--------------------------------
EARNINGS (note 1) 1997 1996
------- -------
Net sales $83,026 $76,823
Less:
Cost of sales (note 2) 48,877 44,056
Selling and administrative (note 2) 27,562 27,120
------- -------
Profit from operations 6,587 5,647
Other income and (expense)
Net foreign currency gain (loss) (36) 188
Interest income 1,121 1,034
Interest expense (527) (712)
Miscellaneous income (expense), net (301) (114)
------- -------
Total other income (expense) 257 396
------- -------
Earnings before income taxes 6,844 6,043
Taxes on income 2,437 2,059
------- -------
Net earnings $ 4,407 $ 3,984
------- -------
------- -------
PER SHARE (note 5)
Net earnings $ .44 $ .40
Dividends $ .18 $ .17
Average number of shares 10,014,700 10,008,300
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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)
<TABLE>
<CAPTION>
BALANCE SHEET
(Condensed from Audited
(Unaudited) Financial Statements)
ASSETS March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 9,572 $ 9,881
Receivables 75,768 78,855
Less deferred income from sales finance charges (1,779) (1,831)
Less allowance for doubtful accounts (2,357) (2,506)
-------- --------
Net receivables 71,632 74,518
Inventories (note 3) 35,623 35,264
Prepaid expenses 768 934
Deferred income taxes, current portion 5,814 5,884
-------- --------
Total current assets 123,409 126,481
Property, plant, and equipment 148,828 148,922
Less allowance for depreciation (85,348) (83,538)
-------- --------
Net property, plant, and equipment 63,480 65,384
Net noncurrent installment accounts receivable 7,244 7,448
Deferred income taxes, long-term portion 1,468 1,524
Intangible assets 17,377 17,752
Other assets 535 591
-------- --------
Total assets $213,513 $219,180
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES & SHAREHOLDERS' EQUITY
(Condensed from Audited
(Unaudited) Financial Statements)
LIABILITIES March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Current debt $ 3,375 $ 3,864
Accounts payable 14,184 17,485
Accrued expenses 24,459 28,239
-------- --------
Total current liabilities 42,018 49,588
Long-term debt 22,956 21,824
Employee retirement-related benefits 18,999 18,528
Other long-term liabilities 190 380
-------- --------
Total liabilities 84,163 90,320
SHAREHOLDERS' EQUITY
Common stock (note 5) 3,748 3,737
Additional paid-in capital (note 5) 3,962 3,547
Equity adjustment from foreign currency translation 1,143 2,877
Common stock subscribed 113 703
Unearned restricted shares (733) (440)
Retained earnings 133,310 130,703
Receivable from ESOP (12,193) (12,267)
-------- --------
Total shareholders' equity 129,350 128,860
-------- --------
Total liabilities and shareholders' equity $213,513 $219,180
-------- --------
-------- --------
</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>
STATEMENTS OF CASH FLOWS (note 4) Three Months Ended March 31
---------------------------
1997 1996
-------- --------
<S> <C> <C>
Net cash flow related to operating activities $ 3,508 $ 3,072
Cash flow related to investing activities:
Acquisition of property, plant, and equipment (3,032) (3,882)
Acquisition of intangible assets -- (164)
Acquisition of Castex and Eagle -- --
Proceeds from disposals of property, plant, and equipment 319 1,043
Settlement of foreign currency hedging contracts 326 210
-------- --------
Net cash flow related to investing activities (2,387) (2,793)
Cash flow related to financing activities:
Net changes in current debt 524 (1,127)
Issuance of long-term debt 4 --
Payments to settle long-term debt (6) --
Principal payment from ESOP 545 495
Proceeds from employee stock issues 462 450
Repurchase of common stock (1,316) --
Dividends paid (1,800) (1,698)
-------- --------
Net cash flow related to financing activities (1,587) (1,880)
Effect of exchange rate changes on cash 157 30
-------- --------
Net increase (decrease) in cash and cash equivalents (309) (1,571)
Cash and cash equivalents at beginning of year 9,881 4,247
-------- --------
Cash and cash equivalents at end of first quarter $ 9,572 $ 2,676
-------- --------
-------- --------
</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
In the opinion of management, financial statements include all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the interim periods presented.
The results of operations for interim periods are not necessarily indicative of
results which will be realized for the full fiscal year.
(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 1996 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, maintenance and repairs, warranty,
and bad debt expenses were charged to operations for the three months ended
March 31, 1997 and 1996, as follows:
1997 1996*
------ ------
(In Thousands)
Engineering, research and development $3,237 $3,302
------ ------
------ ------
Maintenance and repairs $1,490 $1,352
------ ------
------ ------
Warranty $1,034 $1,221
------ ------
------ ------
Bad debts $ 135 $ 199
------ ------
------ ------
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.
*Restated to conform with current year presentation.
(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,
1997, and December 31, 1996, is as follows:
March 31 December 31
1997 1996
-------- -----------
(In Thousands)
FIFO Inventories:
Finished Goods $26,204 $26,317
All Other 27,932 26,879
LIFO Adjustment (18,513) (17,932)
-------- --------
LIFO Inventories $35,623 $35,264
-------- --------
-------- --------
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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
(4) Cash Flow
Income taxes paid during the three months ended March 31, 1997 and 1996,
were $2,361,000 and $443,000, respectively. Interest costs paid during the
three months ended March 31, 1997, and 1996, were $529,000 and $694,000,
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 Three Months Ended March 31, 1997, 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
<TABLE>
<CAPTION>
(a) Exhibits
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.
13.1 Text Portion of Report to Shareholders for Filed herewith electronically.
the Three Months Ended March 31, 1997.
27.1 Financial Data Schedule. Filed herewith electronically.
</TABLE>
(b) Reports on Form 8-K
There were no reports filed on Form 8K filed for the quarter ended March
31, 1997.
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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: 5/12/97 /s/ R. A. Snyder
----------------------------- ------------------------------
Richard A. Snyder
Vice President, Treasurer and
Chief Financial Officer
Date: 5/12/97 /s/ Mahedi A. Jiwani
----------------------------- ------------------------------
Mahedi A. Jiwani
Corporate Controller and
Principal Accounting Officer
<PAGE>
TENNANT COMPANY 1ST QUARTER REPORT 1997
TO OUR SHAREHOLDERS
Net sales of $83.0 million for the first quarter of 1997 were up 8 percent from
the prior year's $76.8 million. Net earnings of $4.4 million, or 44 cents per
share, increased 11 percent from the $4.0 million, or 40 cents per share, for
last year's first quarter.
ORDERS AND OPERATING MARGIN IMPROVE
The year is off to a good start with total orders up 14 percent in local
currencies. In North America, industrial and commercial equipment orders were up
strongly from first quarter last year, which was affected by weak economic
conditions. Internationally, orders in Japan continued last year's exceptional
performance, although margins are under pressure due to the weak yen.
Operating margin for the quarter improved to 7.9 percent from 7.4 percent last
year primarily due to continued general expense control measures. Gross margin
declined primarily due to the dollar, which was still relatively weak at this
time last year. While the first quarter's gross margin was down from the same
period last year, it improved from the level achieved in 1996's second half, and
we expect further margin improvements as 1997 progresses.
The dollar's strength had a significant effect on first quarter results,
reducing sales by $1.4 million, operating margin by 0.3 percentage points, and
net earnings by $0.3 million, or 3 cents per share. Based on the current value
of the dollar, we estimate a negative effect on full-year earnings in the range
of 8 to 12 cents per share.
POSITIVE OUTLOOK FOR 1997
We finished 1996 concerned with the strengthening dollar and somewhat weaker-
than-expected incoming order rates. The dollar remains a major concern; however,
first quarter order results were very encouraging.
In summary, we believe Tennant has the potential to overcome the negative
effects of a much stronger dollar and achieve an increase in net earnings on
higher sales and margins.
FINANCIAL POSITION STRENGTHENS
Net cash flow from operating activities continued to show improvement. The
company's financial position has strengthened considerably over the past 12
months. This is evidenced by the $13.0 million reduction in debt and $7.0
million increase in cash on hand that has occurred since the end of first
quarter last year. We anticipate further improvements in cash flow through the
end of 1997.
Roger L. Hale
Chief Executive Officer
April 15, 1997
<PAGE>
STRONG PRODUCT LINES, FRANCHISE AND PARTNERSHIPS
The Company expects to continue above-average growth in commercial equipment,
maintain its market leadership in industrial equipment, and expand the floor
coatings business by capitalizing on its strong product lines, sales/service
network and customer partnerships.
- - Strong Products: Tennant devotes a much higher percentage of sales to
product engineering than do most capital goods companies and, in total
amount spent, significantly more than its competitors. This allows it to
offer a broad product line, regularly introducing new products with the
longest and strongest warranties in the industry.
- - Strong Franchise: Tennant's industrial products are sold and serviced
directly in eight countries and through full-service distributors in 45
others--a network unmatched in the industry; and its commercial products
are marketed in North America by one of the most extensive distributor
networks in the business.
- - Strong Partnerships: Tennant is bringing together its three complementary
product lines so it can work more closely with customers to help them
develop and implement total solutions to their cleaning needs.
These strengths are supported by Tennant's strong cash flow and balance sheet.
As a result, the Company expects to reach its financial mission of creating
value for shareholders by providing an above-average total return through:
- - 8% sales and 10% earnings per share annual increases over the long term.
- - 20% return on beginning shareholders' equity in the years of the economic
cycle growth.
- - Consistent increases in the dividend.
PRODUCTS FOR A CLEANER AND SAFER WORLD
As Maintenance Supervisor for Spectacor Management Group, Michael Godoy is
responsible for groundskeeping at the Gator Bowl in Jacksonville, Florida. To
clean the facility, he uses a variety of Tennant machines in tandem, including
Models 830, 5700, 355, and the newest addition to his fleet, the Model 7400
Scrubber (all pictured here).
Says Godoy, "With the Model 7400 in our fleet line-up, we expect to have the
best pre- and post-event cleanup we can create."
Like so many others around the world, Godoy relies on Tennant to make his
facility a cleaner, safer place to be.
<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, 1997,
AND THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997, 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9572
<SECURITIES> 0
<RECEIVABLES> 73989
<ALLOWANCES> 2357
<INVENTORY> 35623
<CURRENT-ASSETS> 123409
<PP&E> 148828
<DEPRECIATION> 85348
<TOTAL-ASSETS> 213513
<CURRENT-LIABILITIES> 42018
<BONDS> 22956
0
0
<COMMON> 3748
<OTHER-SE> 125602
<TOTAL-LIABILITY-AND-EQUITY> 213513
<SALES> 83026
<TOTAL-REVENUES> 83026
<CGS> 48877
<TOTAL-COSTS> 48877
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 135
<INTEREST-EXPENSE> 527
<INCOME-PRETAX> 6844
<INCOME-TAX> 2437
<INCOME-CONTINUING> 4407
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4407
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
