<PAGE>
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, 1996. COMMISSION FILE NUMBER 0-4804
TENNANT COMPANY
INCORPORATED IN THE STATE OF MINNESOTA EMPLOYER IDENTIFICATION 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 ]
$216,134,393 is aggregate market value of common stock
held by non-affiliates as of March 10, 1997.
10,000,229 shares outstanding at March 10, 1997
DOCUMENTS INCORPORATED BY REFERENCE
1996 Annual Report to Shareholders - Part I (Partial), Part II (Partial), and
Part IV (Partial)
1997 Proxy - Part III (Partial)
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TENNANT COMPANY
1996
ANNUAL REPORT
FORM 10-K
(PURSUANT TO SECURITIES EXCHANGE ACT OF 1934)
PART I
Part I is included in the Tennant Company 1996 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
1996 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, France, 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 40 foreign countries. Additional information
pertaining to products and marketing methods is included in the 1996 Annual
Report to Shareholders, pages 4, 5, 6, 7, 8, 9, 10, 11 and 13.
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 source or supply. The Company has
some sole-source vendors for certain components, primarily for automotive and
plastic parts. A disruption in supply from such vendors may cause a short-term
disruption in the Company's operations. However, the Company believes that it
can find alternate sources in the event there is a disruption in supply from
such vendors.
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.
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WORKING CAPITAL PRACTICES
The Company's working capital practices are described in the 1996 Annual Report
to Shareholders, Management's Financial Discussion and Analysis, Financial
Position section on pages 16 and 17.
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 1996 Annual Report to Shareholders, page 24, footnote 2. A
description of product development is included in the 1996 Annual Report to
Shareholders on pages 4, 5, 6, 7, 8, 9, 10, 11 and 13.
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 1996 Annual Report to Shareholders on
page 30.
EXECUTIVE OFFICERS OF THE REGISTRANT
Richard M. Adams, Vice President
Richard M. Adams (49) 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 (46) 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 (56) 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.
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Janet M. Dolan, Executive Vice President
Janet M. Dolan (47) joined the Company in 1986. Ms. Dolan was appointed
General Counsel and Secretary in 1987, Vice President in 1990, Senior Vice
President in 1995, and Executive Vice President in 1996. She is a director
of Castex Incorporated. She is also a director of Donaldson Company, Inc.
Roger L. Hale, President and Chief Executive Officer
Roger L. Hale (62) 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 (58) 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 (48) 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 (49) 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 (57) 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. He is a
director of Tennant N.V.
William R. Strang, Vice President
William R. Strang (61) 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.
Steven K. Weeks, Vice President
Steven K. Weeks (41) joined the Company in 1984. He was named Manager,
Global New Business and Marketing Development in 1993, Director of Marketing
in 1994, and Vice President, Customer Solutions in 1996.
PART II
Part II is included in the Tennant Company 1996 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 1997 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.
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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 1996 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, 1996 - page 18.
b. Consolidated Balance Sheets as of December 31, 1996 and 1995 -
page 19.
c. Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1996 - page 20.
d. Consolidated Statements of Shareholders' Equity for each of the
years in the three-year period ended December 31, 1996 - 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
Schedule II - Valuation and Qualifying Accounts
(Dollars in Thousands)
Additions
Balance at charged to Deductions
Allowance for doubtful beginning costs and from Balance at
accounts of year expenses reserves(1) end of year
- -------------------------------------------------------------------------------
Year ended December 31, 1996 2,611 1,160 1,265 2,506
Year ended December 31, 1995 2,609 803 801 2,611
Year ended December 31, 1994 1,495 1,088 (26) 2,609
(1) Accounts determined to be uncollectible and charged against
reserve, net of collections on accounts previously charged against
reserves.
All other 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 1996 Annual
Report to Shareholders.
3. 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.
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10.1 Tennant Company 1988 Stock Incorporated by reference to
Incentive Plan 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 Incorporated by reference to
Incentive Plan Exhibit 4.4 to the Company's
Registration Statement No. 33-
59054, Form S-8 dated March 2,
1993.
10.3 Tennant Company Restricted Incorporated by reference to
Stock Plan for Nonemployee Exhibit 4.5 to the Company's
Directors Registration Statement No. 33-
59054, Form S-8, dated March 2,
1993.
10.4 Tennant Company 1995 Stock Incorporated by reference to
Incentive Plan Exhibit 4.4 to the Company's
Registration Statement No. 33-
62003, Form S-8, dated August 22,
1995.
10.5 Tennant Company Restricted Incorporated by reference to
Stock Plan for Nonemployee Exhibit 10.2 to the Company's 1995
Directors, as amended and Second Quarter 10-Q filing dated
restated effective January 1, August 8, 1995.
1995
10.6 Tennant Company Excess Benefit Incorporated by reference to
Plan, as amended and restated Exhibit 10.4 to the Company's
effective January 1, 1994 Annual Report on Form 10-K for the
fiscal year ended December 31,
1994.
10.7 Management Agreement with Filed herewith electronically.
Steven K. Weeks dated November
19, 1996
10.8 Management Agreement with Tom Filed herewith electronically.
Vander Bie dated November 19,
1996
10.9 Management Agreement with Incorporated by reference to
Richard M. Adams dated Exhibit 10.6 to the Company's
December 10, 1993 Annual Report on Form 10-K for the
fiscal year ended December 31,
1993.
10.10 Management Agreement with Paul Incorporated by reference to
E. Brunelle dated December 8, Exhibit 10.7 to the Company's
1987 Annual Report on Form 10-K for the
fiscal year ended December 31,
1993.
10.11 Amendment to Management Incorporated by reference to
Agreement with Paul E. Exhibit 10.8 to the Company's
Brunelle dated June 21, 1989 Annual Report on Form 10-K for the
fiscal year ended December 31,
1993.
10.12 1993 Amendment to Management Incorporated by reference to
Agreement with Paul E. Exhibit 10.9 to the Company's
Brunelle dated December 10, Annual Report on Form 10-K for the
1993 fiscal year ended December 31,
1993.
10.13 Management Agreement with Incorporated by reference to
Janet M. Dolan dated June 21, Exhibit b.5 to the Company's Annual
1989 Report on Form 10-K for the fiscal
year ended December 31, 1992.
10.14 1993 Amendment to Management Incorporated by reference to
Agreement with Janet M. Dolan Exhibit 10.11 to the Company's
dated December 10, 1993 Annual Report on Form 10-K for the
fiscal year ended December 31,
1993.
10.15 Management Agreement with Incorporated by reference to
Roger L. Hale dated March 10, Exhibit b.8 to the Company's Annual
1987 Report on Form 10-K for the fiscal
year ended December 31, 1992.
10.16 Amendment to Management Incorporated by reference to
Agreement with Roger L. Hale Exhibit b.9 to the Company's Annual
dated June 21, 1989 Report on Form 10-K for the fiscal
year ended December 31, 1992.
5
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10.17 1993 Amendment to Management Incorporated by reference to Exhibit
Agreement with Roger L. Hale 10.14 to the Company's Annual Report
dated December 10, 1993 on Form 10-K for the fiscal year
ended December 31, 1993.
10.18 Management Agreement with Incorporated by reference to Exhibit
Douglas R. Hoelscher dated b.10 to the Company's Annual Report
March 10, 1987 on Form 10-K for the fiscal year
ended December 31, 1992.
10.19 Amendment to Management Incorporated by reference to Exhibit
Agreement with Douglas R. b.11 to the Company's Annual Report
Hoelscher dated June 21, 1989 on Form 10-K for the fiscal year
ended December 31, 1992.
10.20 1993 Amendment to Management Incorporated by reference to Exhibit
Agreement with Douglas R. 10.18 to the Company's Annual Report
Hoelscher dated December 10, on Form 10-K for the fiscal year
1993 ended December 31, 1993.
10.21 Management Agreement with Incorporated by reference to Exhibit
Keith D. Payden dated December 10.19 to the Company's Annual Report
10, 1993 on Form 10-K for the fiscal year
ended December 31, 1993.
10.22 Management Agreement with Incorporated by reference to Exhibit
Richard A. Snyder dated March b.12 to the Company's Annual Report
10, 1987 on Form 10-K for the fiscal year
ended December 31, 1992.
10.23 Amendment to Management Incorporated by reference to Exhibit
Agreement with Richard A. b.13 to the Company's Annual Report
Snyder dated June 22, 1989 on Form 10-K for the fiscal year
ended December 31, 1992.
10.24 1993 Amendment to Management Incorporated by reference to Exhibit
Agreement with Richard A. 10.22 to the Company's Annual Report
Snyder dated December 10, 1993 on Form 10-K for the fiscal year
ended December 31, 1993.
10.25 Management Agreement with Incorporated by reference to Exhibit
William R. Strang dated 10.23 to the Company's Annual Report
December 10, 1993 on Form 10-K for the fiscal year
ended December 31, 1993.
10.26 Asset Purchase Agreement dated Incorporated by reference to Exhibit
January 27, 1994, between 2.1 to the Company's Current Report
Tennant Company, Castex on Form 8-K dated February 15, 1994.
Industries, Inc., Wayne
Investment Corp. and Wayne A.
Streuer
13.1 Portions of 1996 Annual Report Filed herewith electronically.
to Shareholders
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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' Report Filed herewith electronically.
and Consent
27.1 Financial Data Schedule Filed herewith electronically.
B. Reports on Form 8-K
A Form 8-K was filed on November 26, 1996, reporting a Shareholder Rights
Plan and a Dividend Reinvestment Plan.
7
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CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM 10-K REFERENCED LOCATION
- --------- ---------- --------
<S> <C> <C>
Part I, Item 1 - Business 1996 Annual Report to Shareholders Exhibit 13.1
a. General Pages 2, 3, 4, 5, 6, 7, 8, 9, 10,
11 and 13
b. Lines of business, industry segments and Page 24, footnote 3
foreign and domestic operations
c. Working capital practices Pages 16 and 17
d. Product research and development Pages 4, 5, 7, 8, 10 and 13
Page 24, footnote 2
e. Employment Page 30
Part I, Item 2 - Properties 1996 Annual Report to Shareholders Exhibit 13.1
Page 25, footnote 7
Page 26, footnote 9
Inside back cover
Part II, Item 5 - Market for 1996 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 1996 Annual Report to Shareholders Exhibit 13.1
Financial Data Pages 30 and 31
Part II, Item 7 - Management's 1996 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 1996 Annual Report to Shareholders Exhibit 13.1
Statements and Supplementary Pages 18 to 29
Data
Part III, Item 10 - Directors 1997 Proxy Pages 3 to 6
and Executive Officers of the
Registrant
Part III, Item 11 - Executive 1997 Proxy Pages 6 to 13
Compensation
Part III, Item 12 - Security 1997 Proxy Pages 2 and 5
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
by the undersigned, thereunto duly authorized.
TENNANT COMPANY
By /s/ ROGER L. HALE By /s/ WILLIAM A. HODDER
Roger L. Hale, President, William A. Hodder
Chief Executive Officer, Board of Directors
and Board of Directors
Date - March 25, 1997
Date - March 25, 1997
By /s/ DELBERT W. JOHNSON
By /s/ RICHARD A. SNYDER Delbert W. Johnson
Richard A. Snyder Board of Directors
Vice President, Treasurer, and
Chief Financial Officer Date - March 25, 1997
Date - March 25, 1997
By /s/ WILLIAM I. MILLER
William I. Miller
By /s/ MAHEDI A. JIWANI Board of Directors
Mahedi A. Jiwani
Corporate Controller and Date - March 25, 1997
Principal Accounting Officer
Date - March 25, 1997
By /s/ ARTHUR D. COLLINS, JR.
Arthur D. Collins, Jr.
Board of Directors
Date - March 25, 1997
By /s/ DAVID C. COX
David C. Cox
Board of Directors
Date - March 25, 1997
By /s/ ANDREW P. CZAJKOWSKI
Andrew P. Czajkowski
Board of Directors
Date - March 25, 1997
9
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MANAGEMENT AGREEMENT
AGREEMENT entered into as of November 19, 1996, by and between Tennant
Company, a Minnesota corporation (the "Company"), and Steven K. Weeks (the
"Employee").
WITNESSETH:
WHEREAS, the Employee is a key member of the management of the Company and
has heretofore devoted substantial skill and effort to the affairs of the
Company, and the Board of Directors of the Company desires to recognize the
significant personal contribution that the Employee has made to further the best
interests of the Company and its stockholders; and
WHEREAS, it is desirable and in the best interests of the Company and its
stockholders to continue to obtain the benefits of the Employee's services and
attention to the affairs of the Company; and
WHEREAS, it is desirable and in the best interests of the Company and its
stockholders to provide inducement for the Employee (A) to remain in the service
of the Company in the event of any proposed or anticipated change in control of
the Company and (B) to remain in the service of the Company in order to
facilitate an orderly transition in the event of a change in control of the
Company; and
WHEREAS, it is desirable and in the best interests of the Company and its
stockholders that the Employee be in a position to make judgments and advise the
Company with respect to proposed changes in control of the Company without
regard to the possibility that Employee's employment may be terminated without
compensation in the event of certain changes in control of the Company; and
WHEREAS, the Employee desires to be protected in the event of certain
changes in control of the Company; and
WHEREAS, for the reasons set forth above, the Company and the Employee
desire to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, the Company and the Employee agree as follows:
1. EMPLOYMENT. The Employee shall remain in the employ of the Company
for the term of this Agreement (the "Term"), and during the Term, the Employee
shall have such title, duties, responsibilities and authority, and receive such
remuneration and fringe benefits, as the Board of Directors of the Company shall
from time to time provide for the Employee; provided, however, that either the
Employee or the Company may terminate the employment of the Employee at any time
prior to the expiration of the Term, with or without Cause and for any reason
whatever, upon at least 30 days' prior written notice to the other party,
subject to the right of the Employee to receive any payment and other benefits
that may be due pursuant to the terms and conditions of paragraph 2 of this
Agreement.
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2. RIGHTS TO PAYMENT FOLLOWING CHANGE IN CONTROL. For purposes of this
paragraph 2, an "Event" shall be deemed to have occurred if:
A. a majority of the directors of the Company shall be persons other than
persons
(i) for whose election proxies shall have been solicited by the
Board of Directors of the Company or
(ii) who are then serving as directors appointed by the Board of
Directors to fill vacancies on the Board of Directors caused by
death or resignation (but not by removal) or to fill newly
created directorships,
B. 30% or more of the outstanding voting stock of the Company is acquired
or beneficially owned (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended, or any successor rule thereto (the
"Exchange Act")) by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act),
provided, however, that the following acquisitions and beneficial
ownership shall not constitute Events pursuant to this paragraph 2B:
(i) any acquisition or beneficial ownership by the Company or a
subsidiary of the Company or
(ii) any acquisition or beneficial ownership by any employee benefit
plan (or related trust) sponsored or maintained by the Company
or one or more of its subsidiaries,
(iii) any acquisition or beneficial ownership by the Employee or any
group that includes the Employee, or
(iv) any acquisition or beneficial ownership by a parent corporation
or its wholly-owned subsidiaries, as long as they shall remain
wholly-owned subsidiaries, of 100% of the outstanding voting
stock of the Company as a result of a merger or statutory share
exchange which complies with paragraph 2C(i)(2) or the exception
in paragraph 2C(ii) hereof in all respects,
C. the shareholders of the Company approve a definitive agreement or plan
to
(i) merge or consolidate the Company with or into another
corporation (other than (1) a merger or consolidation with a
subsidiary of the Company or (2) a merger in which
(a) the Company is the surviving corporation,
(b) no outstanding voting stock of the Company (other than
fractional shares) held by shareholders immediately prior to
the merger is converted into cash, securities, or other
property (except (I) voting stock of a parent corporation
owning directly, or indirectly through wholly-owned
subsidiaries, both beneficially and of record 100% of the
voting stock of the Company immediately after the merger or
(II) cash upon the exercise by holders of voting stock of
the Company of statutory dissenters' rights),
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(c) the persons who were the beneficial owners, respectively, of
the outstanding common stock and outstanding voting stock of
the Company immediately prior to such merger beneficially
own, directly or indirectly, immediately after the merger,
more than 70% of, respectively, the then outstanding common
stock and the then outstanding voting stock of the surviving
corporation or its parent corporation, and
(d) if voting stock of the parent corporation is exchanged for
voting stock of the Company in the merger, all holders of
any class or series of voting stock of the Company
immediately prior to the merger have the right to receive
substantially the same per share consideration in exchange
for their voting stock of the Company as all other holders
of such class or series),
(ii) exchange, pursuant to a statutory exchange of shares of voting
stock of the Company held by shareholders of the Company
immediately prior to the exchange, shares of one or more classes
or series of voting stock of the Company for cash, securities or
other property, except for (a) voting stock of a parent
corporation of the Company owning directly, or indirectly
through wholly-owned subsidiaries, both beneficially and of
record 100% of the voting stock of the Company immediately after
the statutory share exchange if (I) the persons who were the
beneficial owners, respectively, of the outstanding common stock
and outstanding voting stock of the Company immediately prior to
such statutory share exchange own, directly or indirectly,
immediately after the statutory share exchange more than 70%
of, respectively, the then outstanding common stock and the then
outstanding voting stock of such parent corporation, and (II)
all holders of any class or series of voting stock of the
Company immediately prior to the statutory share exchange have
the right to receive substantially the same per share
consideration in exchange for their voting stock of the Company
as all other holders of such class or series or (b) cash with
respect to fractional shares of voting stock of the Company or
payable as a result of the exercise by holders of voting stock
of the Company of statutory dissenters' rights,
(iii) sell or otherwise dispose of all or substantially all of the
assets of the Company (in one transaction or a series of
transactions), or
(iv) liquidate or dissolve the Company, unless a majority of the
voting stock (or the voting equity interest) of the surviving
corporation or its parent corporation or of any corporation (or
other entity) acquiring all or substantially all of the assets
of the Company (in the case of a merger, consolidation or
disposition of assets) or the Company or its parent corporation
(in the case of a statutory share exchange) is, immediately
following the merger, consolidation, statutory share exchange or
disposition of assets, beneficially owned by the Employee or a
group of persons, including the Employee, acting in concert, or
D. (i) the Company enters into an agreement in principle or a
definitive agreement relating to an Event described in clause A,
B or C above which ultimately results in such an Event described
in clause A, B or C hereof,
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<PAGE>
(ii) a tender or exchange offer or proxy contest is commenced which
ultimately results in an Event described in clause A or B
hereof, or
(iii) there shall be an involuntary termination or Constructive
Involuntary Termination of employment of Employee, and Employee
reasonably demonstrates that such event (x) was requested by a
third party that has previously taken other steps reasonably
calculated to result in an Event described in clause A, B or C
above and which ultimately result in an Event described in
clause A, B or C hereof or (y) otherwise arose in connection
with or in anticipation of an Event described in clause A, B or
C above that ultimately occurs.
If any Event shall occur during the Term of this Agreement, then the Employee
shall be entitled to receive from the Company or its successor (which term as
used herein shall include any person acquiring all or substantially all of the
assets of the Company) a cash payment and other benefits on the following basis
(unless the Employee's employment by the Company is terminated voluntarily or
involuntarily prior to the occurrence of the earliest Event to occur (the "First
Event"), in which case the Employee shall be entitled to no payment or benefits
under this paragraph 2):
(a) If at the time of, or at any time after, the occurrence of the First
Event and prior to the end of the Transition Period, the employment of
the Employee with the Company is voluntarily or involuntarily
terminated for any reason (unless such termination is a voluntary
termination by the Employee other than a Constructive Involuntary
Termination or is on account of the death or Disability of the
Employee or is a termination by the Company for Cause), the Employee
(or the Employee's legal representative, as the case may be), subject
to the limitations set forth in paragraph 2(e),
(i) shall be entitled to receive from the Company or its successor,
upon such termination of employment with the Company or its
successor, a cash payment in an amount equal to A) three times
the average annual compensation payable by the Company and
includible in the gross income for Federal Income Tax purposes
of the Employee during the shorter of the period consisting of
the most recent five completed taxable years of the Employee
ending before the First Event (other than an Event described in
clause D of this paragraph 2 unless the Employee is terminated
prior to the occurrence of an Event described in clause A, B or
C of this paragraph 2) or that portion of such period during
which the Employee was employed by the Company, less B $1.00,
such payment to be made to the Employee by the Company or its
successor in a lump sum at the time of such termination of
employment; and
(ii) shall be entitled until the end of the Transition Period to
participate in any health, disability and life insurance plan or
program in which the Employee was entitled to participate
immediately prior to the First Event as if he or she were an
employee of the Company until the end of the Transition Period
(except, with respect to health insurance coverage, for those
portions remaining until the end of the Transition Period that
duplicate health insurance coverage that is in place for the
Employee under any other policy provided at the expense of
another employer); provided however, that in the event that the
Employee's participation in any such health, disability or life
insurance plan or program is
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barred, the Company, at its sole cost and expense, shall arrange
to provide the Employee with benefits substantially similar to
those which the Employee is entitled to receive under such plan
or program.
(b) The payments provided for in this paragraph 2 shall be in addition to
any salary or other remuneration otherwise payable to the Employee on
account of employment by the Company or one or more of its
subsidiaries or its successor (including any amounts received prior to
such termination of employment for personal services rendered after
the occurrence of the First Event) but shall be reduced by any
severance pay which the Employee receives from the Company, its
subsidiaries or its successor under any other policy or agreement of
the Company in the event of involuntary termination of Employee's
employment.
(c) The Company shall also pay to the Employee all legal fees and expenses
incurred by the Employee as a result of such termination, including,
but not limited to, all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to obtain
or enforce any right or benefit provided by this Agreement.
(d) In the event that at any time from the date of the First Event until
the end of the Transition Period,
(i) the Employee shall not be given substantially equivalent or
greater title, duties, responsibilities and authority or
substantially equivalent or greater salary and other
remuneration and fringe benefits (including paid vacation), in
each case as compared with the Employee's status immediately
prior to the First Event, other than for Cause or on account of
Disability,
(ii) the Company shall have failed to obtain assumption of this
Agreement by any successor as contemplated by paragraph 4(b)
hereof,
(iii) the Company shall require the Employee to relocate to any place
other than a location within twenty-five miles of the location
at which the Employee performed his duties immediately prior to
the First Event or, if the Employee performed such duties at the
Company's principal executive offices, the Company shall
relocate its principal executive offices to any location other
than a location within twenty-five miles of the location of the
principal executive offices immediately prior to the First
Event, or
(iv) the Company shall require that the Employee travel on Company
business to a substantially greater extent than required
immediately prior to the First Event,
a termination of employment with the Company by the Employee thereafter
shall constitute Constructive Involuntary Termination.
(e) Notwithstanding any provision to the contrary contained herein except
the last sentence of this paragraph 2(e), if the lump sum cash payment
due and the other benefits to which the Employee shall become entitled
under paragraph 2(a) hereof, either alone or together with other
payments in the nature of compensation to the Employee which are
contingent on a change in the ownership or effective control of the
Company or in the ownership of a substantial portion of the assets of
the
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<PAGE>
Company or otherwise, would constitute a "parachute payment" as
defined in Section 28OG of the Internal Revenue Code of 1986 (the
"Code") or any successor provision thereto, such lump sum payment
and/or such other benefits and payments shall be reduced (but not
below zero) to the largest aggregate amount as will result in no
portion thereof being subject to the excise tax imposed under Section
4999 of the Code (or any successor provision thereto) or being
non-deductible to the Company for Federal Income Tax purposes pursuant
to Section 28OG of the Code (or any successor provision thereto). The
Employee in good faith shall determine the amount of any reduction to
be made pursuant to this paragraph 2(e) and shall select from among
the foregoing benefits and payments those which shall be reduced. No
modification of, or successor provision to, Section 28OG or Section
4999 subsequent to the date of this Agreement shall, however, reduce
the benefits to which the Employee would be entitled under this
Agreement in the absence of this paragraph 2(e) to a greater extent
than they would have been reduced if Section 28OG and Section 4999 had
not been modified or superseded subsequent to the date of this
Agreement, notwithstanding anything to the contrary provided in the
first sentence of this paragraph 2(e).
(f) The Employee shall not be required to mitigate the amount of any
payment or other benefit provided for in paragraph 2 by seeking other
employment or otherwise, nor (except as specifically provided in
paragraph 2(a)(ii)) shall the amount of any payment or other benefit
provided for in paragraph 2 be reduced by any compensation earned by
the Employee as the result of employment by another employer after
termination, or otherwise.
(g) The obligations of the Company under this paragraph 2 shall survive
the termination of this Agreement.
3. DEFINITION OF CERTAIN TERMS.
(a) As used herein, the term "person" shall mean an individual,
partnership, corporation, estate, trust or other entity.
(b) As used herein, the term "Cause" shall mean, and be limited to, (i)
willful and gross neglect of duties by the Employee or (ii) an act or
acts committed by the Employee constituting a felony and substantially
detrimental to the Company or its reputation.
(c) As used herein, the term "Disability" shall mean the Employee's
absence from his duties with the Company on a full time basis for 180
consecutive business days, as a result of the Employee's incapacity
due to physical or mental illness, unless within 30 days after written
notice pursuant to paragraph 1 hereof is given following such absence,
the Employee shall have returned to the full time performance of his
duties.
(d) As used herein, the term "voting stock" shall mean all outstanding
shares of capital stock entitled to vote generally in the election of
directors, considered for purposes of this Agreement as one class, and
all references to percentages of the voting stock shall be deemed to
be references to percentages of the total voting power of the voting
stock.
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<PAGE>
(e) As used herein, the term "Transition Period" shall mean the three-year
period commencing on the date of the earliest to occur of an Event
described in clause A, B or C of paragraph 2 hereof (the "Commencement
Date") and ending on the third anniversary of the Commencement Date.
4. SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon and inure to the benefit of the
successors, legal representatives and assigns of the parties hereto;
provided, however, that the Employee shall not have any right to
assign, pledge or otherwise dispose of or transfer any interest in
this Agreement or any payments hereunder, whether directly or
indirectly or in whole or in part, without the written consent of the
Company or its successor.
(b) The Company will require any successor (whether direct or indirect, by
purchase of a majority of the outstanding voting stock of the Company
or all or substantially all of the assets of the Company, or by
merger, consolidation or otherwise), by agreement in form and
substance satisfactory to the Employee, to assume expressly and agree
to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such agreement
prior to the effectiveness of any such succession (other than in the
case of a merger or consolidation) shall be a breach of this Agreement
and shall entitle the Employee to compensation from the Company in the
same amount and on the same terms as the Employee would be entitled
hereunder if the Employee terminated his employment on account of a
Constructive Involuntary Termination, except that for purposes of
implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the date of termination. As used in
this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid
which is required to execute and deliver the agreement provided for in
this paragraph 4(b) or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
5. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of Minnesota.
6. NOTICES. All notices, requests and demands given to or made pursuant
hereto shall be in writing and shall be delivered or mailed to any such party at
its address which:
(a) In the case of the Company shall be:
Tennant Company
701 N. Lilac Drive
Minneapolis, Minnesota 55440
Attention: Chief Executive Officer
(b) In the case of the Employee shall be:
Steven K. Weeks
3905 Lancaster Lane
Plymouth, MN 55441
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<PAGE>
Either party may, by notice hereunder, designate a changed address. Any notice,
if mailed properly addressed, postage prepaid, registered or certified mail,
shall be deemed to have been given on the registered date or that date stamped
on the certified mail receipt.
7. SEVERABILITY; SEVERANCE. In the event that any portion of this
Agreement is held to be invalid or unenforceable for any reason, it is hereby
agreed that such invalidity or unenforceability shall not affect the other
portions of this Agreement and that the remaining covenants, terms and
conditions or portions hereof shall remain in full force and effect, and any
court of competent jurisdiction may so modify the objectionable provision as to
make it valid, reasonable and enforceable. In the event that any benefits to
the Employee provided in this Agreement are held to be unavailable to the
Employee as a matter of law, the Employee shall be entitled to severance
benefits from the Employer, in the event of an involuntary termination or
Constructive Involuntary Termination of employment of the Employee (other than a
termination on account of the death or Disability of the Employee or a
termination for Cause) during the term of this Agreement occurring at the time
of or following the occurrence of an Event, at least as favorable to the
Employee (when taken together with the benefits under this Agreement that are
actually received by the Employee) as the most advantageous benefits made
available by the Employer to employees of comparable position and seniority to
the Employee during the five-year period prior to the First Event.
8. TERM. This Agreement shall commence on the date of this Agreement and
shall terminate, and the Term of this Agreement shall end, on the later of (A)
December 31, 1998, provided that such period shall be automatically extended for
one year and from year to year thereafter until notice of termination is given
by the Employer or the Employee to the other party hereto at least 60 days prior
to December 31, 1998 or the one-year extension period then in effect, as the
case may be, or (B) if the Commencement Date occurs prior to December 31, 1998
(or prior to the end of the extension year then in effect as provided for in
clause (A) hereof), the third anniversary of the Commencement Date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TENNANT COMPANY
By /s/ Janet Dolan
---------------------
/s/ Steven K. Weeks
------------------------
Steven K. Weeks
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<PAGE>
MANAGEMENT AGREEMENT
AGREEMENT entered into as of November 19, 1996, by and between Tennant
Company, a Minnesota corporation (the "Company"), and Tom Vander Bie (the
"Employee").
WITNESSETH:
WHEREAS, the Employee is a key member of the management of the Company and
has heretofore devoted substantial skill and effort to the affairs of the
Company, and the Board of Directors of the Company desires to recognize the
significant personal contribution that the Employee has made to further the best
interests of the Company and its stockholders; and
WHEREAS, it is desirable and in the best interests of the Company and its
stockholders to continue to obtain the benefits of the Employee's services and
attention to the affairs of the Company; and
WHEREAS, it is desirable and in the best interests of the Company and its
stockholders to provide inducement for the Employee (A) to remain in the service
of the Company in the event of any proposed or anticipated change in control of
the Company and (B) to remain in the service of the Company in order to
facilitate an orderly transition in the event of a change in control of the
Company; and
WHEREAS, it is desirable and in the best interests of the Company and its
stockholders that the Employee be in a position to make judgments and advise the
Company with respect to proposed changes in control of the Company without
regard to the possibility that Employee's employment may be terminated without
compensation in the event of certain changes in control of the Company; and
WHEREAS, the Employee desires to be protected in the event of certain
changes in control of the Company; and
WHEREAS, for the reasons set forth above, the Company and the Employee
desire to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, the Company and the Employee agree as follows:
1. EMPLOYMENT. The Employee shall remain in the employ of the Company for
the term of this Agreement (the "Term"), and during the Term, the Employee shall
have such title, duties, responsibilities and authority, and receive such
remuneration and fringe benefits, as the Board of Directors of the Company shall
from time to time provide for the Employee; provided, however, that either the
Employee or the Company may terminate the employment of the Employee at any time
prior to the expiration of the Term, with or without Cause and for any reason
whatever, upon at least 30 days' prior written notice to the other party,
subject to the right of the Employee to receive any payment and other benefits
that may be due pursuant to the terms and conditions of paragraph 2 of this
Agreement.
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<PAGE>
2. RIGHTS TO PAYMENT FOLLOWING CHANGE IN CONTROL. For purposes of this
paragraph 2, an "Event" shall be deemed to have occurred if:
A. a majority of the directors of the Company shall be persons other than
persons
(i) for whose election proxies shall have been solicited by the
Board of Directors of the Company or
(ii) who are then serving as directors appointed by the Board of
Directors to fill vacancies on the Board of Directors caused by
death or resignation (but not by removal) or to fill newly
created directorships,
B. 30% or more of the outstanding voting stock of the Company is acquired
or beneficially owned (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended, or any successor rule thereto (the
"Exchange Act")) by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act),
provided, however, that the following acquisitions and beneficial
ownership shall not constitute Events pursuant to this paragraph 2B:
(i) any acquisition or beneficial ownership by the Company or a
subsidiary of the Company or
(ii) any acquisition or beneficial ownership by any employee benefit
plan (or related trust) sponsored or maintained by the Company
or one or more of its subsidiaries,
(iii) any acquisition or beneficial ownership by the Employee or any
group that includes the Employee, or
(iv) any acquisition or beneficial ownership by a parent corporation
or its wholly-owned subsidiaries, as long as they shall remain
wholly-owned subsidiaries, of 100% of the outstanding voting
stock of the Company as a result of a merger or statutory share
exchange which complies with paragraph 2C(i)(2) or the exception
in paragraph 2C(ii) hereof in all respects,
C. the shareholders of the Company approve a definitive agreement or plan
to
(i) merge or consolidate the Company with or into another
corporation (other than (1) a merger or consolidation with a
subsidiary of the Company or (2) a merger in which
(a) the Company is the surviving corporation,
(b) no outstanding voting stock of the Company (other than
fractional shares) held by shareholders immediately prior to
the merger is converted into cash, securities, or other
property (except (I) voting stock of a parent corporation
owning directly, or indirectly through wholly-owned
subsidiaries, both beneficially and of record 100% of the
voting stock of the Company immediately after the merger or
(II) cash upon the exercise by holders of voting stock of
the Company of statutory dissenters' rights),
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<PAGE>
(c) the persons who were the beneficial owners, respectively, of the
outstanding common stock and outstanding voting stock of the
Company immediately prior to such merger beneficially own,
directly or indirectly, immediately after the merger, more than
70% of, respectively, the then outstanding common stock and the
then outstanding voting stock of the surviving corporation or
its parent corporation, and
(d) if voting stock of the parent corporation is exchanged for
voting stock of the Company in the merger, all holders of any
class or series of voting stock of the Company immediately prior
to the merger have the right to receive substantially the same
per share consideration in exchange for their voting stock of
the Company as all other holders of such class or series),
(ii) exchange, pursuant to a statutory exchange of shares of voting
stock of the Company held by shareholders of the Company
immediately prior to the exchange, shares of one or more classes
or series of voting stock of the Company for cash, securities or
other property, except for (a) voting stock of a parent
corporation of the Company owning directly, or indirectly
through wholly-owned subsidiaries, both beneficially and of
record 100% of the voting stock of the Company immediately
after the statutory share exchange if (I) the persons who were
the beneficial owners, respectively, of the outstanding common
stock and outstanding voting stock of the Company immediately
prior to such statutory share exchange own, directly or
indirectly, immediately after the statutory share exchange more
than 70% of, respectively, the then outstanding common stock and
the then outstanding voting stock of such parent corporation,
and (II) all holders of any class or series of voting stock of
the Company immediately prior to the statutory share exchange
have the right to receive substantially the same per share
consideration in exchange for their voting stock of the Company
as all other holders of such class or series or (b) cash with
respect to fractional shares of voting stock of the Company or
payable as a result of the exercise by holders of voting stock
of the Company of statutory dissenters' rights,
(iii) sell or otherwise dispose of all or substantially all of the
assets of the Company (in one transaction or a series of
transactions), or
(iv) liquidate or dissolve the Company, unless a majority of the
voting stock (or the voting equity interest) of the surviving
corporation or its parent corporation or of any corporation (or
other entity) acquiring all or substantially all of the assets
of the Company (in the case of a merger, consolidation or
disposition of assets) or the Company or its parent corporation
(in the case of a statutory share exchange) is, immediately
following the merger, consolidation, statutory share exchange or
disposition of assets, beneficially owned by the Employee or a
group of persons, including the Employee, acting in concert, or
D. (i) the Company enters into an agreement in principle or a
definitive agreement relating to an Event described in clause A,
B or C above which ultimately results in such an Event described
in clause A, B or C hereof,
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<PAGE>
(ii) a tender or exchange offer or proxy contest is commenced which
ultimately results in an Event described in clause A or B
hereof, or
(iii) there shall be an involuntary termination or Constructive
Involuntary Termination of employment of Employee, and Employee
reasonably demonstrates that such event (x) was requested by a
third party that has previously taken other steps reasonably
calculated to result in an Event described in clause A, B or C
above and which ultimately result in an Event described in
clause A, B or C hereof or (y) otherwise arose in connection
with or in anticipation of an Event described in clause A, B or
C above that ultimately occurs.
If any Event shall occur during the Term of this Agreement, then the Employee
shall be entitled to receive from the Company or its successor (which term as
used herein shall include any person acquiring all or substantially all of the
assets of the Company) a cash payment and other benefits on the following basis
(unless the Employee's employment by the Company is terminated voluntarily or
involuntarily prior to the occurrence of the earliest Event to occur (the "First
Event"), in which case the Employee shall be entitled to no payment or benefits
under this paragraph 2):
(a) If at the time of, or at any time after, the occurrence of the First
Event and prior to the end of the Transition Period, the employment of
the Employee with the Company is voluntarily or involuntarily
terminated for any reason (unless such termination is a voluntary
termination by the Employee other than a Constructive Involuntary
Termination or is on account of the death or Disability of the
Employee or is a termination by the Company for Cause), the Employee
(or the Employee's legal representative, as the case may be), subject
to the limitations set forth in paragraph 2(e),
(i) shall be entitled to receive from the Company or its successor,
upon such termination of employment with the Company or its
successor, a cash payment in an amount equal to A) three times
the average annual compensation payable by the Company and
includible in the gross income for Federal Income Tax purposes
of the Employee during the shorter of the period consisting of
the most recent five completed taxable years of the Employee
ending before the First Event (other than an Event described in
clause D of this paragraph 2 unless the Employee is terminated
prior to the occurrence of an Event described in clause A, B or
C of this paragraph 2) or that portion of such period during
which the Employee was employed by the Company, less B $1.00,
such payment to be made to the Employee by the Company or its
successor in a lump sum at the time of such termination of
employment; and
(ii) shall be entitled until the end of the Transition Period to
participate in any health, disability and life insurance plan or
program in which the Employee was entitled to participate
immediately prior to the First Event as if he or she were an
employee of the Company until the end of the Transition Period
(except, with respect to health insurance coverage, for those
portions remaining until the end of the Transition Period that
duplicate health insurance coverage that is in place for the
Employee under any other policy provided at the expense of
another employer); provided however, that in the event that the
Employee's participation in any such health, disability or life
insurance plan or program is
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<PAGE>
barred, the Company, at its sole cost and expense, shall arrange
to provide the Employee with benefits substantially similar to
those which the Employee is entitled to receive under such plan
or program.
(b) The payments provided for in this paragraph 2 shall be in addition to
any salary or other remuneration otherwise payable to the Employee on
account of employment by the Company or one or more of its
subsidiaries or its successor (including any amounts received prior to
such termination of employment for personal services rendered after
the occurrence of the First Event) but shall be reduced by any
severance pay which the Employee receives from the Company, its
subsidiaries or its successor under any other policy or agreement of
the Company in the event of involuntary termination of Employee's
employment.
(c) The Company shall also pay to the Employee all legal fees and expenses
incurred by the Employee as a result of such termination, including,
but not limited to, all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to obtain
or enforce any right or benefit provided by this Agreement.
(d) In the event that at any time from the date of the First Event until
the end of the Transition Period,
(i) the Employee shall not be given substantially equivalent or
greater title, duties, responsibilities and authority or
substantially equivalent or greater salary and other
remuneration and fringe benefits (including paid vacation), in
each case as compared with the Employee's status immediately
prior to the First Event, other than for Cause or on account of
Disability,
(ii) the Company shall have failed to obtain assumption of this
Agreement by any successor as contemplated by paragraph 4(b)
hereof,
(iii) the Company shall require the Employee to relocate to any place
other than a location within twenty-five miles of the location
at which the Employee performed his duties immediately prior to
the First Event or, if the Employee performed such duties at the
Company's principal executive offices, the Company shall
relocate its principal executive offices to any location other
than a location within twenty-five miles of the location of the
principal executive offices immediately prior to the First
Event, or
(iv) the Company shall require that the Employee travel on Company
business to a substantially greater extent than required
immediately prior to the First Event,
a termination of employment with the Company by the Employee thereafter shall
constitute Constructive Involuntary Termination.
(e) Notwithstanding any provision to the contrary contained herein except
the last sentence of this paragraph 2(e), if the lump sum cash payment
due and the other benefits to which the Employee shall become entitled
under paragraph 2(a) hereof, either alone or together with other
payments in the nature of compensation to the Employee which are
contingent on a change in the ownership or effective control of the
Company or in the ownership of a substantial portion of the assets of
the
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<PAGE>
Company or otherwise, would constitute a "parachute payment" as
defined in Section 28OG of the Internal Revenue Code of 1986 (the
"Code") or any successor provision thereto, such lump sum payment
and/or such other benefits and payments shall be reduced (but not
below zero) to the largest aggregate amount as will result in no
portion thereof being subject to the excise tax imposed under Section
4999 of the Code (or any successor provision thereto) or being
non-deductible to the Company for Federal Income Tax purposes pursuant
to Section 28OG of the Code (or any successor provision thereto). The
Employee in good faith shall determine the amount of any reduction to
be made pursuant to this paragraph 2(e) and shall select from among
the foregoing benefits and payments those which shall be reduced. No
modification of, or successor provision to, Section 28OG or Section
4999 subsequent to the date of this Agreement shall, however, reduce
the benefits to which the Employee would be entitled under this
Agreement in the absence of this paragraph 2(e) to a greater extent
than they would have been reduced if Section 28OG and Section 4999 had
not been modified or superseded subsequent to the date of this
Agreement, notwithstanding anything to the contrary provided in the
first sentence of this paragraph 2(e).
(f) The Employee shall not be required to mitigate the amount of any
payment or other benefit provided for in paragraph 2 by seeking other
employment or otherwise, nor (except as specifically provided in
paragraph 2(a)(ii)) shall the amount of any payment or other benefit
provided for in paragraph 2 be reduced by any compensation earned by
the Employee as the result of employment by another employer after
termination, or otherwise.
(g) The obligations of the Company under this paragraph 2 shall survive
the termination of this Agreement.
3. DEFINITION OF CERTAIN TERMS.
(a) As used herein, the term "person" shall mean an individual,
partnership, corporation, estate, trust or other entity.
(b) As used herein, the term "Cause" shall mean, and be limited to, (i)
willful and gross neglect of duties by the Employee or (ii) an act or
acts committed by the Employee constituting a felony and substantially
detrimental to the Company or its reputation.
(c) As used herein, the term "Disability" shall mean the Employee's
absence from his duties with the Company on a full time basis for 180
consecutive business days, as a result of the Employee's incapacity
due to physical or mental illness, unless within 30 days after written
notice pursuant to paragraph 1 hereof is given following such absence,
the Employee shall have returned to the full time performance of his
duties.
(d) As used herein, the term "voting stock" shall mean all outstanding
shares of capital stock entitled to vote generally in the election of
directors, considered for purposes of this Agreement as one class, and
all references to percentages of the voting stock shall be deemed to
be references to percentages of the total voting power of the voting
stock.
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<PAGE>
(e) As used herein, the term "Transition Period" shall mean the three-year
period commencing on the date of the earliest to occur of an Event
described in clause A, B or C of paragraph 2 hereof (the "Commencement
Date") and ending on the third anniversary of the Commencement Date.
4. SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon and inure to the benefit of the
successors, legal representatives and assigns of the parties hereto;
provided, however, that the Employee shall not have any right to
assign, pledge or otherwise dispose of or transfer any interest in
this Agreement or any payments hereunder, whether directly or
indirectly or in whole or in part, without the written consent of the
Company or its successor.
(b) The Company will require any successor (whether direct or indirect, by
purchase of a majority of the outstanding voting stock of the Company
or all or substantially all of the assets of the Company, or by
merger, consolidation or otherwise), by agreement in form and
substance satisfactory to the Employee, to assume expressly and agree
to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such agreement
prior to the effectiveness of any such succession (other than in the
case of a merger or consolidation) shall be a breach of this Agreement
and shall entitle the Employee to compensation from the Company in the
same amount and on the same terms as the Employee would be entitled
hereunder if the Employee terminated his employment on account of a
Constructive Involuntary Termination, except that for purposes of
implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the date of termination. As used in
this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid
which is required to execute and deliver the agreement provided for in
this paragraph 4(b) or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
5. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of Minnesota.
6. NOTICES. All notices, requests and demands given to or made pursuant
hereto shall be in writing and shall be delivered or mailed to any such party at
its address which:
(a) In the case of the Company shall be:
Tennant Company
701 N. Lilac Drive
Minneapolis, Minnesota 55440
Attention: Chief Executive Officer
(b) In the case of the Employee shall be:
Tom Vander Bie
5477 - 72nd Avenue
Hudsonville, MI 49426
-7-
<PAGE>
Either party may, by notice hereunder, designate a changed address. Any notice,
if mailed property addressed, postage prepaid, registered or certified mail,
shall be deemed to have been given on the registered date or that date stamped
on the certified mail receipt.
7. SEVERABILITY: SEVERANCE. In the event that any portion of this
Agreement is held to be invalid or unenforceable for any reason, it is hereby
agreed that such invalidity or unenforceability shall not affect the other
portions of this Agreement and that the remaining covenants, terms and
conditions or portions hereof shall remain in full force and effect, and any
court of competent jurisdiction may so modify the objectionable provision as to
make it valid, reasonable and enforceable. In the event that any benefits to
the Employee provided in this Agreement are held to be unavailable to the
Employee as a matter of law, the Employee shall be entitled to severance
benefits from the Employer, in the event of an involuntary termination or
Constructive Involuntary Termination of employment of the Employee (other than a
termination on account of the death or Disability of the Employee or a
termination for Cause) during the term of this Agreement occurring at the time
of or following the occurrence of an Event, at least as favorable to the
Employee (when taken together with the benefits under this Agreement that are
actually received by the Employee) as the most advantageous benefits made
available by the Employer to employees of comparable position and seniority to
the Employee during the five-year period prior to the First Event.
8. TERM. This Agreement shall commence on the date of this Agreement and
shall terminate, and the Term of this Agreement shall end, on the later of (A)
December 31, 1998, provided that such period shall be automatically extended for
one year and from year to year thereafter until notice of termination is given
by the Employer or the Employee to the other party hereto at least 60 days prior
to December 31, 1998 or the one-year extension period then in effect, as the
case may be, or (B) if the Commencement Date occurs prior to December 31, 1998
(or prior to the end of the extension year then in effect as provided for in
clause (A) hereof), the third anniversary of the Commencement Date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TENNANT COMPANY
By /s/Janet Dolan 12/16/96
----------------------------
/s/ Tom Vander Bie
----------------------------
Tom Vander Bie
-8-
<PAGE>
TO OUR SHAREHOLDERS
1996 was a year of successes and disappointments at Tennant. On the positive
side, we gained share in commercial floor maintenance equipment markets,
continued an accelerated pace of new product introductions, and achieved our
third consecutive year of record sales and earnings. However, we experienced a
lower operating margin and return on equity even though fourth quarter results
were up sharply from the prior year.
Net earnings for 1996 of $21.0 million, or $2.10 per share, were up 7% from
the prior year's $19.7 million, or $1.98 per share. The primary reasons for the
increase in earnings were higher sales, a relatively low rate of growth for
expenses, and an increase in Other Income. A generally stronger dollar reduced
earnings by an estimated $0.6 million, or 6 cents per share, and sales by $3.3
million.
Net sales of $344.4 million were up 6% from 1995. While the stronger dollar
was partially responsible for this relatively low growth rate, other causes
included nearly flat orders for floor coatings products after several years of
strong growth, and somewhat weaker-than-expected orders for industrial floor
maintenance machines in North America. On the other hand, orders for commercial
products in general, and industrial products in several key international
markets, were up in the double-digit range.
Return on beginning shareholders' equity declined to 18.4% from 20.4% for the
prior year and profit from operations increased 5% to $31.6 million, resulting
in an operating margin of 9.2% versus 9.3% a year ago. The change in operating
margin was due to a decline in gross margin caused by the stronger dollar, a
change in the sales mix to lower margin products and market segments, and
inefficiencies in our European manufacturing operations. We were able to offset
most of the gross margin decline with expense control measures, which held the
growth in selling and administrative expenses to less than inflation.
FINANCIAL CONDITION STRENGTHENED
Tennant's financial condition strengthened during 1996, due to the earnings
gain and improved working capital. Excluding cash and short-term debt, working
capital declined by $4 million, primarily as a result of efforts to reduce
inventory levels that built up toward the end of 1995. The resulting cash flow
allowed for a debt reduction to $26 million, or 17% of capital, from $40 million
for the prior year, and a cash balance increase of $6 million.
STRATEGIC CHANGE
Tennant's strategic vision, "to work for a cleaner and safer world," and
mission, "to be the preeminent company in nonresidential floor maintenance
equipment, floor coatings, and related offerings," remain unchanged. However,
the environment we do business in is changing and at an accelerating pace:
- - Customers are seeking greater value. This is triggering a consolidation of
suppliers and demand for more services, and a move toward outsourcing of
activities such as facilities cleaning.
- - Distribution is changing, especially in the commercial equipment market,
where there is consolidation among independent distributors and new forms
of distribution are being introduced.
A common theme underlying these changes is the growing use of information
technology, both by suppliers of products and services and their customers.
Technology is providing more and better information, is reducing the cost of
doing business, and is providing customers with more choices and better service.
We continue to believe Tennant can take advantage of this changing
environment:
- - Our industrial floor maintenance equipment business has an exceptionally
strong global franchise with high market share, good profitability, and
strong cash flow.
- - Our floor coatings business has demonstrated marketing and sales synergies
with the industrial equipment business, is quite profitable in its North
American market, and has international growth potential.
- - Our commercial floor maintenance equipment business has propelled itself to
a solid number three position in the North American market. It
2
<PAGE>
has the potential to gain further share here and also to become a
significant competitor in the international market. With these three lines
of business, we see excellent opportunities for synergy and leverage.
While we have the basic building blocks in place, we must make some
important strategic changes:
- - Move from an organization that has a product orientation to one with more
of a market/customer orientation. Responsibility for implementing this
change has been assigned to Janet M. Dolan, who was named Executive Vice
President for North American Operations in September 1996. We believe a
more focused market/customer strategy will allow us to better leverage our
marketplace strengths; for our global industrial equipment business--direct
sales and service organizations in eight countries and full-service
distributors in 45 others; and, for our North American commercial equipment
and floor coatings businesses--broad-based distributor and contractor
networks.
- - Install as rapidly as possible a company-wide "enterprise" computer
hardware and software system which will link all of our operations and
customer information. This will allow us to establish customer service as
a global competitive advantage, provide an information systems foundation
to better support our growth strategies, and allow us to do business more
efficiently and
[PHOTO OF TENNANT COMPANY PRESIDENT]
effectively. Our implementation efforts began in 1995 and
will continue for the next several years.
In summary, we are in an excellent business: the world wants to be cleaner
and safer, and no one in our industry is in a better position to seize the
initiative and serve customers as well. We believe our new approach to the
markets will build on our existing strengths and will help us to do a better job
for customers at the end-user, distributor, and contractor levels.
SCHULZE RETIRES; RUSSELL JOINS BOARD
Arthur R. Schulze, Jr., who has been a board member since 1982, retired in
1996. His marketing expertise and general business knowledge were very helpful
during his tenure. Our newest director is Edwin L. Russell, Chairman, President,
CEO, Minnesota Power. We are pleased to have his advice and counsel.
OUTLOOK FOR A MORE PROFITABLE 1997
The year began with low backlogs and a dollar that was continuing to
strengthen. While this puts some pressure on first quarter results, we are
optimistic about prospects for the full year. In particular, we expect to
produce stronger order growth than in 1996. This belief is based on the
generally favorable economic forecasts for North America and most international
markets, and the considerable number of new and updated products already in our
line or planned for 1997. In addition, we are focused on improving our operating
margin. As a result, we believe Tennant can report higher sales and earnings for
1997.
/s/Roger L. Hale
Roger L. Hale
President, Chief Executive Officer
March 24, 1997
3
<PAGE>
TENNANT AT A GLANCE
Our vision is to work for a cleaner and safer world. We believe the strength
that comes from broad product lines, global sales and service networks, and
customer partnerships will allow Tennant to achieve its strategic mission:
- - To be the preeminent company in nonresidential floor maintenance equipment,
floor coatings, and related offerings.
- - To create value for shareholders by providing an above-average total
return.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PRODUCT LINES PRODUCTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INDUSTRIAL
FLOOR MAINTENANCE [PHOTO OF INDUSTRIAL FLOOR MAINTENANCE EQUIPMENT]
EQUIPMENT
- -------------------------------------------------------------------------------
COMMERCIAL
FLOOR MAINTENANCE [PHOTO OF COMMERCIAL FLOOR MAINTENANCE EQUIPMENT]
EQUIPMENT
- -------------------------------------------------------------------------------
FLOOR COATINGS [PHOTO OF FACTORY FLOOR]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PRODUCT LINES PRODUCTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Products to clean surfaces with vehicle
and heavy foot traffic such as:
INDUSTRIAL - factories, warehouses, stadiums,
FLOOR MAINTENANCE airport hangars, parking garages,
EQUIPMENT and outside areas.
- sweepers and scrubbers:
- walk-behinds
- indoor riders
- outdoor vehicles
- -------------------------------------------------------------------------------
Products to clean surfaces with foot traffic such as:
COMMERCIAL - office buildings, super-markets, retail outlets,
FLOOR MAINTENANCE airport terminals, and hospitals.
EQUIPMENT - walk-behind scrubbers and sweepers, carpet
extractors, burnishers, buffers, polishers, and
other specialized equipment.
- -------------------------------------------------------------------------------
Products that treat, repair, and upgrade concrete and
FLOOR COATINGS wood floors. Specialty products are available for
areas with chemical exposure or odor-sensitivity.
Generally used in industrial settings such as
factories and warehouses. Applied by customer or
authorized contractor.
- -------------------------------------------------------------------------------
4
<PAGE>
[PIE CHART]
Pie chart showing breakdown of 1996 sales into Europe (17%), World Export (10%),
and North America Sales (73%). North America Sales are broken out further into
Commercial (19%), Industrial (48%), and Floor 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%).
1996 SALES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
PRODUCT LINES MARKETS
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C>
World market for equipment and aftermarket estimated at $750 million.
INDUSTRIAL
FLOOR MAINTENANCE Market share greater than 50% in segments such as manufacturing, warehousing,
EQUIPMENT distribution, and government.
- ---------------------------------------------------------------------------------------------------------
World market for equipment and aftermarket estimated at $2 billion.
COMMERCIAL
FLOOR MAINTENANCE Sold under Castex, Nobles, Eagle, and Tennant brand names, depending on the
EQUIPMENT product and geographic area.
Among the leaders in North America; small but rapidly growing internationally.
- ---------------------------------------------------------------------------------------------------------
North American market for industrial sealers, resurfacers, and coatings
FLOOR COATINGS estimated at $150 million, excluding application labor.
Market share estimated at about one-sixth of total market, but higher in
coatings segment.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
PRODUCT LINES SALES/SERVICE
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Direct sales/service in the United States, Australia, Canada, France, Germany,
INDUSTRIAL The Netherlands, Spain, and the United Kingdom.
FLOOR MAINTENANCE
EQUIPMENT Well-established, full-service distributor network in 45 other countries
including Japan and most countries in Europe not served directly.
- ---------------------------------------------------------------------------------------------------------
COMMERCIAL Broad geographic coverage in North America through a full-service distributor
FLOOR MAINTENANCE network.
EQUIPMENT
Expanding full-service distributor network internationally.
- ---------------------------------------------------------------------------------------------------------
Sold by Tennant's direct sales force in North America as a complementary product
to industrial floor maintenance equipment.
FLOOR COATINGS
Also sold by Tennant's independent contractor network.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
PRODUCT LINES COMPETITIVE STRENGTHS
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
<S> <C>
Market leadership worldwide.
INDUSTRIAL Broadest line of quality products resulting from industry-leading commitment to
FLOOR MAINTENANCE engineering.
EQUIPMENT
Strong sales/service support on a worldwide basis.
Manufacturing facilities in the United States and Europe.
- -------------------------------------------------------------------------------------------------------
Strong position in North American market.
COMMERCIAL
FLOOR MAINTENANCE Complete line of quality products with a history of innovation.
EQUIPMENT
Reputation for providing a high level of support to distributors.
- -------------------------------------------------------------------------------------------------------
FLOOR COATINGS Broad line of coatings, sealers, and resurfacers including an 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.
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
PRODUCT LINES GROWTH STRATEGIES
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
<S> <C>
Emphasize customer partnerships and high levels of support and service.
INDUSTRIAL Maintain product leadership--regular introductions of new and updated products.
FLOOR MAINTENANCE
EQUIPMENT Focus on nontraditional and emerging market segments.
- -------------------------------------------------------------------------------------------------------
COMMERCIAL Emphasize customer partnerships and high levels of support and service.
FLOOR MAINTENANCE
EQUIPMENT Maintain product leadership with a continued focus on innovation.
Improve market share domestically and expand rapidly internationally.
- -------------------------------------------------------------------------------------------------------
FLOOR COATINGS Emphasize customer partnerships and high levels of support and service.
Maintain product leadership with emphasis on Eco-Coatings-TM- line.
Expand network of authorized contractors.
- -------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
INDUSTRIAL FLOOR MAINTENANCE EQUIPMENT
[BAR GRAPH]
Industrial Equipment Sales
Industrial Sales in Millions
Year North America Overseas Total
---- ------------- -------- -----
1990 120 58 178
1991 112 58 170
1992 120 63 183
1993 130 60 190
1994 147 64 211
1995 158 79 237
1996 166 82 248
MAINTAINING MARKET LEADERSHIP
The annual worldwide market for industrial floor cleaning equipment is
estimated at $750 million with a unit growth rate of 3-4%. North America, while
it accounts for about one-half of sales, also is the most mature market with
unit growth somewhat below the global average. European and Asian markets, which
make up the bulk of the second half of the market, are growing at a somewhat
above-average rate. Two international trends are promoting growth: more
companies are discovering that quality and productivity improvements begin with
a clean floor, and more countries are becoming prosperous enough to want to
provide cleaner, safer environments.
Tennant is the worldwide leader in industrial equipment--roughly three times
the size of its nearest competitors. We command a better than 50% share of a
number of North American market segments including government, manufacturing,
transportation and warehousing/distribution. Internationally, our market share,
which varies by country, is generally quite high for the larger, more heavy-duty
products.
"THERE ARE THREE THINGS THAT MAKE TENNANT EQUIPMENT STAND OUT ABOVE THE
REST. FIRST, THERE'S THE EASE IN LEARNING TO USE THE EQUIPMENT. SECONDLY, THE
MACHINES ARE BUILT FOR WHAT WE ARE TRYING TO ACCOMPLISH: NAMELY, MAKING SPORTS
STADIUMS CLEANER AND SAFER. FINALLY, FROM THE SALES REPS TO THE SERVICE REPS,
TENNANT PERSONNEL ARE VERY EXPERIENCED AND KNOWLEDGEABLE--ALWAYS AT THE READY."
MR. MICHAEL GODOY
Spectacor Management Group
Operations Supervisor,
Jacksonville Municipal Stadium
(Gator Bowl)
[PHOTO OF MR. MICHAEL GODOY]
LARGE PRODUCT LINE SOLD AND SERVICED BY UNIQUE NETWORK
Tennant offers the widest line of industrial equipment available. Our
equipment generally is used to clean areas with vehicle or heavy foot traffic,
including factories, parking garages, outdoor areas and stadiums. We offer
small, mid-sized and large units:
- - SWEEPERS remove wet or dry debris and control dust during this process.
- - SCRUBBERS use cleaning solution, scrub the surface, then remove the
cleaning solution--all in one pass.
- - COMBINATION SWEEPER/SCRUBBERS simultaneously perform as both a sweeper and
scrubber--all in one pass.
These products are priced from $7,500 for walk-behind units to $85,000 for
our largest outdoor sweeper. Our products carry the longest and strongest
warranties in the industry. Tennant manufactures in two locations: at our
headquarters in Minneapolis, Minnesota, which makes the complete line, and in
Uden, The Netherlands, which manufactures the small- to
[PHOTO OF TENNANT EQUIPMENT IN USE]
6
<PAGE>
medium-sized products we sell in Europe. Both facilities are ISO 9001 quality
certified.
Tennant is the only company in this industry with a large direct sales and
service force. The effectiveness of this approach is clear: 85% of industrial
sales are made in the eight countries with direct sales and service. These are
Australia, Canada, France, Germany, The Netherlands, Spain, the United Kingdom,
and the U.S. In addition, we have a full-service distributor network in 45 other
countries, including Japan.
This network also helps us generate strong aftermarket sales of brushes,
supplies, replacement parts and service labor. As a result, aftermarket revenues
account for about one-third of industrial equipment sales.
NEW PRODUCTS HIGHLY SUCCESSFUL
For many years, Tennant has had an industry leading commitment to product
research and development. In the early 1990s, we reaffirmed the importance of
that commitment as a key ingredient in maintaining our strong market share and
achieving future growth. We also resolved to both increase the number of new
products being introduced each year, and to do so more efficiently.
[PHOTO OF TENNANT MODEL 6400]
"IN OUR EFFORTS TO ATTAIN QS 9000 APPROVAL (Quality Standards
established by automotive industry), WE ARE RAISING OUR CLEANING AND
SAFETY STANDARDS BY UPGRADING OUR EQUIPMENT. AFTER COMPARING ALL THE
DIFFERENT SWEEPERS OUT THERE, WE DECIDED TO GO WITH TENNANT'S MODEL
6400. I CHOSE THE 6400 BECAUSE OF THE OVERALL QUALITY OF THE MACHINE
AND THE LOW NOISE LEVEL WHICH IS IMPORTANT TO THE SAFETY OF OUR
OPERATORS. WE ALSO CHOSE THE 6400 BECAUSE OF THE GOOD SERVICE
REPUTATION TENNANT HAS IN THE BUSINESS. AGAINST THE COMPETITION,
TENNANT WON OUT."
[PHOTO OF MR. WALT FOOTIT]
MR. WALT FOOTIT
Manufacturing Engineering Manager, Donaldson Company, Inc.
7
<PAGE>
INDUSTRIAL FLOOR MAINTENANCE EQUIPMENT (CONT'D)
[PHOTO OF TENNANT MODEL 830]
"WHAT WE STRIVE FOR IN THE CITY OF BALTIMORE IS TO KEEP OUR
OUTDOOR URBAN ENVIRONMENT AS CLEAN AS POSSIBLE. WHEN WE WERE
LOOKING FOR A GOOD ALLEY SWEEPER, WE WERE LOOKING FOR A MACHINE
THAT WOULD DO A THOROUGH JOB, THAT WOULD SAVE THE CITY MONEY, AND
THAT WAS DURABLE. AFTER COMPARING THE TENNANT MODEL 830 IN TRIAL
RUNS WITH A COMPETITOR, WE FOUND IT MET OUR PRICE AND
SPECIFICATION REQUIREMENTS. WE ARE VERY SATISFIED WITH IT."
[PHOTO OF MR. KURT KOCHER]
MR. KURT KOCHER
Acting Chief of Information Services,
The City of Baltimore.
This endeavor has produced highly successful results:
- - MAJOR NEW PRODUCTS are now being developed in about half the time it
previously took and the number of products introduced each year has nearly
doubled.
- - RESEARCH AND DEVELOPMENT expenditures have been reduced from about 5% of
sales to the low 4% range.
- - More than 80% of 1996 industrial machines sales came from products
introduced during the past five years. In 1996 alone, we begin selling
several major new products including:
- Models 515 scrubber and 515SS sweeper/scrubber providing compact,
battery-powered riding machines for scrubbing in congested areas.
- Model 6400 sweeper with a choice of engines providing a compact riding
machine for sweeping in congested areas.
- Model 7400 scrubber with a choice of engines which updates Tennant's
most popular medium-sized rider scrubber.
Tennant's commitment to product research and development will continue
unabated with several product introductions planned for 1997 and more to follow
in 1998 and beyond.
8
<PAGE>
FLOOR COATINGS
SOLID NORTH AMERICAN MARKET
The market for industrial floor coatings, sealers and resurfacers in North
America is estimated at $150 million in annual sales. These products protect
concrete and wood floors from chemicals and wear; they make maintenance easier;
and they produce a clean, high-quality working environment that improves
employee morale and a company's image.
Tennant holds about a 15% share of the overall market, but has a higher share
of the coatings segment.
COMPLETE FLOOR COATINGS LINE
Tennant has a broad line of products for concrete and wood floors:
- - DURABLE COATINGS for main traffic aisles and loading docks.
- - CHEMICAL-RESISTANT COATINGS for areas with chemical exposure.
- - EPOXY RESURFACERS for damaged floors that need to have their smooth surface
restored.
- - ENVIRONMENTALLY SAFE COATINGS for odor-sensitive applications, such as food
processing facilities. This includes Tennant's unique Eco-Coatings-TM-
line, which combines high durability using little or no solvents.
Tennant develops the formulas for these products and oversees their
production and application.
In 1996, we continued to expand the availability of the Eco-Prep-TM-
process to the independent contractors that apply our coatings for their
customers. Eco-Prep-TM- machines prepare the floor for its new coating by
removing
[PHOTO OF FACTORY FLOOR]
"THIS FLOOR COATING SENDS A MESSAGE THAT WE'RE ON COURSE TO
BECOMING A WORLD-CLASS COMPANY. IT'S MADE THE FACILITY MORE
DISTINCTIVE. IT'S EASIER TO CLEAN AND IT LOOKS BETTER THAN WHEN
IT WAS JUST CONCRETE. PEOPLE NOW TAKE MORE PRIDE IN THEIR
WORKPLACE. THIS, IN TURN, HAS HELPED STEEL PARTS BECOME A BETTER
PLACE TO WORK."
[PHOTO OF MR. ROBERT BEISEL]
MR. ROBERT BEISEL
Facilities Manager, Steel Parts Corporation
[BAR GRAPH]
INDUSTRIAL FLOOR COATINGS SALES
Floor Coating Sales in Millions
Year North America Overseas Total
---- ------------- -------- -----
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
1996 21.5 0.1 21.6
9
<PAGE>
FLOOR COATINGS (CONT'D)
any existing coatings quickly and without using solvents.
Tennant's products are marketed in two ways. First, through our
industrial equipment direct sales force which sells them as part of a
full line of floor care products--a combination unmatched in this
industry. Second, through a qualified nationwide group of independent
contractors who both sell and apply our floor coatings.
STRATEGIES TO EXPAND FLOOR COATINGS
While this business did not perform as well as we would have liked
in terms of growth in 1996, we believe it has very good prospects for
future growth. We will foster its expansion by:
- PRODUCT LEADERSHIP: In 1996, new products included Eco-SLS-TM-, a
proprietary environmentally safe, solid epoxy designed for
applications requiring fast cure in cool-temperature
environments, and 8700, a resurfacer designed for use in areas
with high chemical exposure such as a battery recharging area.
For 1997, several new products for recoating and resurfacing are
planned and we will introduce a new, more-compact version of our
highly successful Eco-Prep-TM- machine.
- LEADING THE INDUSTRY IN SERVICE: Customers have two choices when
using our floor coatings. They can apply the coatings themselves,
assisted with step-by-step directions and toll-free contact with
our technical support staff. They also can use an approved
contractor. These firms have become our partners. We train them
on the use of our products, offer extended-hour technical support
by phone from chemicals experts, and also visit customer sites to
assist as necessary. Contractors then provide information to us
on how our products are doing and assist in developing new ones.
- BENEFITING FROM SYNERGIES WITH TENNANT'S OTHER BUSINESSES: This
operation has an advantage none of our competitors can match: it
carries Tennant's reputation for quality and is linked to a
complete line of products that care for floors after the coating
has been applied. This synergy opens doors for our floor coatings
business.
"THIS IS A REVOLUTIONARY MACHINE. THERE'S NOTHING ELSE THAT DOES WHAT THIS
DOES. WITH THE ECO-PREP-TM- MACHINE WE CAN GO IN AND REMOVE A COATING, PUT DOWN
A THIN-MIL COATING, AND DO IT CHEAPER THAN ALL OUR COMPETITORS. WITH THE GROWING
CONCERN OVER THE ENVIRONMENT, PEOPLE JUST AREN'T GOING TO PUT UP WITH WASTE AND
HAZARDOUS CHEMICALS IN THEIR FACILITIES ANYMORE. THIS MACHINE TAKES CARE OF
THAT. IT'S A REVOLUTION FOR TENNANT."
MR. JAMES ERNST
President and CEO,
Advantage Coating, Inc.
[PHOTO OF MR. JAMES ERNST]
[PHOTO OF TENNANT ECO-PREP MACHINE]
10
<PAGE>
COMMERCIAL FLOOR MAINTENANCE EQUIPMENT
LARGE MARKET WITH GREAT OPPORTUNITIES
Tennant's commercial floor maintenance equipment reaches a huge global market
that we estimate exceeds $2 billion in annual revenues and is growing at the
rate of 4-5% in unit volumes. North America accounts for about 40% of these
sales. A number of trends are triggering this growth: expansion in the service
sector, consumer preference for clean environments, potential liability issues
related to wet or dirty public places, and the drive for higher productivity in
the workplace.
This market has traditionally had low barriers to entry. As a result, there
are about 75 significant competitors around the world today. However, no company
has achieved worldwide leadership--generally speaking, each region has its own
set of companies. Increasing competition is leading to industry consolidation.
Tennant is in a strong position to benefit from this situation. We are among the
six largest companies in the commercial market internationally, and we hold a
top three position in North America.
[PHOTO OF COMMERCIAL EQUIPMENT IN USE]
[PHOTO OF MR. ROD DUMMER]
"WE THINK THE DUAL DISTRIBUTORSHIP PILOT PROGRAM IS OUTSTANDING. (A test
program to leverage distributor/Tennant synergies to increase market
penetration.) IT'S AN EXCELLENT OPPORTUNITY FOR US TO EXPAND OUR EQUIPMENT
BUSINESS AND BUILD RELATIONS WITH SOME OF THE INDUSTRIES WHERE WE HAD NO
BUSINESS BEFORE. WE'VE ONLY BEEN DOING THIS FOR TWO MONTHS NOW AND HAVE ALREADY
SEEN POSITIVE RESULTS. THE TENNANT NAME IS SO WELL-RECOGNIZED AS A QUALITY AND
PERFORMANCE PROVEN LINE, OUR PRODUCT OFFERING IS NOW MORE COMPLETE THAN EVER
BEFORE."
MR. ROD DUMMER
Sales Manager, Dalco Enterprises (Castex Distributor)
[BAR GRAPH]
COMMERCIAL EQUIPMENT SALES
Commercial Sales in Millions
Year North America Overseas Total
---- ------------- -------- -----
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
1996 63.0 12.0 75.0
11
<PAGE>
COMMERCIAL FLOOR MAINTENANCE EQUIPMENT (CONT'D)
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 a complete line of commercial floor
maintenance equipment, with prices that range from $300 for small, upright
vacuum cleaners, to over $7,000 for walk-behind scrubbers:
- - WALK-BEHIND SCRUBBERS remove grease and grime from hard floors, including
surfaces with grouted tile. These machines remove virtually all of the
cleaning solution they apply to the floor, which is critical from the point
of view of avoiding slip-and-fall injuries, and they are easy to operate
and maneuver in tight spaces.
- - CARPET EXTRACTORS clean carpets by applying a cleaning solution, scrubbing,
and then removing the solution along with any dirt and grime.
- - BURNISHERS AND FLOOR MACHINES give scrubbed floors a shiny, high-gloss
look.
- - SWEEPERS AND VACUUMS remove debris or water from virtually any surface,
depending on the model involved.
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, under either the Nobles
or Tennant brand names, depending on the geographic area.
PROGRESS MADE ON GROWTH STRATEGIES
This operation made important progress on its growth strategies in 1996:
- - PRODUCT LEADERSHIP: We stepped up the product development effort which
resulted in the introduction of a number of new products this year
including:
- Models SS2401 and SS2601 walk-behind scrubbers which offer new
features and greater value.
- Explorer and Trooper portable extractors (used for carpet cleaning)
which provide enhanced features.
- Monsoon high-speed floor machine for stripping waxes and grime in
preparation for burnishing.
Several additional new products are planned for introduction in 1997.
- - INTERNATIONAL GROWTH: We increased our overseas sales of commercial
equipment, in local currencies, by 32% in 1996, although off a relatively
small base. The reasons behind this growth include international companies
understanding the advantages of Tennant's broad product line and strong
customer support, and the expansion of our efforts in several markets in
Europe and Asia. We continue to review opportunities for acquisitions or
alliances as a supplement to internal growth to increase our presence
outside North America.
"QUALITY EQUIPMENT, AWARD WINNING SUPPORT, BROAD PRODUCT
LINE, AND MOST IMPORTANTLY, CREDIBLE, WELL-TRAINED LOCAL
REPRESENTATION SUM UP OUR FEELINGS ABOUT OUR BUSINESS PARTNERSHIP
WITH YOUR FINE COMPANY. IT IS ALSO A JOY TO BE ONE STEP AHEAD OF
THE INDUSTRY, THIS DUE TO WHAT WE BELIEVE TO BE A GREAT,
PRACTICAL CORPORATE VISION."
[PHOTO OF MR. JOSEPH M. FRAWLEY]
MR. JOSEPH M. FRAWLEY
Vice President, Hy-Grade Distributors, Inc.
(Castex Distributor)
[PHOTO OF COMMERCIAL EQUIPMENT IN USE]
13
<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
Period Included in Economic Cycle 1996 1991-1996 1987-1990 1982-1990
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Return on Beginning Shareholders'
Equity(c) 18.4 17.2 16.6 14.9
Compound Annual Growth (%)(a):
Sales -- Nominal +6 +9 +9 +8
-- Real(b) +5 +6 +4 +3
Earnings Per Share(c) +6 +8 +13 +5
Cash Dividends Per Share +1 +3 +6 +6
Net Operating Assets -0 +13 +4 +5
Growth Period (From-To) 1995-1996 1990-1996 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 and changes in
foreign currency rates.
(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 1996, net earnings were $21.0 million, or $2.10 per share, up
7% from the prior year. Return on sales was 6.1%, and return on beginning
shareholders' equity was 18.4%. The primary reasons for the earnings gain were
higher sales, a relatively low rate of growth for expenses, and an increase in
Other Income. A generally stronger U.S. dollar reduced earnings by an estimated
$0.6 million, or 6 cents per share.
For 1995, net earnings were $19.7 million, or $1.98 per share (adjusted for
April 1995 stock split; see "Notes to Consolidated Financial Statements," note
15), up 25% from 1994. Return on sales was 6.0%, and return on beginning
shareholders' equity was 20.4%. The earnings gain came from an increase in
sales, a higher gross margin, a lower effective tax rate, and a generally weaker
U.S. dollar that raised earnings by an estimated $0.8 million, or 8 cents per
share.
For 1997, the Company is somewhat cautious in its short-term outlook because
the year started with low backlogs and a continued strengthening of the U.S.
dollar. For the full year, the Company believes it can show higher earnings
based on stronger sales growth and a higher operating margin.
14
<PAGE>
SALES: For 1996, net sales of $344 million increased 6% from the prior year
and backlogs declined by $1 million. A generally stronger U.S. dollar reduced
full year sales by $3 million.
North American sales of $249 million were up 6% on economic conditions that
were weak early in the year, especially in the industrial sector, but that
improved steadily as the year progressed. Sales increases by product line were
8% for commercial equipment, 5% for industrial equipment, and 2% for floor
coatings.
Overseas sales of $95 million, representing 28% of consolidated revenues,
increased 5% (up 9% in local currencies). The strongest sales gains were in
Japan, France and Australia.
For 1995, net sales of $325 million were up 16% from 1994 and backlogs
declined by $3 million. About one-third of the sales increase was due to the
1994 acquisitions being included for a full year, and a generally weaker U.S.
dollar that increased full-year sales by $6 million. North American sales of
$234 million were up 13% on economic conditions that were favorable early in the
year, except for Mexico, but weakened toward year-end. Commercial equipment
sales increased 25%; about one-half of the increase was due to 1994
acquisitions. Floor coatings sales increased 14% and industrial equipment sales
were up 7%. Overseas sales of $91 million, representing 28% of consolidated
revenues, increased 24%. About one-half of the increase was due to the 1994
acquisitions and the generally weaker U.S. dollar.
PROFIT FROM OPERATIONS: For 1996, profit from operations increased 5% to
$31.6 million, resulting in an operating margin of 9.2% versus 9.3% the prior
year. Factory capacity use is estimated to have been in the low 70% range for
the year.
The change in operating margin was due to a decline in gross margin to 41.3%
from 42.9% the prior year. The decline was primarily due to a change in the
sales mix to lower margin products and market segments, operational
inefficiencies in Europe, and translation effects of the stronger U.S. dollar.
Selling and administrative expenses, as a percent of sales, declined to 32.2%
from 33.7% the prior year. The improvement, which nearly offset the decline in
gross margin, resulted from steps taken to slow the rate of expense growth.
These actions were successful in keeping expense growth lower than inflation.
For 1995, profit from operations increased 25% to $30.2 million, resulting in
an operating margin of 9.3% versus 8.6% for 1994. Factory capacity use is
estimated to have been in the low 70% range for the year. The change in
operating margin was due to an increase in gross margin to 42.9% from 42.4% in
1994. The increase was primarily due to the strong sales gain and the effect of
a generally weaker U.S. dollar. Selling and administrative expenses, as a
percent of sales, declined to 33.7% from 33.8% in 1994. The improvement was
primarily due to the elimination of expenses related to operations discontinued
in 1994.
OTHER INCOME AND EXPENSE: For 1996, the Company recorded other income of
$698,000 versus other expense of $747,000 the prior year. The primary reasons
for the change were a reduction in a discretionary contribution to the Company's
charitable foundation, a higher level of interest income, and lower interest
expense.
The Company reported $4.3 million of interest income in 1996. Of this amount,
$2.4 million is from finance-type leases provided to customers and $1.6 million
is interest earned on an outstanding loan to the Company's Employee Stock
Ownership Plan (ESOP). (The ESOP also generated $0.5 million of amortization
expense that is included in "Other Miscellaneous Expense.")
For 1997, the Company anticipates other net income somewhat above the 1996
level primarily
15
<PAGE>
because of higher interest income and lower interest expense.
INCOME TAXES: For 1996, the effective tax rate rose to 35.0% from an
unusually low 33.2% the prior year. (The 1995 rate was affected by tax losses in
several high tax countries and a relatively high level of tax credits.) For
1997, the Company anticipates an effective tax rate of about 35%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition strengthened throughout 1996. Debt at
year-end was reduced to $26 million, or 17% of capitalization, from $40 million.
Lower debt resulted from a higher level of cash flow, due to a decrease in
working capital, and increased earnings.
FINANCIAL POSITION: Cash and cash equivalents ended 1996 at $9.9 million, up
from $4.2 million the prior year. Based on current operating plans, dividend
policy, and stock repurchase authority, the Company expects cash to increase and
debt to decrease somewhat by the end of 1997.
Working capital, excluding cash and debt, declined by $4 million, or 5%, from
the prior year-end. This primarily resulted from efforts to reduce inventory
levels that built up toward the end of 1995. Working capital will increase in
1997; however, the rise is expected to be in line with sales growth.
Property, plant, and equipment, net of accumulated depreciation, grew by $2
million. Depreciation expense was $14.9 million and capital spending, net of
disposals, was $17.6 million. The largest categories of capital spending, in
order of magnitude, were information technology hardware and software, vehicles
(cars, trucks and trailers), industrial products financed with operating leases
for customers, product tooling, and factory equipment. Vehicles represent a
large category of spending because of the use of direct sales and service in key
industrial markets.
For 1997, the Company expects depreciation expense of about $17 million and
capital spending, net of disposals, of about $22 million. The level of capital
spending, which is relatively high in a historical sense, 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 CEO's letter to shareholders, page 3, for additional comments).
Also, the company plans to construct a warehouse/ distribution center in North
America that will consolidate several such facilities in the Great Lakes region.
DIVIDENDS AND COMMON STOCK: Cash dividends of 69 cents per share were up 1%,
the 25th consecutive year of increase. Common stock outstanding averaged
10,020,900 in 1996, up 1% from the prior year. For 1997, the company has been
authorized by the Board of Directors to reduce shares outstanding to about 9.9
million.
IMPACT OF INFLATION: Inflation has not been a significant factor for several
years. For 1996, it is estimated that product pricing, on average, was somewhat
below inflation for costs and expenses. This did not have a material affect on
results of operations. For 1997, 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 balance sheet in the following ways:
- - Inventories are significantly below current replacement cost because they
are, for the most part, 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.
16
<PAGE>
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 estimate 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: Approximately one-third of the
Company's sales occur outside of the United States. For 1996, the 10 largest
international markets for the Company, based on end-user sales values, were
Australia, Belgium, Canada, France, Germany, Japan, Mexico, The Netherlands,
Spain, and the United Kingdom. The Company's products are sold directly or
through independent distributors in over 50 countries. Sales in Australia,
Canada, Japan, and direct-sales European countries are made in their respective
currencies. Sales in other countries, which are generally to distributors, are
made in either U.S. dollars or, in Europe, in Dutch guilders.
In recent years, the world's key currencies have experienced significant
changes in relative value over short periods of time. The U.S. dollar began 1996
on a continuation of a weakening trend that developed the prior year, then
reversed direction and rose in value over the remainder of the year.
The Company uses hedging arrangements such as forward exchange contracts from
time to time to offset short-term changes in currency values. At the end of
1996, the Company had outstanding approximately $12 million of forward exchange
contracts denominated in Dutch guilders, Japanese yen, and Canadian and
Australian dollars (see "Notes to Financial Statements," note 14). Since these
contracts are treated as hedges of specific balance sheet monetary amounts
denominated in these currencies, or nearly certain product exports to be sold in
these currencies, there is limited potential impact on the Company's future
liquidity.
FINANCIAL GOALS AND POLICIES
The Company's financial mission is to create value for shareholders by
providing an above-average total return. Goals and policies that support this
mission are:
- - Growth - 8% sales and 10% earnings per share annual increases, 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 compared with these goals
are presented in several graphs and tables included in this report.
17
<PAGE>
TENNANT COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS Years ended December 31
OF EARNINGS 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Percent Percent Percent
------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . $344,433 100.0 $325,368 100.0 $281,685 100.0
Less:
Cost of sales. . . . . . . . . . . . . . 202,057 58.7 185,668 57.1 162,360 57.6
Selling and administrative expenses. . . 110,745 32.2 109,518 33.7 95,201 33.8
-------- ---- -------- ---- -------- ----
Profit from operations . . . . . . . . . . . 31,631 9.2 30,182 9.3 24,124 8.6
Other income and (expense):
Net foreign currency transaction
gain (loss) . . . . . . . . . . . . . . 50 -- (128) -- (371) (.1)
Interest income. . . . . . . . . . . . . 4,259 1.2 4,132 1.3 3,807 1.3
Interest (expense) . . . . . . . . . . . (2,491) (.7) (2,640) (.8) (1,677) (.6)
Miscellaneous income (expense), net. . . (1,120) (.3) (2,111) (.6) (1,802) (.6)
-------- ---- -------- ---- -------- ----
Total other income (expense). . . . 698 .2 (747) (.2) (43) --
-------- ---- -------- ---- -------- ----
Profit before income taxes . . . . . . . . . 32,329 9.4 29,435 9.0 24,081 8.6
Income tax expense . . . . . . . . . . . . . 11,302 3.3 9,773 3.0 8,346 3.0
-------- ---- -------- ---- -------- ----
Net earnings . . . . . . . . . . . . . . . $ 21,027 6.1 $ 19,662 6.0 $ 15,735 5.6
-------- ---- -------- ---- -------- ----
-------- ---- -------- ---- -------- ----
Net earnings per share . . . . . . . . . . . $ 2.10 $ 1.98 $ 1.60
-------- -------- --------
-------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
<PAGE>
TENNANT COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
CONSOLIDATED BALANCE SHEETS 1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,881 $ 4,247
Receivables:
Trade, less allowance for doubtful accounts
($2,137 in 1996 and $2,285 in 1995). . . . . . . . . . . . . . . . . . . . 65,581 63,066
Installment accounts receivable, net of deferred income from
sales finance charges and less allowance for doubtful accounts
($369 in 1996 and $326 in 1995). . . . . . . . . . . . . . . . . . . . . . 7,839 7,147
Sundry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,098 2,298
-------- --------
Net receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,518 72,511
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,264 40,702
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 934 944
Deferred income taxes, current portion . . . . . . . . . . . . . . . . . . . . . 5,884 5,104
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 126,481 123,508
Property, plant, and equipment, net of accumulated depreciation. . . . . . . . . . . 65,384 63,724
Installment accounts receivable due after one year, net of deferred income
from sales finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,448 7,510
Deferred income taxes, long-term portion . . . . . . . . . . . . . . . . . . . . . . 1,524 1,545
Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,752 18,859
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591 604
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $219,180 $215,750
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,864 $ 17,349
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . . . . 41,690 43,754
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,034 620
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . 49,588 61,723
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,824 23,149
Long-term employee-related benefits. . . . . . . . . . . . . . . . . . . . . . . . . 18,528 16,177
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380 570
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 90,320 101,619
Commitments (note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Shareholders' equity:
Preferred stock of $.02 par value per share. . . . . . . . . . . . . . . . . . . -- --
Common stock of $.375 par value per share. . . . . . . . . . . . . . . . . . . . 3,737 3,732
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,547 3,166
Common stock subscribed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703 694
Unearned restricted shares . . . . . . . . . . . . . . . . . . . . . . . . . . . (440) (276)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,703 116,396
Cumulative translation adjustment. . . . . . . . . . . . . . . . . . . . . . . . 2,877 3,532
Receivable from ESOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,267) (13,113)
-------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . 128,860 114,131
-------- --------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . $219,180 $215,750
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
19
<PAGE>
TENNANT COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years ended December 31
CONSOLIDATED STATEMENT OF CASH FLOWS 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW RELATED TO OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,027 $19,662 $15,735
Adjustments to net earnings to arrive at operating cash flow:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 16,387 14,090 13,121
Provision for bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . 1,160 803 1,088
Provision for stock plans . . . . . . . . . . . . . . . . . . . . . . . . . 1,191 1,068 1,730
(Gain) loss on sale of property, net. . . . . . . . . . . . . . . . . . . . 557 (531) 83
Provision for deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . (959) 588 325
Increase in receivables . . . . . . . . . . . . . . . . . . . . . . . . . . (4,073) (14,515) (13,997)
(Increase) decrease in inventories. . . . . . . . . . . . . . . . . . . . . 4,698 (9,024) (2,241)
Increase (decrease) in accounts payable, accrued expenses and
other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . (1,428) 5,610 7,530
Increase in long-term employee-related benefits . . . . . . . . . . . . . . 2,397 1,568 1,919
Increase (decrease) in income taxes payable . . . . . . . . . . . . . . . . 3,370 (2,359) 1,841
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . (216) 478 (440)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455 396 60
------- ------- -------
Net cash flow related to operating activities. . . . . . . . . . . . . . . . . . 44,566 17,834 26,754
CASH FLOW RELATED TO INVESTING ACTIVITIES:
Acquisition of Castex, Eagle, and NFM, net of cash received (see note 17) . -- (2,208) (28,180)
Acquisition of property, plant, and equipment . . . . . . . . . . . . . . . (20,966) (25,222) (23,303)
Acquisition of intangible assets. . . . . . . . . . . . . . . . . . . . . . (180) -- --
Proceeds from disposals of property, plant, and equipment . . . . . . . . . 3,385 6,105 4,433
Settlement of foreign currency hedging contracts. . . . . . . . . . . . . . 521 (782) (881)
------- ------- -------
Net cash flow related to investing activities. . . . . . . . . . . . . . . . . . (17,240) (22,107) (47,931)
CASH FLOW RELATED TO FINANCING ACTIVITIES:
Net changes in current debt . . . . . . . . . . . . . . . . . . . . . . . . (14,487) (5,434) 20,438
Payments to settle long-term debt . . . . . . . . . . . . . . . . . . . . . -- -- (40)
Issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . -- 16,782 6,300
Principal payment from ESOP . . . . . . . . . . . . . . . . . . . . . . . . 495 450 409
Proceeds from employee stock issues . . . . . . . . . . . . . . . . . . . . 1,784 1,665 1,484
Repurchase of common stock. . . . . . . . . . . . . . . . . . . . . . . . . (2,911) -- (1,854)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,905) (6,742) (6,386)
------- ------- -------
Net cash flow related to financing activities. . . . . . . . . . . . . . . . . . (22,024) 6,721 20,351
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . . . . . . . 332 (52) 2
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . 5,634 2,396 (824)
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . 4,247 1,851 2,675
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . . . . . $ 9,881 $ 4,247 $ 1,851
------- ------- -------
------- ------- -------
</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 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
(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. . . . . . . . . . . . . . 9,952,036 $ 3,732 9,838,956 $ 3,690 4,912,663 $ 1,842
Issue stock for employee benefit
plans and directors . . . . . . . . . . . . 134,229 50 113,080 42 49,487 19
Purchase of common shares. . . . . . . . . . (120,828) (45) -- -- (42,672) (16)
Stock split adjustment . . . . . . . . . . . -- -- -- -- 4,919,478 1,845
--------- -------- --------- -------- --------- --------
Ending balance . . . . . . . . . . . . . . 9,965,437 $ 3,737 9,952,036 $ 3,732 9,838,956 $ 3,690
--------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- --------
ADDITIONAL PAID-IN CAPITAL (a)
Beginning balance. . . . . . . . . . . . . . $ 3,166 $ 396 $ 1,873
Issue stock for employee benefit
plans and directors. . . . . . . . . . . . 3,247 2,770 2,206
Purchase of common shares. . . . . . . . . . (2,866) -- (1,838)
Stock split adjustment . . . . . . . . . . . -- -- (1,845)
-------- -------- --------
Ending balance . . . . . . . . . . . . . . $ 3,547 $ 3,166 $ 396
-------- -------- --------
-------- -------- --------
COMMON STOCK SUBSCRIBED (a)
Beginning balance. . . . . . . . . . . . . . 29,084 $ 694 21,750 $ 525 -- $ --
Issue stock for employee benefit plans . . . (29,084) (694) (21,750) (525) -- --
Subscribe stock for employee benefit
plans. . . . . . . . . . . . . . . . . . . 21,403 703 29,084 694 10,875 525
Stock split adjustment . . . . . . . . . . . -- -- -- -- 10,875 --
--------- -------- --------- -------- --------- --------
Ending balance . . . . . . . . . . . . . . 21,403 $ 703 29,084 $ 694 21,750 $ 525
--------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- --------
UNEARNED RESTRICTED SHARES
Beginning balance. . . . . . . . . . . . . . $ (276) $ (424) $ (312)
Restricted share activity, net . . . . . . . (164) 148 (112)
--------- -------- --------- -------- --------- --------
Ending balance . . . . . . . . . . . . . . $ (440) $ (276) $ (424)
--------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- --------
RETAINED EARNINGS
Beginning balance. . . . . . . . . . . . . . $116,396 $103,281 $ 93,733
Net earnings . . . . . . . . . . . . . . . . 21,027 19,662 15,735
Dividends paid, $.69, $.68, and $.65,
respectively, per common share. . . . . . . (6,905) (6,742) (6,386)
Tax benefit on dividends on unallocated
ESOP shares . . . . . . . . . . . . . . . . 185 195 199
-------- -------- --------
Ending balance . . . . . . . . . . . . . . $130,703 $116,396 $103,281
-------- -------- --------
-------- -------- --------
CUMULATIVE TRANSLATION ADJUSTMENT
Beginning balance. . . . . . . . . . . . . . $ 3,532 $ 2,743 $ 1,773
Net change for year in translation
adjustment. . . . . . . . . . . . . . . . . (1,065) 1,248 1,529
Gain (loss) on foreign currency hedges,
net of income taxes of $(251), $282,
and $342, respectively. . . . . . . . . . . 410 (459) (559)
-------- -------- --------
Ending balance . . . . . . . . . . . . . . $ 2,877 $ 3,532 $ 2,743
-------- -------- --------
-------- -------- --------
RECEIVABLE FROM ESOP
Beginning balance. . . . . . . . . . . . . . $(13,113) $(13,962) $(14,816)
Principal payments . . . . . . . . . . . . . 495 450 409
Shares allocated . . . . . . . . . . . . . . 351 399 445
-------- -------- --------
Ending balance . . . . . . . . . . . . . . $(12,267) $(13,113) $(13,962)
-------- -------- --------
-------- -------- --------
Total shareholders' equity . . . . . . . . . $128,860 $114,131 $ 96,249
-------- -------- --------
-------- -------- --------
The Company had 30,000,000 authorized shares of common stock as of December 31, 1996 and 1995.
The Company had 15,000,000 authorized shares of common stock as of December 31, 1994.
</TABLE>
(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, 1996, 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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 7, 1997
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, and
Tennant Holding B.V. All material intercompany transactions and balances have
been eliminated.
TRANSLATION OF NON-U.S. CURRENCY. Foreign currency denominated 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.
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. Inventories would have been higher than
reported, as is shown below, had they been valued using the first-in, first-out
method of accounting, which approximates replacement cost.
The composition of inventories at December 31 is as follows:
(IN THOUSANDS) 1996 1995
------- -------
FIFO inventories:
Finished goods . . . . . . . . . . . . . . $26,317 $28,146
Raw materials, parts and work-in-process . 26,879 30,406
------- -------
Total FIFO inventories . . . . . . . . . . . 53,196 58,552
LIFO adjustment. . . . . . . . . . . . . . . (17,932) (17,850)
------- -------
LIFO inventories . . . . . . . . . . . . . . $35,264 $40,702
------- -------
------- -------
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.
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.
WARRANTY. The Company charges to current operations a provision, based on
historical experience, for future warranty claims. Warranty terms on machines
range from one to four years.
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, 1996, earnings
permanently reinvested in international subsidiaries not subject to a U.S.
income tax provision were $8,894,000. 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.
STOCK-BASED COMPENSATION. The Company accounts for stock-based compensation
under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees. APB 25 requires compensation cost to be recorded on the
date of the grant only if the current market price of the underlying stock
exceeds the exercise price. Accordingly, no compensation cost has been
recognized for stock option plans. The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION.
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.
REVENUE RECOGNITION. The Company recognizes revenue when title passes, which is
usually upon shipment.
DERIVATIVE FINANCIAL INSTRUMENTS. The Company enters into forward exchange
contracts principally to hedge the eventual dollar cash flow of foreign currency
denominated transactions (principally British pound, Netherlands guilder,
Australian dollar, Canadian dollar, and Japanese yen). Gains or losses on
forward exchange contracts to hedge foreign currency denominated anticipated
sales transactions and net exposed assets are recognized in income on a current
basis over the term of the contracts. The Company has elected to treat certain
forward exchange contracts as an economic hedge of its net investment in Tennant
Holding B.V., a Netherlands-based subsidiary. Gains or losses on such contracts,
net of related tax effect, are recognized on a current basis over the term of
the contract and are reported as a separate component of shareholders' equity.
23
<PAGE>
LONG-LIVED ASSETS. The Company assesses long-lived assets for impairment under
Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
Statement 121 requires that long-lived assets be assessed for impairment loss
recognition when events or circumstances indicate that the carrying amount of
the asset may not be recoverable. Adoption of this Statement did not have a
material impact on the Company's financial position, results of operations, or
liquidity.
(2) COSTS AND EXPENSES
Engineering, research and development, maintenance and repairs, warranty, and
bad debt expenses were charged to operations for the three years ended December
31, 1996, as follows:
(IN THOUSANDS) 1996 1995 1994
------- ------- -------
Engineering, research and
development . . . . . . . . . . . $12,773 $12,695 $11,674
Maintenance and repairs . . . . . . $ 5,740 $ 5,239 $ 4,658
Warranty. . . . . . . . . . . . . . $ 4,579 $ 5,191 $ 4,056
Bad debts . . . . . . . . . . . . . $ 1,160 $ 803 $ 1,088
(3) SEGMENT REPORTING
The Company operates in one industry segment which consists of the design,
manufacture, and sale of products and services used in the maintenance of
nonresidential floors.
Financial data by geographic area is before interest expense and elimination of
intercompany transactions. Product transfers from North America are generally
made at prices that recognize return on investment objectives for both the
manufacturing and selling units. Corporate items include general corporate
expense and miscellaneous items such as net ESOP income and foundation
contribution expense. Corporate assets consist primarily of Company cash and
cash equivalents.
(IN THOUSANDS) 1996 1995 1994
------- ------- -------
NET SALES
North America
Customer sales . . . . . . . . . . . . $249,088 $234,012 $208,856
Transfers to Europe and
other international areas. . . . . . 43,898 39,056 31,267
-------- -------- --------
Total North America. . . . . . . . . . $292,986 $273,068 $240,123
Europe customer sales. . . . . . . . . . 57,811 58,045 42,242
Other international customer sales . . . 37,534 33,311 30,587
Eliminations . . . . . . . . . . . . . . (43,898) (39,056) (31,267)
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $344,433 $325,368 $281,685
-------- -------- --------
-------- -------- --------
PROFIT BEFORE INCOME TAXES
North America. . . . . . . . . . . . . . $ 29,148 $ 27,872 $ 21,299
Europe . . . . . . . . . . . . . . . . . 4,345 3,108 2,553
Other international. . . . . . . . . . . 2,210 4,254 3,930
Corporate items, interest
expense, and eliminations. . . . . . . (3,374) (5,799) (3,701)
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 32,329 $ 29,435 $ 24,081
-------- -------- --------
-------- -------- --------
TOTAL ASSETS
Identifiable assets
North America. . . . . . . . . . . . . $170,010 $166,252 $149,935
Europe . . . . . . . . . . . . . . . . 38,857 43,368 28,414
Other international. . . . . . . . . . 7,038 5,632 4,209
Corporate assets and eliminations. . . . 3,275 498 276
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $219,180 $215,750 $182,834
-------- -------- --------
-------- -------- --------
(4) CONSOLIDATED QUARTERLY DATA* (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Net Sales Gross Profit**
---------------------------------------- ---------------------------------------
% %
Quarter 1996 1995 Change 1996 1995 Change
---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
First. . . . . . . $ 76,823 $ 74,144 4 $ 32,767 $ 31,498 4
Second . . . . . . 86,794 82,797 5 35,790 35,788 --
Third. . . . . . . 83,816 77,761 8 34,197 33,482 2
Fourth . . . . . . 97,000 90,666 7 39,622 38,932 2
---------- ---------- ---------- ----------
Year . . . . . . . $344,433 $325,368 6 $142,376 $139,700 2
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net Earnings Earnings Per Share***
--------------------------------------- -------------------------
%
Quarter 1996 1995 Change 1996 1995
---------- ---------- -------- ---------- ----------
First. . . . . . . $ 3,984 $ 3,869 3 $ .40 $ .39
Second . . . . . . 5,165 5,278 (2) .51 .53
Third. . . . . . . 5,010 4,634 8 .50 .47
Fourth . . . . . . 6,868 5,881 17 .69 .59
---------- ---------- -------- ---------- ----------
Year . . . . . . . $ 21,027 $ 19,662 7 $2.10 $1.98
---------- ---------- -------- ---------- ----------
---------- ---------- -------- ---------- ----------
</TABLE>
* Regular quarterly dividends after stock split adjustment aggregated $.69
per share in 1996 ($.17 per share for the first three quarters and $.18 for the
fourth quarter) and $.68 per share in 1995 ($.17 per share for all quarters).
**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 1996, 1995, and 1994 the Company recognized tax benefits of $185,000,
$195,000, and $199,000, respectively, relating to dividends paid on unallocated
shares held by the Company's ESOP and miscellaneous charges (credits) of
$251,000, $(282,000), and $(342,000), respectively, by direct allocations to
shareholders' equity.
Income tax expense for the three years ended December 31, 1996, is as follows:
(IN THOUSANDS) Current Deferred Total
------- -------- --------
1996
Federal. . . . . . . . $ 8,808 $ (784) $ 8,024
Foreign. . . . . . . . 2,286 (76) 2,210
State. . . . . . . . . 967 101 1,068
------- -------- --------
$12,061 $ (759) $11,302
------- -------- --------
------- -------- --------
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
------- -------- --------
------- -------- --------
24
<PAGE>
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 35%, as a result of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995 1994
<S> <C> <C> <C>
Tax at statutory rate . . . . . . . . . . . $11,304 $10,293 $8,417
Increases (decreases) in taxes from:
State and local taxes, net of
federal benefit . . . . . . . . . . . . . 694 726 488
Effect of foreign taxes. . . . . . . . . . 363 (78) 10
Research and development credit. . . . . . (324) (344) (467)
Effect of foreign sales corporation. . . . (667) (737) (372)
Other, net . . . . . . . . . . . . . . . . (68) (87) 270
Income tax expense. . . . . . . . . . . . . $11,302 $ 9,773 $8,346
</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, 1996 and
1995, are presented below:
(IN THOUSANDS) 1996 1995
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. . . . . . . . . . . . . . . $ 1,209 $ 1,099
Employee wages and benefits, principally due
to accruals for financial reporting purposes. . 10,093 8,894
Warranty reserves accrued for financial
reporting purposes. . . . . . . . . . . . . . . 723 659
Accounts receivable, principally due to
allowance for doubtful accounts and
change in tax accounting method
for equipment rentals . . . . . . . . . . . . . 565 570
Other. . . . . . . . . . . . . . . . . . . . . . 647 866
Total deferred tax assets. . . . . . . . . . . $13,237 $12,088
Deferred tax liabilities:
Property, plant, and equipment, principally
due to differences in depreciation and
related gains . . . . . . . . . . . . . . . . . $ 5,259 $ 4,886
Goodwill . . . . . . . . . . . . . . . . . . . . 480 324
Deferred gain, hedge of forward foreign
exchange contracts. . . . . . . . . . . . . . . 90 229
Total deferred tax liabilities . . . . . . . . $ 5,829 $ 5,439
Net deferred tax asset. . . . . . . . . . . . . . $ 7,408 $ 6,649
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 $8,714,000, $11,256,000, and $5,961,000, in 1996, 1995,
and 1994, respectively.
(6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31 consist of the following:
(IN THOUSANDS) 1996 1995
Trade accounts payable. . . . . . . . . . . . . . $15,446 $18,280
Employee profit sharing . . . . . . . . . . . . . 2,906 3,232
Wages, bonuses, and commissions . . . . . . . . . 13,732 12,240
Taxes, other than income taxes. . . . . . . . . . 3,777 3,038
Other . . . . . . . . . . . . . . . . . . . . . . 5,829 6,964
Total . . . . . . . . . . . . . . . . . . . . . . $41,690 $43,754
During 1995, 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:
(IN THOUSANDS) 1996 1995
Land. . . . . . . . . . . . . . . . . . . . . . . $ 3,341 $ 3,274
Buildings and improvements. . . . . . . . . . . . 26,587 26,513
Machinery and equipment . . . . . . . . . . . . . 117,835 103,383
Construction in progress. . . . . . . . . . . . . 1,159 4,043
Total property, plant, and equipment. . . . . . . 148,922 137,213
Less accumulated depreciation . . . . . . . . . . (83,538) (73,489)
Net property, plant, and equipment. . . . . . . . $ 65,384 $ 63,724
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:
Sales-Type Operating
(IN THOUSANDS) Leases Leases
---------- ---------
1997 $ 8,021 $ 648
1998 5,261 487
1999 2,510 169
2000 764 33
2001 225 3
---------- ---------
Total $16,781 $1,340
---------- ---------
---------- ---------
25
<PAGE>
The Company's investment in equipment related to operating leases as of December
31 is as follows:
(IN THOUSANDS) 1996 1995
------ ------
Cost. . . . . . . . . . . . . . . . . . . . . . . $4,782 $3,775
Less accumulated depreciation . . . . . . . . . . (1,381) (1,071)
------ ------
Net investment. . . . . . . . . . . . . . . . . . $3,401 $2,704
------ ------
------ ------
The Company's net investment in sales-type leases at December 31 is as follows:
(IN THOUSANDS) 1996 1995
------ ------
Minimum lease payments receivable . . . . . . . . $16,781 $16,533
Less allowance for doubtful accounts. . . . . . . (369) (326)
-------- --------
Net minimum lease payments receivable . . . . . . 16,412 16,207
Estimated unguaranteed residual value . . . . . . 1,288 1,253
Less deferred income. . . . . . . . . . . . . . . (3,143) (3,187)
-------- --------
Net investment in sales-type leases . . . . . . . $14,557 $14,273
-------- --------
-------- --------
(9) COMMITMENTS
The Company leases office and warehouse facilities, vehicles and office
equipment 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 $2,873,000, $2,656,000,
and $2,447,000, in 1996, 1995, and 1994, respectively.
The aggregate lease commitments with an initial term of one year or more at
December 31, 1996, were $5,922,000 with minimum rentals for the periods as
follows:
(IN THOUSANDS)
1997 $2,190
1998 1,567
1999 834
2000 360
2001 303
2002 and beyond 668
------
Total $5,922
------
------
(10) SHORT-TERM BORROWINGS
Short-term bank borrowings at December 31, 1996 and 1995, were $2,530,000 and
$17,349,000, 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, 1996 and 1995, were 5.7% and 6.5%, respectively. This 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
$23,028,000 which includes a $15,000,000 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, 1996 and 1995, of $2,530,000 and $15,964,000,
respectively.
In addition, the Company has outstanding letters of credit with banks in the
amount of $2,700,000 at December 31, 1996.
(11) LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
(IN THOUSANDS) 1996 1995
------- -------
Bank loan at 4.8%, due in 1997. . . . . . . . . . $ -- $ 692
Bank loan at 8.8%, due in 1997. . . . . . . . . . 1,339 1,402
Bank loan at 4.0%, due in 1998. . . . . . . . . . 650 --
Bank loan at 7.2%, due in 1998. . . . . . . . . . 1,174 --
Bank loan at 8.9%, due in 2000. . . . . . . . . . -- 1,055
Note at 8.09%, due in 2000. . . . . . . . . . . . 5,000 5,000
Notes at 8.56%, due in 2001 . . . . . . . . . . . 5,000 5,000
Note at 7.21%, due in 2003. . . . . . . . . . . . 5,000 5,000
Note at 7.84%, due in 2005. . . . . . . . . . . . 5,000 5,000
Less current portion. . . . . . . . . . . . . . . (1,339) --
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . $21,824 $23,149
------- -------
------- -------
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:
(IN THOUSANDS)
1997 $ 1,339
1998 1,824
1999 --
2000 5,000
2001 5,000
2002 and beyond 10,000
-------
Total $23,163
-------
-------
During 1996, 1995, and 1994, the Company paid total long-term and short-term
interest costs of $2,473,000, $2,657,000, and $1,557,000, respectively.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's short-term financial instruments are valued at their carrying
amounts in the consolidated balance sheets, which are reasonable estimates of
their fair value due to the short maturity of the instruments. The Company's
foreign currency forward exchange contracts are valued at fair market value,
which is the amount the Company would receive or pay to terminate the contracts
at the reporting date. The fair market value of the Company's long-term debt
approximates cost, based on the borrowing rates currently available to the
Company for bank loans with similar terms and remaining maturities.
26
<PAGE>
(13) 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.
The periodic postretirement benefit cost under SFAS 106 for the three years
ended December 31, 1996, is as follows:
(IN THOUSANDS) 1996 1995 1994
------ ------ -------
Service costs. . . . . $ 330 $205 $315
Interest costs . . . . 699 645 638
Amortization and deferrals -- -- 18
------ ------ -------
Net postretirement
costs. . . . . . . . $1,029 $850 $971
------ ------ -------
------ ------ -------
The actuarial present value of benefit obligations at December 31 is as follows:
(IN THOUSANDS) 1996 1995
------- -------
Retirees eligible for
benefits. . . . . . . . . . . . . . . . . . . $2,661 $2,677
Dependents of retirees
eligible for benefits . . . . . . . . . . . . 1,620 1,908
Active employees
fully eligible. . . . . . . . . . . . . . . . 1,071 907
Active employees not
fully eligible. . . . . . . . . . . . . . . . 5,639 5,476
Unrecognized net loss . . . . . . . . . . . . . (1,039) (1,783)
------- -------
Accrued postretirement
benefit cost. . . . . . . . . . . . . . . . . $9,952 $9,185
------- -------
------- -------
The assumed annual rate of future increases in per capita cost of health care
benefits was 8.5% for 1997, declining gradually to 5.5% in 2022 and after.
Increasing the health care cost trend rate by 1% in each year would increase the
accumulated benefit obligation by $320,000 as of December 31, 1996, and the
aggregate of the service and interest costs by $30,000. The discount rates used
in determining the accumulated benefit obligation in 1996, 1995, and 1994, were
7.0%, 7.0%, and 8.0%, respectively.
(14) FOREIGN CURRENCY CONTRACTS
The Company entered into several guilder forward exchange contracts for the
purpose of hedging the net investment in Tennant Holding B.V., a
Netherlands-based subsidiary. As of December 31, 1996, there were five
outstanding contracts totaling $6,114,000. These contracts will mature in 1997
and bear rates ranging from 1.6204 to 1.6830 Netherlands guilders per U.S.
dollar. In 1996, 1995, and 1994, the Company recognized gains (losses), net of
related tax effect, as a separate component of shareholders' equity of $410,000,
$(459,000), and $(559,000), respectively.
The Company entered into yen forward exchange contracts to hedge anticipated
sales transactions. As of December 31, 1996, there were no outstanding yen
contracts. In 1996, 1995, and 1994, the Company recognized gains (losses) of
$50,000, $370,000, and $(51,000), respectively.
The Company also entered into forward exchange contracts to hedge net exposed
assets in Australia, Canada, and Japan. As of December 31, 1996, the Company had
four outstanding contracts totaling $5,721,000. These contracts will mature in
1997 and bear rates of .7948 U.S. dollars per Australian dollar, 1.3348 to
1.3660 Canadian dollars per U.S. dollar, and 114.44 Japanese yen per U.S.
dollar. In 1996, 1995, and 1994, the Company recognized gains (losses) of
$198,000, $(93,000), and $(17,000), respectively.
(15) 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, 1996. 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.
On November 19, 1996, the Board of Directors approved a Shareholder Rights Plan
allowing a dividend of one preferred share purchase right for each outstanding
Common Share of the par value of $.375 per share of the Company. Each Right
entitles the registered holder to purchase from the Company one one-hundredth of
a Series A Junior Participating Preferred Share of the par value of $.02 per
share of the Company at a price of $100 per one one-hundredth of a Preferred
Share, subject to adjustment. The Rights are not exercisable or transferable
apart from the common stock until the earlier of: (i) the close of business on
the fifteenth day following a public announcement that a person or group of
affiliated or associated persons has become an "Acquiring Person" (i.e., has
become, subject to certain exceptions, the beneficial owner of 20% or more of
the outstanding Common Shares), or (ii) the close of business on the fifteenth
day following the commencement or public announcement of a tender offer or
exchange offer the consummation of which would result in a person or group of
affiliated or associated persons becoming, subject to certain exceptions, the
beneficial owner of 20% or more of the outstanding Common Shares (or such later
date as may be determined by the Board of Directors of the Company prior to a
person or group of affiliated or associated persons becoming an Acquiring
Person). At no time do the rights have any voting power. The rights may be
redeemed by the Company for $.01 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 will expire on December 23,
2006, unless extended or earlier redeemed or exchanged by the Company.
27
<PAGE>
(16) Stock Plans, Bonuses, Pensions, and Profit Sharing
The Company has three plans under which stock-based compensation grants are
provided annually. The 1992 Stock Incentive Plan ("1992 Plan") and the 1995
Stock Incentive Plan ("1995 Plan") provide for stock-based compensation grants
to executives and key employees of the Company. The 1993 Directors Restricted
Plan ("1993 Plan") provides for the annual retainer in the form of restricted
shares to the non-employee Directors of the Company. The maximum number of
shares that can be awarded under the respective plans is 500,000, 500,000, and
50,000, respectively.
Grants under the 1992 Plan may be in the form of restricted and
performance-related shares. Grants under the 1995 Plan may be in the form of
restricted, performance-related and stock option shares. The grant size under
both plans is determined by the Compensation Committee of the Board of
Directors. Grants under the 1993 plan may be in the form of restricted shares.
Restricted shares are granted annually and typically have a two- or three-year
restriction period from the effective date of the grant. During the restricted
period, the restricted shares may not be sold or transferred, but the shares
entitle the participants to dividend and voting rights. In 1996, 1995, and 1994,
respectively, 26,000, 18,000, and 23,000 restricted shares were granted. The
weighted-average fair value of stock on the grant date was $24.57, $23.55, and
$23.29 per share in 1996, 1995, and 1994, respectively.
Performance-related shares are granted annually and are payable if the Company
achieves certain financial performance goals over each four-year period
following the grant. In 1996, 1995, and 1994, respectively, 46,000, 35,000 and
27,000 performance shares were granted. The weighted-average fair value of stock
on the grant date was $23.25, $23.56, and $24.25 per share in 1996, 1995, and
1994, respectively.
Under the 1995 Plan, 10-year fixed stock options are granted annually at a price
equal to the stock's fair market value on the date of the grant. Options are
exercisable on a cumulative basis at a rate of 25% per year. The fair value of
options at the date of grant is estimated using the Black-Scholes option pricing
model with the following weighted-average assumptions used for the 1996 and 1995
grants, respectively: dividend yield of 2.6%; expected volatility of 18% and
22%; risk-free interest rates of 5.5% and 7.4%; and expected life of option of
five years. A summary of the status of the Company's stock option transactions
during 1996 and 1995 is shown below:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ----------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year. . . 101,000 $23.69 -- $ --
Granted . . . . . . . . 83,000 22.68 101,000 23.69
Exercised . . . . . . . -- -- -- --
Forfeited . . . . . . . -- -- -- --
--------- --------- --------- ---------
Outstanding at
end of year. . . . . . 184,000 23.24 101,000 23.69
--------- --------- --------- ---------
--------- --------- --------- ---------
Exercisable at
year-end . . . . . . . 25,000 23.69 -- --
</TABLE>
The weighted-average fair value of each option granted was $4.53 and $6.22, in
1996 and 1995, respectively. At December 31, 1996, outstanding options had
exercise prices between $22.00 and $23.69 per share and a weighted-average
contractual life of nine years.
In 1996, 1995, and 1994, respectively, expenses of $2,731,000, $2,310,000, and
$2,432,000, were charged to operations for restricted and performance-related
awards. The Company has adopted the disclosure-only provision of Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
Had stock-based compensation cost, determined consistent with the provisions of
Statement 123, been charged to the Company's net earnings, net earnings per
share would have been reduced to the pro forma amounts indicated below (dollars
in thousands, except per share amounts):
1996 1995
------- -------
Net earnings - as reported. . . . . . . . . . . . $21,027 $19,662
Net earnings - pro forma. . . . . . . . . . . . . 20,869 19,468
Net earnings per share - as reported. . . . . . . 2.10 1.98
Net earnings per share - pro forma. . . . . . . . 2.08 1.96
The effects of applying Statement 123 in this pro forma disclosure are not
indicative of future amounts, because additional awards in future years are
anticipated.
The Company also has a matching contribution program available to all employees
who make 401(k) contributions. Under this program, the Company makes matching
contributions up to a maximum of 4% of an employee's earnings. Employee
contributions invested in Company common stock are matched at the rate of 35%,
and contributions not invested in Company common stock are matched at the rate
of 15%. Expenses related to matching contributions were $695,000, $635,000, and
$544,000 in 1996, 1995, and 1994, 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 benefits
attributed to service to date, and 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, 1996, is as follows:
(IN THOUSANDS) 1996 1995 1994
------ ------ -------
Service cost . . . . . . $1,557 $1,245 $1,359
Interest cost. . . . . . 1,046 884 756
Actual return on plan assets
(increase) decrease . . (2,304) (5,521) 180
Deferred gain (loss) . . 665 3,932 (1,495)
Amortization of transition
asset . . . . . . . . . (46) (46) (46)
Less Tennant Trend
curtailment gain. . . . -- -- (751)
------ ------ -------
Net periodic pension
expense . . . . . . . . $ 918 $ 494 $ 3
------ ------ -------
------ ------ -------
28
<PAGE>
The assumptions used in determining the actuarial present value of the projected
benefit obligation at December 31 are as follows:
1996 1995 1994
------ ------ -------
Weighted-average discount
rate. . . . . . . . . . 7.0% 7.0% 8.0%
Rate of increase in future
compensation. . . . . . 5.5% 5.5% 6.5%
The expected long-term rate of return on plan assets in 1996, 1995, and 1994 was
10.0%, 10.0%, 11.0%, respectively.
The funded status of the plan and the amount recognized at December 31 are as
follows:
(IN THOUSANDS) 1996 1995
------- -------
Actuarial present value of benefit obligation:
Vested benefits. . . . . . . . . . . . . . . . . $ 8,579 $ 6,876
Nonvested benefits . . . . . . . . . . . . . . . 229 289
------- -------
Accumulated benefit obligation. . . . . . . . . . 8,808 7,165
Effect of projected future compensation
increases. . . . . . . . . . . . . . . . . . . . 8,580 7,271
------- -------
Projected benefit obligation. . . . . . . . . . . 17,388 14,436
Plan assets, primarily listed equity securities,
at fair value using the market-related
value method . . . . . . . . . . . . . . . . . . (19,575) (17,501)
------- -------
Plan assets in excess of projected benefit
obligation . . . . . . . . . . . . . . . . . . . (2,187) (3,065)
Unrecognized prior service cost . . . . . . . . . (412) (331)
Unrecognized net gain . . . . . . . . . . . . . . 7,428 7,268
Unrecognized transition asset . . . . . . . . . . 587 633
------- -------
Net pension obligation. . . . . . . . . . . . . . $ 5,416 $ 4,505
------- -------
------- -------
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, EXPENSE
RECOGNITION FOR EMPLOYEE STOCK OWNERSHIP PLANS. 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. ESOP shares are considered
outstanding in EPS computations, and dividends on allocated and unallocated
shares are recorded as a reduction of retained earnings.
The Company's cash contribution to the ESOP during 1996, 1995, and 1994 was
$1,303,000, $1,307,000, and $1,349,000, respectively. Accrued expenses in excess
of benefits provided to employees through the ESOP, which were charged to
miscellaneous expense, were $542,000, $778,000, and $908,000, in 1996, 1995, and
1994, respectively. Interest earned and received on the Company loan to the ESOP
was $1,550,000, $1,598,000, and $1,642,000, in 1996, 1995, and 1994,
respectively. Dividends on the Company shares held by the ESOP used for debt
service were $755,000, $738,000, and $703,000 in 1996, 1995, and 1994,
respectively. At December 31, 1996, the ESOP indebtedness to the Company, which
bears an interest rate of 10.05% and is due December 31, 2009, was $15,296,000.
The ESOP shares as of December 31, after adjustment for the two-for-one stock
split, were as follows:
1996 1995 1994
------ ------ -------
Allocated shares. . . . . . . 280,974 229,578 179,262
Shares released for allocation 38,971 40,781 41,540
Unreleased shares . . . . . . 649,121 698,707 748,264
------- ------ -------
Total ESOP shares . . . . . . 969,066 969,066 969,066
------- ------ -------
------- ------ -------
For the years ended December 31, 1996, 1995, and 1994, the Company charged to
operations $10,555,000, $9,567,000, and $9,821,000, respectively, for expense of
all stock, bonus, pension, and profit sharing plans.
(17) 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 year ended December 31,
1994, assuming the transaction was consummated at the beginning of the fiscal
year (dollars in thousands, except per share amounts):
1994
--------
Net sales . . . . . . . . . . $284,092
Net earnings. . . . . . . . . $ 15,793
Net earnings per share. . . . $ 1.61
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. On November 6, 1995, the Company
acquired the business and net assets of Nobles Floor Machines Limited ("NFM"),
the Company's U.K.-based master distributor of commercial floor maintenance
equipment. These acquisitions did not have a material impact on operations.
29
<PAGE>
TENNANT COMPANY AND SUBSIDIARIES
HISTORICAL PROGRESS REVIEW
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994
----------------- ------------ ----------------
<S> <C> <C> <C>
Net sales......................................... $ 344,433 325,368 281,685
Cost of sales..................................... $ 202,057 185,668 162,360
Gross margin -- %................................. 41.3 42.9 42.4
Selling and administrative expenses............... $ 110,745 109,518 95,201
% of net sales.................................. 32.2 33.7 33.8
Profit from operations............................ $ 31,631 30,182 24,124
% of net sales.................................. 9.2 9.3 8.6
Other income and (expense)........................ $ 698 (747) (43)
Income tax expense................................ $ 11,302 9,773 8,346
% of earnings before income taxes............... 35.0 33.2 34.7
Earnings before extraordinary gain and
cumulative effect of accounting change............ $ 21,027 19,662 15,735
% of net sales.................................. 6.1 6.0 5.6
Return on beginning shareholders' equity -- %... 18.4 20.4 18.7
Net earnings...................................... $ 21,027 19,662 15,735
PER SHARE DATA(e)
Earnings before extraordinary gain and
cumulative effect of accounting change............ $ 2.10 1.98 1.6
Net earnings...................................... $ 2.10 1.98 1.6
Cash dividends.................................... $ .69 .68 .65
Shareholders' equity (ending)..................... $ 12.93 11.47 9.78
YEAR-END FINANCIAL POSITION
Cash and cash equivalents......................... $ 9,881 4,247 1,851
Total current assets.............................. $ 126,481 123,508 98,454
Property, plant, and equipment, net............... $ 65,384 63,724 56,552
Total assets...................................... $ 219,180 215,750 182,834
Current liabilities excluding current debt........ $ 45,724 44,374 41,959
Current ratio excluding current debt.............. 2.8 2.8 2.3
Long-term liabilities excluding long-term debt.... $ 18,908 16,747 15,318
Financing debt
Current......................................... $ 3,864 17,349 23,008
Long-term....................................... $ 21,824 23,149 6,300
Total as % of total capital................... 16.6 26.2 23.3
Shareholders' equity.............................. $ 128,860 114,131 96,249
CASH FLOW Increase (Decrease)
Related to operating activities................... $ 44,566 17,834 26,754
Related to investing activities................... $ (17,240) (22,107) (47,931)
Related to financing activities................... $ (22,024) 6,721 20,351
OTHER DATA
Interest income................................... $ 4,259 4,132 3,807
Interest expense.................................. $ 2,491 2,640 1,677
Depreciation and amortization expense............. $ 16,387 14,090 13,121
Net expenditures for property, plant, and
equipment......................................... $ 17,581 19,117 18,870
Number of employees at year-end................... 1,959 1,997 1,916
Total direct compensation......................... $ 89,210 86,263 76,225
Profit sharing and all other employee benefit..... $ 22,499 21,887 21,116
Average shares outstanding(e)..................... 10,021 9,916 9,826
Closing share price at year-end(e)................ $ 27.50 23-7/8 24-1/8
Common stock price range during year(e)........... $ 21-1/4--27-1/2 22-1/4--29 20-15/32--24-1/4
Closing price/earnings ratio(f)................... 13.1 12.1 15.1
</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) Adjusted retroactively for two-for-one stock split effective April 26,
1995.
(f) 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>
- ---------------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales......................................... 221,002 214,863 198,575 211,503
Cost of sales..................................... 126,071 121,792 112,147 121,598
Gross margin -- %................................. 43.0 43.3 43.5 42.5
Selling and administrative expenses............... 79,508 76,942 69,707 70,401
% of net sales.................................. 36.0 35.8 35.1 33.3
Profit from operations............................ 11,333(a) 16,129 16,721 19,504
% of net sales.................................. 5.1 7.5 8.4 9.2
Other income and (expense)........................ 1,595 1,864 1,800 374
Income tax expense................................ 3,802 4,803 6,529 4,257
% of earnings before income taxes............... 29.4 26.7 35.3 21.4
Earnings before extraordinary gain
and cumulative effect of accounting change...... 9,126(a) 13,190(b) 11,992 15,621(c)
% of net sales.................................. 4.1 6.1 6.0 7.4
Return on beginning shareholders' equity -- %... 10.8(a) 17.2(b) 16.4 21.1(c)
Net earnings...................................... 9,126 9,229 11,992 18,256
PER SHARE DATA(e)
Earnings before extraordinary gain and
cumulative effect of accounting change.......... .93(a) 1.34(b) 1.21 1.59(c)
Net earnings.................................... .93 .94 1.21 1.85
Cash dividends.................................. .64 .61 .60 .59
Shareholders' equity (ending)................... 8.56 8.64 7.87 7.43
YEAR-END FINANCIAL POSITION
Cash and cash equivalents....................... 2,675 3,512 2,349 1,412
Total current assets............................ 73,752 74,741 66,028 67,065
Property, plant, and equipment, net............. 46,622 45,430 40,730 42,588
Total assets.................................... 128,634 128,988 111,644 114,590
Current liabilities excluding current debt...... 29,657 28,848 30,700 30,982
Current ratio excluding current debt............ 2.5 2.6 2.2 2.2
Long-term liabilities excluding long-term debt.. 12,591 10,691 2,281 1,463
Financing debt
Current....................................... 1,190 1,492 197 6,986
Long-term..................................... 1,103 3,107 1,853 1,995
Total as % of total capital................. 2.7 5.1 2.6 10.9
Shareholders' equity............................ 84,093 84,850 76,613 73,164
CASH FLOW Increase (Decrease)
Related to operating activities................. 21,922 20,115 23,777 24,848
Related to investing activities................. (13,569) (15,717) (7,472) (8,951)
Related to financing activities................. (9,244) (3,346) (15,336) (17,746)
OTHER DATA
Interest income................................. 3,583 3,619 3,828 2,672
Interest expense................................ 509 540 568 1,019
Depreciation and amortization expense........... 10,987 10,241 8,730 8,652
Net expenditures for property, plant,
and equipment................................ 12,877 12,315 8,063 8,071
Number of employees at year-end................. 1,707 1,758 1,738 1,800
Total direct compensation....................... 71,507 69,240 65,324 66,364
Profit sharing and all other employee benefits.. 18,149 19,547 17,917 19,316
Average shares outstanding(e)................... 9,836 9,832 9,892 9,842
Closing share price at year-end(e).............. 23-1/2 21-7/16 18 17-1/2
Common stock price range during year(e)......... 19-3/4--24-1/4 17-1/4--24-3/8 16-1/4--21-1/4 13-7/8--22-1/8
Closing price/earnings ratio(f)................. 19.7 17.4 14.9 13.3
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1989 1988 1987 1986
---------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
Net sales....................................... 197,078 183,888 166,924 151,497
Cost of sales................................... 112,511 105,991 95,015 85,977
Gross margin -- %............................... 42.9 42.4 43.1 43.2
Selling and administrative expenses............. 64,518 59,646 55,352 50,145
% of net sales................................ 32.7 32.4 33.2 33.1
Profit from operations.......................... 20,049 18,251 16,557 15,375
% of net sales................................ 10.2 9.9 9.9 10.1
Other income and (expense)...................... 3,755 1,449 953 1,433
Income tax expense.............................. 9,052 8,126 7,692 7,992
% of earnings before income taxes............. 38.0 41.2 43.9 47.5
Earnings before extraordinary gain
and cumulative effect of accounting change...... 14,752(d) 11,574 9,818 8,816
% of net sales................................ 7.5 6.3 5.9 5.8
Return on beginning shareholders' equity -- %. 18.9(d) 16.6 15.0 14.7
Net earnings.................................... 14,752 13,263 9,818 8,816
PER SHARE DATA(e)
Earnings before extraordinary gain and
cumulative effect of accounting change........ 1.44(d) 1.09 .92 .83
Net earnings.................................... 1.44 1.25 .92 .83
Cash dividends.................................. .55 .49 .48 .46
Shareholders' equity (ending)................... 7.52 7.37 6.60 6.15
YEAR-END FINANCIAL POSITION
Cash and cash equivalents....................... 3,175 7,016 3,564 947
Total current assets............................ 70,325 76,402 65,960 55,627
Property, plant, and equipment, net............. 40,949 35,616 35,583 35,037
Total assets.................................... 116,179 117,013 105,273 94,506
Current liabilities excluding current debt...... 35,408 29,836 25,206 17,742
Current ratio excluding current debt............ 2.0 2.6 2.6 3.1
Long-term liabilities excluding long-term debt.. 4,022 3,757 3,130 2,744
Financing debt
Current....................................... 588 1,722 2,280 1,209
Long-term..................................... 2,111 2,234 2,421 2,766
Total as % of total capital................. 3.5 4.8 6.3 5.7
Shareholders' equity............................ 74,050 77,998 69,516 65,356
CASH FLOW Increase (Decrease)
Related to operating activities................. 25,685 18,614 15,651 15,177
Related to investing activities................. (8,916) (9,140) (7,156) (8,543)
Related to financing activities................. (20,310) (5,730) (5,861) (8,446)
OTHER DATA
Interest income................................. 2,033 2,023 2,196 2,061
Interest expense................................ 597 401 1,017 705
Depreciation and amortization expense........... 8,027 7,900 7,162 6,611
Net expenditures for property, plant,
and equipment................................ 9,135 9,121 7,007 8,543
Number of employees at year-end................. 1,789 1,726 1,727 1,728
Total direct compensation....................... 62,401 58,637 54,721 49,819
Profit sharing and all other employee benefits.. 17,233 15,245 14,437 11,299
Average shares outstanding(e)................... 10,268 10,592 10,640 10,658
Closing share price at year-end(e).............. 17-1/2 13-1/8 11-3/4 12-1/8
Common stock price range during year(e)......... 12-5/8--18-1/4 11-1/4--16-3/8 8--16-1/2 10-9/16--13-1/4
Closing price/earnings ratio(f)................. 13.3 12 12.7 14.7
</TABLE>
31
<PAGE>
INVESTOR INFORMATION
ANNUAL MEETING
The annual meeting of Tennant Company will be held at 10:30 a.m. on Thursday,
May 1, 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, under
the ticker symbol TANT.
As of December 31, 1996, there were approximately 3,300 shareholders of record.
QUARTERLY PRICE RANGE
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:
First Second Third Fourth
---------------------------------------------------------
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
1996 21.25-25.00 23.50-26.50 22.00-26.00 22.50-27.50
DIVIDEND INFORMATION
Cash dividends on Tennant's common stock have been paid for 53 consecutive
years, and the Company has increased dividends in each of the last 25 years.
Dividends generally are declared each quarter. Following are the record dates
anticipated for the next 12 months:
June 5, 1997 December 16, 1997
September 8, 1997 March 6, 1998
DIVIDEND REINVESTMENT OR DIRECT DEPOSIT OPTIONS
Shareholders have the option of reinvesting quarterly dividends in additional
shares of Company stock, or having dividends deposited directly to a bank
account. The Transfer Agent should be contacted for additional information (see
below).
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 1996 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
ROGERL. HALE, PRESIDENT, CHIEF EXECUTIVE OFFICER
ARTHUR D. COLLINS, JR., PRESIDENT, CHIEF EXECUTIVE 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, RETIRED 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
EDWIN L. RUSSELL, CHAIRMAN, PRESIDENT, CHIEF EXECUTIVE OFFICER
MINNESOTA POWER, DULUTH, MINNESOTA
Officers
ROGER L. HALE, PRESIDENT, CHIEF EXECUTIVE OFFICER
JANET M. DOLAN, EXECUTIVE VICE PRESIDENT
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
STEVEN K. WEEKS, 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
32
TENNANT COMPANY
701 North Lilac Drive
P. O. Box 1452
Minneapolis, MN 55440
<PAGE>
EXHIBIT 23.1
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT AND CONSENT
The Board of Directors and Shareholders
Tennant Company:
The audits referred to in our report dated February 7, 1997, included the
related financial statement schedule for each of the years in the three-year
period ended December 31, 1996, included in Item 14.A.2 elsewhere herein.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We consent to incorporation by reference in Registration Statement No.
2-86844 of 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 reports dated February
7, 1997, relating to the consolidated balance sheets of Tennant Company and
subsidiaries as of December 31, 1996 and 1995, 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, 1996, and the related
financial statement schedule, which reports appear in or are incorporated by
reference in the December 31, 1996 annual report on Form 10-K of Tennant
Company.
KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
March 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINACIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996, PAGES 18 AND 19, FOOTNOTE 2,
PAGE 24, AND FOOTNOTE 7, PAGE 25, OF THE COMPANY'S 1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 9881
<SECURITIES> 0
<RECEIVABLES> 77024
<ALLOWANCES> 2506
<INVENTORY> 35264
<CURRENT-ASSETS> 126481
<PP&E> 148922
<DEPRECIATION> 83538
<TOTAL-ASSETS> 219180
<CURRENT-LIABILITIES> 49588
<BONDS> 21824
0
0
<COMMON> 3737
<OTHER-SE> 125123
<TOTAL-LIABILITY-AND-EQUITY> 219180
<SALES> 344433
<TOTAL-REVENUES> 344433
<CGS> 202057
<TOTAL-COSTS> 202057
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1160
<INTEREST-EXPENSE> 2491
<INCOME-PRETAX> 32329
<INCOME-TAX> 11302
<INCOME-CONTINUING> 21027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21027
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 2.10
</TABLE>
