FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Quarter Ended June 30, 1996 Commission File No. 04804 TENNANT COMPANY Incorporated in Minnesota IRS Emp Id No. 410572550 701 North Lilac Drive P.O. Box 1452 Minneapolis, Minnesota 55440 Telephone No. 612-540-1200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of Registrant's common stock, par value $.375, on June 30, 1996, was 10,054,166.
Page 2 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q PART I - FINANCIAL INFORMATION Item 1 - Financial Statements TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS (Unaudited) (Dollars in thousands) <TABLE> <CAPTION> Three Months Ended June 30 Six Months Ended June 30 ------------ ------------ 1996 1995 1996 1995 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> EARNINGS (note 1) Net sales .......................................... $ 86,794 $ 82,797 $ 163,617 $ 156,941 Less: Cost of sales (note 2) ........................ 51,004 47,009 95,060 89,655 Selling and administrative (note 2) ........... 28,020 28,016 55,140 53,895 ------------ ------------ ------------ ------------ Profit from operations ............................. 7,770 7,772 13,417 13,391 Other income and (expense) Net foreign currency gain (loss) .............. (148) (21) 40 123 Interest income ............................... 1,068 1,068 2,102 2,066 Interest expense .............................. (640) (569) (1,352) (1,141) Miscellaneous income (expense), net ........... (200) (325) (314) (732) ------------ ------------ ------------ ------------ Total other income (expense) .............. 80 153 476 316 ------------ ------------ ------------ ------------ Earnings before income taxes ....................... 7,850 7,925 13,893 13,707 Taxes on income .................................... 2,685 2,647 4,744 4,560 ------------ ------------ ------------ ------------ Net earnings ....................................... $ 5,165 $ 5,278 $ 9,149 $ 9,147 ============ ============ ============ ============ PER SHARE (note 5) Net earnings ....................................... $ .51 $ .53 $ .91 $ .92 Dividends .......................................... $ .17 $ .17 $ .34 $ .34 Average number of shares ........................... 10,036,300 9,907,700 10,022,300 9,900,000 </TABLE>
Page 3 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q Item 1 - Financial Statements (continued) TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS (Dollars in thousands) BALANCE SHEET <TABLE> <CAPTION> (Condensed from Audited (Unaudited) Financial Statements) ASSETS June 30, 1996 December 31, 1995 ------------- ----------------- <S> <C> <C> Cash and cash equivalents $ 2,686 $ 4,247 Receivables 70,891 76,961 Less deferred income from sales finance charges (1,800) (1,840) Less allowance for doubtful accounts (2,499) (2,610) ----------- ----------- Net receivables 66,592 72,511 Inventories (note 3) 40,833 40,702 Prepaid expenses 1,029 944 Deferred income taxes, current portion 5,128 5,104 ----------- ----------- Total current assets 116,268 123,508 Property, plant, and equipment 143,176 137,213 Less allowance for depreciation (78,264) (73,489) ---------- ---------- Net property, plant, and equipment 64,912 63,724 Net noncurrent installment accounts receivable 7,349 7,510 Deferred income taxes, long-term portion 1,546 1,545 Intangible assets 18,420 18,859 Other assets 582 604 ------------ ----------- Total assets $209,077 $215,750 ======== ======== <CAPTION> LIABILITIES & SHAREHOLDERS' EQUITY (Condensed from Audited (Unaudited) Financial Statements) LIABILITIES June 30, 1996 December 31, 1995 ------------- ----------------- <S> <C> <C> Current debt $ 10,299 $ 17,349 Accounts payable 15,111 21,436 Accrued expenses 21,847 22,938 --------- --------- Total current liabilities 47,257 61,723 Long-term debt 23,083 23,149 Employee retirement-related benefits 16,997 16,177 Other long-term liabilities 380 570 ----------- ----------- Total liabilities 87,717 101,619 SHAREHOLDERS' EQUITY Common stock (note 5) 3,770 3,732 Additional paid-in capital (note 5) 5,646 3,166 Equity adjustment from foreign currency translation 2,907 3,532 Common stock subscribed -- 694 Unearned restricted shares (660) (276) Retained earnings 122,139 116,396 Receivable from ESOP (12,442) (13,113) ----------- ---------- Total shareholders' equity 121,360 114,131 --------- --------- Total liabilities and shareholders' equity $209,077 $215,750 ======== ======== </TABLE>
Page 4 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q Item 1 - Financial Statements (continued) TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS (UNAUDITED) (Dollars in thousands) STATEMENTS OF CASH FLOWS (note 4) <TABLE> <CAPTION> Six Months Ended June 30 ------------------------ 1996 1995 ---- ---- <S> <C> <C> Net cash flow related to operating activities $ 16,015 $ 3,259 Cash flow related to investing activities: Acquisition of property, plant, and equipment (11,093) (11,295) Acquisition of intangible assets (179) -- Acquisition of Castex and Eagle -- (1,125) Proceeds from disposals of property, plant, and equipment 1,920 2,204 Settlement of foreign currency hedging contracts 313 (681) --------- --------- Net cash flow related to investing activities (9,039) (10,897) Cash flow related to financing activities: Net changes in current debt (6,712) (5,339) Issuance of long-term debt -- 15,727 Principal payment from ESOP 495 450 Proceeds from employee stock issues 895 826 Dividends paid (3,406) (3,364) ------- ------- Net cash flow related to financing activities (8,728) 8,300 Effect of exchange rate changes on cash 191 (215) -------- -------- Net increase (decrease) in cash and cash equivalents (1,561) 447 Cash and cash equivalents at beginning of year 4,247 1,851 ------- ------- Cash and cash equivalents at end of second quarter $2,686 $2,298 ====== ====== </TABLE>
Page 5 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q Item 1 - Financial Statements (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) The Company's Summary of Significant Accounting Policies and other Related Data and Summary of Stock Plans, Bonuses, and Profit Sharing is included in the Company's 1995 Annual Report filed as Exhibit 13.1 to the Company's annual filing on Form 10-K and is incorporated in this Form 10-Q by reference. (2) Expenses Engineering, research and development, and bad debt expenses were charged to operations for the three and six months ended June 30, 1996 and 1995, as follows: <TABLE> <CAPTION> Three Months Six Months Ended June 30 Ended June 30 ------------- ------------- 1996 1995 1996 1995 ---- ---- ---- ---- (In Thousands) <S> <C> <C> <C> <C> Engineering, research and development $3,164 $3,147 $6,276 $6,047 ====== ====== ====== ====== Bad debts $ 322 $ 13 $ 521 $ 507 ===== ==== ===== ===== </TABLE> The Company also makes accrual adjustments on a regular monthly basis for bonus and profit sharing expenses which are settled at year-end. This allows for a fair statement of the results for the interim periods presented. Amounts differ from 1995 10-Q report due to the reclassification of expenses. (3) Inventories Inventories are valued at the lower of cost (principally on a last-in, first-out basis) or market. The composition of inventories at June 30, 1996, and December 31, 1995, is as follows: <TABLE> <CAPTION> June 30 December 31 1996 1995 ---- ---- (In Thousands) <S> <C> <C> FIFO Inventories: Finished Goods $29,910 $28,146 All Other 29,427 30,406 LIFO Adjustment (18,504) (17,850) --------- -------- LIFO Inventories $40,833 $40,702 ======= ======= </TABLE> The category "All Other" includes production-related raw materials, parts and supplies, and work-in-process. The Company's accounting system does not permit a further breakdown of this category of inventories.
Page 6 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q Item 1 - Financial Statements (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4) Cash Flow Income taxes paid during the six months ended June 30, 1996 and 1995, were $3,137,000 and $5,195,000, respectively. Interest costs paid during the six months ended June 30, 1996 and 1995, were $1,337,000 and $1,204,000, respectively. (5) Stock Split On February 16, 1995, the Board of Directors declared a two-for-one stock split effective April 26, 1995, for shareholders of record on April 12, 1995. For each share to be issued in connection with the stock split, an amount equal to the par value of $.375 was transferred to the common stock amount from additional paid-in capital retroactive to December 31, 1994. All share and per share data in this report have been retroactively adjusted to reflect this stock split. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operation Management's discussion and analysis of financial condition and results of operations is included in Exhibit 13.1, attached, text portion of Report to Shareholders for the Six Months Ended June 30, 1996, and is incorporated in this Form 10-Q by reference.
Page 7 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders At the Annual Shareholders' Meeting held on May 2, 1996, the following matters were submitted to vote: (a) Election of Directors Roger L. Hale was elected to serve a three-year term as a director of the Company. Out of 9,055,545 common shares represented, 7,517,833 voted in favor and 1,537,712 withheld. Delbert W. Johnson was elected to serve a three-year term as a director of the Company. Out of 9,055,545 common shares represented, 7,531,969 voted in favor and 1,523,576 withheld. Arthur R. Schulze, Jr. resigned from his position as director of the company on 5/2/96. The following directors each continued their term of office after the meeting: David C. Cox Arthur D. Collins, Jr. Andrew P. Czajkowski William A. Hodder William I. Miller (b) Appointment of KPMG Peat Marwick as Auditors The appointment of KPMG Peat Marwick as independent auditors of the Company was approved. Out of 9,055,545 common shares represented, 8,931,801 voted in favor, 39,498 against, and 84,246 abstained.
Page 8 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits Item # Description Method of Filing 3i Articles of Incorporation Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement No. 33-62003, Form S-8, dated August 22, 1995. 3ii By-Laws Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement No. 33-59054, Form S-8, dated March 2, 1993. 13.1 Text Portion of Report to Filed herewith electronically. Shareholders for the Six Months Ended June 30, 1996 27.1 Financial Data Schedule Filed herewith electronically. (b) Reports on Form 8-K There were no reports filed on Form 8K filed for the quarter ended June 30, 1996.
Page 9 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TENNANT COMPANY Date: 8/5/96 /s/ Richard A. Snyder ------------------ -------------------------------- Richard A. Snyder Vice President, Treasurer and Chief Financial Officer Date: 8/5/96 /s/ Mahedi A. Jiwani ------------------ -------------------------------- Mahedi A. Jiwani Corporate Controller and Principal Accounting Officer