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 September 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 September 30, 1996, was 10,022,459.
Page 2 of 8 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 Nine Months Ended September 30 Ended September 30 ---------------------- ----------------------- EARNINGS (note 1) 1996 1995 1996 1995 ------- ------- -------- -------- <S> <C> <C> <C> <C> Net sales $83,816 $77,761 $247,433 $234,702 Less: Cost of sales (note 2) 49,619 44,279 144,679 133,934 Selling and administrative (note 2) 26,691 26,208 81,831 80,103 ------- ------- -------- -------- Profit from operations 7,506 7,274 20,923 20,665 Other income (expense) Net foreign currency gain (loss) -- (199) 40 (78) Interest income 1,059 1,045 3,161 3,109 Interest expense (575) (715) (1,927) (1,853) Miscellaneous income (expense), net (311) (411) (625) (1,142) ------- ------- -------- -------- Total other income (expense) 173 (280) 649 36 ------- ------- -------- -------- Earnings before income taxes 7,679 6,994 21,572 20,701 Taxes on Income 2,669 2,360 7,413 6,920 ------- ------- -------- -------- Net earnings $ 5,010 $ 4,634 $ 14,159 $ 13,781 ------- ------- -------- -------- ------- ------- -------- -------- PER SHARE (note 5) Net earnings $ .50 $ .47 $ 1.41 $ 1.39 Dividends $ .17 $ .17 $ .51 $ .51 Average number of shares 10,044,900 9,923,200 10,030,000 9,907,900 </TABLE>
Page 3 of 8 TENNANT COMPANY Quarterly Report - Form 10-Q ITEM 1 - FINANCIAL STATEMENTS (continued) TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS (Dollars in thousands) BALANCE SHEET <TABLE> (Condensed from Audited (Unaudited) Financial Statements) ASSETS September 30, 1996 December 31, 1995 ------------------ ---------------------- <S> <C> <C> Cash and cash equivalents $ 5,941 $ 4,247 Receivables 68,706 76,961 Less deferred income from sales finance charges (1,781) (1,840) Less allowance for doubtful accounts (2,341) (2,610) ------------- ------------- Net receivables 64,584 72,511 Inventories (note 3) 39,168 40,702 Prepaid expenses 990 944 Deferred income taxes, current portion 5,099 5,104 ------------- ------------- Total current assets 115,782 123,508 Property, plant, and equipment 146,459 137,213 Less allowance for depreciation (81,003) (73,489) ------------- ------------- Net property, plant, and equipment 65,456 63,724 Net noncurrent installment accounts receivable 7,350 7,510 Deferred income taxes, long-term portion 1,546 1,545 Intangible assets 18,089 18,859 Other assets 627 604 ------------- ------------- Total assets $ 208,850 $ 215,750 ------------- ------------- ------------- ------------- LIABILITIES & SHAREHOLDERS' EQUITY (Condensed from Audited (Unaudited) Financial Statements) September 30, 1996 December 31, 1995 ------------------ ---------------------- Current debt $ 4,063 $ 17,349 Accounts payable 14,853 21,436 Accrued expenses 24,003 22,938 ------------- ------------- Total current liabilities 42,919 61,723 Long-term debt 23,134 23,149 Employee retirement-related benefits 17,525 16,177 Other long-term liabilities 380 570 ------------- ------------- Total liabilities 83,958 101,619 SHAREHOLDERS' EQUITY Common stock (note 5) 3,758 3,732 Additional paid-in capital (note 5) 4,932 3,166 Equity adjustment from foreign currency translation 3,451 3,532 Common stock subscribed 204 694 Unearned restricted shares (541) (276) Retained earnings 125,443 116,396 Receivable from ESOP (12,355) (13,113) ------------- ------------- Total shareholders' equity 124,892 114,131 ------------- ------------- Total liabilities and shareholders' equity $ 208,850 $ 215,750 ------------- ------------- ------------- ------------- </TABLE>
Page 4 of 8 TENNANT COMPANY Quarterly Report - Form 10-Q ITEM 1 - FINANCIAL STATEMENTS (continued) TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS (UNAUDITED) (Dollars in thousands) <TABLE> <CAPTION> STATEMENTS OF CASH FLOWS (note 4) Nine Months Ended September 30 ------------------------------ 1996 1995 ----------- ---------- <S> <C> <C> Net cash flow related to operating activities $ 31,870 $ 12,280 Cash flow related to investing activities: Acquisition of property, plant, and equipment (15,862) (16,048) Acquisition of intangible assets (180) Acquisition of Castex and Eagle -- (1,126) Proceeds from disposals of property, plant, and equipment 2,715 2,685 Settlement of foreign currency hedging contracts 396 (691) ---------- ---------- Net cash flow related to investing activities (12,931) (15,180) Cash flow related to financing activities: Net changes in current debt (13,086) (9,322) Issuance of long-term debt -- 15,727 Principal payment from ESOP 495 450 Proceeds from employee stock issues 1,336 1,249 Repurchase of common stock (963) 0 Dividends paid (5,112) (5,052) ---------- ---------- Net cash flow related to financing activities (17,330) 3,052 Effect of exchange rate changes on cash 86 (177) ---------- ---------- Net increase (decrease) in cash and cash equivalents 1,695 (25) Cash and cash equivalents at beginning of year 4,247 1,851 ---------- ---------- Cash and cash equivalents at end of third quarter $ 5,942 $ 1,826 ---------- ---------- ---------- ---------- </TABLE>
Page 5 of 8 TENNANT COMPANY Quarterly Report - Form 10-Q ITEM 1 - FINANCIAL STATEMENTS (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In the opinion of management, financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the interim periods presented. The results of operations for interim periods are not necessarily indicative of results which will be realized for the full fiscal year. (1) The Company's Summary of Significant Accounting Policies and other Related Data and Summary of Stock Plans, Bonuses, and Profit Sharing is included in the Company's 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 nine months ended September 30, 1996 and 1995, as follows: <TABLE> Three Months Nine Months Ended September 30 Ended September 30 ------------------ ------------------ 1996 1995 1996 1995 ------ ------ ------ ------ (In Thousands) <S> <C> <C> <C> <C> Engineering, research and development $ 2,962 $ 3,146 $ 9,238 $ 9,193 ------- ------- ------- ------- ------- ------- ------- ------- Bad debts $ 146 $ 84 $ 667 $ 591 ------- ------- ------- ------- ------- ------- ------- ------- </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. (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 September 30, 1996, and December 31, 1995, is as follows: September 30 December 31 1996 1995 ------------ ----------- (In Thousands) FIFO Inventories: Finished Goods $ 28,879 $ 28,146 All Other 28,793 30,406 LIFO Adjustment (18,504) (17,850) --------- ---------- LIFO Inventories $ 39,168 $ 40,702 --------- ---------- --------- ---------- 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 8 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 nine months ended September 30, 1996 and 1995, were $5,848,000 and $8,316,000, respectively. Interest costs paid during the nine months ended September 30, 1996 and 1995, were $1,900,686 and $2,048,000, 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 OPERATIONS 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 Nine Months Ended September 30, 1996, and is incorporated in this Form 10-Q by reference.
Page 7 of 8 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 Nine Months Ended September 30, 1996 27.1 Financial Data Schedule Filed herewith electronically. (b) Reports on Form 8-K There were no reports filed on Form 8-K for the quarter ended September 30, 1996.
Page 8 of 8 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: ----------------------- ------------------------------ Richard A. Snyder Vice President, Treasurer and Principal Financial Officer Date: ----------------------- ------------------------------ Mahedi A. Jiwani Corporate Controller and Principal Accounting Officer