FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Quarter Ended March 31, 1998 Commission File No. 04804 TENNANT COMPANY Incorporated in Minnesota IRS Emp Id No. 410572550 701 North Lilac Drive P.O. Box 1452 Minneapolis, Minnesota 55440 Telephone No. 612-540-1200 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ The number of shares outstanding of Registrant's common stock, par value $.375, on March 31, 1998, was 9,657,608.
Page 1 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, except per share amounts) <TABLE> <CAPTION> Three Months Ended March 31 ---------------------------- EARNINGS (note 1) 1998 1997 ------- ------- <S> <C> <C> Net sales $88,721 $83,026 Less: Cost of sales (note 2) 51,445 48,877 Selling and administrative (note 2) 29,893 27,562 ------- ------- Profit from operations 7,383 6,587 Other income and (expense) Net foreign currency gain (loss) (128) (36) Interest income 1,142 1,121 Interest expense (564) (527) Miscellaneous income (expense), net 339 (301) ------- ------- Total other income (expense) 789 257 ------- ------- Earnings before income taxes 8,172 6,844 Taxes on income 2,929 2,437 ------- ------- Net earnings $ 5,243 $ 4,407 ------- ------- ------- ------- Comprehensive earnings adjustment for foreign currency translation, net of tax (674) (1,734) ------- ------- Comprehensive earnings $ 4,569 $ 2,673 ------- ------- ------- ------- PER SHARE Basic net earnings $ .54 $ .44 Diluted net earnings $ .54 $ .44 Dividends $ .18 $ .18 Average number of shares (diluted) 9,758,000 10,121,700 </TABLE> See Accompanying Notes
Page 2 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> <CAPTION> (Condensed from Audited Financial (Unaudited) Statements) ASSETS March 31, 1998 December 31, 1997 -------------- ----------------- <S> <C> <C> Cash and cash equivalents $ 26,962 $ 16,279 Receivables 76,429 83,099 Less deferred income from sales finance charges (1,636) (1,636) Less allowance for doubtful accounts (3,334) (3,302) --------- --------- Net receivables 71,459 78,161 Inventories (note 3) 42,166 40,323 Prepaid expenses 947 985 Deferred income taxes, current portion 7,393 7,357 --------- --------- Total current assets 148,927 143,105 Property, plant, and equipment 158,250 156,602 Less allowance for depreciation (94,023) (91,491) --------- --------- Net property, plant, and equipment 64,227 65,111 Net noncurrent installment accounts receivable 7,026 6,337 Deferred income taxes, long-term portion 2,339 2,257 Intangible assets 16,267 16,525 Other assets 509 535 --------- --------- Total assets $ 239,295 $ 233,870 --------- --------- --------- --------- </TABLE> LIABILITIES & SHAREHOLDERS' EQUITY <TABLE> <CAPTION> (Condensed from Audited Financial (Unaudited) Statements) LIABILITIES March 31, 1998 December 31, 1997 -------------- ----------------- <S> <C> <C> Current debt $ 6,711 $ 2,377 Accounts payable 22,712 19,078 Accrued expenses 24,795 35,694 --------- --------- Total current liabilities 54,218 57,149 Long-term debt 28,104 20,678 Employee retirement-related benefits 22,426 21,767 Other long-term liabilities -- 190 --------- --------- Total liabilities 104,748 99,784 SHAREHOLDERS' EQUITY Common stock (note 6) 3,619 3,637 Additional paid-in capital (note 5) -- -- Common stock subscribed 231 444 Unearned restricted shares (866) (789) Retained earnings 142,441 141,656 Receivable from ESOP (10,767) (11,425) --------- --------- Accumulated other comprehensive income (equity adjustment from foreign currency translation) (111) 563 Total shareholders' equity 134,547 134,086 --------- --------- Total liabilities and shareholders' equity $ 239,295 $ 233,870 --------- --------- --------- --------- </TABLE> See Accompanying Notes
Page 3 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) Three Months Ended March 31 --------------------------- 1998 1997 ---- ---- <S> <C> <C> Net cash flow related to operating activities $ 6,734 $ 3,508 Cash flow related to investing activities: Acquisition of property, plant, and equipment (4,577) (3,032) Proceeds from disposals of property, plant, and equipment 1,195 319 Settlement of foreign currency hedging contracts -- 326 -------- ------- Net cash flow related to investing activities (3,382) (2,387) Cash flow related to financing activities: Net changes in current debt 599 524 Issuance of long-term debt 6,061 4 Payments to settle long-term debt 5,777 (6) Principal payment from ESOP -- 545 Proceeds from employee stock issues 497 462 Repurchase of common stock (3,876) (1,316) Dividends paid (1,739) (1,800) -------- ------- Net cash flow related to financing activities 7,319 (1,587) Effect of exchange rate changes on cash 12 157 -------- ------- Net increase (decrease) in cash and cash equivalents 10,683 (309) Cash and cash equivalents at beginning of year 16,279 9,881 -------- ------- Cash and cash equivalents at end of first quarter $ 26,962 $ 9,572 -------- ------- -------- ------- </TABLE> See Accompanying Notes
Page 4 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 1997 Annual Report filed as Exhibit 13.1 to the Company's annual report on Form 10-K and is incorporated in this Form 10-Q by reference. (2) Expenses Engineering, research and development, maintenance and repairs, warranty, and bad debt expenses were charged to operations for the three months ended March 31, 1998 and 1997, as follows: <TABLE> <CAPTION> 1998 1997 ---- ---- (In Thousands) <S> <C> <C> Engineering, research and development $4,451 $3,237 ------ ------ ------ ------ Maintenance and repairs $1,560 $1,490 ------ ------ ------ ------ Warranty $1,108 $1,034 ------ ------ ------ ------ Bad debts $ 189 $ 135 ------ ------ ------ ------ </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 March 31, 1998, and December 31, 1997, is as follows: <TABLE> <CAPTION> March 31 December 31 1998 1997 -------- ----------- (In Thousands) <S> <C> <C> FIFO Inventories: Finished Goods $31,194 $27,028 All Other 30,353 31,832 LIFO Adjustment (19,381) (18,538) ------- ------- LIFO Inventories $42,166 $40,323 ------- ------- ------- ------- </TABLE>
Page 5 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 three months ended March 31, 1998 and 1997, were $3,063,000 and $2,361,000, respectively. Interest costs paid during the three months ended March 31, 1998, and 1997, were $555,000 and $529,000, 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. (6) Earnings Per Share (In thousands, except per share amounts) <TABLE> <CAPTION> For the Quarter Ending March 31, 1998 --------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ---------- <S> <C> <C> <C> Basic EPS Income available to common stockholders $5,243 9,726 $ 0.54 Effect of Dilutive Securities Fixed stock options 32 Performance-related shares 0 Diluted EPS Income available to common stockholders + assumed conversions $5,243 9,758 $ 0.54 </TABLE> <TABLE> <CAPTION> For the Quarter Ending March 31, 1997 --------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ---------- <S> <C> <C> <C> Basic EPS Income available to common stockholders $4,407 10,058 $ 0.44 Effect of Dilutive Securities Fixed stock options 21 Performance-related shares 43 Diluted EPS Income available to common stockholders + assumed conversions $4,407 10,122 $ 0.44 </TABLE>
Page 6 of 8 TENNANT COMPANY Quarterly Report - Form 10-Q NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) Comprehensive Income (In thousands) Beginning the first quarter 1998, the Company is adopting SFAS No. 130, REPORTING COMPREHENSIVE INCOME, which establishes standards for reporting and displaying the components of comprehensive income. The Company has retroactively restated comprehensive income to meet this compliance. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Management's discussion and analysis of financial condition and results of operations is included in Exhibit 13.1, attached, text portion of Report to Shareholders for the Three Months Ended March 31, 1998, 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 Three Months Ended March 31, 1997. 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 March 31, 1998.
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 Chief Financial Officer Date: ------------------------- ----------------------------------- John T. Pain Corporate Controller and Principal Accounting Officer