-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B2lTNtfYTpC2YYs+HMqh19opCPiYPbHvzdBgYc1EosBbBLHqWTLJ7j8AUAhi1jus p5IAfFLpd3bB1whsVOw98w== 0000912057-96-005188.txt : 19960503 0000912057-96-005188.hdr.sgml : 19960503 ACCESSION NUMBER: 0000912057-96-005188 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TENNANT CO CENTRAL INDEX KEY: 0000097134 STANDARD INDUSTRIAL CLASSIFICATION: 3580 IRS NUMBER: 410572550 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-04804 FILM NUMBER: 96538696 BUSINESS ADDRESS: STREET 1: 701 N LILAC DR STREET 2: P O BOX 1452 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 BUSINESS PHONE: 6125401200 FORMER COMPANY: FORMER CONFORMED NAME: TENNANT G H CO DATE OF NAME CHANGE: 19700515 10-K405 1 10-K 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, 1995. COMMISSION FILE NUMBER 0-4804 TENNANT COMPANY INCORPORATED IN THE EMPLOYER IDENTIFICATION STATE OF MINNESOTA 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 ] $133,451,688 is aggregate market value of common stock held by non- affiliates as of March 4, 1996. 9,988,450 shares outstanding at March 4, 1996 DOCUMENTS INCORPORATED BY REFERENCE 1995 Annual Report to Shareholders - Part I (Partial), Part II (Partial), and Part IV (Partial) 1996 Proxy - Part III (Partial) TENNANT COMPANY 1995 ANNUAL REPORT FORM 10-K (PURSUANT TO SECURITIES EXCHANGE ACT OF 1934) PART I Part I is included in the Tennant Company 1995 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 1995 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, 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 60 foreign countries. Additional information pertaining to products and marketing methods is included in the 1995 Annual Report to Shareholders, pages 4, 5, 8, 10 and 12. 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 vendor or source of supply. 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. WORKING CAPITAL PRACTICES The Company's working capital practices are described in the 1995 Annual Report to Shareholders, Management's Financial Discussion and Analysis, Financial Position section on pages 16 and 17. 1 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 1995 Annual Report to Shareholders, page 24, footnote 2. A description of product development is included in the 1995 Annual Report to Shareholders on pages 4, 5, 8, 10 and 12. 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 1995 Annual Report to Shareholders on page 30. EXECUTIVE OFFICERS OF THE REGISTRANT Richard M. Adams, Vice President Richard M. Adams (48) 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 (45) 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 (55) 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. Janet M. Dolan, Senior Vice President and General Counsel Janet M. Dolan (46) joined the Company in 1986. Ms. Dolan was appointed General Counsel and Secretary in 1987, Vice President in 1990, and Senior Vice President in 1995. She is a director of Castex Incorporated. 2 Roger L. Hale, President and Chief Executive Officer Roger L. Hale (61) 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 (57) 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 (47) 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 (48) 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 (56) 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 and a director of Tennant N.V. William R. Strang, Vice President William R. Strang (60) 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. PART II Part II is included in the Tennant Company 1995 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 1996 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. 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 1995 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, 1995 - page 18. 3 b. Consolidated Balance Sheets as of December 31, 1995 and 1994 - page 19. c. Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1995 - page 20. d. Consolidated Statements of Shareholders' Equity for each of the years in the three-year period ended December 31, 1995 - 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 All 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 1995 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. 10.1 Tennant Company 1988 Stock Incentive Plan Incorporated by reference to 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 Incentive Plan Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement No. 33-59054, Form S-8 dated March 2, 1993. 10.3 Tennant Company Restricted Stock Plan Incorporated by reference to Exhibit 4.5 to the Company's Registration for Nonemployee Directors Statement No. 33-59054, Form S-8, dated March 2, 1993. 10.4 Tennant Company 1995 Stock Incentive Plan Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement No. 33-62003, Form S-8, dated August 22, 1995. 10.5 Tennant Company Restricted Stock Plan for Incorporated by reference to Exhibit 10.2 to the Company's 1995 Second Nonemployee Directors, as amended and Quarter 10-Q filing dated August 8, 1995. restated effective January 1, 1995 10.6 Tennant Company Excess Benefit Plan, Incorporated by reference to Exhibit 10.4 to the Company's Annual Report as amended and restated effective on Form 10-K for the fiscal year ended December 31, 1994. January 1, 1994 10.7 Management Agreement with Richard M. Adams Incorporated by reference to Exhibit 10.6 to the Company's Annual Report dated December 10, 1993 on Form 10-K for the fiscal year ended December 31, 1993. 10.8 Management Agreement with Paul E. Brunelle Incorporated by reference to Exhibit 10.7 to the Company's Annual Report dated December 8, 1987 on Form 10-K for the fiscal year ended December 31, 1993.
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10.9 Amendment to Management Agreement with Incorporated by reference to Exhibit 10.8 to the Company's Annual Report Paul E. Brunelle dated June 21, 1989 on Form 10-K for the fiscal year ended December 31, 1993. 10.10 1993 Amendment to Management Agreement with Incorporated by reference to Exhibit 10.9 to the Company's Annual Report Paul E. Brunelle dated December 10, 1993 on Form 10-K for the fiscal year ended December 31, 1993. 10.11 Management Agreement with Janet M. Dolan Incorporated by reference to Exhibit b.5 to the Company's Annual Report dated June 21, 1989 on Form 10-K for the fiscal year ended December 31, 1992. 10.12 1993 Amendment to Management Agreement with Incorporated by reference to Exhibit 10.11 to the Company's Annual Janet M. Dolan dated December 10, 1993 Report on Form 10-K for the fiscal year ended December 31, 1993. 10.13 Management Agreement with Roger L. Hale Incorporated by reference to Exhibit b.8 to the Company's Annual Report dated March 10, 1987 on Form 10-K for the fiscal year ended December 31, 1992. 10.14 Amendment to Management Agreement with Incorporated by reference to Exhibit b.9 to the Company's Annual Report Roger L. Hale dated June 21, 1989 on Form 10-K for the fiscal year ended December 31, 1992. 10.15 1993 Amendment to Management Agreement with Incorporated by reference to Exhibit 10.14 to the Company's Annual Roger L. Hale dated December 10, 1993 Report on Form 10-K for the fiscal year ended December 31, 1993. 10.16 Management Agreement with Douglas R. Incorporated by reference to Exhibit b.10 to the Company's Annual Report Hoelscher dated March 10, 1987 on Form 10-K for the fiscal year ended December 31, 1992. 10.17 Amendment to Management Agreement with Incorporated by reference to Exhibit b.11 to the Company's Annual Report Douglas R. Hoelscher dated June 21, 1989 on Form 10-K for the fiscal year ended December 31, 1992. 10.18 1993 Amendment to Management Agreement with Incorporated by reference to Exhibit 10.18 to the Company's Annual Douglas R. Hoelscher dated December 10, 1993 Report on Form 10-K for the fiscal year ended December 31, 1993. 10.19 Management Agreement with Keith D. Payden Incorporated by reference to Exhibit 10.19 to the Company's Annual dated December 10, 1993 Report on Form 10-K for the fiscal year ended December 31, 1993. 10.20 Management Agreement with Richard A. Snyder Incorporated by reference to Exhibit b.12 to the Company's Annual Report dated March 10, 1987 on Form 10-K for the fiscal year ended December 31, 1992. 10.21 Amendment to Management Agreement with Incorporated by reference to Exhibit b.13 to the Company's Annual Report Richard A. Snyder dated June 22, 1989 on Form 10-K for the fiscal year ended December 31, 1992. 10.22 1993 Amendment to Management Agreement with Incorporated by reference to Exhibit 10.22 to the Company's Annual Richard A. Snyder dated December 10, 1993 Report on Form 10-K for the fiscal year ended December 31, 1993. 10.23 Management Agreement with William R. Strang Incorporated by reference to Exhibit 10.23 to the Company's Annual dated December 10, 1993 Report on Form 10-K for the fiscal year ended December 31, 1993.
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10.24 Asset Purchase Agreement dated January 27, Incorporated by reference to Exhibit 2.1 to the Company's Current Report 1994, between Tennant Company, Castex on Form 8-K dated February 15, 1994. Industries, Inc., Wayne Investment Corp. and Wayne A. Streuer 13.1 Portions of 1995 Annual Report to Filed herewith electronically. Shareholders 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' Consent Filed herewith electronically. 27.1 Financial Data Schedule Filed herewith electronically.
B. Reports on Form 8-K There were no reports filed on Form 8-K during the quarter ended December 31, 1995. 6 CROSS REFERENCE SHEET
Form 10-K Referenced Location - - --------- ---------- -------- Part I, Item 1 - Business 1995 Annual Report to Shareholders Exhibit 13.1 a. General Pages 2, 3, 4, 5, 6, 8, 10 and 12 b. Lines of business, industry segments Page 24, footnote 3 and foreign and domestic operations c. Working capital practices Pages 16 and 17 d. Product research and development Pages 4, 5, 8, 10 and 12 Page 24, footnote 2 e. Employment Page 30 Part I, Item 2 - Properties 1995 Annual Report to Shareholders Exhibit 13.1 Page 25, footnote 7 Page 26, footnote 9 Inside back cover Part II, Item 5 - Market for 1995 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 1995 Annual Report to Shareholders Exhibit 13.1 Financial Data Pages 30 and 31 Part II, Item 7 - Management's 1995 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 1995 Annual Report to Shareholders Exhibit 13.1 Statements and Supplementary Pages 18 to 29 Data Part III, Item 10 - Directors 1996 Proxy Pages 4 to 6 and Executive Officers of the Registrant Part III, Item 11 - Executive 1996 Proxy Pages 7 to 14 Compensation Part III, Item 12 - Security 1996 Proxy Pages 2 and 4 Ownership of Certain Beneficial Owners and Management
7 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 behalf by the undersigned, thereunto duly authorized. TENNANT COMPANY By - /s/ Roger L. Hale Roger L. Hale, President, Chief Executive Officer, and Board of Directors Date - March 26, 1996 By - /s/ Richard A. Snyder Richard A. Snyder Vice President, Treasurer, and Chief Financial Officer Date - March 26, 1996 By - /s/ Mahedi A. Jiwani Mahedi A. Jiwani Corporate Controller and Principal Accounting Officer Date - March 26, 1996 By - /s/ Arthur D. Collins, Jr. Arthur D. Collins, Jr. Board of Directors Date - March 26, 1996 By - /s/ David C. Cox David C. Cox Board of Directors Date - March 26, 1996 By - /s/ Andrew P. Czajkowski Andrew P. Czajkowski Board of Directors Date - March 26, 1996 By - /s/ William A. Hodder William A. Hodder Board of Directors Date - March 26, 1996 By - /s/ Delbert W. Johnson Delbert W. Johnson Board of Directors Date - March 26, 1996 By - /s/ William I. Miller William I. Miller Board of Directors Date - March 26, 1996 By - /s/ Arthur R. Schulze, Jr. Arthur R. Schulze, Jr. Board of Directors Date - March 26, 1996 8 EX-13.1 2 EXHIBIT 13.1 TO OUR SHAREHOLDERS We finished 1995 with our ninth consecutive quarter of record sales and earnings. Full year return on beginning shareholders' equity of 20.4% reached our profit goal, and 16% sales growth allowed us to surpass our long-term growth goal. While we are showing good progress towards achievement of our strategic mission--to be the preeminent company in nonresidential floor maintenance equipment, floor coatings, and related product offerings--we recognize that there is still some distance to go. Our success to date results in part from the emphasis our three businesses have placed on developing partnerships with their customers. This approach is highlighted by the quotes from customers included in our report. However, in order to reach the objective of industry preeminence, we must intensify this effort and approach it as a total company. That is what this report is about. [PHOTO] Roger Hale, President and CEO, Tennant; Duane Collins, President and CEO, Parker Hannifin Corporation; and Don Zito, President, Fluid Connectors Group, Parker Hannifin Corporation PROFITABILITY IMPROVEMENT ON RECORD EARNINGS AND SALES Net earnings for 1995 of $19.7 million, or $1.98 per share, were up 25% from the prior year's $15.7 million, or $1.60 per share. The increase in earnings was due to strong sales gains and an improvement in operating margin. Net sales of $325 million increased 16%. About one-third of the gain was due to the operations acquired in 1994 being included for a full year and the weaker U.S. dollar in 1995. We estimate that foreign currency rate changes increased sales by $6.1 million, and net earnings by $0.8 million, or 8 cents per share. Profit from operations of $30.2 million increased 25% from 1994, resulting in an operating margin of 9.3% of sales. This compares to a margin of 8.6% for the prior year. The primary reasons for the improvements were strong sales gains, the weaker U.S. dollar, and elimination of expenses related to discontinued operations. SOLID FINANCIAL CONDITION Tennant's financial position remained strong throughout 1995. Debt at year- end increased to 26% of total capitalization from 23% the prior year due to an unusual increase in working capital and a planned increase in capital spending. The increase in working capital was primarily due to a high level of sales in the latter part of the fourth quarter and previously reported operating problems in Europe. Our European subsidiary encountered difficulties in the second half of the year related to the installation of a major new software system which, among other things, temporarily affected receivable and inventory levels. Capital spending in 1995 increased primarily because of our commitment to a broader use of information technology. (See pages 8 and 16 for further comments on this subject.) While capital spending in 1996 will be somewhat higher than in 1995, we expect to improve our working capital position. This should allow for a reduction in debt as a percent of total capitalization by the end of 1996. 2 STOCK SPLIT AND DIVIDEND INCREASE In April 1995, we implemented a two-for-one stock split. This doubling of shares outstanding was done to improve our stock's liquidity and to make the price more attractive to individual investors. Our 1995 cash dividend totaled 68 cents per share, an increase of 5% from the prior year. This was our 24th consecutive annual increase, a record very few public companies can match. COMPANYWIDE PROGRESS ON GROWTH STRATEGIES Our record performance was the result of making good progress on our growth strategies during the year. Sales of INDUSTRIAL FLOOR MAINTENANCE EQUIPMENT, which represented 73% of consolidated revenues, were up 12% for 1995. About one-third of this increase came from acquisitions and currency translation effects.The introduction of our new line of technologically advanced walk-behind scrubbers went very well. This line, a recently introduced outdoor sweeper, and a combination sweeper/scrubber made strong contributions to the overall sales gain. Aftermarket sales in North America also were up nicely. We have been steadily expanding our service force, and our installed base of equipment requiring aftermarket items has been growing. Internationally, products sold through distributors were up strongly in several Latin American and Pacific Rim countries. Our weakest sales results occurred in Germany and Japan, where we believe slow economic growth was a contributing factor in our performance. Our COMMERCIAL FLOOR MAINTENANCE EQUIPMENT sales, which represented 20% of consolidated revenues, increased 28% on a worldwide basis. While about one-half of the increase was due to acquisitions and currency translation effects, significant market share gains were achieved in key areas. We introduced a number of products during the year, and the propane burnisher models that entered the line due to an acquisition in late 1994 were well received. The operational problems Castex encountered early in the year, due mainly to rapid growth, getting settled into a new facility, and parts shortages, were substantially corrected by mid-year. Castex's profitability has improved steadily since, and we expect to see further improvement in 1996. Our FLOOR COATINGS sales, which represented 7% of consolidated revenues, were up 16% for the year. This is the second year of solid growth since we restructured this business several years ago, and profitability has been fully restored. The primary reasons for our recent successes are the development and expansion of a network of independent contractors and new products, including resurfacers and a unique line of environmentally safe coatings (Eco-Coatings-TM-) and preparation process (Eco-Prep-TM-). OUTLOOK FOR 1996 Our financial results in 1996 will be influenced by a number of activities. These include: - - - The increased emphasis on product development over the past several years has produced a steady flow of new and updated products. That trend will continue in 1996. - - - Our subsidiaries, Tennant Holding B.V. in Europe and Castex Incorporated in North America, have substantially corrected the operating challenges encountered last year. Both are expected to produce a steady improvement in profitability. We have started the year on a somewhat cautious note due to reports of weakening economic conditions. However, based on the current consensus economic forecast of soft conditions early in the year and a resumption of growth by mid- year, we believe Tennant can show steady sales and earnings gains in 1996. /S/Roger L. Hale ------------- Roger L. Hale President, Chief Executive Officer March 22, 1996 3 TENNANT AT A GLANCE Tennant's vision is to work for a cleaner and safer world. Our strategic mission is to be the preeminent company in nonresidential floor maintenance equipment, floor coatings, and related product offerings. As shown below, Tennant offers a broad product line in the nonresidential floor maintenance industry. The competitive strengths and growth strategies in place for each of our three product lines are focused on reaching our goal: being the preeminent company in our industry. - - -------------------------------------------------------------------------------- PRODUCT LINES INDUSTRIAL FLOOR MAINTENANCE EQUIPMENT [PHOTO OF INDUSTRIAL FLOOR MAINTENANCE EQUIPMENT] PRODUCTS Products to clean surfaces with vehicle and heavy foot traffic such as: - - - factories, warehouses, stadiums, airport hangars, parking garages, and outside areas. - - - sweepers and scrubbers: - walk-behinds - indoor riders - outdoor vehicles - - -------------------------------------------------------------------------------- PRODUCTS LINES COMMERCIAL FLOOR MAINTENANCE EQUIPMENT [PHOTO OF COMMERCIAL FLOOR MAINTENANCE EQUIPMENT] PRODUCTS Products to clean surfaces with foot traffic such as: - - - office buildings, super-markets, retail outlets, airport terminals, and hospitals. - - - walk-behind scrubbers and sweepers, carpet extractors, burnishers, buffers, polishers, and other specialized equipment. - - -------------------------------------------------------------------------------- PRODUCT LINES FLOOR COATINGS [PHOTO OF FACTORY FLOOR] PRODUCTS Products that treat, repair, and upgrade concrete and wood floors. Specialty products are available for areas with chemical exposure or odor-sensitivity. Used in factories and warehouses, and available for other applications. Applied by customer or authorized contractor. - - -------------------------------------------------------------------------------- 4 [PIE CHART] Pie chart showing breakdown of 1995 sales into Europe (17%) World Export (10%), and North America Sales (73%). North America Sales are broken out further into Commercial (18%), Industrial (49%), and Flooring 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%). MARKETS World market for equipment and aftermarket estimated at about $700 million. Market share greater than 50% in segments such as manufacturing, warehousing, distribution, and government. SALES/SERVICE Direct sales/service in the United States, Australia, Canada, France, Germany, The Netherlands, Spain, and the United Kingdom. Well-established, full-service distributor network in 45 other countries including Japan. COMPETITIVE STRENGTHS Market leadership worldwide. Broadest line of quality products resulting from industry-leading commitment to engineering. Strong sales/service support on a worldwide basis. Manufacturing facilities in the United States and Europe. GROWTH STRATEGIES Emphasize customer partnerships (see pages 6 and 7). Maintain product leadership--steady flow of updated and new products. Focus on nontraditional market niches. - - -------------------------------------------------------------------------------- MARKETS World market for equipment and aftermarket estimated at over $2 billion. Sold under Castex, Nobles, Eagle, and Tennant brand names, depending on the product and geographic area. Among the leaders in North America; rapidly growing positions internationally. SALES/SERVICE Broad geographic coverage in North America through a full-service distributor network. Full-service distributor network is being established internationally. COMPETITIVE STRENGTHS Strong position in North American market. Complete line of quality products with a reputation for innovation. Reputation for high level of distributor support. GROWTH STRATEGIES Emphasize customer partnerships (see pages 6 and 7). Maintain product leadership with a continued focus on innovation. Expand internationally. - - -------------------------------------------------------------------------------- MARKETS North American market for industrial sealers, resurfacers, and coatings estimated at over $150 million, excluding application labor. Market share estimated at about 15% of total market, but higher in coatings segment. SALES/SERVICE Sold by Tennant's direct sales force in North America as a complementary product to industrial floor maintenance equipment. Also sold by independent contractors' network. COMPETITIVE STRENGTHS Broad line of sealers, resurfacers, and coatings including 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. GROWTH STRATEGIES Emphasize customer partnerships (see pages 6 and 7). Maintain product leadership with emphasis on Eco-Coatings-TM- line. Expand contractor network. - - -------------------------------------------------------------------------------- 5 PARTNERSHIPS FOR GROWTH Tennant's vision is to work for a cleaner and safer world. Our strategic mission is to be the preeminent company in nonresidential floor maintenance equipment, floor coatings and related product offerings. Each of our three businesses are successfully executing growth strategies to achieve this. However, we recently decided to look beyond individual growth strategies and began considering the kind of TOTAL company Tennant needs to be to reach preeminence. We concluded that the best approach would be to put greater emphasis on customer and channel partnerships and to do so from a total company perspective. This builds on an infrastructure already in place: extensive global sales/service network, "800" customer service line in key parts of the business, excellent relationships with our independent floor coatings contractors and equipment distributors, and complementary product lines that we are bringing together to best serve the customer. At the same time, we will continue to update and broaden our lines and offer the most innovative, highest quality products, with the strongest warranties in our industry. These form the foundation of a close relationship with customers. CUSTOMER PARTNERSHIPS AT TENNANT By customer partnerships, we mean developing long-term relationships with the end-users for our products, as well as the independent floor coatings contractors and equipment distributors that are integral parts of our distribution channels. By understanding customers' needs and working with them to develop total cleaning solutions, we add value to our product offerings. This allows us to become a part of each customer's team, and lets customers focus more on their core business activities. This kind of partnership makes both parties stronger. What will customer partnerships look like at Tennant? - - - Sales and service people will listen closely to customer comments on current products and the types of features and services they would like. - - - Then we will do whatever it takes to offer our customers a TOTAL solution to their floor maintenance needs--from developing new products and services, to advice and training on floor maintenance practices, to training for distributors and contractors on how to sell, service, and/or apply our products. - - - We will provide the systems and technologies to easily capture and use customer information. This includes enabling customer service representatives to immediately respond to customer inquiries. Through use of technology in this and other ways, Tennant will become a more efficient and effective organization. CUSTOMER PARTNERSHIPS WILL DIFFERENTIATE TENNANT We believe Tennant is well positioned to accomplish this. Most of our competitors focus on one product line--they cannot offer the total cleaning solution of Tennant's industrial, commercial, and floor coatings product lines. In addition, Tennant provides its products and services through a variety of channels. This gives us the flexibility to best serve each market group and customer. None of our competitors are able to do this. In all areas of our business, we already have a great many long-term partnerships with customers based on excellent sales and service, and overall responsiveness. (Several of these relationships are outlined in this report.) Now, with our recently expanded floor coatings contractor relationships, our powerful equipment distributor network, and rapidly improving process and systems infrastructure, we will strengthen a solid franchise and reach the goal of industry preeminence. By doing this, we will offer greater opportunities for our employees and expect to achieve an above-average return on investment for shareholders over time. And just as important for a 126-year-old company, we will keep Tennant competitive in the next century. Tom Cripe, Parker Hannifin Sales; and Rich Carlson, Tennant Purchasing 6 [BAR GRAPH]
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
INDUSTRIAL FLOOR MAINTENANCE EQUIPMENT UP-TO-DATE, BROAD PRODUCT LINE Tennant works with a wide range of customers: from the city of Mecca in Saudi Arabia, to railroad stations in Frankfurt, to San Diego's convention center, to factories and warehouses just about everywhere. Our industrial floor maintenance equipment is designed to clean surfaces with vehicle or heavy foot traffic. We offer the broadest line of products available with prices that range from $2,000 for walk-behind units, to $85,000 for an outdoor sweeper: - - - Sweepers that remove wet or dry debris with excellent dust control. - - - Scrubbers that apply a cleaning solution, scrub the surface clean, and then remove virtually all of the solution, all in one operation. - - - Combination sweeper/scrubber that can sweep most types of debris while simultaneously doing an effective scrubbing job. One reason Tennant can offer all these products is that we typically invest 4-5% of annual sales in product engineering--about twice that of most manufacturers. The quality and reliability of our products allow Tennant to offer the longest and most comprehensive warranties in the industry. (Our North American and European operations both have ISO 9001 quality certification.) Tennant also has a very extensive after-sales support and service business that supplies replacement parts, labor, detergent and brushes to customers.This aftermarket business provides about one-third of industrial equipment revenues. LEADERSHIP IN A LARGE MARKET We estimate that annual sales for the global industrial equipment market are about $700 million and that unit volumes are growing at a 3-4% rate. Two trends are driving growth in the industrial market: more companies understanding that quality and productivity improvement begin with a clean floor, and more countries becoming prosperous--and interested in providing a cleaner, safer environment. Tennant is the world market leader. We hold better than a 50% share of industrial market segments in North America such as manufacturing, warehousing/distribution, and transportation, as well as the government segment. Tennant's international market share is less overall, but is highest for larger products and in certain markets such as Australia. EXTENSIVE SALES/SERVICE NETWORK GIVES COMPETITIVE EDGE One of Tennant's greatest competitive advantages is an eight-country direct sales and service network--in the U.S., Australia, Canada, France, Germany, The Netherlands, Spain and the United Kingdom--that generates 85% of worldwide sales. In addition, we have a well-established full-service distributor network in 45 other countries including Japan. Competitors are unable to match Tennant's ability for global sales and service. GROWTH STRATEGIES Strategies for reaching our goal of industry preeminence, in addition to emphasizing long-term customer partnerships on a companywide basis (described on pages 6 and 7), include: - - - PRODUCT LEADERSHIP. We will continue to introduce a steady stream of updated and new, differentiated products that offer greater value. - - - NONTRADITIONAL MARKETS. While our products are well established in many markets, niches such as the contract cleaner segment offer opportunity for Tennant. - - - EFFICIENCY AND EFFECTIVENESS. In 1995, we increased our commitment to the use of information technology, including systems that enhance our ability to serve customers and improve the effectiveness of our sales operations. This commitment will be expanded to other functions and activities in 1996 and beyond. Bengt Carlsson and Soren Persson, TENNAB; Franco Selar, Volvo; and Dennis Kortsha, Tennant 8 [BAR GRAPH]
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
COMMERCIAL FLOOR MAINTENANCE EQUIPMENT 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 one of the most complete lines of commercial floor maintenance equipment available from one source, with prices that range from $300 for small, upright vacuum cleaners, to over $7,000 for walk- behind scrubbers: - - - WALK-BEHIND SCRUBBERS that remove grease and grime from hard floors-- including grouted tile. These machines remove virtually all of the cleaning solution used on the floors and are easy to maneuver in tight spaces. - - - CARPET EXTRACTORS that clean carpets by applying a cleaning solution, scrubbing it, and then removing the solution. - - - BURNISHERS AND FLOOR MACHINES that give scrubbed floors a shiny, high-gloss appearance. - - - SWEEPERS AND VACUUMS that sweep, vacuum and remove debris or water from virtually any surface. 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, but under the Nobles and Tennant brand names, depending on the geographic area. FAST-GROWING OPERATION IN LARGE MARKET We estimate that worldwide revenues for the global commercial floor maintenance equipment market are $2 billion, with unit volumes growing at a 4-5% rate. North America generates about 40% of these revenues, and both the North American and international segments are growing at about the same rate. Market expansion is being driven by several trends: growth in the service sector of the economy, consumer preference for clean environments, potential liability issues related to wet or dirty public places, and the need for increased productivity in the workplace. Castex is one of the leading commercial equipment suppliers in the U.S. Products also are sold internationally, where rapid annual growth is being achieved from a smaller base. As a result, commercial equipment is Tennant's fastest growing product line. GROWTH STRATEGIES Strategies for reaching our goal of global industry preeminence, in addition to emphasizing long-term customer partnerships on a company-wide basis (described on pages 6 and 7), include: - - - PRODUCT LEADERSHIP. In late 1994, we acquired the Eagle Floor Care company in order to expand our burnisher product line. In 1995, we introduced a number of products including extractors and a scrubber, and additional products are planned for 1996. - - - INTERNATIONAL GROWTH. We believe international markets, which represent over 50% of the commercial floor maintenance equipment industry, offer an excellent growth opportunity. Our objective is to rapidly expand distribution, and we are already doing so in several key markets. However, our base is small, and therefore, acquisitions or alliances will be considered as an alternative to internal growth in selected markets. Bryan Speet and Neeraj Gupta, ServiceMaster; and Mark Wierda, Castex 10 [BAR GRAPH]
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
FLOOR COATINGS BROAD LINE FEATURING ENVIRONMENTALLY SAFE PRODUCTS Floor coatings are widely used in industry because of the many benefits of a coated floor. Floor coatings protect concrete from chemicals and wear, and make maintenance easier. Coated floors help to produce a clean, high-quality working environment that improves employee morale and enhances company image. Tennant offers a complete line, assuring the best solution for concrete and wood floor areas: - - - DURABLE COATINGS for main traffic aisles and loading docks. - - - CHEMICAL-RESISTANT coatings for areas with chemical exposure. - - - EPOXY RESURFACERS for damaged floors needing restoration. - - - ENVIRONMENTALLY SAFE COATINGS for odor-sensitive applications. Tennant formulates its products and oversees their production and application. UNIQUE ECO-COATINGS-TM- PRODUCTS Our unique Eco-Coatings-TM- product line combines high durability with low to no solvent content. When combined with our exclusive Eco-Prep-TM- process, which is solvent-free, Eco-Coatings-TM- provide the ideal solution for odor- sensitive applications. NORTH AMERICAN MARKET LEADER Tennant is the industry leader in sales for the North American floor coatings market. Coatings are sold by the same direct sales force that sells our industrial equipment. This is successful due to the complementary nature of the two product lines. In addition to direct sales, Tennant floor coatings are also sold and applied by a national network of independent contractors. We estimate Tennant has about a 15% share in a market of at least $150 million in annual sales. GROWTH STRATEGIES Strategies for reaching our goal of industry preeminence, in addition to emphasizing long-term customer partnerships on a companywide basis (described on pages 6 and 7), include: - - - PRODUCT LEADERSHIP. We will maintain our commitment to product leadership with emphasis on environmentally safe products such as the Eco-Prep-TM- process. During 1995, a number of products were introduced including decorative quartz flooring, a static dissipative system, a power trowel resurfacer, and Eco-Hard-N-Seal-TM---an addition to the Eco-Coatings-TM- line. - - - LEADING THE INDUSTRY IN SERVICE. Tennant provides the best service and support in the floor coatings industry. This service is varied and is offered in many ways. Floor coatings applicators are supported through on- site assistance and a toll-free number with extended coverage hours. Contractor support includes application training, business planning, and overall support. Service and support is also extended to the contractor network through our marketing efforts, business development, and involvement of the contractor in product development. The combination of this support infrastructure and national coverage by direct sales is the key to our leadership position. - - - BENEFITING FROM SYNERGIES WITH TENNANT'S OTHER BUSINESSES: No other floor coatings supplier has the ability to provide such a wide range of floor maintenance products to every customer it serves. This represents an important competitive advantage that we are working to fully develop. Tennant's unique Eco-Prep-TM- Machine and Floor Coatings Products help ensure superior results. Jim Ernst, Advantage Coatings; and Steve Nelson, Tennant 12 MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SELECTED INDICATORS OF GROWTH AND PROFITABILITY
CURRENT ECONOMIC CYCLE(a) PREVIOUS ECONOMIC CYCLE(a) CURRENT CYCLE LAST HALF FULL YEAR TO DATE OF CYCLE CYCLE 1995 1991-1995 1987-1990 1982-1990 - - ---------------------------------------------------------------------------------------------------------- Return on Beginning Shareholders' Equity(c) 20.4 17.0 16.6 14.9 Compound Annual Growth (%): Sales -- Nominal +16 +9 +9 +8 -- Real(b) +8 +6 +4 +3 Net Earnings(c) +25 +9 +10 +3 Cash Dividends Per Share +5 +3 +6 +6 Net Operating Assets +23 +13 +4 +5 Growth Period (From-To) 1994-1995 1990-1995 1986-1990 1981-1990
(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, foreign currency exchange rate moves, and applicable accounting changes. (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 1995, net earnings were $19.7 million, or $1.98 per share, up 25% from the prior year. Return on sales was 6.0%, and return on beginning shareholders' equity was 20.4%. Key causes for the improvement in earnings and profitability were strong sales gains and improvement in operating margin (both causes are explained below). For 1994, net earnings were $15.7 million, or $1.60 per share (adjusted for April 1995 stock split; see "Notes to Consolidated Financial Statements," note 14), up 72% from 1993. Return on sales was 5.6%, and return on beginning shareholders' equity was 18.7%. Key causes for the improvement in earnings and profitability were strong sales gains and the successful integration of the February 1994 Castex acquisition (see "Notes to Consolidated Financial Statements," note 16), and the effect of restructuring charges on 1993 earnings. For 1996, the Company is somewhat cautious in its short-term outlook because of reports of weakening economic conditions in North America and Europe. However, the consensus economic forecast indicates soft conditions at worst early in the year, followed by a resumption of growth. Based on this outlook, the Company believes it can show steady sales and earnings gains in 1996 due to the significant number of new and updated products 14 introduced in the past several years, and the improved profitability of its two major subsidiaries. SALES: For 1995, net sales of $325 million increased 16% from the prior year. About one-third of the increase was due to the operations acquired in 1994 being included for a full year and the weaker U.S. dollar in 1995. In total, foreign currency rate changes increased full year sales by $6 million, and backlogs declined by $2 million. North American sales of $236 million in 1995 were up 13% on generally favorable economic conditions early in the year, except for Mexico, and weaker conditions late in the year, especially in the industrial sector by year-end. Commercial equipment sales increased 25%; about one-half of the increase was due to the prior year's acquisitions. Floor coatings sales increased 14% due to new product sales and continued development of the independent contractor network. Industrial equipment sales increased 7% due to strong sales of recently introduced machines, and aftermarket products. Overseas sales of $89 million in 1995, representing 27% of consolidated revenues, increased 24%. About one-half of the increase was due to the prior year's acquisitions and the foreign currency rate changes in 1995. The strongest gains came from commercial equipment sales in Europe and Japan. Industrial equipment sales were up overall on strong sales gains in Latin America, the Pacific Rim, and several European countries, including France and Spain. However, economic weakness in Germany and Japan contributed to a sales decline in these markets. For 1994, net sales of $282 million increased 27% from 1993. Sales were affected by the February 1994 Castex acquisition (see "Notes to Consolidated Financial Statements," note 16). Foreign currency rate changes increased reported sales by $0.8 million, and backlogs increased by $3 million. North American sales of $210 million in 1994 were up 33% on a strong economy that benefited all product lines. Commercial floor maintenance equipment sales more than tripled from the prior year due to the acquisition and marketplace acceptance of the new Castex. Industrial floor maintenance equipment sales increased 12% on the strength of several new products. Floor coatings sales were up 23% due to expansion of the authorized contractor network and several innovative products. Overseas sales of $72 million in 1994, representing 25% of consolidated revenues, increased 13%. Excluding the effect of a 1993 change in fiscal year- end for the European operations and a weaker U.S. dollar, local currency sales increased 19%. Economic conditions in Europe began to recover, and strong results were obtained in other areas with new products being a factor. PROFIT FROM OPERATIONS: For 1995, profit from operations of $30.2 million, or 9.3% of sales, was up 25% from the prior year. Factory capacity use is estimated to have been in the low 70% range for the year. The improvement in operating margin was due to better gross margin, which rose to 42.9% of sales from 42.4% the prior year. The improvement in gross margin was primarily due to the strong sales gains and the effect of generally favorable foreign currency rate changes, especially the weakness of the U.S. dollar relative to the guilder, mark and yen. Selling and administrative expenses, as a percent of sales, improved to 33.7% from 33.8% the prior year. This expense rate improvement was primarily due to the elimination of expenses related to operations discontinued in 1994. This and other expense efficiencies were partially offset by increased expenses related to information technology projects, and unusual expenses primarily related to operational challenges encountered in European operations that are described elsewhere in this report. For 1994, profit from operations of $24.1 million, or 8.6% of sales, was up 56% from 1993's operating profit before restructuring charges. Key causes of the improvement were the strong sales gains and the successful integration of the Castex 15 acquisition. Factory capacity use is estimated to have been about 70% for the year. OTHER INCOME AND EXPENSE: For 1995, other net expense of $747,000 increased from the prior year's $43,000 due to an increase in interest expense on higher debt and interest rates, and an increase in the Company's contribution to the Tennant Foundation. The Company's primary source of interest income is from financing-type leases to industrial customers. Of the $4.1 million in interest income reported in 1995, $2.2 million is from financing-type leases to customers, and $1.6 million is from the Company's Employee Stock Ownership Plan (ESOP). (The ESOP interest income was partially offset by $0.8 million of ESOP expense that is included in "miscellaneous expense.") INCOME TAXES: For 1995, the effective tax rate of 33.2% declined from the prior year's rate of 34.7% primarily due to tax losses in several high tax countries in Europe and a relative increase in tax credits. For 1996, the Company expects an effective tax rate of about 35%. However, if the U.S. tax law providing tax credits related to research and development activities that expired during 1995 is reinstated, 1996's effective rate could be 2 to 3 percentage points lower, assuming the reinstatement is retroactively applied. LIQUIDITY AND CAPITAL RESOURCES The Company's financial condition remained strong throughout 1995. While debt at year-end increased to $40 million from $29 million, at 26% of capitalization, it was within stated objectives. The increase in debt was due to increases in working capital and capital spending, both of which are commented on below. For 1996, debt, as a percent of total capitalization, is expected to decline by year-end based on an improved working capital position. FINANCIAL POSITION: Cash and cash equivalents finished 1995 at $4.2 million, up slightly from the prior year. Cash is being managed at a relatively low level by using any accumulation to pay-down short-term debt. Year-end 1995 adjusted working capital (i.e., current assets less current liabilities, excluding cash and current debt) increased $20 million, or 36% over prior year-end because of increases in receivables and inventories. Somewhat more than one-half of the increase resulted from the higher level of sales, a higher-than-normal proportion of fourth quarter sales occurring late in the quarter, and the effects of foreign currency rate changes. The remaining portion of the increase was primarily caused by operating problems in Europe related to the installation of a major software system. These difficulties were substantially eliminated by year-end, and a steady reduction in inventory and receivables is expected in 1996. Property, plant, and equipment, net of accumulated depreciation, increased by $7 million. Capital spending, net of disposals, was $19 million. Capital spending, in order of magnitude, included information technology hardware and software, factory equipment, vehicles, and product tooling. (Vehicles tend to represent a large category of investment for the Company due to the Company's direct sales and service approach in key markets.) For 1996, the Company expects capital spending, net of disposals, of $21 million, and depreciation expense of $15.5 million. The level of capital spending 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 pages 6 and 7). DIVIDENDS AND COMMON STOCK: Cash dividends of $0.68 per share increased 5%, resulting in the 24th consecutive year of increase. Common stock outstanding, adjusted for the April 1995 stock split, averaged 9,915,900 shares in 1995, up slightly from the prior year. Beginning in 1996, the Company may repurchase and retire its common stock, in an amount not expected to exceed 200,000 shares annually, in order to maintain shares outstanding at about 9.9 million. 16 On February 16, 1995, the Company announced a 2-for-1 stock split effective April 26, 1995, for shareholders of record April 12, 1995 (see "Notes to Consolidated Financial Statements," note 14). IMPACT OF INFLATION: Inflation has not been a significant factor for the Company for several years. For 1995, it is estimated that effective product pricing was somewhat below inflation on costs and expenses. This did not have a material affect on results of operations. For 1996, 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 financial statements in the following ways: - - - Inventories do not reflect current replacement cost as they are principally 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. 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 calculate 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: The Company operates internationally with 34% of sales occurring outside of the United States. For 1995, the ten largest international markets for the Company, based on end- user sales value, were Australia, Belgium, Canada, France, Germany, Japan, Malaysia, The Netherlands, Spain, and the United Kingdom. The Company's products are sold directly or through independent distributors in over 50 countries. For a number of years, the world's key currencies have experienced significant changes in relative value, sometimes over short periods of time, as they did in 1994 and 1995. For the Company, a weaker dollar relative to all currencies, and a weaker guilder relative to other European currencies, is generally advantageous because it lowers the foreign currency cost of exported products, and increases the value of sales and earnings denominated in other currencies. It is not possible to determine the true impact of changes in relative value of currencies; however, the direct effect on sales and earnings can be estimated. For 1995, the U.S. dollar weakened considerably against the guilder, mark and yen early in the year, but then strengthened considerably against the yen by year-end. In Europe, the guilder strengthened considerably early in the year against several currencies including the peseta and pound. For 1995, the estimated net effect of foreign currency rate changes was an increase in net sales of $6.1 million and net earnings of $0.8 million, or 8 cents per share. For 1994, the net effect of foreign currency rate changes was not significant. FINANCIAL GOALS AND POLICIES The Company's financial mission is to provide an above-average total return to shareholders. Goals and policies that support this mission are: - - - Growth - 5% real (inflation-adjusted). 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 relative to the stated goals are presented in the various graphs and tables included in this report. 17 TENNANT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS Years ended December 31 OF EARNINGS 1995 1994 1993 - - ------------------------------------------------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Percent Percent Percent ------- ------- ------- Net sales. . . . . . . . . . . . . . . . . . $325,368 100.0 $281,685 100.0 $221,002 100.0 Less: Cost of sales. . . . . . . . . . . . . . . 185,668 57.1 162,360 57.6 126,071 57.0 Selling and administrative expenses. . . . 109,518 33.7 95,201 33.8 79,508 36.0 Restructuring charges. . . . . . . . . . . -- -- -- -- 4,090 1.9 -------- ----- -------- ----- -------- ----- Profit from operations . . . . . . . . . . . 30,182 9.3 24,124 8.6 11,333 5.1 Other income and (expense): Net foreign currency transaction (loss). . (128) -- (371) (.1) (415) (.2) Interest income. . . . . . . . . . . . . . 4,132 1.3 3,807 1.3 3,583 1.6 Interest (expense) . . . . . . . . . . . . (2,640) (.8) (1,677) (.6) (509) (.2) Miscellaneous income (expense), net. . . . (2,111) (.6) (1,802) (.6) (1,064) (.5) -------- ----- -------- ----- -------- ----- Total other income (expense) . . . . . . (747) (.2) (43) -- 1,595 .7 -------- ----- -------- ----- -------- ----- Profit before income taxes . . . . . . . . . 29,435 9.0 24,081 8.6 12,928 5.8 Income tax expense . . . . . . . . . . . . . 9,773 3.0 8,346 3.0 3,802 1.7 -------- ----- -------- ----- -------- ----- Net earnings . . . . . . . . . . . . . . . . $ 19,662 6.0 $ 15,735 5.6 $ 9,126 4.1 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Net earnings per share . . . . . . . . . . . $ 1.98 $ 1.60 $ .93 -------- -------- -------- -------- -------- --------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 18 TENNANT COMPANY AND SUBSIDIARIES
December 31 CONSOLIDATED BALANCE SHEETS 1995 1994 - - ------------------------------------------------------------------------------------------ DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS Current assets: Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 4,247 $ 1,851 Receivables: Trade, less allowance for doubtful accounts ($2,285 in 1995 and $2,294 in 1994). . . . . . . . . . 63,066 51,350 Installment accounts receivable, net of deferred income from sales finance charges and less allowance for doubtful accounts ($326 in 1995 and $315 in 1994). . . . . . . . . . . . . . . . . . . . . 7,147 6,036 Sundry . . . . . . . . . . . . . . . . . . . . . . . . . 2,298 1,824 -------- -------- Net receivables. . . . . . . . . . . . . . . . . . . . 72,511 59,210 Inventories. . . . . . . . . . . . . . . . . . . . . . . . 40,702 30,985 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . 944 696 Deferred income taxes, current portion . . . . . . . . . . 5,104 5,712 -------- -------- Total current assets . . . . . . . . . . . . . . . . . 123,508 98,454 Property, plant, and equipment, net of accumulated depreciation . . . . . . . . . . . . . . . . . 63,724 56,552 Installment accounts receivable due after one year, net of deferred income from sales finance charges. . . . . 7,510 6,353 Deferred income taxes, long-term portion . . . . . . . . . . 1,545 1,300 Intangible assets. . . . . . . . . . . . . . . . . . . . . . 18,859 19,287 Other assets . . . . . . . . . . . . . . . . . . . . . . . . 604 888 -------- -------- Total assets . . . . . . . . . . . . . . . . . . . . . $215,750 $182,834 -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current debt . . . . . . . . . . . . . . . . . . . . . . . $ 17,349 $ 23,008 Accounts payable and accrued expenses. . . . . . . . . . . 43,754 39,017 Income taxes payable . . . . . . . . . . . . . . . . . . . 620 2,942 -------- -------- Total current liabilities. . . . . . . . . . . . . . . 61,723 64,967 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 23,149 6,300 Long-term employee-related benefits. . . . . . . . . . . . . 16,177 14,558 Other long-term liabilities. . . . . . . . . . . . . . . . . 570 760 -------- -------- Total liabilities. . . . . . . . . . . . . . . . . . . 101,619 86,585 Commitments (note 9) . . . . . . . . . . . . . . . . . . . . -- -- Shareholders' equity: Preferred stock of $.02 par value per share. . . . . . . . -- -- Common stock of $.375 par value per share. . . . . . . . . 3,732 3,690 Additional paid-in capital . . . . . . . . . . . . . . . . 3,166 396 Common stock subscribed. . . . . . . . . . . . . . . . . . 694 525 Unearned restricted shares . . . . . . . . . . . . . . . . (276) (424) Retained earnings. . . . . . . . . . . . . . . . . . . . . 116,396 103,281 Cumulative translation adjustment. . . . . . . . . . . . . 3,532 2,743 Receivable from ESOP . . . . . . . . . . . . . . . . . . . (13,113) (13,962) -------- -------- Total shareholders' equity . . . . . . . . . . . . . . 114,131 96,249 -------- -------- Total liabilities and shareholders' equity . . . . . . $215,750 $182,834 -------- -------- -------- --------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 19 TENNANT COMPANY AND SUBSIDIARIES
Years ended December 31 CONSOLIDATED STATEMENTS OF CASH FLOWS 1995 1994 1993 - - --------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) CASH FLOW RELATED TO OPERATING ACTIVITIES: Net earnings . . . . . . . . . . . . . . . . . . . . . . . $19,662 $15,735 $ 9,126 Adjustments to accrual earnings to arrive at operating cash flow: Depreciation and amortization. . . . . . . . . . . . . . 14,090 13,121 10,987 Provision for bad debts. . . . . . . . . . . . . . . . . 803 1,088 701 Provision for stock plans. . . . . . . . . . . . . . . . 1,068 1,730 854 (Gain) loss on sale of property, net . . . . . . . . . . (531) 83 (571) Provision for deferred taxes . . . . . . . . . . . . . . 588 325 (1,646) Increase in receivables. . . . . . . . . . . . . . . . . (14,515) (13,997) (4,262) (Increase) decrease in inventories . . . . . . . . . . . (9,024) (2,241) 1,112 Increase in accounts payable, accrued expenses and other long-term liabilities. . . . . . . . . . . . 5,610 7,530 2,610 Increase in long-term employee-related benefits. . . . . 1,568 1,919 1,989 Increase (decrease) in income taxes payable. . . . . . . (2,359) 1,841 835 Increase in other assets . . . . . . . . . . . . . . . . (604) (440) (62) Other, net . . . . . . . . . . . . . . . . . . . . . . . 396 60 249 -------- ------- -------- Net cash flow related to operating activities. . . . . . . 16,752 26,754 21,922 CASH FLOW RELATED TO INVESTING ACTIVITIES: Acquisition of Castex and Eagle, net of cash received. . (1,126) (28,180) -- Acquisition of property, plant, and equipment. . . . . . (25,222) (23,303) (16,863) Acquisition of intangible assets . . . . . . . . . . . . -- -- (1,076) Proceeds from disposals of property, plant, and equipment. . . . . . . . . . . . . . . . . . . . . 6,105 4,433 3,986 Settlement of foreign currency hedging contracts . . . . (782) (881) 384 -------- ------- -------- Net cash flow related to investing activities. . . . . . . (21,025) (47,931) (13,569) CASH FLOW RELATED TO FINANCING ACTIVITIES: Net changes in current debt. . . . . . . . . . . . . . . (5,434) 20,438 (166) Payments to settle long-term debt. . . . . . . . . . . . -- (40) (1,813) Issuance of long-term debt . . . . . . . . . . . . . . . 16,782 6,300 -- Principal payment from ESOP. . . . . . . . . . . . . . . 450 409 371 Proceeds from employee stock issues. . . . . . . . . . . 1,665 1,484 1,510 Repurchase of common stock . . . . . . . . . . . . . . . -- (1,854) (2,858) Dividends paid . . . . . . . . . . . . . . . . . . . . . (6,742) (6,386) (6,288) -------- ------- -------- Net cash flow related to financing activities. . . . . . . 6,721 20,351 (9,244) Effect of exchange rate changes on cash. . . . . . . . . . . (52) 2 54 -------- ------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . 2,396 (824) (837) Cash and cash equivalents at beginning of year . . . . . . . 1,851 2,675 3,512 -------- ------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . $ 4,247 $ 1,851 $ 2,675 -------- ------- -------- -------- ------- --------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 20 TENNANT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS Years ended December 31 OF SHAREHOLDERS' EQUITY 1995 1994 1993 - - ---------------------------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) SHARES AMOUNT Shares Amount Shares Amount COMMON STOCK (A) Beginning balance. . . . . . . . . . . . . 9,838,956 $ 3,690 4,912,663 $ 1,842 4,911,542 $ 1,842 Issue stock for employee benefit plans and directors . . . . . . . . . . . 113,080 42 49,487 19 70,021 26 Purchase of common shares. . . . . . . . . -- -- (42,672) (16) (68,900) (26) Stock split adjustment . . . . . . . . . . -- -- 4,919,478 1,845 -- -- --------- -------- --------- -------- --------- -------- Ending balance . . . . . . . . . . . . . 9,952,036 $ 3,732 9,838,956 $ 3,690 4,912,663 $ 1,842 --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- ADDITIONAL PAID-IN CAPITAL (A) Beginning balance. . . . . . . . . . . . . $ 396 $ 1,873 $ 1,752 Issue stock for employee benefit plans and directors . . . . . . . . . . . 2,770 2,206 2,953 Purchase of common shares. . . . . . . . . -- (1,838) (2,832) Stock split adjustment . . . . . . . . . . -- (1,845) -- -------- -------- -------- Ending balance . . . . . . . . . . . . . $ 3,166 $ 396 $ 1,873 -------- -------- -------- -------- -------- -------- COMMON STOCK SUBSCRIBED (A) Beginning balance. . . . . . . . . . . . . 21,750 $ 525 -- $ -- 13,395 $ 574 Issue stock for employee benefit plans . . (21,750) (525) -- -- (13,395) (574) Subscribe stock for employee benefit plans . . . . . . . . . . . . . . . . . . 29,084 694 10,875 525 -- -- Stock split adjustment . . . . . . . . . . -- -- 10,875 -- -- -- --------- -------- --------- -------- --------- -------- Ending balance . . . . . . . . . . . . . 29,084 $ 694 21,750 $ 525 -- $ -- --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- UNEARNED RESTRICTED SHARES Beginning balance. . . . . . . . . . . . . $ (424) $ (312) $ (97) Issue stock award plan grants, net . . . . 148 (112) (215) -------- -------- -------- Ending balance . . . . . . . . . . . . . $ (276) $ (424) $ (312) -------- -------- -------- -------- -------- -------- RETAINED EARNINGS Beginning balance. . . . . . . . . . . . . $103,281 $ 93,733 $ 90,687 Net earnings . . . . . . . . . . . . . . . 19,662 15,735 9,126 Dividends paid, $.68, $.65, and $.64, respectively, per common share. . . . . . (6,742) (6,386) (6,288) Tax benefit on dividends on unallocated ESOP shares . . . . . . . . . . . . . . . 195 199 208 -------- -------- -------- Ending balance . . . . . . . . . . . . . $116,396 $103,281 $ 93,733 -------- -------- -------- -------- -------- -------- CUMULATIVE TRANSLATION ADJUSTMENT Beginning balance. . . . . . . . . . . . . $ 2,743 $ 1,773 $ 5,765 Net change for year in translation adjustment. . . . . . . . . . . . . . . . 1,248 1,529 (4,022) Gain (loss) on foreign currency hedges, net of income taxes of $282, $342, and $18, respectively . . . . . . . . . . (459) (559) 30 -------- -------- -------- Ending balance . . . . . . . . . . . . . $ 3,532 $ 2,743 $ 1,773 -------- -------- -------- -------- -------- -------- RECEIVABLE FROM ESOP Beginning balance. . . . . . . . . . . . . $(13,962) $(14,816) $(15,673) Principal payments . . . . . . . . . . . . 450 409 371 Shares allocated . . . . . . . . . . . . . 399 445 486 -------- -------- -------- Ending balance . . . . . . . . . . . . . $(13,113) $(13,962) $(14,816) -------- -------- -------- -------- -------- -------- Total shareholders' equity . . . . . . . . $114,131 $ 96,249 $ 84,093 -------- -------- -------- -------- -------- --------
The Company had 30,000,000 authorized shares of common stock as of December 31, 1995. The Company had 15,000,000 authorized shares of common stock as of December 31, 1994 and 1993. (a) Adjusted for two-for-one stock split effective April 26, 1995. SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 21 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, 1995, 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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Minneapolis, Minnesota February 7, 1996 22 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, Tennant Holding B.V., and Contract Applications, Inc. The operations of Contract Applications, Inc., are included through the time of its dissolution in 1993. All material intercompany transactions and balances have been eliminated. TRANSLATION OF NON-U.S. CURRENCY. Non-U.S. 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. ECONOMIC HEDGE OF NET INVESTMENT IN TENNANT HOLDING B.V. The Company has elected to treat certain forward exchange contracts as an economic hedge of its net investment in Tennant Holding B.V. Accordingly, gains or losses on such transactions net of their related tax effect are reported as a separate component of shareholders' equity (see note 13). 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. Had all inventories been valued using the first- in, first-out method of inventory accounting, inventories would have been $17,850,000 and $16,680,000 higher than reported at December 31, 1995 and 1994, respectively. The composition of inventories at December 31 is as follows:
(IN THOUSANDS) 1995 1994 ------- ------- FIFO inventories: Finished goods . . . . . . . . . . . . . . $28,146 $21,491 All other. . . . . . . . . . . . . . . . . 30,406 26,174 LIFO adjustment. . . . . . . . . . . . . . . (17,850) (16,680) ------- ------- LIFO inventories . . . . . . . . . . . . . . $40,702 $30,985 ------- ------- ------- -------
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. 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. WARRANTY. The Company charges to current operations a provision, based on historical experience, for future warranty claims. 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. 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, 1995, earnings permanently reinvested in international subsidiaries not subject to a U.S. income tax provision were $6,256,000. 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. 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. 23 (2) COSTS AND EXPENSES Engineering, research and development, maintenance and repairs, and bad debt expenses were charged to operations for the three years ended December 31, 1995, as follows:
(IN THOUSANDS) 1995 1994 1993 ------- ------- ------- Engineering, research and development. . . . . . . . . . . . . . . . $12,695 $11,674 $11,445 Maintenance and repairs. . . . . . . . . . . $ 5,239 $ 4,658 $ 4,366 Bad debts. . . . . . . . . . . . . . . . . . $ 803 $ 1,088 $ 701
(3) SEGMENT REPORTING The Company has one business segment which consists of the design, manufacture, and sale of nonresidential floor maintenance equipment and related products. The tables below set forth the information about North American and International operations for the three years ended December 31, 1995:
1995 ----------------------------------------------------- North Interna- Elimina- Consoli- (IN THOUSANDS) American tional tions dated -------- -------- --------- --------- Net sales. . . . . . . . . . . . . . . . . . $274,500 89,015 (38,147) $325,368 -------- ------ ------- -------- -------- ------ ------- -------- Profit from operations . . . . . . . . . . . $ 23,044 7,953 (815) $ 30,182 -------- ------ ------- -------- -------- ------ ------- -------- Profit before income taxes. . . . . . . . . . . . . . . . . . . . $ 22,888 7,362 (815) $ 29,435 -------- ------ ------- -------- -------- ------ ------- -------- Net earnings . . . . . . . . . . . . . . . . $ 15,217 4,963 (518) $ 19,662 -------- ------ ------- -------- -------- ------ ------- -------- Identifiable assets. . . . . . . . . . . . . $193,084 48,943 (26,277) $215,750 -------- ------ ------- -------- -------- ------ ------- -------- 1994 ------------------------------------------------------ North Interna- Elimina- Consoli- (IN THOUSANDS) American tional tions dated -------- -------- -------- --------- Net sales. . . . . . . . . . . . . . . . . . $240,517 71,718 (30,550) $281,685 -------- ------ ------- -------- -------- ------ ------- -------- Profit from operations . . . . . . . . . . . $ 17,618 6,668 (162) $ 24,124 -------- ------ ------- -------- -------- ------ ------- -------- Profit before income taxes. . . . . . . . . . . . . . . . . . . . $ 17,760 6,483 (162) $ 24,081 -------- ------ ------- -------- -------- ------ ------- -------- Net earnings . . . . . . . . . . . . . . . . $ 11,611 4,208 (84) $ 15,735 -------- ------ ------- -------- -------- ------ ------- -------- Identifiable assets. . . . . . . . . . . . . $169,045 32,623 (18,834) $182,834 -------- ------ ------- -------- -------- ------ ------- -------- 1993 ------------------------------------------------------ North Interna- Elimina- Consoli- (IN THOUSANDS) American tional tions dated -------- -------- -------- -------- Net sales. . . . . . . . . . . . . . . . . . $180,524 63,398 (22,920) $221,002 -------- ------ ------- -------- -------- ------ ------- -------- Profit from operations . . . . . . . . . . . $ 7,247 3,743 343 $ 11,333 -------- ------ ------- -------- -------- ------ ------- -------- Profit before income taxes. . . . . . . . . . . . . . . . . . . . $ 9,322 3,263 343 $ 12,928 -------- ------ ------- -------- -------- ------ ------- -------- Net earnings . . . . . . . . . . . . . . . . $ 6,689 2,236 201 $ 9,126 -------- ------ ------- -------- -------- ------ ------- -------- Identifiable assets. . . . . . . . . . . . . $120,541 26,744 (18,651) $128,634 -------- ------ ------- -------- -------- ------ ------- --------
Included in North American sales are export sales of $38,147,000, $30,550,000, and $22,920,000, for the years ended December 31, 1995, 1994, and 1993, respectively. International operations does not include cost or asset allocations from corporate overhead. (4) CONSOLIDATED QUARTERLY DATA* (UNAUDITED)
Net Sales Gross Profit** --------------------------------------- --------------------------------------- (000) (000) --------------------------------------- --------------------------------------- % % Quarter 1995 1994 Change 1995 1994 Change -------- -------- ------ -------- -------- ------ First. . . . . . . . . . . . . $ 74,144 $ 58,441 27 $ 31,498 $ 24,884 27 Second . . . . . . . . . . . . 82,797 70,784 17 35,788 29,688 21 Third. . . . . . . . . . . . . 77,761 71,309 9 33,482 29,808 12 Fourth . . . . . . . . . . . . 90,666 81,151 12 38,932 34,945 11 -------- -------- -------- -------- Year . . . . . . . . . . . . . $325,368 $281,685 16 $139,700 $119,325 17 -------- -------- -------- -------- -------- -------- -------- -------- Net Earnings -------------------------------------------------------------------- (000) Per Share*** --------------------------------------- -------------------- % Quarter 1995 1994 Change 1995 1994 -------- -------- ------ ----- ----- First. . . . . . . . . . . . . $ 3,869 $ 2,660 45 $ .39 $ .27 Second . . . . . . . . . . . . 5,278 4,225 25 .53 .43 Third. . . . . . . . . . . . . 4,634 3,902 19 .47 .40 Fourth . . . . . . . . . . . . 5,881 4,948 19 .59 .50 -------- -------- ----- ----- Year . . . . . . . . . . . . . $ 19,662 $ 15,735 25 $1.98 $1.60 -------- -------- ----- ----- -------- -------- ----- -----
* Regular quarterly dividends after stock split adjustment aggregated $.68 per share in 1995 ($.17 per share for all quarters) and $.65 per share in 1994 ($.16 per share for the first three quarters and $.17 for the fourth quarter). ** 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 1995, 1994, and 1993 the Company recognized tax benefits of $195,000, $199,000, and $208,000, respectively, relating to dividends paid on unallocated shares held by the Company's ESOP and miscellaneous charges (credits) of $(282,000), $(342,000), and $18,000, respectively, by direct allocations to shareholders' equity. Income tax expense for the three years ended December 31, 1995, is as follows:
(IN THOUSANDS) Current Deferred Total ------- -------- ------ 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 ------ ------- ------ ------ ------- ------ 1993 Federal. . . . . . . . . . . . . . . . . . $3,603 $ (933) $2,670 Foreign. . . . . . . . . . . . . . . . . . 1,122 (304) 818 State. . . . . . . . . . . . . . . . . . . 482 (168) 314 ------ ------- ------ $5,207 $(1,405) $3,802 ------ ------- ------ ------ ------- ------
24 Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 35%, 35%, and 34.4%, respectively, as a result of the following:
(IN THOUSANDS) 1995 1994 1993 ------- ------ ------ Tax at statutory rate. . . . . . . . . . . . $10,293 $8,417 $4,447 Increases (decreases) in taxes from: State and local taxes, net of federal benefit. . . . . . . . . . . . . 726 488 206 Effect of foreign taxes. . . . . . . . . . (78) 10 (223) Research and development credit. . . . . . (344) (467) (463) Effect of foreign sales corporation. . . . (737) (372) (223) Other, net . . . . . . . . . . . . . . . . (87) 270 58 ------ ------ ------ Income tax expense . . . . . . . . . . . . . $9,773 $8,346 $3,802 ------ ------ ------ ------ ------ ------
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994, are presented below:
(IN THOUSANDS) 1995 1994 ------- ------- 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 . . . . . . . . . . . . . . . . . . . $ 1,099 $ 1,417 Employee wages and benefits, principally due to accruals for financial reporting purposes . . . . . . 8,894 7,843 Warranty reserves accrued for financial reporting purposes . . . . . . . . . . . . . . . . . . . 659 522 Accounts receivable, principally due to allowance for doubtful accounts and change in tax accounting method for equipment rentals. . . . . . . . . . . . . . . . . . 570 699 Restructuring reserves . . . . . . . . . . . . . . . . . . -- 145 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 866 693 ------- ------- Total deferred tax assets . . . . . . . . . . . . . . . $12,088 $11,319 ------- ------- ------- ------- 1995 1994 ------- ------- Deferred tax liabilities: Property, plant, and equipment, principally due to differences in depreciation and related gains. . . . . . . . . . . . . . . . . . . . . . $ 4,547 $ 4,119 Goodwill and other intangibles . . . . . . . . . . . . . . 663 142 Deferred gain, hedge of forward foreign exchange contracts . . . . . . . . . . . . . . . . . . . 229 46 ------- ------- Total deferred tax liabilities. . . . . . . . . . . . . $ 5,439 $ 4,307 ------- ------- ------- ------- Net deferred tax asset . . . . . . . . . . . . . . . . . . . $ 6,649 $ 7,012 ------- ------- ------- -------
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 $11,256,000, $5,961,000, and $4,608,000, in 1995, 1994, and 1993, respectively. (6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses at December 31 consist of the following:
(IN THOUSANDS) 1995 1994 ------- ------- Trade accounts payable . . . . . . . . . . . $18,280 $14,624 Employee profit sharing. . . . . . . . . . . 3,232 3,781 Wages, bonuses, and commissions. . . . . . . 12,240 11,478 Taxes, other than income taxes . . . . . . . 3,038 3,573 Restructuring. . . . . . . . . . . . . . . . 0 525 Other. . . . . . . . . . . . . . . . . . . . 6,964 5,036 ------- ------- $43,754 $39,017 ------- ------- ------- -------
During 1995 and 1994, 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) 1995 1994 --------- -------- Land . . . . . . . . . . . . . . . . . . . . $ 3,274 $ 3,511 Buildings and improvements . . . . . . . . . 26,513 27,861 Machinery and equipment. . . . . . . . . . . 103,383 89,603 Construction in progress . . . . . . . . . . 4,043 1,409 --------- -------- Total property, plant, and equipment . . . . 137,213 122,384 Less accumulated depreciation. . . . . . . . (73,489) (65,832) --------- -------- Net property, plant, and equipment . . . . $ 63,724 $ 56,552 --------- -------- --------- --------
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 ---------- --------- 1996 $ 7,676 $391 1997 5,285 78 1998 2,635 51 1999 724 -- 2000 213 -- ------- ---- Total $16,533 $520 ------- ---- ------- ----
25 The Company's investment in equipment related to operating leases as of December 31 is as follows:
(IN THOUSANDS) 1995 1994 ------ ------ Cost $3,775 $3,519 Less accumulated depreciation (1,071) (950) ------ ------ $2,704 $2,569 ------ ------ ------ ------
The Company's net investment in sales-type leases at December 31 is as follows:
(IN THOUSANDS) 1995 1994 ------- ------- Minimum lease payments receivable. . . . . . $16,533 $13,905 Less allowance for doubtful accounts . . . . (326) (315) ------- ------- Net minimum lease payments receivable. . . . 16,207 13,590 Estimated unguaranteed residual value. . . . 1,253 1,295 Less deferred income . . . . . . . . . . . . (3,187) (2,763) ------- ------- Net investment in sales-type leases. . . . . $14,273 $12,122 ------- ------- ------- -------
(9) COMMITMENTS The Company leases office and warehouse facilities in all major geographic areas it serves 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 $2,656,000, $2,447,000, and $2,080,000, in 1995, 1994, and 1993, respectively. The aggregate lease commitments with initial terms of one year or more at December 31, 1995, were $6,596,000 with minimum rentals for the periods as follows:
(IN THOUSANDS) 1996 $2,259 1997 1,711 1998 1,031 1999 435 2000 285 2001 and beyond 875 ------ Total $6,596 ------ ------
(10) SHORT-TERM BORROWINGS Short-term bank borrowings at December 31, 1995 and 1994, were $17,349,000 and $21,552,000, 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, 1995 and 1994, were 6.5% and 5.7%, respectively. The 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 $41,478,000 which includes a $33,000,000 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, 1995 and 1994, of $15,964,000 and $24,057,000, respectively. In addition, the Company has outstanding letters of credit with banks in the amount of $3,200,000 at December 31, 1995. (11) LONG-TERM DEBT Long-term debt at December 31 consists of the following:
(IN THOUSANDS) 1995 1994 ------- ------ Bank loan at 9.5%, due in 1995 . . . . . . . $ -- $ 569 Bank loan at 9.6%, due in 1995 . . . . . . . -- 637 Bank loan at 8.68% due in 1997 . . . . . . . -- 1,300 Bank loan at 4.8%, due in 1997 . . . . . . . 692 -- Bank loan at 8.8%, due in 1997 . . . . . . . 1,402 -- Bank loan at 8.9%, due in 2000 . . . . . . . 1,055 -- Note at 8.09%, due in 2000 . . . . . . . . . 5,000 -- Notes at 8.56%, due in 2001. . . . . . . . . 5,000 5,000 Note at 7.21%, due in 2003 . . . . . . . . . 5,000 -- Note at 7.84%, due in 2005 . . . . . . . . . 5,000 -- ------- ------ Less: Current portion. . . . . . . . . . . . . . -- (1,206) ------- ------ $23,149 $6,300 ------- ------ ------- ------
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) 1996 $ -- 1997 2,094 1998 -- 1999 -- 2000 6,055 2001 and beyond 15,000 ------- $23,149 ------- -------
The fair market value of the long-term debt approximates cost as of December 31, 1995. During 1995, 1994, and 1993, the Company paid total long-term and short-term interest costs of $2,657,000, $1,557,000, and $509,000, respectively. (12) 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. 26 The periodic postretirement benefit cost under SFAS 106 for the three years ended December 31, 1995, is as follows:
(IN THOUSANDS) 1995 1994 1993 ---- ---- ---- Service costs. . . . . . . . . . . . . $205 $315 $219 Interest costs . . . . . . . . . . . . 645 638 566 Amortization and deferrals . . . . . . 0 18 -- ---- ---- ---- Net postretirement costs . . . . . . . . . . . . . . . . $850 $971 $785 ---- ---- ---- ---- ---- ----
The actuarial present value of benefit obligations at December 31 is as follows:
(IN THOUSANDS) 1995 1994 ------ ------ Retirees eligible for benefits. . . . . . . . . . . . . . . . . . . . $2,677 $2,339 Dependents of retirees eligible for benefits . . . . . . . . . . . . . 1,908 1,674 Active employees fully eligible. . . . . . . . . . . . . . . . . 907 721 Active employees not fully eligible. . . . . . . . . . . . . . . . . 5,476 4,119 Unrecognized net loss. . . . . . . . . . . . . . (1,783) (75) ------ ------ Accrued postretirement benefit cost. . . . . . . . . . . . . . . . . . $9,185 $8,778 ------ ------ ------ ------
The assumed annual rate of future increases in per capita cost of health care benefits was 9.5% for 1996, declining gradually to 5.5% in 2021 and after. Increasing the health care cost trend rate by 1% in each year would increase the accumulated benefit obligation by $315,000 as of December 31, 1995, and the aggregate of the service and interest costs by $30,000. The discount rates used in determining the accumulated benefit obligation in 1995, 1994, and 1993, were 7.0%, 8.0%, and 7.0%, respectively. (13) FOREIGN CURRENCY CONTRACTS The Company has entered into several guilder forward exchange contracts for the purpose of hedging the net investment in Tennant Holding B.V. As of December 31, 1995, there were six outstanding contacts totaling $7,523,000. These contracts will mature in 1996 and bear rates ranging from 1.5215 to 1.6491 guilders per dollar. The Company also entered into yen foreign currency option contracts to hedge anticipated sales transactions. Gains and losses on contracts are recognized in income on a current basis over the term of the contracts.As of December 31, 1995, there were four outstanding yen contracts totaling $4,000,000. These contracts will mature in 1996 and bear rates ranging from 84.40 to 90.26 yen per dollar. The Company also had four outstanding forward hedging contracts totaling $5,435,000 as of December 31, 1995, relating to some of the Company's other foreign operations. Gains and losses on contracts are recognized in income on a current basis over the term of the contracts. (14) 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, 1995. 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. Each share of the Company's outstanding common stock is accompanied by one preferred share purchase right. Each right entitles the registered holder to purchase from the Company one-twentieth of a share of junior participating preferred stock, $.02 par value, for $75.00. The rights are not exercisable or transferable apart from the common stock until a person or group has acquired 20% or more, or makes a tender offer to acquire 20% or more, of the Company's outstanding common stock. If, in certain circumstances, the Company is acquired in a merger or other business combination transaction, or if an acquiring person purchases at least 20% of the Company's common stock, each right will entitle the holder (except, in certain circumstances, an acquiring person) to receive, upon exercise, common stock of either the Company or the acquiring person having a value equal to two times the exercise price of the right. At no time do the rights have any voting power. The rights may be redeemed by the Company for $.05 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 expire on December 23, 1996. (15) STOCK PLANS, BONUSES, PENSIONS, AND PROFIT SHARING The Company has two Stock Incentive Plans under which stock-based grants are awarded each year to designated employees (management and senior managerial personnel) and directors. Under these plans, restricted shares are awarded annually with a two-year or three-year restriction period. Performance-related shares are also awarded annually and are payable if the Company achieves certain business performance goals within a four-year period. In 1995, 1994, and 1993, respectively, expenses of $2,310,000, $2,432,000, and $199,000, were charged to operations for restricted and performance-related awards. 27 The 1995 Stock Incentive Plan allows for the granting of options to purchase common shares at an exercise price not less than 100% of the fair market value on the date of the grant. Outstanding options as of December 31, 1995, are as follows:
Total Exercise Year shares Options Options Outstanding price of grant granted expired exercised options per share - - -------- ------- ------- --------- ----------- --------- 1995 101,000 0 0 101,000 $23.6875
Options are exercisable on a cumulative basis at a rate of 25% per year. The Company also has a matching contribution program available to all employees who make Individual Shelter Contributions. Under this program, the Company makes matching contributions up to a maximum of 4% of an employee's earnings. For 1995, 1994, and 1993, employee contributions that were invested in Company common stock were matched at the rate of 35%, and contributions not invested in Company common stock were matched at the rate of 15%. Expenses related to matching contributions were $635,000, $544,000, and $471,000 in 1995, 1994, and 1993, 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 not only for benefits attributed to service to date, but also 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, 1995, is as follows:
(IN THOUSANDS) 1995 1994 1993 ---- ---- ---- Service cost . . . . . . . . . . . $1,245 $1,359 $1,539 Interest cost . . . . . . . . . . 884 756 866 Actual return on plan assets (increase) decrease . . . . . . (5,521) 180 (1,811) Deferred gain (loss) . . . . . . . 3,932 (1,495) 694 Amortization of transition asset . . . . . . . . . . . . . (46) (46) (46) Less Tennant Trend curtailment gain . . . . . . . . -- (751) - ------ ------ ------ Net periodic pension expense . . . . . . . . . . . $ 494 $ 3 $1,242 ------ ------ ------ ------ ------ ------
The assumptions used in determining the actuarial present value of the projected benefit obligation at December 31 are as follows:
1995 1994 1993 ------ ------ ------ Weighted average discount rate . . . . . . . . . . . . . . 7.0% 8.0% 7.0% Rate of increase in future compensation . . . . . . . . . . 5.5% 6.5% 5.5%
The expected long-term rate of return on plan assets in 1995, 1994, and 1993 was 10.0%, 11.0%, and 10.0%, respectively. The funded status of the plan and the amount recognized at December 31 are as follows:
(IN THOUSANDS) 1995 1994 ------- ------- Actuarial present value of benefit obligation: Vested benefits. . . . . . . . . . . . . . . . . . . $ 6,876 $ 4,512 Nonvested benefits . . . . . . . . . . . . . . . . . 289 210 ------- ------- Accumulated benefit obligation . . . . . . . . . . . . 7,165 4,722 Effect of projected future compensation increases. . . . . . . . . . . . . . . . . . . . . . 7,271 6,120 ------- ------- Projected benefit obligation . . . . . . . . . . . . . 14,436 10,842 Plan assets, primarily listed equity securities, at fair value using the market-related value method . . . . . . . . . . . . . . . . . . . . (17,501) (12,132) ------- ------- Plan assets in excess of projected benefit obligation . . . . . . . . . . . . . . . . . . . . . (3,065) (1,290) Unrecognized prior service cost. . . . . . . . . . . . (331) (354) Unrecognized net gain. . . . . . . . . . . . . . . . . 7,268 4,978 Unrecognized transition asset. . . . . . . . . . . . . 633 679 ------- ------- Net pension obligation . . . . . . . . . . . . . . . . $ 4,505 $ 4,013 ------- ------- ------- -------
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. 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. Allocated and unallocated ESOP shares are considered outstanding in EPS computations. Dividends on allocated and unallocated shares are recorded as a reduction of retained earnings. The Company's cash contribution to the ESOP during 1995, 1994, and 1993 was $1,307,000, $1,349,000, and $1,362,000, respectively. Accrued expenses in excess of benefits provided to employees through the ESOP, which were charged to miscellaneous expense, were $778,000, $908,000, and $874,000 in 1995, 1994, and 1993, respectively. Interest earned and received on the Company loan to the ESOP was $1,598,000, $1,642,000, and $1,682,000 in 1995, 1994, and 1993, respectively. Dividends on the Company shares held by the ESOP used for debt service were $738,000, $703,000, and $697,000 in 1995, 1994, and 1993, respectively. At December 31, 1995, the ESOP indebtedness to the Company, 28 which bears an interest rate of 10.05% and is due December 31, 2009, was $15,791,000. The ESOP shares as of December 31, after adjustment for the two-for-one stock split, were as follows:
1995 1994 1993 ------- ------- ------- Allocated shares . . . . . . . . . . . . . . . 229,578 179,262 128,618 Shares released for allocation . . . . . . . . 40,781 41,540 42,654 Unreleased shares. . . . . . . . . . . . . . . 698,707 748,264 797,794 ------- ------- ------- Total ESOP shares. . . . . . . . . . . . . . . 969,066 969,066 969,066 ------- ------- ------- ------- ------- -------
For the years ended December 31, 1995, 1994, and 1993, the Company charged to operations $9,567,000, $9,821,000, and $4,759,000, respectively, for expense of all stock, bonus, pension, and profit sharing plans. (16) 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 years ended December 31, 1994 and 1993, assuming the transaction was consummated at the beginning of each of the respective fiscal years (dollars in thousands, except per share amounts):
1994 1993 -------- -------- Net sales. . . . . . . . . . . . . . . . . . . . . $284,092 $252,123 Net earnings . . . . . . . . . . . . . . . . . . . $ 15,793 $ 10,227 Net earnings per share . . . . . . . . . . . . . . $ 1.61 $ 1.04
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. The acquisition did not have a material impact on operations. 29 TENNANT COMPANY AND SUBSIDIARIES
HISTORICAL PROGRESS REVIEW (PRESENTS 10 YEARS OF DATA FOR LONG-TERM GROWTH MEASUREMENT.) (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993 ---------- ------------- ------------- Net sales. . . . . . . . . . . . . . . . . . . . $ 325,368 281,685 221,002 Cost of sales. . . . . . . . . . . . . . . . . . $ 185,668 162,360 126,071 Gross margin -- %. . . . . . . . . . . . . . . . 42.9 42.4 43.0 Selling and administrative expenses. . . . . . . $ 109,518 95,201 79,508 % of net sales. . . . . . . . . . . . . . . . 33.7 33.8 36.0 Profit from operations . . . . . . . . . . . . . $ 30,182 24,124 11,333(a) % of net sales. . . . . . . . . . . . . . . . 9.3 8.6 5.1 Other income and (expense) . . . . . . . . . . . $ (747) (43) 1,595 Income tax expense . . . . . . . . . . . . . . . $ 9,773 8,346 3,802 % of earnings before income taxes . . . . . . 33.2 34.7 29.4 Earnings before extraordinary gain and cumulative effect of accounting change. . . . . $ 19,662 15,735 9,126(a) % of net sales . . . . . . . . . . . . . . 6.0 5.6 4.1 Return on beginning shareholders' equity -- % . . . . . . . . . . . . . . . 20.4 18.7 10.8(a) Net earnings . . . . . . . . . . . . . . . . . . $ 19,662 15,735 9,126 PER SHARE DATA(f) Earnings before extraordinary gain and cumulative effect of accounting change. . . . . $ 1.98 1.60 .93(a) Net earnings . . . . . . . . . . . . . . . . . . $ 1.98 1.60 .93 Cash dividends . . . . . . . . . . . . . . . . . $ .68 .65 .64 Shareholders' equity (ending). . . . . . . . . . $ 11.47 9.78 8.56 YEAR-END FINANCIAL POSITION Cash and cash equivalents. . . . . . . . . . . . $ 4,247 1,851 2,675 Total current assets . . . . . . . . . . . . . . $ 123,508 98,454 73,752 Property, plant, and equipment, net. . . . . . . $ 63,724 56,552 46,622 Total assets . . . . . . . . . . . . . . . . . . $ 215,750 182,834 128,634 Current liabilities excluding current debt . . . $ 44,374 41,959 29,657 Current ratio excluding current debt . . . . . . 2.8 2.3 2.5 Long-term liabilities excluding long-term debt . $ 16,747 15,318 12,591 Financing debt Current . . . . . . . . . . . . . . . . . . . $ 17,349 23,008 1,190 Long-term . . . . . . . . . . . . . . . . . . $ 23,149 6,300 1,103 Total as % of total capital. . . . . . . . 26.2 23.3 2.7 Shareholders' equity . . . . . . . . . . . . . . $ 114,131 96,249 84,093 CASH FLOW(e) Increase (Decrease) Related to operating activities. . . . . . . . . $ 15,442 25,419 20,440 Related to investing activities. . . . . . . . . $ (19,715) (46,596) (12,087) Related to financing activities. . . . . . . . . $ 6,721 20,351 (9,244) OTHER DATA Interest income. . . . . . . . . . . . . . . . . $ 4,132 3,807 3,583 Interest expense . . . . . . . . . . . . . . . . $ 2,640 1,677 509 Depreciation and amortization expense. . . . . . $ 14,090 13,121 10,987 Net expenditures for property, plant, and equipment . . . . . . . . . . . . . . . . . . . $ 19,117 18,870 12,877 Number of employees at year-end. . . . . . . . . 1,997 1,916 1,707 Total direct compensation. . . . . . . . . . . . $ 86,263 76,225 71,507 Profit sharing and all other employee benefits . $ 21,887 21,116 18,149 Average shares outstanding(f). . . . . . . . . . 9,916 9,826 9,836 Closing share price at year-end(f) . . . . . . . $ 23 7/8 24 1/8 23 1/2 Common stock price range during year(f). . . . . $ 22 1/4-29 20 15/32-24 1/4 19 3/4-24 1/4 Closing price/earnings ratio(g). . . . . . . . . 12.1 15.1 19.7
(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) Comparable cash flow data is not available prior to 1986 due to a change in reporting requirements. (f) Adjusted retroactively for two-for-one stock split effective April 26, 1995. (g) 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
- - ------------------------------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------------------------------- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) 1992 1991 1990 Net sales. . . . . . . . . . . . . . . . . . . . 214,863 198,575 211,503 Cost of sales. . . . . . . . . . . . . . . . . . 121,792 112,147 121,598 Gross margin -- %. . . . . . . . . . . . . . . . 43.3 43.5 42.5 Selling and administrative expenses. . . . . . . 76,942 69,707 70,401 % of net sales. . . . . . . . . . . . . . . . 35.8 35.1 33.3 Profit from operations . . . . . . . . . . . . . 16,129 16,721 19,504 % of net sales. . . . . . . . . . . . . . . . 7.5 8.4 9.2 Other income and (expense) . . . . . . . . . . . 1,864 1,800 374 Income tax expense . . . . . . . . . . . . . . . 4,803 6,529 4,257 % of earnings before income taxes . . . . . . 26.7 35.3 21.4 Earnings before extraordinary gain and cumulative effect of accounting change. . . . . 13,190(b) 11,992 15,621(c) % of net sales . . . . . . . . . . . . . . 6.1 6.0 7.4 Return on beginning shareholders' equity -- % . . . . . . . . . . . . . . . 17.2(b) 16.4 21.1(c) Net earnings . . . . . . . . . . . . . . . . . . 9,229 11,992 18,256 PER SHARE DATA(f) Earnings before extraordinary gain and cumulative effect of accounting change. . . . . 1.34(b) 1.21 1.59(c) Net earnings . . . . . . . . . . . . . . . . . . .94 1.21 1.85 Cash dividends . . . . . . . . . . . . . . . . . .61 .60 .59 Shareholders' equity (ending). . . . . . . . . . 8.64 7.87 7.43 YEAR-END FINANCIAL POSITION Cash and cash equivalents. . . . . . . . . . . . 3,512 2,349 1,412 Total current assets . . . . . . . . . . . . . . 74,741 66,028 67,065 Property, plant, and equipment, net. . . . . . . 45,430 40,730 42,588 Total assets . . . . . . . . . . . . . . . . . . 128,988 111,644 114,590 Current liabilities excluding current debt . . . 28,848 30,700 30,982 Current ratio excluding current debt . . . . . . 2.6 2.2 2.2 Long-term liabilities excluding long-term debt . 10,691 2,281 1,463 Financing debt Current . . . . . . . . . . . . . . . . . . . 1,492 197 6,986 Long-term . . . . . . . . . . . . . . . . . . 3,107 1,853 1,995 Total as % of total capital. . . . . . . . 5.1 2.6 10.9 Shareholders' equity . . . . . . . . . . . . . . 84,850 76,613 73,164 CASH FLOW(e) Increase (Decrease) Related to operating activities. . . . . . . . . 19,298 22,409 24,848 Related to investing activities. . . . . . . . . (14,900) (6,104) (8,951) Related to financing activities. . . . . . . . . (3,346) (15,336) (17,746) OTHER DATA Interest income. . . . . . . . . . . . . . . . . 3,619 3,828 2,672 Interest expense . . . . . . . . . . . . . . . . 540 568 1,019 Depreciation and amortization expense. . . . . . 10,241 8,730 8,652 Net expenditures for property, plant, and equipment . . . . . . . . . . . . . . . . . . . 12,315 8,063 8,071 Number of employees at year-end. . . . . . . . . 1,758 1,738 1,800 Total direct compensation. . . . . . . . . . . . 69,240 65,324 66,364 Profit sharing and all other employee benefits . 19,547 17,917 19,316 Average shares outstanding(f). . . . . . . . . . 9,832 9,892 9,842 Closing share price at year-end(f) . . . . . . . 21 7/16 18 17 1/2 Common stock price range during year(f). . . . . 17 1/4-24 3/8 16 1/4-21 1/4 13 7/8-22 1/8 Closing price/earnings ratio(g). . . . . . . . . 17.4 14.9 13.3 (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) 1989 1988 1987 ---------- ------------- ------------- Net sales. . . . . . . . . . . . . . . . . . . . 197,078 183,888 166,924 Cost of sales. . . . . . . . . . . . . . . . . . 112,511 105,991 95,015 Gross margin -- %. . . . . . . . . . . . . . . . 42.9 42.4 43.1 Selling and administrative expenses. . . . . . . 64,518 59,646 55,352 % of net sales. . . . . . . . . . . . . . . . 32.7 32.4 33.2 Profit from operations . . . . . . . . . . . . . 20,049 18,251 16,557 % of net sales. . . . . . . . . . . . . . . . 10.2 9.9 9.9 Other income and (expense) . . . . . . . . . . . 3,755 1,449 953 Income tax expense . . . . . . . . . . . . . . . 9,052 8,126 7,692 % of earnings before income taxes . . . . . . 38.0 41.2 43.9 Earnings before extraordinary gain and cumulative effect of accounting change. . . . . 14,752(d) 11,574 9,818 % of net sales . . . . . . . . . . . . . . 7.5 6.3 5.9 Return on beginning shareholders' equity -- % . . . . . . . . . . . . . . . 18.9(d) 16.6 15.0 Net earnings . . . . . . . . . . . . . . . . . . 14,752 13,263 9,818 PER SHARE DATA(f) Earnings before extraordinary gain and cumulative effect of accounting change. . . . . 1.44(d) 1.09 .92 Net earnings . . . . . . . . . . . . . . . . . . 1.44 1.25 .92 Cash dividends . . . . . . . . . . . . . . . . . .55 .49 .48 Shareholders' equity (ending). . . . . . . . . . 7.52 7.37 6.60 YEAR-END FINANCIAL POSITION Cash and cash equivalents. . . . . . . . . . . . 3,175 7,016 3,564 Total current assets . . . . . . . . . . . . . . 70,325 76,402 65,960 Property, plant, and equipment, net. . . . . . . 40,949 35,616 35,583 Total assets . . . . . . . . . . . . . . . . . . 116,179 117,013 105,273 Current liabilities excluding current debt . . . 35,408 29,836 25,206 Current ratio excluding current debt . . . . . . 2.0 2.6 2.6 Long-term liabilities excluding long-term debt . 4,022 3,757 3,130 Financing debt Current . . . . . . . . . . . . . . . . . . . 588 1,722 2,280 Long-term . . . . . . . . . . . . . . . . . . 2,111 2,234 2,421 Total as % of total capital. . . . . . . . 3.5 4.8 6.3 Shareholders' equity . . . . . . . . . . . . . . 74,050 77,998 69,516 CASH FLOW(e) Increase (Decrease) Related to operating activities. . . . . . . . . 25,685 18,614 15,651 Related to investing activities. . . . . . . . . (8,916) (9,140) (7,156) Related to financing activities. . . . . . . . . (20,310) (5,730) (5,861) OTHER DATA Interest income. . . . . . . . . . . . . . . . . 2,033 2,023 2,196 Interest expense . . . . . . . . . . . . . . . . 597 401 1,017 Depreciation and amortization expense. . . . . . 8,027 7,900 7,162 Net expenditures for property, plant, and equipment . . . . . . . . . . . . . . . . . . . 9,135 9,121 7,007 Number of employees at year-end. . . . . . . . . 1,789 1,726 1,727 Total direct compensation. . . . . . . . . . . . 62,401 58,637 54,721 Profit sharing and all other employee benefits . 17,233 15,245 14,437 Average shares outstanding(f). . . . . . . . . . 10,268 10,592 10,640 Closing share price at year-end(f) . . . . . . . 17 1/2 13 1/8 11 3/4 Common stock price range during year(f). . . . . 12 5/8-18 1/4 11 1/4-16 3/8 8-16 1/2 Closing price/earnings ratio(g). . . . . . . . . 13.3 12.0 12.7 (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) 1986 1985 ---------- ------------- Net sales. . . . . . . . . . . . . . . . . . . . 151,497 136,512 Cost of sales. . . . . . . . . . . . . . . . . . 85,977 78,385 Gross margin -- %. . . . . . . . . . . . . . . . 43.2 42.6 Selling and administrative expenses. . . . . . . 50,145 44,687 % of net sales. . . . . . . . . . . . . . . . 33.1 32.7 Profit from operations . . . . . . . . . . . . . 15,375 13,440 % of net sales. . . . . . . . . . . . . . . . 10.1 9.8 Other income and (expense) . . . . . . . . . . . 1,433 1,709 Income tax expense . . . . . . . . . . . . . . . 7,992 6,427 % of earnings before income taxes . . . . . . 47.5 42.4 Earnings before extraordinary gain and cumulative effect of accounting change. . . . . 8,816 8,722 % of net sales . . . . . . . . . . . . . . 5.8 6.4 Return on beginning shareholders' equity -- % . . . . . . . . . . . . . . . 14.7 15.3 Net earnings . . . . . . . . . . . . . . . . . . 8,816 8,722 PER SHARE DATA(f) Earnings before extraordinary gain and cumulative effect of accounting change. . . . . .83 .82 Net earnings . . . . . . . . . . . . . . . . . . .83 .82 Cash dividends . . . . . . . . . . . . . . . . . .46 .46 Shareholders' equity (ending). . . . . . . . . . 6.15 5.62 YEAR-END FINANCIAL POSITION Cash and cash equivalents. . . . . . . . . . . . 947 2,660 Total current assets . . . . . . . . . . . . . . 55,627 52,782 Property, plant, and equipment, net. . . . . . . 35,037 32,350 Total assets . . . . . . . . . . . . . . . . . . 94,506 89,419 Current liabilities excluding current debt . . . 17,742 16,835 Current ratio excluding current debt . . . . . . 3.1 3.1 Long-term liabilities excluding long-term debt . 2,744 2,346 Financing debt Current . . . . . . . . . . . . . . . . . . . 1,209 3,447 Long-term . . . . . . . . . . . . . . . . . . 2,766 3,208 Total as % of total capital. . . . . . . . 5.7 10.0 Shareholders' equity . . . . . . . . . . . . . . 65,356 59,912 CASH FLOW(e) Increase (Decrease) Related to operating activities. . . . . . . . . 15,177 -- Related to investing activities. . . . . . . . . (8,543) -- Related to financing activities. . . . . . . . . (8,446) -- OTHER DATA Interest income. . . . . . . . . . . . . . . . . 2,061 2,141 Interest expense . . . . . . . . . . . . . . . . 705 687 Depreciation and amortization expense. . . . . . 6,611 5,901 Net expenditures for property, plant, and equipment . . . . . . . . . . . . . . . . . . . 8,543 12,196 Number of employees at year-end. . . . . . . . . 1,728 1,658 Total direct compensation. . . . . . . . . . . . 49,819 43,472 Profit sharing and all other employee benefits . 11,299 9,981 Average shares outstanding(f). . . . . . . . . . 10,658 10,672 Closing share price at year-end(f) . . . . . . . 12 1/8 11 3/4 Common stock price range during year(f). . . . . 10 9/16-13 1/4 9 3/4-12 1/2 Closing price/earnings ratio(g). . . . . . . . . 14.7 14.4
31 INVESTOR INFORMATION ANNUAL MEETING The annual meeting of Tennant Company will be held at 10:30 a.m. on Thursday, May 2, 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 over-the- counter market, under the ticker symbol TANT. As of December 31, 1995, there were approximately 3,300 shareholders of record. QUARTERLY PRICE RANGE (UNAUDITED) 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 --------------------------------------------------------------------------- 1991 $16.50-20.00 $17.50-21.25 $16.75-18.50 $16.25-18.38 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
DIVIDEND INFORMATION Cash dividends on Tennant's common stock have been paid for 52 consecutive years, and the Company has increased dividends in each of the last 24 years. Dividends generally are declared each quarter. Following are the record dates anticipated for the next 12 months: May 31, 1996 August 30, 1996 December 16, 1996 March 3, 1997 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 1995 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 ROGER L. HALE, PRESIDENT, CHIEF EXECUTIVE OFFICER ARTHUR D. COLLINS, JR., PRESIDENT, CHIEF OPERATING 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, 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 ARTHUR R. SCHULZE, JR., RETIRED VICE CHAIRMAN OF THE BOARD GENERAL MILLS, INC., MINNEAPOLIS, MINNESOTA OFFICERS ROGER L. HALE, PRESIDENT, CHIEF EXECUTIVE OFFICER JANET M. DOLAN, SENIOR VICE PRESIDENT AND GENERAL COUNSEL 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 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 EX-23.1 3 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Tennant Company: We consent to incorporation by reference in Registration Statements No. 2-86844 on 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 report dated February 7, 1996, relating to the consolidated balance sheets of Tennant Company and subsidiaries as of December 31, 1995 and 1994 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, 1995, which report is incorporated by reference in the December 31, 1995 annual report on Form 10-K of Tennant Company. /s/ KPMG Peat Marwick LLP March 26, 1996 EX-27.1 4 EXHIBIT 27 (FDS)
5 This schedule contains summary financial information extracted from the Consolidated Statement of Earnings for the year ended Dec. 31, 1995, and the Consolidated Balance Sheet as of Dec. 31, 1995, pages 18-19, and fn 2, page 24, and fn 7, page 25, of the Company's 1995 Annual Report to Shareholders, and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 4247 0 75122 2611 40702 123508 137213 73489 215750 61723 23149 0 0 3732 110399 215750 325368 325368 185668 185668 0 803 2640 29435 9773 19662 0 0 0 19662 1.98 1.98
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