Tennant Company Reports 2010 First Quarter Results

http://www.businesswire.com/news/home/20100422005237/en

Net sales rose 16.7 percent;

Quarterly EPS was $0.21 vs. $0.04 adjusted loss per diluted share a year ago;

Gross margins reached 42.5 percent, up from 41 percent;

Cash generated from operations totaled $14.1 million
MINNEAPOLIS--(Business Wire)--
Tennant Company (NYSE: TNC), a world leader in designing, manufacturing and
marketing of solutions that help create a cleaner, healthier world, today
reported net earnings of $4.1 million, or $0.21 per diluted share, on net sales
of $150.1 million for the first quarter ended March 31, 2010. These results are
consistent with Tennant`s April 12, 2010, news release that pre-announced the
company`s expectations, both for a strong first quarter and increased full year
net sales and earnings guidance. In the prior year quarter, Tennant reported a
net loss of $41.7 million, or a $2.29 loss per diluted share, on net sales of
$128.6 million. Excluding the goodwill impairment charge of $43.4 million, or a
$2.32 loss per diluted share, and a $1.3 million benefit from a restructuring
charge reserve revision, the 2009 first quarter net loss would have been $0.7
million, or a $0.04 loss per diluted share.

Commented Chris Killingstad, Tennant Company`s president and chief executive
officer: "In the 2010 first quarter, we saw particularly strong growth in the
Americas and Asia. As noted in our release earlier this month, the double-digit
sales gains were chiefly driven by continued demand for our proprietary ec-H2O
technology platform, as well as sales to strategic account customers, many of
whom have recently designated Tennant as a preferred supplier. The higher sales
volume, coupled with our continued emphasis on controlling and improving our
cost structure, resulted in increased gross margins and earnings per share."

Tennant generated $14.1 million in cash from operations in the 2010 first
quarter, compared to $11.3 million in the year earlier quarter. The company`s
total debt was $33.1 million, down from $91.9 million at the end of the prior
year quarter.

The company continues to direct its resources toward three strategic priorities:
to drive process improvements and operational efficiencies; to reinvigorate the
large equipment portfolio; and to build a sizable, robust chemical-free cleaning
business.

"We strive to be the industry leader in innovation. We are focused on
efficiently running the business, as well as positioning the company to
capitalize on exciting growth opportunities," said Killingstad.

Operating Review

The company`s consolidated net sales of $150.1 million for the 2010 first
quarter increased 16.7 percent compared to the 2009 first quarter. All major
product categories were up over year ago levels and sales to strategic accounts
were especially robust. Favorable foreign currency exchange effects added
approximately 5 percent to consolidated net sales. Organic net sales, which
exclude foreign currency impact, rose approximately 12 percent. While organic
sales in the Europe, Middle East and Africa (EMEA) region declined 2 percent,
organic sales grew 18 percent in both Tennant`s Americas and Asia Pacific
regions.

Tennant's gross profit margin in the 2010 first quarter improved 150 basis
points to 42.5 percent versus 41.0 percent in the year earlier quarter. The
company`s gross profit margins benefited from higher sales volumes, continued
tight spending controls, flexible production management and a positive foreign
currency impact.

For the 2010 first quarter, selling and administrative expenses (S&A) totaled
$51.7 million versus $45.5 million in the first quarter last year. The increase
in S&A expense was primarily attributable to foreign currency impact, investment
in chemical-free cleaning, and higher variable costs stemming from increased
sales. However, as a percent of sales, S&A was 34.5 percent in the 2010 first
quarter, down from 35.3 percent in the same quarter last year.

Tennant's 2010 first quarter operating profit rose to $6.5 million, or 4.3
percent of sales, compared to an operating loss of $41.8 million in the year ago
quarter. Excluding the special items noted above, the prior year adjusted
operating profit was $0.2 million, or 0.2 percent of sales.

Product Innovation

"We continue to demonstrate success in chemical-free cleaning with our
proprietary ec-H2O technology, and we believe that we are starting to take
market share from our competitors," stated Killingstad. "We are only in the
initial stages of our plan to capitalize on this potentially transformational
opportunity."

Tennant`s ec-H2O technology is an environmentally friendly process that converts
plain tap water into a powerful cleaning agent without any added chemicals.
Tennant first launched products with ec-H2O in the second quarter of 2008 and
achieved $17 million in sales that year. That amount tripled to $50 million in
2009, and Tennant expects significant growth from ec-H2O-equipped products in
2010.

Commented Killingstad: "We have learned a great deal about the capabilities of
water cleaning technologies since we first introduced ec-H2O technology. Now we
believe we can develop electrically activated water into a chemical-free
cleaning technology platform." The company plans to leverage this platform in
three phases:

* First, Tennant is in the process of extending ec-H2O technology to all
relevant existing products. The goal is to accelerate sales and market share
growth in the company`s current markets. To date, ec-H2O has been applied to 11
Tennant scrubbers, with the three remaining scrubbers scheduled to be introduced
in the second quarter of this year.
* The second phase involves cleaning more of Tennant`s customers` spaces, in
more environmentally friendly ways. Tennant currently has research studies and
tests under way with key customers in North America and Europe to determine how
to best leverage ec-H2O throughout their cleaning applications. The company also
is pursuing the development of new cleaning devices that will be capable of
delivering chemical-free cleaning in environments outside of Tennant`s core
products.
* Third is to develop new markets and new applications. Tennant believes there
are significant opportunities in various market segments, including consumer
products, food processing and healthcare.

"We also recently launched a new brand, ORBIO, to build on our success to date
with ec-H2O, to support our move into new chemical-free cleaning markets,
applications and products, and to help set the standard for sustainable cleaning
around the world," Killingstad stated.

Business Outlook

As previously announced, Tennant Company raised its 2010 full year earnings
guidance to the range of $0.90 to $1.20 per diluted share on net sales in a
range of $630 million to $660 million. The company`s previous guidance
anticipated earnings for the 2010 full year in the range of $0.70 to $1.00 per
diluted share on net sales in the range of $615 million to $645 million. For
2009, adjusted earnings totaled $0.67 per diluted share on net sales of $595.9
million.

Tennant will continue to manage its business conservatively, with a focus on
operational excellence and strong cost controls. The company's financial outlook
includes the following expectations for 2010:

* Improving, but still sluggish, economic conditions worldwide;
* A favorable foreign currency impact on sales in the range of 1 to 3 percent;
* A gross margin of approximately 41 to 42 percent;
* Research and development expense of approximately 4 percent of sales; and
* Capital expenditures in the range of $13 million to $15 million.

Killingstad concluded, "Our revised full year guidance includes Tennant`s strong
first quarter results and conservatively assumes performance consistent with our
original plan for the remainder of the year. We believe that our strategic
direction will further enhance Tennant`s long-term, value-creation potential."

Company Profile

Minneapolis-based Tennant Company (NYSE: TNC) is a world leader in designing,
manufacturing and marketing solutions that help create a cleaner, healthier
world. Its products include equipment for maintaining surfaces in industrial,
commercial and outdoor environments; chemical-free cleaning technologies; and
specialty surface coatings for protecting, repairing and upgrading floors.
Tennant's global field service network is the most extensive in the industry.
Tennant has manufacturing operations in Minneapolis, Minn.; Holland, Mich.;
Louisville, Ky.; Uden, The Netherlands; the United Kingdom; São Paulo, Brazil;
and Shanghai, China; and sells products directly in 15 countries and through
distributors in more than 80 countries. For more information, visit
www.tennantco.com.

Forward-Looking Statements

Certain statements contained in this document, as well as other written and oral
statements made by us from time to time, are considered "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act.
These statements do not relate to strictly historical or current facts and
provide current expectations or forecasts of future events. Any such
expectations or forecasts of future events are subject to a variety of factors.
These include factors that affect all businesses operating in a global market as
well as matters specific to us and the markets we serve. Particular risks and
uncertainties presently facing us include: geopolitical and economic uncertainty
throughout the world; our ability to effectively manage organizational changes;
our ability to optimize the allocation of resources to our strategic objectives;
the competition in our business; our ability to acquire, retain and protect
proprietary intellectual property rights; our ability to maintain and manage our
computer systems and data; the occurrence of a significant business
interruption; unforeseen product liability claims or product quality issues;
fluctuations in the cost or availability of raw materials and purchased
components; our ability to comply with laws and regulations; and the relative
strength of the U.S. dollar, which affects the cost of our materials and
products purchased and sold internationally.

We caution that forward-looking statements must be considered carefully and that
actual results may differ in material ways due to risks and uncertainties both
known and unknown. Shareholders, potential investors and other readers are urged
to consider these factors in evaluating forward-looking statements and are
cautioned not to place undue reliance on such forward-looking statements. For
additional information about factors that could materially affect Tennant's
results, please see our other Securities and Exchange Commission filings,
including disclosures under "Risk Factors."

We do not undertake to update any forward-looking statement, and investors are
advised to consult any further disclosures by us on this matter in our filings
with the Securities and Exchange Commission and in other written statements we
make from time to time. It is not possible to anticipate or foresee all risk
factors, and investors should not consider any list of such factors to be an
exhaustive or complete list of all risks or uncertainties.

Non-GAAP Financial Measures

This news release includes presentations of non-GAAP measures that include or
exclude special items. Management believes that the non-GAAP measures provide
useful information to investors regarding the company`s results of operations
and financial condition because they permit a more meaningful comparison and
understanding of Tennant Company`s operating performance for the current, past
or future periods. Management uses these non-GAAP measures to monitor and
evaluate ongoing operating results and trends, and to gain an understanding of
the comparative operating performance of the company. See the Supplemental
Non-GAAP Financial Table on page 8.

TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except share and per share data) Three Months Ended
March 31
2010 2009

Net Sales $ 150,106 $ 128,647
Cost of Sales 86,346 75,922
Gross Profit 63,760 52,725
Gross Margin 42.5 % 41.0 %

Operating Expense:
Research and Development Expense 5,536 5,692
Selling and Administrative Expense 51,730 45,460
Goodwill Impairment Charge - 43,363
Total Operating Expense 57,266 94,515

Profit (Loss) from Operations 6,494 (41,790 )
Operating Margin 4.3 % (32.5 %)

Other Income (Expense):
Interest Income 45 111
Interest Expense (433 ) (652 )
Net Foreign Currency Transaction Losses (186 ) (361 )
ESOP Income - 243
Other Income, Net - 20
Total Other Expense, Net (574 ) (639 )

Profit (Loss) Before Income Taxes 5,920 (42,429 )
Income Tax Expense (Benefit) 1,829 (683 )

Net Earnings (Loss) $ 4,091 $ (41,746 )

Net Earnings (Loss) per Share:
Basic $ 0.22 $ (2.29 )
Diluted $ 0.21 $ (2.29 )

Weighted Average Common Shares Outstanding:
Basic 18,682,335 18,262,257
Diluted 19,090,423 18,262,257

Cash Dividend Declared per Common Share $ 0.14 $ 0.13

GEOGRAPHICAL NET SALES(1) (Unaudited)
(In thousands) Three Months Ended March 31
% of
2010 2009 Change
Americas $ 92,684 $ 76,989 20.4 %
Europe, Middle East, Africa 43,006 41,087 4.7 %
Asia Pacific 14,416 10,571 36.4 %

Total $ 150,106 $ 128,647 16.7 %

(1) Net of intercompany sales.

TENNANT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands) March 31 December 31 March 31
2010 2009 2009
ASSETS
Current Assets:
Cash and Cash Equivalents $ 27,273 $ 18,062 $ 26,699
Receivables, Net 111,198 121,203 102,082
Inventories 58,179 56,646 66,763
Prepaid Expenses 7,971 10,295 19,243
Deferred Income Taxes, Current Portion 8,780 9,362 9,618
Other Current Assets - 344 283
Total Current Assets 213,401 215,912 224,688

Property, Plant, and Equipment 284,551 287,915 282,409
Accumulated Depreciation (192,175 ) (190,698 ) (180,402 )
Property, Plant and Equipment, Net 92,376 97,217 102,007

Deferred Income Taxes, Long-Term Portion 6,104 7,911 6,056
Goodwill 19,863 20,181 19,036
Intangible Assets, Net 27,129 29,243 27,376
Other Assets 7,108 7,262 6,493
Total Assets $ 365,981 $ 377,726 $ 385,656

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt $ 3,897 $ 4,012 $ 4,253
Short-Term Borrowings 7 7 -
Accounts Payable 43,474 42,658 25,483
Employee Compensation and Benefits 20,333 28,092 17,934
Income Taxes Payable 4,629 3,982 2,542
Other Current Liabilities 36,394 37,401 36,869
Total Current Liabilities 108,734 116,152 87,081

Long-Term Liabilities:
Long-Term Debt 29,151 30,192 87,634
Employee-Related Benefits 31,993 31,848 28,494
Deferred Income Taxes, Long-Term Portion 4,520 7,417 9,435
Other Liabilities 7,243 7,838 7,328
Total Long-Term Liabilities 72,907 77,295 132,891

Total Liabilities 181,641 193,447 219,972

Shareholders` Equity:
Preferred Stock - - -
Common Stock 7,063 7,032 6,984
Additional Paid-In Capital 7,801 7,772 6,566
Retained Earnings 195,513 192,584 182,299
Accumulated Other Comprehensive Loss (26,037 ) (23,109 ) (29,015 )
Receivable from ESOP - - (1,150 )
Total Shareholders` Equity 184,340 184,279 165,684

Total Liabilities and Shareholders` Equity $ 365,981 $ 377,726 $ 385,656

TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands) Three Months Ended
March 31
2010 2009
OPERATING ACTIVITIES
Net Earnings (Loss) $ 4,091 $ (41,746 )

Adjustments to Net Earnings (Loss) to arrive at Operating Cash Flow:
Depreciation 4,586 5,356
Amortization 792 639
Deferred Tax (Benefit) Expense (634 ) 595
Goodwill Impairment Charge - 43,363
Stock-Based Compensation Expense 470 286
ESOP Expense - (27 )
Tax Benefit on ESOP - 3
Allowance for Doubtful Accounts and Returns 512 166
Other, Net 202 11
Changes in Operating Assets and Liabilities, Excluding the Impact of Acquisitions:
Accounts Receivable 8,966 21,149
Inventories (3,066 ) (2,386 )
Accounts Payable 995 455
Employee Compensation and Benefits (7,474 ) (2,808 )
Accrued Expenses 1,648 (9,794 )
Income Taxes Payable/Prepaid 2,741 (2,300 )
Other Assets and Liabilities 272 (1,640 )
Net Cash Provided by Operating Activities 14,101 11,322

INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment (1,819 ) (3,824 )
Proceeds from Disposals of Property, Plant and Equipment 41 114
Acquisition of Businesses, Net of Cash Acquired 26 (2,295 )
Net Cash Used for Investing Activities (1,752 ) (6,005 )

FINANCING ACTIVITIES
Change in Short-Term Borrowings, Net - (1 )
Payments of Long-Term Debt (1,089 ) (5,098 )
Proceeds from Issuances of Common Stock 913 -
Tax Benefit on Stock Plans 139 (147 )
Dividends Paid (2,632 ) (2,381 )
Net Cash Used for Financing Activities (2,669 ) (7,627 )

Effect of Exchange Rate Changes on Cash and Cash Equivalents (469 ) (276 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,211 (2,586 )

Cash and Cash Equivalents at Beginning of Period 18,062 29,285

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,273 $ 26,699

TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE

(In thousands, except per share data) Three Months Ended
March 31
2010 2009
Net Sales $ 150,106 $ 128,647
Cost of Sales 86,346 75,922
Gross Profit 63,760 52,725
Gross Margin 42.5 % 41.0 %
Operating Expense:
Research and Development Expense 5,536 5,692
Selling and Administrative Expense 51,730 45,460
Goodwill Impairment Charge - 43,363
Total Operating Expense 57,266 94,515
Profit (Loss) from Operations - as reported $ 6,494 $ (41,790 )
Operating Margin 4.3 % (32.5 %)
Adjustments:
Goodwill Impairment Charge - 43,363
Workforce Reduction Reserve Revision - (1,328 )
Profit from Operations - as adjusted $ 6,494 $ 245
Operating Margin 4.3 % 0.2 %
Other Income (Expense):
Interest Income 45 111
Interest Expense (433 ) (652 )
Net Foreign Currency Transaction Losses (186 ) (361 )
ESOP Income - 243
Other Income, Net - 20
Total Other Expense, Net (574 ) (639 )
Profit (Loss) Before Income Taxes - as reported $ 5,920 $ (42,429 )
Adjustments:
Goodwill Impairment Charge - 43,363
Workforce Reduction Reserve Revision - (1,328 )
Profit (Loss) Before Income Taxes - as adjusted $ 5,920 $ (394 )
Income Tax Expense (Benefit) - as reported $ 1,829 $ (683 )
Adjustments:
Goodwill Impairment Charge - 1,074
Workforce Reduction Reserve Revision - (79 )
Income Tax Expense - as adjusted $ 1,829 $ 312
Net Earnings (Loss) - as reported $ 4,091 $ (41,746 )
Adjustments:
Goodwill Impairment Charge - 42,289
Workforce Reduction Reserve Revision - (1,249 )
Net Earnings (Loss) - as adjusted $ 4,091 $ (706 )
Earnings (Loss) per Share:
Basic $ 0.22 $ (2.29 )
Diluted Earnings (Loss) per Share - as reported $ 0.21 $ (2.29 )
Adjustments:
Goodwill Impairment Charge - 2.32
Workforce Reduction Reserve Revision - (0.07 )
Diluted Earnings (Loss) per Share - as adjusted $ 0.21 $ (0.04 )

Tennant Company
Investor Contact:
Tom Paulson, 763-540-1204
Vice President and Chief Financial Officer
or
Media Contact:
Kathryn Lovik, 763-540-1212
Director, Communications

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