Tennant Reports Fourth Quarter Earnings Per Share of $0.66
Company Expects Strong Growth in 2005 Net Earnings
MINNEAPOLIS, Feb. 22 /PRNewswire-FirstCall/ -- Tennant Company (NYSE:TNC)
today reported net earnings of $6.1 million, or $0.66 per diluted share, on net
sales of $139.4 million for the fourth quarter ended December 31, 2004. Net
earnings for the period included an unusual benefit of $300,000 after tax, or
$0.03 per diluted share, resulting from a change in the estimated severance
accrual originally recorded in the company's 2004 third quarter. Excluding
this benefit, the company's net earnings for the 2004 fourth quarter totaled
$5.8 million, or $0.63 per diluted share. In the 2003 fourth quarter, the
company reported net earnings of $5.1 million, or $0.56 per diluted share, on
net sales of $120 million.
For the year ended December 31, 2004, Tennant reported net earnings of $13.4
million, or $1.46 per diluted share, on net sales of $507.8 million. The
company's 2004 results included a net severance charge of $1.5 million after
tax, or $0.16 per diluted share. Excluding this charge, net earnings for 2004
totaled $14.9 million, or $1.62 per diluted share. In 2003, Tennant reported
net earnings of $14.2 million, or $1.56 per diluted share, on net sales of $454
million. The company's 2003 results included a net unusual benefit of
$600,000, or $0.06 per diluted share, which resulted in part from the
recognition of previously deferred revenues of $6.4 million. Excluding the net
unusual benefit, the company's 2003 net earnings totaled $13.6 million, or
$1.50 per diluted share, on net sales of $447.6 million.
"We ended 2004 strong, with double-digit revenue growth in all geographies as
we benefited from demand for newly introduced products, contributions from the
Walter-Broadley acquisition, improved market coverage and strengthening
economies in most regions," said Janet M. Dolan, Tennant Company's president
and chief executive officer. Dolan added that the earnings benefit of the
fourth quarter growth in net sales was partially offset by three factors:
higher steel and petroleum-related materials costs, Sarbanes-Oxley compliance
costs and higher accruals for performance-based compensation resulting from a
strong improvement in the company's economic profit (an internal metric which
is based on net operating profit after tax less a charge for net capital
employed). "We made significant progress in improving asset utilization and
the underlying strength of our business in 2004," said Dolan. "The progress is
evident in a significant increase in cash flow from operations and improvement
in economic profit." Tennant generated $36.7 million in cash from operations
in 2004, up 20% from 2003. Compared with 2003, cash flow from operations and
economic profit both benefited from an 11% reduction in inventory days-on-hand
and a 3% reduction in accounts receivable days outstanding, as well as an
increase in accounts payable and accrued expenses.
Dolan said Tennant's overall earnings power has been strengthened by actions
taken during 2004 and that the company is well positioned for profitable growth
in 2005. "During 2004, we expanded sales and service coverage in Europe and
other international markets, realigned our North American sales organization to
become more customer focused and introduced multiple new products incorporating
deeper insight into customer needs and innovations to satisfy those needs,"
said Dolan. The company introduced about 20 new products in 2004. Among them
are the T-Series Automatic Scrubbers and Nobles Speed Scrub Micro-Rider and the
patented ReadySpace(TM) technology, available on the Tennant 1610 Dual
Technology Carpet Cleaner and Nobles Strive(TM) Dual Technology Carpet Cleaner,
expanding Tennant's offerings for carpet care.
The company also took cost-reduction actions in 2004 that will benefit future
performance. Cost reductions implemented in the 2004 third quarter are
expected to yield annualized pretax savings of $2 to $3 million in 2005 and $4
to $5 million pretax in 2006 and beyond.
"Benefiting from the actions we have taken to strengthen our business and the
improving business conditions in most geographies, we are currently expecting a
strong improvement in operating results in 2005," said Dolan. The company
currently expects to report 2005 earnings per share of $1.80 to $2.10. This
guidance includes costs expected to total approximately $0.15 per share related
to expensing previously issued but unvested stock options, as required by
accounting rule changes, as well as expenses for performance shares, which are
expected to replace stock option grants beginning in 2005.
Review of Results Tennant's consolidated net sales for the 2004 fourth quarter increased 16.2%
compared with the 2003 fourth quarter. Favorable foreign currency exchange
effects added about 3% to net sales and price increases implemented to offset
higher steel and petroleum-related costs added about 4%. The company's January
2004 acquisition of Walter-Broadley added about 4% to net sales and volume
growth, including demand for new products, accounted for the remainder of the
increase.
For 2004, consolidated net sales increased 11.9% compared with 2003. Excluding
$6.4 million of previously deferred revenues recognized in the first quarter of
2003, consolidated net sales for 2004 increased 13.5%. Favorable foreign
currency exchange effects, price increases and contributions from the
Walter-Broadley acquisition each added about 3% to 2004 net sales.
In North America, 2004 fourth quarter net sales totaled $91.5 million, up 11.4%
from the 2003 fourth quarter. Equipment and service, parts and consumables
revenues grew at double-digit rates in the quarter, with equipment revenues
benefiting from the introduction of several new products and a strengthening
North American economy. For the year, net sales in North America totaled
$341.9 million, up 6.9% from 2003. Excluding $6.4 million of previously
deferred revenues recognized in the first quarter of 2003, 2004 net sales
increased 9.1%.
In Europe, sales for the 2004 fourth quarter totaled $32.9 million, up 29.5%
compared with the 2003 fourth quarter. Real volume in Europe in the 2004
fourth quarter was about flat with the 2003 fourth quarter, reflecting
continued weakness in most European economies. Favorable foreign currency
exchange effects added about 11% to 2004 fourth quarter net sales and
contributions from the Walter-Broadley acquisition added about 18%. For the
year, net sales in Europe totaled $114.9 million, up 29.4% from 2003. Favorable
foreign currency exchange effects added about 12% to net sales in 2004 and the
Walter-Broadley acquisition added about 14%.
In Tennant's other international markets, 2004 fourth quarter net sales totaled
$15.0 million, up 20% from the 2003 fourth quarter on volume growth in all
regions. Favorable foreign currency exchange effects added about 2% to 2004
fourth quarter net sales. For the year, net sales in other international
markets totaled $51.0 million, up 12.1% compared with 2003, with favorable
foreign currency exchange effects adding about 6% to net sales.
Operating profit for the 2004 fourth quarter totaled $8.7 million. Excluding
the impact of the change in the estimated accrual for severance costs,
operating profit for the 2004 fourth quarter totaled $8.4 million, up 10.5%
from the 2003 fourth quarter. Operating profit in the 2004 fourth quarter
benefited from increased volume and favorable foreign currency exchange
effects, partially offset by the previously cited higher costs for
performance-based compensation, steel and petroleum-related materials and
Sarbanes-Oxley compliance. For the year, operating profit totaled $21.3
million. Excluding the net effects of the previously cited unusual items in
both years, operating profit for 2004 increased 8.8% to $23.6 million.
Company Profile Minneapolis-based Tennant Company (NYSE:TNC) is a world leader in designing,
manufacturing and marketing solutions that help create a cleaner, safer world.
Its products include equipment for maintaining surfaces in industrial,
commercial and outdoor environments; and coatings for protecting, repairing and
upgrading concrete floors. Tennant's global field service network is the most
extensive in the industry. Tennant has manufacturing operations in
Minneapolis, Minn., Holland, Mich., Uden, The Netherlands and Northampton,
United Kingdom and sells products directly in 15 countries and through
distributors in more than 50 countries. For more information, visit
http://www.tennantco.com/ .
This news release contains statements that 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: the potential for soft markets
in certain regions, including North America, Asia, Latin America and Europe;
geo-political and economic uncertainty throughout the world; changes in laws
and regulations, including changes in accounting standards and taxation
changes, such as the effects of the American Jobs Creation Act of 2004;
inflationary pressures; the potential for increased competition in our
business; the relative strength of the U.S. dollar, which affects the cost of
our products sold internationally; fluctuations in the cost or availability of
raw materials; the success and timing of new products; our ability to achieve
projections of future financial and operating results; successful integration
of acquisitions; the ability to achieve operational efficiencies, including
synergistic and other benefits of acquisitions; unforeseen product quality
problems; the effects of litigation, including threatened or pending
litigation; and our plans for growth. 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 the
company's Securities and Exchange Commission filings.
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 that any list of such factors to be
an exhaustive or complete list of all risks or uncertainties.
Tennant will host a conference call to discuss its quarterly results today,
February 22, 2005, at 10:00 a.m. Central Time. The conference call will be
available via webcast on the investor portion of Tennant's Web site. To listen
to the call live on the Web, go to http://www.tennantco.com/ at least 15
minutes before the scheduled start time and, if necessary, download and install
audio software. A taped replay of the conference call will be available at
http://www.tennantco.com/ for about two weeks after the call.
TENNANT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In millions, except per share data) Three Months Ended December 31
2004 2003
Excluding
Unusual Unusual
Reported Items Items Reported Net sales $139.4 - $139.4 $120.0
Cost of sales 83.4 - 83.4 71.4
Gross profit 56.0 - 56.0 48.6
Gross margin 40.2% 40.2% 40.5% Research and development
expenses 4.5 - 4.5 4.2
Selling and administrative
expenses 42.8 (0.3) 43.1 36.8
Total operating
expenses 47.3 (0.3) 47.6 41.0 Profit (loss) from
operations 8.7 0.3 8.4 7.6
Operating margin 6.2% 6.0% 6.3% Interest income, net 0.1 - 0.1 0.1 Other income (expense) 0.6 - 0.6 (0.1) Earnings (loss) before
income taxes 9.4 0.3 9.1 7.6
Income tax expense
(benefit) 3.3 - 3.3 2.5 Net earnings (loss) $6.1 $0.3 $5.8 $5.1 Basic EPS $0.68 $0.03 $0.65 $0.57 Diluted EPS $0.66 $0.03 $0.63 $0.56 Average number of
diluted shares 9.15 9.15 9.07 TENNANT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In millions, except per share data) Twelve Months Ended December 31
2004
Excluding
Unusual Unusual
Reported Items Items Net sales $507.8 - $507.8
Cost of sales 305.3 - 305.3
Gross profit 202.5 - 202.5
Gross margin 39.9% 39.9% Research and development
expenses 17.2 - 17.2
Selling and administrative
expenses 164.0 2.3 161.7
Total operating expenses 181.2 2.3 178.9 Profit (loss) from operations 21.3 (2.3) 23.6
Operating margin 4.2% 4.6% Interest income, net 0.3 - 0.3
Other income (expense) (0.2) - (0.2) Earnings (loss) before
income taxes 21.4 (2.3) 23.7
Income tax expense (benefit) 8.0 (0.8) 8.8 Net earnings (loss) $13.4 ($1.5) $14.9 Basic EPS $1.49 $0.16 $1.65 Diluted EPS $1.46 $0.16 $1.62 Average number of diluted shares 9.15 9.15
Twelve Months Ended December 31
2003
Excluding
Unusual Unusual
Reported Items Items Net sales $454.0 $6.4 $447.6
Cost of sales 272.3 4.8 267.5
Gross profit 181.7 1.6 180.1
Gross margin 40.0% 40.2% Research and development
expenses 16.7 - 16.7
Selling and administrative
expenses 142.3 0.6 141.7
Total operating expenses 159.0 0.6 158.4 Profit (loss) from operations 22.7 1.0 21.7
Operating margin 5.0% 4.8% Interest income, net 0.6 - 0.6
Other income (expense) (0.8) - (0.8) Earnings (loss) before
income taxes 22.5 1.0 21.5
Income tax expense (benefit) 8.3 0.4 7.9 Net earnings (loss) $14.2 $0.6 $13.6 Basic EPS $1.58 $0.06 $1.52 Diluted EPS $1.56 $0.06 $1.50 Average number of diluted shares 9.06 9.06
TENNANT COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (In millions) 2004 2003
Dec. 31 Dec. 31
ASSETS
Cash and cash equivalents $16.9 $24.6
Short-term investments 6.0 -
Net receivables 97.5 85.6
Inventories 55.9 54.7
Deferred income taxes and other current assets 12.3 11.5 Total current assets 188.6 176.4
Net property, plant and equipment 69.1 61.1
Long-term deferred taxes 0.1 1.6
Goodwill and other intangible assets 25.0 17.8
Other assets 3.0 2.0 Total assets $285.8 $258.9 2004 2003
Dec. 31 Dec. 31
LIABILITIES AND SHAREHOLDERS' EQUITY
Current debt $7.7 $1.0
Accounts payable, accrued expenses
and deferred revenue 74.2 58.5 Total current liabilities 81.9 59.5 Long-term debt 1.0 6.3
Long-term deferred taxes 0.5 -
Long-term employee benefits 28.4 27.5
Shareholders' equity 174.0 165.6
Other assets 3.0 2.0 Total liabilities and shareholders' equity $285.8 $258.9 GEOGRAPHICAL NET SALES(a) (Unaudited) (In millions)
Three Months Ended December 31
% of
2004 2003 Change North America(b) $91.5 $82.1 11.4%
Europe 32.9 25.4 29.5%
Other International 15.0 12.5 20.0% Total(c) $139.4 $120.0 16.2%
Twelve Months Ended December 31
% of
2004 2003 Change North America(b) $341.9 $319.7 6.9%
Europe 114.9 88.8 29.4%
Other International 51.0 45.5 12.1% Total(c) $507.8 $454.0 11.9%
(a) Net of intercompany sales. (b) North America net sales for the twelve months ended December 31, 2003,
includes $6.4 million related to an amendment of a contract with a
third-party lessor. This revenue had previously been deferred. Excluding this benefit in 2003, North America net sales increased
approximately 9.1% for the year. (c) Excluding the benefits from the $6.4 million impact of the third-party
lessor contract amendment during the first quarter of 2003, total net
sales increased approximately 13.5% for the year.
TENNANT COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In millions)
Twelve Months Ended
December 31
2004 2003
CASH FLOWS RELATED TO OPERATING ACTIVITIES:
Net earnings $13.4 $14.2 Adjustments to net earnings to arrive at
operating cash flows:
Depreciation and amortization 13.0 13.9
Deferred tax expense 1.3 0.8
Changes in operating assets and liabilities 6.9 1.7
Other, net 2.1 (0.1)
Net cash flows related to operating activities 36.7 30.5 CASH FLOWS RELATED TO INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (21.1) (10.5)
Acquisition of Walter Broadley, net (6.5) -
Purchases of short-term investments (14.0) -
Sales of short-term investments 8.0 -
Proceeds from disposals of property,
plant and equipment 1.6 4.1
Net cash flows related to investing activities (32.0) (6.4) CASH FLOWS RELATED TO FINANCING ACTIVITIES:
Net changes in short-term borrowings (1.7) (3.3)
Repayment of assumed Walter Broadley debt (2.5) -
Payments of long-term debt - (5.0)
Proceeds from employee stock issuances 1.5 1.6
Purchase of common stock (2.8) (2.7)
Dividends to shareholders (7.7) (7.5)
Principal payment from ESOP 1.1 1.1
Net cash flows related to financing activities (12.1) (15.8) Effect of exchange rates on cash (0.3) (0.1) Net increase (decrease) in cash and cash equivalents (7.7) 8.2 Cash and cash equivalents at beginning of year 24.6 16.4 Cash and cash equivalents at end of period $16.9 $24.6
DATASOURCE: Tennant Company CONTACT: Investors, Tony Brausen, Vice President and Chief Financial Officer, +1-763-540-1553, or Media, Kathryn Lovik, Manager, Communications, +1-763-540-1212, both of Tennant Company Web site: http://www.tennantco.com/
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