Tennant Reports Third Quarter Net Earnings Of $0.11 Per Share
9.4% Revenue Growth Offset by Higher Costs
MINNEAPOLIS, Minn., Oct. 21 /PRNewswire-FirstCall/ -- Tennant Company
(NYSE:TNC) today reported net earnings of $1.0 million, or $0.11 per diluted
share, on net sales of $120.5 million for its third quarter ended September 30,
2004. Results for the quarter include a previously announced severance charge
of $1.8 million after tax, or $0.20 per diluted share, resulting from the
elimination of a net 64 management and administrative positions as part of a
company-wide effort to reduce costs and improve profitability. Excluding the
severance charge, net earnings for the 2004 third quarter totaled $2.8 million,
or $0.31 per diluted share. In the comparable 2003 period, Tennant reported
net earnings of $3.3 million, or $0.36 per diluted share, on net sales of
$110.1 million.
For the nine months ended September 30, 2004, Tennant reported net earnings of
$7.3 million, or $0.80 per diluted share, on net sales of $368.3 million. In
the comparable 2003 period, Tennant reported net earnings of $9.1 million, or
$1.00 per diluted share on net sales of $334 million. Results for the 2003
period include a net unusual benefit of $600,000, or $0.06 per share, which
resulted in part from the recognition of previously deferred revenues of $6.4
million. Excluding the unusual items in both 2004 and 2003 year-to-date
periods, the company reported net earnings of $9.1 million, or $0.99 per
diluted share, on sales of $368.3 million year to date in 2004 compared with
net earnings of $8.5 million, or $0.94 per diluted share, on net sales of
$327.6 million in the first nine months of 2003.
Janet M. Dolan, Tennant Company's president and chief executive officer, said
that weak demand early in the third quarter and a confluence of higher costs
resulted in the decline in third quarter net earnings compared with 2003. "Our
third quarter was an extremely challenging period," said Dolan. "Real volume
growth softened from the levels we experienced in the first half of this year
and we faced higher costs over last year in several areas, including steel and
petroleum-related materials, accruals for performance- based compensation,
Sarbanes-Oxley compliance, and marketing expenses for new products." In the
fourth quarter, Tennant implemented a second surcharge on products sold in
North America to offset further increases in steel and other materials costs.
"We began seeing real volume growth return in most geographies late in the
third quarter," Dolan continued. "In addition, in the fourth quarter and into
2005, we expect to benefit from the new products we are introducing in the
second half of the year and the cost-reduction actions we took at the end of
the third quarter," said Dolan.
The workforce reduction announced in early October is expected to yield
annualized net savings of $2 to $3 million pre-tax in 2005, increasing to $4 to
$5 million pre-tax in 2006 and beyond.
As previously announced, taking into account the third quarter severance
charge, Tennant expects to report 2004 earnings per diluted share of $1.35 to
$1.50 (or $1.55 to $1.70 excluding the $0.20 per diluted share severance
charge).
Review of Results Tennant's consolidated net sales for the 2004 third quarter increased 9.4%
compared with the 2003 third quarter. Favorable foreign currency exchange
effects and price increases, including a surcharge implemented earlier in the
year on certain products to help offset the impact of higher steel costs, each
added about 3% to net sales in the 2004 third quarter while the Walter-
Broadley acquisition added about 2%.
For 2004 to date, consolidated net sales increased 10.3%. Excluding the $6.4
million of previously deferred revenues recognized in the 2003 first quarter,
consolidated net sales for the nine months ended September 30, 2004, increased
12% compared with the first nine months of 2003. Favorable foreign currency
exchange effects added about 3% to net sales in 2004 to date and price
increases added about 2%. The Walter-Broadley acquisition added about 2% to
net sales for 2004 to date.
In North America, 2004 third quarter net sales totaled $83.7 million, up 6.9%
from the 2003 third quarter. North American equipment, service and aftermarket
parts revenues all increased compared with the 2003 third quarter as a result
of modest volume growth, including contributions from new products such as a
line of commercial vacuums and new scrubbers incorporating the company's
patented FaST(TM) foam-activated scrubbing technology. Net sales in North
America also benefited from the price increases.
For the year to date, net sales in North America totaled $250.3 million, up
5.3% compared with the first nine months of 2003. Excluding the $6.4 million
of previously deferred revenues recognized in the 2003 first quarter, net sales
in North America for the year to date increased 8% compared with the first nine
months of 2003.
While business conditions in Europe remained soft, net sales for the 2004 third
quarter totaled $24.8 million, up 19.8% compared with the 2003 third quarter.
Favorable foreign currency exchange effects added about 10% to third quarter
net sales in Europe. The balance of the increase in 2004 third quarter net
sales reflects contributions from the Walter-Broadley acquisition in January
2004.
For 2004 to date, net sales in Europe totaled $82 million, up 29.3% compared
with the first nine months of 2003. Favorable foreign currency exchange
effects added about 12% to 2004 year-to-date net sales in Europe and the
acquisition of Walter-Broadley added about 12%.
In Tennant's other international markets, 2004 third quarter net sales totaled
$12 million, up 8.1% compared with the 2003 third quarter. Favorable foreign
currency exchange effects added about 5% to net sales in the 2004 third
quarter, with volume growth contributing the remainder of the increase.
For the year to date, net sales to other international markets totaled $36
million, up 9.1% compared with the first nine months of 2003. Favorable
foreign currency exchange effects added about 7% to 2004 year-to-date net sales
to other international markets.
Operating profit for the 2004 third quarter totaled $1.8 million. Excluding the
impact of the third quarter severance charge, operating profit for the 2004
third quarter totaled $4.4 million, down 18.5% compared with $5.4 million in
the 2003 third quarter. This decline is primarily the result of the higher
costs associated with materials, performance-based compensation accruals,
Sarbanes-Oxley compliance and marketing, as noted previously.
For 2004 year to date, operating profit totaled $12.6 million. Excluding the
impact of the severance charge in the 2004 period and previously noted unusual
items in the 2003 period, operating profit for the first nine months of 2004
increased 8.6% to $15.2 million.
For the nine months ended September 30, 2004, Tennant generated $29.8 million
in cash from operations, up from $23.4 million in the comparable 2003 period.
Direct foreign currency exchange effects, resulting primarily from the weakness
of the U.S. dollar compared with the Euro, yen and Canadian and Australian
dollars, increased earnings per share by about $0.01 in the 2004 third quarter
and by about $0.19 in the year to date.
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, taxation changes,
and the potential repeal of the foreign export tax benefit; 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,
October 21, 2004, 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 September 30
2004 2003 Excluding
Unusual Unusual
Reported Items Items Reported
Net sales $120.5 - $120.5 $110.1
Cost of sales 73.1 - 73.1 66.0
Gross profit 47.4 - 47.4 44.1
Gross margin 39.3% 39.3% 40.1% Research and development expenses 4.3 - 4.3 4.1
Selling and administrative expenses 41.3 2.6 38.7 34.6
Total operating expenses 45.6 2.6 43.0 38.7 Profit (loss) from operations 1.8 (2.6) 4.4 5.4
Operating margin 1.5% 3.7% 4.9% Interest income, net 0.1 - 0.1 0.2
Other expense (0.4) - (0.4) (0.4) Earnings (loss) before income taxes 1.5 (2.6) 4.1 5.2
Income tax expense (benefit) 0.5 (0.8) 1.3 1.9 Net earnings (loss) $1.0 ($1.8) $2.8 $3.3 Basic EPS $0.11 $0.20 $0.31 $0.37 Diluted EPS $0.11 $0.20 $0.31 $0.36 Average number of diluted shares 9.13 9.13 9.03
TENNANT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In millions, except per share data) Nine Months Ended September 30
2004 2003
Excluding Excluding
Unusual Unusual Unusual Unusual
Reported Items Items Reported Items Items Net sales $368.3 - $368.3 $334.0 $6.4 $327.6
Cost of sales 221.8 - 221.8 201.0 4.8 196.2
Gross profit 146.5 - 146.5 133.0 1.6 131.4
Gross margin 39.8% 39.8% 39.8% 40.1% Research and
development expenses 12.7 - 12.7 12.5 - 12.5
Selling and
administrative
expenses 121.2 2.6 118.6 105.5 0.6 104.9
Total operating
expenses 133.9 2.6 131.3 118.0 0.6 117.4 Profit (loss) from
operations 12.6 (2.6) 15.2 15.0 1.0 14.0
Operating margin 3.4% 4.1% 4.5% 4.3% Interest income, net 0.2 - 0.2 0.6 - 0.6
Other expense (0.8) - (0.8) (0.7) - (0.7) Earnings (loss) before
income taxes 12.0 (2.6) 14.6 14.9 1.0 13.9
Income tax expense
(benefit) 4.7 (0.8) 5.5 5.8 0.4 5.4 Net earnings (loss) $7.3 ($1.8) $9.1 $9.1 $0.6 $8.5 Basic EPS $0.81 $0.20 $1.01 $1.01 $0.06 $0.95 Diluted EPS $0.80 $0.19 $0.99 $1.00 $0.06 $0.94 Average number of
diluted shares 9.15 9.15 9.03 9.03
TENNANT COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (In millions) 2004 2003
Sept. 30 Dec. 31 Sept. 30
ASSETS
Cash and cash equivalents $23.9 $24.6 $21.2
Net receivables 84.4 85.6 79.0
Inventories 55.6 54.7 55.8
Deferred income taxes and
other current assets 13.5 11.5 9.9 Total current assets 177.4 176.4 165.9 Net property, plant, and equipment 65.7 61.1 60.3
Deferred income taxes, long-term portion 2.3 1.6 3.7
Goodwill and other intangible assets 24.9 17.8 17.5
Other assets 3.0 2.0 1.6 Total assets $273.3 $258.9 $249.0
2004 2003
Sept. 30 Dec. 31 Sept. 30
LIABILITIES AND SHAREHOLDERS' EQUITY
Current debt $7.1 $1.0 $0.4
Accounts payable, accrued expenses
and deferred revenue 70.0 58.5 57.2 Total current liabilities 77.1 59.5 57.6 Long-term debt 1.7 6.3 5.8
Long-term employee benefits 28.2 27.5 27.4
Shareholders' equity 166.3 165.6 158.2 Total liabilities and shareholders'
equity $273.3 $258.9 $249.0
GEOGRAPHICAL NET SALES(a) (Unaudited) (In millions) Three Months Ended Nine Months Ended
September 30 September 30
% of % of
2004 2003 Change 2004 2003 Change North America(b) $83.7 $78.3 6.9% $250.3 $237.6 5.3%
Europe 24.8 20.7 19.8 82.0 63.4 29.3
Other International 12.0 11.1 8.1 36.0 33.0 9.1
Total(c) $120.5 $110.1 9.4% $368.3 $334.0 10.3% (a) Net of intercompany sales. (b) Excluding the benefits from the $6.4 million impact of the third-party
lessor contract amendment during the first quarter of 2003, total
North American net sales increased approximately 8% year to date. This
revenue had previously been deferred. (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 12% year to date. TENNANT COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In millions)
Nine Months Ended
September 30
2004 2003
CASH FLOWS RELATED TO OPERATING ACTIVITIES:
Net earnings $7.3 $9.1 Adjustments to net earnings to arrive
at operating cash flows:
Depreciation and amortization 9.7 10.4
Changes in operating assets and liabilities 11.5 5.7
Other, net 1.3 (1.8)
Net cash flows related to operating activities 29.8 23.4 CASH FLOWS RELATED TO INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (14.7) (6.5)
Acquisition of Walter Broadley, net (6.5) -
Proceeds from disposals of property, plant
and equipment 1.1 3.5
Net cash flows related to investing activities (20.1) (3.0) CASH FLOWS RELATED TO FINANCING ACTIVITIES:
Net changes in short-term borrowings (1.0) (3.1)
Payments of long-term debt - (5.0)
Payment of assumed Walter Broadley debt (2.5) -
Proceeds from employee stock issuances 0.8 0.6
Purchase of common stock (2.0) (2.4)
Dividends to shareholders (5.8) (5.6)
Net cash flows related to financing activities (10.5) (15.5) Effect of exchange rates on cash 0.1 (0.1) Net (decrease) increase in cash and cash equivalents (0.7) 4.8 Cash and cash equivalents at beginning of year 24.6 16.4 Cash and cash equivalents at end of period $23.9 $21.2
DATASOURCE: Tennant Company CONTACT: Investor Contact, Tony Brausen, Vice President, Chief Financial Officer & Treasurer, +1-763-540-1553, or Media Contact, Kathryn Lovik, Manager, Communications, +1-763-540-1212, both of Tennant Company Web site: http://www.tennantco.com/
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