Tennant Company Reports 2012 Fourth Quarter and Full Year Results Quarterly net sales of $187.5 versus record 2011 fourth quarter of $193.2 million; North America region returns to net sales growth in quarter; Quarterly diluted EPS of $0.73, or $0.62 as adjusted, up from $0.59 diluted EPS in year ago period; Quarterly gross margin of 44.5 percent exceeded target range; Operating profit margin rose to 10.1 percent from 8.0 percent in prior year quarter; 2012 diluted EPS of $2.18, or $2.08 as adjusted, up from 2011 adjusted diluted EPS of $1.95; Company provides 2013 sales and earnings guidance Business Wire MINNEAPOLIS -- February 19, 2013 Tennant Company (NYSE: TNC), a world leader in designing, manufacturing and marketing of solutions that help create a cleaner, safer, healthier world, today reported net earnings of $13.8 million, or $0.73 per diluted share, on net sales of $187.5 million for the fourth quarter ended December 31, 2012. Results in the 2012 fourth quarter included a special item of $0.11 per diluted share related to tax benefits from an international entity restructuring. Excluding the special tax benefit, adjusted 2012 fourth quarter earnings totaled $0.62 per diluted share. (See the Supplemental Non-GAAP Financial Table.) In the 2011 fourth quarter, Tennant reported net earnings of $11.3 million, or $0.59 per diluted share, on record net sales of $193.2 million. “Our balanced strategy to aggressively lower Tennant's cost structure, while investing in future growth, is paying off,” said Chris Killingstad, Tennant Company's president and chief executive officer. “In the 2012 fourth quarter, our operational excellence initiatives helped generate our strongest gross margins since 1999, a fourth quarter double-digit operating profit margin for the first time in 12 years, and record fourth quarter adjusted earnings. On the revenue side, we returned to growth in North America, and we expect continued improvement in our financial metrics as the economy recovers.” Fourth Quarter Operating Review Tennant's consolidated net sales were down 2.9 percent to $187.5 million versus $193.2 million in the 2011 fourth quarter. Unfavorable foreign currency exchange impact reduced net sales by approximately 0.5 percent compared to the prior year period. Organic net sales, which exclude acquisitions and foreign currency impact, decreased approximately 2.4 percent. Organic net sales rose approximately 3.3 percent in Tennant's Americas region, excluding unfavorable foreign currency exchange of approximately 0.5 percent. The increase stemmed from a sales rebound in Tennant's largest geography of North America due to higher sales to strategic accounts, as well as continued double-digit growth in Latin America. Organic sales in the Europe, Middle East and Africa (EMEA) region were down approximately 14.6 percent, excluding unfavorable foreign currency exchange of approximately 2.0 percent, due to macroeconomic conditions adversely impacting sales and lower sales to large customers compared to the 2011 fourth quarter. Organic sales in the Asia Pacific region declined approximately 4.9 percent, excluding approximately 0.5 percent favorable foreign currency impact, resulting from softening economies, particularly in Australia. Tennant's gross margin in the 2012 fourth quarter rose 130 basis points to 44.5 percent, above the company's target range of 42 percent to 43 percent, and up from 43.2 percent in the 2011 fourth quarter. Gross margins benefited from favorable product mix, stable commodity costs and production efficiencies. The company's gross margin has exceeded 43 percent in all four quarters of 2012. For the 2012 fourth quarter, Tennant's research and development expense totaled $7.7 million, or 4.1 percent of sales, as anticipated, compared to $7.7 million, or 4.0 percent of sales, in the prior year quarter. The company continued to invest in developing innovative new products for its traditional core business and its sustainable, Orbio water-based cleaning technologies. Tennant has one of the most robust new product and technology pipelines in the company's history. The company introduced 17 new products in the 2012 fourth quarter and will launch an additional 25 new products in 2013, including the: *T12 rider scrubber, which is the first new product in Tennant's redesigned modular large equipment portfolio; *T3 Orbital Scrubber, which provides a chemical-free way to clean and strip floors; and *B10, Tennant's first rider burnisher, which enables rapid cleaning and polishing of large areas. These new core equipment offerings are engineered to improve cleaning performance and operator safety, lower operating costs and reduce environmental impact. Selling and administrative (S&A) expense in the 2012 fourth quarter totaled $56.8 million, or 30.3 percent of sales, versus $60.4 million, or 31.3 percent of sales, in the year ago quarter. Tennant continued to make progress on reducing S&A spending and improving operating leverage. S&A declined 6.0 percent on a dollar basis and was down 100 basis points as a percent of sales. Operating profit increased 23 percent to $19.0 million, or 10.1 percent of sales, up from an operating profit of $15.5 million, or 8.0 percent of sales, in the prior year quarter. Operating profit margin rose 210 basis points versus the 2011 fourth quarter due to higher gross margins and improved operating efficiencies. “The gain in Tennant's operating profit margin reflects our successful management of the business in a tough economic environment and demonstrates the strength of the company's business model,” said Killingstad. 2012 Full Year Results and Liquidity For the 2012 full year, Tennant reported consolidated net sales of $739.0 million compared to $754.0 million in 2011. Tennant's 2012 net sales decreased 2.0 percent versus the prior year and organic net sales were essentially flat, excluding unfavorable foreign currency exchange impact of approximately 2.0 percent. Organic sales growth of approximately 3.1 percent in Tennant's Americas region, excluding unfavorable foreign currency exchange of approximately 1.0 percent, was offset by an organic sales decline in EMEA of approximately 6.3 percent, excluding unfavorable foreign currency exchange of approximately 5.5 percent, and an organic sales decrease in the Asia Pacific region of approximately 4.2 percent, excluding favorable foreign currency exchange of approximately 0.5 percent. “Sales of scrubbers equipped with ec-H2O™ totaled $141 million in 2012,” commented Killingstad. “We continued to increase the market acceptance of our water-based ec-H2O cleaning technology in 2012, and the majority of our sales of applicable scrubbers now have ec-H2O on-board.” Tennant's gross margin for the 2012 full year rose to 44.0 percent, above the company's target range of 42 percent to 43 percent, and up from 42.3 percent, or 42.5 percent as adjusted, in the prior year. The 2012 full year operating profit margin improved to 8.5 percent compared to 6.6 percent, or 7.3 percent as adjusted, in the 2011 full year. (See the Supplemental Non-GAAP Financial Table.) The improvement in margins was primarily due to product mix, stable commodity markets and improved operating leverage in all geographies. For 2012, Tennant reported net earnings of $41.6 million, or $2.18 per diluted share. Excluding special items, the company's 2012 adjusted full year net earnings increased to $39.7 million, or $2.08 per diluted share, compared to 2011 adjusted net earnings of $37.7 million, or adjusted earnings of $1.95 per diluted share. Tennant recorded special items in 2012 that increased net earnings by a total of $0.10. In addition to the previously noted special item that was recorded in the 2012 fourth quarter, the company had special items in the 2012 third quarter that in total reduced earnings by $0.01 per diluted share. These items included: a pre-tax gain on sale of business of $0.8 million, or $0.03 per diluted share, as Tennant transitioned to a master distributor business in the Central Eastern Europe, Middle East and Africa markets; and a pre-tax restructuring charge of $0.8 million, or $0.04 per diluted share, to align workforce levels in Tennant's European factories with current production demand. Tennant's 2011 full year results included net special items that decreased earnings by $0.26 per diluted share. (See the Supplemental Non-GAAP Financial Table.) Tennant continued to have a strong balance sheet and generated $47.6 million in cash from operations in 2012. Cash and cash equivalents at December 31, 2012, totaled $53.9 million, and debt decreased to $32.3 million. Included in these 2012 results were cash contributions of $16.7 million to Tennant's U.S. Pension Plan, of which $15.0 million was discretionary. In a testament to the company's commitment to enhancing shareholder value, Tennant raised its quarterly cash dividend in the 2012 fourth quarter and has now increased its annual cash dividend payout for 41 consecutive years. During 2012, Tennant paid cash dividends of $12.8 million and repurchased 621,340 shares of the company's stock for $25.3 million. Tennant had 18.5 million common shares outstanding at December 31, 2012. Business Outlook “Our strategies are working and we drove significant gains in our profitability in 2012,” said Killingstad. “We have demonstrated that the company is capable of reaching our ambitious long-term goal of a 12 percent operating profit margin. As we've previously stated, however, attaining this milestone requires a return to organic revenue growth in the mid- to high-single digits. At this time, we are uncertain that global economic conditions, particularly in Europe, will support this level of sales growth in 2013. When the global economy improves and demand for cleaning equipment regains momentum, Tennant is poised to achieve even greater profitability on higher sales, and meet our 12 percent operating profit margin goal.” Based on its 2012 results and expectations of future performance, Tennant Company estimates 2013 full year earnings in the range of $2.20 to $2.50 per diluted share on net sales in the range of $750 million to $770 million. For the 2012 full year, adjusted diluted earnings per share were $2.08 on net sales of $739 million. The company's 2013 annual financial outlook includes the following expectations: *Modest economic improvement in North America, continued uncertainty in Europe and steady growth in emerging markets; *Unfavorable foreign currency impact on sales for the full year in the range of 0 to 1 percent; *Gross margin performance similar to 2012; *R&D expense of approximately 4 percent of sales, as the company continues to invest in its core products and in water-based cleaning technologies; and *Capital expenditures in the range of $18 million to $20 million. Tennant will continue to manage its business with a focus on operational excellence and strong cost controls, and make selective investments in innovative technologies and other key strategic priorities. Conference Call Tennant will host a conference call to discuss the 2012 fourth quarter and full year results today, Feb. 19, 2012, at 10 a.m. Central Time (11 a.m. Eastern Time). The conference call will be available via webcast on the investor portion of Tennant's website. To listen to the call live, go to www.tennantco.com and click on Company, Investors. A taped replay of the conference call will be available at www.tennantco.com for approximately two weeks after the call. Company Profile Minneapolis-based Tennant Company (NYSE: TNC) is a world leader in designing, manufacturing and marketing solutions that help create a cleaner, safer, healthier world. Its products include equipment for maintaining surfaces in industrial, commercial and outdoor environments; chemical-free and other sustainable cleaning technologies; and coatings for protecting, repairing and upgrading surfaces. 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; the competition in our business; our ability to effectively manage organizational changes; our ability to comply with laws and regulations; our ability to attract and retain key personnel; our ability to develop and fund new innovative products and services; unforeseen product liability claims or product quality issues; our ability to successfully upgrade and evolve the capabilities of our computer systems; the occurrence of a significant business interruption; the relative strength of the U.S. dollar, which affects the cost of our materials and products purchased and sold internationally; the occurrence of disruptions to our supply and delivery chains; fluctuations in the cost or availability of raw materials and purchased components; and the impact of the economic uncertainty on our customers' ability to obtain credit. 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. TENNANT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In thousands, except shares Three Months Ended Twelve Months Ended and per share data) December 31 December 31 2012 2011 2012 2011 Net Sales $ 187,507 $ 193,158 $ 738,980 $ 753,998 Cost of Sales 104,044 109,629 413,684 434,817 Gross Profit 83,463 83,529 325,296 319,181 Gross Margin 44.5 % 43.2 % 44.0 % 42.3 % Operating Expense (Income): Research and Development 7,705 7,675 29,263 27,911 Expense Selling and Administrative 56,788 60,402 234,114 241,625 Expense Gain on Sale — — (784 ) — of Business Total Operating 64,493 68,077 262,593 269,536 Expense Profit from 18,970 15,452 62,703 49,645 Operations Operating 10.1 % 8.0 % 8.5 % 6.6 % Margin Other Income (Expense): Interest 198 276 1,069 752 Income Interest (496 ) (624 ) (2,517 ) (2,238 ) Expense Net Foreign Currency 93 509 (1,403 ) 559 Transaction Gains (Losses) Other (Expense) (137 ) 45 38 12 Income, Net Total Other Income (342 ) 206 (2,813 ) (915 ) (Expense), Net Profit Before 18,628 15,658 59,890 48,730 Income Taxes Income Tax 4,784 4,394 18,306 16,017 Expense Net Earnings $ 13,844 $ 11,264 $ 41,584 $ 32,713 Earnings per Share: Basic $ 0.75 $ 0.60 $ 2.24 $ 1.74 Diluted $ 0.73 $ 0.59 $ 2.18 $ 1.69 Weighted Average Shares Outstanding: Basic 18,397,138 18,688,956 18,544,896 18,832,693 Diluted 18,946,696 19,193,359 19,102,016 19,360,428 Cash Dividend Declared per $ 0.18 $ 0.17 $ 0.69 $ 0.68 Common Share GEOGRAPHICAL NET SALES^(1) (Unaudited) (In Three Months Ended Twelve Months Ended thousands) December 31 December 31 2012 2011 % 2012 2011 % Americas $ 125,935 $ 122,514 2.8 $ 491,661 $ 481,426 2.1 Europe, Middle 40,635 48,746 (16.6 ) 166,208 188,338 (11.8 ) East and Africa Asia 20,937 21,898 (4.4 ) 81,111 84,234 (3.7 ) Pacific Total $ 187,507 $ 193,158 (2.9 ) $ 738,980 $ 753,998 (2.0 ) ^(1) Net of intercompany sales. TENNANT COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) December 31, December 31, 2012 2011 ASSETS Current Assets: Cash and Cash Equivalents $ 53,940 $ 52,339 Restricted Cash 187 3,279 Accounts Receivable, Net 138,147 128,873 Inventories 58,136 65,912 Prepaid Expenses 11,309 10,320 Deferred Income Taxes, Current Portion 11,339 10,358 Other Current Assets 388 1,015 Total Current Assets 273,446 272,096 Property, Plant and Equipment 294,910 286,949 Accumulated Depreciation (208,717 ) (199,795 ) Property, Plant and Equipment, Net 86,193 87,154 Deferred Income Taxes, Long-Term Portion 10,989 15,014 Goodwill 19,717 20,303 Intangible Assets, Net 21,393 23,758 Other Assets 9,022 5,937 Total Assets $ 420,760 $ 424,262 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Current Portion of Long-Term Debt $ 2,042 $ 4,166 Accounts Payable 47,002 46,869 Employee Compensation and Benefits 33,021 32,934 Income Taxes Payable 785 619 Other Current Liabilities 38,844 39,404 Total Current Liabilities 121,694 123,992 Long-Term Liabilities: Long-Term Debt 30,281 32,289 Employee-Related Benefits 25,873 40,089 Deferred Income Taxes, Long-Term Portion 3,325 3,189 Other Liabilities 4,533 3,851 Total Long-Term Liabilities 64,012 79,418 Total Liabilities 185,706 203,410 Shareholders’ Equity: Preferred Stock — — Common Stock 6,924 7,063 Additional Paid-In Capital 22,398 15,082 Retained Earnings 236,065 227,944 Accumulated Other Comprehensive Loss (30,333 ) (29,237 ) Total Shareholders’ Equity 235,054 220,852 Total Liabilities and Shareholders’ Equity $ 420,760 $ 424,262 TENNANT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Twelve Months Ended December 31 2012 2011 OPERATING ACTIVITIES Net Earnings $ 41,584 $ 32,713 Adjustments to reconcile Net Earnings to Net Cash Provided by Operating Activities: Depreciation 18,072 18,088 Amortization 2,800 3,330 Impairment of Intangible Assets — 2,058 Deferred Income Taxes 3,166 (1,352 ) Share-Based Compensation Expense 9,092 5,407 Allowance for Doubtful Accounts and Returns 1,427 1,879 Gain on Sale of Business (784 ) — Other, Net (126 ) 508 Changes in Operating Assets and Liabilities: Accounts Receivable (11,811 ) (4,451 ) Inventories (149 ) (7,665 ) Accounts Payable 970 4,612 Employee Compensation and Benefits (3,005 ) 1,177 Other Current Liabilities 1,549 1,711 Income Taxes 797 1,668 U.S. Pension Plan Contributions (16,731 ) — Other Assets and Liabilities 715 (2,774 ) Net Cash Provided by Operating Activities 47,566 56,909 INVESTING ACTIVITIES Purchases of Property, Plant and Equipment (15,623 ) (13,902 ) Proceeds from Disposals of Property, Plant and 1,028 601 Equipment Acquisition of Businesses, Net of Cash Acquired (750 ) (2,917 ) Proceeds from Sale of Business 1,014 — Decrease (Increase) in Restricted Cash 3,089 (3,279 ) Net Cash Used for Investing Activities (11,242 ) (19,497 ) FINANCING ACTIVITIES Change in Short-Term Borrowings, Net — — Payment of Long-Term Debt (2,986 ) (19,272 ) Issuance of Long-Term Debt — 20,000 Purchases of Common Stock (25,343 ) (17,603 ) Proceeds from Issuance of Common Stock 4,167 4,214 Tax Benefit on Stock Plans 2,047 1,266 Dividends Paid (12,817 ) (12,852 ) Net Cash Used for Financing Activities (34,932 ) (24,247 ) Effect of Exchange Rate Changes on Cash and Cash 209 (355 ) Equivalents Net Increase in Cash and Cash Equivalents 1,601 12,810 Cash and Cash Equivalents at Beginning of Period 52,339 39,529 Cash and Cash Equivalents at End of Period $ 53,940 $ 52,339 TENNANT COMPANY SUPPLEMENTAL NON-GAAP FINANCIAL TABLE (In thousands, except per Three Months Ended Twelve Months Ended share data) December 31 December 31 2012 2011 2012 2011 Net Sales $ 187,507 $ 193,158 $ 738,980 $ 753,998 Cost of Sales 104,044 109,629 413,684 434,817 Gross Profit - 83,463 83,529 325,296 319,181 as reported Gross Margin 44.5 % 43.2 % 44.0 % 42.3 % Adjustments: Hofmans Product — — — 1,482 Obsolescence Gross Profit - 83,463 83,529 325,296 320,663 as adjusted Gross Margin 44.0 % 42.5 % Operating Expense (Income): Research and Development 7,705 7,675 29,263 27,911 Expense Selling and Administrative 56,788 60,402 234,114 241,625 Expense Gain on Sale — — (784 ) — of Business Total Operating 64,493 68,077 262,593 269,536 Expense Profit from Operations - $ 18,970 $ 15,452 $ 62,703 $ 49,645 as reported Operating 10.1 % 8.0 % 8.5 % 6.6 % Margin Adjustments: Gain on Sale — — (784 ) — of Business Restructuring — — 760 — Charge (S&A) Hofmans Product — — — 4,300 Obsolescence (CGS & S&A) International Executive — — — 1,217 Severance (S&A) Profit from Operations - $ 18,970 $ 15,452 $ 62,679 $ 55,162 as adjusted Operating 10.1 % 8.0 % 8.5 % 7.3 % Margin Other Income (Expense): Interest 198 276 1,069 752 Income Interest (496 ) (624 ) (2,517 ) (2,238 ) Expense Net Foreign Currency 93 509 (1,403 ) 559 Transaction Gains (Losses) Other (Expense) (137 ) 45 38 12 Income, Net Total Other Income (342 ) 206 (2,813 ) (915 ) (Expense), Net Profit Before Income Taxes - $ 18,628 $ 15,658 $ 59,890 $ 48,730 as reported Adjustments: Gain on Sale — — (784 ) — of Business Restructuring — — 760 — Charge Hofmans Product — — — 4,300 Obsolescence International Executive — — — 1,217 Severance Profit Before Income Taxes - $ 18,628 $ 15,658 $ 59,866 $ 54,247 as adjusted TENNANT COMPANY SUPPLEMENTAL NON-GAAP FINANCIAL TABLE (In thousands, except per share Three Months Ended Twelve Months Ended data) December 31 December 31 2012 2011 2012 2011 Income Tax Expense - $ 4,784 $ 4,394 $ 18,306 $ 16,017 as reported Adjustments: International Entity 2,043 — 2,043 — Restructuring Gain on Sale of — — (276 ) — Business Restructuring Charge — — 90 — Hofmans Product — — — 489 Obsolescence Income Tax Expense - $ 6,827 $ 4,394 $ 18,120 $ 16,506 as adjusted Net Earnings - as $ 13,844 $ 11,264 $ 41,584 $ 32,713 reported Adjustments: International Entity (2,043 ) — (2,043 ) — Restructuring Gain on Sale of — (508 ) — Business Restructuring Charge — 670 — Hofmans Product — — — 3,811 Obsolescence International — — — 1,217 Executive Severance Net Earnings - as $ 11,801 $ 11,264 $ 39,703 $ 37,741 adjusted Earnings per Share: Basic $ 0.75 $ 0.60 $ 2.24 $ 1.74 Diluted Earnings per $ 0.73 $ 0.59 $ 2.18 $ 1.69 Share - as reported Adjustments: International Entity (0.11 ) — (0.11 ) — Restructuring Gain on Sale of — (0.03 ) — Business Restructuring Charge — 0.04 — Hofmans Product — — — 0.20 Obsolescence International — — — 0.06 Executive Severance Diluted Earnings per $ 0.62 $ 0.59 $ 2.08 $ 1.95 Share - as adjusted Contact: Tennant Company INVESTOR CONTACT: Tom Paulson, 763-540-1204 Vice President and Chief Financial Officer or MEDIA CONTACT: Kathryn Lovik, 763-540-1212 Director, Global Corporate Communications
Tennant Company Reports 2012 Fourth Quarter and Full Year Results
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