UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | |
[X] |
Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2006 |
OR |
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[ ] |
Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the transition period from ________ to________ |
Commission File No. 1-16191
TENNANT COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Minnesota | 410572550 | |
(State or Other Jurisdiction of
Incorporation or Organization) |
(I.R.S Employer
Identification No.) |
701 North Lilac Drive
P.O. Box 1452
Minneapolis, Minnesota 55440
(Address of Principal Executive Offices, Including Zip Code)
763-540-1200
(Registrants Telephone Number, Including Area Code)
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 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one:)
Large accelerated filer o | Accelerated filer x | Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares outstanding of Registrants common stock, par value $.375 on July 28, 2006, was 18,606,441.
TENNANT COMPANY
Quarterly Report Form 10-Q
ITEM 1 Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands, except per share data)
Three Months
Ended June 30 |
Six Months
Ended June 30 |
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2006 | 2005 | 2006 | 2005 | ||||||||||||||||
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Net sales | $ | 150,965 | $ | 137,119 | $ | 286,427 | $ | 263,077 | |||||||||||
Cost of sales | 85,167 | 78,672 | 163,829 | 150,644 | |||||||||||||||
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Gross profit | 65,798 | 58,447 | 122,598 | 112,433 | |||||||||||||||
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Operating expenses: | |||||||||||||||||||
Research and development | 5,648 | 4,507 | 10,630 | 8,969 | |||||||||||||||
Selling and administrative | 47,553 | 43,151 | 92,652 | 86,596 | |||||||||||||||
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Total operating expenses | 53,201 | 47,658 | 103,282 | 95,565 | |||||||||||||||
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Profit from operations | 12,597 | 10,789 | 19,316 | 16,868 | |||||||||||||||
Interest income, net | 720 | 263 | 1,170 | 416 | |||||||||||||||
Other income (expense), net | 102 | (262 | ) | 135 | (686 | ) | |||||||||||||
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Profit before income taxes | 13,419 | 10,790 | 20,621 | 16,598 | |||||||||||||||
Income tax expense | 4,266 | 4,092 | 7,032 | 6,357 | |||||||||||||||
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Net earnings | $ | 9,153 | $ | 6,698 | $ | 13,589 | $ | 10,241 | |||||||||||
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Per share: | |||||||||||||||||||
Basic earnings | $ | 0.49 | $ | 0.37 | $ | 0.73 | $ | 0.57 | |||||||||||
Diluted earnings | $ | 0.48 | $ | 0.37 | $ | 0.72 | $ | 0.56 | |||||||||||
Dividends | $ | 0.11 | $ | 0.11 | $ | 0.22 | $ | 0.22 | |||||||||||
Weighted average number of shares: | |||||||||||||||||||
Basic | 18,496 | 17,983 | 18,499 | 18,004 | |||||||||||||||
Diluted | 18,920 | 18,143 | 18,939 | 18,201 |
See accompanying Notes to Condensed Consolidated Financial Statements.
2
TENNANT COMPANY
Quarterly Report Form 10-Q
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
See accompanying Notes to Condensed Consolidated Financial Statements.
3
TENNANT COMPANY
Quarterly Report Form 10-Q
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
See accompanying Notes to Condensed Consolidated Financial Statements.
4
TENNANT COMPANY
Quarterly Report Form 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except per share data)
(1) | Basis of Presentation |
Tennant Company is referred to as Tennant, us, we, or our in these notes to the condensed consolidated financial statements.
In our opinion, the accompanying unaudited, condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments, except as noted elsewhere in the notes to the condensed consolidated financial statements) necessary to present fairly our financial position as of June 30, 2006, the results of our operations for the three and six months ended June 30, 2006 and 2005 and cash flows for the six months ended June 30, 2006 and 2005. These statements are condensed and, therefore, do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. The statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2005. The results of operations for the three and six months ended June 30, 2006 are not necessarily indicative of the results to be expected for the full year.
New Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The requirements are effective for fiscal years beginning after December 15, 2006. Although we are still evaluating the impact that the adoption of FIN 48 will have on our consolidated financial statements, we do not believe it will have a material impact.
(2) | Stock Split |
On April 26, 2006, the Board of Directors declared a two-for-one common stock split effective July 26, 2006. As a result of the stock split, shareholders of record received one additional common share for every share held at the close of business on July 12, 2006. Share and per share data in these consolidated financial statements and related notes have been retroactively adjusted to reflect the stock split. In connection with the stock split, we amended our articles of incorporation to increase the number of authorized shares of common stock to 60,000.
5
TENNANT COMPANY
Quarterly Report Form 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except per share data)
(3) | Inventories |
Inventories are valued at the lower of cost or market. Inventories at June 30, 2006 and December 31, 2005 consisted of the following:
June 30,
2006 |
December 31,
2005 |
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Inventories carried at LIFO: | ||||||||||
Finished goods | $ | 19,415 | $ | 17,642 | ||||||
Raw materials, production parts and work-in-process | 36,410 | 35,539 | ||||||||
LIFO reserve | (24,827 | ) | (24,060 | ) | ||||||
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Total LIFO inventories | 30,998 | 29,121 | ||||||||
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Inventories carried at FIFO: | ||||||||||
Finished goods | 5,801 | 5,259 | ||||||||
Raw materials, production parts and work-in-process | 18,859 | 18,286 | ||||||||
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Total FIFO inventories | 24,660 | 23,545 | ||||||||
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Total inventories | $ | 55,658 | $ | 52,666 | ||||||
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The LIFO reserve approximates the difference between LIFO carrying cost and replacement cost.
(4) | Supplemental Cash Flow Information |
Income taxes paid during the six months ended June 30, 2006 and 2005 were $6,146 and $2,201, respectively. Interest costs paid during the six months ended June 30, 2006 and 2005 were $124 and $376, respectively.
(5) | Accumulated Other Comprehensive Income (Loss) |
We report accumulated other comprehensive income (loss) as a separate item in the shareholders equity section of the balance sheet. Comprehensive income (loss) is comprised of the net earnings and other comprehensive income (loss). For the three and six months ended June 30, 2006 and 2005, other comprehensive income (loss) consists of foreign currency translation adjustments. The reconciliations of net earnings to comprehensive income (loss) are as follows:
Three Months
Ended June 30 |
Six Months
Ended June 30 |
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2006 | 2005 | 2006 | 2005 | ||||||||||||||||
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Net earnings | $ | 9,153 | $ | 6,698 | $ | 13,589 | $ | 10,241 | |||||||||||
Foreign currency translation adjustments | 1,330 | (1,395 | ) | 1,725 | (2,232 | ) | |||||||||||||
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Comprehensive income (loss) | $ | 10,483 | $ | 5,303 | $ | 15,314 | $ | 8,009 | |||||||||||
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6
TENNANT COMPANY
Quarterly Report Form 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except per share data)
(6) | Earnings Per Share Computation |
Three Months
Ended June 30 |
Six Months
Ended June 30 |
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2006 | 2005 | 2006 | 2005 | ||||||||||||||||
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Weighted average shares outstanding Basic | 18,496 | 17,983 | 18,499 | 18,004 | |||||||||||||||
Dilutive share equivalents | 424 | 160 | 440 | 197 | |||||||||||||||
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Weighted average shares outstanding Diluted | 18,920 | 18,143 | 18,939 | 18,201 | |||||||||||||||
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Net earnings | $ | 9,153 | $ | 6,698 | $ | 13,589 | $ | 10,241 | |||||||||||
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Earnings per share Basic | $ | 0.49 | $ | 0.37 | $ | 0.73 | $ | 0.57 | |||||||||||
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Earnings per share Diluted | $ | 0.48 | $ | 0.37 | $ | 0.72 | $ | 0.56 | |||||||||||
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Antidilutive securities excluded from diluted
earnings per share calculation |
77 | 862 | 76 | 840 | |||||||||||||||
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(7) | Segment Reporting |
We operate in one reportable segment that consists of the design, manufacture and sale of products used primarily in the maintenance of nonresidential surfaces. Our products are sold in North America, Europe, and other international markets including the Middle East, Asia, Japan, Latin America and Australia. The following table sets forth net sales by geographic area (net of intercompany sales):
Three Months
Ended June 30 |
Six Months
Ended June 30 |
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2006 | 2005 | 2006 | 2005 | ||||||||||||||||
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North America | $ | 101,096 | $ | 92,527 | $ | 191,111 | $ | 175,262 | |||||||||||
Europe | 35,076 | 30,688 | 67,396 | 61,450 | |||||||||||||||
Other International | 14,793 | 13,904 | 27,920 | 26,365 | |||||||||||||||
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Total | $ | 150,965 | $ | 137,119 | $ | 286,427 | $ | 263,077 | |||||||||||
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(8) | Goodwill and Intangible Assets |
The following table summarizes the activity during the six months ended June 30, 2006 for goodwill and other intangible assets:
Goodwill |
Other
Intangibles |
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Balance, December 31, 2005 | $ | 22,253 | $ | 1,502 | ||||||
Amortization expense | | (90 | ) | |||||||
Foreign currency fluctuations | 728 | 117 | ||||||||
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Balance, June 30, 2006 | $ | 22,981 | $ | 1,529 | ||||||
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7
TENNANT COMPANY
Quarterly Report Form 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except per share data)
(9) | Stock-Based Compensation |
On January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123(R), Share Based PaymentRevised 2004 (SFAS No. 123(R)), using the modified prospective transition method. Under this method, stock-based employee compensation cost is recognized using the fair-value based method for all new awards granted after January 1, 2006. Compensation costs for unvested stock options and awards that were outstanding as of the adoption date are being recognized, beginning January 1, 2006, over the requisite service period based on the grant-date fair value of those options and awards as previously calculated under the pro-forma disclosures pursuant to Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). As of June 30, 2006, we had six plans which are described in Note 13 of the 2005 Annual Report on Form 10-K. The 1999 Directors Restricted Plan, 1997 Directors Option Plan and 1999 Stock Incentive Plan currently allow for stock-based compensation grants as of June 30, 2006. A maximum of 4,700 shares can be awarded under these plans; 608 shares were available for issuance under current and future equity compensation awards as of June 30, 2006.
Stock Option and Stock Appreciation Right Awards
We determined the fair value of our stock option awards using the Black-Scholes option pricing model. The following weighted-average assumptions were used to value the stock options granted during the six months ended June 2006 and 2005:
2006 | 2005 | |||||||||
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Expected life in years | 7 | 7 | ||||||||
Risk-free interest rate | 4.9 | % | 3.9 | % | ||||||
Expected volatility | 26.9 | % | 25.9 | % | ||||||
Expected dividend yield | 2.0 | % | 2.2 | % | ||||||
Weighted-average fair value | $ | 7.87 | $ | 5.51 |
Stock options were granted for 29 and 12 shares during the six months ended June 30, 2006 and 2005, respectively.
The expected life selected for stock options granted during the six month period represents the period of time that the stock options are expected to be outstanding based on historical data of stock option holder exercise and termination behavior for similar grants. The risk-free interest rate for periods within the contractual life of the stock option is based on the U.S. Treasury rate over the expected life at the time of grant. Expected volatilities are based upon historical volatility of our stock over a period equal to the expected life of each stock option grant. Dividend yield is estimated over the expected life based on our dividend policy and historical dividends paid.
The total intrinsic value of stock options exercised during the six months ended June 30, 2006 and 2005 was $1,889 and $151, respectively. The total grant date fair value of stock options vested during the six months ended June 30, 2006 and 2005 was $988 and $2,045, respectively. At June 30, 2006, the aggregate intrinsic value of shares outstanding and exercisable was $9,201 and $8,753, respectively.
Employee stock option awards prior to 2005 include a reload feature for options granted to key employees. This feature allows employees to exercise options through a stock-for-stock exercise using mature shares and employees are granted a new stock option (reload option) equal to the number of shares of common stock used to satisfy both the exercise price of the option and the tax withholding requirements. The reload options granted have an exercise price equal to the fair market value of the common stock on the grant date. Stock options granted in conjunction with reloads vest immediately and have a term equal to the remaining life of the initial grant.
8
TENNANT COMPANY
Quarterly Report Form 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except per share data)
New stock option awards granted during the first six months of 2006 vest one-third each year over a three-year period and have a ten-year contractual term. These grants do not contain a reload feature. Compensation expense equal to the grant date fair value is recognized for these awards over the vesting period. Compensation expense is fully recognized for reload stock options as of the reload date.
In addition to stock options, we also grant cash-settled stock appreciation rights to employees in certain foreign locations. Stock appreciation rights outstanding were 18 as of June 30, 2006 . No new stock appreciation rights were granted during the first six months of 2006.
Compensation expense related to stock options and stock appreciation rights was $480 for the six-month period ended June 30, 2006. As of June 30, 2006, there was unrecognized compensation cost for unvested options and rights of $1,003 of which $418 is expected to be recognized during the remainder of 2006 and the remaining $585 during 2007, 2008 and 2009.
The following table summarizes activity related to stock options and stock appreciation rights under our employee and non-employee director equity compensation plans during the six months ended June 30, 2006:
Outstanding |
Weighted-
Average Exercise Price |
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Outstanding at December 31, 2005 | 2,053 | $ | 19.15 | |||||||
Granted | 29 | 25.95 | ||||||||
Exercised | (247 | ) | 18.38 | |||||||
Forfeited | (23 | ) | 19.69 | |||||||
Expired | (36 | ) | 18.52 | |||||||
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Outstanding at June 30, 2006 | 1,776 | $ | 19.36 | |||||||
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Exercisable at June 30, 2006 | 1,567 | $ | 18.94 | |||||||
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The following table summarizes information concerning outstanding and exercisable stock options and stock appreciation rights as of June 30, 2006:
Range of Exercise
Prices Between |
Number
Outstanding |
Weighted-
Average Remaining Contractual Life (Years) |
Weighted-
Average Exercise Price |
Number
Exercisable |
Weighted-
Average Exercise Price |
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$10.05-12.54 | 5 | 0.2 | $ | 11.00 | 5 | $ | 11.00 | |||||||||||||||
12.55-15.04 | 36 | 2.4 | 13.85 | 36 | 13.85 | |||||||||||||||||
15.05-17.54 | 650 | 5.0 | 16.51 | 650 | 16.51 | |||||||||||||||||
17.55-20.04 | 258 | 3.2 | 18.09 | 246 | 18.07 | |||||||||||||||||
20.05-22.54 | 567 | 5.5 | 21.31 | 483 | 21.40 | |||||||||||||||||
22.55-25.04 | 184 | 6.5 | 23.87 | 84 | 23.91 | |||||||||||||||||
$25.05-27.55 | 76 | 5.2 | 25.98 | 63 | 25.84 | |||||||||||||||||
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1,776 | 5.0 | $ | 19.36 | 1,567 | $ | 18.94 | ||||||||||||||||
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9
TENNANT COMPANY
Quarterly Report Form 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except per share data)
Restricted Share Awards
The following table summarizes the activity during the six months ended June 30, 2006 for unvested restricted share awards:
Unvested Shares |
Weighted-
Average Grant Date Fair Value |
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Unvested at December 31, 2005 | 19 | $ | 19.68 | |||||||
Granted | 65 | 26.25 | ||||||||
Vested | (1 | ) | 19.49 | |||||||
Forfeited | (2 | ) | 21.60 | |||||||
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Unvested at June 30, 2006 | 81 | $ | 24.74 | |||||||
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Restricted share awards typically have a two- or three-year vesting period from the effective date of grant. The total fair value of shares vested during the six months ended June 30, 2006 and 2005 was $27 and $699, respectively. Compensation expense related to restricted stock was $353 and $200 for the six-month periods ended June 30, 2006 and 2005, respectively. As of June 30, 2006, there was $1,183 of total unrecognized compensation cost related to unvested shares, of which $428 is expected to be recognized during the remainder of 2006, and the remaining $755 during 2007, 2008 and 2009.
Performance Share Awards
We also grant performance share awards to key employees as a part of our management compensation program. These awards are earned based upon achievement of certain financial performance targets. We determine the fair value of these awards as of the date of grant and recognize the expense over a three-year performance period. The compensation expense for these awards was $1,018 for the six months ended June 30, 2006.
During November 2005, we also granted a performance share award, which vests and is earned upon achieving certain total shareholder return targets over a five-year performance period. The maximum number of shares of common stock issuable upon payout of the award is 40. Compensation cost is based on the fair value of this award as of the date of grant and recognized over the derived requisite service period of three years. Compensation expense related to this award was $71 for the six-month period ended June 30, 2006. As of June 30, 2006, there was $342 of total unrecognized compensation cost related to this award, of which $71 is expected to be recognized during the remainder of 2006, and the remaining $271 during 2007 and 2008.
Share-Based Liabilities
As of June 30, 2006, we had $1,726 in total share-based liabilities recorded on our balance sheet. During the six-month period ended June 30, 2006, we paid out $1,739 related to 2005 share-based liability awards.
10
TENNANT COMPANY
Quarterly Report Form 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except per share data)
Prior to the adoption of SFAS No. 123(R), we accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. As we adopted SFAS No. 123(R) using the modified prospective approach, prior period net earnings and basic and diluted earnings per share have not been restated. The pro forma effects of recognizing the estimated fair value of stock-based compensation as previously calculated under SFAS No. 123 for the six months ended June 30, 2005 are summarized below:
Three Months
Ended June 30 2005 |
Six Months
Ended June 30 2005 |
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Net earnings as reported | $ | 6,698 | $ | 10,241 | ||||||
Add: Stock-based compensation cost determined under intrinsic value method included in net earnings, net of related tax effects | 125 | 209 | ||||||||
Deduct: Stock-based employee compensation expense determined under fair value-based method, net of related tax effects | (437 | ) | (762 | ) | ||||||
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Net earnings pro forma | $ | 6,386 | $ | 9,688 | ||||||
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Earnings per share: | ||||||||||
Basic as reported | $ | 0.37 | $ | 0.57 | ||||||
Basic pro forma | $ | 0.36 | $ | 0.54 | ||||||
Diluted as reported | $ | 0.37 | $ | 0.56 | ||||||
Diluted pro forma | $ | 0.35 | $ | 0.53 |
(10) | Guarantees |
We record a liability for warranty claims at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting warranty claim, new product introductions and other factors. Warranty periods on machines generally range from one to four years. The changes in warranty reserve balances for the six months ended June 30, 2006 and 2005 were as follows:
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Beginning balance | $ | 6,146 | $ | 6,180 | ||||||
Additions charged to expense | 3,804 | 4,164 | ||||||||
Change in estimate | 153 | | ||||||||
Foreign currency fluctuations | 95 | (87 | ) | |||||||
Claims paid | (3,961 | ) | (3,712 | ) | ||||||
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Ending balance | $ | 6,237 | $ | 6,545 | ||||||
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11
TENNANT COMPANY
Quarterly Report Form 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except per share data)
Certain operating leases for vehicles contain residual value guarantee provisions, which would become due at the expiration of the operating lease agreement if the fair value of the leased vehicles is less than the guaranteed residual value. Of those leases that contain residual value guarantees, the aggregate residual value at lease expiration is approximately $10,500, of which we have guaranteed approximately $8,100. As of June 30, 2006, we have recorded a liability for the estimated end of term loss related to this residual value guarantee of $718 for certain vehicles within our fleet. Our fleet also contains vehicles we estimate will settle at a gain. Gains on these vehicles will be recognized at the end of the lease term.
(11) | Retirement Benefit Plans |
As of June 30, 2006, we had four defined benefit retirement plans and a postretirement medical plan, which are described in Note 9 of the 2005 Annual Report on Form 10-K.
We have contributed $60 and $158 during the second quarter and $119 and $387 for the first six months of 2006 to our pension benefit plans and to our postretirement medical benefit plan, respectively. We expect to contribute approximately $200 and $900 to our pension benefit plans and to our postretirement medical benefit plan in 2006, respectively.
The components of the net periodic cost for the three and six months ended June 30, 2006 and 2005 were as follows:
Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||
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2006 | 2005 | 2006 | 2005 | ||||||||||||||||
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Pension Benefits: | |||||||||||||||||||
Service cost | $ | 235 | $ | 301 | $ | 510 | $ | 602 | |||||||||||
Interest cost | 564 | 525 | 1,122 | 1,050 | |||||||||||||||
Expected return on plan assets | (738 | ) | (733 | ) | (1,477 | ) | (1,466 | ) | |||||||||||
Recognized actuarial (gain) loss | (23 | ) | (44 | ) | (4 | ) | (88 | ) | |||||||||||
Amortization of transition obligation | 32 | (6 | ) | 26 | (12 | ) | |||||||||||||
Amortization of prior service cost | 141 | 143 | 283 | 286 | |||||||||||||||
Foreign currency | 173 | | 173 | | |||||||||||||||
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Net periodic cost | $ | 384 | $ | 186 | $ | 633 | $ | 372 | |||||||||||
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Postretirement Medical Benefits: | |||||||||||||||||||
Service cost | $ | 45 | $ | 47 | $ | 75 | $ | 95 | |||||||||||
Interest cost | 234 | 122 | 383 | 243 | |||||||||||||||
Recognized actuarial (gain) loss | 37 | | 37 | | |||||||||||||||
Amortization of prior service cost | (259 | ) | | (259 | ) | | |||||||||||||
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Net periodic cost | $ | 57 | $ | 169 | $ | 236 | $ | 338 | |||||||||||
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(12) | Subsequent Events |
In July 2006, we acquired Hofmans Machinefabriek, a manufacturer of outdoor cleaning equipment based in Schaijk, The Netherlands, for a purchase price of approximately $7,800 in cash, subject to certain post-closing adjustments.
12
TENNANT COMPANY
Quarterly Report Form 10-Q
ITEM 2 - Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
Tennant Company is a world leader in designing, manufacturing and marketing of solutions that help create a cleaner, safer world. We provide equipment, parts and consumables and floor coatings to contract cleaners, end-user businesses, healthcare facilities, schools and local, state and federal governments. We sell our products through our direct sales and service organization and a network of authorized distributors worldwide. Geographically, our customers are primarily located in North America, Europe and other international markets including the Middle East, Asia, Japan, Latin America and Australia. We strive to be an innovator in our industry through our commitment to understanding our customers needs and using our expertise to create innovative solutions.
On April 26, 2006, the Board of Directors declared a two-for-one common stock split effective July 26, 2006. As a result of the stock split, shareholders of record received one additional common share for every share held at the close of business on July 12, 2006. Share and per share data in Managements Discussion and Analysis of Financial Condition and Results of Operations have been retroactively adjusted to reflect the stock split.
Net earnings for the second quarter of 2006 were up 36.7% to $9.2 million, or $0.48 per diluted share, compared to the second quarter of 2005. Net earnings were impacted by:
| Growth in net sales of 10.1%. | |
| An increase in gross profit margin of 1.0 percentage point. | |
| A 10.2% increase in selling and administrative (S&A) expenses. | |
| An increase in interest income, net of $0.5 million. |
Net earnings for the six months ended June 30, 2006 increased 32.7% to $13.6 million, or $0.72 per diluted share, compared to the same period in 2005. Net earnings were impacted by:
| Growth in net sales of 8.9%. | |
| A 7.0% increase in S&A expenses. | |
| An increase in interest income, net of $0.8 million. | |
| An increase in other income, net of $0.8 million. |
During the first quarter of 2006, we adopted Financial Accounting Standards Board Statement No. 123 (Revised 2004), Share-Based Payment(SFAS No. 123(R)). SFAS No. 123(R) requires compensation costs relating to share-based payment transactions, including employee stock options, be recognized in the financial statements. We applied the modified prospective approach to transition in our adoption of this standard. The modified prospective approach uses the fair value-based accounting method for all employee awards granted, modified, or settled after the adoption date. Compensation cost related to the unvested portion of awards outstanding as of the adoption date is based on the grant-date fair value of those awards as calculated under the original provisions of SFAS No. 123. As a result of the adoption of SFAS No. 123(R), S&A expenses for the three and six months ended June 30, 2006 included an expense of $0.2 million ($0.1 million after-tax or $0.01 per diluted share) and an expense of $0.5 million ($0.3 million after-tax or $0.02 per diluted share), respectively, related to stock options.
13
TENNANT COMPANY
Quarterly Report Form 10-Q
During the fourth quarter of 2005, we launched initiatives to establish a manufacturing facility in China and rationalize our global manufacturing footprint. For the six months ended June 30, 2006, Tennant has spent approximately $1.0 million pretax, or $0.04 per diluted share, on these initiatives. We originally expected to incur $3.6 million pretax in costs associated with these initiatives, however, as of June 30, 2006, we expect to incur approximately $2.8 million pretax. The decrease is primarily due to a reduction in the expansion costs at the China manufacturing facility due to effective expense management as well as timing of certain China ramp-up expenses.
Historical Results
The following compares the historical results of operations for the three- and six-month periods ended June 30, 2006 and 2005 in dollars and as a percentage of net sales (dollars in thousands, except earnings per diluted share):
Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||||||||||||||||
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2006 | % | 2005 | % | 2006 | % | 2005 | % | ||||||||||||||||||||||||||||
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Net sales | $ | 150,965 | 100.0 | $ | 137,119 | 100.0 | $ | 286,427 | 100.0 | $ | 263,077 | 100.0 | |||||||||||||||||||||||
Cost of sales | 85,167 | 56.4 | 78,672 | 57.4 | 163,829 | 57.2 | 150,644 | 57.3 | |||||||||||||||||||||||||||
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Gross profit | 65,798 | 43.6 | 58,447 | 42.6 | 122,598 | 42.8 | 112,433 | 42.7 | |||||||||||||||||||||||||||
Research and development expenses | 5,648 | 3.7 | 4,507 | 3.3 | 10,630 | 3.7 | 8,969 | 3.4 | |||||||||||||||||||||||||||
Selling and administrative expenses | 47,553 | 31.5 | 43,151 | 31.5 | 92,652 | 32.3 | 86,596 | 32.9 | |||||||||||||||||||||||||||
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Profit from operations | 12,597 | 8.3 | 10,789 | 7.9 | 19,316 | 6.7 | 16,868 | 6.4 | |||||||||||||||||||||||||||
Interest income, net | 720 | 0.5 | 263 | 0.2 | 1,170 | 0.4 | 416 | 0.2 | |||||||||||||||||||||||||||
Other income (expense), net | 102 | 0.1 | (262 | ) | 0.2 | 135 | 0.0 | (686 | ) | 0.3 | |||||||||||||||||||||||||
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Profit before income taxes | 13,419 | 8.9 | 10,790 | 7.9 | 20,621 | 7.2 | 16,598 | 6.3 | |||||||||||||||||||||||||||
Income tax expense | 4,266 | 2.8 | 4,092 | 3.0 | 7,032 | 2.5 | 6,357 | 2.4 | |||||||||||||||||||||||||||
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Net earnings | $ | 9,153 | 6.1 | $ | 6,698 | 4.9 | $ | 13,589 | 4.7 | $ | 10,241 | 3.9 | |||||||||||||||||||||||
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Earnings per diluted share | $ | 0.48 | $ | 0.37 | $ | 0.72 | $ | 0.56 | |||||||||||||||||||||||||||
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Net Sales
Consolidated net sales increased 10.1% to $151.0 million for the second quarter of 2006 while net sales increased 8.9% to $286.4 for the six months ended June 30, 2006. The growth in net sales was driven by volume growth and price increases in equipment; service, parts and consumables; and floor coatings in all geographic areas. Direct foreign currency exchange effects had a favorable impact on net sales of less than 1% for the second quarter of 2006. Direct foreign currency exchange effects decreased net sales by approximately 1% during the first six months of 2006.
The following table sets forth the net sales by geographic area for the three- and six-month periods ended June 30, 2006 and 2005 and the percentage change from the prior year (dollars in thousands):
Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||||||||
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2006 | 2005 | % | 2006 | 2005 | % | ||||||||||||||||||||||
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North America | $ | 101,096 | $ | 92,527 | 9.3 | $ | 191,111 | $ | 175,262 | 9.0 | |||||||||||||||||
Europe | 35,076 | 30,688 | 14.3 | 67,396 | 61,450 | 9.7 | |||||||||||||||||||||
Other International | 14,793 | 13,904 | 6.4 | 27,920 | 26,365 | 5.9 | |||||||||||||||||||||
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Total | $ | 150,965 | $ | 137,119 | 10.1 | $ | 286,427 | $ | 263,077 | 8.9 | |||||||||||||||||
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14
TENNANT COMPANY
Quarterly Report Form 10-Q
North America
North American net sales increased 9.3% to $101.1 million for the second quarter of 2006 and increased 9.0% to $191.1 million for the six months ended June 30, 2006 compared to the same periods in 2005. The increase was driven by sales growth in all product categories as well as price increases. Growth in equipment sales was primarily attributable to volume, driven by increased demand for equipment used in industrial applications sold through our direct sales and national accounts channels. Growth in service, parts and consumables also contributed to the increase. Direct foreign currency translation effects from the strengthening Canadian dollar increased North American net sales by approximately 1% for the second quarter and the first six months of 2006 compared to the same periods in 2005.
Europe
Europes net sales for the three and six months ended June 30, 2006 increased 14.3% to $35.1 million and 9.7% to $67.4 million, respectively, compared to the same periods in 2005. The increase in net sales was primarily driven by growth in equipment sales due to increased demand in certain geographic markets and price increases. Growth in service, parts and consumables, due to expanded market coverage, also contributed to the increase. Direct foreign currency translation effects had a negligible impact on European net sales during the second quarter of 2006; however, it decreased European net sales by approximately 5% in the first six months of 2006.
Other International
In Other International markets, net sales for the second quarter of 2006 totaled $14.8 million, up 6.4% from the second quarter of 2005. Other International net sales were up 5.9% to $27.9 million during the first six months of 2006. Overall growth in net sales was primarily driven by increased demand in certain markets, primarily due to stronger economies and expanded market coverage in these areas, as well as price increases. Growth in service, parts and consumables also contributed to the increase in net sales. Direct foreign currency translation exchange effects decreased sales in Other International markets by approximately 2% and 3% in the second quarter and first six months of 2006, respectively.
Gross Profit
Gross profit margin was 43.6% for the second quarter of 2006 compared with 42.6% for 2005. Gross profit margin was 42.8% for the first six months of 2006 compared with 42.7% for 2005. During both the second quarter and for the first six months of 2006, higher material and transportation costs and unfavorable foreign currency exchange effects were more than offset by the benefit of selling price increases and operating efficiencies between periods. Gross profit margin for the second quarter of 2006 was also favorably impacted by the mix of products sold during the period when compared to the prior year. Gross profit margin for the second quarter of 2005 was impacted by increased reserves for slow moving and excess inventories.
Operating Expenses
Research & Development
Research and development (R&D) expenses in the second quarter of 2006 increased 25.3% to $5.6 million from $4.5 million in 2005. R&D expenses as a percentage of net sales were 3.7% for the second quarter of 2006 compared to 3.3% in the comparable quarter last year.
R&D expenses for the six months ended June 30, 2006 were $10.6 million, up 18.5% from $9.0 million in 2005. R&D expenses as a percentage of net sales were 3.7% year-to-date 2006 compared to 3.4% in the comparable period last year, which is in line with our target of investing 3-4% of net sales annually in R&D.
15
TENNANT COMPANY
Quarterly Report Form 10-Q
Selling & Administrative
Selling and administrative expenses in the second quarter of 2006 increased 10.2% to $47.6 million from $43.2 million in 2005. For the six months ended June 30, 2006, S&A expenses increased 7.0% to $92.7 million from $86.6 million in the comparable period last year. The increase in S&A expenses in both the three- and six-month periods was due in part to an increase in performance-based incentive compensation expense, including recognition of stock option expense associated with the adoption of SFAS No. 123(R) as previously discussed. Increased healthcare costs also contributed as medical claims returned to a more normalized level compared to prior periods. The remaining increase in both periods was primarily due to general inflationary increases such as salary and wage increases and higher fuel costs for sales and service fleet vehicles as well as additional costs to support our strategic initiatives, including expansion in China and increased global market coverage. Partially offsetting the increases on a year-to-date basis were favorable direct foreign currency exchange effects of $1.0 million. Direct foreign currency exchange effects had a negligible impact on the second quarter of 2006.
S&A expenses as a percentage of net sales were 31.5% for the second quarter of 2006, consistent with the comparable quarter last year. S&A expenses as a percentage of net sales for the six months ended June 30, 2006 were 32.3%, down from 32.9% in the comparable period last year. The decrease as a percentage of net sales for the six month period was primarily due to improved sales leverage, partially offset by cost increases described above.
Interest Income, Net
Interest income, net was $0.7 million in the second quarter of 2006 compared to $0.3 million in the second quarter of 2005 and $1.2 million for the six months ended June 30, 2006 compared to $0.4 million for the six months ended June 30, 2005. The increase for both the three- and six-month periods was primarily a result of higher average levels of cash and cash equivalents invested between periods.
Other Income (Expense), Net
Other income (expense), net increased $0.4 million and $0.8 million, respectively, for the three- and six- month periods ended June 30, 2006 as compared to the same periods in 2005. The increase in the three- month period was primarily due to fluctuations in foreign currency exchange rates. The first quarter of 2005 included a discretionary contribution of approximately $0.4 million to the Tennant Foundation. A similar contribution was not made during the first half of 2006.
Income Taxes
The effective tax rates for the second quarter were 31.8% for 2006 and 37.9% for 2005. The year-to-date effective tax rates were 34.1% for 2006 and 38.3% for 2005. The decrease in the effective tax rate between periods is related to state tax refunds, primarily from a state tax protective claim received during the second quarter of 2006 and the mix of expected full-year taxable earnings by country. Our effective tax rate for the full year is subject to change and may be impacted by changes to our forecasts of operating profit in total or by taxing jurisdiction, or to changes in the tax laws and regulations.
Liquidity and Capital Resources
The debt-to-total-capitalization ratio was 2.1% at June 30, 2006 versus 2.0% at December 31, 2005. Cash and cash equivalents totaled $42.4 million at June 30, 2006, compared to $41.3 million at December 31, 2005. We believe that the combination of cash, internally generated funds and available financing sources are more than sufficient to meet our cash requirements for the next year.
16
TENNANT COMPANY
Quarterly Report Form 10-Q
OPERATING ACTIVITIES Operating activities provided $11.9 million of cash during the six months ended June 30, 2006. Cash provided by operating activities was primarily driven by strong year-to-date net earnings and a reduction in accounts payable, accrued expenses and deferred revenues due to payments of 2005 performance-based incentives, annual rebates, sales incentives and profit sharing as well as timing of accounts payable payments.
In the comparable 2005 period, operating activities provided cash of $18.9 million. Cash provided by operating activities for the six months ended June 30, 2005 was primarily driven by strong net earnings and a decrease in receivables due to seasonality of sales volumes. Partially offsetting these sources of cash was an increase in inventory levels and decreases in other current/noncurrent assets and liabilities. The inventory level increases were due to a build up of inventory to support new products launched during the latter part of 2004. The decrease in other current/noncurrent assets and liabilities is primarily a result of a large, lump-sum payment of deferred compensation.
Management evaluates how effectively we utilize two of our key operating assets, receivables and inventories, using Accounts Receivable Days Sales Outstanding (DSO) and Days Inventory on Hand (DIOH), on a FIFO basis. These metrics are as follows (in days):
June 30, 2006 | December 31, 2005 | June 30, 2005 | ||||||||||||
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DSO | 61 | 61 | 61 | |||||||||||
DIOH | 84 | 82 | 93 |
INVESTING ACTIVITIES Capital expenditures were $8.7 million in the first six months of 2006 compared to $8.3 million in the same period last year. We currently anticipate full-year capital spending to be in the range of $23 to $28 million.
FINANCING ACTIVITIES Net cash used by financing activities was $2.5 million during the first six months 2006 and $12.0 million in the comparable 2005 period. During the first six months of 2006, the issuance of common stock driven by employee stock option exercises generated $4.4 million of cash.
During the first six months of 2005, significant uses of cash included a $5.0 million scheduled debt repayment, repurchases of common stock under our share repurchase program and payments of dividends.
New Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The requirements will be effective during fiscal years beginning after December 15, 2006. Although we are still evaluating the impact that the adoption of FIN 48 will have on our consolidated financial statements, we do not believe it will have a material impact.
17
TENNANT COMPANY
Quarterly Report Form 10-Q
Quantitative and Qualitative Disclosures About Market Risk and Other Matters
Foreign Currency Risk
Due to the global nature of our operations, we are subject to exposures resulting from foreign currency exchange fluctuations in the normal course of business. Our primary exchange rate exposure is with the Euro, the Canadian dollar, the Australian dollar, the British pound, the Chinese yuan and the Japanese yen against the U.S. dollar. The direct financial impact of foreign currency exchange includes the effect of translating profits from local currencies to U.S. dollars, the impact of currency fluctuations on the transfers and purchases of goods between Tennant operations in the United States and abroad and transaction gains and losses. In addition to the direct financial impact, foreign currency exchange has an indirect financial impact on our results, including the effect on sales volumes within local economies and the impact of pricing actions taken as a result of foreign exchange rate fluctuations. Because our products are currently manufactured or sourced primarily from the United States, a stronger dollar generally has a negative impact on results from operations outside the United States while a weaker dollar generally has a positive effect. We could experience favorable or unfavorable foreign exchange effects for the remainder of 2006 when compared with historical results.
We periodically enter into various contracts, principally forward exchange contracts, to protect the value of certain of our foreign currency-denominated assets and liabilities and to minimize the earnings effects associated with foreign exchange rate changes on certain of our foreign currency-denominated assets and liabilities. The gains and losses on these contracts generally approximate changes in the value of the related assets and liabilities.
Commodity Risk
We are subject to exposures resulting from potential cost increases related to our purchases of raw materials or other product components. We do not use derivative commodity instruments to manage our exposures to changes in commodity prices such as steel, oil, gas and other commodities.
Various factors beyond our control affect the price of oil and gas, including but not limited to worldwide and domestic supplies of oil and gas, political instability or armed conflict in oil-producing regions, the price and level of foreign imports, the level of consumer demand, the price and availability of alternative fuels, domestic and foreign governmental regulation, weather-related factors and the overall economic environment. We purchase petroleum-related component parts for use in our manufacturing operations. In addition, our freight costs associated with shipping and receiving product and sales and service vehicle fuel costs are impacted by fluctuations in the cost of oil and gas. If the price of oil and gas continue to increase our results could be unfavorably impacted.
We seek to mitigate the risk of future raw material or other product component increases through product pricing and negotiations. The success of these efforts depends upon our ability to increase our selling prices in a competitive market. If the commodity prices remain at their current levels or continue to increase, our results could be unfavorably impacted in 2006.
Other Matters
Management regularly reviews our business operations with the objective of improving financial performance and maximizing our return on investment. As a result of this ongoing process to improve financial performance, we may incur restructuring charges in the future which, if taken, could be material to our financial results.
Additional information on market risk is included in the Managements Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2005.
18
TENNANT COMPANY
Quarterly Report Form 10-Q
Cautionary Statement Relevant to Forward-Looking Information
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:
| 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 and the adoption of FAS 123(R), including the timing and method of stock option exercises. |
| Inflationary pressures. |
| Potential for increased competition in our business. |
| 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 and purchased components. |
| Success and timing of new products. |
| Ability to achieve projections of future financial and operating results. |
| Ability to transition management smoothly into new senior leadership roles. |
| Successful integration of acquisitions. |
| Ability to achieve operational efficiencies, including synergistic and other benefits of acquisitions. |
| Ability to achieve anticipated global sourcing cost-reductions. |
| Unforeseen product quality problems. |
| Ability to acquire, retain and protect proprietary intellectual property rights. |
| Effects of litigation, including threatened or pending litigation. |
| Price and timing of the sale of our Maple Grove, Minnesota manufacturing facility. |
| Ability to benefit from production reallocation plans, including benefits from our expansion into China. |
| 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 Tennants results, please see our other Securities and Exchange Commission filings, including the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2005.
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.
19
TENNANT COMPANY
Quarterly Report Form 10-Q
ITEM 4 Controls and Procedures
Evaluation of disclosure controls and procedures. Based on their evaluation as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including the principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal controls. There were no changes in our internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1A Risk Factors
There have been no material changes in our risk factors from those disclosed in our Form 10-K for the year ended December 31, 2005.
ITEM 2 - Changes in Securities, and Use of Proceeds and Issuer Purchases of Equity Securities
In November 2004, Tennant Companys Board of Directors authorized the repurchase of 400,000 shares of our common stock under the share repurchase program approved by the Board of Directors in May 2001. These share repurchases are made from time to time in the open market or through privately negotiated transactions, primarily to offset the dilutive effect of shares issued through our stock-based compensation programs. The share and per share data in this Item 2 have not been adjusted for the two-for-one stock split.
For the Quarter
Ended 6/30/2006 |
Total Number
of Shares Purchased (1) |
Average Price
Paid Per Share |
Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum
Number of Shares that May Yet Be Purchased |
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April 1 30, 2006 | 219 | $ | 49.46 | | 286,287 | |||||||||||||
May 1 31, 2006 | | | | 286,287 | ||||||||||||||
June 1 30, 2006 | 82 | 46.75 | | 286,287 | ||||||||||||||
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Total | 301 | $ | 48.11 | | 286,287 | |||||||||||||
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(1) Includes 301 shares delivered or attested to in satisfaction of the exercise price and/or withholding obligations by employees who exercised stock options and restricted stock under employee stock compensation plans.
20
TENNANT COMPANY
Quarterly Report Form 10-Q
ITEM 4 - Submission of Matters to a Vote of Security Holders
We held our Annual Meeting of Shareholders on May 4, 2006, for the purpose of electing three directors, ratifying the appointment of KPMG LLP as our independent registered public accounting firm, approving the amended and restated 1999 stock incentive plan and transacting such other business as would properly come before the meeting. Results of shareholder voting on these matters were as follows (share data in this Item 4 has not been adjusted for the two-for-one stock split):
For | Withhold | |||||||||||||||||
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1. Election of three Class II directors for a three year term expiring in 2009: | ||||||||||||||||||
Jeffrey A. Balagna | 8,256,937 | 255,824 | ||||||||||||||||
Edwin L. Russell | 8,256,324 | 256,437 | ||||||||||||||||
Steven A. Sonnenberg | 7,969,397 | 543,364 | ||||||||||||||||
For | Against | Abstain |
Broker
Non-Vote |
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2. Ratify the appointment of KPMG LLP
as registered independent public accounting firm of the Company. |
8,238,407 | 226,904 | 47,449 | | ||||||||||||||
3. To approve the amended and restated 1999 stock incentive plan. | 6,376,447 | 1,153,617 | 81,628 | 901,067 |
There were 9,261,071 shares of common stock entitled to vote at the meeting and a total of 8,512,761 shares (91.92%) were represented at the meeting.
ITEM 6 - Exhibits
Exhibits
Item # | Description | Method of Filing | ||
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3i | Articles of Incorporation | Filed herewith electronically. | ||
3ii | By-Laws | Incorporated by reference to Exhibit 3ii to our Annual Report on Form 10-K for the fiscal year ended December 31, 1999. | ||
10.1 | Amended and Restated 1999 Stock Incentive Plan | Incorporated by reference to Appendix A to our proxy statement for the 2006 Annual Meeting of Shareholders filed on March 15, 2006. | ||
31.1 | Rule 13a-14(a)/15d-14(a) Certification of CEO | Filed herewith electronically. | ||
31.2 | Rule 13a-14(a)/15d-14(a) Certification of CFO | Filed herewith electronically. | ||
32 | Section 1350 Certifications | Filed herewith electronically. |
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.
TENNANT COMPANY | ||||
Date: | August 8, 2006 | /s/ H. Chris Killingstad | ||
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H. Chris Killingstad
President and Chief Executive Officer |
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Date: | August 8, 2006 | /s/ Thomas Paulson | ||
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Thomas Paulson
Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
22
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
TENNANT COMPANY
I, the undersigned, Roger L. Hale, the President and Chief Executive Officer of Tennant Company, a Minnesota corporation (the Company), do hereby certify that the Restated Articles of Incorporation of the Company were duly adopted by the Board of Directors of the Company pursuant to Chapter 302A.135, Subd. 5 of the Minnesota Statutes (by amendment and restatement of the Restated Articles of Incorporation, as amended, in effect prior to the filing of these Articles of Amendment) to read in their entirety as set forth in Appendix A attached hereto. I further certify that the Restated Articles of Incorporation, as so adopted are set forth in Appendix A attached hereto, merely restate (and correctly set forth without change) the Restated Articles of Incorporation in effect prior to the filing of these Articles of Amendment, as previously amended.
IN WITNESS WHEREOF, I have subscribed my name hereto this 8 th day of August, 1989.
TENNANT COMPANY | |
/s/ Roger L. Hale
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Roger L. Hale, President and Chief
Executive Officer |
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APPENDIX A
RESTATED ARTICLES OF INCORPORATION
OF
TENNANT COMPANY
ARTICLE I
The name of this Corporation is Tennant Company.
ARTICLE II
The registered office of this Corporation is located at 701 North Lilac Drive, Minneapolis, Minnesota 55422.
ARTICLE III
This Corporation is authorized to issue an aggregate of 11,000,000 shares, 10,000,000 of which shall be designated as Common Stock, having a par value of $0.375 per share, and 1,000,000 of which shall be designated as Preferred Stock, having a par value of $.02 per share. The Board of Directors is 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.
ARTICLE IV
No shareholder of this Corporation shall have any cumulative voting rights.
ARTICLE V
No shareholder of this Corporation shall have any preemptive rights to subscribe for, purchase, or acquire any shares of the Corporation of any class, whether unissued or now or hereafter authorized, or any obligations or other securities convertible into or exchangeable for any such shares.
ARTICLE VI
Any action required or permitted to be taken at a meeting of the Board of Directors of this Corporation, other than an action requiring shareholder approval, may be taken by written action signed by the number of directors that would be required to take such action at a meeting of the Board of Directors at which all directors are present.
ARTICLE VII
(a) Whether or not a vote of shareholders is otherwise required, the affirmative vote of the holders of not less than two-thirds of the voting power of the outstanding voting shares of the Corporation shall be required for (1) the approval or authorization of any Related Person Business Transaction (as hereinafter defined) involving the Corporation or (2) the approval or authorization by the Corporation, in its capacity as a shareholder, of any Related Person Business Transaction involving a Subsidiary (as hereinafter defined) which requires the approval or authorization of the shareholders of the Subsidiary; provided, however, that such two-thirds voting requirement shall not be applicable if:
(i) The Continuing Directors (as hereinafter defined) of the Corporation by a two-thirds vote (A) have expressly approved in advance the acquisition of outstanding voting shares of the Corporation that caused each Related Person (as hereinafter defined) involved in the Related Person Business Transaction to become a Related Person or (B) have expressly approved the Related Person Business Transaction; or
(ii) The Related Person Business Transaction is solely between the Corporation and another corporation, one hundred percent of the voting shares of which is owned directly or indirectly by the Corporation; or
(iii) The Related Person Business Transaction is a merger or exchange and the cash or fair market value of the property, securities, or other consideration to be received per share by holders of Common Stock of the Corporation in the Related Person Business Transaction is not less than the highest per-share consideration (with appropriate adjustments to reflect any recapitalization, reclassification, stock split, reverse stock split, stock dividend, and like distributions) paid by any Related Person involved in the Related Person Business Transaction in acquiring any of the Corporations Common Stock;
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(b) |
For the purposes of this Article VII: |
(i) The term Related Person Business Transaction shall mean (A) any merger of the Corporation or a Subsidiary (as hereinafter defined) with or into a Related Person, (B) any exchange of shares of the Corporation or a Subsidiary for shares of a Related Person which, in the absence of this Article, would have required the affirmative vote of at least a majority of the voting power of the outstanding shares of the Corporation entitled to vote or the affirmative vote of the Corporation, in its capacity as a shareholder of the Subsidiary, (C) any sale, lease, exchange, transfer, or other disposition (in one transaction or a series of transactions), including without limitation a mortgage or any other security device, of all or any Substantial Part (as hereinafter defined) of the assets either of the Corporation (including without limitation any voting securities of a Subsidiary) or of a Subsidiary to or with a Related Person, (D) any sale, lease, exchange, transfer, or other disposition (in one transaction or a series of transactions) of all or any Substantial Part of the assets of a Related Person to or with the Corporation or a Subsidiary, (E) the issuance of any securities of the Corporation (except pursuant to stock dividends, stock splits, or similar transactions which would not have the effect of increasing the proportionate voting power of a Related Person) or of a Subsidiary to a Related Person, (F) any
recapitalization or reclassification that would have the effect of increasing the proportionate voting power of a Related Person, (G) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation at the time the Corporation has a Related Person, and (H) any agreement, contract, arrangement, or understanding providing for any of the transactions described in this definition of Related Person Business Transaction.
(ii) The term Related Person shall mean and include (A) any person or entity which, together with its Affiliates and Associates (both as hereinafter defined), beneficially owns (as defined on March 1, 1983, in Rule 13d-3 under the Securities Exchange Act of 1934) in the aggregate 20 percent or more of the outstanding voting shares of the Corporation, provided that notwithstanding anything stated therein, any shares of capital stock of the Corporation that any Related Person has the right to acquire pursuant to any agreement, contract, arrangement, or understanding, or upon exercise of any conversion right, warrant, or option, or otherwise shall be deemed beneficially owned by the Related Person and (B) any Affiliate or Associate of any such person or entity.
(iii) The term Affiliate shall mean, in the case of a specified person or entity, a person or entity that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person or entity specified.
(iv) The term Associate, used to indicate a relationship with a specified person or entity, shall mean (A) any entity of which such specified person or entity is an officer or partner or is, directly or indirectly, the beneficial owner of 10 percent or more of any class of equity securities, (B) any trust or other estate in which such specified person or entity has a substantial beneficial interest or as to which such specified person or entity serves as trustee or in a similar fiduciary capacity, and (C) any relative or spouse of such specified person, or any relative of such spouse, who has the same home as such specified person or who is a director or officer of such specified entity or any of its parents or subsidiaries.
(v) The term Substantial Part shall mean more than 30 percent of the fair market value of the total assets of the person or entity in question, as reflected on the most recent balance sheet of such person or entity existing at the time the shareholders of the Corporation would be required to approve or authorize the Related Person Business Transaction involving the assets constituting any such Substantial Part.
(vi) The term other consideration to be received shall include, without limitation, Common Stock of the Corporation retained by its existing public shareholders in the event of a Related Person Business Transaction in which the Corporation is the surviving Corporation.
(vii) The term Subsidiary shall mean any corporation, a majority of the equity securities of any class which are owned by the Corporation, by another Subsidiary, or in the aggregate by the Corporation and one or more of its Subsidiaries.
(viii) The term Continuing Director shall mean a director who was a member of the Board of Directors of the Corporation either on March 1, 1983, or immediately prior to the
time that any Related Person involved in the Related Person Business Transaction in question became a Related Person; provided that in no event shall a Related Person involved in the Related Person Business Transaction in question be deemed to be a Continuing Director.
(ix) The term voting shares shall mean all outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purposes of this Article as one class.
(c) The provisions set forth in this Article VII, including this paragraph (c), may not be repealed or amended in any respect unless such action is approved by the affirmative vote of the holders of not less than two-thirds of the voting power of the outstanding voting shares of the Corporation.
ARTICLE VIII
No Director of the Corporation shall be personally liable to the Corporation or its Shareholders for monetary damages for breach of fiduciary duty as a Director; provided, however, that this Article shall not eliminate or limit the liability of a Director to the extent provided by applicable law:
(i) for any breach of the Directors duty or loyalty to the Corporation or its Shareholders.
(ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law.
(iii) under Section 302A.559 or 80A.23 of the Minnesota Statutes.
(iv) for any transaction from which the Director derived an improper benefit, or
(v) for any act or omission occurring prior to the effective date of this Article. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any Director of the Corporation for or with respect to any acts or omissions of such Director occurring prior to such amendment or repeal.
ARTICLE IX
The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors consisting of not less than five nor more than eleven persons, who need not be shareholders. The number of directors may be increased by the shareholders or Board of Directors or decreased by the shareholders from the number of directors on the Board of Directors immediately prior to the effective date of this Article IX; provided, however, that any change in the number of directors on the Board of Directors (including, without limitation, changes at annual meetings of shareholders) shall be approved by the affirmative vote of not less than seventy-five percent (75%) of the votes entitled to be cast by the holders of all then
outstanding Voting Shares (as defined in Article VII), voting together as a single class, unless such change shall have been approved by a majority of the entire Board of Directors. If such change shall not have been so approved, the number of directors shall remain the same. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors.
At the 1989 annual meeting of shareholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of shareholders beginning in 1990, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class. In no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which the directors term expires and until a successor shall be elected and qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Removal of a director from office (including a director named by the Board of Directors to fill a vacancy or newly created directorship), with or without cause, shall require the affirmative vote of not less than seventy-five percent (75%) of the votes entitled to be cast by the holders of all then outstanding Voting Shares, voting together as a single class. Any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the Board of Directors then in office, any other vacancy occurring in the Board of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of such director predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more classes of preferred or preference stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of shareholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by or pursuant to the applicable terms of these Articles of Incorporation, and such directors so elected shall not be divided into classes pursuant to this Article IX unless expressly provided by such terms.
No person (other than a person nominated by or on behalf of the Board of Directors) shall be eligible for election as a director at any annual or special meeting of shareholders unless a written request that his or her name be placed in nomination is received from a shareholder of record by the Secretary of the Corporation not less than 75 days prior to the date fixed for the meeting, together with the written consent of such person to serve as a director.
Notwithstanding any other provisions of these Articles of Incorporation (and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law or these Articles of Incorporation), the affirmative vote of the holders of not less than seventy-five percent (75%) of the votes entitled to be cast by the holders of all then outstanding Voting Shares, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, this Article IX.
ARTICLES OF MERGER
OF
TENNANT TREND, INC.
WITH AND INTO
TENNANT COMPANY
Pursuant to Sections 302A.621 and 302A.651 of the Minnesota Business Corporation Act (the Act), the undersigned officers of Tennant Company, a Minnesota corporation (Tennant) and the holder of all of the issued and outstanding stock of Tennant Trend, Inc., a New York corporation (Trend), hereby execute and file these Articles of Merger:
1. The Plan of Merger, which has been duly adopted by the Executive Committee of the Board of Directors of Tennant, acting pursuant to authority duly delegated by the Board of Directors of Tennant, is attached hereto as Exhibit A.
2. The number of outstanding shares of each class and series of capital stock of Trend and the number of such shares owned of record by Tennant are as follows:
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Designation of
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Number of
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Number of Shares
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||||
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Common Stock, no par value |
150 |
150 |
Dated this 13th day of April 1990
TENNANT COMPANY | ||
By |
/s/ Roger L. Hale
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Its President and Chief Executive Officer | ||
And |
/s/ Janet M. Dolan
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Its Secretary |
Exhibit A
PLAN OF MERGER
Plan of Merger dated as of April 13, 1990, providing for the merger of TENNANT TREND, INC., a New York corporation (Trend), and TENNANT COMPANY, a Minnesota corporation (Tennant) (Trend and Tennant are hereinafter sometimes collectively referred to as the Constituent Corporations and each as a Constituent Corporation).
WITNESSETH:
WHEREAS, the authorized capital stock of Trend consists of 200 shares of common stock, without par value (Common Stock), of which 150 shares have been issued to Tennant and are outstanding as of the date hereof, constituting all of the issued and outstanding shares of capital stock of Trend; and
WHEREAS, the Executive Committee of the Board of Directors of Tennant, acting pursuant to authority duly delegated by the Board of Directors of Tennant, has determined that it is desirable and in the best interests of Tennant that Trend be merged with and into Tennant (the Merger) on the terms and conditions hereinafter set forth and in accordance with applicable provisions of the laws of the States of Minnesota and New York that permit such Merger.
NOW, THEREFORE, the Executive Committee of the Board of Directors of Tennant has, by resolutions duly adopted, approved this Plan of Merger (the Plan), as follows:
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1. |
THE MERGER. |
Trend shall be merged with and into Tennant, in accordance with the terms of the Plan and the applicable provisions of the Minnesota Business Corporation Act and the New York Business Corporation Law, and Tennant shall be the surviving corporation (the Surviving Corporation).
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2. |
EFFECTIVE TIME. |
Articles of Merger (the Articles) shall be delivered to the Secretary of State of the State of Minnesota for filing pursuant to the laws of the State of Minnesota and a Certificate of Merger (the Certificate) shall be delivered to the Department of State of the State of New York for filing pursuant to the laws of the State of New York. The Merger shall become effective upon the later of the filing of the Articles with the Secretary of State of the State of Minnesota or the Certificate by the Department of State of the State of New York (the Effective Time).
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3. |
ARTICLES OF INCORPORATION. |
The Articles of Incorporation of Tennant in effect immediately prior to the Effective Time shall become the Articles of Incorporation of the Surviving Corporation at the Effective Time.
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4. |
BY-LAWS. |
The By-Laws of Tennant in effect immediately prior to the Effective Time shall become the By-Laws of the Surviving Corporation at the Effective Time.
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5. |
BOARD OF DIRECTORS AND OFFICERS. |
The directors and officers of Tennant immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation and shall hold office until their respective successors are elected and have qualified or as otherwise provided in the By-Laws of the Surviving Corporation.
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6. |
CANCELLATION OF SHARES. |
The manner and basis of canceling the shares of Common Stock of Trend shall be as follows:
(a) Each share of Common Stock of Trend issued and outstanding immediately prior to the Effective Time shall be canceled, null and void and cease to exist as of the Effective Time, and no securities of the Surviving Corporation or any other corporation, or any money or other property shall be issued in exchange therefor.
(b) As soon as practicable after the Effective Time, Trend shall surrender to the Surviving Corporation all certificates representing issued and outstanding shares of Common Stock of Trend immediately prior to the Effective Time, and upon such surrender such certificates shall be marked Canceled and retained in the stock records of Trend by the secretary of the Surviving Corporation.
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7. |
EFFECT OF MERGER. |
At the Effective Time, the separate existence of Trend shall cease and Trend shall be merged with and into the Surviving Corporation. At the Effective Time, the Surviving Corporation shall thereupon and thereafter possess all the rights, privileges, immunities, powers, purposes and franchises, of a public as well as of a private nature, of each of the Constituent Corporations, and be subject to all the duties, liabilities and obligations of each of the Constituent Corporations, and all and singular, the rights, privileges, immunities, powers, purposes and franchises of each of the Constituent Corporations, and all property, real, personal and mixed, and all debts due to either of the Constituent Corporations on whatever account, including subscriptions to shares, and all causes of action, choices in action and every other interest of or belonging to or due to each of the Constituent Corporations and every other asset of
each of the Constituent Corporations, shall vest in the Surviving Corporation without further act or deed; and all property, rights, privileges, immunities, powers, purposes and franchises and all and every other interest shall be thereafter as effectually the property of the Surviving Corporation as they were of the respective Constituent Corporations; and the title to any real estate or any interest therein, vested by deed or otherwise, in either of the Constituent Corporations shall not revert or be in any way impaired by reason of the Merger; but all rights of creditors, all liens upon any property of either of the Constituent Corporations and all liabilities, obligations and penalties due or to become due, all claims or demands for any cause existing against either of the Constituent Corporations, or any shareholder, officer or director thereof shall be preserved unimpaired and shall not be released by reason of the Merger; and all debts, duties, liabilities, obligations and penalties and all actions or proceedings, whether civil or criminal, then pending by or against either of the Constituent Corporations, or any shareholder, officer or director thereof shall thenceforth attach to the Surviving Corporation, and may be enforced, prosecuted, settled or compromised against the Surviving Corporation to the same extent as if said debts, duties, liabilities, obligations and penalties and actions or proceedings had been incurred or contracted by the Surviving Corporation and the Surviving Corporation may be substituted in such action or proceeding in place of either of the Constituent Corporations.
ARTICLES OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
TENNANT COMPANY
I, Janet M. Dolan, the Vice President, General Counsel and Secretary of Tennant Company, a Minnesota corporation, do hereby certify that the following resolution as hereinafter set forth was adopted pursuant to Section 302A.437 of the Minnesota Statutes by the shareholders of said corporation, at a duly held meeting on May 7, 1992.
RESOLVED, that Article III of the Restated Articles of Incorporation of Tennant Company be and hereby is amended to read in its entirety as follows:
ARTICLE III
This Corporation is authorized to issue an aggregate of 6,000,000 shares, 15,000,000 of which shall be designated as Common Stock, having a par value of $0.375 per share, and 1,000,000 of which shall be designated as Preferred Stock, having a par value of $.02 per share. The Board of Directors is 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.
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IN WITNESS WHEREOF, I have subscribed my name this 7th day of May, 1992. |
/s/ Janet M. Dolan
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Janet M. Dolan
Vice President, General Counsel and Secretary |
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STATE OF MINNESOTA
Department of State Filed May 15, 1992 Joan Anderson Growe |
ARTICLES OF MERGER
MERGING
CONTRACT APPLICATIONS, INC.
INTO
TENNANT COMPANY
Pursuant to Section 302A.621 of the Minnesota Business Corporation Act, the undersigned, TENNANT COMPANY, a Minnesota corporation (hereinafter referred to as the Surviving Corporation), which is the owner of all of the outstanding capital stock of CONTRACT APPLICATIONS, INC., a Minnesota corporation (hereinafter referred to as the Subsidiary Corporation), hereby executes and files these Articles of Merger:
FIRST: The Plan of Merger, in the form of resolutions duly adopted by the Board of Directors of the Surviving Corporation at a duly held meeting on May 6, 1993, is attached hereto as Exhibit A.
SECOND: The number of outstanding shares of each class and series of capital stock of the Subsidiary Corporation and the number of shares of each class and series owned by the Surviving Corporation are as follows:
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Designation of
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Number of
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Number of Shares
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||||
Common Stock, par value
$.01 per share |
100 |
100 |
THIRD: The Plan of Merger has been duly approved by the Surviving Corporation under Section 302A.621 of the Minnesota Business Corporation Act.
FOURTH: The merger of the Subsidiary Corporation (CONTRACT APPLICATIONS, INC.) with and into the Surviving Corporation (TENNANT COMPANY) shall be effective upon the filing of these Articles of Merger with the Secretary of State of Minnesota.
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Dated this 22nd day of June, 1993. |
TENNANT COMPANY | ||
By |
/s/ Janet M. Dolan
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JANET M. DOLAN, its Secretary | ||
Exhibit A
TENNANT COMPANY
Resolutions Adopted by
Board of Directors
on May 6, 1993
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WHEREAS, Tennant Company (the Company) owns all of the issued and outstanding capital stock of Contract Applications, Inc., a Minnesota corporation (the Subsidiary), consisting of 100 shares of Common Stock, par value .01 per share; and
WHEREAS, the Company desires to effect the merger of the Subsidiary with and into the Company pursuant to Section 302A.621 of the Minnesota Business Corporation Act.
NOW THEREFORE, BE IT RESOLVED, that the Subsidiary be merged with and into the Company pursuant to Section 302A.621 of the Minnesota Business Corporation Act, in accordance with the further resolutions set forth below (which resolutions shall constitute the Plan of Merger) and that the Company (Tennant Company) shall be the surviving corporation.
RESOLVED FURTHER, that at the effective time of the merger, all of the outstanding shares of capital stock of the Subsidiary shall be canceled, and no securities of the Company or any other corporation, or any money or other property, shall be issued in exchange therefor.
RESOLVED FURTHER, that the merger shall be effective upon the filing of articles of merger with the Secretary of State of the State of Minnesota in the manner required by law.
RESOLVED FURTHER, that any officer of the Company be and hereby is authorized and directed to make and sign, for and on behalf of the Company, articles of merger setting forth the foregoing Plan of Merger and such other information as required by law, and to cause such articles to be filed for record with the Secretary of State of the State of Minnesota in the manner required by law.
RESOLVED FURTHER, that the officers of the Company, and each of them, be and they hereby are authorized, for and on behalf of the Company, to take such other action as such officers, or any of them, shall deem necessary or appropriate to carry out the purpose of the foregoing resolutions.
STATE OF MINNESOTA
Department of State Filed JUN 30, 1993 Joan Anderson Growe |
ARTICLES OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
TENNANT COMPANY
The undersigned, Bruce J. Borgerding, Secretary of Tennant Company, a Minnesota corporation (the Company), hereby certifies (i) that Article III of the Companys Restated Articles of Incorporation has been amended, effective at the close of business on April 26, 1995 (the Effective Time), to read in its entirety as follows:
ARTICLE III
This Corporation is authorized to issue an aggregate of 31,000,000 shares, 30,000,000 of which shall be designated as Common Stock, having a par value of $0.375 per share, and 1,000,000 of which shall be designated as Preferred Stock, having a par value of $.02 per share. The Board of Directors is 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.
(ii) that such amendment has been adopted in accordance with the requirements of, and pursuant to, Chapter 302A of the Minnesota Statutes; (iii) that such amendment was adopted pursuant to Section 302A.402, Subd. 3, of the Minnesota Statutes in connection with a two-for-one division of the Companys Common Stock; and (iv) that such amendment will not adversely affect the rights or preferences of the holders of outstanding shares of any class or series of the Company and will not result in the percentage of authorized shares that remains unissued after such division exceeding the percentage of authorized shares that were unissued before the division.
The division giving rise to the amendment set forth above concerns a two-for-one division of the Common Stock of the Company. Such division is being effected as follows:
(i) Effective at the Effective Time, each share of Common Stock outstanding immediately prior to the Effective Time will be split and divided into two shares of Common Stock of the Company, par value $0.375 per share, all of which shall be validly issued, fully paid and nonassessable;
(ii) each stock certificate representing a share or shares of Common Stock of the Company immediately prior to the Effective Time shall continue to represent the same number of shares following the Effective Time; and
(iii) a stock certificate or certificates representing one additional share of the authorized but previously unissued Common Stock of the Company, par value $0.375 per share, for each share of Common Stock of the Company outstanding immediately prior to the Effective Time shall be mailed or delivered on April 26, 1995, or as soon thereafter as practicable. The
record date for determining the shareholders of record entitled to receive such stock certificate or certificates with respect to Common Stock outstanding as of the close of business on April 12, 1995, and remaining outstanding at the Effective Time, shall be the close of business on April 12, 1995, and remaining outstanding at the Effective Time, shall be the close of business on April 12, 1995. With respect to each share of Common Stock, if any, that is first issued and becomes outstanding after the close of business on April 12, 1995, but prior to the Effective Time and remains outstanding at the Effective Time, the stock certificate for the additional share resulting from the division of any such share of Common Stock shall be mailed or delivered to the first holder of record to whom such share of Common Stock was issued.
The foregoing Articles of Amendment shall take effect at the Effective Time previously stated herein.
IN WITNESS WHEREOF, I have subscribed my name this 30th day of March, 1995.
/s/ Bruce J. Borgerding
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Bruce J. Borgerding | |
STATE OF MINNESOTA
Department of State Filed APR 05, 1995 Joan Anderson Growe |
ARTICLES OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
TENNANT COMPANY
The undersigned, Heidi M. Hoard, Secretary of Tennant Company, a Minnesota corporation (the Company), hereby certifies:
(i) That Article III of the Companys Restated Articles of Incorporation has been amended, effective at the close of business on July 26, 2006, to read in its entirety as follows:
ARTICLE III
This Corporation is authorized to issue an aggregate of 61,000,000 shares, 60,000,000 of which shall be designated as Common Stock, having a par value of $0.375 per share, and 1,000,000 of which shall be designated as Preferred Stock, having a par value of $.02 per share. The Board of Directors is 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.
(ii) That such amendment has been adopted in accordance with the requirements of, and pursuant to, Chapter 302A of the Minnesota Statutes; (iii) that such amendment was adopted pursuant to Section 302A.402, Subd. 3, of the Minnesota Statutes in connection with a two-for-one division of the Companys Common Stock; and (iv) that such amendment will not adversely affect the rights or preferences of the holders of outstanding shares of any class or series of the Company and will not result in the percentage of authorized shares that remains unissued after such division exceeding the percentage of authorized shares that were unissued before the division.
The division giving rise to the amendment set forth above concerns a two-for-one division of the Common Stock of the Company on July 26, 2006 (the Effective Time). Such division is being effected as follows:
(a) Effective at the Effective Time, each share of Common Stock outstanding immediately prior to the Effective Time will be split and divided into two shares of Common Stock of the Company, par value $0.375 per share, all of which shall be validly issued, fully paid and nonassessable.
(b) Each stock certificate representing shares of Common Stock of the Company immediately prior to the Effective Time shall continue to represent the same number of shares following the Effective Time.
(c) On July 26, 2006, the Company shall issue one additional share of the authorized but previously unissued Common Stock of the Company, par value $0.375 per share, for each share of Common Stock of the Company outstanding immediately prior to the Effective Time (the Stock-Split Shares). On July 26, 2006, or soon as practicable thereafter, the Company shall cause its transfer agent to credit the book-entry account of each holder of Common Stock as of the record date with the Stock-Split Shares issuable to the holder pursuant to the two-for-one division, and, in the event that a holder requests to receive the Stock-Split Shares in certificated form, mail or deliver one or more stock certificates representing the Stock-Split Shares to such holder. The record date for determining the shareholders of record entitled to receive the Stock-Split Shares is the close of business on July 12, 2006. With respect to each share of Common Stock, if any, that is first issued and becomes outstanding after the record date, but prior to the Effective Time and that remains outstanding at the Effective Time, the Stock-Split Share issuable with respect to any such share of Common Stock shall be issued as provided above to the first holder of record to whom such share of Common Stock was issued.
The foregoing Articles of Amendment shall take effect at 5:00 p.m. on July 26, 2006.
IN WITNESS WHEREOF, I have subscribed my name this 5 th day of July, 2006.
/s/ Heidi M. Hoard
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Heidi M. Hoard | |
STATE OF MINNESOTA
Department of State Filed JUL 05, 2006 Mary Kiffmeyer |
Exhibit 31.1
CERTIFICATIONS
I, H. Chris Killingstad, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Tennant Company; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: | August 8, 2006 | /s/ H. Chris Killingstad | ||
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H. Chris Killingstad | ||||
President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS
I, Thomas Paulson, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Tennant Company; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: | August 8, 2006 | /s/ Thomas Paulson | ||
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Thomas Paulson | ||||
Vice President and Chief Financial Officer |
Exhibit 32
CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies that this periodic report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this periodic report fairly presents, in all material respects, the financial condition and results of operations of Tennant Company.
Date: | August 8, 2006 | /s/ H. Chris Killingstad | ||
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H. Chris Killingstad | ||||
President and Chief Executive Officer | ||||
Date: | August 8, 2006 | /s/ Thomas Paulson | ||
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Thomas Paulson | ||||
Vice President and Chief Financial Officer |