D E L I V E R I N G V I S I B L E R E S U L T S
T E N N A N T C O M PA N Y 2 0 0 5 A N N U A L R E P O R T
Financial Highlights
($ in thousands, except per share data)
For the year as reported(1):
Net sales
Profit from operations
% of net sales
Net earnings
% of net sales
Basic earnings per share
Diluted earnings per share
Dividends per share
Average shares outstanding – diluted
At year-end:
Total assets
Total debt
Shareholders’ equity
Ratio of total debt to total capital
Shareholders’ equity per share (ending)
2005
2004
% Change
$ 552,908
$ 34,837
$ 507,785
$ 21,307
6.3 %
4.2 %
$ 22,936
$ 13,380
4.2 %
2.6 %
$
$
$
2.55
2.52
0.88
9,105
$ 311,472
$
3,840
$ 193,102
$
$
$
1.49
1.46
0.86
9,150
$ 285,792
$
8,703
$ 174,034
2.0 %
4.8 %
$
21.01
$
19.33
8.9 %
63.5 %
–
71.4 %
–
71.1 %
72.6 %
2.3 %
(0.5) %
9.0 %
(55.9) %
11.0 %
–
8.7 %
(1) 2004 includes a net pretax workforce reduction charge of $2,301 ($1,458 after-tax or $0.16 per diluted share).
ABOUT THE COVER:
Tennant is delivering visible results through our financial performance and our products. In 2005, the company posted strong sales
and earnings growth. Our innovative technologies are making a noticeable difference to our customers’ environments – making them
safer, healthier and cleaner.
Global Growth Opportunity
10%
Tennant
20%
Top 4
Competitors
Combined
70%
Other
Competitors
Worldwide Market Share
$5 Billion Market
Tennant Company is a recognized leader in our industry with
tremendous growth opportunity, particularly in international
markets. For decades, Tennant has been a market leader in North
America. Globally, we are growing our competitive position through
international expansion and innovative solutions, and are prepared
to gain a greater share of the $5 billion worldwide market.
Based on available sales data, we estimate that the company
currently holds an approximate 10 percent share of the global
market. Our top four global competitors combined account for
just 20 percent of the market, with all other players holding frag-
ments of the remaining 70 percent, according to our estimates.
With nearly 250 direct sales representatives worldwide and a vast
distributor network that reaches into 80 countries around the
globe, Tennant is positioned to capture new customers in new
markets and establish a stronger foothold in our current markets.
Tennant customers are supported by the industry’s only factory-
trained, locally-based service organization, comprised of more
than 700 Tennant service representatives worldwide.
Going forward, we see Europe and other international markets
such as China, Brazil, India and Mexico as places for us to
continue to grow and gain momentum.
Through innovative solutions, industry-leading service and
a world-renowned reputation for quality and manufacturing
excellence, Tennant is committed to helping our customers
worldwide create a cleaner, safer world.
U N I T E D K I N G D O M 中 国 L A F R A N C E B R A Z I L 日 本 I N D I A
Leveraging Operational Excellence
Record sales and increased operating efficiency. That’s a strong
combination. It’s one that Tennant successfully brought together
in 2005 and intends to leverage in the years to come.
105
DAYS INVENTORY ON HAND
101
98
For 2005, Tennant posted profit from operations of $34.8 million,
or 6.3 percent of net sales, up from $21.3 million, or 4.2 percent
of net sales, in 2004. Our goal is to continue this momentum in
order to achieve a 9.5 percent operating margin within the next
three to five years.
If 2005 is an indication, we’re on the right track. We have gener-
ated significant savings through manufacturing efficiencies, lower
logistics costs and other cost-reduction initiatives. Approximately
one-third of the company’s increased profit from operations can
be attributed to our improved operational excellence.
An example of our drive for operational excellence is our move
to centralize our distribution centers, which began in 2002.
Consolidating Tennant’s North American distribution centers
from eight facilities into two has made our operations more
productive, reduced overall inventory levels, and lowered labor
and shipping costs.
87
82
2001
2002
2003
2004
2005
One way we measure our success in managing inventory levels is through a
key performance metric, “Days Inventory on Hand,” which we have succeeded
in lowering by 19 percent over the past five years.
Among the customer benefits of our centralized distribution are:
■ Higher order fill rates because inventory is centralized;
■ Over 99 percent on-time deliveries; and
■
Faster, more cost-efficient replenishment of international
inventories.
We are committed to building a culture of continuous improve-
ment through further adoption of lean enterprise principles. We
believe that our continued focus on operational excellence will be
a hallmark of Tennant’s enduring strength and future profitability.
C R E A T I N G A C L E A N E R ,
S A F E R W O R L D
Tennant At-A-Glance
Tennant Company is a world leader in designing, manufacturing and marketing solutions that help
create a cleaner, safer world. Our products include equipment for maintaining surfaces in manufacturing,
warehousing and office facilities, hotels, retail stores, restaurants, healthcare facilities and schools, as
well as outdoor environments such as streets, parking lots and campus grounds. We also produce
coatings for repairing, protecting and adding beauty to concrete floors. Tennant is headquartered in
Minneapolis, Minnesota, with manufacturing operations in Minneapolis; Holland, Michigan; Uden,
The Netherlands; Northampton, United Kingdom; and Shanghai, China. The company’s stock is traded
on the New York Stock Exchange under the symbol TNC.
WHAT DOES TENNANT SELL?
EQUIPMENT
SERVICE, PARTS & CONSUMABLES
SPECIALTY SURFACE COATINGS
Our broad product line includes rider and walk-behind sweepers and scrubbers, carpet extractors, burnishers, vacuums, polishers and outdoor cleaning
equipment. Tennant’s customer and field service organizations and parts and consumables help customers achieve peak performance and maximum uptime
for their cleaning equipment. Our broad line of coatings, sealers and resurfacers is used to protect concrete floors, reducing wear and making them easier to
clean.
WHO ARE OUR CUSTOMERS?
RETAIL & HOSPITALITY
AIRPORTS
WAREHOUSES & FACTORIES
Tennant’s customers include the maintenance professionals responsible for keeping indoor and outdoor environments clean and safe, such as building
services contractors retained by corporations and property managers. In addition, our customers include a wide range of public-sector entities, such as parks,
school districts, municipalities, counties, state and federal governments, and the military, as well as customers who maintain their facilities and premises
themselves.
HOW DOES TENNANT REACH ITS CUSTOMERS?
DIRECT SALES & DISTRIBUTORS
GLOBAL FIELD SERVICE NETWORK
CENTRALIZED CUSTOMER SERVICE
Tennant reaches customers through a strong
direct sales organization in major industrialized
countries complemented by a worldwide
network of best-in-class distributors.
Tennant offers the industry’s most extensive
field service network – maximizing customer
support and machine uptime.
Tennant customer service representatives are
highly regarded by customers for their product
knowledge and responsiveness.
To Our Shareholders
I am excited to take the reins as CEO of
Tennant Company at this point in the company’s
evolution. Tennant posted another year of
record sales in 2005. We achieved significant
gains in profitability.
REIGNITING GROWTH IN NORTH AMERICA
During the past year, we focused on reigniting our growth engines
in our largest market, North America. Starting in 2005 with a suite of
new products, we began competing more aggressively by expanding
into new markets. These included vertical markets such as healthcare
and retail commercial spaces, as well as under-penetrated geographic
markets. By leveraging both our direct and distributor sales channels,
we began to see strong results primarily from the traction of our new
products.
For example, our growing strength in products designed for
commercial applications allowed us to more deeply penetrate the
national accounts business. Together with our distributors, we also
implemented an aggressive program to drive growth through the
cross-selling of machines, coatings and service, which contributed to a
rise in both sales and profitability in North America. We believe this
strategy will continue to be successful for our North America business.
These efforts, combined with an enhanced portfolio of products and
world-class marketing, contributed to the over 8 percent increase in
North America sales. Much of the new business we won in 2005 was
due to growing acceptance of our proprietary FaST™ floor-scrubbing
and ReadySpace® carpet-cleaning technologies. This reinforces our
commitment to investing in research and development to support
our reputation as an industry innovator.
Going forward, Tennant’s business in North America is well-
positioned for continued growth. Among our competitive
advantages, Tennant is the industry’s only player that can offer
national mobile service as a channel for maintenance, repair, and
parts and consumables. We also believe that the combination of
a strong direct channel and distribution network will allow us to
reach our target customers more effectively and successfully.
Deliverin
CHRIS KILLINGSTAD
President and Chief Executive Officer
Overall, it was a breakout year in many respects – one where we
delivered visible results in our financial performance and through our
innovative products, which are making a unique difference in our
customers’ environments. And, I believe the company’s future looks
even brighter.
RECORD 2005 RESULTS
Tennant reported record 2005 net sales of $552.9 million, up
9 percent compared to last year’s record net sales of $507.8 million.
Net earnings for 2005 grew 71 percent to $22.9 million, or $2.52
per diluted share, versus prior-year net earnings of $13.4 million, or
$1.46 per diluted share.
Contributing to the company’s profitability was continued margin
improvement throughout 2005. Over the past year, Tennant’s oper-
ating profit margins increased over 200 basis points, to 6.3 percent
of net sales, with about one-third of the margin gain resulting from
increased operating efficiency and decreased logistics costs. We
believe we can sustain further margin expansion over the next three
to five years.
Growth in net sales during 2005 was driven by new products,
organic growth and price increases. We launched a record 20
new products during 2004. Many of these targeted commercial
applications where Tennant has opportunity to capture market
share. In 2005, we focused on getting these products into our
distribution pipeline and selling them, with great success. These
new products are receiving rave reviews from customers.
Playing an important role in the acceptance of our new products is
our execution of world-class marketing practices. I am excited to see
Tennant operating more like a marketing-driven packaged goods
company than a legacy industrial equipment manufacturer.
In a highly fragmented industry, Tennant holds a leading, although
still relatively small, share of the $5 billion global market. We believe
this presents a significant opportunity for us to grow our market
share, particularly through further expansion into under-penetrated
international markets. We will continue to implement world-class
marketing to support our global growth objectives.
EXPANDING PRESENCE IN EUROPE
During the past year, we focused on increasing organic growth in
Europe, particularly in the United Kingdom, France and Spain.
European customers want small, maneuverable cleaning machines,
and we designed and introduced the new T3 and T7 floor scrubbers
keeping the European market in mind. As we intended, these
products have appeal in North America and other international
markets, as well. We also added sales and service personnel in
Europe. As a result of these actions, the continued benefit of the
2004 Walter-Broadley acquisition and price increases during the year,
2005 sales in Europe grew substantially.
Going forward, we will continue our efforts to build a profitable
growth platform in Europe and accelerate our growth in Japan.
We also plan to selectively expand into key emerging markets such
as China, Eastern Europe, Brazil, India and Mexico. We believe these
markets hold tremendous growth potential for us.
PRIORITIES FOR 2006
We will continue on the course we set three years ago. As demon-
strated by our 2005 performance, we are seeing the positive results
of our key strategies around marketing excellence, market expansion,
product innovation and rationalization of our cost structure. We
remain committed to transforming Tennant from good to great and
instilling a culture of excellence. To ensure we succeed, we have set
five corporate priorities for 2006:
1. China
In November 2005, we announced plans to establish a
manufacturing plant in Shanghai, China. This facility will serve
two very strategic purposes: global sourcing and establishing a
foothold in China’s growing marketplace. Let me give you some
insight into what this means for Tennant.
S A L E S B Y G E O G R A P H I C A R E A S
N O
T H AMERIC
R
E U ROPE
A
INTíL
10%
23%
67%
Our China facility will enable us to broaden and fortify our global
sourcing capabilities and improve our margins. This strategic
initiative has the potential to significantly increase the company’s
long-term profitable growth.
Initially, our China facility will make walk-behind floor scrubbers and
sweepers for sale into the China and other Asian markets. Our goal is
to produce high-quality, competitively priced floor-cleaning machines
in order to gain a significant share of China’s growing industrial floor-
cleaning products market, which is estimated to be $210 million in
2005 and expanding rapidly. Although we already had a sales presence
in China, our decision to manufacture products locally strengthens our
competitive position in this important market. The emphasis on China
also fits with our global strategy to enhance operational efficiencies
and manufacture products close to our customers.
Construction of Tennant’s facility is complete, with initial sales of
China-manufactured products expected to begin in the second
half of 2006. Tennant’s products will continue to be sold in China
primarily through a network of independent distributors.
2. Global Procurement
By establishing Asia as our primary source for parts and components,
we plan to broaden Tennant’s global sourcing capabilities and reduce
product costs. This dovetails with our China strategy. We have
tremendous opportunity to strengthen Tennant’s profitability
through a global procurement strategy. Today, roughly 70 percent
of our cost of goods comes from parts and components that we
purchase from outside vendors. We can significantly cut these costs
by sourcing from low-cost regions, such as China.
3. Lean Enterprise
We are in the early process of creating a lean enterprise, which
requires building quality into – and taking costs out of – everything
we do. We began implementing lean manufacturing concepts by
redesigning Tennant machines to reduce the number of parts per
machine and by creating common product platforms. For new
products, we are focused on designing for efficient manufacture and
assembly from the start. This allows the manufacture of different
products on the same assembly line, boosting our efficiency and
lowering unit costs. Beginning in 2007, when Tennant’s first
platform-designed product family is introduced, our goal is to
significantly reduce the number of parts per machine, achieve
efficiencies in commonality of parts and enable an entire family of
products to be manufactured on one manufacturing line.
Already, the manufacturing efficiencies we’ve gained have enabled
us to begin consolidating the company’s North American
manufacturing footprint, without sacrificing production capacity.
We see tremendous opportunity to realize additional efficiencies
through the adoption of lean manufacturing practices.
ng visible results
“Tennant’s revenue growth will continue to be fueled by innovative
product and service solutions, and market expansion.”
4. Continuous Process Improvement
We are constantly looking for better ways for our customers to do
business with us. As a result, our process improvement efforts involve
both customer-facing and internal processes where we can become
more efficient, better employ automation and lower Tennant’s
operating costs.
Initial target areas include sales and service automation in North
America and Europe. In 2005, we rolled out ServiceLink, which
automatically and electronically dispatches repair orders to Tennant’s
North America field service technicians, improving our customer
response time. We plan to launch ServiceLink in Europe during 2006.
We also are introducing customer relationship management tools
that will make it easier for our customers to do business with Tennant
and provide us with greater insight into their needs. Other areas
where we are applying continuous process improvement include our
global supply chain and financial systems capabilities.
5. Growth
Tennant’s revenue growth will continue to be fueled by innovative
product and service solutions, and market expansion. Our new
product pipeline is robust, and we plan significant product launches
in 2006 for all market segments. We are particularly excited since, for
the first time in six years, Tennant will introduce new products for
industrial applications, which is our historical stronghold.
We also plan to grow by expanding our business model. Our goal
is to move Tennant from a machine-centric business model to a
flexible-solutions business. This won’t happen overnight, and
machines will always be core to what we do, but services will take
on increasing importance.
More and more, our customers look to Tennant to deliver solutions.
In 2006, we are preparing to provide integrated solutions to our
customers, wrapping service into a bundled equipment offering.
S A L E S B Y P R O D U C T G R O U P S
With our nationwide mobile service capability, Tennant has the
competitive advantage of being the only company in our industry
capable of offering this level of service. In addition, customers are
demanding more data on equipment usage that will enable them to
better manage labor costs and productivity levels, and to anticipate
maintenance and repairs. Technological enhancements on our future
products will address this.
And finally, we’ve begun a robust exploration process to begin
migrating Tennant over time from a non-residential floor maintenance
company into a leader in environmental cleaning solutions. This will
enable us to expand into new, growing markets.
JANET DOLAN RETIRED
This letter would not be complete without acknowledging the
debt of gratitude all of us have to Janet Dolan. Janet retired on
December 1, 2005, after nearly 20 years with Tennant, including
the last six as president and CEO. Tennant made significant progress
during Janet’s tenure. Her accomplishments include reinvigorating
the company’s product development efforts, expanding into the
commercial and outdoor markets, and positioning the company for
improved financial performance and future growth. On behalf of
everyone at Tennant Company, I want to thank Janet for her
contributions and wish her well in her future adventures.
THE FUTURE LOOKS BRIGHT
I am proud to have been part of Tennant’s transformation and
renewed energy over the last few years. Even more, I am excited and
motivated by the vast opportunity I see ahead of us. Tennant is well
positioned to simultaneously leverage our global cost structure and
drive growth through innovation and expanded market coverage.
I believe that we have the strategy, the people and the passion to
succeed and to transform the company from the non-residential floor
maintenance company we are today into a global leader in environ-
mental cleaning products and services. This will take a committed
effort over time. We are vigorously embracing this challenge.
Thank you to Tennant’s clients, business partners, shareholders and
employees for your continued support and commitment to our
shared success.
Sincerely,
E Q U I PMEN
T S & CO
N
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T
E, P A
C
I
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COATINGS
4%
36%
60%
H. Chris Killingstad
President and Chief Executive Officer
Corporate Information
BOARD OF DIRECTORS
Jeffrey A. Balagna
Executive Vice President,
Chief Information &
Customer Technology
Officer,
Carlson Companies
Minneapolis, Minnesota
James T. Hale
Retired Executive
Vice President,
General Counsel and
Corporate Secretary,
Target Corporation
Minneapolis, Minnesota
H. Chris Killingstad
President and Chief
Executive Officer,
Tennant Company
Minneapolis, Minnesota
Pamela K. Knous
Executive Vice President and
Chief Financial Officer,
SUPERVALU INC.
Minneapolis, Minnesota
Edwin L. Russell
Chairman and
Chief Executive,
Horizon Investments
Watch Hill, Rhode Island
Stephen G. Shank
Chairman and Chief
Executive Officer,
Capella Education Company
Minneapolis, Minnesota
Frank L. Sims
Corporate Vice President
Transportation and
Product Assurance,
Cargill Incorporated
Minneapolis, Minnesota
Steven A. Sonnenberg
President,
Rosemount, Inc.
Minneapolis, Minnesota
OFFICERS
H. Chris Killingstad
President and
Chief Executive Officer
Rex L. Carter
Senior Vice President,
Operations and Systems
Thomas J. Dybsky
Vice President,
Administration
Andrew J. Eckert
Vice President,
North America Sales
Mark J. Fleigle
Vice President,
Research and Development
Heidi M. Hoard
Vice President,
General Counsel and Secretary
Patrick J. O’Neill
Treasurer
Gregory M. Siedschlag
Corporate Controller
Steven K. Weeks
Vice President,
North American Field
Operations
Steven M. Coopersmith
Vice President,
Global Marketing
TENNANT NV (EUROPE)
Anthony Lenders
Vice President,
Managing Director
Investor
Information
ANNUAL MEETING
The annual meeting of Tennant Company will be held
Thursday, May 4, 2006, at 10:30 a.m. CT at the Radisson
Hotel and Conference Center, 3131 Campus Drive, Plymouth,
Minnesota.
FORM 10-K AND 10-Q
The Form 10-K filed with the Securities and Exchange
Commission accompanies this profile and together they
constitute the company’s annual report to shareholders.
For additional copies of our Form 10-K or to obtain a copy
of the quarterly financial reports on Form 10-Q, visit the
Investor portion of our website at www.tennantco.com,
or contact:
Investor Relations
Tennant Company
P.O. Box 1452
Minneapolis, MN 55440
E-mail: investors@tennantco.com
STOCK LISTING
New York Stock Exchange (TNC)
INVESTOR INQUIRIES
Individual stockholders may direct any questions to Tennant
Company’s Investor Relations Department at 763-540-1553.
The following are U.S. registered or pending trademarks of Tennant
Company: Tennant; Castex; Nobles; Creating a Cleaner, Safer World;
ReadySpace; FaST; Eco-Advantage; and Centurion.
© Copyright 2006 Tennant Company
TENNANT COMPANY
701 North Lilac Drive
P.O. Box 1452
Minneapolis, MN 55440
www.tennantco.com