Tennant Company Annual Report 2007

FY2007 Annual Report · Tennant Company

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TENNANT COMPANY 2007 ANNUAL REPORT

TENNANT COMPANY
701 North Lilac Drive
P.O. Box 1452
Minneapolis, MN 55440
www.tennantco.com

Forward-Looking Statements
Certain statements contained in this document as well as other written and oral statements made by us from time to time are considered "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act. These statements do not relate to strictly historical or current facts and provide current expectations or forecasts of future events. Any such expectations or forecasts of future
events are subject to a variety of factors. These include factors that affect all businesses operating in a global market as well as matters specific to us and the markets we serve. Particular risks and uncertainties
presently facing us include: geopolitical and economic uncertainty throughout the world; changes in laws, including changes in accounting standards and taxation changes; inflationary pressures; the potential
for increased competition in our business; the relative strength of the U.S. dollar, which affects the cost of our materials and products bought and sold internationally; fluctuations in the cost or availability of
raw materials and purchased components; the success and timing of new products; our ability to achieve projections of future financial and operating results; successful integration of acquisitions, including
the ability to carry acquired goodwill at current values; the ability to achieve operational efficiencies, including synergistic and other benefits of acquisitions; the ability to achieve anticipated global sourcing
cost reductions; unforeseen product quality problems; our ability to acquire, retain and protect proprietary intellectual property rights; the effects of litigation, including threatened or pending litigation; our
ability to benefit from production reallocation plans, including benefits from our expansion in China; and our plans for growth.

We caution that forward-looking statements must be considered carefully and that actual results may differ in material ways due to risks and uncertainties both known and unknown. Shareholders, potential
investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. For additional infor-
mation about factors that could materially affect Tennant's results, please see our other Securities and Exchange Commission filings, including disclosures under "Risk Factors."

We do not undertake to update any forward-looking statement, and investors are advised to consult any further disclosures by us on this matter in our filings with the Securities and Exchange Commission and
in other written statements we make from time to time. It is not possible to anticipate or foresee all risk factors, and investors should not consider any list of such factors to be an exhaustive or complete list of
all risks or uncertainties.

#1750-14
©2008 Tennant, Green Machines and Nobles are registered trademarks of Tennant Company, whose products and solutions are sold and serviced through Tennant Sales and Service Company, as well as through distributors.

B e t t e r W a y s t o C l e a n .

M o r e S p a c e s . M o r e P l a c e s .

Company’sInvestorRelationsDepartmentat763-540-1204.
IndividualstockholdersmaydirectanyquestionstoTennant
INVESTORINQUIRIES

NewYorkStockExchange(TNC)
STOCKLISTING

E-mail:investors@tennantco.com
Minneapolis,MN55440
P.O.Box1452
TennantCompany
InvestorRelations

websiteatwww.tennantco.com,orcontact:
financialreportsonForm10-Q,visittheInvestorportionofour
copiesofourForm10-Kortoobtainacopyofthequarterly
tutethecompany’sannualreporttoshareholders.Foradditional
Commissionaccompaniesthisprofileandtogethertheyconsti-
TheForm10-KfiledwiththeSecuritiesandExchange
FORM10-KAND10-Q

7001GoldenValleyRoad,GoldenValley,MN55427.
April29,2008,at10:30a.m.attheGoldenValleyCountryClub,
TheannualmeetingofTennantCompanywilltakeplaceTuesday,
ANNUALMEETING

Information
Investor

Financial Highlights

Corporate Information

2007

2006

% Change

BOARD OF DIRECTORS

OFFICERS

FOR THE YEAR

Net sales
Profit from operations
% of net sales
Net earnings
% of net earnings
Basic earning per share
Diluted earnings per share
Dividends per share
Average shares outstanding – diluted

(1)

(1) (2)

$ 664,218
$ 54,845
8.3%
$ 39,867
6.0%
$
2.14
$
2.08
0.48
$
19,146,000

AT YEAR-END

Total assets
Total debt
Shareholders’ equity
Ratio of total debt to total capital
Shareholders’ equity per share (ending) $

$ 382,070
$
4,597
$ 252,431
1.8
13.65

$ 598,981
$ 39,964
6.7%
$ 29,809
5.0%
1.61
1.57
0.46

$
$
$
18,989,000

$ 354,250
$
3,719
$ 229,664
1.6
12.25

10.9%
37.2%
–
33.7%
–
32.9%
32.5%
4.3%
0.8%

7.9%
23.6%
9.9%
–
11.4%

In thousands, except shares and per share data
(1) Includes restructuring charge and associated expenses of $2.5 million pretax ($1.7 million aftertax or $0.09 per diluted share), and gain on the sale

of the Maple Grove facility of $6.0 million pretax ($3.7 million aftertax or $0.19 per diluted share).

(2) Includes one-time tax benefit primarily related to a tax valuation allowance reduction of $3.6 million aftertax or $0.19 per diluted share.

William F. Austen
Vice President,
Operations,
Bemis Company

David Mathieson
Senior Vice President and
Chief Financial Officer,
RSC Holdings, Inc.

Jeffrey A. Balagna
Executive Vice President,
Chief Information &
Customer Technology
Officer,
Carlson Companies

James T. Hale
Retired Executive
Vice President,
General Counsel and
Corporate Secretary,
Target Corporation

H. Chris Killingstad
President and Chief
Executive Officer,
Tennant Company

Edwin L. Russell
Chairman and
Chief Executive,
Horizon Investments

Stephen G. Shank
Chairman and Chief
Executive Officer,
Capella Education
Company

Steven A. Sonnenberg
President,
Rosemount, Inc.,
a division of Emerson
Electric Co.

H. Chris Killingstad
President and
Chief Executive Officer

Steven M. Coopersmith
Vice President,
Global Marketing

Thomas J. Dybsky
Vice President,
Administration

Andrew J. Eckert
Vice President,
North America

Heidi M. Hoard
Vice President,
General Counsel and
Secretary

Karel Huijser
Vice President,
International

Thomas Paulson
Vice President and
Chief Financial Officer

Michael W. Schaefer
Vice President and
Chief Technical Officer

Karen A. Durant
Corporate Controller

Patrick J. O’Neill
Treasurer

Steven G. Ulvi
Vice President,
Global Sourcing

Don B. Westman
Vice President,
Global Operations

Steven K. Weeks
Vice President,
North America
Strategic Planning

NET SALES (millions of dollars)

PROFIT FROM OPERATIONS (millions of dollars)

DILUTED EARNINGS PER SHARE

700

600

500

400

300

200

100

(dollars)

2.25

2.00

1.75

1.50

1.25

1.00

0.75

0.50

0.25

CASH FLOW FROM OPERATIONS
(millions of dollars)

SALES OF EQUIPMENT, SERVICE & PARTS/
CONSUMABLES, AND COATINGS (millions of dollars)
400

350

300

250

200

150

100

SALES BY GEOGRAPHIC AREAS (millions of dollars)

500

400

300

200

100

EQUIPMENT

SERVICE, PARTS &
CONSUMABLES

SPECIALTY SURFACE
COATINGS

NORTH
AMERICA

EUROPE

OTHER
INTERNATIONAL

Tennant Company At-A-Glance

Year Founded:

1870

Employees:

2,900

NYSE Trading Symbol:

TNC

Headquarters:

Minneapolis, Minnesota, USA

Manufacturing:

Minneapolis, Minnesota, USA
Holland, Michigan, USA
Northampton and Scotland, United Kingdom
Uden, The Netherlands
Shanghai, China

What do we sell?

We offer cleaning solutions that help to create clean, safe and healthy environments. Our products
and solutions include commercial and industrial cleaning equipment, parts and service, and specialty
surface coatings.

Where do we sell?

We reach customers through four channels: direct sales, distributors, field service and centralized
customer care. We have market coverage through sales and/or distribution in every key region of the
world.

Who are our customers?

Corporations, property managers, building service contractors and others who are responsible for
keeping indoor and outdoor environments clean and safe. Tennant, Nobles and Green Machines
branded products are found in all types of environments: schools, retail, airports, hospitals,
stadiums, offices and more.

Why Tennant Company?

A market leader in the cleaning industry, Tennant Company commits to innovation to improve the
way professionals clean. Our company is an Environmental Cleaning Solutions provider. We provide
solutions that clean our customers’ many environments (indoor, outdoor) and we develop solutions
that offer superior cleaning with little or no negative environmental impact. We strive to meet our
customers’ broad set of expectations for innovative solutions, service and support, financing and
leasing options, and high-quality products.

At Tennant Company, our core value is stewardship which drives our com-
mitment to sustainability. For us, sustainability means that we strive to
balance the economic, environmental, and social implications of the
business decisions we make.

We aim to produce a superior return for our shareholders because sustainability
drives lean operations. We work to decrease our impact on the eco-system in
everything we do, while delivering on our commitments of quality and value
to our stakeholders. We are focused on creating a supportive workplace for
our employees and providing a great place to do business for our partners.

We aspire to be stewards of all that we touch – people, products, places
and profits… for today and tomorrow.

Better Ways to Clean.

CHRIS KILLINGS TAD
President and Chief Executive Officer

In 2007, Tennant Company was focused on growing the business
by cleaning more spaces and capitalizing on new places. We
continued to operate with the conviction that the future of our
business is linked to the investment in today. Driven by this con-
viction, I am pleased to report that Tennant Company posted its
third consecutive year of record sales and improved earnings in
2007. This was an exciting year in which we not only grew the
business, but continued to redefine the industry through product
innovation, market expansion and operational excellence.

RECORD 2007 RESULTS

Net sales in 2007 grew to $664.2 million, up 11 percent from
2006, fueled by new product launches and expansion in new
markets. Net earnings rose 34 percent to $39.9 million, or $2.08
per diluted share. Contributing to net earnings were higher sales in
all of the company’s geographic regions and continued operating
profit margin improvements. Also impacting 2007 results were the
net benefits of the following one-time items: a net tax benefit of
$3.6 million, or 19 cents per diluted share; a workforce restructur-
ing charge of $2.5 million pretax, or 9 cents per diluted share; and
a gain on the sale of our Maple Grove facility of $6.0 million pre-
tax, or 19 cents per diluted share. Together, the net effect of these
one-time items added 29 cents per diluted share to results in 2007.

The company’s 2007 operating margin was 8.3 percent, or 7.4
percent excluding the gain on the Maple Grove facility sale, up
from 6.7 percent in 2006. We remain confident that we can
achieve our stated goal of reaching an operating margin of 9.5
percent in the 2008 fourth quarter.

Strategy is Nothing Without Execution.

Overall, this was a year of significant growth and investment in
the business. We successfully executed our strategic priorities
throughout the year. These priorities included leveraging the
company’s cost structure through continuous process improve-
ment and operational excellence. On the growth side, we
focused on introducing innovative new products and solutions,
and expanding into new markets, such as China and Brazil.

Managing Spaces. Going Places.

Our goals to leverage our cost structure and focus on operational
excellence centered on consolidating our manufacturing foot-
print, expanding our presence in China and establishing global
sourcing capabilities. During the year, we invested approximately
$4.2 million to support these programs. As a result, we expect to
significantly reduce product costs and enhance our operating

efficiency over the next three to five years. In the
near-term, I am encouraged that the initial
benefits of our global sourcing and operating
excellence initiatives allowed us to maintain
gross margins in 2007, despite rising material
costs and investments in the business.

As we exited 2007, our manufacturing footprint
consolidation was complete. We moved all
operations from our facility in Maple Grove,
Minn., integrated them into our other North

To carry out our international strategy, we have
reorganized International into three geographic
operating divisions.

American facilities and sold the Maple Grove building. In Europe,
we successfully integrated the former Hofmans plant in Schaijck,
Netherlands, into our Uden facility. The move enabled us to gain
efficiencies by leveraging existing plant facilities and indirect sup-
port. In addition, we expanded and improved our Uden distribution
center to better serve our European markets.

We are pleased with our progress and results to date in China. We
just began production there in 2006. Sales in China continued to
ramp in 2007, posting an annual growth rate of 39 percent. By the
end of 2007, our China facility was manufacturing two products and
a select number of subassemblies for local and worldwide distribu-
tion. We also have another product platform in China ready for pro-
duction in early 2008.

In addition, China is an important part of our global sourcing
initiative. We began seeing the benefits of this initiative in 2007,
as our global sourcing efforts contributed just over $4 million in
gross savings during the year. This was achieved in part by dou-
bling the percentage of materials and components sourced from
low-cost regions, including China, from approximately 7 percent
in 2006 to 14 percent in 2007. In 2008, we expect to exceed the
savings from global sourcing that were realized in 2007.

Instilling a powerful culture of excellence requires having the right
people in the right jobs. The worldwide workforce restructuring that
we announced in 2007 was designed to better match the company’s
talent to the needs of our business, as we evolve from a focus on
cleaning floors and expand into new spaces and new places.

More Innovation. More Markets. More Sales.

Customers are demanding more and Tennant Company is delivering
with innovative product developments to clean more customer
environments. In 2007, we launched five new products targeting
all of our markets and introduced a breakthrough new cleaning
technology called ech2o™, which we unveiled in the fourth quarter.
What we saw – and continue to see – as a significant market
opportunity compelled us to announce ech2o nine months earlier
than planned. Our customers’ growing interest in cleaning with

Our solutions strategy
calls for offerings that
address the holistic
needs of the customer.

environmentally friendly solutions fueled our drive to introduce
ech2o at our industry’s largest tradeshow in North America where
it received the show’s Innovation Award.

Our patent-pending ech2o technology cleans by electrically acti-
vating plain tap water to perform like a powerful detergent. Only
tap water goes into the machine. There is no added detergent. In
addition to being environmentally friendly, ech2o offers significant
customer advantages, including lower costs, ease of use and
improved operator safety.

The ech2o technology is a significant advancement for our industry
and for Tennant Company. It reinforces our technology leadership
in the cleaning industry and continues our evolution and growth
as a provider of environmental cleaning solutions.

Global shipments of machines equipped with ech2o technology are
planned to begin during the 2008 second quarter. Initially,
the ech2o system will be available on six walk-behind scrubbers,
including the Tennant T5, T3, 5680 and 5700, as well as the
Nobles Speed Scrub® walk-behind scrubbers. We plan to extend
ech2o to other Tennant and Nobles brand scrubbers, as well. This
technology is a particularly good fit for general purpose cleaning,
which encompasses about 70 percent of our scrubber cleaning
applications. We believe ech2o will give us a competitive advantage,
especially in targeted vertical markets such as hospitality, schools
and hospitals.

Our continued commitment to innovation is demonstrated by our
investment of 3 to 4 percent of annual sales into product develop-
ment and environmental cleaning solutions. The investment is
paying off. In 2007, approximately 35 percent of Tennant
Company’s equipment sales were generated by new products
launched in the past three years, which is above our 30 percent
goal.

Our new product pipeline remains robust, and we anticipate
offering an expanding number of environmentally friendly products

and solutions in the future. We plan to launch six to seven new
products in 2008 that will further enhance our product portfolio
and provide continued growth opportunities.

In January, we announced our first new 2008 product, which is
the Tennant branded S30 Mid-Sized Rider Sweeper. The S30
offers quiet, large-area sweeping and a patent-pending three-
stage dust control system for indoor and outdoor spaces, while
improving operator comfort and safety.

Taking these new products into new markets, such as China and
Brazil, is a key piece of our growth strategy, as is growth through
acquisitions that add complementary products or expand our
global sales and service coverage. After the close of 2007, we
announced two exciting acquisitions that are in line with our
strategy and will help us build our business globally.

Opening Markets. Closing Gaps.

In February 2008, we completed the acquisition of Applied
Sweepers, a privately held company based in Falkirk, Scotland,
with revenues of approximately $40 million. This acquisition
is complementary from both a product offering and market
coverage standpoint.

Applied Sweepers is the leading manufacturer of sub-compact
outdoor sweeping machines in the United Kingdom used for
applications such as sweeping pavements, pedestrian areas,
streets and alleyways. It also operates subsidiaries in the United
States, France and Germany. Like Tennant Company, Applied
Sweepers has a highly regarded service organization and a stellar
reputation for innovation and high-quality products. Its city
cleaning products complement our current outdoor offerings,
particularly in Europe, and will enhance our ability to offer a
broader set of solutions to customers worldwide. This acquisition,
combined with our 2006 acquisi-
tion of Hofmans Machinefabriek
in The Netherlands, provides
Tennant Company greater
access to the European city
cleaning market – and will offer
additional opportunities to fur-
ther leverage both companies'
existing global sales and service

Again, this acquisition fits with our strategy to expand our sales and
service capabilities and acquire complementary product lines. Alfa
is recognized as the Brazilian market leader in the cleaning industry,
with an extensive sales and service network, as well as local manu-
facturing capabilities. We see tremendous opportunity to create
synergies between Tennant’s innovative product offerings and Alfa’s
service and distribution reach, in order to further our international
market expansion. Alfa's strong name recognition in the commercial
equipment market, combined with our industrial equipment prod-
ucts and specialty floor coatings, creates a tremendous foundation
for growth in Brazil and throughout Latin America.

Striving For More.

As we enter 2008, we strive to capitalize on our momentum, with
a focus on outperforming 2007. We are committed to efficiently
running the business and generating growth, in order to achieve
the following financial goals:

• 5 percent to 9 percent annual organic revenue growth;
• an operating margin of 9.5 percent in the fourth quarter

of 2008; and

• double-digit earnings growth

We expect to drive 2008 sales with a strong new product
pipeline and continued market expansion. We also anticipate
receiving further benefits from operational investments we
made in 2007.

Our 2008 strategic priorities will leverage our 2007 investments
to: improve operational excellence through lean manufacturing
initiatives; achieve further savings through a global, low-cost
sourcing program; employ continuous process improvement; and
grow revenues through innovative new products and solutions,
international market expansion and acquisitions.

We believe our business remains strong and is sustainable. We
are confident about our growth prospects and are committed to
creating value for all of our stakeholders. We have a long-term
financial goal to achieve revenues of $1 billion within three to
five years as a result of both organic growth and acquisitions.
The future is all about better ways to clean…more spaces and
more places.

capabilities. We estimate the
worldwide outdoor cleaning mar-
ket to be approximately $500 million.

Sincerely,

We also expanded our presence in Latin America in 2007, which
is an attractive emerging market for our products. We are pleased
with the initial success of our entry into Brazil, as volume growth
there was a significant contributor to the robust 29 percent sales
increase in our Latin America region in 2007.

To further strengthen our presence in Brazil, we also announced
in February 2008 that Tennant Company entered into a purchase
agreement to acquire Sociedade Alfa Ltda. (Alfa), maker of the
Alfa brand commercial cleaning machines.

H. Chris Killingstad
President and Chief Executive Officer
March 13, 2008

Investor
Information

ANNUAL MEETING
The annual meeting of Tennant Company will take place Tuesday,
April 29, 2008, at 10:30 a.m. at the Golden Valley Country Club,
7001 Golden Valley Road, Golden Valley, MN 55427.

FORM 10-K AND 10-Q
The Form 10-K filed with the Securities and Exchange
Commission accompanies this profile and together they consti-
tute 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 763-540-1204.

©2008Tennant,GreenMachinesandNoblesareregisteredtrademarksofTennantCompany,whoseproductsandsolutionsaresoldandservicedthroughTennantSalesandServiceCompany,aswellasthroughdistributors.
#1750-14

allrisksoruncertainties.
inotherwrittenstatementswemakefromtimetotime.Itisnotpossibletoanticipateorforeseeallriskfactors,andinvestorsshouldnotconsideranylistofsuchfactorstobeanexhaustiveorcompletelistof
Wedonotundertaketoupdateanyforward-lookingstatement,andinvestorsareadvisedtoconsultanyfurtherdisclosuresbyusonthismatterinourfilingswiththeSecuritiesandExchangeCommissionand

mationaboutfactorsthatcouldmateriallyaffectTennant'sresults,pleaseseeourotherSecuritiesandExchangeCommissionfilings,includingdisclosuresunder"RiskFactors."
investorsandotherreadersareurgedtoconsiderthesefactorsinevaluatingforward-lookingstatementsandarecautionednottoplaceunduerelianceonsuchforward-lookingstatements.Foradditionalinfor-
Wecautionthatforward-lookingstatementsmustbeconsideredcarefullyandthatactualresultsmaydifferinmaterialwaysduetorisksanduncertaintiesbothknownandunknown.Shareholders,potential

abilitytobenefitfromproductionreallocationplans,includingbenefitsfromourexpansioninChina;andourplansforgrowth.
costreductions;unforeseenproductqualityproblems;ourabilitytoacquire,retainandprotectproprietaryintellectualpropertyrights;theeffectsoflitigation,includingthreatenedorpendinglitigation;our
theabilitytocarryacquiredgoodwillatcurrentvalues;theabilitytoachieveoperationalefficiencies,includingsynergisticandotherbenefitsofacquisitions;theabilitytoachieveanticipatedglobalsourcing
rawmaterialsandpurchasedcomponents;thesuccessandtimingofnewproducts;ourabilitytoachieveprojectionsoffuturefinancialandoperatingresults;successfulintegrationofacquisitions,including
forincreasedcompetitioninourbusiness;therelativestrengthoftheU.S.dollar,whichaffectsthecostofourmaterialsandproductsboughtandsoldinternationally;fluctuationsinthecostoravailabilityof
presentlyfacingusinclude:geopoliticalandeconomicuncertaintythroughouttheworld;changesinlaws,includingchangesinaccountingstandardsandtaxationchanges;inflationarypressures;thepotential
eventsaresubjecttoavarietyoffactors.Theseincludefactorsthataffectallbusinessesoperatinginaglobalmarketaswellasmattersspecifictousandthemarketsweserve.Particularrisksanduncertainties
SecuritiesLitigationReformAct.Thesestatementsdonotrelatetostrictlyhistoricalorcurrentfactsandprovidecurrentexpectationsorforecastsoffutureevents.Anysuchexpectationsorforecastsoffuture
Certainstatementscontainedinthisdocumentaswellasotherwrittenandoralstatementsmadebyusfromtimetotimeareconsidered"forward-lookingstatements"withinthemeaningofthePrivate
Forward-LookingStatements

www.tennantco.com
Minneapolis,MN55440
P.O.Box1452
701NorthLilacDrive
TENNANTCOMPANY

MoreSpaces.MorePlaces.

BetterWaystoClean.

TENNANTCOMPANY2007ANNUALREPORT