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Tennant Reports Third Quarter Results; Earnings Per Share Total $.32.

MINNEAPOLIS, Oct. 23 /PRNewswire/ --

Tennant Company (NYSE: TNC), a leader in nonresidential floor maintenance and outdoor cleaning equipment, today reported net earnings of $2.9 million, or $.32 per diluted share, on net sales of $105 million for the quarter ended September 30, 2001. In the comparable 2000 period, the company reported net earnings of $7.2 million, or $.79 per diluted share, on net sales of $115.1 million.

(Photo: http://www.newscom.com/cgi-bin/prnh/20000719/TENNLOGO )

Negative foreign currency exchange effects, resulting primarily from the strength of the U.S. dollar compared to the Euro, Japanese yen and Australian dollar, reduced net sales in the 2001 third quarter by approximately $2.0 million and earnings per share by approximately $.03.

For the nine months ended September 30, 2001, Tennant reported net earnings of $11.3 million or $1.23 per diluted share, before unusual charges, on net sales of $319.4 million. Including unusual charges for the period, the company's net earnings for the nine months ended September 30, 2001, were $4.4 million, or $.48 per diluted share. In the comparable 2000 period, Tennant reported net earnings of $20.3 million, or $2.22 per diluted share, on net sales of $338.6 million.

Unusual charges in the nine months ended September 30, 2001, totaled $6.9 million after tax, or $.75 per diluted share. They occurred in the first half of 2001 and included restructuring charges related to a workforce reduction and the closure of a plant in Germany and the transfer of its production to a contract manufacturer.

For the year to date, negative foreign currency exchange effects reduced net sales by approximately $5.9 million and earnings per share by approximately $.18.

Janet M. Dolan, Tennant Company's president and chief executive officer, attributed the decline in third quarter sales and earnings primarily to further dramatic deterioration in the worldwide industrial economy and resulting volume and sales mix effects that adversely affected profitability. "The North American industrial economy is currently in the most severe recession in at least 20 years. The already difficult business conditions worsened and spread worldwide in the third quarter," said Dolan. "As in the second quarter, the downturn in our industrial business was partially offset on the top line by growth in our North American commercial and service businesses. Currently, these are lower margin businesses. As a result, while our third quarter net sales declined by about 9% percent, third quarter earnings per share fell 59% because of the economic slowdown and the resulting unfavorable sales mix effects."

Dolan noted that third quarter industrial production in the U.S. declined further than had been generally forecast at the beginning of the period and that business conditions in European, Asian and Latin American industrial markets also continued to deteriorate. Sales in Tennant's North American industrial business correlate closely with a multiple of the movement in the Industrial Production Index (IPI). In July, the consensus forecast of the IPI predicted that industrial production in the 2001 third quarter would be flat compared with the 2001 second quarter. The actual IPI for the period, however, now shows that industrial production fell at an annual rate of more than 6% in the 2001 third quarter. "As a result of rapidly weakening business conditions, we experienced a decline of more than 30% in North American industrial equipment sales in the third quarter, compared with last year," said Dolan.

During the third quarter, Tennant began to realize the benefits of cost-reduction actions taken earlier this year. Those actions included reductions in workforce, salaries and direct labor hours, deferral of new hires and cuts in discretionary spending. At the company's North American industrial manufacturing locations, attrition, a 10% reduction in hours per manufacturing employee, elimination of overtime and shifting production across facilities have enabled Tennant to align capacity with current demand. The benefits of these actions, however, have been masked primarily by the sharp downturn in industrial revenues.

"Despite the severe global slowdown, we are committed to three major efforts for the long-term success of Tennant. First, we continue to focus on improving our overall operating effectiveness and permanently reducing our costs. Second, we are continuing to invest in innovative new products," said Dolan. "Through these actions, we are widening the gap with our competitors and making Tennant a more efficient business," said Dolan. "Third, we have actions under way to improve profitability in our commercial products business to mitigate the unfavorable sales mix effects that have contributed to the declines in net earnings we have experienced this year. For example, by introducing products that enable our customers to meaningfully reduce their costs, such as the NexGen Floor Care System we developed with our joint venture partner Johnson Wax Professional, we expect to improve profit margins on our commercial products."

Tennant has continued to invest aggressively in new product development through the current economic downturn. Year to date, the company's research and development spending is up 10% from the prior year. In September, the company introduced the Centurion, its first full-sized street sweeper for road and highway use. "With this new product, we are expanding into a segment of the outdoor cleaning market in which we haven't participated previously," said Dolan. "Innovative features of the Centurion(TM) street sweeper will save customers time and money while helping cities comply with increasingly stringent environmental regulations." Shipments of Centurion(TM) street sweepers will begin late in the first quarter of 2002.

Dolan noted that the consensus forecast of the U.S. IPI for the 2001 fourth quarter, typically Tennant's seasonally strongest period, has also been revised sharply downward from earlier estimates, as have the economic forecasts for most global markets. "The consensus estimate of the U.S. IPI, which in July forecast 2.6% growth in the fourth quarter, now predicts a 3% decline in fourth quarter industrial production. The volatility we have seen in the IPI this year, and the prevailing uncertainty in the global economy, makes forecasting future results particularly difficult. While we will be profitable in the fourth quarter, based on the predicted further decline in the U.S. IPI, we anticipate our fourth quarter earnings per share excluding unusual items will likely be less than in the third quarter," said Dolan.

Tennant's 2001 results will include 13 months of sales and net earnings from its European operations as a result of a decision to adjust the fiscal year for its European operations to the calendar year. The fiscal year for the company's European operations previously ended in November. This change will benefit net sales in the fourth quarter of 2001 but reduce net earnings because the company's European operations typically operate at a loss during the shortened holiday month of December.

In addition, the company's fourth quarter is expected to include a nonrecurring pension settlement gain of $3.2 to $3.6 million after tax, or $.35 to $.39 cents per share. This non-cash gain is an accounting adjustment that will be recorded once the company receives Internal Revenue Service approval for changes it is making to its defined benefit retirement plan.

Review of Results

Compared with the 2000 third quarter, consolidated net sales declined 8.8%. Adjusted to exclude negative foreign currency exchange effects, consolidated net sales for the 2001 third quarter declined 7%. Year to date, consolidated net sales declined 5.7% compared with the nine months ended September 30, 2000. Adjusted to exclude negative foreign currency exchange effects, consolidated net sales for the year to date declined 3.9%.

Operating profit for the 2001 third quarter totaled $4.6 million, down 57% from $10.8 million in the comparable 2000 period. The decline resulted primarily from the slowdown in the North American industrial equipment category, as well as the sales mix effects and unfavorable foreign currency exchange effects noted previously. Year to date, operating profit declined 46% to $17 million, before unusual charges, from $31.5 million in the comparable 2000 period.

In North America, sales for the 2001 third quarter totaled $76.9 million, down 8.3% from $83.9 million in the prior year's third quarter. Service revenues once again grew at a double-digit rate, and the company continued to gain market share in the commercial floor cleaning equipment category on the strength of expanded market coverage and superior product offerings. As in the second quarter, however, the growth in these areas did not fully offset the decline of more than 30% in industrial equipment sales. Year-to-date North American sales totaled $230.5 million, down 5.3% from $243.3 million in the comparable 2000 period.

In Europe, sales for the 2001 third quarter totaled $18.7 million, down 3.6% from $19.4 million in the 2000 third quarter. Adjusted to exclude negative foreign currency exchange effects, European sales for the 2001 third quarter increased 2.6% compared with the 2000 third quarter. In September, the company completed the previously announced transfer of production from a leased plant in Germany to a contract manufacturer in the Czech Republic. This will benefit the company's cost position in Europe, where business conditions are weakening. Year-to-date sales in Europe totaled $57.8 million, down 6.0% from $61.5 million in the comparable 2000 period. Excluding negative foreign currency exchange effects, sales in Europe for the year to date were down 0.3% compared with the 2000 period.

In Tennant's other international markets, sales for the 2001 third quarter fell 20.3% to $9.4 million from $11.8 million in the 2000 third quarter. Adjusted to exclude negative foreign currency exchange effects, 2001 third quarter sales to other international markets fell 15.3% compared with the 2000 third quarter reflecting the weakness in Latin America, Japan and other Asian economies. For the year to date, sales to other international markets totaled $31.1 million, down 8.0% from $33.8 million in the comparable 2000 period. Adjusted to exclude negative foreign currency exchange effects, year-to-date sales to other international markets fell 2.7% compared with the 2000 period.

Consolidated order backlog at September 30, 2001, totaled $8 million compared with $9 million at June 30, 2001, and $13 million at September 30, 2000.

Company Profile

Tennant is a world-leading manufacturer of nonresidential floor maintenance and outdoor cleaning equipment, floor coatings and related offerings. Its products include scrubbers, sweepers, extractors, buffers and other specialized floor cleaning equipment and supplies, plus a complete line of industrial floor coatings. Tennant's stock is traded on the New York Stock Exchange under the symbol TNC. For more information about Tennant and to register to receive emailed notification of company news releases, visit http://www.tennantco.com

Tennant will host a conference call to discuss its quarterly results today, October 23, 2001, at 10:00 a.m. Central Time. The conference call will be available via webcast on the investor portion of Tennant's Web site. To listen to the call live on the Web, go to http://www.tennantco.com at least 15 minutes before the scheduled start time and, if necessary, download and install audio software. A taped replay of the conference call will be available at http://www.tennantco.com for about two weeks after the call.

This news release includes forward-looking statements involving risks and uncertainties. These include factors that affect all businesses operating in a global market as well as matters specific to the company and the markets it serves. Particular risks and uncertainties currently facing Tennant include: the ability to implement its plan to increase worldwide manufacturing efficiencies; political and economic uncertainty throughout the world; inflationary pressures; the potential for increased competition in the company's businesses from competitors that have substantial financial resources; the potential for soft markets in certain regions, including North America, Asia, Latin America and Europe; the relative strength of the U.S. dollar, which affects the cost of the company's products sold internationally; the ability to successfully implement the SAP enterprise resource planning system; and the company's plan for growth. For additional information about factors that could materially affect Tennant's results, please see the company's Securities and Exchange Commission filings.

TENNANT COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)

(In millions, except

per share data) Three Months Ended Nine Months Ended

September 30 September 30

2001 2000 2001 2000

Before

Unusual Unusual

Reported Reported Charges Charges Reported Reported

Net sales $105.0 $115.1 $319.4 -- $319.4 $338.6

Cost of sales 67.2 69.6 200.5 1.0 201.5 202.4

Selling and

administrative

expenses 33.2 34.7 101.9 -- 101.9 104.7

Restructuring

charges -- -- -- 10.0 10.0 --

Profit from

operations 4.6 10.8 17.0 (11.0) 6.0 31.5

Operating margin 4.4% 9.4% 5.3% 1.9% 9.3%

Interest income

(expense), net 0.1 0.3 0.5 -- 0.5 0.4

Other income

(expense) (0.2) -- -- -- -- (0.3)

Earnings before

income taxes 4.5 11.1 17.5 (11.0) 6.5 31.6

Income tax expense

(benefit) 1.6 3.9 6.2 (4.1) 2.1 11.3

Net earnings $2.9 $7.2 $11.3 $(6.9) $4.4 $20.3

Basic EPS $.32 $.79 $1.24 $(.76) $.48 $2.23

Diluted EPS $.32 $.79 $1.23 $(.75) $.48 $2.22

Average number

of shares

(diluted) 9.21 9.11 9.22 9.22 9.12

TENNANT COMPANY AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)

(In millions) 2001 2000

Sept. 30 Dec. 31 Sept. 30

ASSETS

Cash and cash equivalents $13.4 $21.5 $21.8

Net receivables 83.5 88.3 88.1

Inventories 48.5 51.9 48.8

Deferred income taxes and

other current assets 10.7 9.9 12.5

Total current assets 156.1 171.6 171.2

Net property, plant and

equipment 70.3 66.7 67.8

Deferred income taxes, long-term

portion

7.2 4.3 6.4

Intangible assets 17.4 17.7 18.1

Other assets 3.2 3.0 0.7

Total assets $254.2 $263.3 $264.2

2001 2000

Sept. 30 Dec. 31 Sept. 30

LIABILITIES AND SHAREHOLDERS' EQUITY

Current debt $13.5 $12.6 $7.4

Accounts payable 13.0 17.8 16.8

Accrued expenses 30.4 36.9 44.1

Total current liabilities 56.9 67.3 68.3

Long-term debt 10.0 10.0 15.4

Long-term employee benefits 32.8 31.1 32.2

Shareholders' equity 154.5 154.9 148.3

Total liabilities and

shareholders' equity $254.2 $263.3 $264.2

GEOGRAPHICAL NET SALES(a) (Unaudited)

(In millions) Three Months Ended Nine Months Ended

September 30 September 30

% of % of

2001 2000 Change 2001 2000 Change

North America $76.9 $83.9 (8.3)% $230.5 $243.3 (5.3)%

Europe 18.7 19.4 (3.6)% 57.8 61.5 (6.0)%

Other International 9.4 11.8 (20.3)% 31.1 33.8 (8.0)%

Total $105.0 $115.1 (8.8)% $319.4 $338.6 (5.7)%

(a) Net of intercompany sales

TENNANT COMPANY AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions) Nine Months Ended

September 30

2001 2000

CASH FLOWS RELATED TO OPERATING ACTIVITIES:

Net earnings $4.4 $20.3

Adjustments to net earnings to arrive at

operating cash flows:

Depreciation and amortization 14.4 13.9

Deferred tax expense (benefit) (3.0) (0.4)

Changes in operating assets and liabilities (1.5) (0.7)

Other, net 1.1 1.5

Net cash flows related to operating

activities 15.4 34.6

CASH FLOWS RELATED TO INVESTING ACTIVITIES:

Acquisition of property, plant and equipment (18.8) (16.1)

Proceeds from disposals of property, plant and

equipment 2.1 1.4

Other, net -- (1.0)

Net cash flows related to investing

activities (16.7) (15.7)

CASH FLOWS RELATED TO FINANCING ACTIVITIES:

Net changes in short-term borrowings 0.7 (1.0)

Issuance (payments) of long-term borrowings -- (5.0)

Proceeds from employee stock issuances 1.8 1.6

Purchase of common stock (4.6) (2.8)

Dividends to shareholders (5.4) (5.2)

Principal payment from ESOP 0.8 0.7

Net cash flows related to financing

activities (6.7) (11.7)

Effect of exchange rates on cash (0.1) (0.3)

Net increase (decrease) in cash and cash

equivalents (8.1) 6.9

Cash and cash equivalents at beginning of year 21.5 14.9

Cash and cash equivalents at end of period $13.4 $21.8

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