Item 7 - Y2K Project Overview
Tennant's company-wide Year 2000 Project (Project) is proceeding on schedule.
Tennant's Project is divided into four major sections: Applications Systems, Systems Infrastructure, External Agents (suppliers/partners/distributors/ customers) and Embedded Systems (manufacturing and facilities). General Project phases common to all sections are: 1) inventorying Year 2000 items; 2) assigning priorities to identified items; 3) assessing the Year 2000 compliance of items determined to be material to the company; 4) repairing or replacing material items that are determined not to be Year 2000 compliant; 5) testing material items; and 6) designing and implementing contingency and business continuation plans. Material items are those believed by the company to have risk involving the safety of individuals that may cause damage to either property or the environment, or affect revenues.
Progress status is as follows:
A more detailed description of activities is as follows:
Applications Systems - In 1994, in order to improve access to business information through common integrated computing systems across the Company, Tennant began a worldwide business systems replacement project with systems that use programs from SAP America, Inc. (SAP). The new systems are expected to make approximately 80% of the Company business systems Year 2000 compliant. European applications systems are completely installed, and the North American Industrial systems are 80% implemented. The remaining non-SAP business software is in the process of being upgraded to Year 2000 compliance. The North American Commercial systems remediation was completed in September of 1998. Contingency planning for Application Systems is in process and will be completed by mid-year 1999. Our activity also includes assessment and remediation of nonmission critical personal systems. Initial survey and assessment work is expected to be completed by first quarter 1999, with repair and remediation activities being continuous with estimated completion second quarter 1999.
Systems Infrastructure - The Infrastructure section consists of hardware and system software other than Applications Software. Activity in this area is continuous with the majority being addressed and tested in conjunction with project and regular replacement programs. Contingency planning is in process and should be complete by the second quarter of 1999.
Item 7 - Y2K Project Overview (cont.)
External Agents (Suppliers/Partners/Distributors/Customers) - The primary activity in this section involves the process of identifying and prioritizing critical suppliers, customers, distributors, and other partners at the direct interface level and communicating with them about their plans and progress in addressing the Year 2000 problem. The initial survey activity has been completed and detailed evaluations of the most critical third parties have been initiated. These evaluations will be followed by selective follow-up contact, and development of contingency plans is in process, with expected completion by the end of the first quarter 1999.
Embedded Systems (Manufacturing and Facilities) - This area focuses on the hardware and software associated with embedded computer chips that are used in the operation of all facilities operated by the company. Survey and prioritization activities are complete. In addition, our activities have included the evaluation of Year 2000 dependencies in embedded chips produced in our own products all of which have been certified to be compliant.
COSTS
The total cost associated with the required modifications to become Year 2000 compliant is not expected to be material to the Company's financial position. The core of the Company's IT investments have been focused on building new capability while satisfying Year 2000 requirements. The estimated total cost of the planned SAP activities through 1999 is approximately $20 million of which $16 million has been expended. Funding for Year 2000 specific activities are estimated at $950,000 of which $400,000 has been expended. Funding for both SAP and Y2K activities is integrated with operational budgets, with IT funding for fiscal year 1999 estimated to be at the same levels as fiscal year 1998.
In January 1999, Tennant Company completed the purchase of Paul Andra KG. Activities associated with Year 2000 certification are now underway using the same process as outlined for Tennant Company. We expect a comprehensive analysis and action plan to be completed by the end of the first quarter 1999.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The statements in this report are forward-looking statements and are not meant as historical facts. As discussed above, many factors are involved in this project which contain risk and uncertainty and are beyond the control of the Company. Included in this are the actions of suppliers, distributors, customers, and other partners.
PART III
Part III is included in the Tennant Company 1999 Proxy (to the extent specific pages are referred to on the Cross Reference Sheet) and is incorporated in this Form 10-K Annual Report by reference, except Item 13 - "Certain Relationships and Related Transactions," of which there were none, and Item 10
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
A. The following documents are filed as a part of this report:
1. Financial Statements
The following consolidated financial statements and independent auditors' report are included on pages 18 through 30 of the Tennant Company 1998 Annual Report to Shareholders and are incorporated in this Form 10-K Annual Report by reference:
a. Consolidated Statements of Earnings and Comprehensive Earnings for each of the years in the three-year period ended December 31, 1998 - page 18.
b. Consolidated Balance Sheets as of December 31, 1998 and 1997 - page 19.
c. Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1998 - page 20.
d. Consolidated Statements of Shareholders' Equity for each of the years in the three-year period ended December 31, 1998 - page 21.
e. Independent Auditors' Report of KPMG Peat Marwick LLP - page 30.
f. Notes to Consolidated Financial Statements - pages 22 through 29.
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts (Dollars in Thousands)
(1) Accounts determined to be uncollectible and charged against reserve, net of collections on accounts previously charged against reserves.
All other schedules are omitted as the required information is inapplicable or because the required information is presented in the Consolidated Financial Statements in the Tennant Company 1998 Annual Report to Shareholders.
3. Exhibits
B. Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended December 31, 1998.
CROSS REFERENCE SHEET
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TENNANT COMPANY