Tennant Co (TNC) 2003 Q2 法說會逐字稿

Good morning, and welcome to today's Tennant Company second-quarter earnings teleconference. All lines will be on a listen-only until the formal Q&A session. Introductions -- instructions will be given at that time. Today's conference call is being recorded for instant replay purposes; if you have any objections, you may disconnect at this time. Now I would like to turn the meeting over to Ms. Janet Dolan, President and Chief Executive Officer for Tennant Company.

Good morning, everyone. This is Janet Dolan, and welcome to our second-quarter results conference call. With me for this call is Tony Brausen, our Chief Financial Officer. Thank you for joining us this morning, and I want to welcome, also, also all of you who are participating in the webcast of this call. Before we proceed, I will ask Tony to provide our safe harbor statement.

Good morning, everyone. Our remarks this morning and our answers to your questions may contain forward-looking statements regarding the Company's expectations of future performance. Those statements are subject to risks and uncertainties, and our actual results may differ materially from those contained in the statements. The risks and uncertainties include factors that affect all companies operating in global markets, as well as matters specific to our company, and are described in today's news release and the documents we file with the SEC. We encourage you to review those documents, particularly our safe harbor statement, for a description of risks and uncertainties.

Our news release was issued this morning via PR Newswire, and is also posted in the investor section of our website, Tennantco.com. The information required to be disclosed about non-GAAP measures discussed during this call is available in the news release, which includes schedules that reconcile our second-quarter and year-to-date GAAP results with our results, excluding unusual items. We believe presenting the non-GAAP measures permits a more meaningful comparison of our operating results, and it is consistent with the way we measure the business internally.

Tony will review our financial performance for the quarter in detail in a moment. To begin, let me comment briefly on the quarter's results.

To a large extent, the 2003 second-quarter was a repeat of the 2003 first-quarter. We benefited in this quarter from our investments in new product development and diversification. Growth in revenues from products for commercial and outdoor cleaning enabled us to deliver modest topline growth, despite the continued weak demand for industrial cleaning equipment. The biggest difference between the first and second quarters was the further deterioration in demand for industrial cleaning equipment, as the industrial sector weakened even further. The US industrial production index, for example, declined an annualized 3.2 percent in the second quarter of 2003, compared with the first-quarter.

In North America, we experienced a double-digit decline in sales of cleaning equipment for industrial applications in both the first and second quarters, compared to the year earlier quarters, but, that year-over-year decline was even greater in the second-quarter. We do not believe this decline reflects loss of market share; instead, it is a continuation of the deferral of capital spending in the industrial sector that we have been seeing for some time now, particularly among large national accounts.

Given that business conditions in industrial markets actually further worsened during the second-quarter, we believe we performed well under the circumstances. As I mentioned, growth in other areas, including cleaning equipment for commercial applications, service, aftermarket parts and Centurion, offset the effects of weaker demand for industrial cleaning equipment on consolidated net sales. I will have some further comments on our performance and our outlook after Tony updates you on our second quarter results.

Thank you Janet. Our reported results for the 2003 second-quarter include net earnings of 3.3 million, or 36 cents per diluted share, on net sales of 110.8 million. That compares to net earnings of 2.9 million, or 32 cents per share, on net sales of 106.1 million in last year's second-quarter. As our news release indicates, there are unusual items affecting the prior year's second-quarter and the six-month periods in both 2003 and 2002. For all of the periods in which we are reporting, the financial impact of these items is noted in a separate column on the earnings statements we included with our news release.

The year ago quarter included an unusual charge totaling 300,000 after-tax, or three cents a share, related to a severance payment. Excluding this charge, our net earnings for the 2002 second-quarter totaled 3.2 million, or 35 cents per share. For the six months ended June 2003, our reported net earnings totaled 5.8 million, or 64 cents per diluted share, on net sales of 223.9 million. Our reported net earnings for the six month period include 2 first-quarter unusual items, of which we have reported on previously. They were a gain related to the amendment of our contract with a third party lessor and a charge related to the dissolution of a joint venture. The combined effects of these two items resulted in a 6 cent increase to reported earnings per share for the 2003 first-quarter and the first half. Excluding the impact of these two items, our net earnings for the first six months of 2003 totaled 5.2 million, or 58 cents per diluted share, on net sales of 217.5 million.

The rest of my discussion of our income statement will be excluding these unusual items in both the 2003 and 2002 periods. I will be discussing the results in the news release earnings statements that are in the columns labeled excluding unusual items.

Consolidated net sales for the second-quarter totaled 110.8 million. That is up 4.4 percent from the second-quarter of last year. Adjusted to exclude the impact of foreign exchange, which benefited second-quarter net sales by approximately 5 million, net sales were about flat with the 2002 period. Price increases impacted net sales by about 2 percent in the quarter versus a year ago. For the year-to-date, consolidated net sales, excluding the 6.4 million of deferred revenues that were recognized in the first-quarter, were 217.5 million, up 7.4 percent from the comparable 2002 period. Excluding the foreign currency exchange effects, consolidated net sales for the year-to-date are up about 2.5 percent compared with the first six months of last year.

As Janet noted, with the volume in our cleaning equipment for industrial applications down year-over-year, the topline growth is coming primarily from cleaning equipment for commercial applications, service, aftermarket parts and Centurion, which we had just begun shipping in the 2002 second-quarter. In North America, second-quarter net sales decreased less than 1 percent, to 78 million. Growth in revenues from commercial cleaning equipment, Centurion service and aftermarket parts, helped offset a double-digit decline in revenues from industrial cleaning equipment. Year-to-date sales in North America totaled 159.2 million, which is up 6.7 percent. Excluding the 6.4 million in previously-deferred revenues recognized in the first-quarter, all of which was in North America, net sales in North America are up about 2.4 percent compared with the first half of 2002.

In Europe, sales for the second-quarter totaled 21.1 million. That is up 26.3 percent. Adjusting to exclude the foreign currency exchange effects, net sales in Europe increased nearly 4 percent from the comparable prior period, despite the continued weakness in major European markets such as Germany, the United Kingdom and France. Year-to-date, net sales in Europe totaled 42.8 million, up 24.8 percent compared with the first half of 2002. Adjusted to exclude foreign currency exchange effects, year-to-date net sales in Europe increased about 2 percent compared with 2002.

In our other international markets, net sales for the second-quarter increased 9.3 percent to 11.7 million. Excluding foreign currency exchange effects, net sales for the second-quarter increased 4 percent. The increase resulted primarily from older growth in certain geographies. For the year-to-date, net sales to other national markets increased 15.3 percent, to 21.9 million. Adjusted to exclude foreign currency exchange effects, net sales year-to-date in other international markets are up 9 percent compared with 2002.

In a few minutes, Janet will provide some further commentary on our sales growth outside of North America.

Consolidated order backlog at quarter end totaled 12 million, compared with 15 million in March of 2003 and 12 million in June of 2002. Our gross margin for the second-quarter was 40.8 percent, compared with 40.5 percent in last year's second-quarter. The improvement results primarily from favorable foreign currency exchange effects. Excluding the foreign exchange benefit, our second-quarter gross margin is down about 30 basis points compared with last year's second-quarter, primarily as a result of the sales mix in the quarter. As noted earlier, we saw increases in sales of lower margin products, such as our Centurion street sweeper and cleaning equipment for commercial applications, while sales of the higher margin cleaning equipment for industrial applications, as we have mentioned, declined.

For the year-to-date, our gross margin is 40.2 percent, compared to 40.6 percent in the first half of 2002. Our R&D spending in 2003's second-quarter totaled 4.3 million, which is up about 200,000 compared (technical difficulty) 2002 second-quarter. We are maintaining our commitment to new product development despite the difficult business conditions. New products, Centurion and FaST -- our foam scrubbing technology, for example -- have been critical to our topline during the industrial sector downturn.

Selling and administrative expenses totaled 35.4 million in the second-quarter. That's up 2.1 million from last year's second-quarter, but about 1.7 million of the increase is the result of foreign currency exchange effects. Excluding the exchange effects, second-quarter selling and administrative expenses are up about 1 percent compared with last year's second-quarter. As noted in the release, foreign exchange increased second-quarter EPS by about 3 cents a share. With respect to the euro, it is worthwhile to note, as we have in the past, that there is about a three month lag between changes in exchange rates and their impact on our gross profit, while the impact on selling and administrative expenses is immediate. The result is that our gross profit line in the second-quarter reflects roughly the average euro exchange rate of the first-quarter, which was about $1.07, while the S&A line reflects the second-quarter average of about 114.

Our operating profit for the 2003 second-quarter totaled 5.5 million, compared to 5.6 million in last year's second-quarter. Our operating margin for this year's second-quarter was 5 percent, compared with 5.3 percent in the 2002 period. The slight decrease results primarily from the higher R&D and selling and administrative expenses in the 2003 period. Our tax rate for the year-to-date is 40.5 percent, compared with 41 percent for the first half of the prior year. For the full year, we are anticipating a tax rate of 40.5 percent, compared with 40.2 percent last year. The slightly higher tax rate we are anticipating in the 2003 results from our expected mix of taxable earnings by country. Cash flow from operations in the year-to-date totaled 7.6 million, compared with 6.5 million in the comparable 2002 period. Our capital expenditures year-to-date totaled 5 million, and we are currently anticipating full year capital spending of about 12-15 million, and we are anticipating depreciation and amortization for the year of 14-15 million.

Turning now to some balance sheet items. Compared with June of last year, our inventories increased 2.5 million. The increase is the result of foreign currency exchange effects. Excluding the exchange effects, inventories at June of 2003 are down nearly 1 million compared with last year's June level. Compared with the end of the first quarter of this year, and again excluding the exchange effect, consolidated inventories are down about 1 million. And as we have stated previously, in 2003, we are reducing the level of parts inventories at our third party logistics service providers' locations. Accounts receivable at quarter end is down about 2 million from year end and from June of last year. Accounts Receivable days sales outstanding were 63 in the 2003 second-quarter, compared with 65 in last year's second-quarter. Our cash and equivalents at the end of the quarter totaled 8.7 million, compared with 16.4 million at the end of 2002 and 11 million in June of 2002. During the quarter, we paid down 5 million in debt, and our cash net of debt is up about 4 million since the end of the first-quarter. Our debt to total capital ratio at the end of June was 3.6 percent; that's compared with 12 percent a year ago.

And that concludes my overview of the quarter. So with that, I will turn it back to Janet.

To conclude our call this morning, I will provide an overview of the business at midyear, and an assessment of our outlook for the balance of 2003.

If you have been following Tennant for some time, then you know that even as we began to see signs of a downturn in the industrial sector, we chose to maintain our commitment to R&D spending. We focused primarily on introducing new products that help cleaning and maintenance professionals do their jobs better, faster and more efficiently. The importance of staying the course on our R&D investment level has been proven out over the past several quarters. Contributions from newly-introduced products, such as Centurion and our FaST system, have helped offset the sharp decline in demand for industrial cleaning equipment, and enabled us to weather the industrial sector downturn better than we would have with a less diversified product line.

We are also a global company. While North America is our largest market, we benefited in the current quarter from our ability to grow revenue in Europe and other international markets, despite the continued global economic weakness. In Europe, we have now recorded three consecutive quarters of real topline growth, meaning revenue growth excluding foreign currency exchange benefits. As those of you who follow us know, we have taken a number of actions to improve our operating effectiveness in Europe in the recent past. These actions included -- transitioning to a true pan-European management model; getting all of our European operations on a common ERP platform form; centralizing customer support; and most recently, expanding our sales and service presence in certain key markets. Given that business conditions in Europe remain difficult, it is very gratifying to see our efforts to strengthen our operations there rewarded with the topline growth we have now seen in the last three quarters.

We also saw growth in our other international markets. The conditions in these markets through the first half of the year were at least as daunting as those in Europe. Geopolitical instability and the SARS epidemic made doing business in Asia, the Middle East and Japan, especially difficult. By having the right products and the right distribution for the market's needs, we have been able to post real year-over-year sales growth in this tough environment.

Cleaning equipment for industrial uses is our largest and most profitable equipment category, however. So while the growth in other areas has helped us maintain modest revenue growth during the industrial downturn, our mix of business has been less profitable. With the recovery in the industrial equipment volume, we expect our profitability to benefit from our ongoing efforts to permanently reduce costs. We have multiple initiatives, completed and still underway, to improve long-term performance and overall operating efficiency. We expect that with the return to normal volume and plant utilization, we will see these initiatives deliver the benefits we are expecting. With respect to the near-term, we have taken additional measures to control discretionary spending through the rest of 2002. We have reduced costs in our North American customer service area by combining the functions of two separate locations into 1, here in Minneapolis, enabling us to serve more customers with fewer personnel. We have reduced hours in some of our plants, and we closed for the July 4th week, given the low-volume for industrial cleaning equipment. But, barring further deterioration in business conditions, we are not currently expecting to reduce headcount in the plants. We want to maintain the flexibility to respond quickly to any upturn in demand that may materialize in the year's second half.

As we have said before, we are very well positioned to benefit from an eventual resumption in demand growth for industrial cleaning equipment. We continue to believe there is pent-up demand among our customers for industrial cleaning equipment. We are confident we remain the preferred supplier in the category in most major markets. We are positioned to move quickly to capture the opportunities that a recovery in industrial sector capital spending will bring.

With respect to the balance of 2003, as you saw in our second-quarter results announcement, we are maintaining our expectation of earnings per share for the full year of $1.43-$1.76. This guidance includes the effects of the unusual items we have previously described. Excluding unusual items, we are expecting our earnings per share for the full year to range from $1.40-$1.70. However, given the deterioration in business conditions that occurred in the second-quarter, achieving full year results in the upper half of that range will be a challenge. Reaching the upper half of our earnings guidance in 2003 will likely require a more pronounced recovery in the industrial sector capital spending in the second half than is currently predicted by the consensus of leading economists. The July 10 blue chip economic indicator, for instance, currently forecasts only 1.1 percent growth in 2003 capital spending, as compared to 2002. That is down from the blue chip's April forecast of 2003 capital spending growth of 2.9 percent.

Also, the industrial production index is currently forecasted to increase only 5/10 of a percent this year. The forecast in January called for a 2003 increase of 2.9 percent. In addition, while demand for our industrial cleaning equipment typically snaps back strongly as the industrial economies recover, that rebound has historically lagged the onset of recovery by 1-2 quarters.

To sum up, we believe Tennant is performing well in the face of very difficult business conditions. Like many other industrial companies, we are eager for an upturn in capital spending, but find forecasting when that upturn will take hold extraordinarily difficult. Given the circumstances, we remain intently focused on those elements of our business that we can control -- cost, service quality and new product development among them -- so that we can be positioned to prosper once the cycle turns. We are a leading company in a great business, and we remain very confident in our long-term prospects. That concludes our remarks, and we will be happy to take your questions now.

(CALLER INSTRUCTIONS). Gary Giblin (ph) from CL King.

Let's talk about the municipal market. The federal (indiscernible) mentioned that they have a water (indiscernible) of products that competes with -- they did not mention Centurion, but the talked about water (indiscernible). And then they claimed that the budgets were constrained, and that was a barrier for them in that market. But would you say that there is some market share shift, and have you seen any impact from the recent introduction of their product that would compete somewhat with Centurion?

Let me take the last first. No -- one, we have not seen their product in the marketplace, and certainly have not seen it having any impact on our -- demand for ours, and demand for ours continues to run ahead of plan. So we also are not seeing any slowdown in municipal spending impacting our Centurion sales. They remain strong and ahead of plan, so I guess you would have to ask them about their determination (indiscernible) share, but we are certainly not seeing any impact from them or slow spending on ours.

Are the price increases that you put in effect in March holding up?

Yes. For those that are familiar, we have for many years had a March 1st price increase. And this year we have had no indication that it has not held.

Last quarter, you talked about making market share gains throughout different areas of commercial. So is that a continuing trend, or is it kind of masked by the horrid economy?

As you can imagine, to see a double-digit drop in our industrial means we have had to have some good strong growth in other areas, and commercial is certainly one of them. We have quarter by quarter just seen continual strengthening in our commercial. And as we shared a few quarters past, we have had a very concerted effort in North America to build up a network of the best and strongest distributors, and then we have now had new products like FaST to give them. So that is a great combination. So it continues to provide us strong growth in commercial.

Finally, when the release says conditions in industrial markets further deteriorated, I understand what that means in the sense of the numbers showing worse comparisons, but would that mean that, sequentially, buyers are even more averse to committing to purchases or capital? Is that what you are saying, that -- in other words, is the selling environment worse than it was three months ago, or are you really noting the fact that the numbers are deteriorating on a year-over-year basis?

I'll take a crack at that. It is a little tough to answer in a sequential way, only because of that March 1 price increase that Janet mentioned. That tends to skew orders, because people want to get an order in before the price increase takes effect. So sequential is tougher to look at. When we are talking about this period of time, that included the price increase. But I think it is fair to say, as many manufacturers saw a weakening in the second-quarter from what we had had in the first -- and Janet talked about the decline, I think it was 3.2 percent in the industrial production index in the second-quarter versus the first quarter. That is an annualized calculation. So clearly the industrial sector did weaken in the second-quarter versus the first quarter, and I think our orders, certainly in the first part of the second-quarter, reflected that.

(CALLER INSTRUCTIONS). Bob Sledge from Lord Abbott.

You spoke briefly about closing for a week in July. I know last year you actually ended up closing for a more extended period. Do you feel that is less likely this year because of some of the cuts you made last year, in terms of direct labor and otherwise?

Right now, we are not anticipating another closedown. Obviously, that would change if we saw greater deterioration, but right now, we are not planning one.

Has there been any reduction in direct labor on the production side this year?

Yes, there has been some. And you might recall, I think we mentioned, we had reduced direct labor last year in the fourth quarter a bit. And there has been some reduction in direct labor, but it has been through attrition, as well as the use of, in some cases, reduced hours for some individuals.

On the customer service consolidation, can you talk about -- you said serving more customers better with fewer people. What are we actually talking about, in terms of numbers there?

Are you talking about the European action?

No, US.

The North American action was in the neighborhood of about, I think, a net of 15-20 people.

Out of how many was that?

That's out of about 100, as I recall.

In regards to the industrial markets, do you have any sense in terms of to what degree, if any, your marketplace has shrunk, if you view it from the standpoint that your products are used on a facility basis with a fair share of manufacturing going offshore?

It's a very good question. Obviously, there has been some publicity in the Wall Street Journal this week and other articles. We look at it as what is the demand for our kind of industrial product, and what applications does it go into? And there is no doubt that certain -- the square footage of factories has moved elsewhere, and of course, we follow it. So we go there through our sales in international or in Europe or in Eastern Europe. But also, I just want to reiterate that the use of our industrial equipment is in many sectors now well beyond the factory floor. So when we say industrial, that is our rider equipment, and it goes into sports facilities, it goes into shopping centers, it goes into complexes where you have had consolidation of schools and housing authorities and distribution centers. So it goes into a wide range of applications. So there's no doubt that factory floors are moving, and we will follow them. But the demand for our products in other applications grows, so we don't see any shrinking of the total demand in North America for our products.

When you talk of sports and schools and things of that sort, is that in industrial or is that in commercial?

For us, the industrial is the riding equipment. So if you go to many sports facilities they will use our equipment to clean the sports facility indoors and outdoors, and that will be the large riding equipment. Clearly, commercial equipment would also be used there, as you get into the seats and the stadium and stuff. And shopping centers and airports and all kinds of facilities that have large open areas with heavy foot traffic, use what we call our industrial equipment. So while one application within that portfolio of applications may reduce, and certainly the percentage of our products sold straight into factories in North America has been reducing for a longtime. The factories going outside North America has been going on for 10 years or more, but we keep finding new applications for it, so we don't think the total demand has shrunk. But those are all capital purchases, so when you say capital spending is down, it's all of those areas. We have large national accounts in a wide range of sectors in which they're simply reducing their capital spending until the slowdown is behind us.

And one of the benefits of being a global company, as those manufacturing locations move offshore, we have presence in those locations, generally speaking, where the factories are moving to.

Is that principally because they have been a national account are not?

That we have access to them?

Yes.

One way is we call them multinationals, and that when they move offshore, it is relatively easy to follow them because we have been a major supplier of them. But also, we have a growing number of distributors around the world. We have been a global company for 40 or 50 years, but we are rapidly growing distribution around the world, for not only the multinationals that move there but then all of the suppliers that start to support them, and then all the local industries that start to grow up as the economy in that area grows.

Do you believe that for a foot of square footage here, that you will typically hold that share when it moves offshore, or is there some slippage?

First of all, I don't have that statistic, so wouldn't want to comment on something that I don't have the actual statistic for. But it depends upon the kind of application. But if it is one that we served here, then in all likelihood we should be able to serve it when it goes offshore, because it's probably got the same need for cleanliness for what they are making.

And it is generally purchased on a centralized basis?

It depends. Sometimes, we will have centralized purchasing in North America for their locations all over the world, but other times that distribution -- that decision is left locally, and then our distributor or our area manager will call on the plant where it is. So it has a lot more to do with the customer and how they want to buy. We can provide for them either way.

Clearly, there's been a lot of discussion as to where the economy is. Clearly, there has been a lot of talk or talking up about the potential that exists, and whether any improvements is taking place. Other than the reported production index, can you give any anecdotal comments in regards to what your customers or distributors are telling you today versus six months ago?

I would say -- and I presume every industrial company you follow is probably saying the same thing -- there is a lot of optimism. We all read about the same optimism, we all read about some of these confidence indexes going up, and that is great, because that's going to be a motivator. But none of us -- at least I wouldn't say in our path -- are ready to say we see enough in the order log to say we truly are in a recovery stage. So I think it is a case of everybody is waiting on the sidelines for someone to declare that the recovery has begun, but everybody is cautious because it has been such a long and protracted slowdown, with a couple of false starts already. So there certainly is an optimism, and I think we hear an optimism, but I don't think anybody is ready yet to report hard numbers that actually validate that the recovery is underway.

In that regard, for many in the industrial sector, it's really been in a downturn or recessionary condition since '98.

I would say 2001, but some of them, perhaps --

-- the Asian crisis kind of started it for many, and some never quite fully recovered. Can you update us on the current size of the market you feel the Centurion is addressing?

We estimate that in the US, the street sweeping market is in the neighborhood of 2-300 million in total, on an annual basis.

So you're consistent. Can you talk -- in the industrial area, what percent of the business is the FaST Foam Scrubbing technology, in terms of your product sales?

We don't give percentages (indiscernible) in terms of either product line, but it is a new technology that has been introduced all around the world, is taking off fast -- pardon the pun -- is doing well, and has the opportunity to impact a very significant part of our line, because it can go in most of our scrubber lines, both the small industrial and certainly the commercial. So it has got a big upside, in terms of the percentage of our total product line that it actually could be part of.

Just adding to that -- the FaST introduction really began in, as you have heard us describe the commercial and the industrial product lines -- it really began on the commercial side and is moving up the chain, if you will, to the larger scrubbing equipment. And so really, you used the word industrial when you asked the question; FaST is not prevalent today in our scrubbing line within the industrial sector, but that is coming.

Would that require replacement purchases, or is it modular, and that could be added onto existing equipment?

We introduced it as modular and added onto existing equipment to get it into the marketplace and to win over the early adapters, but we also are designing it into the product in future models, where it will be the single way of cleaning through that scrubber.

Does that give you more revenue, in terms of, not raw materials or parts, but add-on sales?

Yes, it does. In detergent follow-on sales, because we are the provider of the, what we call the surfactant, which is a form of detergent that goes along with this machine. So that would be a benefit of this product.

In regards to the backpack vacuum, what sort of growth are you actually seeing there? What level of sales are there, and how large is the market that it is actually serving?

We actually, again, for competitive reasons, would not want to get into details about the size of the sales of that product. And I don't have with me at the moment, or committed to memory, the size of that particular market. But that has been a relatively successful product so far.

And it provides a lot of ease for the user, so you can see why it is an attractive alternative.

Sure. Can you talk about if you are seeing any abating pressures on the cost side in the area of medical or insurance or pension? Or are they at similar high levels, or worse?

In our results in 2003, certainly the pressures for the items you mentioned are there. Steel is still an influencer year-over-year, although there is hope on the horizon. Perhaps we will see some reduction there. But currently, that is influencing our results. Medical is another area. We are seeing it insurance coverages, the cost of corporate governance, etc.; so we are still seeing pressures on our income statement in the year 2003 for the items you mentioned, and some others as well.

If I recall, last October you had talked about the summer in Europe ending up a lot less strong from a performance basis than you had hoped going in. Does does that bode well for an easier comparison this year?

You're talking about last year's third-quarter?

Yes.

At some level, yes. We are, as Janet talked about earlier in the call, experiencing some success, despite very weak economies in Europe -- some would argue weaker than North America at the moment. So we feel good about the progress we have made in Europe. It's small steps, from the standpoint -- you saw the numbers we talked about exclusive of foreign exchange. I think we are up 4 percent in the second quarter. But given the condition of the economy there, we feel good about that.

And how, at the sales level -- meaning on order to order in a competition -- has the currency been helping? Because I recall midyear last year you folks were talking about the first-half second quarter was partially in Europe affected by some aggressive pricing by some of your German competition. Have you found that that is less intense than it was?

What we really find is with the currency fleeing the other way, it gives our sales team at least more latitude to price, and competitively, and take advantage of that currency, whereas a year or two ago it was just the opposite -- they were penalized because of the price of the products, because of (technical difficulty). So it just gives them more flexibility, and they are certainly using it. We adjusted some of the prices of our key products, and it has proved to be a very successful move. And the currency helps gives you the breathing room to do that.

By implication, you had suggested that you did not match some of the pricing by those competitors. Have you, in fact, then, gained some share back with this flexibility?

It was in Germany, and we are on plan in Germany, so that is a good indication that we have met the situation. I think, obviously, some of our European competitors are under pressure as well. So it isn't quite as competitive a pricing situation from their part, and it has swung now to give us more of a competitive pricing opportunity.

Hopefully the wind one day will shift behind our backs.

At this time I show no further questions.

That concludes our call. Thank you for dialing in. We look forward to reporting to you on our third-quarter performance in October.

Thank you and goodbye.

Thank you for participating in today's Tennant conference -- second-quarter earnings teleconference.

(CONFERENCE CALL CONCLUDED)