<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended February 29, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from _______ to ________.
Commission File No. 1-5774
THE TRANZONIC COMPANIES
------------------------------------------------------
(Exact Name of Registrant as specified in its Charter)
OHIO 34-0664235
------------------------------ ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
30195 Chagrin Boulevard, Pepper Pike, Ohio 44124
------------------------------------------------------------------------
(Address of Principal Executive Office) (ZIP Code)
(216) 831-5757
------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH
------------------- -------------------------
REGISTERED
----------
Class A Common Shares
without par value American Stock Exchange
Class B Common Shares
without par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
[Cover Continued on Following Page]
<PAGE> 2
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates
of the Registrant on June 26, 1996: $16,104,461.
-------------
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date:
2,183,603 Class A Common Shares without par value at June 26, 1996*
- -------------------------------------------------------------------
1,313,585 Class B Common Shares without par value at June 26, 1996*
- -------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1996 Annual Report to Shareholders -- Parts I and
II.
- ---------------------
*On August 7, 1996, all of the Registrant's outstanding Class B Common
Shares without par value were converted into Class A Common Shares without par
value. The amendment to the Registrant's Amended Articles of Incorporation
respecting such conversion will be filed with the Registrant's Form 10-Q for the
quarter ended August 31, 1996.
<PAGE> 3
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
The information required by this Item in respect of Executive Officers who
are not also Directors of the Registrant is set forth on pages 5 and 6 of the
Registrant's Form 10-K for the fiscal year ended February 29, 1996 and is
incorporated herein by reference.
The information concerning Directors is set forth below and is based in
part on information received from the respective Directors and in part on the
Registrant's records:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FIRST
NAME OF AGE AS OF DURING PAST FIVE YEARS BECAME
DIRECTOR JUNE 26, 1996 AND OTHER DIRECTORSHIPS HELD DIRECTOR
- --------------- ------------- ---------------------------- --------
<S> <C> <C> <C>
DIRECTORS CONTINUING IN OFFICE UNTIL 1999 ANNUAL MEETING OF SHAREHOLDERS
(CLASS II)
Joseph A. Campanella 53 Executive Vice President of Star 1979
(1)(2) Banc Corporation (bank holding
company) since 1991. Previously,
President of Star Bank, N.A.,
Cleveland from 1988 until 1991.
Thomas S. Robertson 53 Sainsbury Professor of Marketing, 1989
(1)(2) London Business School since 1994.
Prior thereto, Chairperson
of the Department of
Marketing, The Wharton
School, University of
Pennsylvania, from 1988
until 1994.
Steven W. Percy 49 President of BP Oil Company and 1994
(1)(2) Executive Vice President of
BP America, Inc. since 1992.
Previously, Chief Executive Officer
of BP Finance International
(a division of BP International Ltd.),
and Group Treasurer of The British
Petroleum Company, p.l.c., from
1989 until 1992.
DIRECTORS CONTINUING IN OFFICE UNTIL 1998 ANNUAL MEETING OF SHAREHOLDERS
(CLASS I)
James H. Berick 63 Chairman of Berick, Pearlman & 1970
(1)(2) Mills Co., L.P.A., Cleveland, Ohio
(attorneys) and Secretary of the
Corporation. Also, President and
Treasurer of Realty ReFund Trust
(real estate investment trust) and
President and Treasurer of Mid-America
ReaFund Advisors, Inc. (its advisor)
since January, 1990. Mr. Berick is a
Director of MBNA Corporation and
A. Schulman, Inc. and a Trustee of
The Town and Country Trust and
Realty ReFund Trust.
</TABLE>
1
<PAGE> 4
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FIRST
NAME OF AGE AS OF DURING PAST FIVE YEARS BECAME
DIRECTOR JUNE 26, 1996 AND OTHER DIRECTORSHIPS HELD DIRECTOR
- --------------- ------------- ---------------------------- --------
<S> <C> <C> <C>
Robert S. Reitman 62 Chief Executive Officer, Chairman 1960
(3)(4) of the Board of Directors and
President of the Corporation.
Mr. Reitman is a Director of
Weirton Steel Corporation.
Sylvia K. Reitman 58 Investor, Cleveland, Ohio. 1989
DIRECTORS CONTINUING IN OFFICE UNTIL 1997 ANNUAL MEETING OF SHAREHOLDERS
(CLASS III)
David J. Golden 63 Senior Vice President of the 1958
(3)(4) Corporation.
Morton L. Reitman 59 Executive Vice President of the 1973
(3)(4) Corporation.
James C. Spira 53 Managing Partner, Diamond 1991
(2) Technology Partners (management
consultants), since November,
1995. Previously Group Vice
President of the Corporation,
from 1991 until 1995.
<FN>
-----------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Executive Committee.
(4) Member of the Pension Committee.
</TABLE>
David J. Golden and Sylvia K. Reitman are brother and sister.
Sylvia K. Reitman is the wife of Robert S. Reitman. Robert S.
Reitman and Morton L. Reitman are brothers. Alayne L. Reitman,
Vice President--Finance and Treasurer of the Registrant, is the
daughter of Robert S. Reitman and Sylvia K. Reitman.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Registrant's executive officers and Directors, and persons who beneficially own
more than 10% of the Registrant's Common Shares, to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. James C.
Spira reported the expiration of stock options in October 1995 subsequent to the
due date for such reporting.
2
<PAGE> 5
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Registrant or
its subsidiaries during the Registrant's last three fiscal years to the
Registrant's Chief Executive Officer and each of the five most highly
compensated executive officers (as measured by salary and bonus) whose aggregate
salary and bonus during the fiscal year ended February 29, 1996, exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
LONG
TERM
OTHER COMPEN-
ANNUAL SATION ALL OTHER
COMPEN- AWARDS COMPEN-
NAME AND FISCAL SALARY(1) BONUS SATION OPTIONS SATION
PRINCIPAL POSITION YEAR ($) ($) (2)($) (#) ($)
- ------------------------ ------ --------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Robert S. Reitman, 1996 424,208 89,987 -- 2,500 137,156(3)
Chief Executive Officer, 1995 407,819 192,531 23,618 2,500 133,312
Chairman of the Board of 1994 388,419 100,000 -- 9,500 114,090
Directors and President
Morton L. Reitman, 1996 355,535 -- 53,250 2,400 31,109(3)
Executive Vice President 1995 298,893 122,800 -- 2,400 26,115
1994 276,677 55,000 -- 2,600 24,645
Richard J. Sims, 1996 217,062 169,305 -- 2,400 4,011(3)
Vice President 1995 200,712 116,000(4) -- 2,000 3,967
1994 185,654 70,480 -- 2,000 5,051
James C. Spira, 1996 181,042 -- -- 2,400 3,724(3)
Group Vice President(5) 1995 261,619 -- -- 2,200 5,352
1994 248,968 -- -- 2,400 7,176
James L. Glenn, 1996 159,538 11,130 25,000(6) 1,000 1,342(3)
Vice President(6) 1995 152,550 -- 23,888 1,000 66,718
1994 144,700 20,000 -- 1,000 842
Dennis H. Kelly, 1996 123,600 79,936 4,250 1,000 3,618(3)
Vice President 1995 117,415 59,430 -- 1,000 3,595
1994 109,904 33,100 -- 1,000 3,038
- -------
<FN>
(1) Includes amounts deferred pursuant to the Registrant's Salary Savings and
Profit Sharing Plan (the "Defined Contribution Plan"), a defined
contribution plan under Section 401(k) of the Internal Revenue Code.
3
<PAGE> 6
(2) Except as otherwise noted, includes the net value (market value less
exercise price) realized in respect of Class A Common Shares and/or Class
B Common Shares purchased from the Registrant pursuant to exercise of
stock options.
(3) Includes (a) Registrant payments of premiums for long-term disability
insurance: Messrs. Robert S. Reitman, Morton L. Reitman and Sims $743
each; Mr. Spira $510; Mr. Glenn $588; and Mr. Kelly $456, (b) Registrant
contributions under the Defined Contribution Plan: Mr. Robert S. Reitman
$2,949; Mr. Morton L. Reitman $2,897; Mr. Spira $2,294; Mr. Sims $3,267;
Mr. Glenn $754; and Mr. Kelly $3,163, (c) Registrant payments of premiums
for life insurance: Mr. Morton L. Reitman $5,700, (d) amounts accrued
under deferred compensation agreements: Mr. Robert S. Reitman $132,084;
and Mr. Morton L. Reitman $21,768, and (e) Registrant payments of parking
fees: Mr. Robert S. Reitman $1,380 and Mr. Spira $920.
(4) The final calculation of Mr. Sims' fiscal 1995 bonus resulted in a higher
bonus than that reported in the Registrant's Proxy Statement dated May 12,
1995, which was calculated based upon figures available at that time.
(5) Mr. Spira's employment with the Registrant as an executive officer
terminated effective October 31, 1995. The 1996 compensation figures for
Mr. Spira reflect the period from March 1, 1995 through October 31, 1995.
(6) Mr. Glenn's employment with the Registrant terminated at the end of March,
1996 in connection with the Registrant's sale of its housewares division.
Mr. Glenn was paid $25,000 in respect of such termination.
</TABLE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options during fiscal year 1996 to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZED VALUE
INDIVIDUAL GRANTS AT ASSUMED
--------------------------------- ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS EXERCISE APPRECIATION FOR
OPTIONS GRANTED TO OR BASE EXPIR- OPTION TERM(3)
GRANTED(1) EMPLOYEES IN PRICE ATION -----------------
NAME (#) FISCAL YEAR(2) ($/SH) DATE 5% 10%
- ----------------- ---------- ------------- -------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Robert S. Reitman 2,500 6.54%$ $16.02 2/29/00 $11,075 $24,450
Morton L. Reitman 2,400 6.27%$ $14.56 2/28/05 $21,984 $55,680
James C. Spira 2,400 6.27%$ $14.56 2/28/05 $21,984 $55,680
Richard J. Sims 2,400 6.27%$ $14.56 2/28/05 $21,984 $55,680
James L. Glenn 1,000 2.61%$ $14.56 2/28/05 $ 9,160 $23,200
Dennis H. Kelly 1,000 2.61%$ $14.56 2/28/05 $ 9,160 $23,200
- -------
<FN>
4
<PAGE> 7
(1) All options are for Class B Common Shares and were granted pursuant to the
Registrant's 1995 Incentive Stock Option Plan. Such options become
exercisable on March 1, 1998.
(2) Based upon an aggregate of 38,250 options granted to all employees in
1995.
(3) The potential realizable values illustrated at 5% and 10% compound annual
appreciation assume that the price of the Registrant's Class B Common
Shares increases from $14.56 per share to $23.72 and $37.76 per share,
respectively, over the 10-year term of the options which were granted to
all named executive officers other than Robert S. Reitman. If those named
executive officers realize those values, the Registrant's Shareholders
will realize aggregate appreciation in the price of the 1,313,585 Class B
Common Shares of the Registrant outstanding of approximately $12,032,439
or $30,475,172, respectively, over the same period.
</TABLE>
The following table contains information concerning stock option exercises
during fiscal year 1996 by the named executive officers and the value of their
unexercised options at February 29, 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END VALUES
Value of Unexer-
Number of cised In-the-
Unexercised Options Money Options at
at Fiscal Year-End Fiscal Year-End
(#) ($)
Shares ------------------- ---------------
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ----------------- -------------- --------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Robert S. Reitman None None Class B: 4,000/14,500 Class B: 0/0
Morton L. Reitman Class A: 3,000 Class A: 36,000 Class A: 6,300/0 Class A: 31,225/0
Class B: 1,500 Class B: 17,250 Class B: 13,450/7,400 Class B: 19,363/0
James C. Spira None None Class B: 34,000/0 Class B: 0/0
Richard J. Sims None None Class B: 12,000/26,000 Class B: 0/0
James L. Glenn None None Class B: 3,200/3,000 Class B: 0/0
Dennis H. Kelly Class B: 2,000 4,250 Class B: 5,200/3,000 Class B: 750/0
</TABLE>
COMPENSATION OF DIRECTORS
Each Director who is not an employee of the Registrant receives an annual
Director's fee of $12,000, plus $925 ($850 prior to July 1, 1996) for attendance
at each meeting of the Board or any Committee. In addition, if such a Director
elects to have his compensation deferred and invested in Class B Common Shares
pursuant to the Registrant's Deferred Compensation Plan for Non-Employee
Directors, then each such Director receives, in Class B Common Shares, an
additional amount equal to 25% of the amount so deferred and invested.
5
<PAGE> 8
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
James H. Berick, Secretary and Director, is Chairman of the law firm of
Berick, Pearlman & Mills Co., L.P.A., which is retained by the Corporation as
legal counsel.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
In 1990, the Registrant entered into employment agreements with Robert S.
Reitman and Morton L. Reitman. Robert S. Reitman's employment agreement, which
expires in June 1997, currently provides for an annual salary of $425,000, which
salary may be reviewed periodically by the Compensation Committee to determine
if the same should be increased. Robert S. Reitman's employment agreement also
provides for payment to Mr. Reitman of an annual incentive based upon certain
performance criteria, the maximum of which amount shall be not less than
$160,000, and for certain disability benefits.
Morton L. Reitman's employment agreement with the Registrant, which
expires in June 1996, currently provides for an annual salary of $303,000, which
salary may be reviewed periodically by the Compensation Committee to determine
if the same should be increased, and for certain disability benefits. Morton L.
Reitman also has a consultant agreement with the Registrant providing for
payment to Mr. Reitman for consulting services in the amount of $72,000 per
year, for a term of three years commencing upon the termination of his
employment.
In 1991, the Registrant entered into an employment agreement with James C.
Spira. Mr. Spira's employment agreement, which terminated effective October 31,
1995, provided for an annual salary of $273,000. In addition, pursuant to Mr.
Spira's employment agreement, the Registrant granted to Mr. Spira options to
purchase 70,000 Class B Common Shares of the Registrant, the exercise price of
which options is $14.50, the fair market value of such shares on the date of the
grant. 34,000 of the options became exercisable prior to the termination of Mr.
Spira's employment and Mr. Spira may exercise such options until February 29,
2000. Mr. Spira's remaining 36,000 unvested options expired on October 31, 1995.
In March 1995, a wholly-owned subsidiary of the Registrant
entered into an employment agreement with Mr. Dennis H. Kelly.
Mr. Kelly's employment agreement, which expires in February 1998,
currently provides for an annual salary of $124,000 plus
incentives based upon performance.
The Registrant also has deferred compensation agreements with certain key
employees which provide for benefits for a term of ten years following
retirement, disability or death. These benefits vary according to the employee's
corporate responsibility and the age of the employee at the date of such
6
<PAGE> 9
event. The ranges of annual benefits under the deferred compensation agreements
for Messrs. Robert S. Reitman and Morton L. Reitman during the first five years
of said term are $34,800 to $68,400 and $15,600 to $36,600, respectively. The
amount of benefits payable to such executive officers during the second five
years of the term is 75% of the benefit payable during the first five years.
The benefits payable to Messrs. Robert S. Reitman and Morton L. Reitman
under the deferred compensation agreements will be replaced with the benefits
payable to them under the Registrant's 1992 Supplemental Benefit Plan (the
"Supplemental Benefit Plan") upon the vesting of each such individual's rights
in that plan. Vesting under the Supplemental Benefit Plan does not occur unless
and until that individual has been a participant in the plan for ten years or
has attained age 65, whichever first occurs; provided, however, that a
participant who becomes disabled or dies shall be vested after six years of
employment by the Registrant. In addition, in the event that effective control
of the Registrant changes from that management in control at the date of
adoption of the Supplemental Benefit Plan, all participants immediately vest in
the plan benefits. Under the Supplemental Benefit Plan, Messrs. Robert S.
Reitman and Morton L. Reitman will receive $140,000 and $60,000, respectively,
in annual benefits for a term of fifteen years following their retirement, death
or disability. In the event that either individual's rights under the
Supplemental Benefit Plan fail to vest, then the benefits under the deferred
compensation agreements remain payable to such non-vested individual.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
The following tables, together with the accompanying footnotes, describe
the beneficial ownership of the Registrant's Class A Common Shares and Class B
Common Shares as of June 26, 1996 (except as otherwise indicated) of (1) each
person who was known to the Registrant to be the beneficial owner of more than
five percent of the total Shares of either class issued and outstanding on such
date, (2) each current Director and nominee for election as Director, as well as
all executive officers and Directors as a group and (3) all Shareholders, other
than Current Directors and executive officers, as a group. In addition, the
following tables set forth the aggregate voting power of each of the
aforementioned persons both prior to the conversion of Class B common Shares
into Class A Common Shares and after giving effect to such conversion. Except as
otherwise indicated, the share figures shown below are based upon information
supplied by the named individuals and group members described in the tables and
the Registrant's records.
As used in the tables, a person is deemed to be the beneficial owner of
all shares in respect of which such person
7
<PAGE> 10
has or shares voting or investment power (regardless of whether such individual
is entitled to receive any economic benefits derived from such shares). As used
herein, "voting power" means the power to vote, or to direct the voting of,
shares and "investment power" means the power to dispose of, or to direct the
disposition of, shares. Also, included are shares which were not owned on June
26, 1996 but which can be acquired within 60 days after that date.
As indicated specifically in the footnotes to the tables, certain Class A
Common Shares and Class B Common Shares included for the named individuals in
each table below are deemed to be beneficially owned by more than one of such
named individuals and, as a result, have been so reported. Certain individuals
listed in the tables have disclaimed beneficial ownership with respect to some
of the Shares disclosed as beneficially owned under the definition set forth
above.
BENEFICIAL OWNERSHIP OF MORE THAN FIVE PERCENT OF
CLASS A COMMON SHARES AND CLASS B COMMON SHARES
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL PRO FORMA
OWNERSHIP BY CLASS AGGREGATE
----------------------------------------------- VOTES
CLASS A PERCENT CLASS B PERCENT AGGREGATE ASSUMING
NAME AND ADDRESS OF COMMON OF COMMON OF VOTES CONVERSION
BENEFICIAL OWNER SHARES CLASS SHARES(1) CLASS /%(2) /%(3)
---------------- ------ ----- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
David J. Golden 864,337 39.6% 435,668 33.2% 907,903.8/ 1,300,005/
30195 Chagrin Boulevard (4)(5) (5)(6) 39.2%(4) 37.2(4)
Pepper Pike, Ohio 44124 (5)(6) (5)(6)
Robert S. Reitman 863,651 39.6% 443,295 33.7% 907,980.5/ 1,306,946/
30195 Chagrin Boulevard (7) (7) 39.2%(7) 37.4%(7)
Pepper Pike, Ohio 44124
Sylvia K. Reitman 863,651 39.6% 443,295 33.7% 907,980.5/ 1,306,946/
30195 Chagrin Boulevard (5)(8) (5)(8) 39.2% 37.4%
Pepper Pike, Ohio 44124 (5)(8) (5)(8)
Estate of Miriam G 383,662 17.6% 191,831 14.6% 402,845.1/ 575,493
Golden, David J (9) (9) 17.4%(9) 16.5%(9)
Golden and
Sylvia K. Reitman,
Co-executors
30195 Chagrin Boulevard
Pepper Pike, Ohio 44124
Dimensional Fund 132,400 6.1% 69,150 5.3% 139,315.0/ 201,550/
Advisors Inc. (10) (10) 6.0%(10) 5.8%(10)
1299 Ocean Avenue,
Suite 650, Santa Monica,
California 90401
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL PRO FORMA
OWNERSHIP BY CLASS AGGREGATE
------------------------------------- VOTES
CLASS A PERCENT CLASS B PERCENT AGGREGATE ASSUMING
NAME AND ADDRESS OF COMMON OF COMMON OF VOTES CONVERSION
BENEFICIAL OWNER SHARES CLASS SHARES(1) CLASS /%(2) /%(3)
---------------- ------ ----- --------- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Lazard Freres & Co. 108,618 5.0% 79,592 6.1% 116,577.2/ 188,210/
One Rockefeller Plaza (11) (11) 5.0%(11) 5.4%(11)
New York, New York 10020
- -----------------------
<FN>
(1) Each Class A Common Share is convertible into one Class B Common Share.
Class B Common Shares issuable upon such conversion are not included.
(2) Aggregate Class A Common Share and Class B Common Share voting power,
expressed as a number of votes and as a percentage of total available
votes (based upon 2,183,603 Class A votes and 131,358.5 Class B votes,
aggregating 2,314,961.5 votes), of the respective named Shareholders. The
figures shown reflect one vote for each Class A Common Share and 1/10th of
one vote for each Class B Common Share held by each such named
Shareholder. The figures shown do not take into account that the Class A
Common Shares and Class B Common Shares vote for separate classes of
Directors and, therefor, are not aggregated for that purpose.
(3) Pro forma voting power, expressed as a number of votes and as a percentage
of total available votes (based upon an aggregate of 3,497,188 votes), of
the respective named Shareholders, after giving effect to the conversion
of each Class B Common Share into one Class A Common Share. The figures
shown reflect one vote for each Common Share held by each such named
Shareholder subsequent to the conversion.
(4) Includes 7,700 Class A Common Shares held as trustee for the benefit of Mr.
Golden's son.
(5) Includes 383,662 Class A Common Shares or 191,831 Class B Common Shares,
as applicable, in respect of which David J. Golden and Sylvia K. Reitman
share voting and dispositive power as co-executors of the estate of Miriam
G. Golden; and 133,529 Class A Common Shares or 66,764 Class B Common
Shares, as applicable, in respect of which David J. Golden and Sylvia K.
Reitman, acting in concert, share the right to direct the voting and
disposition pursuant to the terms of the Louis B. Golden Insurance Trust
u/a/d October 20, 1980.
(6) Includes 3,500 Class B Common Shares which are not owned, but can be
purchased within 60 days upon the exercise of options granted under the
Registrant's 1989 Incentive Stock Option Plan (the "1989 Plan"). Also
includes 3,850 Class B Common Shares held as trustee for the benefit of
Mr. Golden's son.
(7) Includes 268,906 Class A Common Shares and 134,453 Class B Common Shares,
as applicable, owned by Sylvia K. Reitman, Mr. Reitman's wife, and the
Class A Common Shares and Class B Common Shares, as applicable, described
in Note (5), above, as to all of which shares Mr. Reitman disclaims
beneficial ownership.
9
<PAGE> 12
(8) Includes 77,554 Class A Common Shares or 50,247 Class B Common Shares, as
applicable, owned by Robert S. Reitman, Mrs. Reitman's husband, as to
which shares Mrs. Reitman disclaims beneficial ownership.
(9) The estate of Miriam G. Golden is the record owner of the Shares shown;
however, the co-executors each are deemed to own beneficially all of such
Shares, as reported above.
(10) Information based solely upon Schedules 13G filed by such shareholder with
the Securities and Exchange Commission in January, 1995. Dimensional Fund
Advisors Inc. ("Dimensional"), a registered investment advisor, is deemed
to have beneficial ownership of 132,400 Class A Common Shares and 69,150
Class B Common Shares, as applicable, as of December 31, 1994, all of
which Shares are held in portfolios of DFA Investment Dimensions Group,
Inc., a registered open-end investment company, in series of the DFA
Investment Trust Company, a Delaware business trust, or in the DFA Group
Trust and DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, as to all of which Dimensional serves as
investment manager. Dimensional disclaims beneficial ownership of all of
such Shares.
(11) Information based solely upon Schedules 13G filed by such shareholder with
the Securities and Exchange Commission in February, 1995 in respect of
Class A Common Shares, and February, 1996 in respect of Class B Common
Shares.
</TABLE>
BENEFICIAL OWNERSHIP OF EXECUTIVE OFFICERS, DIRECTORS AND NOMINEES
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP BY CLASS PRO FORMA
------------------------------------------- AGGREGATE
CLASS B VOTES
CLASS A PERCENT COMMON PERCENT AGGREGATE ASSUMING
NAME AND ADDRESS OF COMMON OF SHARES OF VOTES CONVERSION
BENEFICIAL OWNER SHARES CLASS (1)(2) CLASS(1) /%(3) /%(4)
---------------------- ------- ------ -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James H. Berick 600 (5) 8,410 (5) 1,441.0/(5) 9,010/(5)
Joseph A. Campanella 500 (5) 6,310 (5) 1,131.0/(5) 6,810/(5)
David J. Golden 864,337 39.6% 435,668 33.2% 907,903.8/ 1,300,005/
(6)(7) (6)(7) 39.2%(6)(7) 37.2%(6)
(7)
Robert S. Reitman 863,651 39.6% 443,295 33.7% 907,980.5/ 1,306,946/
(8) (8) 39.2%(8) 37.4%(8)
Morton L. Reitman 47,564 2.2% 34,646 2.6% 51,028.6/ 82,210/
(9)(10) (10) 2.2%(9) 2.4%(9)
(10) (10)
Sylvia K. Reitman 863,651 39.6% 443,295 33.7% 907,980.5/ 1,306,946/
(6)(11) (6)(11) 39.2%(6) 37.4%(6)
(11) (11)
Thomas S. Robertson 0 0% 6,110 (5) 611.0/(5) 6,110/(5)
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP BY CLASS PRO FORMA
-------------------------------------------- AGGREGATE
CLASS B VOTES
CLASS A PERCENT COMMON PERCENT AGGREGATE ASSUMING
NAME AND ADDRESS OF COMMON OF SHARES OF VOTES CONVERSION
BENEFICIAL OWNER SHARES CLASS (1)(2) CLASS(1) /%(3) /%(4)
---------------------- ------- ------ -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James C. Spira 4,800 (5) 36,400 2.8% 8,440.0/ 41,200/
(5) 1.2%
Steven W. Percy 0 0% 2,955 (5) 295.5/(5) 2,955/(5)
Richard J. Sims 1,520 (5) 20,760 1.6% 3,596.0/ 22,280/
(5) (5)
Dennis H. Kelly 0 0% 9,200 (5) 920.0/(5) 9,200/(5)
James L. Glenn 0 0% 4,200 (5) 420.0/(5) 4,200/(5)
Executive Officers 1,278,131 58.5% 758,634 57.8% 1,353,994.4 2,036,765
and Directors /58.5% /58.2%
as a Group
(14 persons)
All Shareholders other 905,472 41.5% 554,951 42.2% 960,967.1 1,460,423
than Executive Officers, /41.5% /41.8%
and Directors as a Group
<FN>
- ------------------
(1) Includes the following number of Class B Common Shares which are not
owned, but can be purchased within 60 days upon the exercise of options
granted under the Corporation's 1981 Performance Share Option Plan (the
"1981 Plan") and 1989 Plan (and in the case of Mr. Spira under his
employment agreement which was terminated and Mr. Sims, under his existing
employment agreement): Robert S. Reitman - 13,500; Morton L. Reitman -
16,050; David J. Golden - 3,500; James C. Spira - 34,000; Richard J. Sims
- 20,000; Dennis H. Kelly - 6,200; and all executive officers and
Directors as a group - 102,050.
(2) Each Class A Common Share is convertible into one Class B Common Share.
Class B Common Shares issuable upon such conversion are not included.
(3) Aggregate Class A Common Share and Class B Common Share voting power,
expressed as a number of votes and as a percentage of total available
votes (based upon 2,183,603 Class A votes and 131,358.5 Class B votes,
aggregating 2,314,961.5 votes), of the respective named Shareholders. The
figures shown reflect one vote for each Class A Common Share and 1/10th of
one vote for each Class B Common Share held by each such named
Shareholder. The figures shown do not take into account that the Class A
Common Shares and Class B Common Shares vote for separate classes of
Directors and, therefore, are not aggregated for that purpose.
11
<PAGE> 14
(4) Pro forma voting power, expressed as a number of votes and as a percentage
of total available votes (based upon an aggregate of 3,497,188 votes), of
the respective named Shareholders, after giving effect to the conversion
of each Class B Common Share into one Class A Common Share. The figures
shown reflect one vote for each Common Share which is held by each such
named Shareholder subsequent to the conversion.
(5) Less than 1%.
(6) Includes 383,662 Class A Common Shares or 191,831 Class B Common Shares,
as applicable, in respect of which David J. Golden and Sylvia K. Reitman
share voting and dispositive power as co-executors of the estate of Miriam
G. Golden; and 133,529 Class A Common Shares or 66,764 Class B Common
Shares, as applicable, in respect of which David J. Golden and Sylvia K.
Reitman, acting in concert, share the right to direct the voting and
disposition pursuant to the terms of the Louis B. Golden Insurance Trust
u/a/d October 20, 1980.
(7) Includes 7,700 Class A Common Shares and 3,850 Class B Common Shares, as
applicable, held as trustee for the benefit of Mr. Golden's son.
(8) Includes 268,906 Class A Common Shares or 134,453 Class B Common Shares,
as applicable, owned by Sylvia K. Reitman, Mr. Reitman's wife, and the
Class A Common Shares and Class B Common Shares, as applicable, described
in note (6), above, as to all of which shares Mr. Reitman disclaims
beneficial ownership.
(9) Includes the 6,300 Class A Common Shares, which are not owned, but can be
purchased within 60 days upon the exercise of options granted under the
Corporation's 1981 Plan by Morton L. Reitman.
(10) Includes 1,820 Class A Common Shares or 910 Class B Common Shares, as
applicable, held as custodian for the benefit of Morton L. Reitman's adult
child. Also includes 1,200 Class A Common Shares or 600 Class B Common
Shares, as applicable, owned by Mr. Reitman's wife, as to which shares Mr.
Reitman disclaims beneficial ownership.
(11) Includes 77,554 Class A Common Shares or 50,247 Class B Common Shares,
as applicable, owned by Robert S. Reitman, Mrs. Reitman's husband, as to
all of which shares Mrs. Reitman disclaims beneficial ownership.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
Information in response to this Item is set forth on page 6 of this Form
10-K/A, Amendment No. 1, and is incorporated herein by reference.
12
<PAGE> 15
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
(a) The following documents are filed as part of this
report:
1. See the Index to Financial Statements set forth in the
Registrant's Form 10-K for the fiscal year ended
February 29, 1996, for a list of consolidated financial
statements and financial statement schedules included or
incorporated herein by reference.
2. Exhibits:
Exhibit Number
--------------
3(a) Amended Articles of Incorporation
(incorporated by reference to Exhibit 3(a)
of the Registrant's Form 10-K for the fiscal
year ended February 28, 1993)
3(b) Certificate of Amendment to Amended
Articles of Incorporation filed June
16, 1992 (incorporated by reference to
Exhibit 3(b) of the Registrant's Form
10-K for the fiscal year ended February
28, 1993)
3(c) Code of Regulations (incorporated by
reference to Exhibit 3(c) of the
Registrant's Form 10-K for the fiscal year
ended February 28, 1994)
10(a)* 1989 Incentive Stock Option Plan (incorporated
by reference to Exhibit 10(f) of the
Registrant's Form 10-K for the fiscal year
ended February 28, 1990)
10(b)* 1995 Incentive Stock Option Plan (incorporated
by reference to Exhibit 10(e) of the
Registrant's Form 10-K for the fiscal year
ended February 28, 1994)
10(c)** Adoption Agreement dated March 1, 1996 and
PRISM(R) Prototype Retirement Plan and Trust
13
<PAGE> 16
10(d)* Deferred Compensation Plan for Non-Employee Directors
(incorporated by reference to Exhibit 10(k) of the
Registrant's Form 10-K for the fiscal year ended
February 28, 1993)
10(e)* 1992 Supplemental Benefit Plan (incorporated by
reference to Exhibit 10(l) of the Registrant's Form
10-K for the fiscal year ended February 28, 1993)
10(f) Credit Agreement dated as of October 7, 1993, with
Society National Bank, individually and as Agent, and
National City Bank for borrowings up to $30,000,000
(incorporated by reference to Exhibit 10(i) of the
Registrant's Form 10-K for the fiscal year ended
February 28, 1995).
10(g) First Amendment dated as of June 30, 1994 to Credit
Agreement with Society National Bank, individually and
as Agent, and National City Bank (incorporated by
reference to Exhibit 10(j) of the Registrant's Form
10-K for the fiscal year ended February 28, 1995).
10(h) Second Amendment to Credit Agreement dated June 7,
1996, between the Registrant, Society National Bank and
National City Bank (incorporated by reference to the
Registrant's Form 10-Q for the fiscal quarter ended May
31, 1996)
10(i)* Employment Agreement dated June 20, 1990 between the
Registrant and Morton L. Reitman (incorporated by
reference to Exhibit 10(p) of the Registrant's Form
10-K for the fiscal year ended February 28, 1991)
10(j)* Consultant Agreement dated January 29, 1986 between
the Registrant and Morton L. Reitman (incorporated by
reference to Exhibit 10(r) of the Registrant's Form
10-K for the fiscal year ended February 28, 1990)
14
<PAGE> 17
10(k)* Employment Agreement dated June 18, 1990 between the
Registrant and Robert S. Reitman (incorporated by
reference to Exhibit 10(r) of the Registrant's Form
10-K for the fiscal year ended February 28, 1991)
10(l)* Employment Agreement dated June 18, 1990 between the
Registrant and David J. Golden (incorporated by
reference to Exhibit 10(p) of the Registrant's Form
10-K for the fiscal year ended February 29, 1992)
10(m)* Employment Agreement dated October 22, 1990 between
the Registrant and James L. Glenn (incorporated by
reference to Exhibit 10(u) of the Registrant's Form
10-K for the fiscal year ended February 29, 1992)
10(n)* Employment Agreement dated March 1, 1995 between
Baxter Tube Company and Dennis Kelly (incorporated by
reference to Exhibit 10(p) of the Registrant's Form
10-K for the fiscal year ended February 28, 1995).
10(o)* Employment Agreement dated December 2, 1991 between
the Registrant and James C. Spira (incorporated by
reference to Exhibit 10(w) of the Registrant's Form
10-K for the fiscal year ended February 29, 1992)
10(p)* Amendment to Employment Agreement dated May 4, 1994
between the Registrant and James C. Spira (incorporated
by reference to Exhibit 10(u) of the Registrant's Form
10-K for the fiscal year ended February 28, 1994)
10(q)* Employment Agreement dated July 1, 1992 between the
Registrant and Richard J. Sims (incorporated by
reference to Exhibit 10(v) of the Registrant's Form
10-K for the fiscal year ended February 28, 1993)
15
<PAGE> 18
10(r) Asset Purchase Agreement by and among
Whitney-Corr-Pak International, Inc., the
Registrant, Design Trend, Inc. and Ever-
Ready Appliance Mfg. Co. dated February
29, 1996 (incorporated by reference to
Exhibit 10.1 of the Registrant's Current
Report on Form 8-K dated March 29, 1996)
13 The Registrant's 1996 Annual Report to
Shareholders
21** Subsidiaries of the Registrant
24** Powers of Attorney
27*** Financial Data Schedule
*Management contract or compensatory plan or arrangement
required to be filed as an Exhibit hereto.
**Previously filed
***Filed only in electronic format pursuant to Item
601(b)(27) of Regulation S-K.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the last quarter of the Registrant's
fiscal year ended February 29, 1996.
16
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 26, 1996 THE TRANZONIC COMPANIES
By: /s/ Robert S. Reitman
-------------------------
Name: Robert S. Reitman
Title: President
17
<PAGE> 1
EXHIBIT 13
[OUTSIDE FRONT COVER]
THE TRANZONIC COMPANIES
[TRANZONIC LOGO]
[PHOTO 1: Photo of Morton L. Reitman, William E. Hermann, Kathleen A. Metzger
and Beth Smylie Richardson, the President, Executive Vice President, Vice
President Administration and Vice President Retail Division, respectively, of
the Personal Care Division, and miscellaneous personal care products.]
ANNUAL REPORT 1996
[PHOTO 2: Photo of Richard J. Sims, Christopher T. Cira and Norman D. Sull, the
President, Assistant Vice President Finance, and Vice President Purchasing,
respectively, of the Industrial Textiles Division, and miscellaneous industrial
wiping and cleaning products.]
THE BEST PEOPLE
[PHOTO 3: Photo of Dennis H. Kelly, James D. Armstrong, Jr., and Robert E.
Isaacs, the President, Plant Manager - Perrysburg, and National Sales Manager,
respectively, of the Industrial Packaging Divisions, and miscellaneous paper
tubes, sleeves and cores.]
PRODUCE THE BEST RESULTS
<PAGE> 2
THE TRANZONIC COMPANIES
Headquartered in Cleveland, Ohio, The Tranzonic Companies manufactures and
distributes nationally a wide variety of products to the industrial,
institutional, and consumer sectors. Expanding outward from strengths in paper
and cloth products, Tranzonic has added complementary product lines in personal
hygiene, maintenance and safety, and industrial packaging in order to serve as a
primary supplier in each of its customer segments. Product quality and customer
service have been primary growth drivers, and the Company has been enhancing
efficiency through the implementation of leading-edge management and information
strategies. The Company has expanded through both internal development and
strategic acquisitions of growth businesses that have strong synergy with
existing operations.
[PHOTO 4: Photo of miscellaneous personal care products.]
[PHOTO 5: Photo of miscellaneous industrial wiping and cleaning products and
protective garments.]
[PHOTO 6: Photo of miscellaneous paper tubes, sleeves and cores.]
[INSIDE FRONT COVER]
<PAGE> 3
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
THE TRANZONIC COMPANIES
For the Years Ended February 29/28 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Sales .......................................... $ 137,215,521 126,940,765
Operating earnings ............................. 7,179,566 7,621,726
Earnings from continuing operations............. 4,416,310 4,531,342
Earnings from discontinued operations
(net of income taxes) ........................ 410,032 754,054
Loss on disposal of Housewares Division
(net of income taxes) ....................... (7,250,000) --
Net earnings (loss) ............................ (2,423,658) 5,285,396
Net earnings (loss) per Common Share:
From continuing operations ................... 1.25 1.29
From discontinued operations ................. (1.94) .22
Cash dividends:
Per Class A Common Share ..................... .195 .18
Per Class B Common Share ..................... .355 .34
Total assets ................................... 75,021,643 80,279,466
Long-term debt ................................. 7,000,000 7,600,000
Shareholders' equity ........................... 49,154,116 52,236,347
Shareholders' equity per Common Share .......... 14.03 15.03
Common Shares outstanding ...................... 3,503,388 3,474,338
</TABLE>
1
<PAGE> 4
TO OUR SHAREHOLDERS
Although financial results in fiscal 1996 were disappointing, several
aspects of Tranzonic's performance suggest that we should emerge successfully
from that difficult period. Each of our divisions produced record sales, and all
were profitable during the year ended February 29th.
Fiscal 1996 consolidated sales from continuing operations grew to $137.2
million, up 8.1 percent from the $126.9 million recorded a year earlier.
However, throughout the year we experienced mounting pressure on profit margins
primarily as a result of raw material cost increases, customer pricing demands
and competition for market share. These market conditions, combined with changes
in product mix, led to a 5.8 percent decline in operating earnings from
continuing operations to $7.2 million. The comparable number last fiscal year
was $7.6 million.
While we have been able to improve operating efficiency, effect cost
savings through our materials procurement practices, and obtain price increases
in some markets, the struggle to preserve margins has been particularly acute in
certain retail segments of our business. Over the past year, we have been
evaluating the opportunities in each of the markets we serve, and reassessing
how best to deploy our resources to achieve long-term profitable growth. This
process included analysis of the factors influencing growth and of the
investment requirements necessary to achieve our goals.
From this assessment, we determined that changes occurring in the retail
marketplace limit the opportunity for adequate earnings growth and return in
relation to the market risks. Thus, we concluded to reduce our involvement in
certain consumer products.
To accomplish this, in late February 1996 we entered into a definitive
agreement to sell our Housewares Division, which principally markets laundry and
closet storage products to mass merchants and specialty retailers, to Whitney
Corr.Pak International, Inc. We completed the sale on March 29, 1996. As a
result of this divestiture, we incurred a one-time fourth quarter non-cash,
after-tax charge of $7.3 million. Together with earnings from discontinued
operations of $410 thousand net of tax, the fourth quarter loss from
discontinued operations totaled $6.8 million, or $1.94 per share, result-
<TABLE>
<CAPTION>
Sales from
Continuing
Operations
(In Thousands)
<S> <C>
92 $105,765
93 $110,188
94 $115,919
95 $126,941
96 $137,216
</TABLE>
<TABLE>
<CAPTION>
Operating
Earnings from
Continuing
Operations
(In Thousands)
<S> <C>
92 $7,490
93 $6,544
94 $4,019
95 $7,622
96 $7,180
</TABLE>
2
<PAGE> 5
[PHOTO 7: Photo of Robert S. Reitman]
Robert S. Reitman
Chairman, President and
Chief Executive Officer
ing in a net loss of $2.4 million for the year. On a per share basis, the
quarter and full year net loss totaled $1.58 and $.69 per share, respectively.
In addition, the douche and enema product lines manufactured by our
Hospital Specialty unit were sold in February 1996, for cash, to NutraMax
Products, Inc., based in Gloucester, Massachusetts. This transaction served to
reduce further our exposure to a particularly price-sensitive segment of the
retail marketplace.
THE DIVESTITURES IN PERSPECTIVE
A significant aspect of our long-term growth plan is to become more
important to each of our customers. We have worked toward that objective by
broadening our product line offerings through internal expansion and
acquisitions. Our investment in building the housewares business from
approximately $3 million when we entered that market in 1988 to $24 million last
year met our original revenue growth objectives. We achieved that level of scale
through internal growth and the four acquisitions that comprised Design Trend,
which would have served us well in the retail environment we entered in 1988.
However, consumer price sensitivity, coupled with the immense purchasing
and pricing power of mass merchandisers, substantially increased the threshold
of scale required to achieve reasonable profitability. Indeed, even large
players in the housewares market balked at raising prices last year--despite
dramatic increases in raw material costs--in the face of pressure from
mass-merchants and specialty retailers.
While such market dynamics may be cyclical, the more important reason for
exiting what has become a very intense retail arena is that it enables us to
focus financial and management resources on growing our businesses which serve
industrial and institutional markets. It is those areas served by our three
remaining business units--Hospital Specialty, CCP Industries and Baxter Tube--in
which we have special experience and knowledge, historically have earned better
margins and a higher rate of return, and see the greatest long-term opportunity.
<TABLE>
<CAPTION>
Net Earnings
from Continuing
Operations
(In Thousands)
<S> <C>
92 $4,693
93 $4,101
94 $2,331
95 $4,531
96 $4,416
</TABLE>
<TABLE>
<CAPTION>
Net Earnings
Per Common Share
from Continuing
Operations
<S> <C>
92 $1.33
93 $1.15
94 $ .67
95 $1.29
96 $1.25
</TABLE>
3
<PAGE> 6
CONTINUED DEVELOPMENT OF CORE STRATEGIES
Building upon the established foundations of each of our remaining
businesses is our first priority going forward. We remain committed to becoming
a much larger company able to deliver profitable growth and a corresponding
increase in shareholder value. That will be achieved by implementing our core
strategies discussed in this letter a year ago, namely: focusing on customers,
implementing technology, and enabling human resource development.
To expand our importance to customers and our customer base, we
aggressively seek acquisitions which add to our array of complementary products.
Our acquisition criteria require a strong existing management team, moderate to
low-cost products that enhance our value to customers as a single source
supplier, and the ability to enhance earnings upon consolidation. Our
acquisition of Plezall Wipers early last year is a good case in point. Now part
of our CCP Industries unit, Plezall increased CCP's scale by expanding
significantly our line of woven textiles thereby, complementing our non-woven
product offerings, expanding CCP's markets and customer base, and opening new
opportunities for market penetration. Plezall was successfully integrated into
CCP and contributed to CCP's strong sales and profit results in fiscal 1996.
Our strategy of implementing information technology has been effective in
improving our sales forecasting, purchasing practices, inventory management, and
cost controls, and in helping to identify market and other trends which offer
opportunity. We are working smarter and more efficiently. Just one reflection of
this is that in a year of rising costs (fiscal 1996), we experienced a modest
decline in the ratio of selling, general and administrative expense to sales.
Important to migrating this technology throughout the Tranzonic
organization is the third part of our core strategy--enabling human resource
development. Strong division management in each of our business units is
supported by the valued experience and dedication of the people who make
<TABLE>
<CAPTION>
Total
Capitalization
(In Thousands)
<S> <C> <C>
92 $42,744 - $195
93 $46,329 - $2,900
94 $47,479 - $9,000
95 $52,236 - $7,600
96 $49,154 - $7,000
Long-Term
Debt
Shareholders'
Equity
</TABLE>
4
<PAGE> 7
up our organization. We rely on them individually and as a team to absorb and
successfully integrate new technologies into their operations, and to identify
the products and services which strengthen our relationships with customers.
THE OUTLOOK
We believe the near- and long-term outlook for The Tranzonic Companies is
bright. While fiscal 1996 produced a pause in our bottom line growth, we believe
that the results of the divestitures will be positive. Proceeds of the sales,
along with our strong financial position and ready access to capital, provide
ample resources to support our acquisition pursuits and other corporate
requirements. We will continue our assessment of each division in the context of
the changing needs of our markets and how to best meet them, and this year we
will implement strategic refinements to our operations that focus on
strengthening our customer-partner relationships and growing our position in the
industrial and institutional markets.
We would like to commend our employees who remain focused on quality and
customer service. We also are grateful to our directors for their important
contributions in shaping our Company and thank our customers for their loyalty
and our shareholders for their continued support in this challenging transition
period.
Sincerely,
/s/ Robert S. Reitman
Robert S. Reitman
Chairman, President and Chief Executive Officer
May 17, 1996
<TABLE>
<CAPTION>
Shareholders'
Equity
Per Share
<S> <C>
92 $12.32
93 $13.21
94 $13.75
95 $15.03
96 $14.03
</TABLE>
5
<PAGE> 8
CRITERIA TO IDENTIFY
ACQUISITION TARGETS
- ----------------------------------- HOSPITAL SPECIALTY [PHOTO 8:
Photo of miscellaneous personal
care products.]
ENHANCE IMPORTANCE TO CUSTOMERS
HIGH-AFFINITY PRODUCT LINE
DIVERSIFICATION
NEW CHANNELS
REGIONAL STRENGTH
CONSOLIDATION POTENTIAL
PRIORITIZING
ACQUISITION TARGETS
- ----------------------------------------------------- CCP INDUSTRIES [PHOTO 9:
Photo of miscellaneous
industrial wiping and
cleaning products and
protective garments.]
OPERATIONS FINANCIAL
SUPERIOR MANAGEMENT EARNINGS MOMENTUM
LOW COST TO PRODUCE BALANCE SHEET HEALTH
TECHNOLOGY RIGHT SIZE
CONSUMABLES
CRITICAL/LOW-COST COMPONENTS
BAXTER TUBE [PHOTO 10: Photo
of miscellaneous paper tubes,
sleeves and cores.]
6
<PAGE> 9
THE OPERATIONS AND MARKETS OF
THE TRANZONIC COMPANIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAJOR PRODUCTS PRINCIPAL MARKETS PRIMARY CUSTOMERS
-------------------------------------------------------------------
<S> <C> <C>
Feminine Hygiene Institutional Grocery and Drug Chains
Adult Incontinence Commercial Mass Merchandisers
Baby Diapers Away From Home Paper Distributors
Toilet Seat Covers Healthcare Janitorial Distributors
Odor Control Consumer Medical Distributors
Washroom Accessories Home Healthcare Dealers
Food Service Distributors
- --------------------------------------------------------------------------------
Industrial Wiping Cloths Automotive Tens of thousands of small
Personal Safety Manufacturing businesses across the U.S.
Work Apparel Food Service and Canada
Specialty Chemicals Facility Maintenance
Environmental Protection Healthcare
Washroom Supplies Graphic Arts
- --------------------------------------------------------------------------------
Forming Tubes Automotive Fiberglass Manufacturers
General-purpose Tubes Industrial Automotive and Industrial
Sleeves Construction Manufacturers
Construction Products
Distributors
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 10
HOSPITAL SPECIALTY
...the Division is focused on reducing manufacturing costs,
improving productivity, and maintaining an aggressive
marketing posture to hold or gain share...
Hospital Specialty, the Company's Personal Care Division and largest
operating unit, had a modest increase in sales to a new record level in fiscal
1996, with increases recorded in all but one major product category. Operating
profits, however, fell well below those of the prior year primarily as a result
of rapid cost increases in raw materials such as fluff pulp, which is used in
many of the Division's products, and continued pricing pressure in all markets
served. The impact of raw material increases would have been substantially
greater but for the Division's forward purchases of fluff pulp as prices rose.
While the Division was able to obtain price increases for some of its products,
the markets it serves remain very price sensitive. In this environment, the
Division is focused on reducing manufacturing costs, improving productivity, and
maintaining an aggressive marketing posture to hold or gain share.
The Division serves institutional, industrial and to a lesser extent
consumer markets with a broad line of personal care and washroom related
products. Several initiatives undertaken during the year helped to improve
quality and service to distributor-partners and retail customers, and
contributed to sales growth. These initiatives included: introduction of
restroom deodorant systems; continued product bundling for industrial
distribution; improved use of computerized distribution systems; restructuring
of sales, technical and administrative staff; and aggressive marketing of many
new products.
Building on its program of bundling synergistic products, the Division's
"Total Washroom Essentials" (TWE) program accounted for solid growth including
sales of restroom deodorant systems. The TWE program features MAXITHINS(R) and
GARDS(R) feminine napkins, Tampax(R) brand tampons, HEALTHGARDS(R) toilet seat
covers, HEALTHGARDS(R) odor control systems, and Hospeco washroom accessories.
The TWE program was introduced in fiscal 1995 and has proven successful
through offering an integrated bundle of value-added products to institutional
and industrial customers. The program is a significant shift from traditional
product focus to a total program concept that enhances the Division's value as a
single-source supplier to our industrial distributors.
The largest sales gain came from the toilet seat cover segment where the
Division was able to gain market share. In addition to toilet seat covers, sales
of restroom deodorant systems were also strong throughout most of the year. Both
are integral lines in the Division's core business. The institutional business
offers the greatest opportunities for profitable growth which will be augmented
by new products added through internal development and acquisitions. As noted in
the Letter to Shareholders, the Division sold its douche and enema product lines
during the year, thus reducing its exposure to a particularly price-sensitive
segment of the retail marketplace.
Personal Care Division
- ----------------------
MORTON L. REITMAN (Standing middle)
President
WILLIAM E. HEMANN (Standing left)
Executive Vice President
KATHLEEN A. METZGER (Seated)
Vice President Administration
BETH SMYLIE RICHMAN (Standing right)
Vice President Retail Division
8
<PAGE> 11
[PHOTO 11: Photo of Morton L. Reitman, William E. Hermann, Kathleen A. Metzger
and Beth Smylie Richardson, the President, Executive Vice President, Vice
President Administration, and Vice President Retail Division, respectively, of
the Personal Care Division, in the foreground, with shelves stocked with
miscellaneous personal care products in the background.]
9
<PAGE> 12
[PHOTO 12: Photo of Richard J. Sims, Christopher T. Cira, David J. Williams,
Robert W. Dailey III, Norman D. Sull, Helen Malhotra, Brian H. Markowitz and
Daniel R. Moon, the President, Assistant Vice President Finance, Vice President
Sales, Vice President Market Development, Vice President Purchasing, Assistant
Vice President Information Systems, Vice President and Assistant Vice President
Marketing, respectively, of the Industrial Textiles Division, seated at and
standing by a table of miscellaneous industrial wiping and cleaning products
and protective garments.]
10
<PAGE> 13
CCP INDUSTRIES, INC.
...additional development and enhancement of key procurement
relationships resulted in a better than expected expansion
into wholesale channel sales...
Fiscal 1996 was a year of record performance for CCP Industries, our
Industrial Textiles Division. All three of the Division's business units: CCP
U.S., CCP Canada and Plezall Wipers, acquired at the beginning of the fiscal
year, contributed to the significant gains in sales and operating income.
This superior performance was driven by a number of key initiatives in
CCP's business plan. Continuous improvement initiatives in marketing, sales
management and operations resulted in product line diversification, development
of additional management information systems, sales training and service
enhancements. Additional development and enhancement of key procurement
relationships resulted in a better than expected expansion into wholesale
channel sales. These accomplishments were consistent with business strategies
which focus on customer relationship management, strategic acquisitions and
alliances, profit maximization and development of a progressive corporate
culture.
Lavatory supplies, safety products and work apparel product categories
registered the strongest growth last year. Growth in all product categories is
accomplished most effectively by increasing sales to existing customers. Product
development and line diversification play a large part in achieving that end.
During the past year dozens of products were added to the Division's work
apparel, wiping cloths, washroom, chemicals and cleaning supplies, and safety
lines. CCP has sharpened its focus on specific industry segments, such as
automotive and graphics, to achieve greater market penetration. It has expanded
its use of telephone sales and developed new management information enabling CCP
quickly to direct its resources toward under-performing areas. All of these
initiatives have contributed to CCP's ability to serve customers in a broad
array of industrial, commercial and institutional markets.
Intensive on-going sales training programs equip our more than 250 sales
people to better communicate the benefits and cost savings which CCP offers as a
primary supplier. Among these benefits are quality guaranteed product bundles,
application solutions, reduced procurement cost through our Primary Supplier
Approach, and customized products and solutions. Training extends to programs
aimed at improving management skills, and addresses specific operating functions
such as purchasing, inventory management, computer systems, and safety, to name
only a few. In addition to helping employees develop their potential and become
more productive, training is an important inducement to retaining the best
people.
CCP continues to develop into a progressive manufacturing and distribution
company focused on long-term growth, supported by a large sales force and
product line diversification that improves its position as a primary supplier to
customers. To increase this diversification, CCP will continue to develop
creative resources and undertake strategic acquisitions and alliances that
strengthen relationships with major suppliers and heighten value to customers.
Industrial Textiles Division
- ----------------------------------------
(Starting in lower left going clockwise)
RICHARD J. SIMS
President
CHRISTOPER T. CIRA
Assistant Vice President Finance
DAVID J. WILLIAMS
Vice President Sales
ROBERT W. DAILEY, III
Vice President
Market Development
NORMAN D. SULL
Vice President Purchasing
HELEN MALHOTRA
Assistant Vice President
Information Systems
BRIAN H. MARKOWITZ
Vice President
DANIEL R. MOON
Assistant Vice President
Marketing
11
<PAGE> 14
BAXTER TUBE COMPANY
...Baxter employees provide a high degree of knowledgeable
support in product application and problem solving that
enhances customer satisfaction...
Baxter Tube Company, our Industrial Packaging Division, overcame a myriad
of challenges in fiscal 1996 to score double-digit increases in sales over the
prior record year and achieve the best operating earnings in its history. This
progress was achieved despite flattening of sales among some existing customers
as business levels peaked. Baxter offset this condition through a combination of
pricing initiatives which enabled it to hold its position with existing
customers while successfully developing new account activity.
Baxter met the challenges of rapidly rising raw material costs and
restricted availability of certain raw materials through internal improvements
and corrective actions which, combined with a recent easing in the raw material
market and active purchasing efforts, indicates improved earnings potential in
the period ahead.
Baxter produces spiral wound paper tubes, cores and sleeves for a wide
variety of industrial applications. It focuses on customer relations with an
emphasis on consumable products that meet all requirements for cost
effectiveness and quality. Baxter's products are used in industries, such as
fiberglass production, where its forming tubes have proven to be technically
superior and cost-efficient, and in the automotive industry where Baxter
products have found a wide range of general and product-specific uses. While
Baxter's business is global, the majority of revenue arises in the United
States.
Baxter's products are manufactured under carefully controlled conditions
emphasizing techniques that ensure the high quality required to satisfy our
customers' performance criteria. This close attention to quality manufacturing
was recognized again in fiscal 1996 as the Division's Minerva, Ohio, plant
achieved International Organization for Standardization Certification,
ISO-9002:94. Its Ware Shoals, South Carolina, plant received that status in
fiscal 1995. ISO Certification affirms, through an audit by the ISO third party
assessor, that a company documents its quality policies and procedures, trains
its people and audits processes to ensure compliance. The Certification
confirms, in effect, that Baxter does what it says it will do in delivering
products manufactured to its high quality levels. Since only some 700 U.S.
companies are currently ISO Certified, Baxter is in very select company. In
addition to a strong quality system, Baxter employees provide a high degree of
knowledgeable support in product application and problem solving that enhances
customer satisfaction.
Baxter's sales efforts will be enhanced by further training and aggressive
deployment of its direct sales force--an initiative that will impact positively
its ability to sell in increasing depth to volume core and tube users. In
addition, the Division remains focused on continued product development and
increased plant productivity.
Industrial Packaging Division
- ------------------------------
DENNIS H. KELLY (Seated right)
President
ROBERT A. DOUGLAS (Seated left)
Financial Manager
KENNETH E. ZWICK (Standing left)
Plant Manager-Minerva
JAMES D. ARMSTRONG, JR. (Standing middle)
Plant Manager-Perrysburg
ROBERT E. ISAACS (Standing right)
National Sales Manager
BUSTER T. SIMPSON (not pictured)
Plant Manager-Ware Shoals, SC
12
<PAGE> 15
[PHOTO 13: Photo of Dennis H. Kelly, Robert A. Douglas, Kenneth E. Zwick, James
D. Armstrong, Jr., and Robert E. Isaacs, the President, Financial Manager,
Plant Manager - Mineva, Plant Manager - Perrysburg, and National Sales Manager,
respectively, of the Industrial Packaging Division, seated on or standing near
paper tubes and cores.]
13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS:
FISCAL 1996 COMPARED TO FISCAL 1995
On February 29, 1996, the Company signed a definitive agreement to sell for
cash substantially all net operating assets of its Housewares Division, Design
Trend. Consequently, results of operations discussed below have been
reclassified to reflect both continuing and discontinued operations. The
divestiture, which occurred on March 29, 1996, represents a strategic
redirection in the Company's allocation of resources away from the consumer
retail market. The downward trend in profitability brought about by increasing
raw materials costs, coupled with the immense purchasing and pricing power of
mass merchandisers lead to management's decision to divest the Housewares
Division and refocus the Company's resources towards its strengths in industrial
and institutional markets which the Company's continuing operations serve.
As a result of that transaction, the Company incurred a fourth quarter
non-cash after-tax charge of $7.3 million, or $2.06 per share. This charge,
representing a loss on disposal of discontinued operations, includes mainly the
write-off of goodwill which approximated 5.5 million, losses recorded on sale
of net assets which approximated 2.2 million, transaction costs which
approximated $600 thousand and contingent accruals which approximated $200
thousand. Earnings from discontinued operations of $410 thousand, or 12 cents
per share combined with the loss on disposal, resulted in a fiscal 1996 loss
from discontinued operations of $6.8 million, or $1.94 per share. Earnings from
discontinued operations in fiscal 1995 were $754 thousand, or 22 cents per
share. In combining continued and discontinued operations the Company reported
a fiscal 1996 net loss of $2.4 million, or 69 cents per share, compared with
prior fiscal year earnings of $5.3 million, or $1.51 per share.
Sales from continuing operations for the fiscal year ended February 29, 1996
were $137.2 million, 8.1 percent above the $126.9 million of fiscal 1995. Each
of the three continuing operating units contributed to this sales gain. Of the
sales increase recorded in fiscal 1996, 52 percent resulted from the addition of
Plezall Wipers, acquired at the beginning of the fiscal year. Selective price
increases instituted during the year added 30 percent to year over year sales
gains. The introduction of new products such as our restroom deodorants systems
distributed through Hospital Specialty (our Personal Care Division), and the
expansion of new safety products distributed by CCP Industries (our Industrial
Textiles Division), added 16 percent to the fiscal year overall increase. The
Company's continuing initiatives to improve sales force effectiveness through
product line extensions, sales force training and the use of sales management
information systems helped to improve volume sales.
The cost of goods sold for continuing operations increased to 68.6 percent
of sales in fiscal 1996 from 65.8 percent for fiscal 1995. This increase was the
result of a combination of forces, including the dramatic increase in the price
of fluff pulp and paper which did not begin to subside until late in the fourth
quarter of fiscal 1996. Pricing of fluff pulp, the major raw material component
of product cost at Hospital Specialty, nearly doubled at its peak in late fiscal
1996 over its lowest level in fiscal 1995. Other factors influencing cost of
goods as a percent of sales include competitive pricing in consumer markets and
the increase in sales of lower gross margin wholesale products.
Tight control of selling, general and administrative expenses and continued
improvement in administrative efficiency resulting from the effective use of
technology in the areas of marketing and distribution resulted in a decrease in
these expenses to 26.1 percent of sales for fiscal 1996 from 28.2 percent for
the prior fiscal year. Two other events, which occurred during the fourth
quarter of the current fiscal year, added to this favorable decline. Consistent
with the strategic redirection exemplified by the sale of Design Trend, our
Hospital Specialty Division sold for a gain ($931,800) certain assets comprising
its douche and enema line of business. In addi-
14
<PAGE> 17
tion, the insurance company which administers the Company's health and welfare
benefits plan converted to a stock company from a mutual company. In the
conversion, the Company received shares which it sold for a gain
($604,500). The proceeds will be used to fund future health claims.
Earnings from continued operations declined 2.5 percent to $4.4 million in
fiscal 1996 from $4.5 million in fiscal 1995. Highly competitive and
price-sensitive customers forced the Company to absorb rapidly escalating raw
material costs in several product categories. As a result, earnings from
continued operations fell to 3.2 percent from 3.6 percent in fiscal 1995.
Net interest expense increased to $594 thousand in fiscal 1996, as compared
to $317 thousand in fiscal 1995. This 87.2 percent increase was the result of
higher borrowing levels related to the acquisition of Plezall and forward
purchases of raw materials, and higher interest rates which raised the cost of
borrowing. Interest coverage, calculated as operating earnings divided by net
interest expense, fell to 12.1 times for fiscal 1996 from 24.0 times for fiscal
1995. Reflective of this increase in interest expense, weighted average debt
outstanding in fiscal 1996 was $9,855,000 as compared to $6,625,000 in fiscal
1995. The weighted average interest rate in fiscal 1996 was 6.96 percent as
compared to 5.85 percent in fiscal 1995.
Earnings from continuing operations before income taxes for fiscal 1996
declined to $6.6 million from $7.3 million in the preceding fiscal year.
Consistent with the lower earnings, income taxes fell to $2.2 million from $2.8
million for fiscal 1995. The effective tax rate also declined to 32.9 percent
for fiscal 1996 versus 38.0 percent for the prior fiscal year. This improvement
resulted from lower state and local taxes and the increase in tax-exempt income
earned by the Company. Earnings per share from continuing operations were
$1.25 per share in fiscal 1996 as compared to $1.29 in fiscal 1995. The
decline resulted solely from the decline in earnings, as the weighted average
number of shares outstanding did not change materially.
Earnings from discontinued operations net of income taxes were $410 thousand
in fiscal 1996, down from $754 thousand in fiscal 1995. Despite a 9.8 percent
increase in sales year over year, earnings declined 45.6 percent as a result of
product mix shift and significantly higher costs for both steel and cotton, the
primary components of goods sold for the discontinued operation.
RESULTS OF OPERATIONS:
FISCAL 1995 COMPARED TO FISCAL 1994
Fiscal 1995 sales from continuing operations were $126.9 million, 9.5
percent above the $115.9 million level achieved in fiscal 1994. Growth in adult
incontinent product sales provided the largest increase in sales for Hospital
Specialty. Sales gains at CCP Industries and Baxter Tube resulted from strong
general domestic economic growth and improved marketing efficiencies.
Cost of goods sold decreased slightly to 65.8 percent of sales in fiscal
1995 versus 66.0 percent of sales in fiscal 1994. Product mix changes and
procurement opportunities more than offset the initial stages of raw material
cost increases which carried into fiscal 1996.
The implementation of technology to improve efficiency resulted in the
reduction of selling, general and administrative expenses as a percent of sales
to 28.2 percent in fiscal 1995, from 29.4 percent in 1994. Improved productivity
allows the expense level to be leveraged over greater volume.
Net interest expense increased 22.5 percent, primarily as a result of higher
interest rates and the year-over-year impact of borrowings to finance
acquisitions made in fiscal 1994. Interest coverage for fiscal 1995 was 24.0
times.
Earnings from continuing operations before income taxes for fiscal 1995 of
$7.3 million provided a 94.3 percent increase over the $3.8 million recorded in
fiscal 1994. As a result, income taxes for fiscal 1995 rose to $2.8 million from
$1.4 million for the prior fiscal year. The tax rate was 38.0 percent for fiscal
1995 and fiscal 1994.
15
<PAGE> 18
Fiscal 1995 earnings from continuing operations totaled $4.5 million,
compared to the $2.3 million, reported in fiscal 1994. Earnings per share from
continuing operations were $1.29 per share in fiscal 1995 compared to 67 cents
in fiscal 1994. The improvement was solely attributable to the increase in
earnings, as the weighted average number of shares outstanding did not change
materially. Included in continuing operations for the fourth quarter of
fiscal 1994 is a $1.3 million (or 22 cents per share) charge taken by the
Company in connection with the restructuring of its Housewares Division. The
charge included costs of shutting down duplicate facilities in Dallas and
Philadelphia, termination costs and moving expenses.
Earnings from discontinued operations net of income taxes were $754
thousand in fiscal 1995 as compared to $468 thousand in fiscal 1994. The
increase of 61 percent was the result of the combination of Ever-Ready
Appliance Mfg. Co., aquired late in the fiscal 1994 second quarter.
Consolidated net earnings in fiscal 1995 increased to $5.3 million, or
$1.51 per share, from $2.8 million, or 80 cents per share in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position continues to be strong. Current assets are
3.2 times current liabilities at February 29, 1996 as compared to 2.9 times at
February 28, 1995. Cash and cash equivalents nearly tripled by fiscal year end
1996 as a result of strong operating cash flow and the influx of cash from
Hospital Specialty's sale of its douche and enema line of business. The
reclassification of certain non-current assets to current as a result of the
Housewares Division divestiture also added to an improved current ratio.
Working capital at fiscal year end of $33.2 million increased 9.6 percent
from the prior year's $30.3 million. The Company's debt-to-equity ratio of 14.2
percent at fiscal year end increased from 14.5 percent at prior year end.
Cash provided from operations is the primary source of liquidity and
amounted to $9.7 million in fiscal 1996, $3.9 million in fiscal 1995 and $7.2
million in fiscal 1994. These internally generated funds are used primarily for
capital expenditures, dividends paid to shareholders and other miscellaneous
investing and financing activities.
The Company invested $3.2 million in property, plant and equipment to expand
capacity and improve productivity. This amount compares to the $2.6 million
invested in fiscal 1995 and $2.8 million in fiscal 1994. Fiscal 1997 investments
are budgeted to be consistent with prior years.
In March 1995, the Company acquired Plezall Wipers, Inc., a Miami, Florida
distributor of woven textile wipers, for $2.9 million in a cash transaction
accounted for as a purchase.
In fiscal 1996 the Company increased its dividend payout to shareholders 7.7
percent to $885 thousand from $822 thousand. The Company's objective is to
increase dividends periodically in a manner consistent with increases in free
cash flow.
The Company maintains a $30.0 million line of credit to finance working
capital requirements if needed and to finance acquisitions. Cash received
subsequent to fiscal year end 1996 from the sale of the Housewares Division was
used to pay off outstanding debt.
In fiscal 1995 the need to increase certain inventory stock at Design Trend
to strengthen its ability to respond quickly to orders and the need to stock raw
materials ahead of price increases at Hospital Specialty, caused the downward
trend in cash provided by operations as compared to fiscal 1994. Further debt
repayment and investments in property, plant and equipment in fiscal 1995 also
added to the decreased cash levels from fiscal 1994.
ACCOUNTING CHANGES
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation," which provides a basis for measurement and recognition of all
stock-based employee compensation plans. The disclosure requirements of this
Statement are effective for fiscal years beginning after December 15, 1995. The
Company expects that it will maintain its current accounting
16
<PAGE> 19
method for stock-based compensation and disclose the pro-forma effects on net
income and earnings per share of the fair market value method as permitted by
the Statement.
INFLATION
Fiscal 1996 saw rising raw material costs, particularly for fluff pulp,
paper and steel which significantly outpaced general inflation. Competitive
pricing and customer pricing pressures, especially in the retail sectors which
the Company serves, put downward pressure on operating margins. The Company
attempts to alleviate these pressures by increasing selling prices to help
offset rising costs, increasing productivity and improving manufacturing
techniques.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
THE TRANZONIC COMPANIES
For the Years Ended February 29/28 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales ......................................... $ 137,215,521 126,940,765 115,919,011 110,187,909 105,765,052
Operating earnings ............................ 7,179,566 7,621,726 4,018,590 6,543,941 7,489,936
Earnings from continuing operations
before income taxes ......................... 6,585,310 7,304,342 3,759,432 6,514,297 7,705,153
Income taxes .................................. 2,169,000 2,773,000 1,428,000 2,413,000 3,012,000
Earnings from continuing operations ........... 4,416,310 4,531,342 2,331,432 4,101,297 4,693,153
Earnings from discontinued operations
(net of income taxes) ....................... 410,032 754,054 467,833 112,685 (116,872)
Loss on disposal of Housewares
Division (net of income taxes) .............. (7,250,000) -- -- -- --
Net earnings (loss) ........................... (2,423,658) 5,285,396 2,799,265 4,213,982 4,576,281
Net earnings (loss) per Common Share:
From continuing operations .................. 1.25 1.29 .67 1.15 1.33
From discontinued operations ................ (1.94) .22 .13 .04 (.04)
Cash dividends:
Per Class A Common Share .................... .195 .18 .18 .165 .16
Per Class B Common Share .................... .355 .34 .34 .325 .32
Total assets .................................. 75,021,643 80,279,466 73,537,946 63,675,545 58,015,061
Long-term debt ................................ 7,000,000 7,600,000 9,000,000 2,900,000 195,000
Shareholders' equity .......................... 49,154,116 52,236,347 47,479,072 46,328,637 42,743,659
Shareholders' equity per Common
Share ....................................... 14.03 15.03 13.75 13.21 12.32
Common Shares outstanding ..................... 3,503,388 3,474,338 3,452,038 3,507,838 3,468,128
</TABLE>
Fiscal year 1994 includes a $1,300,000 charge to operating earnings ($792,000
after tax or 22 cents per share) for costs associated with restructuring the
Housewares Division.
17
<PAGE> 20
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THE TRANZONIC COMPANIES
Years Ended February 29/28 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales ....................................................... $ 137,215,521 126,940,765 115,919,011
Costs and expenses:
Cost of goods sold ....................................... 94,171,671 83,580,232 76,560,280
Selling, general and administrative expenses (note N) .... 35,864,284 35,738,807 34,040,141
Restructuring cost ....................................... -- -- 1,300,000
- ----------------------------------------------------------------------------- ----------- ------------
130,035,955 119,319,039 111,900,421
- ----------------------------------------------------------------------------- ----------- ------------
Operating earnings .................................... 7,179,566 7,621,726 4,018,590
Interest income ............................................. 91,386 70,236 54,369
Interest expense ............................................ (685,642) (387,620) (313,527)
- ----------------------------------------------------------------------------- ----------- ------------
Earnings from continuing operations before income taxes 6,585,310 7,304,342 3,759,432
Income taxes (note I) ....................................... 2,169,000 2,773,000 1,428,000
- ----------------------------------------------------------------------------- ----------- ------------
Earnings from continuing operations ................... 4,416,310 4,531,342 2,331,432
- ----------------------------------------------------------------------------- ----------- ------------
Discontinued operations (note O):
Earnings from discontinued operations, net of income taxes
of $400,000 in 1996; $581,000 in 1995; and $372,000
in 1994 ................................................ 410,032 754,054 467,833
Loss on disposal of discontinued operations, net of income
tax benefit of $1,250,000 .............................. (7,250,000) -- --
- ----------------------------------------------------------------------------- ----------- ------------
Earnings (loss) from discontinued operations .......... (6,839,968) 754,054 467,833
- ----------------------------------------------------------------------------- ----------- ------------
Net earnings (loss) ................................... $ (2,423,658) 5,285,396 2,799,265
- ----------------------------------------------------------------============= =========== ============
Net earnings (loss) per Common Share:
From continuing operations ............................... $ 1.25 1.29 .67
From discontinued operations ............................. $ (1.94) .22 .13
Net earnings (loss) per Common Share .................. $ (.69) 1.51 .80
- ----------------------------------------------------------------============= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 21
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
THE TRANZONIC COMPANIES
February 29/28 1996 1995
- --------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash (including cash equivalents of $4,673,200 in 1996
and $349,600 in 1995) ................................................ $ 6,610,933 2,387,540
Receivables, less allowance for doubtful receivables of
$290,500 in 1996 and $408,500 in 1995 ................................ 13,752,460 16,995,651
Inventories (note C) .................................................... 15,338,665 23,173,604
Deferred income taxes (note I) .......................................... 1,804,106 1,285,533
Prepaid expenses and other current assets ............................... 1,219,235 2,046,517
Net assets of discontinued operations (note O) .......................... 9,274,244 --
- ------------------------------------------------------------------------------------------ -----------
Total current assets ........................................... 47,999,643 45,888,845
Property, plant and equipment, net (note D) ................................ 19,376,208 23,102,181
Other noncurrent assets .................................................... 2,477,913 2,416,958
Intangible assets (note E) ................................................. 5,167,879 8,871,482
- ------------------------------------------------------------------------------------------ -----------
$75,021,643 80,279,466
- -------------------------------------------------------------------------------=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable .................................................. $ 8,337,445 9,657,007
Accrued compensation .................................................... 2,943,971 2,981,782
Other payables and accrued expenses ..................................... 3,489,484 2,922,604
- ------------------------------------------------------------------------------------------ -----------
Total current liabilities ...................................... 14,770,900 15,561,393
Long-term debt, noncurrent portion (note F) ................................ 7,000,000 7,600,000
Deferred gain .............................................................. 1,912,230 2,071,830
Deferred income taxes (note I) ............................................. 935,573 1,878,728
Other noncurrent liabilities ............................................... 1,248,824 931,168
Shareholders' equity (notes F, G and L):
Serial preferred shares without par value.
Authorized 200,000; no shares issued ................................. -- --
Class A Common Shares, no par value; shares at stated value.
Authorized 4,000,000; issued 2,658,149 in 1996 and
2,660,404 in 1995 ................................................. 664,537 665,101
Class B Common Shares, no par value; shares at stated value.
Authorized 8,000,000; issued 1,337,390 in 1996 and
1,316,385 in 1995 ................................................. 334,348 329,096
Additional paid-in capital .............................................. 5,780,774 5,643,705
Retained earnings ....................................................... 46,471,200 49,780,163
- ------------------------------------------------------------------------------------------ -----------
53,250,859 56,418,065
Less cost of shares held in treasury--
Class A Common Shares - 472,846 in 1996 and 483,146 in 1995 .......... 3,899,037 3,984,012
Class B Common Shares - 19,305 in 1996 and 1995 ...................... 197,706 197,706
- ------------------------------------------------------------------------------------------ -----------
Total shareholders' equity ..................................... 49,154,116 52,236,347
- ------------------------------------------------------------------------------------------ -----------
Commitments (note K) ....................................................... -- --
- ------------------------------------------------------------------------------------------ -----------
$75,021,643 80,279,466
- -------------------------------------------------------------------------------=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 22
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THE TRANZONIC COMPANIES
Years Ended February 29/28 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net earnings (loss) ......................................................... $ (2,423,658) 5,285,396 2,799,265
Adjustments to reconcile net earnings (loss) to net cash provided
by continuing operations:
(Earnings) loss from discontinued operations ............................. 6,839,968 (754,054) (467,833)
Depreciation and amortization ............................................ 3,517,521 3,616,163 3,438,898
Gain on sale of assets ................................................... (910,637) -- --
Deferred income taxes .................................................... (246,000) 170,000 311,000
Other, net ............................................................... 38,122 (132,103) 140,831
Change in assets and liabilities, net of effects of acquisitions:
Receivables, net ........................................................ (136,600) (1,174,977) (37,400)
Inventories ............................................................. 2,904,762 (5,292,712) (801,189)
Prepaid expenses and other current assets ............................... 546,861 430,586 (1,138,407)
Trade accounts payable .................................................. (668,092) 2,083,258 907,464
Accrued compensation .................................................... 158,733 637,717 26,799
Other payables and accrued expenses ..................................... 541,811 284,393 471,451
- ---------------------------------------------------------------------------------------------- ---------- -----------
Net cash provided by continuing operations ........................ 10,162,791 5,153,667 5,650,879
Net cash provided by (used in) discontinued operations ............ (455,770) (1,291,739) 1,505,909
- ---------------------------------------------------------------------------------------------- ---------- -----------
Net cash provided by operating activities ......................... 9,707,021 3,861,928 7,156,788
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit .............................................. 6,400,000 3,400,000 13,100,000
Repayments of long-term debt ................................................ (7,000,000) (4,900,000) (6,995,000)
Cash dividends .............................................................. (885,305) (821,833) (826,501)
- ---------------------------------------------------------------------------------------------- ---------- -----------
Net cash provided by (used in) financing activities ............... (1,485,305) (2,321,833) 5,278,499
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired ............................. (2,909,735) -- (6,939,193)
Purchase of treasury shares ................................................. -- -- (922,953)
Proceeds on exercise of share options ....................................... 217,626 276,775 93,688
Non-compete payments ........................................................ -- (180,000) (230,000)
Proceeds from sale of property, plant and equipment ......................... 1,992,513 248,981 34,074
Purchases of property, plant and equipment .................................. (3,163,078) (2,586,894) (2,811,717)
Other, net .................................................................. (135,649) (214,608) (165,388)
- ---------------------------------------------------------------------------------------------- ---------- -----------
Net cash used in investing activities ....................................... (3,998,323) (2,455,746) (10,941,489)
- ---------------------------------------------------------------------------------------------- ---------- -----------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the year ......................................... 4,223,393 (915,651) 1,493,798
Beginning balance ........................................................... 2,387,540 3,303,191 1,809,393
- ---------------------------------------------------------------------------------------------- ---------- -----------
Ending balance .............................................................. $ 6,610,933 2,387,540 3,303,191
- ----------------------------------------------------------------------------------============ ========== ===========
Supplemental schedule of non-cash investing and financing activities:
On March 1, 1995, the Company purchased substantially all the assets
and assumed certain liabilities of Plezall Wipers, Inc.; in conjunction with
the acquisition, liabilities were assumed as follows:
Fair value of assets acquired ......................................... $ 3,091,802 -- --
Cash paid ............................................................. 2,909,735 -- --
- ---------------------------------------------------------------------------------------------- ---------- -----------
Liabilities assumed ................................................... $ 182,067 -- --
- ----------------------------------------------------------------------------------============ ========== ===========
The Company purchased all of the outstanding shares of Ever-Ready
Appliance Mfg. Co. for $7,730,651; in conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired ......................................... $ -- -- 8,370,094
Cash paid for shares .................................................. -- -- 7,730,651
- ---------------------------------------------------------------------------------------------- ---------- -----------
Liabilities assumed ................................................... $ -- -- 639,443
- ----------------------------------------------------------------------------------============ ========== ===========
Supplemental disclosures of cash flow information:
Income taxes paid ........................................................... $ 2,351,618 1,599,723 2,003,522
Interest paid ............................................................... $ 689,440 393,797 305,929
- ----------------------------------------------------------------------------------============ ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 23
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
THE TRANZONIC COMPANIES
Class A Class B Additional Treasury Shares
Common Common paid-in Retained -----------------------
Years Ended February 29/28 Shares Shares capital earnings Class A Class B
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1993 ........ $ 669,306 321,316 5,419,067 43,343,836 (3,064,207) (360,681)
Net earnings ........................ -- -- -- 2,799,265 -- --
Cash dividends, $.18 per Class A
Common Share ...................... -- -- -- (400,697) -- --
Cash dividends, $.34 per Class B
Common Share ...................... -- -- -- (425,804) -- --
Exercise of 400 Class A
Common and 7,900 Class B
Common Share options .............. -- 1,975 88,565 -- 3,148 --
Acquisition of 64,100 Class A Common
Shares for treasury ............... -- -- -- -- (922,953) --
Tax benefit associated with incentive
share options ..................... -- -- 6,936 -- -- --
Conversion of 6,369 Class A
Common Shares to 6,369
Class B Common Shares ............. (1,592) 1,592 -- -- -- --
- ------------------------------------------------- ------- --------- ---------- --------- -------
Balance at February 28, 1994 ........ 667,714 324,883 5,514,568 45,316,600 (3,984,012) (360,681)
Net earnings ........................ -- -- -- 5,285,396 -- --
Cash dividends, $.18 per Class A
Common Share ...................... -- -- -- (391,608) -- --
Cash dividends, $.34 per Class B
Common Share ...................... -- -- -- (430,225) -- --
Exercise of 22,300 Class B
Common Share options .............. -- 1,600 112,200 -- -- 162,975
Tax benefit associated with incentive
share options ..................... -- -- 16,937 -- -- --
Conversion of 10,451 Class A
Common Shares to 10,451
Class B Common Shares ............. (2,613) 2,613 -- -- -- --
- ------------------------------------------------- ------- --------- ---------- --------- -------
Balance at February 28, 1995 ........ 665,101 329,096 5,643,705 49,780,163 (3,984,012) (197,706)
Net (loss) .......................... -- -- -- (2,423,658) -- --
Cash dividends, $.195 per Class A
Common Share ...................... -- -- -- (425,775) -- --
Cash dividends, $.355 per Class B
Common Share ...................... -- -- -- (459,530) -- --
Exercise of 10,300 Class A
Common and 18,750 Class B
Common Share options .............. -- 4,688 127,963 -- 84,975 --
Tax benefit associated with incentive
share options ..................... -- -- 9,106 -- -- --
Conversion of 2,255 Class A
Common Shares to 2,255
Class B Common Shares ............. (564) 564 -- -- -- --
- ------------------------------------------------- ------- --------- ---------- --------- -------
Balance at February 29, 1996 ........ $ 664,537 334,348 5,780,774 46,471,200 (3,899,037) (197,706)
- ----------------------------------------========= ======= ========= ========== ========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TRANZONIC COMPANIES
Years Ended February 29, 1996, and February 28, 1995 and 1994
- --------------------------------------------------------------------------------
A NATURE OF OPERATIONS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
The Tranzonic Companies manufactures and distributes nationally a wide
variety of products to the industrial, institutional and consumer sectors
through its three remaining operating divisions. The principal market for the
Company's products is the continental United States. Tranzonic's Personal Care
Division, Hospital Specialty, provides personal care and other washroom related
products. Its Industrial Textiles Division, CCP Industries, distributes
industrial wiping cloths, washroom supplies, specialty chemicals, and safety and
work apparel. Baxter Tube, its Industrial Packaging Division, manufactures paper
tubes, cores and sleeves used in a wide variety of industrial applications.
(1) Principles of Consolidation
All of the Company's subsidiaries are wholly-owned and their accounts are
included in the accompanying consolidated financial statements. All material
inter-company balances and transactions have been eliminated.
(2) Inventories
Inventories are stated at the lower of cost or market with cost determined
using the first-in, first-out (FIFO) method.
(3) Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation and
amortization is computed on the straight-line method over the estimated useful
lives of the assets.
(4) Intangibles
Goodwill, the excess of cost over net assets of acquired companies, is being
amortized over periods not exceeding 40 years. At each quarterly balance sheet
date, management assesses whether there has been an impairment in the carrying
value, primarily by reviewing current and projected sales, operating income and
annual cash flows.
(5) Income Taxes
Deferred taxes are provided on the asset and liability method whereby
deferred tax assets are recognized for deductible temporary differences and loss
carryforwards, and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax basis. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
The Company files a consolidated Federal income tax return with its
subsidiaries.
(6) Share Options
Upon the exercise of Class A or Class B Common Share options granted under
the Company's incentive share option plans, the Company, at its discretion, can
either distribute newly issued shares or shares from treasury. Additional
paid-in capital is adjusted to reflect the balance of the option price.
(7) Net Earnings Per Common and Common Equivalent Share
Net earnings per common and common equivalent share have been calculated
based on the weighted average Class A and Class B Common Shares outstanding
during the period plus the incremental shares (calculated using the treasury
share method) for those outstanding share options which are considered common
share equivalents. Weighted average common and common equivalent shares used in
the calculation were 3,525,457, 3,508,467, and 3,515,658 in 1996, 1995 and 1994,
respectively.
(8) Cash Equivalents
The Company considers all highly liquid short-term investments, with
maturities when purchased of three months or less, to be cash equivalents.
(9) Revenue Recognition
The Company recognizes revenue as goods are shipped to customers.
(10) Deferred Gain
The deferred gain recorded on the books of the Company which resulted from a
sale and leaseback of certain real property is being amortized in proportion to
rental payments over 20 years, the life of the lease.
22
<PAGE> 25
(11) New Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation," which provides a basis for measurement and recognition of all
stock-based employee compensation plans. The disclosure requirements of this
Statement are effective for fiscal years beginning after December 15, 1995. The
Company expects that it will maintain its current accounting method for
stock-based compensation and disclose the pro-forma effects on net income and
earnings per share of the fair market value method as permitted by the
Statement.
(12) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(13) Reclassification
Certain prior year amounts have been reclassified to conform to the current
year presentation.
B ACQUISITIONS / RESTRUCTURING
- --------------------------------------------------------------------------------
On March 1, 1995, the Company acquired substantially all the assets and
assumed certain liabilities of Plezall Wipers, Inc., a Miami, Florida,
distributor of woven textile wipers for $2.9 million in a cash transaction. The
acquisition was accounted for under the purchase method of accounting. Results
of operations have been reflected in the Company's consolidated financial
statements from the date of acquisition.
In fiscal 1994, the Company announced plans to consolidate the operating
units making up its Housewares Division. As a result, the Company recorded a
$1,300,000 charge to operating earnings ($792,000 after tax or 22 cents per
share). The charge includes costs of shutting down duplicate facilities in
Dallas and Philadelphia, termination costs and moving expenses. The project
was sucessfully completed in the first quarter of fiscal 1995 with no material
difference in amounts incurred and paid to those estimated in fiscal 1994.
Results of operations of Ever-Ready Appliance Mfg. Co., acquired on August
13, 1993, classified as discontinued operations as a result of the divestiture
of the Housewares Division, have been reflected in the Company's consolidated
financial statements from the date of acquisition.
C INVENTORIES
- --------------------------------------------------------------------------------
The components of inventories are summarized below:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------
<S> <C> <C>
Raw materials ................ $ 7,182,278 13,318,921
Finished goods ............... 8,156,387 9,854,683
- ---------------------------------------------- ----------
$ 15,338,665 23,173,604
- ---------------------------------============= ==========
</TABLE>
D PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------------------------------------------------
The components of property, plant and equipment, net, are summarized below:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------
<S> <C> <C>
Land, buildings and
improvement................... $ 14,084,556 14,490,801
Machinery and equipment ...... 27,925,060 30,198,293
- ---------------------------------------------- ----------
42,009,616 44,689,094
Accumulated depreciation
and amortization ............. 22,633,408 21,586,913
- ---------------------------------------------- ----------
$ 19,376,208 23,102,181
- ---------------------------------============= ==========
</TABLE>
E INTANGIBLE ASSETS
- --------------------------------------------------------------------------------
Intangible assets consist primarily of goodwill. Amortizable goodwill
included therein of $4,396,697 and $8,098,026 in 1996 and 1995, respectively, is
shown net of accumulated amortization of $1,399,388 and $2,118,953 in those
years. In fiscal 1996, goodwill increased $2,120,202 resulting from the
acquisition of Plezall Wipers (note B) and decreased $5,476,905 as a result of
the Housewares Division divestiture (note O).
F LONG-TERM DEBT
- --------------------------------------------------------------------------------
A description of the long-term debt follows:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------
<S> <C> <C>
Revolving credit ............. $ 7,000,000 7,600,000
- ----------------------------------============ =========
</TABLE>
The Company has a $30,000,000 revolving credit facility maturing June 30,
1997. Funds borrowed may be used for working capital and/or acquisition
purposes. In lieu of a compensating balance requirement, the agreement requires
an annual fee of 3/10 of 1% on the unused portion. At the Company's option,
borrowings under the agreement bear interest at either the bank's prime rate or
at 1/2 of 1% above an adjusted LIBOR rate, subject to certain conditions in the
rate structure.
23
<PAGE> 26
At February 29, 1996, interest rates applicable to total borrowings
outstanding range from 5.8125% to 5.875%.
The debt agreements contain restrictions on the Company with respect to
investments, maintenance of working capital, net worth, use of cash for payments
of dividends, and purchase of treasury shares. Capital distributions during any
fiscal year are limited to 50% of average consolidated net earnings over a
three-year period. The Company was in compliance with all debt agreement
restrictions or has obtained waivers.
G SHARE OPTIONS
- --------------------------------------------------------------------------------
The Company has three performance share option plans in effect for key
employees. Under these plans 180,000 Class A Common Shares and 400,000 Class B
Common Shares were reserved for issuance at a per share option price of not less
than 100% of the market price on the dates these options were awarded.
Additionally, 60,000 Class A Common Shares were reserved for issuance at a per
share option price from 10% to 95% of the market price on the dates these
options were awarded, and 95,000 Class B Common Shares were granted as part of
certain employment contracts at 100% of market price at the date of grant. At
February 29, 1996, there were 136,250 Class B Common Shares available for grant
under these plans.
Details pertaining to the Company's plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------
<S> <C> <C> <C>
Options granted:
Class B-Common ..... 38,250 35,950 48,400
Average option price:
Class B-Common ..... $ 14.75 12.04 14.08
Options exercised:
Class A-Common ..... 10,300 -- 400
Class B-Common ..... 18,750 22,300 7,900
Average option price:
Class A-Common ..... $ 3.95 -- 10.17
Class B-Common ..... $ 9.44 12.41 11.34
Options which became
exercisable:
Class B-Common .... 38,700 42,900 46,300
Average option price:
Class B-Common ..... $ 15.22 12.63 12.26
Options unexercised at
year-end:
Class A-Common .... 16,500 27,800 27,800
Class B-Common .... 243,835 281,485 279,400
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------
<S> <C> <C> <C>
Option price range per
share:
Class A-Common.......... $ 5.08 .50 .50
........................ to to to
........................ $10.17 10.17 10.17
Class B-Common.......... $ 5.08 .50 .50
........................ to to to
........................ $ 16.78 16.78 16.78
Options cancelled:
Class A-Common........... 1,000 -- --
Class B-Common........... 57,150 11,565 14,400
Options exercisable:
Class A-Common.......... 16,500 27,800 27,800
Class B-Common.......... 121,850 107,400 90,700
</TABLE>
H RETIREMENT PLANS
- --------------------------------------------------------------------------------
Late in fiscal 1996, the Company received a favorable determination by the
IRS and the PBGC to terminate and make final distributions of pension benefits
from its General Employee's Retirement Plan of the Personal Care Division. As of
fiscal year end most of the pension benefits were distributed.
The Salary Savings and Profit-sharing Plan of The Tranzonic Companies is a
defined contribution plan covering certain qualifying employees. The Company's
contributions to The Salary Savings and Profit-sharing Plan were $385,311 in
1996, $363,690 in 1995 and $219,850 in 1994 for continuing operations.
I INCOME TAXES
- --------------------------------------------------------------------------------
The provision for income taxes from continuing operations consists of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal ....... $ 2,127,000 2,332,000 704,000
State and local 288,000 271,000 413,000
- ------------------------------- --------- ---------
2,415,000 2,603,000 1,117,000
Deferred:
Federal ....... (213,000) 92,000 311,000
State and local (33,000) 78,000 --
- ------------------------------- --------- ---------
(246,000) 170,000 311,000
- ------------------------------- --------- ---------
$ 2,169,000 2,773,000 1,428,000
- --------------------=========== ========= =========
</TABLE>
24
<PAGE> 27
The Company's effective tax rate from continuing operations differs from the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------
<S> <C> <C> <C>
Computed income taxes at
statutory rate ....... 35.0% 35.0% 35.0%
State and local income
taxes, net of federal
income tax benefit ... 2.6 3.1 7.7
Tax-exempt income ...... (3.5) (.3) (.9)
General business
tax credit ........... (1.1) (1.0) (1.9)
Lower rate benefit ..... (1.0) (1.0) (1.0)
Other .................. 0.9 2.2 (.9)
- --------------------------------- ---- ----
32.9% 38.0% 38.0%
- -----------------------------==== ==== ====
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Bad debt reserve ............................. $ 109,712 149,565
Inventory valuation .......................... 299,848 557,984
Vacation accrual ............................. 32,152 55,095
Bonus accrual ................................ 65,658 170,032
Deferred compensation ........................ 480,165 293,461
Deferred book gain ........................... 772,793 832,324
Package design costs ......................... 166,551 196,124
Deferred tax losses .......................... 2,491,925 --
Other ........................................ 316,678 287,620
- ------------------------------------------------------------- ---------
Total gross deferred tax assets .............. 4,735,482 2,542,205
Less valuation allowance ..................... 1,506,995 --
- ------------------------------------------------------------- ---------
Net deferred tax assets ...................... 3,228,487 2,542,205
Deferred tax liabilities:
Depreciation ................................. 1,994,855 2,334,910
Incentive compensation ....................... -- 264,986
Other ........................................ 365,099 535,504
- ------------------------------------------------------------- ---------
Total deferred tax liabilities ............... 2,359,954 3,135,400
- ------------------------------------------------------------- ---------
Net deferred tax (assets) liabilities .......... $(868,533) 593,195
- ----------------------------------------------------========= =========
</TABLE>
The valuation allowance for deferred tax assets as of February 29, 1996 is
$1,506,995. This newly established allowance represents the Federal tax effect
of a net capital loss carryforward created through the divestiture of the
Housewares Division. The capital loss carryforward is available to offset future
net capital gains, if any, through fiscal year 2002.
J SEGMENT DATA
- --------------------------------------------------------------------------------
The industry segment in which the Company operates is primarily the
conversion of paper and allied products.
The majority of the Company's products originate from large rolls of paper
or allied products purchased directly from mills where such materials are
manufactured. As such, each of the Company's divisions displays similar
purchasing function characteristics. Also, the end-use of most of the Company's
products is similar, as the majority of sales are of disposable products used
for personal hygiene and cleaning.
The Company's foreign operations and export sales are immaterial.
K LEASE COMMITMENTS
- --------------------------------------------------------------------------------
The Company conducts operations at certain facilities under various
non-cancellable operating leases. Rent expense charged to continuing operations
was $1,515,572, $1,328,365 and $1,180,269 in fiscal years 1996, 1995 and 1994,
respectively.
Rental commitments at February 29, 1996 for noncancellable operating leases
with initial terms greater than one year are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 .................................... $ 1,180,814
1998 .................................... 1,036,511
1999 .................................... 914,631
2000 .................................... 919,875
2001 .................................... 919,875
after 2001 .............................. 6,973,236
- -----------------------------------------------------------
$ 11,944,942
- -----------------------------------------------============
</TABLE>
L CLASS B COMMON SHARES
- --------------------------------------------------------------------------------
Class B Common Shares, each of which have one-tenth the voting power of a
Class A Common Share, must be paid a per share dividend at least equal to that
paid on the Class A Common Shares. Class A Common Shares may be converted into
Class B Common Shares on a one-for-one basis at the holder's option.
25
<PAGE> 28
M QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- --------------------------------------------------------------------- ----------- ----------- -----------
1996
<S> <C> <C> <C> <C>
Sales ................................................. $34,427,872 35,406,029 34,558,178 32,823,442
Cost of goods sold .................................... 23,132,588 24,251,306 23,781,598 23,006,179
Earnings from continuing operations before income taxes 1,566,002 1,419,458 1,267,185 2,332,665
Income taxes .......................................... 521,571 463,855 453,074 730,500
Earnings from continuing operations ................... 1,044,431 955,603 814,111 1,602,165
Discontinued operations:
Earnings from discontinued operations,
net of income taxes ................................. (3,658) 225,492 99,751 88,447
Loss on disposal of Housewares Division,
net of income tax benefit ........................... -- -- -- (7,250,000)
Earnings (loss) from discontinued operations .......... (3,658) 225,492 99,751 (7,161,553)
Net earnings (loss) ................................... 1,040,773 1,181,095 913,862 (5,559,388)
Per share amounts:
From continuing operations .......................... .30 .27 .23 .45
From discontinued operations ........................ -- .06 .03 (2.04)
Net earnings (loss) ................................. .30 .33 .26 (1.58)
Cash dividends paid:
Class A Common ..................................... .045 .05 .05 .05
Class B Common ..................................... .085 .09 .09 .09
1995
Sales ................................................. $31,155,636 32,413,654 32,391,524 30,979,951
Cost of goods sold .................................... 20,453,914 21,434,943 21,402,800 20,288,575
Earnings from continuing operations before income taxes 1,838,772 1,941,812 1,808,446 1,797,186
Income taxes .......................................... 663,907 758,783 651,810 698,500
Earnings from continuing operations ................... 1,092,991 1,183,029 1,156,636 1,098,686
Earnings from discontinued operations,
net of income taxes ................................. 167,672 306,810 134,093 145,479
Net earnings .......................................... 1,260,663 1,489,839 1,290,729 1,244,165
Per share amounts:
From continuing operations .......................... .31 .34 .32 .31
From discontinued operations ........................ .05 .09 .04 .04
Net earnings ........................................ .36 .43 .36 .35
Cash dividends paid:
Class A Common ..................................... .045 .045 .045 .045
Class B Common ..................................... .085 .085 .085 .085
- -------------------------------------------------------------------------------------------------------------
</TABLE>
N SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
- --------------------------------------------------------------------------------
In the current fiscal year fourth quarter the Company realized a gain of
$931,800 from the sale of its Personal Care Division's douche and enema product
lines. In addition the Company realized a gain of $604,500 from the sale of
stock received when the Company's health and welfare benefits plan administrator
converted from a mutual to a stock company. Both of these transactions are
included in selling, general and administrative expense.
26
<PAGE> 29
O DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
On February 29, 1996 the Company signed a definitive agreement to sell for
cash substantially all operating net assets of its Housewares Division.
Accordingly, their operations are segregated in the accompanying consolidated
financial statements. The Company closed the sale on March 29, 1996. A reserve
for loss on discontinued operations was established for expected transaction
costs, estimated adjustment to purchase price based on final audited numbers,
and estimated contingencies. Sales from discontinued operations were
$24,110,273, $21,957,298 and $14,910,820 for the fiscal years ended February 29,
1996 and February 28, 1995 and 1994, respectively.
The components of net assets of discontinued operations included in the
accompanying consolidated balance sheet as of February 29, 1996 (fiscal year
1995 amounts are shown as they were historically classified) are as follows:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------
<S> <C> <C>
Current assets:
Receivables, net .............. $ 4,793,777 3,885,801
Inventories ................... 5,815,190 5,421,083
Prepaid expenses and other
current assets ............... 458,789 291,694
- ----------------------------------------------- ---------
Total current assets ...... 11,067,756 9,598,578
Current liabilities:
Trade accounts payable ........ 671,490 803,102
Accrued compensation .......... 235,909 210,043
Other payables and accrued
expenses ..................... 146,955 --
- ----------------------------------------------- ---------
Total current liabilities . 1,054,354 1,013,145
- ----------------------------------------------- ---------
Total .................. 10,013,402 8,585,433
- ----------------------------------------------- ---------
Noncurrent assets:
Property, plant and equipment . 314,276 710,597
Other noncurrent assets ....... 113,691 200,575
Intangibles ................... 29,661 26,696
- ----------------------------------------------- ---------
Total noncurrent assets ... 457,628 937,868
- ----------------------------------------------- ---------
Net assets ............. 10,471,030 9,523,301
Reserve for loss on disposal of
discontinued operations ...... 1,196,786 --
- ----------------------------------------------- ---------
Net assets of
discontinued operations . $ 9,274,244 9,523,301
- ------------------------------------=========== =========
The reserve for loss on disposal of discontinued operations consists of
brokerage fees which were paid subsequent to year end and purchase price
accruals involving contingent inventory and accounts receivable adjustments.
</TABLE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
The Tranzonic Companies:
We have audited the accompanying consolidated balance sheets of The Tranzonic
Companies and subsidiaries as of February 29, 1996 and February 28, 1995, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended February 29, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Tranzonic
Companies and subsidiaries as of February 29, 1996 and February 28, 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended February 29, 1996, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Cleveland, Ohio
March 29, 1996
27
<PAGE> 30
SHAREHOLDER INFORMATION
SHARE PRICE RANGE
THE TRANZONIC COMPANIES
Traded on the American Stock Exchange
Years Ended February 29/28
<TABLE>
<CAPTION>
Class A Common Class B Common
Symbol -- TNZA Symbol -- TNZB
--------------------------- ---------------------------
1996 1995 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter 161/8 133/4 121/2 107/8 151/8 131/2 123/8 103/4
2nd Quarter 153/8 131/2 143/8 111/4 153/8 131/2 135/8 101/2
3rd Quarter 153/8 131/2 221/2 131/4 143/4 13 203/8 121/8
4th Quarter 143/4 111/4 191/4 143/4 141/2 115/8 173/4 143/8
</TABLE>
As of May 6, 1996, there were 367 Class A Common and 363 Class B Common
shareholders of record.
DIVIDEND PAYMENTS
THE TRANZONIC COMPANIES
Years Ended February 29/28
<TABLE>
<CAPTION>
Class A Common Class B Common
-------------- --------------
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1st Quarter 4.5(cent) 4.5(cent) 8.5(cent) 8.5(cent)
2nd Quarter 5.0(cent) 4.5(cent) 9.0(cent) 8.5(cent)
3rd Quarter 5.0(cent) 4.5(cent) 9.0(cent) 8.5(cent)
4th Quarter 5.0(cent) 4.5(cent) 9.0(cent) 8.5(cent)
- ------------------------------------- --------- --------- ---------
19.5(cent) 18.0(cent) 35.5(cent) 34.0(cent)
- ----------------------------========= ========= ========= =========
</TABLE>
TRANSFER AGENT AND REGISTRAR
KeyCorp Shareholder Services, Inc.
Cleveland, Ohio 44115
GENERAL COUNSEL
Berick Pearlman & Mills Co., L.P.A.
Cleveland, Ohio 44114
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Cleveland, Ohio 44114
FORM 10-K
Shareholders who desire a copy of the fiscal 1996 annual report on Form 10-K may
obtain it without charge by writing to Alayne L. Reitman, Vice President-Finance
and Treasurer
THE TRANZONIC COMPANIES
30195 Chagrin Blvd.
Pepper Pike, Ohio 44124
216/831-5757
28
<PAGE> 31
BOARD OF DIRECTORS
*JAMES H. BERICK
Chairman, Berick, Pearlman & Mills Co., L.P.A. (Attorneys)
*JOSEPH A. CAMPANELLA
Executive Vice President, Star Banc Corporation
+DAVID J. GOLDEN
Senior Vice President
*STEVEN W. PERCY
President, BP Oil Co. and
Executive Vice President, BP America Inc.
+MORTON L. REITMAN
Executive Vice President and President-Personal Care Division
+ROBERT S. REITMAN
Chairman, President and Chief Executive Officer
SYLVIA K. REITMAN
Investor
*THOMAS S. ROBERTSON
Sainsbury Professor of Marketing Chair, London Business School
JAMES C. SPIRA
Managing Partner, Diamond Technology Partners
*Members of Audit and Compensation Committees
+Members of Executive Committee
OFFICERS
ROBERT S. REITMAN
Chairman, President and Chief Executive Officer
MORTON L. REITMAN
Executive Vice President and President-Personal Care Division
DAVID J. GOLDEN
Senior Vice President
RICHARD J. SIMS
Senior Vice President and President-Industrial Textiles Division
DENNIS H. KELLY
Vice President and President-Industrial Packaging Division
ALAYNE L. REITMAN
Vice President-Finance and Treasurer
ROBERT D. WEITZNER
Vice President-Information Technology
RICHARD J. PENNZA
Chief Accounting Officer
JAMES H. BERICK
Secretary
WILLIAM E. HEMANN
Executive Vice President-Personal Care Division
ERNEST L. CLARKE
Vice President Medical Division-Personal Care Division
PAUL D. MARION, JR.
Vice President National Accounts-Personal Care Division
KATHLEEN A. METZGER
Vice President Administration-Personal Care Division
BETH SMYLIE RICHMAN
Vice President Retail Division-Personal Care Division
NORMAN D. SULL
Vice President Purchasing-Industrial Textiles Division
DAVID J. WILLIAMS
Vice President Sales-Industrial Textiles Division
CHRISTOPHER T. CIRA
Assistant Vice President Finance-Industrial Textiles Division
HELEN MALHOTRA
Assistant Vice President Information Systems-Industrial Textiles Division
DANIEL R. MOON
Assistant Vice President Marketing-Industrial Textiles Division
[INSIDE BACK COVER]
<PAGE> 32
THE TRANZONIC COMPANIES
30195 Chagrin Blvd.
Pepper Pike, Ohio 44124
[OUTSIDE BACK COVER]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT FEBRUARY 29, 1996 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED FEBRUARY 29, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 6,610,933
<SECURITIES> 0
<RECEIVABLES> 13,752,460
<ALLOWANCES> 290,500
<INVENTORY> 15,338,665
<CURRENT-ASSETS> 47,999,643
<PP&E> 19,376,208
<DEPRECIATION> 22,633,408
<TOTAL-ASSETS> 75,021,643
<CURRENT-LIABILITIES> 14,770,900
<BONDS> 0
<COMMON> 998,885<F1>
0
0
<OTHER-SE> 52,251,974<F2>
<TOTAL-LIABILITY-AND-EQUITY> 75,021,643
<SALES> 137,215,521
<TOTAL-REVENUES> 137,215,521
<CGS> 94,171,671
<TOTAL-COSTS> 130,035,955
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 685,642
<INCOME-PRETAX> 6,585,310
<INCOME-TAX> 2,169,000
<INCOME-CONTINUING> 4,416,310
<DISCONTINUED> (6,839,968)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,423,658)
<EPS-PRIMARY> (.69)
<EPS-DILUTED> 0
<FN>
<F1>THIS FIGURE INCLUDES $664,537 CLASS A COMMON AND $334,348 CLASS B COMMON SHARES
<F2>THIS FIGURE INCLUDES $5,780,774 IN ADDITIONAL PAID IN CAPITAL AND
$46,471,200 IN RETAINED EARNINGS
</FN>
</TABLE>
