<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
---- Exchange Act of 1934
For the quarterly period ended August 31, 1996 or
---------------
---- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to ___________________
Commission file number 2-29697
-----------
THE TRANZONIC COMPANIES
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0664235
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
30195 Chagrin Blvd., Pepper Pike, Ohio 44124
- --------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 216/831-5757
------------
Indicate by check mark whether the registrant (1) has filed all annual,
quarterly, and other reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to the filing requirements for at least the past 90 days.
Yes X No
--- ---
Number of Common Shares Outstanding at October 8, 1996 3,474,438
<PAGE> 2
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE TRANZONIC COMPANIES
Condensed Consolidated Balance Sheets
August 31, 1996 and February 29, 1996
<TABLE>
<CAPTION>
August 31, February 29,
Assets 1996 1996
------ ----------- ------------
(unaudited)
<S> <C> <C>
Current assets
Cash (including cash equivalents of $10,886,300 at
August 31, 1996 and $4,673,200 at February 29, 1996) $ 11,868,330 6,610,933
Receivables, net 14,194,262 13,752,460
Inventories 15,539,540 15,338,665
Deferred income taxes 518,175 1,804,106
Prepaid expenses and other current assets 1,215,927 1,219,235
Net assets of discontinued operations - 9,274,244
---------- ----------
Total current assets 43,336,234 47,999,643
Property, plant and equipment, net 18,544,028 19,376,208
Other noncurrent assets 2,753,430 2,477,913
Intangible assets 5,992,768 5,167,879
----------- -----------
$ 70,626,460 75,021,643
========== ==========
</TABLE>
(Continued)
<PAGE> 3
THE TRANZONIC COMPANIES
Condensed Consolidated Balance Sheets
August 31, 1996 and February 29, 1996
<TABLE>
<CAPTION>
August 31, February 29,
Liabilities and Shareholders' Equity 1996 1996
------------------------------------ ---------- ------------
(unaudited)
<S> <C> <C>
Current liabilities
Trade accounts payable $ 8,503,356 8,337,445
Accrued compensation 2,383,970 2,943,971
Other payables and accrued expenses 4,513,484 3,489,484
----------- -----------
Total current liabilities 15,400,810 14,770,900
Long-term debt - 7,000,000
Deferred gain 1,832,430 1,912,230
Deferred income taxes 96,515 935,573
Other noncurrent liabilities 1,467,782 1,248,824
Shareholders' equity
Serial preferred shares without par value; authorized 200,000,
no shares issued - -
Common shares, no par value; authorized 12,000,000,
issued 3,995,539 at August 31, 1996 and
February 29, 1996 998,885 998,885
Additional paid-in capital 5,780,774 5,780,774
Retained earnings 49,567,657 46,471,200
---------- ----------
56,347,316 53,250,859
Less cost of common shares held in treasury
526,351 Common shares at August 31, 1996 and
492,151 Common shares at February 29, 1996 4,518,393 4,096,743
----------- -----------
Total shareholders' equity 51,828,923 49,154,116
---------- ----------
$ 70,626,460 75,021,643
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
THE TRANZONIC COMPANIES
Condensed Consolidated Statements of Earnings
Six- and three-month periods ended August 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
August 31, August 31,
---------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 70,161,762 69,833,901 35,446,653 35,406,029
Cost and expenses
Cost of goods sold 46,422,339 47,383,894 23,021,601 24,251,306
Selling, general, and
administrative expenses 18,413,372 19,125,514 9,426,152 9,560,648
---------- ---------- ----------- -----------
64,835,711 66,509,408 32,447,753 33,811,954
---------- ---------- ---------- ----------
Operating earnings 5,326,051 3,324,493 2,998,900 1,594,075
Interest income 176,443 33,348 99,037 12,775
Interest expense (30,471) (372,381) (2,492) (187,392)
------------- ------------ -------------- ------------
Earnings from continuing
operations before income
taxes 5,472,023 2,985,460 3,095,445 1,419,458
Income taxes 1,925,000 985,426 1,083,000 463,855
----------- ------------ ----------- ------------
Earnings from continuing
operations 3,547,023 2,000,034 2,012,445 955,603
Income from discontinued operations, net
of income taxes - 221,834 - 225,492
----------------- ----------------------------- ------------
Net earnings $ 3,547,023 2,221,868 2,012,445 1,181,095
=========== =========== =========== ===========
Net earnings per common share
From continuing operations $ 1.01 .57 .57 .27
From discontinued operations - .06 - .06
------ --- --- ---
$ 1.01 .63 .57 .33
==== === === ===
Dividends per Class A common share
(note c) $ .10 .095 .05 .05
=== ==== === ===
Dividends per Class B common share
(note c) $ .18 .175 .09 .09
=== ==== === ===
Average common and common
equivalent shares outstanding 3,507,044 3,524,136 3,506,328 3,525,344
=========== =========== =========== ===========
Shares outstanding at end of period 3,469,188 3,501,388 3,469,188 3,501,388
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
THE TRANZONIC COMPANIES
Condensed Consolidated Statements of Cash Flows
Six-month periods ended August 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 3,547,023 2,221,868
Adjustments to reconcile net earnings to net cash provided
by continuing operations
Earnings from discontinued operations - (221,834)
Depreciation and amortization 1,647,480 1,759,808
Deferred income taxes 446,873 (118,261)
Changes in assets and liabilities, net of effects of acquisitions
Receivables, net (441,802) (426,997)
Inventories (200,875) 893,872
Prepaid expenses and other current assets 3,308 171,183
Trade accounts payable 165,911 (1,543,510)
Accrued compensation (560,001) (300,947)
Other payables and accrued expenses 562,495 546,627
Other, net 1,126 (107,220)
-------------- ----------
Net cash provided by continuing operations 5,171,538 2,874,589
Net cash used in discontinued operations (6,618) (1,562,175)
-------------- ---------
Net cash provided by operating activities 5,164,920 1,312,414
Cash flows from financing activities
Proceeds from revolving credit - 5,900,000
Repayments of long-term debt (7,000,000) (1,500,000)
Cash dividends (450,566) (432,845)
------------ ----------
Net cash provided by (used in) financing activities (7,450,566) 3,967,155
Cash flows from investing activities
Net proceeds from sale of Housewares Division 9,742,367 -
Payments for acquisitions, net of cash acquired - (2,909,735)
Purchase of treasury shares (421,650) -
Proceeds on exercise of share options - 196,899
Purchases of property, plant and equipment (844,292) (1,035,574)
Other (933,382) -
------------ ---------
Net cash provided by (used in) investing activities 7,543,043 (3,748,410)
Cash and cash equivalents
Increase during the year 5,257,397 1,531,159
Beginning balance 6,610,933 2,387,540
----------- ---------
Ending balance $ 11,868,330 3,918,699
========== =========
Supplemental schedule of noncash 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
Supplemental disclosure of cash flow information
Income taxes paid $ 2,161,224 1,429,632
Interest paid $ 39,708 337,253
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
THE TRANZONIC COMPANIES
Notes to Condensed Consolidated Financial Statements
Six- and three-month periods ended August 31, 1996 and 1995
Note A In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain such adjustments (all of
which are normal and recurring in nature) necessary to present fairly
the financial position of The Tranzonic Companies (Company) at August
31, 1996 and the results of operations for the six- and three-month
periods ended August 31, 1996 and 1995. The statements should be read
in conjunction with the consolidated financial statements and notes
thereto included in the Company's annual report for the fiscal year
ended February 29, 1996.
Note B On August 2, 1996, shareholders at the Company's annual shareholders'
meeting, approved the consolidation of Tranzonic's Class A and Class
B Shares into a single class to be called Common Shares. The
consolidation became effective August 7, 1996.
Net earnings per share have been calculated based on the weighted
average Common shares outstanding during the periods plus the
incremental shares (calculated using the treasury share method) for
those outstanding share options which are considered equivalent
shares and have a dilutive impact on net earnings per share.
Note C Per share dividends are stated as those dividends paid on Class A and
Class B shares on July 16, 1996 to shareholders of record June 28,
1996, prior to the consolidation of shares as stated in Note B.
Note D 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. The acquisition was
accounted for under the purchase method of accounting.
<PAGE> 7
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The Company's financial position remains strong. The current ratio at August 31,
1996 was 2.8:1 and current assets continue to exceed total liabilities.
Revenues from continuing operations in the current year's second fiscal quarter
increased slightly above the $35.4 million recorded in the prior year like
period. A pattern which continues from the preceding quarter shows that
revenue gains from the extension of existing product lines, principally
institutional, were offset largely by the 1996 fourth quarter sale of our
Personal Care Division's douche and enema line of business, and a reduction in
revenues from certain personal hygiene product lines serving the retail
industry. Revenues from continuing operations through the six-month period
ended August 31, 1996 were $70.2 million edging above the $69.8 million
recorded a year ago.
Gross margins in the second fiscal quarter were 35.1 percent, a marked
improvement over the 31.5 percent recorded in the prior year like period. A
downward trend in raw material costs, particularly fluff pulp used extensively
in our Personal Care Division, continues to impact margins. Gross margin in
the current sixth-month fiscal period was 33.8 percent as compared to 32.1
percent of the prior year like period.
Operating earnings from continuing operations in the fiscal 1997 second quarter
were $3.0 million, up 88.1 percent over the $1.6 million recorded in the fiscal
1996 second quarter. Strategic cost reduction programs initiated late in fiscal
1996 continue to show positive results, particularly at our Personal Care
Division. Operating earnings from continuing operations through the six-month
period ended August 31, 1996 were $5.3 million, up 60.2 percent from the $3.3
million recorded in the like period last year.
On March 28, 1996, the Company completed the divestiture of its housewares
division substantially as anticipated when the transaction was reported in the
prior year fourth fiscal quarter. The cash proceeds of the sale were used to
retire the Company's borrowings under its line of credit in the current first
fiscal quarter. The excess cash from this transaction, as well as an increase
in cash flow of $2.0 million in the current year second fiscal quarter, remains
in short-term cash investments. As a consequence, interest income has increased
and interest expense has decreased significantly on a three-month and six-month
comparative basis.
Earnings from continuing operations in the second quarter ended August 31, 1996
increased to $2.0 million, or 57 cents per share, a 111 percent increase over
the $956 thousand, or 27 cents per share, recorded last year. Earnings from
discontinued operations in the prior year second quarter were $226 thousand, or
6 cents per share. Earnings from continuing operations for the six-month period
ended August 31, 1996 increased to $3.5 million, or $1.01 per share, a 77
percent increase over the $2.0 million, or 57 cents per share, recorded in the
corresponding prior year period. Earnings from discontinued operations in the
prior year six-month period were $222 thousand, or 6 cents per share.
<PAGE> 8
FORM 10-Q - PART II: OTHER INFORMATION
Items 1 through 3 and 5 are not applicable or the answer to such items is
negative; therefore, the items have been omitted and no reference is required in
this report.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
a) The Registrant's annual meeting of shareholders was held on August 2,
1996.
b) The following directors were elected at such annual meeting, each for a
three-year term expiring in 1999:
Joseph A. Campanella
Thomas S. Robertson
Steven W. Percy
c) The following matters were voted on at the annual meeting of
shareholders (with Class A Common shareholders voting on each of items
2 and 3, below, and Class B Common shareholders voting on each of items
1, 2, and 3, below):
1) Election of Class II Directors:
<TABLE>
<CAPTION>
Director Name Votes For Abstentions
------------- --------- -----------
<S> <C> <C>
Joseph A. Campanella 1,090,643 21,567
Thomas S. Robertson 1,090,643 21,567
Steven W. Percy 1,090,643 21,567
</TABLE>
2) The approval of the proposal to convert the Class B Common
Shares to Class A Common Shares and to amend the Amended
Articles of Incorporation to (i) eliminate the Class B Common
Shares, (ii) rename the Class A Common Shares as Common Shares,
and (iii) provide that the number of authorized Common Shares
shall be 12,000,000.
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Class A 1,814,063 174,074 1,390 0
Class B 984,131 101,652 940 25,487
</TABLE>
3) Selection of independent auditors for the fiscal year ending
February 28, 1997:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Class A 1,930,028 8,426 14,890 36,183
Class B 109,009.9 1,230.1 981 0
<FN>
1Filed only in electronic format pursuant to Item 601(b)(27) of Regulation S-K.
</TABLE>
<PAGE> 9
FORM 10-Q - PART II: OTHER INFORMATION
ITEM 6. Exhibits and reports on Form 8-K
a) EXHIBITS
Exhibit
Number Exhibit
------ -------
27 Financial Data Schedule(1)
99 Independent Auditors' Review Report
*Filed only in electronic format pursuant to Item 601(b)(27) of Regulation
S-K.
b) REPORTS ON FORM 8-K
On April 11, 1996, the Registrant filed a report on Form 8-K dated
March 29, 1996. On May 17, 1996, the Registrant filed Amendment No. 1
to such Form 8-K on Form 8-K/A dated May 16, 1996. On September 25,
1996, the Registrant filed Amendment No. 2 to such Form 8-K on Form
8-K/A dated September 24, 1996. The filings were made under Item 2 of
Form 8-K, in conjunction with the sale by the Registrant and its
wholly-owned subsidiaries, Design Trend, Inc. and Ever-Ready Appliance
Mfg. Co. (collectively, the Subsidiaries), of substantially all of the
assets of the Subsidiaries. The following financial statement was filed
as a part of the Form 8-K, as amended: The Tranzonic Companies
Unaudited Pro Forma Condensed Consolidated Statement of Earnings for
the year ended February 29, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
THE TRANZONIC COMPANIES
(Registrant)
Date: October 11, 1996 By: /s/ Richard J. Pennza
---------------------------------
Richard J. Pennza
(Duly authorized officer and
Principal Accounting Officer)
(1) Filed only in electronic format pursuant to Item 601(b)(27) of Regulation
S-K.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE CONDENSED CONSOLIDATED BALANCE SHEETS AT AUGUST 31, 1996 AND FEBRUARY
29, 1996 AND CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE SIX MONTH
AND THREE MONTH PERIODS ENDED AUGUST 31, 1996.
</LEGEND>
<CIK> 0000001761
<NAME> Tranzonic Companies
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 11,868,330
<SECURITIES> 0
<RECEIVABLES> 14,194,262
<ALLOWANCES> 0
<INVENTORY> 15,539,540
<CURRENT-ASSETS> 43,336,234
<PP&E> 18,544,028
<DEPRECIATION> 0
<TOTAL-ASSETS> 70,626,460
<CURRENT-LIABILITIES> 15,400,810
<BONDS> 0
<COMMON> 998,885
0
0
<OTHER-SE> 55,348,431<F1>
<TOTAL-LIABILITY-AND-EQUITY> 70,626,460
<SALES> 70,161,762
<TOTAL-REVENUES> 70,161,762
<CGS> 46,422,339
<TOTAL-COSTS> 64,835,711
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,471
<INCOME-PRETAX> 5,472,023
<INCOME-TAX> 1,925,000
<INCOME-CONTINUING> 3,547,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,547,023
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 0
<FN>
<F1>THIS FIGURE INCLUDES $5,780,774 IN ADDITIONAL PAID IN CAPITAL AND
$49,567,657 IN RETAINED EARNINGS
</FN>
</TABLE>
<PAGE> 1
Form 10-Q, Part II
Item 6
Exhibit 99
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
The Tranzonic Companies:
We have reviewed the condensed consolidated balance sheet of The Tranzonic
Companies and subsidiaries as of August 31, 1996, and the related condensed
consolidated statements of earnings for the six- and three-month periods ended
August 31, 1996 and 1995, and cash flows for the six-month periods ended August
31, 1996 and 1995. These condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The Tranzonic Companies and
subsidiaries as of February 29, 1996, and the related consolidated statements of
earnings, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated March 29, 1996, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of February 29, 1996, is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Cleveland, Ohio
September 25, 1996
