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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(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 28, 1997
[ ] 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
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(Exact Name of Registrant as specified in its Charter)
OHIO 34-0664235
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
30195 Chagrin Boulevard, Pepper Pike, Ohio 44124
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(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
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Common Shares American Stock Exchange
without par value
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]
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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 April 25, 1997: $24,451,112.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date:
3,469,338 Common Shares without par value at April 25, 1997
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Notice of Annual Meeting and Proxy Statement dated May
14, 1997 -- Part III. Neither the Report of the Compensation Committee on
Executive Compensation nor the Performance Graph contained in the Registrant's
Notice of Annual Meeting and Proxy Statement dated May 14, 1997 shall be deemed
incorporated by reference herein.
Portions of the Registrant's 1997 Annual Report to Shareholders -- Parts I and
II.
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PART I
ITEM 1. BUSINESS
The Tranzonic Companies (the "Corporation") was incorporated under the laws
of the State of Ohio on September 26, 1946. The Corporation adopted its current
name on December 13, 1983.
The Corporation and its subsidiaries (hereinafter collectively referred to
as the "Registrant") are engaged principally in the distribution (and in the
majority of instances, designing, processing, producing and manufacturing) of
(i) personal care products, including feminine napkins, Tampax(R) tampons (and
the machines through which both are dispensed), children's disposable diapers,
adult incontinent briefs and washroom disposable products; (ii) industrial
textiles; (iii) cleaning and safety products; and (iv) spiral-wound paper tubes
and cores. The Registrant distributes its products throughout the United States
from manufacturing and distribution facilities located in Ohio, Kentucky,
Arizona, Nevada, Tennessee, Illinois, South Carolina, and Florida. In addition,
the Registrant sells industrial textiles in Canada; manufactures paper tubing
and cores in the United Kingdom and distributes paper tubing and cores in
various foreign markets; and sells a limited amount of personal care products in
foreign markets.
The Registrant operates in one industry segment which is the conversion of
paper, textile and allied materials. The majority of the Registrant's products
are produced from large rolls of paper, textile or allied products purchased
directly from the mills where such materials are manufactured. These raw
materials make up a significant amount of the total product cost of the
Registrant's products. As a result, each of the Corporation's divisions
displays similar purchasing characteristics, such as bulk purchasing of raw
materials at discount prices from similar manufacturers, and similar
manufacturing and processing characteristics of those raw materials. In
addition, the end-use of many of the Registrant's products is similar, as many
of the Registrant's sales are of disposable products that are used for
personal hygiene and cleaning.
The Registrant, through its Personal Care Division, markets and distributes
through independent sales representatives various products, including feminine
napkins such as Maxithins(R), Tampax(R) tampons, children's disposable diapers,
adult incontinence briefs, toilet seat covers, condoms and related items, as
well as restroom deodorant systems, washroom accessories and supplies. The
Registrant manufactures all of the feminine napkins, children's diapers, adult
incontinence products and toilet seat
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covers which it distributes, and manufactures machines which dispense feminine
napkins, Tampax(R) tampons, condoms and other similar products. The Division is
the exclusive distributor of Tampax(R) tampons to the institutional trade for
resale by others primarily through coin-operated dispensing machines in the
United States, Canada and Mexico. The Division also wholesales, for resale
through vending machines, its proprietary feminine napkins, which have been
marketed by the Division and a predecessor since 1923 under its trademark
Gards(R) and now Maxithins(R), and condoms manufactured by others. The Division
markets feminine napkins under its trademarks Maxithins(R), Everyday(R), Safe &
Soft(R) and Soft & Thin(R) and packages the feminine napkins which it
manufactures for private label sale to retail outlets. The Division markets
children's disposable diapers for over-the-counter sales under its trademarks
Precious(R) and Bottoms Up(R) and under private labels. The Division also
markets adult incontinence products under its trademark At Ease(R), toilet seat
covers and odor control products under its trademark Health Gards(R), and
disposable Gards(R) obstetrical pads. The Division also distributes stainless
steel washroom accessories and supplies under the name Hospeco(R), including
such items as handrails for the handicapped and dispensers for paper towels,
tissues, soap and toilet seat covers.
Through its wholly-owned subsidiary CCP Industries, Inc., the Registrant
processes, packages and distributes a varied range of industrial textiles and
related products. These products include industrial wiping materials, cleaning
chemicals, restroom supplies, disposable and durable work clothing, floor mats,
napery and safety products. This subsidiary employs a nationwide sales force
which markets such products to industrial, commercial and institutional users in
every state of the continental United States and in portions of Canada. In July,
1996, CCP Industries, Inc. acquired certain of the assets, properties and
business of First Step, a division of Dailey's, Inc., a Tennessee corporation,
which division sells and distributes safety, first aid and infection control
products. In July, 1996, CCP Industries, Inc. also acquired substantially all of
the business and assets of Supply Line, Inc., a Tennessee corporation, which
converts and sells non-woven and woven textile wiping and polishing cloths to
distributors and end-users. In October, 1996, CCP Industries, Inc. acquired
substantially all of the assets, properties and business of the Midwest
Disposable Products Division, Chicago Sanitary Division, and Globe Cotton Mills
Division of Cook & Riley, Inc., a Delaware corporation, each of which divisions
converts and sells woven and non-woven industrial wiping cloths.
Through its wholly-owned subsidiary Baxter Tube Company, the Registrant
manufactures and distributes spiral-wound paper tubes and cores for use by a
variety of businesses, including the
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automotive, fiberglass and textile industries. Baxter Tube Company also
manufactures a line of paper sleeving products. Although Baxter Tube Company
distributes its products principally throughout the United States, the bulk are
distributed in the Midwest and Midsouth. In addition, this subsidiary
distributes a limited amount of its products to Canada, Mexico, England, Taiwan,
South Africa, Venezuela, Abu Dhabi and Saudi Arabia. This subsidiary sells
directly and through the services of independent marketing agents. In March,
1997 (subsequent to the Company's fiscal year end), Baxter Tube Company acquired
substantially all of the spiral-wound paper tube and fiberglass core business,
properties and assets of Unity Paper Tubes, a division of Wyndeham Press Group
PLC, a United Kingdom corporation. This operation, located near Manchester,
England, manufacturers and sells spiral wound paper tubes and cores for a
variety of end users, including the fiberglass, textile and papermill
industries.
Historically, aggregate revenues derived from foreign sources have not
constituted a material portion of the Registrant's gross revenues. With the
addition of its United Kingdom subsidiary, the Registrant expects foreign source
revenue to increase substantially.
On March 29, 1996, the Registrant sold substantially all of the assets of
its Housewares Division to Whitney-Corr-Pak International, Inc. for
approximately Ten Million Dollars ($10,000,000). Through that division, the
Registrant formerly designed, produced, manufactured and sold to retailers and
others laundry products, closet storage and closet organization products, cedar
storage products, and personal travel organizers.
Competition, Business Practices and Background Information
The Registrant's operations are highly competitive and the principal bases
of competition are (i) quality and type of goods sold and services rendered and
(ii) price. Some of the Registrant's competitors have greater financial
resources than the Registrant and include manufacturers and distributors dealing
directly with retail or industrial customers. Based upon the limited information
available, the Registrant believes that it is not a significant factor in any
market in which it operates except for the distribution of feminine napkins and
tampons for resale through coin-operated dispensing machines.
The Registrant does not have any special or unusual working capital
requirements. The nature of the Registrant's business does not require it to
carry significant amounts of inventory to meet rapid delivery requirements of
customers or to assure itself of a continuous allotment of goods from suppliers.
The
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Registrant believes that its practices relating to working capital items are
consistent with industry practices.
As of April 25, 1997, the Registrant had approximately 1,027 employees, some
of whom are represented by various labor unions. The Registrant considers its
employee relations satisfactory.
The Registrant uses in its business various service marks, trademarks, trade
names, and patents. The Registrant's patents relate to lock mechanisms utilized
in its coin-operated dispensing machines and to the process and manufacture of
paper tubes for the fiberglass industry. The Registrant's service marks,
trademarks, and trade names protect certain marks and names printed on the
Registrant's products. These marks and names are significant to the extent they
provide the Registrant with a certain amount of goodwill in the industry.
Although each of the foregoing contributes to the profitability of the
Registrant, the Registrant does not consider a material part of its business to
be dependent on any one or group of them.
ITEM 2. PROPERTIES
The following chart describes the principal properties that are owned by the
Registrant or one of its subsidiaries:
Location Principal Use Approximate Acreage
- -------- ------------- -------------------
Cleveland, Ohio Office, warehouse and 7 acres
manufacturing facilities
Nicholasville, Office, warehouse and 13.14 acres
Kentucky manufacturing facilities
Minerva, Ohio Office, warehouse and 3.5 acres
manufacturing facilities
Leyland, England Office, warehouse and 2.17 acres
manufacturing facilities
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The following chart describes the principal properties that are leased by the
Registrant or one of its subsidiaries:
Approximate
Principal Square Expiration Renewal
Location Use Footage Date Options
- -------- --------- ----------- ---------- -------
Highland Office, 108,750 2/28/09 Two 10-
Heights, warehouse year
Ohio and manu- renewal
facturing options
facilities
Tempe, Office, 50,580 2/28/09 Two 10-
Arizona warehouse year
and manu- renewal
facturing options
facilities
Alcoa, Office and 124,524 12/31/02 One 5-
Tennessee warehouse year
renewal
option
Hialeah Office, 13,200 3/31/02 One 5-
Gardens, warehouse year
Florida and manu- renewal
facturing option
facilities
Bedford Office, 31,250 10/15/97 Four 6-
Park, Ohio warehouse month
and manu- renewal
facturing options
facilities
Ware Shoals, Office 26,250 3/14/04 One 5-
South warehouse year
Carolina and manu- renewal
facturing option
facilities
Pepper Corporate 6,100 2/28/98 Two 5-
Pike, headquarters year
Ohio renewal
options
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ITEM 3. PENDING LEGAL PROCEEDINGS
The Registrant is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The age (as of April 25, 1997), business experience during the past five
years, and offices held by each of the Registrant's executive officers who is
not also a Director of the Registrant are reported below. The Registrant's Code
of Regulations provides that officers shall hold office until their successors
are chosen and qualified in their stead, and that any officer may be removed
from office at any time by the Registrant's Board of Directors.
Dennis H. Kelly: Age 59; Vice President of the Registrant since June 1,
1989.
Richard J. Sims: Age 46; Senior Vice President of the Registrant since 1992.
Previously, Senior Vice President and General Counsel of Victoria Financial
Corporation (insurance holding corporation).
Alayne L. Reitman: Age 33; Treasurer, Vice President--Finance and Chief
Financial Officer of the Registrant since October 1993. Previously, Financial
Analyst for American Airlines.
Richard J. Pennza: Age 42; Chief Accounting Officer of the Registrant since
October 1993. Previously, Controller of the Registrant.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Information in response to this Item is set forth on page 24 of the
Registrant's 1997 Annual Report to Shareholders (Exhibit 13), which information
is incorporated herein by reference.
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ITEM 6. SELECTED FINANCIAL DATA
Information in response to this Item is set forth on page 13 of the
Registrant's 1997 Annual Report to Shareholders (Exhibit 13), which information
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information in response to this Item is set forth on pages 9 through 12 of
the Registrant's 1997 Annual Report to Shareholders (Exhibit 13), which
information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Financial Statements
Information in response to this Item is set forth on pages 14 through
23 of the Registrant's 1997 Annual Report to Shareholders (Exhibit 13), which
information is incorporated herein by reference.
(b) Supplementary Data
Information in response to this Item is set forth in the financial
statement schedules set forth on pages 13 through 15 of this Form 10-K.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in response to this Item in respect of Directors is
set forth under the caption "Election of Directors" in the Registrant's proxy
statement dated May 14, 1997 (Exhibit 99), which information is incorporated
herein by reference. The information required by this Item in respect of
Executive Officers who are not also Directors of the Registrant is set forth on
page 6 of this Form 10-K and is incorporated herein by reference.
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ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item is set forth under the caption
"Compensation of Executive Officers" in the Registrant's proxy statement dated
May 14, 1997 (Exhibit 99), which information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item is set forth under the caption
"Beneficial Ownership of Common Shares" in the Registrant's proxy statement
dated May 14, 1997 (Exhibit 99), which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is set forth under the caption
"Election of Directors" in the Registrant's proxy statement dated May 14, 1997
(Exhibit 99), which information is incorporated herein by reference.
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 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)(i) 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)
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3(b)(ii) Certificate of Amendment to Amended Articles of
Incorporation filed August 7, 1996 (incorporated by
reference to Exhibit 10 of the Registrant's Form
10-Q for the fiscal quarter ended November 30, 1996)
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 (incorporated by
reference to Exhibit 10(c) of the Registrant's Form
10-K for the fiscal year ended February 29, 1996)
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)* Supplemental Retirement and Nonqualified Deferred
Compensation Plan
10(g) 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)
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10(h) 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(i) 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(j) Extension of Commitment Period under Credit
Agreement dated September 24, 1996 by KeyBank as
successor in interest to Society National Bank
10(k)* 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(l)* 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)
10(m)* 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(n)* 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(o)* 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).
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10(p)* 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)
10(q)* Amendment dated June 13, 1995 to Employment
Agreement between the Registrant and Richard J. Sims
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 1997 Annual Report to Shareholders
21 Subsidiaries of the Registrant
24 Powers of Attorney
27** Financial Data Schedule
99 Notice of Annual Meeting and Proxy Statement dated
May 14, 1997 (filed by the Registrant with the
Securities and Exchange Commission on May 14, 1997)
*Management contract or compensatory plan or arrangement required to
be filed as an Exhibit hereto.
**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 28, 1997.
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S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE TRANZONIC COMPANIES
By: /s/ Robert S. Reitman
--------------------------------------
Robert S. Reitman
Chairman, President and
Principal Executive Officer
Dated: May 19, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Dated: May 19, 1997 /s/ Robert S. Reitman
--------------------------------------
Robert S. Reitman
Director
Dated: May 19, 1997 /s/ Alayne L. Reitman
--------------------------------------
Alayne L. Reitman
Principal Financial Officer
Dated: May 19, 1997 /s/ Richard J. Pennza
--------------------------------------
Richard J. Pennza
Principal Accounting Officer
James H. Berick, Director
Joseph A. Campanella, Director
David J. Golden, Director
Steven W. Percy, Director
Morton L. Reitman, Director
Sylvia K. Reitman, Director
Thomas S. Robertson, Director
James C. Spira, Director
Dated: May 19, 1997 By: /s/ Robert S. Reitman
-----------------------------------
Robert S. Reitman
Attorney in Fact
Powers of attorney authorizing Robert S. Reitman to sign this Annual Report
on Form 10-K on behalf of Directors of the Registrant are being filed with the
Securities and Exchange Commission herewith (Exhibit 24).
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THE TRANZONIC COMPANIES
Index
Financial Statements
Audited:
Consolidated Balance Sheets
February 28, 1997 and February 29, 1996
Consolidated Statements of Operations
Years ended February 28, 1997, February 29, 1996, and February 28, 1995
Consolidated Statements of Shareholders' Equity
Years ended February 28, 1997, February 29, 1996, and February 28, 1995
Consolidated Statements of Cash Flows
Years ended February 28, 1997, February 29, 1996, and February 28, 1995
Notes to Consolidated Financial Statements
Years ended February 28, 1997, February 29, 1996, and February 28, 1995
Schedule
Valuation and Qualifying Accounts and Reserves Schedule II
All other schedules have been omitted because the material is not applicable or
is not required as permitted by the rules and regulations of the Commission,
or the required information is included in notes to consolidated financial
statements.
Financial statements of the parent company are omitted because it is primarily
an operating company and all subsidiaries included in the consolidated
financial statements are wholly owned.
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
The Tranzonic Companies:
Under date of March 31, 1997, we reported on the consolidated balance sheets of
The Tranzonic Companies as of February 28, 1997 and February 29, 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended February 28, 1997,
as contained in the 1997 annual report to shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in
the annual report on Form 10-K for the year 1997. In connection with our audits
of the aforementioned consolidated financial statements, we also have audited
the financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, this financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
/s/ KPMG Peat Marwick LLP
March 31, 1997
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Schedule II
THE TRANZONIC COMPANIES
Valuation and Qualifying Accounts and Reserves
Years ended February 28, 1997, February 29, 1996 and February 28, 1995
<TABLE>
<CAPTION>
Additions
--------------------------
Balance at Charged to Balance at
Beginning Costs and End of
Classification of Period Expenses Recoveries Deductions Period
-------------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended February 28, 1997
Allowance for doubtful
accounts receivable $290,500 99,248 9,798 95,846(A) 298,700
======== ======= ====== ======= =======
Year ended February 29, 1996
Allowance for doubtful
accounts receivable $408,500 36,303 92,379 246,682(B) 290,500
======== ======= ====== ======= =======
Year ended February 28, 1995
Allowance for doubtful
accounts receivable $337,000 229,651 90,109 248,260(A) 408,500
======== ======= ====== ======= =======
- ------------
(A) Accounts written off.
(B) Accounts written off of $173,816 and $72,866 of reserves reclassified to
net assets of discontinued operations.
</TABLE>
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EXHIBIT 10(f)
THE TRANZONIC COMPANIES SUPPLEMENTAL RETIREMENT
AND NONQUALIFIED DEFERRED COMPENSATION
PLAN EXECUTIVE SUMMARY
OBJECTIVES To provide supplemental retirement income to eligible
executives and to permit eligible executive employees to
defer compensation on a pre-tax basis.
PARTICIPANTS Participation is available to individuals designated by
the Board of Directors, the Chief Executive Officer and
the President of the Corporation. Participants must be
either members of the Corporation's management team
or otherwise highly compensated employees of the
Corporation.
CONTRIBUTIONS The participant may elect to defer payment of a
specified portion of the salary or bonus payable at some
time in the future by the Corporation to him or her
until his or her termination of employment or other
specified events. The amount of a participant's annual
salary reduction contribution is unlimited.
DISTRIBUTION/ Distributions will be made to participants upon
VESTING termination of employment or the financial hardship of
the participant. Participants are fully vested in their
benefits under the Plan at all times; that is, the
participant will receive the entirety of his or her
account balance under the Plan at his or her termination
of employment for any reason, even voluntary termination
of employment.
TAXATION OF BENEFITS/ It is the intent of the Corporation that benefits under
DEDUCTIONS the Plan will be taxed to the participant as he or she
receives them after termination of employment. The
Corporation will generally receive a deduction for its
contributions at that time.
FUNDING AND STATUS There shall be no formal funding for the Corporation's
OF PARTICIPANT contractual obligation under the Plan. This is necessary
AS CREDITOR in order to defer the taxable event to the participant.
Any participant to whom an amount is credited under the
Plan shall constitute a general, unsecured credit of the
Corporation.
REGULATORY/COST ERISA and the Internal Revenue Code's rather onerous
BURDENS tax-qualified plan rules generally do not apply to
the Plan. The Plan likely will be an extremely low-
internal-and-external-cost benefit device.
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THE TRANZONIC COMPANIES
SUPPLEMENTAL RETIREMENT AND NONQUALIFIED
DEFERRED COMPENSATION PLAN
This unfunded elective deferred compensation plan (the "Plan"),
effective as of October 1, 1996, is hereby adopted and established as The
Tranzonic Companies Supplemental Retirement and Nonqualified Deferred
Compensation Plan and will be maintained by The Tranzonic Companies (the
"Company") for the purpose of providing benefits for certain individuals as
provided herein.
ARTICLE I
ELIGIBILITY AND PARTICIPATION
Section 1.1 All management or highly compensated employees who have
been identified as influential within the Company and have been selected to
participate in the Plan by the Board of Directors of the Company, the Chief
Executive Officer or the President of the Company are eligible to become and
remain participants in the Plan.
Section 1.2 The individuals described in Section 1.1 shall be eligible
to participate in the Plan and may do so by filing a written election with the
Company in the form attached or other form approved by the Company. A
participant may defer up to fifteen percent (15%) of his or her normal annual
W-2 wages or any lesser portion of his or her compensation otherwise payable to
him or her by the Company after the date of said election as he or she may
specify in said written election to the Company, and the amounts so deferred
shall be paid only as provided in the Plan. In the first year in which a
participant becomes eligible to participate in the Plan, the newly eligible
participant may make an election to defer compensation (for services to be
performed subsequent to the election) within 30 days after the date the person
becomes eligible. Subsequently, except as otherwise provided herein, changes in
elections to defer payment of compensation must be made on or before the
December 1st prior to the beginning of the calendar year for which compensation
is payable.
Section 1.3 For each individual electing to participate in the Plan,
the Company shall establish and maintain a deferred compensation account. The
amount of each participant's deferred compensation shall be credited to this
account as of the date such compensation otherwise would be payable. There
shall be no formal funding for payments under the Plan. Any participant to whom
an amount is credited under the Plan shall be deemed a general, unsecured
creditor of the Company.
Section 1.4 Any participant may change the amount of, or suspend,
future deferrals as he or she may specify by written notice to the Company. The
prior election to defer shall be irrevocable as to compensation already
deferred previous to any such suspension or new election. If a participant
elects to suspend deferrals, such suspension shall be made on at least twenty
(20) days prior written notice to be effective the next following January 1,
April 1, July 1 or October 1. If a participant elects to suspend deferrals, the
participant may subsequently make a new election to again become a participant
in the Plan. As noted in Section 1.2, any such new election to defer payment of
compensation must be made by December 1 before the beginning of the period of
service for which the compensation is payable, which period shall be the
calendar year.
<PAGE> 3
ARTICLE II
DEFERRED COMPENSATION
All amounts credited under the terms of the Plan to a deferred
compensation account maintained in the name of a participant by the Company
shall be credited with interest at a rate equal to eight percent (8%) per
annum, compounded semi-annually, until the entire amount credited to the
account has been distributed to the participant or to the participant's
beneficiary in accordance with a written designation which has been delivered
to the Company.
ARTICLE III
DISTRIBUTION
Section 3.1 On the first day of the month next following the date on
which a participant's employment with the Company and all other related
employers (as determined under Section 414 of the Internal Revenue Code)
terminates for any reason including death, distribution of the amount credited
to the participant's account in accordance with this Plan shall commence to or
with respect to the participant in accordance with either of the alternatives
set forth below as selected by the participant. For purposes of this Agreement,
a participant's employment with the Company shall be deemed terminated in the
event of a Change of Control (as defined below) when, in addition to a Change
of Control, a participant's right to benefits under this Agreement has not
been informally funded through a so-called "Rabbi Trust Agreement"
substantially similar to that described in Revenue Procedure 92-64. A Change of
Control shall mean the purchase or other acquisition by any person, entity or
group of persons, within the meaning of section 13(d) or 14(d) of the
Securities Exchange Act of 1934 ("Act"), or any comparable successor
provisions, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Act) of 50 percent or more of either the outstanding
shares of common stock or the combined voting power of Company's then
outstanding voting securities entitled to vote generally, or the approval by
the stockholders of Company of a reorganization, merger, or consolidation, in
each case, with respect to which persons who were stockholders of Company
immediately prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than 50 percent of the combined voting power
entitled to vote generally in the election of directors of the reorganized,
merged or consolidated Company's then outstanding securities, or a liquidation
or dissolution of Company or of the sale of all or substantially all of
Company's assets.
Selection of a payment alternative shall be made at the time the
participant first elects to participate in the Plan. The alternative forms of
distribution shall be:
(a) lump sum; or
(b) substantially equal consecutive quarterly installments over a
period not to exceed ten (10) years. Interest shall be credited to a
participant's deferred compensation account through the date of the initial and
subsequent distributions and shall be added to the participant's account and
distributed as a part of the next amortized installment. Distribution shall be
made or commence on the first day of the month next following the date on which
the participant's employment with the Company and any other related employers
(as determined under Section 414 of the Internal Revenue Code) terminates.
Subsequent installments, if any, will be made on the first day of each
successive quarter following the date of the first installment. Each such
installment, if any, shall include interest credited to the balance of the
participant's accounts. The final installment will be the balance of the
participant's deferred compensation account and all undisbursed interest
credited to the account. However, upon the request of a participant whose
account is in the process of an installment distribution, the Board of
Directors of the
-2-
<PAGE> 4
Company, in its sole discretion and without any obligation to do so, may
accelerate any or all payments credited to said participant.
Section 3.2 If a participant should die before distribution of the
full amount of the participant's account has been made, any remaining amounts
shall be distributed to the participant's beneficiary by the method designated
by the participant in writing delivered to the Company at the time the
participant first elected to become a participant in the Plan. If a participant
has not designated a beneficiary, or if no designated beneficiary is living on
the date of distribution, then, notwithstanding any provision herein to the
contrary such amounts shall be distributed to such participant's estate in a
lump sum distribution as soon as administratively feasible following such
participant's death.
Section 3.3 In the event a participant incurs an unforeseeable
emergency, the participant may make a written request to the Company for a
hardship withdrawal from his or her account established under the Plan. An
unforeseeable emergency is a severe financial hardship to the participant
resulting from a sudden and unexpected illness or accident of the participant
or of a dependent (as defined in Section 152(a) of the Code) of the
participant, loss of the participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the participant. Withdrawals of amounts because of
an unforeseeable emergency are only permitted to the extent reasonably needed
to satisfy the emergency need. This section shall be interpreted in a manner
consistent with Sections 1.457-2(h)(4) and 1.457-2(h)(5) of the Treasury
Regulations.
Section 3.4 Anything herein to the contrary notwithstanding, if, at
any time, a court or the Internal Revenue Service determines that an amount in
a participant's account is includable in the gross income of the participant
and subject to tax, the Board of Directors of the Company may, in its sole
discretion, permit a lump sum distribution of an amount equal to the amount
determined to be includable in the participant's gross income.
ARTICLE IV
AMENDMENT AND TERMINATION OF PLAN
The Company reserves the right to amend or terminate the Plan at any
time. Any such termination shall be effective as of the end of the calendar
year during which notification is given to each participant. Notification shall
be by first class mail, addressed to each participant at the participant's last
known address, or by other notice acknowledged in writing by the participant.
Any amounts credited to an account of any participant shall remain subject to
the provisions of the Plan and distribution will not be accelerated because of
the termination of the Plan. No amendment or termination shall directly or
indirectly reduce the balance of any account described in the Plan as of the
effective date of such amendment or termination. No additional credits or
contributions will be made to the accounts of the participants under the Plan
after termination of the Plan, but interest will continue to be credited to the
accounts of the participants under the Plan until all benefits are distributed
to the participants or to their beneficiaries. Upon termination of the Plan,
distribution of amounts credited to the accounts of the participants shall be
made to the participants or their beneficiaries in accordance with Article III
of this Plan.
ARTICLE V
CLAIMS PROCEDURE
Section 5.1 For purposes of handling claims with respect to the Plan,
the "Claims Reviewer" shall be the Company, unless another person or
organizational unit is designated by the Company as Claims Reviewer.
-3-
<PAGE> 5
Section 5.2 An initial claim for benefits under the Plan must be
made by the participant or his or her beneficiary in accordance with the terms
of the Plan pursuant to which the benefits are provided. Not later than 90 days
after receipt of such a claim, the Claims Reviewer will render a written
decision on the claim to the claimant, unless special circumstances require the
extension of such 90-day period. If such extension is necessary, the Claims
Reviewer shall provide the participant or the participant's beneficiary with
written notification of such extension before the expiration of the initial
90-day period. Such notice shall specify the reason or reasons for such
extension and the date by which a final decision can be expected. In no event
shall such extension exceed a period of 90 days from the end of the initial
90-day period. In the event the Claims Reviewer denies the claim of a
participant or the beneficiary in whole or in part, the Claims Reviewer's
written notification shall specify, in a manner calculated to be understood by
the claimant, the reason for the denial; a reference to the Plan or other
document or form that is the basis for the denial; a description of any
additional material or information necessary for the claimant to perfect the
claim; an explanation as to why such information or material is necessary; and
an explanation of the applicable claims procedure. Should the claim be denied
in whole or in part and should the claimant be dissatisfied with the Claims
Reviewer's disposition of the claimant's claim, the claimant may have a full
and fair review of the claim by the Company upon written request therefor
submitted by the claimant or the claimant's duly authorized representative and
received by the President of the Company within 60 days after the claimant
receives written notification that the claimant's claim has been denied. In
connection with such review, the claimant or the claimant's duly authorized
representative shall be entitled to review pertinent documents and submit the
claimant's views as to the issues, in writing. The Company shall act to deny or
accept the claim within 60 days after receipt of the claimant's written request
for review unless special circumstances require the extension of such 60-day
period. If such extension is necessary, the Company shall provide the claimant
with written notification of such extension before the expiration of such
initial 60-day period. In all events, the Company shall act to deny or accept
the claim within 120 days of the receipt of the claimant's written request for
review. The action of the Company shall be in the form of a written notice to
the claimant and its contents shall include all of the requirements for action
on the original claim. In no event may a claimant commence legal action for
benefits the claimant believes are due the claimant until the claimant has
exhausted all of the remedies and procedures afforded the claimant by this
Article V.
ARTICLE VI
ADMINISTRATION
Section 6.1 The right of a participant or the participant's
beneficiary to receive a distribution hereunder shall be an unsecured claim
against the general assets of the Company, and neither a participant nor his or
her designated beneficiary shall have any rights in or against any amount
credited to any accounts under this Plan or any other assets of the Company.
The Plan at all times shall be considered entirely unfunded both for tax
purposes and for purposes of Title I of the Employee Retirement Income Security
Act of 1974, as amended. Any funds invested hereunder shall continue for all
purposes to be part of the general assets of the Company and available to its
general creditors in the event of bankruptcy or insolvency. Accounts under this
Plan and any benefits which may be payable pursuant to this Plan are not
subject in any manner to anticipation, sale, alienation, transfer, assignment,
pledge, encumbrance, attachment, or garnishment by creditors of a participant
or a participant's beneficiary. The Plan constitutes a mere promise by the
Company to make benefit payments in the future. No interest or right to receive
a benefit may be taken, either voluntarily or involuntarily, for the
satisfaction of the debts of, or other obligations or claims against, such
person or entity, including claims for alimony, support, separate maintenance
and claims in bankruptcy proceedings.
-4-
<PAGE> 6
Section 6.2 The Plan shall be administered by the Board of Directors
of the Company (or the Compensation Committee of its Board of Directors), which
shall have the authority, duty and power to interpret and construe the
provisions of the Plan as the Board deems appropriate. The Board shall have the
duty and responsibility of maintaining records, making the requisite
calculations and disbursing the payments hereunder. The interpretations,
determinations, regulations and calculations of the Board shall be final and
binding on all persons and parties concerned.
Section 6.3 Expenses of administration shall be paid by the
Company. The Board of Directors of the Company shall be entitled to rely on all
tables, valuations, certificates, opinions, data and reports furnished by any
actuary, accountant, controller, counsel or other person employed or retained
by the Company with respect to the Plan.
Section 6.4 The Board of Directors of the Company shall furnish
individual annual statements of accrued benefits to each participant, or
current beneficiary, in such form as determined by the Board of Directors or as
required by law.
Section 6.5 The sole rights of a participant or beneficiary under
this Plan shall be to have this Plan administered according to its provisions,
to receive whatever benefits he or she may be entitled to hereunder, and
nothing in the Plan shall be interpreted as a guaranty that any funds in any
trust which may be established in connection with the Plan or that any assets
of the Company will be sufficient to pay any benefit hereunder. Further, the
adoption and maintenance of this Plan shall not be construed as creating any
contract of employment between the Company and any participant. The Plan shall
not affect the right of the Company to deal with any participants in employment
respects, including their hiring, discharge, compensation, and conditions of
employment.
Section 6.6 The Company may from time to time establish rules and
procedures that it determines to be necessary for the proper administration of
the Plan and the benefits payable to an individual in the event that individual
is declared incompetent and a conservator or other person legally charged with
that individual's care is appointed. Except as otherwise provided herein, when
the Company determines that such individual is unable to manage his or her
financial affairs, the Company may pay such individual's benefits to such
conservator, person legally charged with such individual's care, or institution
then contributing toward or providing for the care and maintenance of such
individual. Any such payment shall constitute a complete discharge of any
liability of the Company and the Plan for such individual.
Section 6.7 The Plan may be continued after a sale of assets of the
Company, or a merger or consolidation of the Company into or with another
corporation or entity only if and to the extent that the transferee, purchaser
or successor entity agrees to continue the Plan. In the event that the Plan is
not continued by the transferee, purchaser or successor entity, then the Plan
shall be terminated subject to the provisions of Article IV.
Section 6.8 Each participant shall keep the Company informed of his
or her current address and the current address of his or her designated
beneficiary. The Company shall not be obligated to search for any person. If
such person is not located within three (3) years after the date on which
payment of the participant's benefits payable under this Plan may first be
made, payment may be made as though the participant had died at the end of such
three-year period.
Section 6.9 Notwithstanding any provision herein to the contrary,
neither the Company nor any individual acting as an employee or agent of the
Company shall be liable to any participant, former participant, designated
beneficiary, or any other person for any claim, loss,
5
<PAGE> 7
liability or expense incurred in connection with the Plan, unless attributable
to fraud or willful misconduct on the part of the Company or any such employee
or agent of the Company.
6
<PAGE> 1
Exhibit 10(j)
[LOGO]
KeyBank
Mailcode: OH-01-27-0606
127 Public Square
Cleveland, OH 44114-1306
September 24, 1996
Ms. Alayne L. Reitman
Vice President-Finance and CFO
The Tranzonic Companies
30195 Chagrin Blvd.
Pepper Pike, Ohio 44124
Re: Extension of Commitment Period under Credit Agreement, dated as of
October 7, 1993 (the "Credit Agreement"), by and among The Tranzonic
Companies (the "Borrower") the Banks which are parties thereto and
KeyBank National Association as Agent for the Banks.
--------------------------------------------------------------------
Reference is hereby made to the Credit Agreement, which provides for, among
other things, Revolving Credit Loans aggregating $30,000,000, such Revolving
Credit Loans available to the Borrower, upon certain terms and conditions and
as limited by the Credit Agreement, on a revolving credit basis until June 30,
1997, (the last day of the "Commitment Period" now in effect).
We are in receipt of the letter dated June 13, 1996 from the Borrower
requesting that the Credit Agreement be amended by deleting from the definition
of "COMMITMENT PERIOD" the date "June 30, 1997" and substituting for the
deleted date "June 30, 1999".
Please be advised that KeyBank hereby consents to the extension of the Credit
Agreement as set forth above. In all other respects the Credit Agreement shall
remain in full effect.
Sincerely,
KeyBank
By: /s/ Matthew P. Tuohey
--------------------------
Its: Assistant Vice President
--------------------------
<PAGE> 1
EXHIBIT 10(q)
[LETTERHEAD THE TRANZONIC COMPANIES]
June 13, 1995
Mr. Richard J. Sims
6752 Walnut Drive
Gates Mills, OH 44040
Dear Rich:
This letter is written for the purpose of modifying the Employment Agreement
between you and Tranzonic dated July 1, 1992 (the "Agreement").
Section 4 of the Agreement entitled Term of Employment is hereby amended by
substituting the following for the text originally constituting that Section:
"4. Term of Employment. Subject to earlier termination
as provided herein, Executive's employment hereunder shall be
for a term commencing on July 1, 1992, and ending on the last
day of June, 1995 unless sooner terminated pursuant to the
provisions of this Agreement; provided that such term shall be
automatically extended for successive renewal terms of one year
each unless either party shall have given written notice to the
other at least three hundred sixty (360) days prior to the
expiration of the initial or renewal term then in effect that
such party elects not to renew the term of Executive's employment
for an additional renewal term upon expiration of the initial or
renewal term then in effect."
In all other respects the Agreement is reaffirmed and remains as originally
constituted. If the foregoing is complete and in accordance with your
understanding of this matter, please acknowledge the same at the place provided
on the copy of this letter and return it to the undersigned.
Sincerely,
/s/ Robert S. Reitman
RSReitman:sc
ACKNOWLEDGED BY:
/s/ Richard J. Sims
- -------------------
Richard J. Sims
<PAGE> 1
[OUTSIDE FRONT COVER]
EXHIBIT 13
THE TRANZONIC COMPANIES
[TRANZONIC LOGO] [TRANZONIC LOGO] [TRANZONIC LOGO]
Focused
On
Quality Profitable
GROWTH
ANNUAL REPORT [TRANZONIC LOGO] 1997
[BLURRED WATERMARK OF TRANZONIC LOGO]
<PAGE> 2
Headquartered in Cleveland, Ohio, The Tranzonic Companies manufactures and
distributes nationally a wide variety of products principally to the industrial
and institutional sectors. Expanding outward from strengths in paper and textile
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.
THE TRANZONIC COMPANIES
[INSIDE FRONT COVER]
<PAGE> 3
FINANCIAL HIGHLIGHTS
THE TRANZONIC COMPANIES
<TABLE>
<CAPTION>
For the Years Ended February 28/29 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Sales ....................................... $139,664,413 137,215,521
Operating earnings .......................... 10,604,059 7,179,566
Earnings from continuing operations ......... 7,034,700 4,416,310
Earnings from discontinued operations
(net of income taxes) ..................... -- 410,032
Loss on disposal of Housewares Division
(net of income taxes) ..................... -- (7,250,000)
Net earnings (loss) ......................... 7,034,700 (2,423,658)
Net earnings (loss) per Common Share:
From continuing operations ................ 2.00 1.25
From discontinued operations .............. -- (1.94)
Cash dividends per Common Share ............. .27 .255
Total assets ................................ 72,387,507 75,021,643
Long-term debt .............................. -- 7,000,000
Shareholders' equity ........................ 54,719,546 49,154,116
Shareholders' equity per Common Share ....... 15.77 14.03
Common Shares outstanding ................... 3,469,338 3,503,388
</TABLE>
1
<PAGE> 4
[PHOTO 1: Photo of Robert S. Reitman]
Robert S. Reitman
Chairman, President and Chief Executive Officer
TO OUR SHAREHOLDERS
As the accompanying graphs reflect, fiscal 1997 was a very productive year
for Tranzonic. A substantial percentage of operating goals were realized, a
number of strategic value recognition initiatives were completed and earnings
increased dramatically.
You will remember that after-tax profits for fiscal 1996 were impacted
adversely by the February 1996 agreement to sell our Housewares Division and
recognition of the related $7.2 million noncash after-tax charge. While earnings
from continuing operations for that year amounted to $4.4 million, the bottom
line was a net loss of $2.4 million.
For the year just ended net earnings rose to $7.0 million, up 59.3
percent, on just a 1.8 percent increase in sales from continuing operations.
This sales pattern was reflective of general economic conditions in our almost
completely institutional/industrial customer base.
Each of our operating units achieved their business plan profit goals.
Those achievements were partially aided by stability in raw materials costs. For
example, in the case of fluff pulp, prices returned
<TABLE>
<CAPTION>
Sales from Continuing Operations
(In Thousands)
<S> <C>
93 $110,188
94 $115,919
95 $126,941
96 $137,216
97 $139,664
</TABLE>
2
<PAGE> 5
to more traditional levels late in fiscal 1996 and held steady thereafter.
Increased administrative efficiency also contributed to divisional success.
Concentration on core competencies was a prime focus of our management
teams during fiscal 1997. Selling a broader product offering to existing
customers made a positive impact, as did several very small strategic
acquisitions and alliances completed during the year.
Following year-end Baxter Tube Company, our Industrial Packaging Division,
completed our first acquisition outside the United States with the purchase of
Unity Paper Tubes in Great Britain. This transaction is the centerpiece in
Baxter's effort to provide existing U.S. multinational customers with their
global tube needs. Prior to this purchase, any service to those customers was
provided from our stateside manufacturing facilities. We plan for this new
venture to open opportunities in the European Common Market in years to come.
While management's principal focus always has been on quality sales
growth, improved profitability and sound business practices, value recognition
for our investors is also very important. In recent years, we have been
frustrated by the apparent disconnect between improved business fundamentals and
marketplace recognition. With
<TABLE>
<CAPTION>
Operating Earnings from Continuing Operations
(In Thousands)
<S> <C>
93 $ 6,544
94 $ 4,019
95 $ 7,622
96 $ 7,180
97 $10,604
Net Earnings from Continuing Operations
(In Thousands)
<S> <C>
93 $4,101
94 $2,331
95 $4,531
96 $4,416
97 $7,035
Net Earning Per Common Share from Continuing Operations
(In Thousands)
<S> <C>
93 $1.15
94 $ .67
95 $1.29
96 $1.25
97 $2.00
</TABLE>
3
<PAGE> 6
that in mind and with professional assistance, last year we initiated several
strategies in addition to profit improvement to enhance value recognition.
The first of these strategies called for redefining the business of
Tranzonic to make it more understandable to investors. Our efforts to be known
as a resource to the institutional and industrial sectors caused us to sell our
douche and enema business and our Housewares Division and to de-emphasize our
children's diaper activities. Today, the vast majority of our revenues flow from
our targeted sectors. An additional benefit of that focusing was to limit
exposure to markets in which we were only a modest factor and thus unable to
influence critical trends.
Another investor focused strategy addressed the relatively limited trading
market for Tranzonic shares. Our remedy of merging the two traded classes of
shares into one has had a marked impact on both share buyers and sellers. For
example, the average quoted spread for shares and the average trade-to-trade
price change in February 1997 each were down approximately one-third from those
values prior to the consolidation, while average trading volume rose
considerably. Tranzonic shares still trade at significant discounts to the
popu-
<TABLE>
<CAPTION>
Total Capitalization
(In Thousands)
93 94 95 96 97
<S> <C> <C> <C> <C> <C>
Long-Term Debt $ 2,900 $ 9,000 $ 7,600 $ 7,000
Shareholders' Equity $46,329 $47,479 $52,236 $49,154 $54,720
</TABLE>
4
<PAGE> 7
lar market indices, notwithstanding our efforts and strong profit performance,
and we are mindful of it.
Plans for fiscal 1998 can be described broadly as more of the same.
Increasing the rate of sales growth will remain a priority even though economic
forecasts presently signal modest industrial/institutional growth in the near
term. We do not intend to sacrifice profitability in that effort.
Our balance sheet is strong and provides ample resources to pursue fairly
valued strategic acquisition opportunities. We believe our aspirations for
quality profitable growth can be achieved, and our business units are intent on
perpetuating their recent success. The many fine people who are The Tranzonic
Companies and have contributed to our success deserve and have our respect,
admiration and appreciation.
Sincerely,
/s/ Robert S. Reitman
Robert S. Reitman
Chairman, President and Chief Executive Officer
May 14, 1997
<TABLE>
<CAPTION>
Shareholders' Equity Per Share
(In Dollars)
<S> <C>
93 $13.21
94 $13.75
95 $15.03
96 $14.03
97 $15.77
</TABLE>
5
<PAGE> 8
Hospital Specialty Company
Earnings increases for the Company as a whole were paced by an exceptional
profit performance at Hospital Specialty, Tranzonic's Personal Care Division.
While sales rose marginally to new record levels, bottom-line results improved
sharply as both cost of goods sold and selling, general and administrative
expenses declined.
Hospital Specialty is Tranzonic's largest operating unit. And, although it
is a mature business in which year-to-year sales increases tend to be modest,
several initiatives in 1996 accelerated the Division's penetration in key
segments of the institutional and industrial markets for personal care and
washroom-related products.
The "Total Washroom Essentials" (TWE) program, launched successfully by
Hospital Specialty in fiscal 1996, continued to result in above-average sales
increases in core product lines such as restroom deodorant systems and toilet
seat covers. TWE allows the Division to bundle products in a manner that serves
a customer's full range of needs and positions Hospital Specialty as a
single-source supplier.
New product innovations drove sales higher in the adult incontinent
product segment. Included were new offerings in personal care wipes, belted
undergarments, bladder control pads and guards -- all of which found solid
acceptance from institutional and industrial customers. Sales performance also
was strong in fiscal 1997 for obstetrics products, consisting of the Division's
full line of absorbent items for maternity kits used by hospitals.
Going forward, the Division expects to continue to concentrate on the
needs of its institutional and industrial customers. Tranzonic will invest in
improvements in Hospital Specialty's manufacturing processes and product
innovations to best meet those needs. As always, the Company will consider
opportunities for acquisitions and joint ventures which leverage existing
strengths such as our vendor and customer relationships.
[PHOTO 2: Photo of miscellaneous personal care products.]
MAJOR PRODUCTS
- -------------------------------
Feminine Hygiene
Adult Incontinence
Toilet Seat Covers
Odor Control
Washroom Accessories
PRINCIPAL MARKETS
- -------------------------------
Institutional
Commercial
Away From Home
Healthcare
Consumer
PRIMARY CUSTOMERS
- -------------------------------
Paper Distributors
Janitorial Distributors
Medical Distributors
Home Healthcare Dealers
Food Service Distributors
Grocery and Drug Chains
Mass Merchandisers
6
<PAGE> 9
CCP Industries, Inc.
Fiscal 1997 was a time of record sales and earnings at CCP Industries,
Inc., the Industrial Textiles Division of Tranzonic.
Several key product categories, including apparel, safety and restroom
supplies, recorded healthy sales increases. These gains were offset partially by
fierce price competition, lower overall purchasing levels by some major
accounts, and an increased level of sales personnel turnover resulting from
tight labor markets.
In fiscal 1997, CCP built a foundation for future growth by transforming
itself into four focused selling organizations based on customer segments:
CCP Direct, with a sales force selling a broad product line--including
wiping cloths, washroom, safety, maintenance, apparel and industrial supplies --
directly to small-volume end users in the U.S. and Canada;
Prism Supply Co., selling non-woven and woven wiping materials, first aid
kits and sorbent products to a large, diversified customer base through an
established distributor network;
Plezall Wipers, selling primarily woven textile wipers to medium-and
large-volume users, as well as to niche distributors in the paint, marine and
hardware industries and to wholesale wiper distributors;
CCP Manufacturing, which converts and packages wipers and various other
product kits (such as first aid and spill kits) for large customers in bulk
orders, and for the other three CCP organizations.
By aligning CCP Industries' organization with its targeted customers, the
Division can tailor its product offering, develop alliances with key suppliers
and build closer customer relationships. Although not yet fully implemented,
initial results of this structure are encouraging.
Four small acquisitions in fiscal 1997 helped fill in CCP product lines
and accelerate the above-mentioned organizational strategy. In addition,
strategic supplier alliances were formed during the year and will continue to
provide opportunities for growth to the Company.
[PHOTO 3: Photo of miscellaneous industrial wiping and cleaning products and
protective garments.]
MAJOR PRODUCTS
- ----------------------------------------
Industrial Wiping Cloths
Personal Safety
Work Apparel
Specialty Chemicals
Environmental Protection
Washroom Supplies
PRINCIPAL MARKETS
- ----------------------------------------
Automotive
Manufacturing
Food Service
Facility Maintenance
Healthcare
Graphic Arts
PRIMARY CUSTOMERS
- ----------------------------------------
Tens of thousands of small
businesses across the
U.S. and Canada
7
<PAGE> 10
Baxter Tube Company
Baxter Tube Company, Tranzonic's Industrial Packaging Division, achieved
record profitability in fiscal 1997, despite reporting sales that dipped
slightly below the record sales levels of the previous year. Quality
improvements to forming tubes, used in the fiberglass manufacturing process,
depressed re-order frequency somewhat. Solid sales growth in the general purpose
core business continues despite slowed growth in several of the markets that
Baxter serves.
In a business primarily consisting of commodity products, Baxter has made
strides to develop specialty niches -- such as lay flat paper tubing -- where
competition has less impact on pricing and where Baxter's technical superiority
is a recognized strength. New product categories that offer opportunities for
further growth include tubes for concrete forms and paper sleeves.
Subsequent to the end of fiscal 1997, Baxter Tube acquired Unity Paper
Tubes Ltd., a tube manufacturer located in Leyland, Lancashire, England. This
transaction is significant both in terms of the addition of a quality earnings
stream and in the positioning of Baxter as an international tube and core
manufacturer.
Commitment to ISO Certification continues to be a priority. ISO-9002:94
Certification has been earned at two of Baxter's three U.S. facilities and at
the U.K. facility, and certification at the final U.S. facility is expected in
fiscal 1998. The standards which are necessary to maintain certification are
critical to our customers and integral to a workplace environment of continuous
improvement. Programs to improve manufacturing efficiency in place during fiscal
1996 and fiscal 1997 resulted in lower scrap levels, reduced equipment
down-time, and improved materials usage at all three of Baxter's U.S. plants.
Currently, programs which focus on labor usage and materials handling are being
implemented.
Baxter continues to invest in its management and workforce. Organization
of plant-level functional teams is part of the Division's ongoing efforts to
emphasize systematic project management and problem-solving skills. Managers are
being given increased responsibility, along with heightened accountability for
performance.
[PHOTO 4: Photo of miscellaneous paper tubes, sleeves and cores.]
MAJOR PRODUCTS
- ---------------------------------------
Forming Tubes
General-purpose Tubes
Concrete Forms
Sleeves
PRINCIPAL MARKETS
- ---------------------------------------
Automotive
Industrial
Construction
PRIMARY CUSTOMERS
- ---------------------------------------
Fiberglass Manufacturers
Automotive and Industrial
Manufacturers
Construction Products
Distributors
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT
With the exception of historical information, the matters discussed in this
Annual Report to Shareholders are forward-looking statements that involve risks
and uncertainties and actual results could differ materially from those
discussed.
NOTE ON FORWARD-LOOKING INFORMATION
Certain statements herein and in future filings by the Company with the
Securities and Exchange Commission and in written and oral statements made by or
with the approval of any authorized executive officer of the Company constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company
intends that such forward-looking statements be subject to the safe harbors
created by such Acts. The words and phrases "looking ahead," "we are confident,"
"should be," "will be," "predicted", "believe", "expect", "anticipate" and
similar expressions identify forward-looking statements. These forward-looking
statements reflect the Company's current views in respect of future events and
financial performance, but are subject to many uncertainties and factors
relating to the Company's operations and business environment which may cause
the actual results of the Company to differ materially from any future results
expressed or implied by such forward-looking statements. Examples of such
uncertainties include, but are not limited to, changes in customer demand and
requirements; fluctuations in prices for raw materials; changes in supplier
relationships or agreements; interest rate fluctuations, changes in Federal
income tax laws and regulations; competition; changes in labor contracts; any
changes in the Company's financial condition or operating results due to
acquisitions or dispositions of businesses; unanticipated expenses and delays in
the integration of newly-acquired businesses; industry-specific factors; and
worldwide and regional economic and business conditions, including, without
limitation, conditions which may affect public securities markets generally, the
paper and allied products industry, or the markets in which the Company
operates. The Company undertakes no obligations to update publicly or revise any
forward-looking statements whether as a result of new information, future events
or otherwise.
OPERATING RESULTS:
FISCAL 1997 COMPARED TO
FISCAL 1996
Sales from continuing operations for the fiscal year ended February 28, 1997
were a record $139.7 million, a 1.8 percent increase above the $137.2 million
recorded in fiscal 1996. That sales gain was attributable to a series of small
acquisitions by our Industrial Textiles Division (CCP Industries) with generally
flat sales recorded at our Personal Care Division (Hospital Specialty Company)
and nominally lower sales in our Industrial Packaging Division (Baxter Tube
Company). While sales at Hospital Specialty increased only slightly over fiscal
1996, they reflected the benefit of product line extensions which more than
replaced sales from the douche and enema product lines which were divested in
the prior year fourth quarter. Overall Company
9
<PAGE> 12
sales volume in existing product categories declined slightly and price
increases added to sales gains over the prior year.
Cost of goods sold for continuing operations declined to 65.3 percent of
sales in fiscal 1997 from 68.6 percent in fiscal 1996. The improvement was
primarily the result of a significant decrease in the cost of paper and
paper-related products, used as raw material in or in connection with many of
the products sold by the Company. To a minor extent, a shift in sales mix to
lower-margin products diluted the impact of raw material price reductions.
Selling, general and administrative expenses increased in fiscal 1997 to
27.1 percent of sales from 26.1 percent for the prior year. This increase should
be viewed recalling two significant one-time events which helped reduce fiscal
1996 like expenses: the gain on the sale of certain assets comprising the
Company's douche and enema lines of business and the gain on the sale of stock
held by the Company's health and welfare benefit plan. A reduction in marketing
cost as a strategy to redirect sales efforts away from lower-margin products and
improvements in administrative efficiencies at Hospital Specialty were offset by
increased costs at CCP Industries as they absorbed several acquisitions made
during the fiscal year. Programs designed to maximize efficiency through the use
of technology and management information remain a priority at each of the
Company's operating units.
Net interest income of $345 thousand in fiscal 1997 compares to net interest
expense of $594 thousand in fiscal 1996 and resulted from increased investment
levels utilizing the proceeds from the sale of the Housewares Division in the
first month of this fiscal year. The weighted-average debt outstanding
associated with the Company's revolving credit facility for fiscal 1997 was $537
thousand as compared with $9.9 million in the last fiscal year. The
weighted-average interest rate was 4.51 percent, as compared to 6.96 percent in
fiscal 1996.
Earnings from continuing operations before income taxes improved to $10.9
million in fiscal 1997 from $6.6 million in fiscal 1996. Consistent with the
higher earnings, income taxes for fiscal 1997 rose to $3.9 million from $2.2
million for the prior fiscal year. The effective tax rate also increased to 35.7
percent from 32.9 percent in fiscal 1996. This increase resulted from the
absence of the one-time tax-exempt gain on the sale of stock in fiscal 1996 as
noted above. Net earnings from continuing operations improved 59.3 percent to
$7.0 million in fiscal 1997 compared to $4.4 million in fiscal 1996.
Net earnings for fiscal 1997 were unaffected by discontinued operations. The
fiscal 1996 loss from discontinued operations, which resulted from the
Housewares Division divestiture, was $6.8 million or $1.94 per share, leading to
a net loss of $2.4 million, or 69 cents per share. Net earnings per common share
from continuing operations were $2.00 in fiscal 1997 as compared to $1.25 in
fiscal 1996. The per share increase was insignificantly impacted by share
repurchases during fiscal 1997.
OPERATING RESULTS:
FISCAL 1996 COMPARED TO
FISCAL 1995
Sales from continuing operations for fiscal 1996 were $137.2 million, 8.1
percent above the $126.9 million of fiscal 1995. Each of the
10
<PAGE> 13
operating units contributed to this sales gain. Sales at CCP Industries
benefited from the addition of Plezall Wipers, acquired at the beginning of
fiscal 1996, and from improvements in sales force effectiveness. Gains at Baxter
Tube were achieved through market penetration and selective price increases.
Sales gains at Hospital Specialty came primarily from the expansion of product
offerings to industrial and janitorial customers.
The cost of goods sold from 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. Other factors influencing cost of goods as a percent of
sales include competitive pricing in consumer markets and the increase in lower
gross margin wholesale sales.
Selling, general and administrative expenses decreased as a percent of sales
to 26.1 percent for fiscal 1996 from 28.2 percent for fiscal 1995. Two one-time
events, which occurred during the fourth quarter of fiscal 1996, added to this
favorable decline. First was the gain recorded by Hospital Specialty on the sale
of certain assets comprising its douche and enema line of business. Second, was
the gain on the sale of stock acquired when the insurance company which
administers the Company's health and welfare benefit plan converted from a
mutual company to a stock company. The proceeds were used to fund health claims
in fiscal 1996.
Earnings from continuing operations declined 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, net margins from continuing 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 Wipers and forward
purchases of raw material, 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.
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 the elimination of the negative tax impact of good will
amortization from the Housewares Division.
As a result of the Housewares Division divestiture, the Company recorded a
loss from discontinued operations in fiscal 1996 of $6.8 million or $1.94 per
share. This compares to earnings from discontinued operations in fiscal 1995 of
$754 thousand or 22 cents per share. As a result of the combination of 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.
11
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remains strong. Current assets are 3.3
times current liabilities at February 28, 1997, compared to 3.2 times at
February 29, 1996. Working capital at fiscal year end of $31.2 million is down
slightly from the prior year's $33.2 million.
The Company's primary source of cash continues to be that provided by
operating activities and amounted to $7.3 million in fiscal 1997, $9.7 million
in fiscal 1996, and $3.9 million in fiscal 1995. During the year the Company
used cash from operations to make strategic forward inventory purchases to take
advantage of favorable buying opportunities in paper prices. Cash generated from
operations also was used to make several small asset acquisitions of $3.4
million, purchase property, plant and equipment of $2.0 million, pay cash
dividends of $.9 million and purchase treasury shares of $.8 million.
Cash received of $9.8 million in the first quarter of the current fiscal
year, as a result of the Housewares Division divestiture, repaid $7.0 million in
long-term debt.
In fiscal 1997, the Company increased its dividend payout to shareholders
5.3 percent as compared to the previous year's 7.7 percent increase. The Company
will continue to consider dividend increases periodically consistent with free
cash flow.
Expenditures for property plant and equipment over the past three years have
supported routine business activities, averaging $2.6 million a year over that
period. The Company anticipates fiscal 1998 expenditures to be consistent with
prior years.
The Company maintains a $30.0 million line of credit to finance working
capital requirements and finance acquisitions, as needed. The Company made no
draw on this line during fiscal 1997. In March 1997, the Company acquired the
net assets of Unity Paper Tubes, a division of Wyndeham Press Group PLC, located
in Leyland, Lancashire, England for $4.8 million. The line of credit was used to
finance this acquisition.
ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" and No. 129
"Disclosure of Information about Capital Structure". Both Statements are
effective for periods ending after December 15, 1997. The Company expects that
neither Statement will have a material impact on the calculation, presentation
or disclosure required by these Statements as compared to current practices.
INFLATION
Inflation, in general, had little effect upon the Company's sales, gross
margins or operating expenses in fiscal 1997. A significant downturn in paper
and paper-related raw material prices experienced by the Company in fiscal 1997
was in scale to the dramatic price rise experienced in fiscal 1996. Neither
change correlated to inflation, and both made dramatic impacts in operating
results and could do so in the future should like changes occur. The Company
attempts to adjust prices to reflect changes in raw material costs as
appropriate and consistent with competitive conditions.
12
<PAGE> 15
SELECTED FINANCIAL DATA
THE TRANZONIC COMPANIES
<TABLE>
<CAPTION>
For the Years Ended February 28/29 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales ............................... $139,664,413 137,215,521 126,940,765 115,919,011 110,187,909
Operating earnings .................. 10,604,059 7,179,566 7,621,726 4,018,590 6,543,941
Earnings from continuing operations
before income taxes ............... 10,948,700 6,585,310 7,304,342 3,759,432 6,514,297
Income taxes ........................ 3,914,000 2,169,000 2,773,000 1,428,000 2,413,000
Earnings from continuing operations . 7,034,700 4,416,310 4,531,342 2,331,432 4,101,297
Earnings from discontinued operations
(net of income taxes) ............. -- 410,032 754,054 467,833 112,685
Loss on disposal of Housewares
Division (net of income taxes) .... -- (7,250,000) -- -- --
Net earnings (loss) ................. 7,034,700 (2,423,658) 5,285,396 2,799,265 4,213,982
Net earnings (loss) per Common Share:
From continuing operations ........ 2.00 1.25 1.29 .67 1.15
From discontinued operations ...... -- (1.94) .22 .13 .04
Cash dividends per Common Share ..... .27 .255 .24 .24 .22
Total assets ........................ 72,387,507 75,021,643 80,279,466 73,537,946 63,675,545
Long-term debt ...................... -- 7,000,000 7,600,000 9,000,000 2,900,000
Shareholders' equity ................ 54,719,546 49,154,116 52,236,347 47,479,072 46,328,637
Shareholders' equity per Common
Share ............................. 15.77 14.03 15.03 13.75 13.21
Common Shares outstanding ........... 3,469,338 3,503,388 3,474,338 3,452,038 3,507,838
Effective August 7, 1996, all Class B Common Shares were converted into Class A
Common Shares to form a single class designated as Common Shares. Cash dividends
per common share have been restated for dividends paid prior to that date based
on the weighted average dividend paid on the combined classes.
Fiscal year 1996 includes a $931,800 gain in operating earnings ($640,000 after
tax or 18 cents per share) from the sale of the Company's douche and enema lines
of business and a $604,500 gain in operating earnings ($604,500 after tax or 17
cents per share) from the sale of stock in the Company's health and welfare
benefits plan trust.
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.
</TABLE>
13
<PAGE> 16
CONSOLIDATED STATEMENTS OF OPERATIONS
THE TRANZONIC COMPANIES
<TABLE>
<CAPTION>
Years Ended February 28/29 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales .................................................................. $139,664,413 137,215,521 126,940,765
Costs and expenses:
Cost of goods sold .................................................. 91,240,529 94,171,671 83,580,232
Selling, general and administrative expenses (note N) ............... 37,819,825 35,864,284 35,738,807
------------ ------------ ------------
129,060,354 130,035,955 119,319,039
------------ ------------ ------------
Operating earnings ............................................... 10,604,059 7,179,566 7,621,726
Interest income ........................................................ 383,033 91,386 70,236
Interest expense ....................................................... (38,392) (685,642) (387,620)
------------ ------------ ------------
Earnings from continuing operations before income taxes .......... 10,948,700 6,585,310 7,304,342
Income taxes (note I) .................................................. 3,914,000 2,169,000 2,773,000
------------ ------------ ------------
Earnings from continuing operations .............................. 7,034,700 4,416,310 4,531,342
Discontinued operations (note O):
Earnings from discontinued operations, net of income taxes
of $400,000 in 1996 and $581,000 in 1995 .......................... -- 410,032 754,054
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
------------ ------------ ------------
Net earnings (loss) ............................................. $ 7,034,700 (2,423,658) 5,285,396
============ ============ ============
Net earnings (loss) per Common Share:
From continuing operations .......................................... $ 2.00 1.25 1.29
From discontinued operations ........................................ $ -- (1.94) .22
------------ ------------ ------------
Net earnings (loss) per Common Share ............................. $ $2.00 (.69) 1.51
============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
14
<PAGE> 17
CONSOLIDATED BALANCE SHEETS
THE TRANZONIC COMPANIES
<TABLE>
<CAPTION>
February 28/29 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash (including cash equivalents of $7,484,200 in 1997
and $4,673,200 in 1996) ........................................................ $ 9,310,479 6,610,933
Receivables, less allowance for doubtful receivables of
$298,700 in 1997 and $290,500 in 1996 .......................................... 14,554,312 13,752,460
Inventories (note C) .............................................................. 19,490,165 15,338,665
Deferred income taxes (note I) .................................................... 606,434 1,804,106
Prepaid expenses and other current assets ......................................... 873,143 1,219,235
Net assets of discontinued operations (note O) .................................... -- 9,274,244
----------- -----------
Total current assets ..................................................... 44,834,533 47,999,643
Property, plant and equipment, net (note D) .......................................... 18,475,743 19,376,208
Other noncurrent assets .............................................................. 3,170,213 2,477,913
Intangible assets (note E) ........................................................... 5,907,018 5,167,879
----------- -----------
$72,387,507 75,021,643
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ............................................................ $6,920,955 8,337,445
Accrued compensation .............................................................. 2,827,939 2,943,971
Other payables and accrued expenses ............................................... 3,917,822 3,489,484
----------- -----------
Total current liabilities ................................................ 13,666,716 14,770,900
Long-term debt, noncurrent portion (note F) .......................................... -- 7,000,000
Deferred gain ........................................................................ 1,752,630 1,912,230
Deferred income taxes (note I) ....................................................... 550,042 935,573
Other noncurrent liabilities ......................................................... 1,698,573 1,248,824
Shareholders' equity (notes F, G and L):
Serial preferred shares without par value .........................................
Authorized 200,000; no shares issued ........................................... -- --
Common Shares, no par value; shares at stated value
Authorized 12,000,000; issued 3,995,539 in 1997 and 1996 ....................... 998,885 998,885
Additional paid-in capital ........................................................ 5,845,141 5,780,774
Retained earnings ................................................................. 52,573,602 46,471,200
----------- -----------
59,417,628 53,250,859
Less cost of shares held in treasury--
Common Shares - 526,201 in 1997 and 492,151 in 1996 ............................ 4,698,082 4,096,743
----------- -----------
Total shareholders' equity ............................................... 54,719,546 49,154,116
----------- -----------
Commitments and contingencies (notes K and P) ........................................ -- --
----------- -----------
$72,387,507 75,021,643
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
15
<PAGE> 18
CONSOLIDATED STATEMENTS OF CASHFLOWS
THE TRANZONIC COMPANIES
<TABLE>
<CAPTION>
Years Ended February 28/29 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ........................................................ $ 7,034,700 (2,423,658) 5,285,396
Adjustments to reconcile net earnings (loss) to net cash provided
by continuing operations:
(Earnings) loss from discontinued operations ............................ -- 6,839,968 (754,054)
Depreciation and amortization ........................................... 3,297,744 3,517,521 3,616,163
Gain on sale of assets .................................................. -- (910,637) --
Deferred income taxes ................................................... 812,000 (246,000) 170,000
Other, net .............................................................. 307,576 38,122 (132,103)
Change in assets and liabilities, net of effects of acquisitions:
Receivables, net ....................................................... 129,625 (136,600) (1,174,977)
Inventories ............................................................ (2,648,548) 2,904,762 (5,292,712)
Prepaid expenses and other current assets .............................. 531,034 546,861 430,586
Trade accounts payable ................................................. (1,797,119) (668,092) 2,083,258
Accrued compensation ................................................... (118,357) 158,733 637,717
Other payables and accrued expenses .................................... (21,068) 541,811 284,393
----------- ------------ ------------
Net cash provided by continuing operations ....................... 7,527,587 10,162,791 5,153,667
Net cash (used in) discontinued operations ....................... (190,942) (455,770) (1,291,739)
----------- ------------ ------------
Net cash provided by operating activities ........................ 7,336,645 9,707,021 3,861,928
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit ............................................. -- 6,400,000 3,400,000
Repayments of long-term debt ............................................... (7,000,000) (7,000,000) (4,900,000)
Cash dividends ............................................................. (932,298) (885,305) (821,833)
----------- ------------ ------------
Net cash (used in) financing activities .......................... (7,932,298) (1,485,305) (2,321,833)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of Housewares Division .............................. 9,777,070 -- --
Payments for acquisitions, net of cash acquired ............................ (3,423,353) (2,909,735) --
Purchase of treasury shares ................................................ (822,900) -- --
Proceeds on exercise of share options ...................................... 245,670 217,626 276,775
Non-compete payments ....................................................... -- -- (180,000)
Proceeds from sale of property, plant and equipment ........................ -- 1,992,513 248,981
Purchases of property, plant and equipment ................................. (2,025,639) (3,163,078) (2,586,894)
Other, net ................................................................. (455,649) (135,649) (214,608)
----------- ------------ ------------
Net cash provided by (used in) investing activities ........................ 3,295,199 (3,998,323) (2,455,746)
----------- ------------ ------------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the year ........................................ 2,699,546 4,223,393 (915,651)
Beginning balance .......................................................... 6,610,933 2,387,540 3,303,191
----------- ------------ ------------
Ending balance ............................................................. $ 9,310,479 6,610,933 2,387,540
=========== ============ ============
Supplemental schedule of non-cash investing and financing activities:
Acquisition of businesses (note B):
Fair value of assets acquired ........................................... $ 3,943,829 3,091,802 --
Liabilities assumed ..................................................... 520,476 182,067 --
----------- ------------ ------------
Cash paid ............................................................... $ 3,423,353 2,909,735 --
=========== ============ ============
Supplemental disclosures of cash flow information:
Income taxes paid .......................................................... $ 3,542,148 2,351,618 1,599,723
Interest paid .............................................................. $ 47,033 689,440 393,797
=========== ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
16
<PAGE> 19
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THE TRANZONIC COMPANIES
<TABLE>
<CAPTION>
Additional
Common paid-in Retained Treasury
Years Ended February 28/29 Shares capital earnings Shares
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at February 28, 1994 ................................. $ 992,597 5,514,568 45,316,600 (4,344,693)
Net earnings ................................................. -- -- 5,285,396 --
Cash dividends, $.24 per Common Share ........................ -- -- (821,833) --
Exercise of 22,300 Common Share options ...................... 1600 112,200 -- 162,975
Tax benefit associated with incentive share optons ........... -- 16,937 -- --
--------- --------- ----------- ----------
Balance at February 28, 1995 ................................. 994,197 5,643,705 49,780,163 (4,181,718)
Net (loss) ................................................... -- -- (2,423,658) --
Cash dividends, $.255 per Common Share ....................... -- -- (885,305) --
Exercise of 29,050 Common Share options ...................... 4,688 127,963 -- 84,975
Tax benefit associated with incentive share optons ........... -- 9,106 -- --
--------- --------- ----------- ----------
Balance at February 29, 1996 ................................. 998,885 5,780,774 46,471,200 (4,096,743)
Net earnings ................................................. -- -- 7,034,700 --
Cash dividends, $.27 per Common Share ........................ -- -- (932,298) --
Exercise of 25,150 Common Share options ...................... -- 24,109 -- 221,561
Acquisition of 59,200 Common Shares for treasury ............. -- -- -- (822,900)
Tax benefit associated with incentive share optons ........... -- 40,258 -- --
--------- --------- ----------- ----------
BALANCE AT FEBRUARY 28, 1997 ................................. $ 998,885 5,845,141 52,573,602 (4,698,082)
============================================================== ========= ========= =========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
17
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TRANZONIC COMPANIES
Years Ended February 28, 1997, February 29, 1996 and February 28,1995
- --------------------------------------------------------------------------------
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 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. The Company re-evaluates goodwill
and other intangibles based on fair values or undiscounted operating cash flows
whenever significant events or changes occur which might impair recovery of
recorded costs, and writes down recorded costs of these assets to fair value
when recorded costs are higher.
(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 Option Plan
Prior to January 1, 1996, the Company accounted for its share option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No.25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying share exceeded the exercise price. On
March 1, 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation, which permits the
Company to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures for employee
share option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
Upon the exercise of 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 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 3,512,703, 3,525,457, and 3,508,467 in 1997, 1996 and 1995, 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.
18
<PAGE> 21
(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.
(11) New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share" and SFAS No. 129 "Disclosure of Information about
Capital Structure." Both statements are effective for financial statements
issued for periods ending after December 15, 1997. The Company expects that
neither statement will have a material impact on the calculations, presentations
or disclosures required by these statements as compared to current practices.
(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 SUBSEQUENT EVENT
On March 3, 1997, subsequent to the current fiscal year end, the Company,
through its Industrial Packaging Division (Baxter Tube Company and newly formed
wholly-owned subsidiary Baxter Tube Company (U.K.) Ltd.) agreed to acquire
substantially all the assets and assume certain liabilities of Unity Paper
Tubes, a division of Wyndeham Press Group PLC for $4.8 million in cash. Located
in Leyland, Lancashire, England, Unity Paper Tubes manufactures and distributes
spiral-wound paper tubes and cores primarily within the United Kingdom. The
acquisition will be recorded under the purchase method of accounting.
In July 1996, and in September 1996 the Company's Industrial Textiles
Division acquired for $1.4 million and $2.0 million respectively, substantially
all the assets and assumed certain liabilities of several companies whose
activities involved the converting and selling of non-woven and woven textile
wiping cloths. These acquisitions were accounted for under the purchase method
of accounting. Results of operations have been reflected in the Company's
consolidated financial statements from the dates of acquisition. Pro forma
results of operations have not been presented because the effects of these
acquisitions were not significant. The excess of purchase price and related
acquisition costs over the fair value of net assets acquired of $952,577 has
been recorded as goodwill, which is being amortized on a straight line basis
over 30 years.
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. The excess of purchase price and
related acquisition costs over the fair value of net assets acquired of $2.1
million has been recorded as goodwill which is being amortized over 30 years.
C INVENTORIES
The components of inventories are summarized below:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------
<S> <C> <C>
Raw materials ................. $ 9,199,517 7,182,278
Finished goods ................ 10,290,648 8,156,387
------------- ----------
$ 19,490,165 15,338,665
============= ==========
</TABLE>
D PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment, net, are summarized below:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------
<S> <C> <C>
Land, buildings and
improvements .................. $ 14,196,467 14,084,556
Machinery and equipment ....... 29,508,326 27,925,060
------------- ----------
43,704,793 42,009,616
Accumulated depreciation
and amortization .............. 25,229,050 22,633,408
------------- ----------
$ 18,475,743 19,376,208
============= ==========
</TABLE>
E INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill. Amortizable goodwill
included therein of $6,748,662 and $4,396,697 in 1997 and 1996, respectively, is
shown net of accumulated amortization of $1,588,404 and $1,399,388 in those
years. In fiscal 1997, goodwill increased $952,577 resulting from certain
acquisitions (note B).
19
<PAGE> 22
F LONG-TERM DEBT
A description of the long-term debt follows:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------
<S> <C> <C>
Revolving credit .............. $ -- 7,000,000
======== =========
</TABLE>
The Company has a $30 million revolving credit facility maturing June 30,
1999. 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.
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 580,000 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 Common Shares were reserved for
issuance at a per share option price from 10% to 95% of the market price on the
date these options were awarded, and 95,000 Common Shares were granted as part
of certain employment contracts at 100% of market price at the date of grant.
Generally, share options have 10-year terms from the fiscal year within the date
of the grant and vest and become fully-exercisable after a 3-year vesting
period. At February 28, 1997, there were 144,150 Common Shares available for
grant.
The Company applies APB Opinion No. 25 in accounting for its incentive plans
and, accordingly, no compensation cost has been recognized for its share options
in the financial statements. Had the Company determined compensation cost based
on the fair value at the grant date for its share options under SFAS No. 123,
the Company's net earnings (loss) would have been the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Net earnings (loss)
As reported ...................... $ 7,034,700 (2,423,658)
Pro forma ........................ $ 7,034,700 (2,458,117)
Net earnings (loss) per common share
As reported ...................... $ 2.00 (.69)
Pro forma ........................ $ 2.00 (.70)
</TABLE>
Pro forma net earnings (loss) reflects only options granted after March 1,
1995.
The per share weighted-average fair value of share options granted during
fiscal 1996 and 1995 was $5.19 and $4.13 on the date of grant using the Black
Scholes option-pricing model with the following weighted-average assumptions
used in both fiscal 1996 and 1995-expected dividend yield 2.0%, risk-free
interest rate of 6.4%, and an expected life of 7 years.
Details pertaining to the Company's plans are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Options unexercised
at beginning of year .... 260,335 309,285 307,200
Weighted-average
exercise price ...... $ 13.06 12.49 12.58
Options granted
during the year ......... -- 38,250 35,950
Weighted-average
exercise price ...... $ -- 14.75 12.04
Options exercised
during the year ......... 25,150 29,050 22,300
Weighted-average
exercise price ...... $ 9.77 7.49 12.41
Options canceled
during the year ......... 20,850 58,150 11,565
Weighted-average
exercise price ...... $ 14.41 13.91 13.61
Options unexercised
at end of year .......... 214,335 260,335 309,285
Weighted-average
exercise price ...... $ 13.32 13.06 12.49
Options exercisable
at end of year .......... 144,485 138,350 135,200
Weighted-average
exercise price ...... $ 13.10 12.33 10.45
</TABLE>
At February 28,1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $5.08 - $15.26 and 3.5
years.
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 1997 year end, all pension benefits were distributed and the Plan
officially terminated.
The Salary Savings and Profit-sharing Plan of The Tranzonic Companies is a
defined contribution plan covering all employees who qualify under the Plan. The
Company's contributions to The Salary Savings and Profit-sharing Plan were
$401,213 in 1997, $385,311 in 1996 and $363,690 in 1995.
20
<PAGE> 23
I INCOME TAXES
The provision for income taxes from continuing operations consists of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal ............ $ 2,581,000 2,127,000 2,332,000
State and local .... 521,000 288,000 271,000
----------- --------- ---------
3,102,000 2,415,000 2,603,000
Deferred:
Federal ............ 864,000 (213,000) 92,000
State and local .... (52,000) (33,000) 78,000
---------- --------- ---------
812,000 (246,000) 170,000
----------- --------- ---------
$ 3,914,000 2,169,000 2,773,000
=========== ========= =========
</TABLE>
The Company's effective tax rate from continuing operations differs from the
statutory Federal income tax rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------
<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 ....... 2.7 2.6 3.1
Tax-exempt income .......... (1.2) (3.5) (0.3)
General business
tax credit ............... (0.9) (1.1) (1.0)
Lower rate benefit ......... (1.0) (1.0) (1.0)
Other ...................... 1.1 0.9 2.2
---- ---- ----
35.7% 32.9% 38.0%
==== ==== ====
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory valuation .............. $ 145,379 299,848
Deferred compensation ............ 492,222 480,165
Deferred book gain ............... 713,262 772,793
Package design costs ............. 108,385 166,551
Deferred tax losses .............. 1,723,454 2,491,925
Other ............................ 586,565 524,200
------------ ---------
Total gross deferred tax assets... 3,769,267 4,735,482
Less valuation allowance ......... 1,510,598 1,506,995
------------ ---------
Net deferred tax assets .......... 2,258,669 3,228,487
Deferred tax liabilities:
Depreciation ..................... 1,815,920 1,994,855
Other ............................ 386,357 365,099
------------ ---------
Total deferred tax liabilities ... 2,202,277 2,359,954
------------ ---------
Net deferred tax assets ............ $ 56,392 868,533
============ =========
</TABLE>
The valuation allowance for deferred tax assets 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 many 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 $1,656,872,
$1,515,572 and $1,328,365 in fiscal years 1997, 1996 and 1995, respectively.
Rental commitments at February 28, 1997 for noncancellable operating leases
with initial terms greater than one year are as follows:
<TABLE>
<S> <C>
1998 ................................. $ 1,654,937
1999 ................................. 1,603,509
2000 ................................. 1,562,051
2001 ................................. 1,526,615
2002 ................................. 1,452,336
after 2002 ........................... 4,818,138
------------
$ 12,617,586
============
</TABLE>
L COMMON SHARE CONVERSION
At the annual meeting of shareholders held on August 2, 1996, shareholders
approved the proposal to convert all of the Company's Class B Common Shares to
Class A Common Shares and to rename the Class A Common Shares as Common Shares.
The conversion became effective August 7, 1996. All share and per share amounts
reflected in the financial statements have been combined and/or recalculated as
if the shares had been converted for the periods reported.
21
<PAGE> 24
M QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
<S> <C> <C> <C> <C>
1997
Sales ................................................. $ 34,715,109 35,446,653 35,023,605 34,479,046
Cost of goods sold .................................... 23,400,738 23,021,601 22,475,424 22,342,766
Earnings from continuing operations before income taxes 2,376,578 3,095,445 2,959,076 2,517,601
Income taxes .......................................... 842,000 1,083,000 1,093,000 896,000
Earnings from continuing operations ................... 1,534,578 2,012,445 1,866,076 1,621,601
Earnings from discontinued operations,
net of income taxes ................................. -- -- -- --
Net earnings .......................................... 1,534,578 2,012,445 1,866,076 1,621,601
Per Common share amounts:
From continuing operations .......................... .44 .57 .53 .46
From discontinued operations ........................ -- -- -- --
Net earnings .......................................... .44 .57 .53 .46
Cash dividends paid ................................. .065 .065 .07 .07
1996
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 Common 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 ................................. .06 .065 .065 .065
</TABLE>
N SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
In the prior 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 company to a stock company. Both of these transactions
are included in selling, general and administrative expense.
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, its 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 $1,925,054,
$24,110,273 and $21,957,298 for the fiscal years ended February 28, 1997,
February 29, 1996 and February 28, 1995, respectively.
22
<PAGE> 25
The components of net assets of discontinued operations included in the
accompanying consolidated balance sheet as of February 29, 1996 is as follows:
<TABLE>
<CAPTION>
1996
- ---------------------------------------------------------
<S> <C>
Current assets:
Receivables, net ........................ $ 4,793,777
Inventories ............................. 5,815,190
Prepaid expenses and other current assets 458,789
-----------
Total current assets ................ 11,067,756
Current liabilities:
Trade accounts payable .................. 671,490
Accrued compensation .................... 235,909
Other payables and accrued expenses ..... 146,955
-----------
Total current liabilities ........... 1,054,354
-----------
Total ............................. 10,013,402
Noncurrent assets:
Property, plant and equipment ........... 314,276
Other noncurrent assets ................. 113,691
Intangibles ............................. 29,661
-----------
Total noncurrent assets ............. 457,628
-----------
Net assets ........................ 10,471,030
Reserve for loss on disposal of
discontinued operations ................ 1,196,786
-----------
Net assets of discontinued operations $ 9,274,244
===========
</TABLE>
The reserve for loss on disposal of discontinued operations consisted of
brokerage fees which were paid subsequent to year end and purchase price
accruals involving contingent inventory and accounts receivable adjustments.
Actual results recorded during the current fiscal year approximated our fiscal
1996 estimate.
P CONTINGENCIES
The Company is plantiff in certain litigation involving contractual disputes
with former employees. Counter claims have been filed by the former employees in
these actions. The Company believes that these counter claims are without merit
and intends to defend itself vigorously. The Company believes that the outcome
of these proceedings will not have a material adverse affect on the financial
condition of the Company.
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 28, 1997 and February 29, 1996, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended February 28, 1997.
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 28, 1997 and February 29, 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended February 28, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Cleveland, Ohio
March 31, 1997
23
<PAGE> 26
SHAREHOLDER INFORMATION
At the annual meeting of shareholders held on August 2, 1996, shareholders
approved the proposal to convert the Class B Common Shares to Class A Common
Shares and to rename the Class A Common Shares as Common Shares. The conversion
became effective August 7, 1996. The following table of Share Price Range and
Dividend Payments reflect activity for the current and prior fiscal year as they
occurred in each class.
SHARE PRICE RANGE
THE TRANZONIC COMPANIES
Traded on the American Stock Exchange
Years Ended February 28/29
<TABLE>
<CAPTION>
1997 1997 1996 1997 1996
------------- -------------- ---------------
Common Class A Common Class B Common
Symbol -- TNZ Symbol -- TNZA Symbol -- TNZB
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1st Quarter 12 1/4 10 1/8 16 1/8 13 3/4 12 3/8 9 3/4 15 1/8 13 1/2
2nd Quarter 13 5/8 12 13 10 7/8 15 3/8 13 1/2 13 1/4 10 3/4 15 3/8 13 1/2
3rd Quarter 18 1/2 13 3/8 15 3/8 13 1/2 14 3/4 13
4th Quarter 19 1/8 15 14 3/4 11 1/4 14 1/2 11 5/8
</TABLE>
As of April 25, 1997, there were 666 Common shareholders of record.
DIVIDEND PAYMENTS
THE TRANZONIC COMPANIES
Years Ended February 28/29
<TABLE>
<CAPTION>
1997 1997 1996 1997 1996
---------- -------------------- ---------------------
Common Class A Common Class B Common
<S> <C> <C> <C>
1st Quarter 5.0(cents) 4.5(cents) 9.0(cents) 8.5(cents)
2nd Quarter 5.0(cents) 5.0(cents) 9.0(cents) 9.0(cents)
3rd Quarter 7.0(cents) 5.0(cents) 9.0(cents)
4th Quarter 7.0(cents) 5.0(cents) 9.0(cents)
---------- ---------- ----------- ----------- -----------
14.0(cents) 10.0(cents) 19.5(cents) 18.0(cents) 35.5(cents)
========== ========== =========== =========== ==========
</TABLE>
TRANSFER AGENT AND REGISTRAR
Harris Trust & Savings Bank
Shareholder Services
311 West Monroe Street - 11th Floor
Chicago, Illinois 60606
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
24
<PAGE> 27
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
TODD M. CARLSON
Vice President Marketing-Personal Care Division
HAROLD M. CARTON
Vice President Industrial Sales-Personal Care Division
CHRISTOPHER T. CIRA
Vice President Finance and Operations-Industrial Textiles Division
ERNEST L. CLARKE
Vice President Medical Division-Personal Care Division
ROBERT DAILY III
Vice President Marketing-Industrial Textiles Division
PAUL D. MARION, JR.
Vice President National Accounts-Personal Care Division
BRIAN MARKOWITZ
Vice President-Industrial Textiles Division
STEPHEN MARKS
Vice President-Industrial Textiles Division
KATHLEEN A. METZGER
Vice President Administration-Personal Care Division
BETH SMYLIE RICHMAN
Vice President Retail Division-Personal Care Division
STEPHEN A. SCHULTZ
Vice President Industrial Sales-Personal Care Division
NORMAN D. SULL
Vice President Purchasing-Industrial Textiles Division
DAVID J. WILLIAMS
Vice President Sales-Industrial Textiles Division
HELEN MALHOTRA
Assistant Vice President Information Systems-Industrial Textiles Division
[INSIDE BACK COVER]
<PAGE> 28
THE TRANZONIC COMPANIES
30195 Chagrin Blvd.
Pepper Pike, Ohio 44124
[RECYLCE LOGO]
Printed on Recycled Paper
[OUTSIDE BACK COVER]
<PAGE> 1
EXHIBIT 21
State of
Subsidiaries of Registrant Incorporation
- -------------------------- -------------
Baxter Tube Company Ohio
CCP Industries, Inc. Ohio
The CCP Companies Ohio
Transacts Business under the following additional names:
a. CCP Manufacturing
b. Foxco Wipers
c. Plezall Wipers Incorporated
d. Prism Supply Company
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned Director of The Tranzonic Companies, an Ohio corporation,
which corporation anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the year ended
February 28, 1997, hereby constitutes and appoints ROBERT S. REITMAN with full
power of substitution and resubstitution, as attorney to sign for the
undersigned and in my name, place and stead, as Director of said corporation,
said Annual Report and any and all amendments and exhibits thereto, and any and
all applications and documents to be filed with the Securities and Exchange
Commission pertaining to such Annual Report, with full power and authority to do
and perform any and all acts and things whatsoever requisite, necessary or
advisable to be done in the premises, as fully and for all intents and purposes
as the undersigned could do if personally present, hereby approving the acts of
said attorney, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March,
1997.
/s/ James H. Berick
-------------------------------
James H. Berick
<PAGE> 2
POWER OF ATTORNEY
The undersigned Director of The Tranzonic Companies, an Ohio corporation,
which corporation anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the year ended
February 28, 1997 hereby constitutes and appoints ROBERT S. REITMAN and JAMES H.
BERICK, and each of them, with full power of substitution and resubstitution, as
attorneys or attorney to sign for the undersigned and in my name, place and
stead, as Director of said corporation, said Annual Report and any and all
amendments and exhibits thereto, and any and all applications and documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report, with full power and authority to do and perform any and all acts and
things whatsoever requisite, necessary or advisable to be done in the premises,
as fully and for all intents and purposes as the undersigned could do if
personally present, hereby approving the acts of said attorneys, and any of them
and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March,
1997.
/s/ Joseph A. Campanella
---------------------------------
Joseph A. Campanella
<PAGE> 3
POWER OF ATTORNEY
The undersigned Director of The Tranzonic Companies, an Ohio corporation,
which corporation anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the year ended
February 28, 1997 hereby constitutes and appoints ROBERT S. REITMAN and JAMES H.
BERICK, and each of them, with full power of substitution and resubstitution, as
attorneys or attorney to sign for the undersigned and in my name, place and
stead, as Director of said corporation, said Annual Report and any and all
amendments and exhibits thereto, and any and all applications and documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report, with full power and authority to do and perform any and all acts and
things whatsoever requisite, necessary or advisable to be done in the premises,
as fully and for all intents and purposes as the undersigned could do if
personally present, hereby approving the acts of said attorneys, and any of them
and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of April,
1997.
/s/ David J. Golden
---------------------------------
David J. Golden
<PAGE> 4
POWER OF ATTORNEY
The undersigned Director of The Tranzonic Companies, an Ohio corporation,
which corporation anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the year ended
February 28, 1997, hereby constitutes and appoints ROBERT S. REITMAN and JAMES
H. BERICK, and each of them, with full power of substitution and resubstitution,
as attorneys or attorney to sign for the undersigned and in my name, place and
stead, as Director of said corporation, said Annual Report and any and all
amendments and exhibits thereto, and any and all applications and documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report, with full power and authority to do and perform any and all acts and
things whatsoever requisite, necessary or advisable to be done in the premises,
as fully and for all intents and purposes as the undersigned could do if
personally present, hereby approving the acts of said attorneys, and any of them
and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of April, 1997.
/s/ Steven W. Percy
---------------------------------
Steven W. Percy
<PAGE> 5
POWER OF ATTORNEY
The undersigned Director of The Tranzonic Companies, an Ohio corporation,
which corporation anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the year ended
February 28, 1997, hereby constitutes and appoints ROBERT S. REITMAN and JAMES
H. BERICK, and each of them, with full power of substitution and resubstitution,
as attorneys or attorney to sign for the undersigned and in my name, place and
stead, as Director of said corporation, said Annual Report and any and all
amendments and exhibits thereto, and any and all applications and documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report, with full power and authority to do and perform any and all acts and
things whatsoever requisite, necessary or advisable to be done in the premises,
as fully and for all intents and purposes as the undersigned could do if
personally present, hereby approving the acts of said attorneys, and any of them
and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March,
1997.
/s/ Morton L. Reitman
---------------------------------
Morton L. Reitman
<PAGE> 6
POWER OF ATTORNEY
The undersigned Director of The Tranzonic Companies, an Ohio corporation,
which corporation anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the year ended
February 28, 1997, hereby constitutes and appoints ROBERT S. REITMAN and JAMES
H. BERICK, and each of them, with full power of substitution and resubstitution,
as attorneys or attorney to sign for the undersigned and in my name, place and
stead, as Director of said corporation, said Annual Report and any and all
amendments and exhibits thereto, and any and all applications and documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report, with full power and authority to do and perform any and all acts and
things whatsoever requisite, necessary or advisable to be done in the premises,
as fully and for all intents and purposes as the undersigned could do if
personally present, hereby approving the acts of said attorneys, and any of them
and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of March,
1997.
/s/ Sylvia K. Reitman
---------------------------------
Sylvia K. Reitman
<PAGE> 7
POWER OF ATTORNEY
The undersigned Director of The Tranzonic Companies, an Ohio corporation,
which corporation anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the year ended
February 28, 1997, hereby constitutes and appoints ROBERT S. REITMAN and JAMES
H. BERICK, and each of them, with full power of substitution and resubstitution,
as attorneys or attorney to sign for the undersigned and in my name, place and
stead, as Director of said corporation, said Annual Report and any and all
amendments and exhibits thereto, and any and all applications and documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report, with full power and authority to do and perform any and all acts and
things whatsoever requisite, necessary or advisable to be done in the premises,
as fully and for all intents and purposes as the undersigned could do if
personally present, hereby approving the acts of said attorneys, and any of them
and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 6th day of April, 1997.
/s/ Thomas S. Robertson
---------------------------------
Thomas S. Robertson
<PAGE> 8
POWER OF ATTORNEY
The undersigned Director of The Tranzonic Companies, an Ohio corporation,
which corporation anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the year ended
February 28, 1997 hereby constitutes and appoints ROBERT S. REITMAN and JAMES H.
BERICK, and each of them, with full power of substitution and resubstitution, as
attorneys or attorney to sign for the undersigned and in my name, place and
stead, as Director of said corporation, said Annual Report and any and all
amendments and exhibits thereto, and any and all applications and documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report, with full power and authority to do and perform any and all acts and
things whatsoever requisite, necessary or advisable to be done in the premises,
as fully and for all intents and purposes as the undersigned could do if
personally present, hereby approving the acts of said attorneys, and any of them
and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of April,
1997.
/s/ James C. Spira
---------------------------------
James C. Spira
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT FEBRUARY 28, 1997 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED FEBRUARY 28, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 9,310,479
<SECURITIES> 0
<RECEIVABLES> 14,554,312
<ALLOWANCES> 298,700
<INVENTORY> 19,490,165
<CURRENT-ASSETS> 0
<PP&E> 44,834,533
<DEPRECIATION> 25,229,050
<TOTAL-ASSETS> 72,387,507
<CURRENT-LIABILITIES> 13,666,716
<BONDS> 0
0
0
<COMMON> 998,885
<OTHER-SE> 58,418,743<F1>
<TOTAL-LIABILITY-AND-EQUITY> 72,387,507
<SALES> 139,664,413
<TOTAL-REVENUES> 139,664,413
<CGS> 91,240,529
<TOTAL-COSTS> 129,060,354
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,392
<INCOME-PRETAX> 10,948,700
<INCOME-TAX> 3,914,000
<INCOME-CONTINUING> 7,034,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,034,700
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 0
<FN>
<F1>THIS FIGURE INCLUDES $5,845,141 IN ADDITIONAL PAID IN CAPITAL AND $52,573,602
IN RETAINED EARNINGS.
</FN>
</TABLE>
<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
THE TRANZONIC COMPANIES
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
THE TRANZONIC COMPANIES
30195 CHAGRIN BOULEVARD
PEPPER PIKE, OHIO 44124
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Annual Meeting of Shareholders of The
Tranzonic Companies will be held at the Cleveland Marriott East, 3663 Park East
Drive, Beachwood, Ohio, on Monday, June 16, 1997, at 10:30 A.M., local time, for
the purpose of considering and acting upon:
1. The election of three Class III Directors;
2. The selection of independent auditors for the fiscal year ending
February 28, 1998; and
3. The transaction of any other business which properly may come before the
meeting and any adjournments thereof.
Shareholders of The Tranzonic Companies of record at the close of business
on April 25, 1997 are entitled to vote at the Annual Meeting and any
adjournments thereof.
By order of the Board of Directors
JAMES H. BERICK
Secretary
Cleveland, Ohio
May 14, 1997
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY
IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
<PAGE> 3
May 14, 1997
THE TRANZONIC COMPANIES
30195 CHAGRIN BOULEVARD
PEPPER PIKE, OHIO 44124
PROXY STATEMENT
The accompanying proxies are solicited by the Board of Directors of the
Corporation for use at the Annual Meeting of Shareholders to be held on June 16,
1997 and any adjournments thereof.
Shareholders of record at the close of business on April 25, 1997 (the
record date) will be entitled to vote at the Annual Meeting. At that date the
Corporation had issued and outstanding 3,469,338 Common Shares without par
value. Each such Share is entitled to one vote on all matters properly coming
before the Annual Meeting. At least 1,734,670 Common Shares must be represented
at the meeting in person or by proxy in order to constitute a quorum for the
transaction of business.
This Proxy Statement and the accompanying form of proxy were first mailed
to Shareholders on May 14, 1997.
ELECTION OF DIRECTORS
The Corporation's Board of Directors currently consists of nine (9)
persons, divided into three classes (Classes I, II and III) consisting of three
Directors each. At this Annual Meeting, Class III Directors are to be elected
for a term expiring at the 2000 Annual Meeting of Shareholders and until their
respective successors are duly elected and qualified. The Board of Directors has
designated the three (3) persons first named in the table below as nominees for
Director for such term. Each of the nominees presently is a Director.
Unless a Shareholder requests that voting of his or her proxy be withheld
for the nominees for election as Class III Directors in accordance with the
instructions set forth on such proxy, it presently is intended that Common
Shares represented by proxies solicited hereby will be voted for the election as
Class III Directors of the nominees designated by the Board of Directors. All
nominees have consented to being
<PAGE> 4
named in this Proxy Statement and to serve if elected. Should any nominee
subsequently decline or be unable to accept such nomination or to serve as a
Director, an event which the Board of Directors does not now expect, the persons
voting the Common Shares represented by proxies solicited hereby may either vote
such shares for a substitute nominee for such class or for a reduced number of
nominees, as they may deem advisable. For election as a Director, a nominee must
receive the affirmative vote of a majority of the Common Shares entitled to vote
which are present or represented at the Annual Meeting in person or by proxy.
Neither abstentions nor broker non-votes will be counted as votes cast, although
both will count toward the determination of the presence of a quorum and both
will have the same effect as a vote against the nominee.
In the event Shareholders shall have the right to cumulate their voting
power for the election of Directors (see GENERAL INFORMATION -- CUMULATIVE
VOTING for the procedure required to initiate cumulative voting), the persons
designated as proxies will allocate the votes among the nominees designated for
election in accordance with their judgment. Cumulative voting permits a holder
of Common Shares to give one nominee a number of votes equal to the number of
Directors to be elected by the Shareholders multiplied by the number of Common
Shares the Shareholder may vote, or a Shareholder may distribute votes on the
same principle among two or three nominees.
The information concerning the nominees set forth in the following table is
based in part on information received from the respective nominees and in part
on the Corporation's records:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FIRST
NAME OF NOMINEE AGE AS OF DURING PAST FIVE YEARS BECAME
OR DIRECTOR APRIL 25, 1997 AND OTHER DIRECTORSHIPS HELD DIRECTOR
- ------------------------- -------------- ------------------------------------------- ---------------
<S> <C> <C> <C>
NOMINEES TO SERVE UNTIL 2000 ANNUAL MEETING OF SHAREHOLDERS (CLASS III)
David J. Golden* degrees 64 Senior Vice President of the Corporation. 1958
Morton L. Reitman* 60 Executive Vice President of the Corpora- 1973
degrees tion.
James C. Spira++ 54 Managing Partner, Diamond Technology 1991
Partners (management consultants), since
November 1995. Previously Group Vice
President of the Corporation, from 1991 un-
til 1995.
2
<PAGE> 5
<CAPTION>
PRINCIPAL OCCUPATION FIRST
NAME OF NOMINEE AGE AS OF DURING PAST FIVE YEARS BECAME
OR DIRECTOR APRIL 25, 1997 AND OTHER DIRECTORSHIPS HELD DIRECTOR
- ------------------------- -------------- ------------------------------------------- ---------------
<S> <C> <C> <C>
DIRECTORS CONTINUING IN OFFICE UNTIL 1999 ANNUAL MEETING OF SHAREHOLDERS (CLASS II)
Joseph A. Campanella+++ 54 Executive Vice President of Star Banc Cor- 1979
poration (bank holding company) since 1991.
Previously, President of Star Bank, N.A.,
Cleveland from 1988 until 1991.
Thomas S. Robertson+++ 54 Sainsbury Professor of Marketing, London 1989
Business School since 1994. Prior thereto,
Chairperson of the Department of Market-
ing, The Wharton School, University of
Pennsylvania, from 1988 until 1994.
Steven W. Percy+++ 50 Chairman, Chief Executive Officer and Chief 1994
Financial Officer of BP America Inc. since
1996; Prior thereto President of BP Oil
Company and Executive Vice President of BP
America Inc. from 1992 until 1996. Previ-
ously, 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. Mr. Percy is a Director of
Key Bank National Association.
DIRECTORS CONTINUING IN OFFICE UNTIL 1998 ANNUAL MEETING OF SHAREHOLDERS (CLASS I)
James H. Berick+++ 64 Chairman of Berick, Pearlman & Mills Co., 1970
L.P.A., Cleveland, Ohio (attorneys) and
Secretary of the Corporation. Also, Presi-
dent and Treasurer of Realty ReFund Trust
(real estate investment trust) and Presi-
dent 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.
Robert S. Reitman* 63 Chairman of the Board of Directors, Chief 1960
degrees Executive Officer and President of the
Corporation. Mr. Reitman is a Director of
Weirton Steel Corporation.
Sylvia K. Reitman 59 Investor, Cleveland, Ohio. 1989
3
<PAGE> 6
<FN>
- ---------------
+ Member of the Compensation Committee.
++ Member of the Audit Committee.
* Member of the Executive Committee.
degrees Member of the Pension Committee.
</TABLE>
The functions performed by the Audit Committee of the Board of Directors
include: (i) recommending to the Board of Directors the appointment of a firm of
independent auditors to examine the books and accounts of the Corporation and
its subsidiaries; (ii) reviewing with the independent auditors the scope of
their work; (iii) reviewing with the Corporation's management matters related to
the examination and to the Corporation's accounting procedures; (iv) reviewing
with the independent auditors compliance with the record keeping and internal
control requirements of the Foreign Corrupt Practices Act of 1977; (v) reviewing
with the independent auditors and approving each non-audit service performed or
proposed to be performed by the independent auditors, as well as the
relationship of audit to non-audit fees; and (vi) considering the effect of the
various non-audit services upon the independence of the auditors. The Audit
Committee held two meetings during the year ended February 28, 1997.
The functions performed by the Compensation Committee of the Board of
Directors include making recommendations to the Board of Directors concerning
compensation policies, salaries and other forms of compensation for management
and other employees of the Corporation and its subsidiaries. The Compensation
Committee held three meetings during the year ended February 28, 1997.
The Board of Directors does not have a Nominating Committee.
The Board of Directors held four meetings during the year ended February
28, 1997. All incumbent Directors attended at least 75% of the meetings of the
Directors and any committees thereof on which they served during the year,
except Steven W. Percy, who did not attend one Board meeting and two Committee
meetings.
CERTAIN RELATIONSHIPS; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
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 Corporation, is the daughter of Robert S. Reitman and Sylvia K. Reitman.
4
<PAGE> 7
James H. Berick, Secretary and Director, is Chairman of the law firm
Berick, Pearlman & Mills Co., L.P.A., which is retained by the Corporation as
legal counsel and which received legal fees from the Corporation during the year
ended February 28, 1997 in the amount of $278,806.
COMPENSATION OF DIRECTORS
Each Director who is not an employee of the Corporation 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 Common Shares pursuant
to the Corporation's Deferred Compensation Plan for Non-Employee Directors, then
each such Director receives, in Common Shares, an additional amount equal to 25%
of the amount so deferred and invested.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Corporation's compensation program is administered by the Compensation
Committee, which consists exclusively of non-employee Directors. This
compensation program is designed and administered to align the interests of the
Corporation's executive officers and its other key employees with that of the
Corporation's Shareholders, to link compensation to the performance of the
Corporation as well as to individual contributions and to provide compensation
at a level which is competitive in the marketplace so that the Corporation can
continue to attract, motivate, and retain qualified management.
The Corporation's compensation program for its executive officers
(including the named executive officers) and certain other key employees
consists of an annual salary, bonus (in some instances) and a long-term
incentive represented by stock options and, in some instances, deferred
compensation. The policies in respect of each of these elements, as well as the
basis for determining the compensation of the Chairman of the Board and Chief
Executive Officer, Mr. Robert S. Reitman (the "CEO"), are described below.
The Compensation Committee establishes annual salaries to be competitive
with the marketplace and to reflect the varying levels of responsibilities of
the CEO and the other executive officers. Such salaries are based, in part, on
information provided to the Corporation by independent compensation consultants.
5
<PAGE> 8
The services of independent compensation consultants also are used by the
Corporation in respect of surveying compensation levels and trends in industry
generally and in respect of structuring the bonus component of the compensation
of the CEO and the other executive officers. For the Corporation's executive
officers, annual bonuses are based upon an evaluation of their respective
division's actual performance against its business plan. Assuming that
performance levels are achieved, the bonus paid is a predetermined percentage of
the division's pretax profits. In the event that predetermined standards are not
achieved, bonuses are subject to reduction. In addition to earnings performance,
the Compensation Committee evaluates other managerial achievements of the
Corporation's executive officers as a component of bonus awards.
The Compensation Committee determines the annual bonus of the CEO based
upon the Corporation's sales, pretax income and return on investment
(collectively, the "Corporation Components") as well as upon a subjective factor
designed to reward individual performance independent of the Corporation
Components. The CEO's bonus is determined in part based upon the Corporation's
attaining certain threshold, target and maximum Corporation Component levels,
which levels are established based upon a Board-approved business plan for the
Corporation. The CEO's fiscal 1997 bonus was determined by weighting the
Corporation Components as follows: 45% of his 1997 bonus was based upon the
levels of Corporation Components achieved (each bearing equal weight) and 55%
was determined subjectively based upon the CEO's overall contributions to the
Corporation.
Stock options are awarded to the Corporation's executive officers in
accordance with plans approved by the Shareholders. During the fiscal year ended
February 28, 1997, options were available for grant only under the Corporation's
1995 Incentive Stock Option Plan (the "1995 Plan"). Subject to certain
limitations and based upon management input, the Compensation Committee
determines the persons to whom options will be granted and the numbers of shares
to be represented by such options. In general, the Compensation Committee has
awarded options based upon the individual's position with the Corporation and
potential contribution to corporate profitability. The 1995 Plan provides for
the granting of incentive stock options for Common Shares, the option price of
which may not be less than 100% of the fair market value of such shares on the
date of grant. However, in the case of an optionee who owns or is deemed to own
shares of the Corporation representing more than 10% of the total voting power
of all classes of the Corporation's shares at the time an option is granted
(currently the CEO and two other executive officers), the option price may not
be less than 110% of the fair market value of such shares on the date of grant.
During the
6
<PAGE> 9
fiscal year ended February 28, 1997, no stock options were granted under the
1995 Plan to the named executive officers.
Stock options also have been granted to certain executive officers pursuant
to their employment agreements with the Corporation. Such options were designed
to tie the interests of such executive officers, as new employees of the
Corporation, to the interest of the Corporation's Shareholders and to retain
those executive officers by linking the exercisability of their options to their
continued employment with the Corporation.
In addition, the Corporation has adopted for many of its employees various
benefit plans in which the executive officers are permitted to participate,
subject to any legal limitations on the amounts that may be contributed or the
benefits that may be payable under the plans.
The Compensation Committee:
James H. Berick, Chairman
Joseph A. Campanella
Thomas S. Robertson
Steven W. Percy
7
<PAGE> 10
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by the Corporation or
its subsidiaries during the Corporation's last three fiscal years to the
Corporation'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 28, 1997, exceeded
$100,000.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG
TERM
COMPEN-
ANNUAL COMPENSATION SATION
---------------------------------- --------
OTHER
ANNUAL AWARDS ALL OTHER
COMPEN- -------- COMPEN-
NAME AND FISCAL SALARY(1) BONUS(1) SATION(2) OPTIONS SATION
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- -------------------------------- ------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Reitman, 1997 438,077 184,814 -- -- 315,299(3)
Chief Executive Officer, 1996 424,208 89,987 -- 2,500 137,156
Chairman of the Board of 1995 407,819 192,531 23,618 2,500 133,312
Directors and President
Morton L. Reitman, 1997 312,242 222,726 -- -- 37,994(3)
Executive Vice President 1996 302,284 -- 53,250 2,400 31,109
1995 298,893 122,800 -- 2,400 26,115
Richard J. Sims, 1997 242,635 119,393 -- -- 3,961(3)
Vice President 1996 217,062 169,305 -- 2,400 4,011
1995 200,712 116,000 -- 2,000 3,967
Alayne L. Reitman, 1997 159,019 50,000 -- -- 5,205(3)
Vice President 1996 139,346 30,000 -- 1,500 5,107
1995 117,019 17,000 -- 1,500 4,682
Dennis H. Kelly, 1997 127,842 132,538 12,750 -- 3,230(3)
Vice President 1996 123,600 79,936 4,250 1,000 3,618
1995 117,415 59,430 -- 1,000 3,595
- ---------------
(1) Includes amounts deferred pursuant to the Corporation's Salary Savings and
Profit Sharing Plan (the "Defined Contribution Plan"), a defined
contribution plan under Section 401(k) of the Internal Revenue Code and the
Corporation's Supplemental Retirement and Nonqualified Deferred Compensation
Plan.
(2) Except as otherwise noted, includes the net value (market value less
exercise price) realized in respect of Common Shares purchased from the
Corporation pursuant to exercise of stock options.
8
<PAGE> 11
(3) Includes (a) Corporation payments of premiums for long-term disability
insurance: Messrs. Robert S. Reitman, Morton L. Reitman and Sims $700 each;
Ms. Alayne L. Reitman $544; and Mr. Kelly $446, (b) Corporation
contributions under the Defined Contribution Plan: Mr. Robert S. Reitman
$3,206; Mr. Morton L. Reitman $3,154; Mr. Sims $3,261; Ms. Alayne L. Reitman
$3,281; and Mr. Kelly $2,784, (c) Corporation payments of premiums for life
insurance: Mr. Robert S. Reitman $27,425 and Mr. Morton L. Reitman $5,700,
(d) amounts accrued under deferred compensation agreements: Mr. Robert S.
Reitman $282,588 and Mr. Morton L. Reitman $28,440, and (e) Corporation
payments of parking fees: Mr. Robert S. Reitman $1,380 and Ms. Alayne L.
Reitman $1,380.
</TABLE>
STOCK OPTIONS
The following table contains information concerning stock option exercises
during fiscal year 1997 by the named executive officers and the value of their
unexercised options at February 28, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT FISCAL YEAR-END OPTIONS AT FISCAL
(#) YEAR-END ($)
SHARES ------------------- --------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- --------------------- ------------ ------------ ------------------- --------------------
<S> <C> <C> <C> <C>
Robert S. Reitman None None 13,500/5,000 16,785/8,547
Morton L. Reitman None None 22,350/4,800 141,462/14,550
Richard J. Sims None None 20,000/18,400 36,365/34,675
Alayne L. Reitman None None 1,500/3,000 1,485/5,128
Dennis H. Kelly 2,000 12,750 4,200/2,000 11,308/6,063
</TABLE>
9
<PAGE> 12
PERFORMANCE GRAPH
The following graph compares total Shareholder returns in respect of the
Corporation's Common Shares ("TNZ") over the last five fiscal years to the
American Stock Exchange Index ("AMEX") and the Standard & Poor's Paper & Forest
Products Index ("S&P Paper & Forest"). In prior years, the graph compared total
shareholders returns of the Corporation's Class A and Class B Common Shares to
the American Stock Exchange Consumer Goods Index rather than the S&P Paper &
Forest. The Corporation has been advised that the AMEX Consumer Goods Index is
no longer maintained by AMEX. Accordingly, the Corporation is unable to include
information in respect of such Index in this Proxy Statement. In August 1996,
all of the Corporation's Class B Common Shares were converted into Class A
Common Shares and the Class A Common Shares were redesignated "Common Shares."
Total return values for AMEX, S&P Paper & Forest and TNZ were calculated based
upon market weighting at the beginning of the period and include reinvestment of
dividends. The Shareholder returns shown on the graph below are not necessarily
indicative of future performance.
The following graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent the Corporation specifically incorporates this
information by reference and otherwise shall not be deemed filed under such
Acts.
<TABLE>
<CAPTION>
Measurement Period S&P Paper &
(Fiscal Year Covered) TNZ AMEX Forest
<S> <C> <C> <C>
2/29/92 100 100 100
2/28/93 91 98 109
2/28/94 68 113 121
2/28/95 91 109 129
2/29/96 67 135 129
2/28/97 98 146 149
</TABLE>
10
<PAGE> 13
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
In 1990, the Corporation entered into employment agreements with Robert S.
Reitman and Morton L. Reitman. Robert S. Reitman's employment agreement, which
expires in June 1998, 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 Corporation, which
expires in June 1998, 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 Corporation 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 July 1992, the Corporation entered into an employment agreement with
Richard J. Sims, which expires in June 1998. Mr. Sims' employment agreement
currently provides for an annual salary of $245,000 (which salary may be
reviewed periodically by the Compensation Committee to determine if the same
should be increased), plus incentives based upon performance. In addition,
pursuant to Mr. Sims' employment agreement, the Corporation granted to Mr. Sims
options to purchase 25,000 Common Shares of the Corporation, the exercise price
of which options is $14.6875, the fair market value of such shares on the date
of grant. The options became or become exercisable (so long as Mr. Sims shall be
a full-time employee of the Corporation on such date) as follows: 5,000 options
on March 1, 1995; 6,000 options on March 1, 1996; and 7,000 options on March 1
of each of 1997 and 1998.
In March 1995, a wholly-owned subsidiary of the Corporation entered into an
employment agreement with Mr. Dennis H. Kelly. Mr. Kelly's employment agreement,
which expires in February 1999, currently provides for an annual salary of
$124,000 plus incentives based upon performance.
The Corporation also has deferred compensation agreements with certain key
employees which provide for benefits for a term of 10 years following
retirement, disability or death. These benefits vary according to the employee's
corporate respon-
11
<PAGE> 14
sibility and the age of the employee at the date of such 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
$37,200 to $68,400 and $16,800 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 Corporation'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 10 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 Corporation. In addition, in the event that effective control of the
Corporation 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 15 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.
In October 1996, the Corporation adopted and established the Supplemental
Retirement and Nonqualified Deferred Compensation Plan (the "Supplemental
Retirement Plan") which provides for supplemental retirement income and deferred
compensation on a pre-tax basis to certain key employees. Participants in the
Supplemental Retirement Plan may elect to defer up to fifteen percent (15%) of
his or her annual federal taxable wages. Distributions will be made upon
termination of employment with the Corporation or the financial hardship of the
participant. In November 1996, Mr. Sims, a participant, deferred $15,000
pursuant to the Supplemental Retirement Plan.
BENEFICIAL OWNERSHIP OF COMMON SHARES
The following tables, together with the accompanying footnotes, describe
the beneficial ownership of the Corporation's Common Shares as of April 25, 1997
(except as otherwise indicated) of (1) each person who was known to the
Corporation to be
12
<PAGE> 15
the beneficial owner of more than five percent of the total Common Shares 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, nominees and executive officers,
as a group. 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 Corporation'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 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 April 25, 1997 but which can be acquired
within 60 days after that date.
As indicated specifically in the footnotes to the tables, certain 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 Common Shares disclosed as
beneficially owned under the definition set forth above.
13
<PAGE> 16
<TABLE>
BENEFICIAL OWNERSHIP OF MORE THAN FIVE PERCENT OF COMMON SHARES
<CAPTION>
SHARES
NAME AND ADDRESS OF BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED CLASS
- --------------------------------- ------------ ----------
<S> <C> <C>
David J. Golden 1,295,230 37.3%
30195 Chagrin Boulevard (1)(2)(3)
Pepper Pike, Ohio 44124
Robert S. Reitman 1,309,446 37.7%
30195 Chagrin Boulevard (4)
Pepper Pike, Ohio 44124
Sylvia K. Reitman 1,309,446 37.7%
30195 Chagrin Boulevard (2)(5)
Pepper Pike, Ohio 44124
Estate of Miriam G. Golden 575,493 16.6%
David J. Golden and (6)
Sylvia K. Reitman,
Co-executors
30195 Chagrin Boulevard
Pepper Pike, Ohio 44124
Dimensional Fund 201,550 5.8%
Advisors Inc. (7)
1299 Ocean Avenue,
Suite 650
Santa Monica,
California 90401
- ---------------
(1) Includes 5,775 Common Shares held as trustee for the benefit of Mr. Golden's
son.
(2) Includes 575,493 Common Shares 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 200,293 Common Shares 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.
14
<PAGE> 17
(3) Includes 4,500 Common Shares which are not owned, but can be purchased
within 60 days upon the exercise of options granted under the Corporation's
1989 Incentive Stock Option Plan (the "1989 Plan").
(4) Includes 403,359 Common Shares owned by Sylvia K. Reitman, Mr. Reitman's
wife, and the Common Shares described in Note (2), above, as to all of which
shares Mr. Reitman disclaims beneficial ownership. Also includes 16,000
Common Shares which are not owned, but can be purchased within 60 days upon
the exercise of options granted under the 1989 Plan and the Corporation's
1995 Incentive Stock Option Plan (the "1995 Plan").
(5) Includes 130,301 Common Shares owned by Robert S. Reitman, Mrs. Reitman's
husband, as to which shares Mrs. Reitman disclaims beneficial ownership.
(6) 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.
(7) Information based solely upon Schedules 13G filed by such shareholder with
the Securities and Exchange Commission in January, 1995. As of December 31,
1994, Dimensional Fund Advisors Inc. ("Dimensional"), a registered
investment advisor, was deemed to have beneficial ownership of 132,400 Class
A Common Shares and 69,150 Class B Common Shares, all of which presently
constitute Common Shares and 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.
</TABLE>
15
<PAGE> 18
<TABLE>
BENEFICIAL OWNERSHIP OF EXECUTIVE OFFICERS, DIRECTORS AND NOMINEES
<CAPTION>
SHARES
NAME OF DIRECTOR BENEFICIALLY PERCENT OF
OR NOMINEE OWNED(1) CLASS
- ------------------------------------------------ ------------ ----------
<S> <C> <C>
James H. Berick 10,600 (2)
Joseph A. Campanella 8,400 (2)
David J. Golden 1,295,230(3)(4) 37.3%
Robert S. Reitman 1,309,446(5) 37.7%
Morton L. Reitman 84,610(6) 2.4%
Sylvia K. Reitman 1,309,446(3)(7) 37.7%
Thomas S. Robertson 7,700 (2)
James C. Spira 42,985 1.2%
Steven W. Percy 4,250 (2)
Richard J. Sims 34,280 1.0%
Dennis H. Kelly 10,200 (2)
Alayne L. Reitman 21,525 (2)
Executive Officers, Directors and Nominees as a 2,072,440 59.7%
Group (13 persons)
All Shareholders other than Executive Officers, 1,396,898 40.3%
Directors and Nominees as a Group
- ---------------
(1) Includes the following number of 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"), 1989
Plan and the 1995 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 -- 16,000; Morton L. Reitman -- 24,750; David
J. Golden -- 4,500; James C. Spira -- 34,000; Richard J. Sims -- 29,000;
Alayne L. Reitman -- 3,000; Dennis H. Kelly -- 5,200; and all executive
officers and Directors as a group -- 119,450.
(2) Less than 1%.
(3) Includes 575,493 Common Shares 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 200,293 Common Shares in respect of which
David J.
16
<PAGE> 19
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.
(4) Includes 5,775 Common Shares held as trustee for the benefit of Mr. Golden's
son.
(5) Includes 403,359 Common Shares owned by Sylvia K. Reitman, Mr. Reitman's
wife, and the Common Shares described in note (3), above, as to all of which
shares Mr. Reitman disclaims beneficial ownership.
(6) Includes 2,730 Common Shares held as custodian for the benefit of Morton L.
Reitman's adult child. Also includes 1,800 Common Shares owned by Mr.
Reitman's wife, as to which shares Mr. Reitman disclaims beneficial
ownership.
(7) Includes 114,301 Common Shares owned by Robert S. Reitman, Mrs. Reitman's
husband, as to all of which shares Mrs. Reitman disclaims beneficial
ownership.
</TABLE>
SELECTION OF AUDITORS
The Board of Directors of the Corporation has recommended that KPMG Peat
Marwick LLP be selected as independent auditors to examine the books, records
and accounts of the Corporation and its subsidiaries for the fiscal year ending
February 28, 1998. In accordance with past practice, the recommendation is being
presented to holders of Common Shares for adoption or rejection at the Annual
Meeting. KPMG Peat Marwick LLP were the independent auditors of the Corporation
for the fiscal year ended February 28, 1997 and are considered by the Board of
Directors to be well qualified. Representatives of KPMG Peat Marwick LLP are
expected to be present at the Annual Meeting with the opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions.
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's executive officers and Directors, and persons who beneficially own
more than 10% of the Corporation's Common Shares, to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. Dennis H.
Kelly reported the exercise of stock options in December, 1996 subsequent to the
due date for such reporting.
17
<PAGE> 20
OTHER MATTERS
The Board of Directors knows of no matter to be presented for action at the
Annual Meeting other than those described in this Proxy Statement. Should other
matters come before the meeting, the Common Shares represented by proxies
solicited hereby will be voted with respect thereto in accordance with the best
judgment of the proxy holders.
GENERAL INFORMATION
CUMULATIVE VOTING
If notice in writing is given by any holder of Common Shares to the
President, a Vice President or the Secretary of the Corporation, not less than
forty-eight hours before the time fixed for the holding of the Annual Meeting,
that such Shareholder desires that the voting with respect to the election of
Directors shall be cumulative, and if an announcement of the giving of such
notice is made upon the convening of the meeting by the Chairman or Secretary of
the Meeting or by or on behalf of the Shareholder giving such notice, each
holder of Common Shares shall have the right to cumulate such voting power as he
or she possesses at such election. If the Shareholder desires to make the
foregoing announcement at the convening of the meeting, such Shareholder must be
present in person or through a properly authorized representative other than
those persons designated in the accompanying form of proxy.
VOTING OF PROXIES
Common Shares represented by properly executed Management proxies will be
voted at the meeting, and if a holder of such shares has specified how the same
are to be voted, they will be voted in accordance with such specification. It is
intended that Common Shares represented by proxies in which no specification has
been made will be voted for the election of Directors and for the selection of
the independent auditors.
SHAREHOLDER PROPOSALS
If a holder of Common Shares intends to present a proposal at the next
Annual Meeting of Shareholders presently scheduled for June 15, 1998, it must be
received by the Corporation for consideration for inclusion in the Corporation's
Proxy Statement and form of proxy relating to that meeting on or before January
14, 1998.
18
<PAGE> 21
REVOCATION OF PROXIES
A proxy may be revoked at any time before a vote is taken or the authority
granted is otherwise exercised. Revocation may be accomplished by the execution
of a later proxy with regard to the same Common Shares or by giving notice in
writing or in open meeting.
SOLICITATION OF PROXIES
The cost of soliciting the accompanying proxies will be borne by the
Corporation. The Corporation does not expect to pay any compensation for the
solicitation of proxies but may pay brokers, nominees, fiduciaries and
custodians their reasonable expenses for sending proxy material to principals
and obtaining their instructions. In addition to solicitation by mail, proxies
may be solicited in person, by telephone or telegraph, or by Directors, officers
and regular employees of the Corporation.
By order of the Board of Directors
JAMES H. BERICK
May 14, 1997 Secretary
19
