<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended May 31, 1997 or
------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ____________ to
_________________
Commission file number 2-29697
---------
THE TRANZONIC COMPANIES
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0664235
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
30195 Chagrin Blvd., Pepper Pike, Ohio 44124
- -------------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 216/831-5757
------------
Indicate by check mark whether the registrant (1) has filed all annual,
quarterly, and other reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to the filing requirements for at least the past 90 days.
Yes x No
--------- ---------
Number of Common Shares Outstanding at July 2, 1997 3,494,388
---------
<PAGE> 2
<TABLE>
PART I: FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
----------------------------
THE TRANZONIC COMPANIES
Condensed Consolidated Balance Sheets
May 31, 1997 and February 28, 1997
<CAPTION>
May 31, February 28,
Assets 1997 1997
------ ------------ ------------
(unaudited)
<S> <C> <C>
Current assets
Cash (including cash equivalents of $10,568,100 at
May 31, 1997 and $7,484,200 at February 28, 1997) $ 13,777,581 9,310,479
Receivables, net 15,581,563 14,554,312
Inventories
Raw materials 7,323,335 9,199,517
Finished goods 12,525,713 10,290,648
Deferred income taxes 633,043 606,434
Prepaid expenses and other current assets 928,739 873,143
------------ ------------
Total current assets 50,769,974 44,834,533
Property, plant and equipment, net 19,145,089 18,475,743
Other noncurrent assets 3,216,906 3,170,213
Intangible assets 8,156,666 5,907,018
------------ ------------
$ 81,288,635 72,387,507
============ ============
(Continued)
(1)
<PAGE> 3
THE TRANZONIC COMPANIES
Condensed Consolidated Balance Sheets
May 31, 1997 and February 28, 1997
<CAPTION>
May 31, February 28,
Liabilities and Shareholders' Equity 1997 1997
------------------------------------ ---------- ----------
(unaudited)
<S> <C> <C>
Current liabilities
Trade accounts payable $ 6,811,555 6,920,955
Accrued compensation 1,842,452 2,827,939
Other payables and accrued expenses 5,572,050 3,917,822
---------- ----------
Total current liabilities 14,226,057 13,666,716
Long-term debt 6,500,000 -
Deferred gain 1,712,730 1,752,630
Deferred income taxes 463,314 550,042
Other noncurrent liabilities 1,933,312 1,698,573
Shareholders' equity
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 at May 31,
1997 and February 28, 1997 998,885 998,885
Additional paid-in capital 5,834,824 5,845,141
Retained earnings 54,192,127 52,573,602
---------- ----------
61,025,836 59,417,628
Less cost of shares held in treasury --
Common Shares - 512,151 at May 31, 1997 and
526,201 at February 28, 1997 4,572,614 4,698,082
---------- ----------
Total shareholders' equity 56,453,222 54,719,546
---------- ----------
$ 81,288,635 72,387,507
========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
(2)
<PAGE> 4
<TABLE>
THE TRANZONIC COMPANIES
Condensed Consolidated Statements of Earnings
Three-month periods ended May 31, 1997 and 1996
(Unaudited)
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Sales $ 37,312,328 34,715,109
Cost and expenses
Cost of goods sold 24,617,425 23,400,738
Selling, general, and administrative expenses 9,781,642 8,987,220
----------- -----------
34,399,067 32,387,958
----------- -----------
Operating earnings 2,913,261 2,327,151
Interest income 100,352 77,406
Interest expense (106,636) (27,979)
----------- -----------
Earnings before income taxes 2,906,977 2,376,578
Income taxes 1,047,000 842,000
----------- -----------
Net earnings $ 1,859,977 1,534,578
=========== ===========
Net earnings per Common Share $ .53 .44
=== ===
Dividends per Common Share $ .07 .065
=== ====
Average common and common equivalent shares outstanding 3,519,520 3,507,760
=========== ===========
Common Shares outstanding at end of period 3,483,388 3,490,188
=========== ===========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
(3)
<PAGE> 5
<TABLE>
THE TRANZONIC COMPANIES
Condensed Consolidated Statements of Cash Flows
Three-month periods ended May 31, 1997 and 1996
(Unaudited)
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 1,859,977 1,534,578
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation and amortization 809,676 827,451
Deferred income taxes (113,337) 166,406
Changes in assets and liabilities, net of effects of acquisitions
Receivables, net 75,456 401,288
Inventories 27,222 1,321,969
Prepaid expenses and other current assets (55,596) (423,226)
Trade accounts payable (109,399) (334,505)
Accrued compensation (985,487) (890,549)
Other payables and accrued expenses 1,654,228 534,829
Other, net 39,945 (75,774)
------------- -----------
Net cash provided by operating activities 3,202,685 3,062,467
Cash flows from financing activities
Proceeds from revolving credit 7,300,000 -
Repayments of long-term debt (800,000) (7,000,000)
Cash dividends (241,452) (225,637)
------------- -----------
Net cash provided by (used in) financing activities 6,258,548 (7,225,637)
Cash flows from investing activities
Net proceeds from sale of Housewares Division - 9,725,678
Purchases of short-term investments - (1,989,067)
Payments for acquisitions, net of cash acquired (4,766,288) -
Purchase of treasury shares - (150,851)
Proceeds on exercise of share options 115,151 -
Purchases of property, plant and equipment (342,994) (268,808)
------------- -----------
Net cash provided by (used in) investing activities (4,994,131) 7,316,952
------------- -----------
Cash and cash equivalents
Increase during the period 4,467,102 3,153,782
Beginning balance 9,310,479 6,610,933
------------- -----------
Ending balance $ 13,777,581 9,764,715
============= ===========
Supplemental schedule of noncash investing and financing activities
On March 3, 1997, the Company purchased substantially all the
assets and assumed certain liabilities of Unity Paper Tubes; in
conjunction with the acquisition, liabilities were assumed as
follows
Fair value of assets acquired $ 4,800,328 -
Liabilities assumed (34,040) -
------------- -----------
Cash paid $ 4,766,288 -
============= ===========
Supplemental disclosure of cash flow information
Income taxes paid $ 1,083,777 1,166,543
Interest paid 83,559 36,317
============= ===========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
(4)
<PAGE> 6
THE TRANZONIC COMPANIES
Notes to Condensed Consolidated Financial Statements
Three-month periods ended May 31, 1997 and 1996
Note A In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain such adjustments (all of
which are normal and recurring in nature) necessary to present fairly
the financial position of The Tranzonic Companies and subsidiaries
(Company) at May 31, 1997 and the results of operations for the
three-month periods ended May 31, 1997 and 1996. The statements should
be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report to Shareholders
for the fiscal year ended February 28, 1997.
Note B Net earnings per Common Share have been calculated based on the
weighted average Common Shares outstanding during the periods plus the
incremental shares (calculated using the treasury share method) for
those outstanding share options which are considered equivalent shares
and have a dilutive impact on net earnings per Common Share.
The average Common Shares used in the calculation of net earnings per
Common Share for the three-month periods ended May 31, 1997 and 1996,
were 3,519,520 and 3,507,760, respectively. The number of Common
Shares outstanding at May 31, 1997 and 1996, was 3,483,388 and
3,490,188, respectively.
Note C On March 3, 1997, the Company, through its Industrial Packaging
Division, acquired substantially all the assets and assumed 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 was accounted for under the purchase method of accounting.
(5)
<PAGE> 7
PART I: FINANCIAL INFORMATION
-----------------------------
Item 2. Management's Discussion and Analysis of
-----------------------------------------------
Financial Condition and Results of Operation
--------------------------------------------
Safe Harbor Statement
- ---------------------
With the exception of historical information, the matters discussed in this
Report 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.
Financial Condition
- -------------------
The Company's financial position remains strong. At May 31, 1997, the current
ratio was 3.6:1 as compared to 3.3:1 at February 28, 1997, and working capital
increased to $36.5 million as compared to $31.2 million at fiscal year-end.
On March 3, 1997, the Company acquired for $4.8 million substantially all the
assets and assumed certain liabilities of Unity Paper Tubes, a manufacturer and
distributor of spiral-wound paper tubes and cores, located in the United
Kingdom. The acquisition was financed through the use of the Company's $30.0
million revolving line of credit.
(6)
<PAGE> 8
Results of Operation
- --------------------
Revenues in the first fiscal quarter ended May 31, 1997 increased 7.5 percent to
$37.3 million from $34.7 million as recorded in the prior year like period.
Volume revenue gains from existing product lines at Hospital Specialty Company
added to revenue gains recorded by CCP Industries and Baxter Tube Company,
primarily the result of recent acquisitions by both companies.
Gross margins in the current year first quarter increased to 34.0 percent as
compared to 32.6 percent of a year ago. Raw material costs, particularly fluff
pulp, which was in a downward trend during the prior year first fiscal quarter,
helped to improve margin performance. To a lesser degree, improved manufacturing
efficiencies experienced at Baxter Tube Company were mitigated somewhat by an
increase in lower margin sales to a growing wholesale trade business at CCP
Industries.
Additional administrative costs in support of Company-wide growth have (to some
degree) been offset by continued cost control programs, particularly at CCP
Industries. Selling, general, and administrative expenses were up modestly to
26.2 percent of sales in the current year first quarter as compared to 25.9
percent of the prior year like period. As a result, operating margins in the
current year first quarter improved to 7.8 percent, up from 6.7 percent of a
year ago.
Borrowings used to finance the acquisition of Unity Paper Tubes at the beginning
of the current fiscal year, as noted earlier, caused an unfavorable change in
net interest. During the prior year first quarter the Company received
approximately $10.0 million in cash from the sale of its Housewares Division.
Net earnings in the first quarter ended May 31, 1997 increased 21.2 percent to
$1.9 million or 53 cents per share, up from the $1.5 million or 44 cents per
share recorded a year ago.
(7)
<PAGE> 9
FORM 10-Q - PART II: OTHER INFORMATION
--------------------------------------
Items 1 through 3 and 5 are not applicable or the answer to such items is
negative; therefore, the items have been omitted and no reference is required in
this report.
ITEM 4. Submission of Matters to a Vote of Security-Holders
- ------------------------------------------------------------
(a) The Registrant's annual meeting of shareholders was held on June 16, 1997.
(b) The following Directors were elected at such annual meeting, each for a
three-year term expiring in 2000:
David J. Golden
Morton L. Reitman
James C. Spira
(c) The following matters were voted on at the annual meeting of shareholders:
(1) Election of Class III Directors:
Director Name Votes For Abstentions
------------- --------- -----------
David J. Golden 3,071,900 15,231
Morton L. Reitman 3,071,900 15,231
James C. Spira 3,071,900 15,231
(2) Selection of independent auditors for the fiscal year ending February
28, 1998:
Broker
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
3,077,977 1,464 7,689 1
ITEM 6. Exhibits and Reports on Form 8-K
- --------------------------------------------
(a) Exhibits
--------
Exhibit Number Exhibit
-------------- -------
27 (1) Financial Data Schedule
99 Independent Auditors' Review Report
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
- ---------------------------
(1) Filed only in electronic format pursuant to Item 601(b)(27) of Regulation
S-K.
(8)
<PAGE> 10
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
THE TRANZONIC COMPANIES
(Registrant)
Date: July 3, 1997 By: /s/ Richard J. Pennza
___________________________________
Richard J. Pennza
(Duly authorized officer and
Principal Accounting Officer)
(9)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AT MAY 31, 1997 AND FEBRUARY 28, 1997 AND
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE-MONTH PERIODS ENDED
MAY 31, 1997 AND 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000001761
<NAME> THE TRANZONIC COMPANIES
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-31-1997
<CASH> 13,777,581
<SECURITIES> 0
<RECEIVABLES> 15,581,563
<ALLOWANCES> 0
<INVENTORY> 19,849,048
<CURRENT-ASSETS> 50,769,974
<PP&E> 19,145,089
<DEPRECIATION> 0
<TOTAL-ASSETS> 81,288,635
<CURRENT-LIABILITIES> 14,226,057
<BONDS> 0
<COMMON> 998,885
0
0
<OTHER-SE> 60,026,951<F1>
<TOTAL-LIABILITY-AND-EQUITY> 81,288,635
<SALES> 37,312,328
<TOTAL-REVENUES> 37,312,328
<CGS> 24,617,425
<TOTAL-COSTS> 34,399,067
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106,636
<INCOME-PRETAX> 2,906,977
<INCOME-TAX> 1,047,000
<INCOME-CONTINUING> 1,859,977
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,859,977
<EPS-PRIMARY> .53
<EPS-DILUTED> .0
<FN>
<F1>This figure includes $5,834,824 in additional paid in capital and $54,192,127
in retained earnings
</FN>
</TABLE>
<PAGE> 1
Form 10-Q, Part II
Item 6
Exhibit 99
INDEPENDENT AUDITORS' REVIEW REPORT
-----------------------------------
The Board of Directors
The Tranzonic Companies:
We have reviewed the condensed consolidated balance sheet of The Tranzonic
Companies and subsidiaries as of May 31, 1997, and the related condensed
consolidated statements of earnings and cash flows for the three-month periods
ended May 31, 1997 and 1996. These condensed consolidated financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The Tranzonic Companies and
subsidiaries as of February 28, 1997, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated March 31, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of February 28, 1997, is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Cleveland, Ohio
June 25, 1997
