<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 November 30, 1996 or
-----------------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to __________________
Commission file number 2-29697
-----------------------
THE TRANZONIC COMPANIES
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0664235
- ----------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
30195 Chagrin Blvd., Pepper Pike, Ohio 44124
- ----------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 216/831-5757
------------------------
Indicate by check mark whether the registrant (1) has filed all annual,
quarterly, and other reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to the filing requirements for at least the past 90 days.
Yes X No
----- -----
Number of Common Shares Outstanding at January 9, 1997 3,461,138
---------
<PAGE> 2
PART I: FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
----------------------------
THE TRANZONIC COMPANIES
Condensed Consolidated Balance Sheets
November 30, 1996 and February 29, 1996
<TABLE>
<CAPTION>
November 30, February 29,
Assets 1996 1996
------ ------------ ------------
(unaudited)
<S> <C> <C>
Current assets
Cash (including cash equivalents of $9,475,300 at
November 30, 1996 and $4,673,200 at February 29, 1996) $10,713,468 6,610,933
Receivables, net 14,455,178 13,752,460
Inventories
Raw materials 8,681,217 7,182,278
Finished goods 9,858,623 8,156,387
----------- -----------
18,539,840 15,338,665
Deferred income taxes -- 1,804,106
Prepaid expenses and other current assets 490,006 1,219,235
Net assets of discontinued operations -- 9,274,244
----------- -----------
Total current assets 44,198,492 47,999,643
Property, plant and equipment, net 18,263,201 19,376,208
Deferred income taxes 358,498 --
Other noncurrent assets 3,269,836 2,477,913
Intangible assets 5,950,988 5,167,879
----------- -----------
$72,041,015 75,021,643
=========== ===========
</TABLE>
(Continued)
<PAGE> 3
THE TRANZONIC COMPANIES
Condensed Consolidated Balance Sheets
November 30, 1996 and February 29, 1996
<TABLE>
<CAPTION>
November 30, February 29,
Liabilities and Shareholders' Equity 1996 1996
------------------------------------ ------------ ------------
(unaudited)
<S> <C> <C>
Current liabilities
Trade accounts payable $ 8,413,727 8,337,445
Accrued compensation 2,625,225 2,943,971
Other payables and accrued expenses 4,463,515 3,489,484
----------- -----------
Total current liabilities 15,502,467 14,770,900
Long-term debt -- 7,000,000
Deferred gain 1,792,530 1,912,230
Deferred income taxes -- 935,573
Other noncurrent liabilities 1,582,435 1,248,824
Shareholders' equity
Serial preferred shares without par value; authorized 200,000,
no shares issued -- --
Common shares, no par value; authorized 12,000,000,
issued 3,995,539 at November 30, 1996 and February 29,
1996 998,885 998,885
Additional paid-in capital 5,807,974 5,780,774
Retained earnings 51,192,326 46,471,200
----------- -----------
57,999,185 53,250,859
Less cost of common shares held in treasury
541,601 common shares at November 30, 1996 and
492,151 common shares at February 29, 1996 4,835,602 4,096,743
----------- -----------
Total shareholders' equity 53,163,583 49,154,116
----------- -----------
$72,041,015 75,021,643
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
THE TRANZONIC COMPANIES
Condensed Consolidated Statements of Earnings
Nine- and three-month periods ended November 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
November 30, November 30,
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 105,185,367 104,392,079 35,023,605 34,558,178
Cost and expenses
Cost of goods sold 68,897,763 71,165,492 22,475,424 23,781,598
Selling, general, and
administrative expenses 28,092,005 28,477,275 9,678,633 9,351,761
------------- ------------- ----------- ------------
96,989,768 99,642,767 32,154,057 33,133,359
------------- ------------- ----------- ------------
Operating earnings 8,195,599 4,749,312 2,869,548 1,424,819
Interest income 269,195 58,120 92,752 24,772
Interest expense (33,695) (554,787) (3,224) (182,406)
------------- ------------- ----------- ------------
Earnings from
continuing operations
before income taxes 8,431,099 4,252,645 2,959,076 1,267,185
Income taxes 3,018,000 1,438,500 1,093,000 453,074
------------- ------------- ----------- ------------
Earnings from
continuing operations 5,413,099 2,814,145 1,866,076 814,111
Income from discontinued
operations, net of income taxes - 321,585 - 99,751
------------- ------------- ----------- ------------
Net earnings $ 5,413,099 3,135,730 1,866,076 913,862
============= ============= =========== ============
Net earnings per common share
From continuing operations $ 1.54 .80 .53 .23
From discontinued operations - .09 - .03
------ --- ---- ---
$ 1.54 .89 .53 .26
==== === === ===
Dividends per Class A common
share (note C) $ .17 .145 .07 .05
=== ==== === ===
Dividends per Class B common
share (note C) $ .18 .265 - .09
=== ==== ==== ===
Average common and common
equivalent shares outstanding 3,514,185 3,526,447 3,528,469 3,530,961
============= ============= =========== ===========
Shares outstanding at end of period 3,453,938 3,503,388 3,453,938 3,503,388
============= ============= =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
THE TRANZONIC COMPANIES
Condensed Consolidated Statements of Cash Flows
Nine-month periods ended November 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
Cash flows from operating activities
<S> <C> <C>
Net earnings $ 5,413,099 3,135,730
Adjustments to reconcile net earnings to net cash provided by
continuing operations
Earnings from discontinued operations -- (321,606)
Depreciation and amortization 2,474,076 2,634,786
Deferred income taxes 510,035 (139,178)
Changes in assets and liabilities, net of effects of acquisitions
Receivables, net 188,283 467,250
Inventories (1,854,389) 98,567
Prepaid expenses and other current assets 914,171 376,252
Trade accounts payable (304,347) 198,168
Accrued compensation (318,746) 77,443
Other payables and accrued expenses 221,640 612,635
Other, net 41,958 481,515
------------ ------------
Net cash provided by continuing operations 7,285,780 7,621,562
Net cash used in discontinued operations (57,158) (754,941)
------------ ------------
Net cash provided by operating activities 7,228,622 6,866,621
Cash flows from investing activities
Net proceeds from sale of Housewares Division 9,650,660 --
Payments for acquisitions, net of cash acquired (2,880,717) (2,909,735)
Purchases of property and equipment (1,427,950) (1,818,755)
Other (64,447) --
------------ ------------
Net cash provided by (used in) investing activities 5,277,546 (4,728,490)
Cash flows from financing activities
Proceeds from revolving credit -- 5,900,000
Repayments of long-term debt (7,000,000) (5,000,000)
Purchase of treasury shares (822,900) --
Proceeds on exercise of share options 111,240 217,624
Cash dividends (691,973) (659,071)
------------ ------------
Net cash provided by (used in) financing activities (8,403,633) 458,553
------------ ------------
Cash and cash equivalents
Increase during the period 4,102,535 2,596,684
Beginning balance 6,610,933 2,387,540
------------ ------------
Ending balance $ 10,713,468 4,984,224
============ ============
Supplemental schedule of noncash investing and financing
activities in conjunction with acquisition
Fair value of assets acquired $ 3,694,479 3,091,802
Cash paid 2,880,717 2,909,735
------------ ------------
Liabilities assumed $ 813,762 182,067
============ ============
Supplemental disclosure of cash flow information
Income taxes paid $ 2,450,071 1,965,885
Interest paid $ 42,632 540,914
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
THE TRANZONIC COMPANIES
Notes to Condensed Consolidated Financial Statements
Nine- and three-month periods ended November 30, 1996 and 1995
Note A In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain such adjustments (all of
which are normal and recurring in nature) necessary to present
fairly the financial position of The Tranzonic Companies (Company)
at November 30, 1996 and the results of operations for the nine- and
three-month periods ended November 30, 1996 and 1995. The statements
should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's annual report
for the fiscal year ended February 29, 1996.
Note B On August 2, 1996, shareholders at the Company's annual
shareholders' meeting approved the consolidation of the Company's
Class A and Class B Shares into a single class to be called Common
Shares. The consolidation became effective August 7, 1996.
Net earnings per share have been calculated based on the weighted
average Common Shares outstanding during the periods plus the
incremental shares (calculated using the treasury share method) for
those outstanding share options which are considered equivalent
shares and have a dilutive impact on net earnings per share.
Note C Per share dividends are stated as those dividends paid on Class A
and Class B shares prior to the consolidation of shares as stated in
Note B.
Note D On March 1, 1995, the Company acquired substantially all the
assets and assumed certain liabilities of Plezall Wipers, Inc., a
Miami, Florida distributor of woven textile wipers. During the
current fiscal year, the Company has acquired several small
businesses extending existing product lines and distribution
channels. Each acquisition was accounted for under the purchase
method of accounting.
<PAGE> 7
PART I: FINANCIAL INFORMATION
-----------------------------
Item 2. Management's Discussion and Analysis of
-----------------------------------------------
Financial Condition and Results of Operation
--------------------------------------------
The Company's financial position remains strong. The current ratio at November
30, 1996 was 2.9:1, and current assets continue to exceed total liabilities.
Revenues from continuing operations in the current fiscal year's third quarter
increased modestly to $35.0 million from $34.6 million, recorded in the prior
year like period. Consistent with recent previous fiscal quarters, revenue gains
from the extension of existing product lines, principally institutional, were
offset by the loss of revenues related to the sale late in fiscal 1996 of our
Personal Care Division's douche and enema line of business. Revenues from
continuing operations through the nine-month period ended November 30, 1996 were
$105.2 million.
Gross margins in the third fiscal quarter were 35.8 percent, a significant
improvement over the 31.2 percent recorded in the same period a year ago. Raw
material costs, particularly fluff pulp used extensively in our Personal Care
Division, have stabilized at their lowest levels in recent years. In the prior
year third quarter, pulp prices had reached an all time high. This marked drop
continues to impact margins favorably. Gross margins in the current nine-month
fiscal period were 34.5 percent as compared to 31.8 percent for the prior year
like period.
Operating earnings from continuing operations in the fiscal 1997 third quarter
were $2.9 million, up 101.4 percent over the $1.4 million recorded in the fiscal
1996 third quarter. Tight control of selling, general, and administrative
expenses have helped to support improved operating earnings. Operating earnings
from continuing operations through the nine-month period ended November 30, 1996
were $8.2 million, up 72.6 percent from the $4.7 million recorded in the like
period last year.
On March 28, 1996, the Company completed the divestiture of its Housewares
Division substantially as anticipated when the transaction was reported in the
prior year fourth fiscal quarter. The cash proceeds of the sale were used to
retire the Company's borrowing under its line of credit in the current year's
first fiscal quarter. The excess cash from this transaction has been invested in
short-term cash investments. As a consequence, interest income has increased and
interest expense has decreased significantly on a three-month and nine-month
comparative basis.
Earnings from continuing operations in the third quarter ended November 30, 1996
increased to $1.9 million, or 53 cents per share, a 129.2 percent increase over
the $814 thousand, or 23 cents per share recorded last year. Earnings from
discontinued operations in the prior year third quarter were $100 thousand, or 3
cents per share. Earnings from continuing operations for the nine-month period
ended November 30, 1996 increased to $5.4 million, or $1.54 per share, a 92.4
percent increase over the $2.8 million, or 80 cents per share, recorded in the
corresponding prior year period. Earnings from discontinued operations in the
prior year nine-month period were $322 thousand, or 9 cents per share.
<PAGE> 8
FORM 10-Q - PART II: OTHER INFORMATION
--------------------------------------
Items 1 through 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 6. Exhibits and reports on Form 8-K
a) Exhibits
--------
Exhibit
Number Exhibit
------ -------
3 Certificate of Amendment to Amended Articles
of Incorporation filed August 7, 1996
27* Financial Data Schedule
99 Independent Auditors' Review Report
* Filed only in electronic format pursuant to Item 601(b)(27) of
Regulation S-K.
b) Reports on Form 8-K
-------------------
On April 11, 1996, the Registrant filed a report on Form 8-K dated
March 29, 1996. On May 17, 1996, the Registrant filed Amendment No. 1
to such Form 8-K/A dated May 16, 1996. On September 25, 1996, the
Registrant filed Amendment No. 2 to such Form 8-K on Form 8-K/A dated
September 24, 1996. The filings were made under Item 2 of Form 8-K, in
conjunction with the sale by the Registrant and its wholly-owned
subsidiaries, Design Trend, Inc. and Ever-Ready Appliance Mfg. Co.
(collectively, the Subsidiaries), of substantially all of the assets of
the Subsidiaries. The following financial statement was filed as a part
of the Form 8-K, as amended: The Tranzonic Companies Unaudited Pro
Forma Condensed Consolidated Statement of Earnings for the year ended
February 29, 1996.
<PAGE> 9
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: January 10, 1997 By: /s/ Richard J. Pennza
------------------------------------
Richard J. Pennza
(Duly authorized officer and
Principal Accounting Officer)
<PAGE> 1
EXHIBIT 3
CERTIFICATE OF AMENDMENT
TO AMENDED ARTICLES OF INCORPORATION OF
THE TRANZONIC COMPANIES
The undersigned, Robert S. Reitman, Chairman, and Samuel S. Pearlman,
Assistant Secretary of THE TRANZONIC COMPANIES, an Ohio corporation (the
"Corporation"), do hereby certify that at a duly called meeting of the Directors
of the Corporation held on April 27, 1996, at which a quorum was present and
acting throughout, the Board of Directors duly adopted an Amendment to the
Amended Articles of Incorporation of the Corporation by the adoption of the
following resolution by the affirmative vote of the Directors present:
RESOLVED, FURTHER, that the Board of Directors believes it is
advisable to (1) convert the Class B Common Shares to Class A Common
Shares (the "Conversion"), and (2) amend the Amended Articles of
Incorporation (the "Amendment") to (a) eliminate the Class B Common
Shares, (b) redesignate the Class A Common Shares as "Common Shares"
and (c) provide that the number of authorized Common Shares shall be
12,000,000 (the aggregate number of Class A Common Shares and Class B
Common Shares presently authorized);
RESOLVED, FURTHER, that the Conversion and the Amendment shall
be submitted to the Shareholders for their approval at the Annual
Meeting of Shareholders on August 2, 1996;
RESOLVED, FURTHER, that upon the approval of the Conversion
and the Amendment by the Shareholders and the filing of a certificate
with the Ohio Secretary of State respecting the Amendment (the
"Certificate of Amendment"), Article Fourth of the Corporation's
Amended Articles of Incorporation shall be amended and restated in its
entirety to (i) eliminate the Class B Common Shares, (ii) redesignate
the Class A Common Shares as "Common Shares" and (iii) provide that the
authorized number of Common Shares shall be 12,000,000 (the aggregate
number of Class A Common Shares and Class B Common Shares presently
authorized), all as more particularly as provided in Exhibit A attached
hereto;
RESOLVED, FURTHER, that upon approval of the Conversion and
the Amendment and the filing of the Certificate of Amendment, each
Class B Common Share shall be
<PAGE> 2
converted to one Class A Common Share, and all certificates
representing Class B Common Shares then outstanding automatically shall
represent Common Shares and upon transfer or exchange of any such
certificates, new certificates which shall bear the designation "Common
Shares" shall be issued to the Shareholders;
RESOLVED, FURTHER, by the officers of the Corporation each
hereby are authorized and directed to execute and deliver such
documents and to take such other actions as they may determine to be
necessary, appropriate or desirable to carry out the intent and purpose
of the foregoing resolutions.
Thereafter, pursuant to resolution of the Board of Directors, the
Annual Meeting of the Shareholders of the Corporation was duly called and held
on August 2, 1996, at which meeting a quorum of the Shareholders was present in
person or by proxy. At such meeting the Conversion and the Amendment were
approved by the affirmative vote of the holders of shares entitling them to
exercise 83% of the Class A Common Share voting power of the Corporation and 74%
of the Class B Common Share voting power of the Corporation.
IN WITNESS WHEREOF, Robert S. Reitman, Chairman, and Samuel S.
Pearlman, Assistant Secretary, of The Tranzonic Companies, have hereunto
subscribed their names this 5th day of August, 1996.
THE TRANZONIC COMPANIES
By: /s/ Robert S. Reitman
------------------------------
Robert S. Reitman, Chairman
And: /s/ Samuel S. Pearlman
-----------------------------
Samuel S. Pearlman,
Assistant Secretary
-2-
<PAGE> 3
"EXHIBIT A"
AMENDMENT AND RESTATEMENT OF ARTICLE "FOURTH" OF THE
AMENDED ARTICLES OF INCORPORATION
FOURTH: Effective upon the filing of this Amendment, each
outstanding Class B Common Share of the
Corporation shall be converted into one Class A
Common Share of the Corporation, all authorized
but unissued Class B Common Shares shall be
eliminated, and the Class A Common Shares shall be
redesignated as Common Shares. Thereupon, the
number of shares which the Corporation is
authorized to have outstanding is 12,200,000
consisting of (i) 12,000,000 Common Shares without
par value (collectively, the "Common Shares" and
individually, a "Common Share") and (ii) 200,000
Serial Preferred Shares without par value ("Serial
Preferred Shares").
The shares of such classes shall have the following express
terms:
DIVISION A
EXPRESS TERMS OF COMMON SHARES
The Common Shares shall be subject to the express terms of the
Serial Preferred Shares and any series thereof. Each Common
Share shall be equal to every other Common Share. Each holder
of Common Shares shall be entitled to one vote for each Common
Share so held upon all matters presented to Shareholders. The
Common Shares will not carry any pre-emptive rights enabling a
holder to subscribe or receive shares of the Corporation. The
Board of Directors shall possess the power to issue authorized
but unissued Common Shares without further shareholder action.
DIVISION B
EXPRESS TERMS OF SERIAL PREFERRED SHARES
Section 1. Serial Preferred Shares may be issued from time to
time in one or more series. All Serial Preferred Shares shall
be of equal rank and shall be
1
<PAGE> 4
identical, except in respect of the matters that may be fixed
by the Board of Directors as hereinafter provided, and each
share of each series shall be identical with all other shares
of such series, except as to the date from which dividends are
cumulative.
Subject to the provisions of Section 2 to 7, inclusive, of
this Division B, which provisions shall apply to all Serial
Preferred Shares, the Board of Directors hereby is authorized
to cause Serial Preferred Shares to be issued in one or more
series and with respect to each such series prior to the
issuance thereof to fix:
(a) The designation of the series, which may be by
distinguishing number, letter or title.
(b) The number of shares of the series, which number the
Board of Directors may (except where otherwise
provided in the creation of the series) increase or
decrease (but not below the number of shares thereof
then outstanding).
(c) The annual dividend rate of the series.
(d) The dates at which dividends, if declared, shall
be payable, and the dates from which dividends
shall be cumulative.
(e) The redemption rights and price or prices, if any,
for shares of the series.
(f) The terms and amount of any sinking fund provided
for the purchase or redemption of shares of the
series.
(g) The amounts payable on shares of the series in the
event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the
Corporation.
(h) Whether the shares of the series shall be convertible
into Common Shares, and, if so, the conversion price
or prices, any adjustments thereof, and all other
terms and conditions upon which such conversion may
be made.
(i) Restrictions (in addition to those set forth in
Section 6(b) of this Division) on the issuance of
shares of the same series or of any other class or
series.
2
<PAGE> 5
The Board of Directors is authorized to adopt from time
to time amendments to the Amended Articles of Incorporation
fixing, with respect to each such series, the matters
described in clauses (a) to (i), inclusive, of this Section 1.
Section 2. The holders of Serial Preferred Shares of each
series, in preference to the holders of Common Shares and of
any other class of shares ranking junior to the Serial
Preferred Shares, shall be entitled to receive out of any
funds legally available and when and as declared by the Board
of Directors, dividends in cash at the rate for such series
fixed in accordance with the provisions of Section 1 of this
Division B and no more, payable quarterly on the dates fixed
for such series. Such dividends shall be cumulative, in the
case of shares of each particular series, from and after the
date or dates fixed with respect to such series. No dividends
may be paid upon or declared or set apart for any of the
Serial Preferred Shares for any quarterly dividend period
unless at the same time a like proportionate dividend for the
same quarterly dividend period, ratably in proportion to the
respective annual dividend rates fixed therefor, shall be paid
upon or declared or set apart for all Serial Preferred Shares
of all series then issued and outstanding and entitled to
receive such dividend.
Section 3. In no event so long as any Serial Preferred Shares
shall be outstanding shall any dividends, except a dividend
payable in Common Shares or other shares ranking junior to the
Serial Preferred Shares be paid or declared or any
distribution be made except as aforesaid on the Common Shares
or any other shares ranking junior to the Serial Preferred
Shares, nor shall any Common Shares or any other shares
ranking junior to the Serial Preferred Shares be purchased,
retired or otherwise acquired by the Corporation (except out
of the proceeds of the sale of Common Shares or other shares
ranking junior to the Serial Preferred Shares received by the
Corporation on or subsequent to the date on which the Serial
Preferred Shares authorized herein are first issued):
(a) Unless all accrued and unpaid dividends on Serial
Preferred Shares, including the full dividends for
the current dividend period, shall have been declared
and paid or a sum sufficient for payment thereof set
apart; and
(b) Unless there shall be no arrearages with respect
3
<PAGE> 6
to the redemption of Serial Preferred Shares of
any series from any sinking fund provided for shares
of such series in accordance with the provisions of
Section 1 of this Division B.
Section 4.
(a) Subject to the express terms of each series and to
the provisions of Section 6(b)(iii) of this
Division B, the Corporation may from time to time
redeem all or any part of the Serial Preferred
Shares of any series at the time outstanding (i)
at the option of the Board of Directors at the
applicable redemption price for such series fixed
in accordance with the provisions of Section 1 of
this Division B, or (ii) in fulfillment of the
requirements of any sinking fund provided for
shares of such series at the applicable sinking
fund redemption price, fixed in accordance with
the provisions of Section 1 of this Division B,
together in each case with an amount equal to all
dividends accrued and unpaid thereon (whether or
not such dividends shall have been earned or
declared) to the redemption date.
(b) Notice of every such redemption shall be mailed,
postage prepaid to the holders of record of the
Serial Preferred Shares to be redeemed at their
respective addresses then appearing on the books
of the Corporation, not less than 30 days nor more
than 60 days prior to the date fixed for such
redemption. At any time before or after notice
has been given as above provided, the Corporation
may deposit the aggregate redemption price of the
Serial Preferred Shares to be redeemed with any
bank or trust company in Cleveland, Ohio or New
York, New York, having capital and surplus of more
than $5,000,000, named in such notice, and direct
that such deposited amount be paid to the
respective holders of the Serial Preferred Shares
so to be redeemed, in amounts equal to the
redemption price of all Serial Preferred Shares so
to be redeemed, on surrender of the share
certificate or certificates held by such holders.
Upon the making of such deposit such holders shall
cease to be shareholders with respect to such
shares, and after such notice shall have been
given and such deposit shall have been made such
holders shall have no interest in or claim against
the Corporation with respect to such shares except
only to receive such money from such bank or trust
4
<PAGE> 7
company without interest or the right to exercise,
before the redemption date, any unexpired privileges
conversion. In case less than all of the outstanding
Serial Preferred Shares are to be redeemed, the
Corporation shall select pro rata or by lot the
shares so to be redeemed in such manner as shall be
prescribed by its Board of Directors.
If the holders of Serial Preferred Shares which shall
have been called for redemption shall not, within six
years after such deposit, claim the amount deposited
for the redemption thereof, any such bank or trust
company shall, upon demand, pay over to the
Corporation such unclaimed amounts and thereupon such
bank or trust company and the Corporation shall be
relieved of all responsibility in respect thereof and
to such holders.
(c) Any Serial Preferred Shares which are redeemed by
the Corporation pursuant to the provisions of this
Section 4 and any Serial Preferred Shares which
are purchased and delivered in satisfaction of any
sinking fund requirements provided for shares of
such series and any Serial Preferred Shares which
are converted in accordance with the express terms
thereof shall be cancelled and not reissued. Any
Serial Preferred Shares otherwise acquired by the
Corporation shall resume the status of authorized
and unissued Serial Preferred Shares without
serial designation.
Section 5.
(a) The holders of Serial Preferred Shares of any
series shall, in case of liquidation, dissolution
or winding up of the affairs of the Corporation,
be entitled to receive in full out of the assets
of the Corporation, including its capital, before
any amount shall be paid or distributed among the
holders of the Common Shares or any other shares
ranking junior to the Serial Preferred Shares, the
amounts fixed with respect to shares of such
series in accordance with Section I of this
Division B, plus an amount equal to all dividends
accrued and unpaid thereon (whether or not such
dividends shall have been earned or declared) to
the date of payment of the amount due pursuant to
such liquidation, dissolution or winding up of the
affairs of the Corporation. In case the net
assets of the Corporation legally available
5
<PAGE> 8
therefor are insufficient to permit the payment
upon all outstanding Serial Preferred Shares and any
shares ranking on a parity therewith of the full
preferential amount to which they are respectively
entitled, then such net assets shall be distributed
ratably upon outstanding Serial Preferred Shares and
any shares ranking on a parity therewith in
proportion to the full preferential amount to which
each such share is entitled.
After payment to holders of Serial Preferred Shares
of the full preferential amounts as aforesaid,
holders of Serial Preferred Shares as such shall have
no right or claim to any of the remaining assets of
the Corporation.
(b) The merger or consolidation of the Corporation into
or with any other corporation, or the merger of any
other corporation into it, or the sale, lease or
conveyance of all or substantially all the property
or business of the Corporation, shall not be deemed
to be a dissolution, liquidation or winding up for
the purposes of this Section 5.
Section 6.
(a) The holders of Serial Preferred Shares shall be
entitled to one vote for each share; and, except
as otherwise provided herein or required by law,
the holders of Serial Preferred Shares and the
holders of Common Shares shall vote together as
one class on all matters. No adjustment of the
voting rights of holders of Serial Preferred
Shares shall be made for an increase or decrease
in the number of Common Shares authorized or
issued or for share splits or combinations of the
Common Shares or for share dividends on any class
of shares payable solely in Common Shares.
If, and so often as, the Corporation shall be in
default in dividends in an amount equivalent to six
full quarterly dividends on any series of Serial
Preferred Shares at the time outstanding, whether or
not earned or declared, the holders of Serial
Preferred Shares of all series, voting separately as
a class and in addition to all other rights to vote
for Directors, shall be entitled to elect, as herein
provided, two members of the Board of Directors of
the Corporation; provided, however, that the holders
of Serial Preferred
6
<PAGE> 9
Shares shall not have or exercise such special class
voting rights except at meetings of the shareholders
for the election of Directors at which the holders of
not less than 45% of the outstanding Serial Preferred
Shares of all series then outstanding are present in
person or by proxy; and provided further that the
special class voting rights provided for herein when
the same shall have become vested shall remain so
vested until all accrued and unpaid dividends on the
Serial Preferred Shares of all series then
outstanding shall have been paid, whereupon the
holders of Serial Preferred Shares shall be divested
of their special class voting rights in respect of
subsequent elections of Directors, subject to the
revesting of such special class voting rights in the
event hereinabove specified in this paragraph.
In the event of default entitling the holders of
Serial Preferred Shares to elect two Directors as
above specified, a special meeting of the
shareholders for the purpose of electing such
Directors shall be called by the Secretary of the
Corporation upon written request of, or may be called
by, the holders of record of at least 15% of the
Serial Preferred Shares of all series at the time
outstanding, and notice thereof shall be given in the
same manner as that required for the annual meeting
of shareholders; provided, however, that the
Corporation shall not be required to call such
special meeting if the annual meeting of shareholders
shall be held within 90 days after the date of
receipt of the foregoing written request from the
holders of Serial Preferred Shares. At any meeting at
which the holders of Serial Preferred Shares shall be
entitled to elect Directors, the holders of 45% of
the then outstanding Serial Preferred Shares of all
series, present in person or by proxy, shall be
sufficient to constitute a quorum, and the vote of
the holders of a majority of such shares so present
at any such meeting at which there shall be such a
quorum shall be sufficient to elect the members of
the Board of Directors which the holders of Serial
Preferred Shares are entitled to elect as hereinabove
provided.
The two Directors who may be elected by the holders
of Serial Preferred Shares pursuant to the foregoing
provisions shall be in addition to any
7
<PAGE> 10
other Directors then in office or proposed to be
elected otherwise than pursuant to such provisions,
and nothing in such provisions shall prevent any
change otherwise permitted in the total number of
Directors of the Corporation or require the
resignation of any Director elected otherwise than
pursuant to such provisions.
(b) The affirmative vote of the holders of at least a
majority of the Serial Preferred Shares at the
time outstanding, given in person or by proxy at a
meeting called for the purpose at which the
holders of Serial Preferred Shares shall vote
separately as a class, shall be necessary to
effect any one or more of the following (but so
far as the holders of Serial Preferred Shares are
concerned, such action may be effected with such
vote):
(i) Any amendment, alteration or repeal of any
of the provisions of the Amended Articles of
Incorporation or of the Code of Regulations
of the Corporation which affects adversely
the voting powers, rights or preferences of
the holders of Serial Preferred Shares;
provided, however, that, for the purpose of
this clause (i) only, neither the amendment
of the Amended Articles of Incorporation so
as to authorize or create, or to increase
the authorized or outstanding amount of,
Serial Preferred Shares or of any shares of
any class ranking on a parity with or junior
to the Serial Preferred Shares, nor the
amendment of the provisions of the Code of
Regulations so as to increase the number of
Directors of the Corporation, shall be
deemed to affect adversely the voting
powers, rights or preferences of the holders
of Serial Preferred Shares; and provided
further, that if such amendment, alteration
or repeal affects adversely the rights or
preferences of one or more but not all
series of Serial Preferred Shares at the
time outstanding, only the vote of the
holders of at least a majority of the number
of the shares at the time outstanding of the
series so affected shall be required;
(ii) The authorization or creation of, or the
increase in the authorized amount of, any
shares of any class, or any security
8
<PAGE> 11
convertible into shares of any class, ranking prior
to the Serial Preferred Shares;
(iii) The purchase or redemption (for sinking fund purposes
or otherwise) of less than all of the Serial
Preferred Shares then outstanding except in
accordance with a share purchase offer made to all
holders of record of Serial Preferred Shares, unless
all dividends upon all Serial Preferred Shares then
outstanding for all previous quarterly dividend
periods shall have been declared and paid or funds
therefor set apart and all accrued sinking fund
obligations applicable thereto shall have been
complied with;
(iv) The consolidation of the Corporation with or its
merger into any other corporation unless the
corporation resulting from such consolidation or
merger will have after such consolidation or merger
no class of shares either authorized or outstanding
ranking prior to or on a parity with the Serial
Preferred Shares except the same number of shares
ranking prior to or on a parity with the Serial
Preferred Shares and having the same rights and
preferences as the shares of the Corporation
authorized and outstanding immediately preceding such
consolidation or merger, and each holder of Serial
Preferred Shares immediately preceding such
consolidation or merger shall receive the same number
of shares, with the same rights and preferences, of
the resulting corporation; or
(v) The authorization of any shares ranking on a parity
with the Serial Preferred Shares or an increase in
the authorized number of Serial Preferred Shares.
Section 7. For the purpose of this Division B:
Whenever reference is made to shares "ranking prior to the
Serial Preferred Shares" or "on a parity with the Serial
Preferred Shares", such reference shall mean and include all
shares of the Corporation in respect of which the rights of
the holders thereof as to the payment of dividends or as to
distributions in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
9
<PAGE> 12
Corporation are given preference over, or rank on an equality
with (as the case may be) the rights of the holders of Serial
Preferred Shares; and whenever reference is made to shares
"ranking junior to the Serial Preferred Shares", such
reference shall mean and include all shares of the Corporation
in respect of which the rights of the holders thereof as to
the payment of dividends and as to distributions in the event
of a voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation are junior and
subordinate to the rights of the holders of Serial Preferred
Shares.
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AT NOVEMBER 30, 1996 AND FEBRUARY 29, 1996
AND CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE NINE MONTH AND THREE
MONTH PERIODS ENDED NOVEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 10,713,468
<SECURITIES> 0
<RECEIVABLES> 14,455,178
<ALLOWANCES> 0
<INVENTORY> 18,539,840
<CURRENT-ASSETS> 44,198,492
<PP&E> 18,263,201
<DEPRECIATION> 0
<TOTAL-ASSETS> 72,041,015
<CURRENT-LIABILITIES> 15,502,467
<BONDS> 0
<COMMON> 998,885
0
0
<OTHER-SE> 57,000,300<F1>
<TOTAL-LIABILITY-AND-EQUITY> 72,041,015
<SALES> 105,185,367
<TOTAL-REVENUES> 105,185,367
<CGS> 68,897,763
<TOTAL-COSTS> 96,989,768
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,695
<INCOME-PRETAX> 8,431,099
<INCOME-TAX> 3,018,000
<INCOME-CONTINUING> 5,413,099
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,413,099
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 0
<FN>
<F1>THIS FIGURE INCLUDES $5,807,974 IN ADDITIONAL PAID IN CAPITAL AND
$51,192,326 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 as of November 30, 1996, and the related condensed consolidated
statements of earnings for the nine- and three-month periods ended November 30,
1996 and 1995, and cash flows for the nine-month periods ended November 30,
1996 and 1995. These condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The Tranzonic Companies as of
February 29, 1996, and the related consolidated statements of earnings,
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated March 29, 1996, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of February 29, 1996, is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Cleveland, Ohio
December 21, 1996
