<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended August 31, 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 October 7, 1997 3,498,288
---------
<PAGE> 2
PART I: FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
----------------------------
THE TRANZONIC COMPANIES
Condensed Consolidated Balance Sheets
August 31, 1997 and February 28, 1997
<TABLE>
<CAPTION>
August 31, February 28,
Assets 1997 1997
------ ----------- ------------
(unaudited)
<S> <C> <C>
Current assets
Cash (including cash equivalents of $4,287,700 at
August 31, 1997 and $7,484,200 at February 28, 1997) $ 7,980,238 9,310,479
Receivables, net 16,595,225 14,554,312
Inventories
Raw materials 9,750,660 9,199,517
Finished goods 10,907,161 10,290,648
Deferred income taxes 633,043 606,434
Prepaid expenses and other current assets 1,026,615 873,143
----------- ------------
Total current assets 46,892,942 44,834,533
Property, plant and equipment, net 18,901,031 18,475,743
Other noncurrent assets 3,291,343 3,170,213
Intangible assets 8,252,402 5,907,018
----------- -----------
$ 77,337,718 72,387,507
=========== ===========
</TABLE>
(1)
(Continued)
<PAGE> 3
THE TRANZONIC COMPANIES
Condensed Consolidated Balance Sheets
August 31, 1997 and February 28, 1997
<TABLE>
<CAPTION>
August 31, February 28,
Liabilities and Shareholders' Equity 1997 1997
------------------------------------ ----------- -----------
(unaudited)
<S> <C> <C>
Current liabilities
Trade accounts payable $ 8,511,182 6,920,955
Accrued compensation 2,109,848 2,827,939
Other payables and accrued expenses 2,514,648 3,917,822
----------- -----------
Total current liabilities 13,135,678 13,666,716
Deferred gain 1,672,830 1,752,630
Deferred income taxes 471,612 550,042
Other noncurrent liabilities 1,995,583 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 August 31,
1997 and February 28, 1997 998,885 998,885
Additional paid-in capital 5,902,555 5,845,141
Retained earnings 57,600,132 52,573,602
---------- ----------
64,501,572 59,417,628
Less cost of shares held in treasury
Common Shares - 497,251 at August 31, 1997 and
526,201 at February 28, 1997 4,439,557 4,698,082
----------- -----------
Total shareholders' equity 60,062,015 54,719,546
---------- ----------
$ 77,337,718 72,387,507
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
(2)
<PAGE> 4
THE TRANZONIC COMPANIES
Condensed Consolidated Statements of Earnings
Six- and three-month periods ended August 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
August 31, August 31,
--------------------------- --------------------------
1997 1996 1997 1996
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 76,324,575 70,161,762 39,012,247 35,446,653
Cost and expenses
Cost of goods sold 50,386,388 46,422,339 25,768,963 23,021,601
Selling, general, and
administrative expenses 19,792,336 18,413,372 10,010,694 9,426,152
------------ ----------- ----------- -----------
70,178,724 64,835,711 35,779,657 32,447,753
------------ ----------- ----------- -----------
Operating earnings 6,145,851 5,326,051 3,232,590 2,998,900
Interest income 215,716 176,443 115,364 99,037
Interest expense (173,217) (30,471) (66,581) (2,492)
------------ ----------- ----------- -----------
Earnings before income
taxes 6,188,350 5,472,023 3,281,373 3,095,445
Income taxes 678,000 1,925,000 (369,000) 1,083,000
------------ ----------- ----------- -----------
Net earnings $ 5,510,350 3,547,023 3,650,373 2,012,445
============ =========== =========== ===========
Net earnings per Common Share $ 1.55 1.01 1.02 .57
==== ==== ==== ===
Dividends per Common Share $ .14 .13 .07 .065
=== === === ====
Average common and common
equivalent shares outstanding 3,546,071 3,507,044 3,572,622 3,506,328
============ =========== =========== ===========
Shares outstanding at end of period 3,498,288 3,469,188 3,498,288 3,469,188
============ =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
(3)
<PAGE> 5
THE TRANZONIC COMPANIES
Condensed Consolidated Statements of Cash Flows
Six-month periods ended August 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 5,510,350 3,547,023
Adjustments to reconcile net earnings to net cash provided by operations
Depreciation and amortization 1,706,596 1,647,480
Deferred income taxes (105,039) 446,873
Changes in assets and liabilities, net of effects of acquisitions
Receivables, net (938,206) (441,802)
Inventories (781,551) (200,875)
Prepaid expenses and other current assets (153,472) 3,308
Trade accounts payable 1,590,227 165,911
Accrued compensation (718,091) (560,001)
Other payables and accrued expenses (1,403,174) 562,495
Other, net 173,353 (5,492)
----------- -----------
Net cash provided by operating activities 4,880,993 5,164,920
Cash flows from financing activities
Proceeds from revolving credit 7,300,000 --
Repayments of long-term debt (7,300,000) (7,000,000)
Cash dividends (483,820) (450,566)
----------- -----------
Net cash used in financing activities (483,820) (7,450,566)
Cash flows from investing activities
Net proceeds from sale of Housewares Division -- 9,742,367
Payments for acquisitions, net of cash acquired (4,766,288) --
Purchase of treasury shares -- (421,650)
Proceeds on exercise of share options 315,939 --
Purchases of property, plant and equipment (923,063) (844,292)
Other (354,002) (933,382)
----------- -----------
Net cash provided by (used in) investing activities (5,727,414) 7,543,043
Cash and cash equivalents
Increase (decrease) during the year (1,330,241) 5,257,397
Beginning balance 9,310,479 6,610,933
----------- -----------
Ending balance $ 7,980,238 11,868,330
=========== ===========
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 $ 2,335,866 2,161,224
Interest paid $ 180,087 39,708
</TABLE>
See accompanying notes to condensed consolidated financial statements.
(4)
<PAGE> 6
THE TRANZONIC COMPANIES
Notes to Condensed Consolidated Financial Statements
Six- and three-month periods ended August 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 August 31, 1997 and the results of operations for the
six- and three-month periods ended August 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 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.
Note C The table below depicts the average Common Shares used in the
calculation of net earnings per share for the reported periods and
the outstanding:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
August 31, August 31,
-------------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
3,546,071 3,507,044 3,572,622 3,506,328
========= ========= ========= =========
</TABLE>
The number of Common Shares outstanding at August 31, 1997 and 1996
was 3,498,288 and 3,469,188, respectively.
Note D On September 19, 1997, the Company entered into a definitive
agreement to sell substantially all of the assets and business of
Baxter Tube Company to Caraustar Industries, Inc. for approximately
$14 million in cash and the assumption of certain liabilities. The
transaction is expected to close during the Company's third quarter
and is expected to result in a one-time gain.
Identifiable assets to be sold at Baxter Tube Company were $8,444,531
and $3,664,490 at August 31, 1997 and February 28, 1997,
respectively.
Baxter Tube Company had sales of $8,215,383 and $6,213,879 through
the six-month period and $4,239,622 and $2,997,915 through the
three-month period ended August 31, 1997 and 1996, respectively.
Baxter Tube Company's contribution to operating earnings before
interest and taxes were $756,630 and $540,893 through the six-month
period and $472,067 and $250,555 through the three-month period ended
August 31, 1997 and 1996, respectively.
Note E A change in the estimated tax effect resulting from the divestiture
of the Company's Housewares Division, which occurred in the prior
fiscal year, caused a one-time $1.5 million tax credit against the
current year second fiscal quarter income tax provision.
(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 August 31, 1997, the current
ratio was 3.6:1 as compared to 3.3:1 at February 28, 1997, and working capital
increased to $33.8 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. Existing cash and cash generated from
operations have since been used to repay this borrowing.
Subsequent to the second fiscal quarter close, the Company entered into a
definitive agreement to sell substantially all of the assets and business of
Baxter Tube Company to Caraustar Industries, Inc. The Company expects to record
a one-time gain once the transaction closes, which is expected in October 1997.
(6)
<PAGE> 8
Results of Operation
- --------------------
Revenues in the current year's second fiscal quarter increased 10.1 percent to
$39.0 million, up from $35.4 million recorded a year ago. Each of the Company's
operating divisions participated in the revenue increase. Revenue gains recorded
by CCP Industries and Baxter Tube Company resulted principally from recent
acquisitions. Revenue gains from the extension of existing product lines
continued into the second fiscal quarter for Hospital Specialty Company.
Revenues in the six-month period ended August 31, 1997 increased 8.8 percent to
$76.3 million compared to $70.2 million of the prior year like period.
Operating margins were down slightly during the current year second fiscal
quarter to 8.3 percent from 8.5 percent of a year ago. Continued focus on
reducing selling, general and administrative expenses have nearly offset the
increase in cost of goods sold as sales mix, particularly at CCP Industries, and
strong price competition have put pressure on gross margins. Operating margins
for the six-month period of 8.1 percent reflected improvement over the 7.6
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.
A change in the estimated tax effect resulting from the divestiture of the
Company's Housewares Division, which occurred in the prior fiscal year, caused a
one-time tax credit of $1.5 million, or 42 cents per share, against the current
fiscal second quarter tax provision. Excluding this adjustment, the effective
tax rate through the six-month period ended August 31, 1997 was 35.2 percent,
identical to that of the same period a year ago.
Net earnings in the six-month period ended August 31, 1997 were $5.5 million, or
$1.55 share, compared to $3.5 million, or $1.01 per share, recorded in the like
prior year period. Net earnings for the current year's second fiscal three-month
period were $3.7 million, or $1.02 per share, compared to $2.0 million, or 57
cents per share, recorded in the same period last year.
(7)
<PAGE> 9
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
-------------- -------
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 ended August
31, 1997.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
THE TRANZONIC COMPANIES
(Registrant)
Date: October 8, 1997 By: /s/ Richard J. Pennza
-----------------------------
Richard J. Pennza
(Duly authorized officer and
Principal Accounting Officer)
- -------------------------------
1 Filed only in electronic format pursuant to Item 601(b)(27) of Regulation S-K.
(8)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AT AUGUST 31, 1997 AND FEBRUARY 28, 1997
AND CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE SIX- AND THREE-MONTH
PERIODS ENDED AUGUST 31, 1997 AND 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000001761
<NAME> TRANZONIC COMPANIES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 7,980,238
<SECURITIES> 0
<RECEIVABLES> 16,595,225
<ALLOWANCES> 0
<INVENTORY> 20,657,821
<CURRENT-ASSETS> 46,892,942
<PP&E> 18,901,031
<DEPRECIATION> 0
<TOTAL-ASSETS> 77,337,718
<CURRENT-LIABILITIES> 13,135,678
<BONDS> 0
998,885
0
<COMMON> 0
<OTHER-SE> 63,502,687<F1>
<TOTAL-LIABILITY-AND-EQUITY> 77,337,718
<SALES> 76,324,575
<TOTAL-REVENUES> 76,324,575
<CGS> 50,386,388
<TOTAL-COSTS> 70,178,724
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 215,716
<INCOME-PRETAX> 6,188,350
<INCOME-TAX> 678,000
<INCOME-CONTINUING> 5,510,350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,510,350
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 0
<FN>
<F1>THIS FIGURE INCLUDES $5,902,555 IN ADDITIONAL PAID IN CAPITAL AND $57,600,132
IN RETAINED EARNINGS
</FN>
</TABLE>
<PAGE> 1
Exhibit 99
[KPMG Peat Marwick LLP Letterhead]
Form 10-Q, Part II
Item 6
Exhibit 99
INDEPENDENT AUDITORS' REVIEW REPORT
-----------------------------------
The Board of Directors
The Tranzonic Companies:
We have reviewed the condensed consolidated balance sheet of The Tranzonic
Companies and subsidiaries as of August 31, 1997, and the related condensed
consolidated statements of earnings for the six- and three-month periods ended
August 31, 1997 and 1996, and cash flows for the six-month periods ended August
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
September 25, 1997
