<PAGE>
- -----------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1993 Commission File Number 1-4115
Zenith Electronics Corporation
(Exact name of registrant as specified in its charter)
Delaware 36-1996520
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 Milwaukee Avenue, Glenview, Illinois 60025
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (708)391-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
-------------------- ------------------------------------------
Common Stock, $1 par value, New York Stock Exchange
and associated purchase rights Chicago Stock Exchange
Basel, Geneva and Zurich, Switzerland
Stock Exchange
6 1/4 % Convertible Subordinated New York Stock Exchange
Debentures, due 2011
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation herein, and will not be contained, to the best of Registrant's
knowledge, in definitive proxy statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. X
---
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed 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
----- -----
The aggregate market value of the registrant's Common Stock held by
non-affiliates based on the New York Stock Exchange closing price on
February 8, 1994, was $342,334,305.
As of February 8, 1994, there were 37,009,114 shares of Common Stock,
par value $1 per share outstanding.
Documents Incorporated by Reference
Portions of the Registrant's definitive Proxy Statement are incorporated by
reference into Part III of this report.
- -----------------------------------------------------------------------------
<PAGE>
ZENITH ELECTRONICS CORPORATION
FORM 10-K
INDEX
Page
Number
PART I
Item 1. BUSINESS 3
Item 2. PROPERTIES 5
Item 3. LEGAL PROCEEDINGS 6
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 7
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS 7
Item 6. SELECTED FINANCIAL DATA 8
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 14
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 14
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT 14
Item 11. EXECUTIVE COMPENSATION 15
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 15
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 15
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K 15
SIGNATURES 21
INDEX TO FINANCIAL STATEMENT SCHEDULES AND EXHIBITS 23
<PAGE>
PART I
ITEM 1. BUSINESS
The company was founded in 1918 and has been a leader in consumer electronics,
first in radio and later in monochrome and color television and other video
products. The company's operations involve a dominant industry segment,
the design, development, and manufacture of video products (including color
television sets and other consumer products) along with parts and accessories
for such products. These products along with purchased video cassette recorders
are sold principally to retail dealers and wholesale distributors in the
United States, Canada and other foreign countries. Independently owned and
operated distributors sell to retail dealers who, in turn, sell to consumers.
The company sells directly to retail dealers, buying groups, private label
customers and the lodging, health care and rent-to-own industries.
Also included in the company's video products business are color picture
tubes that are produced for and sold to other manufacturers; video monitors
which are primarily produced for and sold to computer manufacturers; and cable
and subscription television products which are sold primarily to cable
television operators. The company also makes power supplies and high-security
electronic equipment.
During 1993, the monochrome video monitor business was sold and the company
reached an agreement (subject to certain contingencies) to sell the power supply
business in early 1994.
Raw Materials
Many materials, such as copper, plastic, steel, wood, glass, aluminum and
zinc, are essential to the business. The company experienced shortages in
1993 of picture tube glass and certain other components. Shortages may
possibly recur in 1994.
Patents
The company is licensed under a number of patents which are of importance
to its business, and holds numerous patents that expire at various times
through 2010. The company has patents and patent applications for numerous
high-definition television (HDTV) related inventions. To the extent these
inventions are incorporated into the HDTV standard adopted by the Federal
Communications Commission, any royalties resulting from these patents would be
pooled and shared with the other participants of the Grand Alliance formed in
1993 by the company and other proponents of various HDTV systems. Non-HDTV
applications of these patents could produce royalties which would accrue
entirely to the company. In addition, major manufacturers of televisions and
video cassette recorders agreed during 1992 to take licenses under some of
the company's U.S. tuning system patents (the licenses expire in 2003).
Based on 1993 U.S. industry unit sales levels and technology, more than
$20 million in annual royalty income is expected.
While in the aggregate its patents and licenses are valuable, the business
of the company is not materially dependent on them.
Seasonal Variations in Business
Sales of the company's consumer electronics products are generally at a
higher level during the second half of the year. Sales of consumer electronics
products typically increase in the fall, as the summer vacation season ends
and people spend more time indoors, with the new fall programming on the
television networks, and during the Christmas holiday season. During 1993,
1992 and 1991, approximately 54 percent, 56 percent and 56 percent,
respectively, of the company's net sales were recorded in the second half
of the year and approximately 30 percent of the company's net sales were
recorded in the fourth quarter of each of the three years ended December
31, 1993.
Competitive Conditions
Competitive factors in North America include price, performance, quality,
variety of products and features offered, marketing and sales capabilities,
manufacturing costs, and service and support. The company believes it
competes well with respect to each of these factors.
The company's major product areas, including the color television market,
are highly competitive. The company's major competitors are foreign-owned
global giants, generally with greater worldwide television volume and
overall resources. In efforts to increase market share or achieve higher
production volumes, the company's competitors have aggressively lowered
their selling prices in the past several years. Some of the company's
foreign competitors have been capable of offsetting the effects of U.S.
price reductions through sales at higher margins in their home markets and
through direct governmental supports. During 1993, the company continued to
pursue efforts to reduce unfair competition from television imports.
Research and Development
During 1993, expenditures, net of outside funding, for company-sponsored
engineering and research relating to new products and services and to
improvements of existing products and services amounted to $47.8 million.
Amounts expended in 1992 and 1991 were $55.4 million and $54.1 million,
respectively.
Environmental Issues
Compliance with Federal, State and local environmental protection provisions
is not expected to have a material effect on capital expenditures, earnings or
the competitive position of the company. Further information regarding
environmental compliance is set forth under Item 3 of this report.
<PAGE>
Number of Employees
At the end of December 1993, the company employed approximately 22,100 people,
of whom approximately 15,600 are hourly workers covered by collective
bargaining agreements. Approximately 4,400 of the company's employees are
located in the Chicago, Illinois area, of whom approximately 2,800 are
represented by unions. Approximately 16,700 of the company's employees are
located in Mexico, of whom approximately 12,400 are represented by unions.
Mexican labor contracts expire every two years and wages are renegotiated
annually. The company believes that its relations with its employees are good.
Financial Information about Foreign and Domestic Operations and Export Sales
The North American Free Trade Agreement (NAFTA), which took effect on
January 1, 1994, will significantly reduce duty costs in 1994 and beyond.
This should improve the company's ability to compete against Asian imports
in North America and is expected to increase sales of the company's color
television receivers in Mexico and Canada and color picture tube production
in the U.S. Since the passage of the NAFTA, the company has added more than
300 U.S. jobs that are directly related to increased demand for U.S. picture
tubes.
Information regarding foreign operations is included in "Note Five -
Geographic Segment Data" on page 36 of this report. Export sales are less
than 10% of consolidated net sales.
The company's product lines are dependent on the continuing operations of
the company's manufacturing and assembly facilities located in Mexico.
ITEM 2. PROPERTIES
The company utilizes a total of approximately 6.7 million square feet for
manufacturing, warehousing, engineering and research, administration and
distribution, as described below. In addition, the company owns 95 acres of
vacant land adjacent to its Glenview, Illinois headquarters, which is
available for sale.
Square Feet
Location Nature of Operation (in millions)
- ------------------- ------------------------------------- ------------
Domestic:
- -------------------
Chicago, Illinois Six locations - production of color 2.7 (1)
(including suburban picture tubes; parts and service; engi-
locations) neering and research, marketing and
administration activities; and assembly
of electronic components
Springfield, Missouri Production of plastic cabinets for 1.0 (2)
color television and other plastic
parts; and warehouses and
distribution
McAllen, El Paso and Four locations - warehouses .2
Brownsville, Texas;
Douglas, Arizona
Various Nine locations - domestic distribution .2
Foreign:
- -------------------
Mexico Fourteen manufacturing and warehouse 2.4 (3)
locations - sub-assembly production
of television chassis, tuners, wooden
television cabinets and other components
and final assembly of color television,
color video monitors and cable products;
and assembly of power supplies
Canada Three locations - distribution of .2
consumer electronics products
Taiwan One location - purchasing office -
-------
Total 6.7
=======
(1) The company owns a 500,000 square foot warehouse in Northlake, Illinois
of which 100,000 square feet is used for storage (included in the above table)
with the remainder leased to another company (not included in the above table).
A contract is currently pending to sell the entire facility to this lessee and
to thereafter vacate that portion currently occupied by the company.
(2) The company owns a 400,000 square foot warehouse in Springfield, Missouri
which is being leased to another company and as such is not included in the
above table. A contract is currently pending to sell the entire 1.7 million
square foot facility to this lessee and to leaseback that portion the company
is currently utilizing. The company expects to vacate this space by mid - 1995.
(3) The company owns, and has offered for sale or lease, 230,000 square feet of
manufacturing and warehousing space in Chihuahua, Mexico. Currently this
space is not being utilized by the company and as such is not included in the
above table.
The company's facilities are suitable and adequate to meet current and
anticipated requirements. Substantially all of the total square footage
of property used is owned by the company.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The company is involved in various legal actions, environmental matters,
patent claims, and other proceedings relating to a wide range of matters
that are incidental to the conduct of its business. The company believes,
after reviewing such matters with the company's counsel, that any liability
which may ultimately be incurred with respect to these matters is not
expected to have a material effect on either the company's consolidated
financial position or results of operations.
The company and other potentially responsible parties have completed
negotiations with the United States and the State of Indiana with respect to
settlement of certain natural resources claims for environmental damage that
were not disposed of in settlement of the so-called Midco environmental
litigation at Gary, Indiana. On March 26, 1993, the company signed the
Amendment to Consent Decree and the Midco Natural Resources Participation
Agreement. The company's share of the settlement was approximately
$100,000 which was paid during 1993.
On April 27, 1993, the U.S. Environmental Protection Agency sent written
notices to all potentially responsible parties, advising the parties of the
EPA's proposed plan of remediation at the American Chemical Services
site near Griffith, Indiana. The EPA notified the parties that they
would be expected to make a good faith offer to perform the remedial action
and thereafter to negotiate and enter into a consent decree with the agency.
The EPA estimates that the cost of remedial action could range from $38 to
$64 million, depending upon the type of remedy actually needed to effect the
cleanup. The company is alleged to have contributed less than one-tenth
of one percent of the hazardous waste identified at the site. The company
and other de minimus waste generators intend to seek a separate de minimus
settlement with the EPA.
In October 1989, the EPA filed a civil action against certain generator and
owner/operator defendants under CERCLA seeking reimbursement for its response
costs in connection with an environmental cleanup at a site located at
Collegeville, Pennsylvania. One of the original defendants to the EPA case
brought a third party action for contribution against a number of third party
defendants, including Ford Electronics and Refrigeration Corporation
("FERCO"). FERCO is now seeking $600,000 in contribution from the company
on the ground that FERCO is being held liable in part because it hauled
certain waste from the company's former Lansdale, Pennsylvania picture
tube plant. The claim is now under investigation.
Numerous lawsuits against major computer and peripheral equipment
manufacturers are pending in the U.S. District Court, Eastern District of
New York, the U.S. District Court of New Jersey as well as in the New
York State courts. These lawsuits seek several billion dollars in damages
from various defendants for repetitive stress injuries claimed to have
been caused by the use of word processor equipment. The company has been
named as a defendant in sixteen of these cases which relate to keyboards
allegedly manufactured by the company for its former subsidiary, Zenith Data
Systems Corporation. Plaintiffs in the company's cases seek to recover
$22 million actual and $230 million punitive damages from the company.
The company believes it has meritorious defenses to the cases.
In April, 1993, a group of 47 plaintiffs, individually and on behalf of
certain minors and decedents, filed suit in the District Court of Cameron
County, Texas against 130 defendants, including the company's subsidiaries,
Zenith Electronics Corporation of Texas and Electro Partes de Matamoros,
S.A. de C.V., alleging that plaintiffs suffered injuries or death as a result
of defendants' negligence, negligent design for and implemented practices of
managing, handling, storage, transportation, utilization and disposal of
toxic compounds. Plaintiffs seek judgment for actual and exemplary damages
against defendants, jointly and severally, in an unspecified amount. The
company's two subsidiaries filed answers denying the material allegations
of the complaint.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1993, through the solicitation of proxies or otherwise.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The New York Stock Exchange is the principal United States market in which
the company's common stock is traded. The number of stockholders of record
was 16,636 as of February 18, 1994. No dividends were paid to stockholders
during the two years ended December 31, 1993.
The high and low price range by quarter for the past two years is listed
below:
<TABLE>
<CAPTION>
Quarter Ended High Low
- ----------------- ------ ------
<S> <C> <C>
March 28, 1992 11-1/8 7-1/4
June 27, 1992 9-3/8 6-3/4
September 26, 1992 8 6-1/8
December 31, 1992 7 5
April 3, 1993 8-3/8 5-7/8
July 3, 1993 10-1/2 6-1/2
October 2, 1993 8-3/8 6-1/4
December 31, 1993 8-1/8 6-1/4
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Summary of Selected Financial Data
<TABLE>
<CAPTION>
In millions, except
per share amounts 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of operations:
Net sales.................... $1,228.2 $1,243.5 $1,321.6 $1,409.9 $1,548.9
Pre-tax income (loss)
from continuing operations. (97.0) (121.8) (51.4) (53.3) (14.8)
Income (loss) from
continuing operations...... $ (97.0) $ (105.9) $ (51.6) $ (54.2) $ (15.0)
Income (loss) from
discontinued operations.... - - - (11.0) (51.4)
-------- -------- ------- -------- -------
Net income (loss)....... $ (97.0) $ (105.9) $ (51.6) $ (65.2) $ (66.4)
================================================
Financial position:
Total assets................ $ 559.4 $ 578.6 $ 686.9 $ 722.7 $ 920.7
Long-term debt.............. 170.0 149.5 149.5 151.1 150.9
Stockholders' equity........ 152.4 210.1 308.8 345.9 404.5
Per share of common stock
(primary and fully diluted):
Income (loss) from
continuing operations..... $(3.01) $(3.59) $(1.79) $(2.02) $ (.56)
Income (loss) from
discontinued operations... - - - (.41) (1.92)
------------------------------------------------
Net income (loss)........... $(3.01) $(3.59) $(1.79) $(2.43) $(2.48)
================================================
Book value per share......... $ 4.25 $ 6.94 $10.60 $12.49 $15.14
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Analysis of Operations
<TABLE>
<CAPTION>
Year-to-Year Changes
In Millions Year-Ended December 31 Better/(Worse)
- --------------------------------------------------------------------------------
1993 1992
1993 1992 1991 vs. 1992 vs. 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating income (loss) before
restructuring and other charges $(51) $(61) $(42) $10 $(19)
Restructuring and other charges (31) (48) - 17 (48)
------------------------------------------------
Operating income (loss) (82) (109) (42) 27 (67)
Interest expense, net, and other (15) (13) (9) (2) (4)
------------------------------------------------
Income (loss) before
income taxes (97) (122) (51) 25 (71)
Income taxes (credit) - (16) - (16) 16
------------------------------------------------
Net income (loss) $(97) $(106) $(51) $ 9 $(55)
================================================
</TABLE>
Operating Results -- 1993 vs. 1992
The operating loss before special charges for restructuring and other
actions was $51 million in 1993 and $61 million in 1992.
Consolidated sales in 1993 were $1,228 million, down 1% from $1,244
million in 1992. The decline was principally due to lower sales in the
noncore product areas and lower consumer product pricing, largely offset by
higher unit volume in the consumer product line.
The effect on operating results of unit volume increases in consumer
products was offset by volume declines in the non-core product areas.
Substantial cost reductions in all product areas of about $75 million
resulted from process and design improvements, consolidation of operations
in Mexico, headcount reductions and other operating changes. These
cost reductions were offset by $42 million in consumer products price
reductions that had been implemented throughout 1992 and early 1993,
and $20 million of inflationary cost increases, primarily labor
costs in Mexico.
Despite the adverse impact of an industry glass shortage, industry color
TV unit sales to dealers rose 11 percent in 1993 (following an 11 percent
increase in 1992) to set a new record. Zenith's unit sales increase outpaced
the industry growth, leading to an increase in market share. While industry
unit sales to dealers of video cassette recorder decks remained about equal
to 1992, Zenith's volume increased.
Unit sales of color picture tubes to other TV manufacturers decreased
in 1993 because the company used more of its capacity to support increased
sales of Zenith color TVs and because of an industry glass shortage,
which also adversely impacted Zenith color TV sales. Additional picture
tube capacity became available in late 1993 when the dedicated FTM tube
production line was converted to be able to produce both television and
monitor picture tubes.
Operating results were improved by the full year effect of certain
manufacturing operations that were consolidated in Mexico during 1992,
as well as continued efforts to reduce headcounts and product costs.
These programs, together with new manufacturing process improvements
that were initiated in late 1993, should have a positive effect on 1994
operations.
Sales of cable products declined in 1993 as a new product for a major
contract manufacturing customer was delayed. However, due to major cost
savings associated with headcount reductions and consolidations of
manufacturing operations, operating results improved compared to 1992.
Sales of other products decreased in 1993 as Zenith downsized its non-
core magnetics and monitor product areas. However, the cost structures
of these areas were improved so that operating results in 1993 were
somewhat better than 1992. During the year, the monochrome monitor
business was sold (production ended in early 1994) and the company
reached an agreement (subject to certain contingencies) to sell the
power supply business in early 1994. Operating results in 1994 should
benefit from these actions.
Engineering and research expenses were $48 million in 1993, compared
to $55 million in 1992, with reductions principally in non-core product
areas. Selling, general, and administrative expenses declined slightly to $93
million in 1993 from $94 million. These improvements were primarily the
result of headcount reductions initiated in late 1992.
Other operating income (net) increased to $25 million from $24 million in
1993, as a result of increased royalty income from new licensing activities.
Royalty income arising from licensing of Zenith patented tuning-system
technology to other color TV and VCR manufacturers was about $26 million
in both 1993 and 1992 and is included in Other operating income (net).
Based on 1993 U.S. industry unit sales levels and technology, more than
$20 million in annual royalty income is expected.
Interest expense (net) of $15 million in 1993 was higher than 1992's
$13 million as a result of increased average borrowings.
The income tax credit in 1992 consisted principally of the reversal of
previously accrued tax reserves no longer required in connection with
earnings of a foreign subsidiary, and net operating loss carryback
applications.
<PAGE>
Operating Results - 1992 vs. 1991
The operating loss before special charges for restructuring and other
actions was $61 million in 1992, compared with $42 million in 1991.
Consolidated sales in 1992 were $1,244 million, down 6% from $1,322
million in 1991. The decline was principally due to price reductions and
lower unit shipments of consumer electronics products.
Cost reductions of about $50 million in 1992 were more than offset by
the price reductions and lower consumer electronics unit sales volumes, by
sales declines in other categories, and by the effect of increases in the
costs of labor, material and services.
After two years of declines (approximately 4 percent in both 1990 and
1991), industry color TV unit sales to dealers rose 11 percent in 1992 to a
new record level. However, unit shipments of Zenith color TVs declined in
1992, principally as a result of delayed responses to price reductions
initiated by competitors during the year. Pricing declined by $21 million in
1992, compared with 1991.
Industry sales to dealers of video cassette recorder products increased
in 1992. Zenith shipments declined, partially as a result of the company's
planned phaseout of camcorders due to inadequate margins.
Zenith unit sales of color picture tubes to other TV manufacturers
increased in 1992 as the domestic industry increased.
The benefits of transferring certain consumer electronics manufacturing
operations to Mexico began to be realized in 1992, but were offset in part
by startup costs.
Sales and operating results for cable products declined in 1992 due to
the continuing deferral of equipment purchases by U.S. cable operators.
Computer monitor sales increased in 1992, compared with 1991, but
operating results were adversely affected by costly new-product start-up
and by costs associated with moving monochrome monitor operations from
Taiwan to Mexico.
Sales of other products declined in 1992 from the prior year, primarily
due to reduced lighting products requirements by a customer and the
phasing out of several low-margin products.
Selling, general and administrative expenses declined to $94 million in
1992 from $101 million in 1991 as a result of reduced compensation and
other costs. Engineering and research expenses were $55 million in 1992,
compared with $54 million in 1991.
Other operating income (net) increased sharply to $24 million in 1992
from $0.5 expense in 1991, principally as a result of $26 million of royalty
income arising from licensing of Zenith patented tuning-system technology
to other color TV and VCR manufacturers.
Interest expense (net) of $13 million in 1992 was higher than 1991's $9
million as a result of increased average borrowings.
The income tax credit in 1992 consisted principally of the reversal of
previously accrued tax reserves no longer required in connection with
earnings of a foreign subsidiary, and net operating loss carryback
applications.
Operating results for 1991 include a gain on the sale of Zenith's Taiwan
monochrome monitor plant which was offset by restructuring charges
related to the consolidations of color TV and monitor assembly operations
in Mexico.
Restructuring and Other Charges
In the fourth quarter of 1993, the company initiated major restructuring,
re-engineering and other actions designed to reduce ongoing operating
expenses and to revalue certain assets. Special charges for these
actions were $31 million.
The computer monitor and magnetics product areas were restructured
in order to downsize production capacity to be more in line with expected
reduced levels of business. The charge includes the anticipated expenses
of the major efforts to re-engineer processes in all areas of the core
business's operations. Major elements of this charge were the non-cash
writedown of fixed assets and inventory ($23 million) as well as
re-engineering and severance costs ($6 million) to be paid during 1994
and early 1995. The restructuring actions are expected to reduce 1994
operating expenses including reduced compensation expense of about $10
million and reduced depreciation of about $4 million.
The 1992 results also included special charges for restructuring and
other actions of $48 million. Included in the actions were manufacturing
consolidations and related employment reductions in Mexico; consolidation
of company-owned distribution; and salaried employment reductions
throughout the company. In addition to valuation reserves for inventories
and manufacturing equipment ($22 million) and severance and relocation
costs ($18 million) of which $11 million was paid in 1993, the special
charges also provided for trade-receivable write-offs ($6 million).
Liquidity and Capital Resources
Following is a three-year summary of cash provided and used:
<TABLE>
<CAPTION>
Cash Provided (Used)
----------------------------------------
Year Ended December 31
Three-Year -------------------------
In millions Total 1993 1992 1991
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash at beginning of period $ 56 $ 6 $ 36 $ 56
Operating Activities (53) (28) (16) (9)
Investing Activities (75) (26) (25) (24)
Financing Activities 93 69 11 13
-------------------------------------
Cash at end of period $ 21 $ 21 $ 6 $ 36
=====================================
</TABLE>
<PAGE>
Liquidity
Cash decreased $35 million during the three year period of 1991-1993. The
decrease consisted of $53 million of cash used by operating activities and
$75 million , net , used to purchase fixed assets. These uses of cash were
offset by $93 million of cash provided from financing activities which
included the issuance of long-term debt and sales of the company's
common stock.
Operating activities: In 1993, $28 million of cash was used by
operating activities mainly to fund $45 million of net losses from operations
as adjusted for depreciation and fixed asset write downs as a part of
restructuring and other charges. A decrease in current accounts provided
$3 million of cash and was composed of a $15 million decrease in
receivables offset by a $8 million increase in inventories and a $4 million
decrease in accounts payable and accrued expenses. The decrease in
receivables was due to lower sales. Also, the company reduced cash used
by operating activities by issuing common stock to the profit-sharing
retirement plans to fulfill both the 1992 obligation to salaried employees
and the 1993 obligation to salaried employees and a portion of the hourly
employees. These issuances increased stockholders' equity by $15 million.
In 1992, $16 million of cash was used by operating activities mainly to
fund $64 million of net losses from operations as adjusted for depreciation,
fixed asset write downs as a part of a restructuring and a loss on the
disposition of properties. This was offset by cash provided from a $41
million decrease in current accounts composed of a $39 million decrease in
inventories and a $21 million decrease in receivables, offset by a $15
million decrease in net income taxes payable and a $4 million decrease in
accounts payable and accrued expenses. Also, the company reduced cash
used by operating activities by issuing common stock to the profit-sharing
retirement plan to fulfill the 1991 obligation to salaried employees,
increasing stockholders' equity by $6 million.
In 1991, $9 million of cash was used by operating activities mainly to
fund $23 million of net losses from operations, as adjusted for depreciation
and a gain on the sale of properties. This was offset by cash provided from
a $13 million decrease in current accounts which consisted mainly of a $12
million decrease in inventories.
Investing activities: In 1993, investing activities used $26 million of
cash for capital additions. In 1992, $25 million of cash was used which
consisted of capital additions of $32 million offset by $7 million of
proceeds from a 1991 property sale. In 1991, $24 million of cash was used
which consisted of capital additions of $37 million offset by $13 million of
proceeds from property sales.
Financing activities: In 1993, financing activities provided $69 million
of cash which included $55 million provided from the sale of 8.5% senior
subordinated convertible debentures and $24 million provided from sales of
the company's common stock (including option exercises). This was offset
by $10 million of cash used to repay borrowings under the company's
working capital Credit Agreement with a lending group led by General
Electric Capital Corporation (the "Credit Agreement"). In 1992, financing
activities provided $11 million of cash which included $10 million provided
from borrowings under the company's revolving credit and security agreement
and $1 million provided from the exercise of stock options. In 1991,
financing activities provided $13 million of cash which included $15
million provided from the sale of common stock to GoldStar Co. Ltd.,
offset by $2 million used to repurchase a portion of the 12 1/8% notes
in a private transaction.
Capital Resources
As of December 31, 1993, total interest-bearing obligations of the company
consisted of $170 million of long-term debt , $35 million of long-term debt
classified as current and $9 million of extended-term payables with a
foreign supplier. The company's long-term debt is composed of $115
million of convertible subordinated debentures due 2011 that require
annual sinking fund payments of $6 million beginning in 1997 and $55
million aggregate principal amount of 8.5% senior subordinated convertible
debentures due 2000 that were issued and sold during 1993 in a private
placement. The $35 million of long-term debt classified as current
represents notes due January 1995 that were redeemed by the company in
January 1994.
In May 1993, the company entered into the Credit Agreement. The
maximum commitment for funds available for borrowing under the Credit
Agreement is $90 million, but is defined by a defined borrowing base
formula related to eligible accounts receivable and inventory. The company
used the initial advance under the agreement to repay all amounts
outstanding under its former bank agreement, which was simultaneously
terminated. The Credit Agreement contains restrictive financial covenants
that must be maintained as of the end of each fiscal quarter, including a
liabilities to net worth ratio and a minimum net worth amount. As a
result of the company's fourth quarter 1993 restructuring charge of $31
million the agreement was amended in January 1994 to relax these financial
covenants as of December 31, 1993. The Credit Agreement terminates on
December 31, 1994 (unless extended by agreement of the lenders), at which
time all outstanding indebtedness under the agreement would have to be
refinanced. There can be no assurance that the Credit Agreement will be
extended or refinanced. As of December 31, 1993, no borrowings were
outstanding under the Credit Agreement in keeping with the seasonal
nature of the company's working capital needs.
A Registration Statement filed with the Securities and Exchange
Commission covering 5 million shares of common stock became effective
in May 1993. During 1993, the company sold approximately 3.4 million
shares of authorized but unissued shares of common stock to investors
under this shelf registration for approximately $23 million, net of expenses.
<PAGE>
Subsequent to December 31, 1993, the company sold the remaining
shares available under the shelf registration. Thereafter, in order to take
advantage of favorable market conditions, the company determined to file
another Registration Statement with the Securities and Exchange
Commission covering an additional 2 million shares of common stock. The
new Registration Statement became effective in February 1994, and the
company subsequently sold the 2 million shares registered thereunder to
investors on the open market. The 1994 common stock sales under both
registration statements generated approximately $34 million, net of
expenses. On March 1, 1994, the company announced its intention to file
a Registration Statement for 5 million shares of the company's common
stock to be sold by means of a prospectus. In addition, during January
1994, the company issued and sold $12 million aggregate principal
amount of 8.5% senior subordinated convertible debentures due 2001
(similar to the $55 million sold during 1993) in a private placement
and, as indicated above, also redeemed the $35 million of notes due
January 1995 at a redemption price equal to par value plus accrued interest.
Although the company believes that the Credit Agreement, together with
extended-term payables expected to be available from a foreign supplier
and its continuing efforts to obtain other financing sources, will be
adequate to meet its seasonal working capital and other needs in 1994,
there can be no assurance that the company will not experience liquidity
problems in the future because of adverse market conditions or other
unfavorable events. In such event, the company would be required to seek
other sources of liquidity, if available.
Outlook
The company's major product areas, including the color television
market, are highly competitive. The company's major competitors are
foreign-owned global giants, generally with greater worldwide television
volume and overall resources. In efforts to increase market share or
achieve higher production volumes, the company's competitors have
aggressively lowered their selling prices in the past several years.
Some of the company's foreign competitors have been capable of offsetting
the effects of U.S. price reductions through sales at higher margins
in their home markets and through direct governmental supports. There
can be no assurance that such competition will not continue to adversely
affect the company's performance or that the company will be able to
maintain its market share in the face of such competition. Price
competition continued in the first quarter of 1994, and the company selectively
reduced color television prices to maintain its historical competitive
price position.
The North American Free Trade Agreement (NAFTA), which took effect on
January 1, 1994, will significantly reduce duty costs in 1994 and beyond.
This should improve the company's ability to compete against Asian imports
in North America and is expected to increase sales of the company's color
television receivers in Mexico and Canada and color picture tube production
in the U.S.
In light of the company's losses from continuing operations, competitive
environment and inflationary cost pressures (including labor costs in Mexico
where labor contracts expire every two years and wages are renegotiated
annually), the company has undertaken major cost reduction programs each year.
In 1994, the company expects to reduce costs by about $50 million from
continued process and design improvements, headcount reductions and other
operating changes. The company continues to seek additional cost reduction
opportunities for 1994 and beyond, although there can be no assurance that
any such cost reductions will be achieved. Also, as in 1993, the company
may experience an adverse impact as industry shortages of picture tube
glass or other components continue in 1994.
The goals of the company's business strategy are to improve profitability,
to introduce new products (such as home theater TVs), to develop new
products (such as digital cable products incorporating the company-developed
transmission technology selected in February 1994 by the HDTV Grand
Alliance and the FCC Advisory Committee review panel), and to re-engineer
operations. This strategy is expected to continue to involve significant
expenditures by the company in 1994 and beyond. There can be no assurance that
the company will achieve the goals of its business strategy, including an
expected improvement in financial results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is contained in Item 14 of
Part IV (page 15) of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors is incorporated herein by reference from
the sections entitled "Election of Directors", "Nominees for Election as
Directors" and "Board of Directors, Committees and Directors' Compensation"
from the company's definitive Proxy Statement, copies of which will be
electronically transmitted to the Commission via EDGAR.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Office Held Age
- -------------------- ------------------------------------------ ---------
Jerry K. Pearlman Chairman and Chief Executive 55
Officer since 1983; Chairman,
President and Chief Executive
Officer 1983-1993
Gerald M. McCarthy Executive Vice President and 52
member of the Office of the Chairman
since 1993; Senior Vice President,
Sales and Marketing and member of
the Office of the President 1991 -
1993. President, Zenith Sales
Company Division since 1983
Albin F. Moschner President and Chief Operating Officer 41
and member of the Office of the
Chairman since 1993; Senior Vice
President, Operations and member
of the Office of the President 1991 -
1993
Kell B. Benson Vice President-Finance and Chief 46
Financial Officer since 7/89;
Vice President-Controller 1989;
Corporate Controller 1987-1989;
Director, Financial Control-
Consumer and Cable Products
1983-1987
Michael J. Kaplan Vice President-Human Resources since 54
1993; Vice President-Human Resources and
Public Affairs 1988 - 1993; Director
of Personnel and Industrial Relations
1982-1988
John Borst, Jr. Vice President-General Counsel 66
since 1985
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the sections entitled "Summary Compensation
Table", "Employment Agreement", "Termination and Change of Control Agreements",
"Option Grants in 1993", "Option Exercises in 1993 and Year-End Option Values"
and "Compensation Committee Report on Executive Compensation" from the
company's definitive Proxy Statement, copies of which will be electronically
transmitted to the Commission via EDGAR.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference from the sections entitled "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Management" from the
company's definitive Proxy Statement, copies of which will be electronically
transmitted to the Commission via EDGAR.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No material transactions occurred during 1993.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The following Consolidated Financial Statements of Zenith Electronics
Corporation, the Report of Independent Public Accountants, and the
Unaudited Quarterly Financial Data are included in this report on
pages 30 through 42:
Statements of Consolidated Operations and Retained Earnings -
Years ended December 31, 1993, 1992 and 1991
Consolidated Balance Sheets - December 31, 1993 and 1992
Statements of Consolidated Cash Flows -
Years ended December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Unaudited Quarterly Financial Data
(a) 2. The following consolidated financial statement schedules for Zenith
Electronics Corporation are included in this report on pages 25
through 29:
Schedule V - Property, Plant and Equipment
Schedule VI - Accumulated Depreciation, Depletion
and Amortization of Property,
Plant and Equipment
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short-term Borrowings
Schedule X - Supplementary Income Statement Information
The Report of Independent Public Accountants on Financial Statement
Schedules is included in this report on page 24.
All other schedules for which provision is made in Regulation S-X of
the Securities and Exchange Commission, are not required under the
related instructions or are inapplicable and, therefore, have
been omitted.
3. Exhibits:
(3a) Restated Certificate of Incorporation of the company, as amended
(incorporated by reference to Exhibit 3a of the company's Report
on Form 10-K for the year ended December 31, 1992)
(3b) Certificate of Amendment to Restated Certificate of Incorporation
of the company dated May 4, 1993 (incorporated by reference to
Exhibit 4l of the company's Quarterly Report on Form 10-Q for the
quarter ended April 3, 1993)
(3c) By-Laws of the company, as amended (incorporated by reference to
Exhibit 3 of the company's Current Report on Form 8-K, dated
January 31, 1994)
(4a) Indenture, dated as of January 15, 1985, for 12-1/8% Notes due 1995
with the Irving Trust Company (incorporated by reference to
Exhibit 2 of the company's Report on Form 10-K for the year ended
December 31, 1989)
(4b) Indenture, dated as of April 1, 1986, for 6-1/4% Convertible
Subordinated Debentures due 2011 with The First National Bank of
Boston, Trustee (incorporated by reference to Exhibit 1 of the
company's Quarterly Report on Form 10-Q for the quarter ended
March 30, 1991)
(4c) Stockholder Rights Agreement dated as of October 3, 1986
(incorporated by reference to Exhibit 4c of the company's Quarterly
Report on Form 10-Q for the quarter ended September 28, 1991)
(4d) Amendment, dated April 26, 1988, to Stockholder Rights Agreement
(incorporated by reference to Exhibit 4d of the company's
Quarterly Report on Form 10-Q for the quarter ended April 3, 1993)
(4e) Amended and Restated Summary of Rights to Purchase Common Stock
(incorporated by reference to Exhibit 4e of the company's Quarterly
Report on Form 10-Q for the quarter ended July 3, 1993)
(4f) Amendment, dated July 7, 1988, to Stockholder Rights Agreement
(incorporated by reference to Exhibit 4f of the company's Quarterly
Report on Form 10-Q for the quarter ended July 3, 1993)
<PAGE>
(4g) Agreement, dated May 23, 1991, among Zenith Electronics Corporation,
The First National Bank of Boston and Harris Trust and Savings Bank
(incorporated by reference to Exhibit 1 of Form 8, dated May 30,
1991)
(4h) Amendment, dated May 24, 1991, to Stockholder Rights Agreement
(incorporated by reference to Exhibit 2 of Form 8 dated May 30, 1991)
(4i) Agreement, dated as of February 1, 1993, among Zenith Electronics
Corporation, Harris Trust and Savings Bank and The Bank of New
York (incorporated by reference to Exhibit 1 of Form 8 dated
March 25, 1993)
(4j) Credit Agreement, dated as of May 21, 1993, with General Electric
Capital Corporation, as agent and lender, and the other lenders
named therein (incorporated by reference to Exhibit 4 of the
company's Current Report on Form 8-K dated May 21, 1993)
(4k) Amendment No. 1 dated November 8, 1993 to the Credit Agreement
dated May 21, 1993, with General Electric Capital Corporation, as
agent and lender, and the other lenders named therein (incorporated
by reference to Exhibit 4(b) of the company's Current Report on
Form 8-K, dated November 19, 1993)
(4l) Amendment No. 3 dated January 7, 1994 to the Credit Agreement dated
May 21, 1993, with General Electric Capital Corporation, as agent
and lender, The Bank of New York Commercial Corporation, as lender,
and Congress Financial Corporation, as lender (incorporated by
reference to Exhibit 4(b) of the company's Current Report on Form
8-K dated January 11, 1994)
(4m) Fourth Amendment dated January 28, 1994 to the Credit Agreement
dated May 21, 1993, with General Electric Capital Corporation,
as agent and lender, The Bank of New York Commercial Corporation,
as lender, and Congress Financial Corporation, as lender
(incorporated by reference to Exhibit 4 of the company's Current
Report on Form 8-K dated January 31, 1994)
(4n) Debenture Purchase Agreement dated as of November 19, 1993 with the
institutional investors named therein (incorporated by reference to
Exhibit 4(a) of the company's Current Report on Form 8-K dated
November 19, 1993)
(4o) Amendment No. 1 dated November 24, 1993 to the Debenture Purchase
Agreement dated as of November 19, 1993 with the institutional
investor named therein (incorporated by reference to Exhibit
4(a) of the company's Current Report on Form 8-K dated
November 24, 1993)
(4p) Amendment No. 2 dated January 11, 1994 to the Debenture Purchase
Agreement dated as of November 19, 1993 (incorporated by
reference to Exhibit 4(c) of the company's Current Report on Form
8-K dated January 11, 1994)
(4q) Debenture Purchase Agreement dated as of January 11, 1994 with the
institutional investor named therein (incorporated by reference to
Exhibit 4(a) of the company's Current Report on Form 8-K dated
January 11, 1994)
*(10a) 1987 Zenith Stock Incentive Plan (as amended subject to shareholder
approval on April 28, 1992) (incorporated by reference to Exhibit
A of the company's definitive Proxy Statement dated March 13, 1992)
*(10b) Form of Amended and Restated Employment Agreement with Jerry K.
Pearlman, Gerald M. McCarthy, Albin F. Moschner, Kell B. Benson and
John Borst, Jr. (incorporated by reference to Exhibit 2 of the
company's Report on Form 10-K for the year ended December 31, 1990)
*(10c) Restricted Stock Agreement, dated December 3, 1986, of Jerry K.
Pearlman (incorporated by reference to Exhibit 10c of the company's
Report on Form 10-K for the year ended December 31, 1991)
<PAGE>
*(10d) Amendment, dated May 27, 1987, to Restricted Stock Agreement of Jerry
K. Pearlman (incorporated by reference to Exhibit 10d of the
company's Report on Form 10-K for the year ended December 31,
1992)
*(10e) Amendment, dated March 28, 1988, to Restricted Stock Agreement of
Jerry K. Pearlman
*(10f) Amendments, dated October 1, 1990, and January 23, 1991, to
Restricted Stock Agreement of Jerry K. Pearlman (incorporated by
reference to Exhibit 3 of the company's Report on Form 10-K
for the year ended December 31, 1990)
*(10g) Restricted Stock Agreement, dated March 31, 1987, with Gerald M.
McCarthy, and Amendments thereto dated December 2, 1987, March 28,
1988, August 22, 1988, and January 23, 1991 (incorporated by
reference to Exhibit 10b of the company's Quarterly Report on
Form 10-Q for the quarter ended June 29, 1991)
*(10h) Forms of Amendments, dated as of July 24, 1991, to Restricted Stock
Agreement dated December 3, 1986, with Jerry K. Pearlman and to
Restricted Stock Agreement dated March 31, 1987, with Gerald M.
McCarthy (incorporated by reference to Exhibit 10c of the company's
Quarterly Report on Form 10-Q for the Quarter ended June 29, 1991)
*(10i) Supplemental Agreement, dated September 12, 1986, with Jerry K.
Pearlman (incorporated by reference to Exhibit 10m of the company's
Report on Form 10-K for the year ended December 31, 1991)
*(10j) Amendment to Supplemental Agreement with Jerry K. Pearlman
(incorporated by reference to Exhibit 10j of the company's Report on
Form 10-K for the year ended December 31, 1992)
*(10k) Form of Amendment, dated as of May 19, 1989, to Supplemental
Agreement with Jerry K. Pearlman, (incorporated by reference to
Exhibit 6 of the company's Report on Form 10-K for the year ended
December 31, 1989)
*(10l) Form of Amendment, dated as of July 24, 1991, to Supplemental
Agreement with Jerry K. Pearlman (incorporated by reference to
Exhibit 10a of the company's Quarterly Report on Form 10-Q for the
Quarter ended June 29, 1991)
*(10m) Form of Supplemental Agreement with Gerald M. McCarthy, Albin F.
Moschner, Kell B. Benson and John Borst, Jr. (incorporated by
reference to Exhibit 10q of the company's Report on Form 10-K for
the year ended December 31, 1991)
*(10n) Form of Stock Indemnification Rights Grant with Jerry K. Pearlman and
Kell B. Benson
*(10o) Form of Amendment to Stock Indemnification Rights Grant with Jerry K.
Pearlman and Kell B. Benson (incorporated by reference to Exhibit 7
of the company's Report on Form 10-K for the year ended December 31,
1989)
*(10p) Letter Agreement, dated October 21, 1991, with Albin F. Moschner
(incorporated by reference to Exhibit 10u of the company's Report on
Form 10-K for the year ended December 31, 1991)
*(10q) Form of Indemnification Agreement with Officers and Directors
(incorporated by reference to Exhibit 8 of the company's Report on
Form 10-K for the year ended December 31, 1989)
*(10r) Form of Directors Stock Units Compensation Agreement with Harry G.
Beckner (2,000 units) and with G. Ralph Guthrie (1,000 units)
(incorporated by reference to Exhibit 10r of the company's
Report on Form 10-K for the year ended December 31, 1992)
*(10s) Form of Directors 1989 Stock Units Compensation Agreement with Harry
G. Beckner, T. Kimball Brooker and G. Ralph Guthrie (1000 units
each) (incorporated by reference to Exhibit 9 of the company's
Report on Form 10-K for the year ended December 31, 1989)
<PAGE>
*(10t) Form of Directors 1990 Stock Units Compensation Agreement with Harry
G. Beckner, G. Ralph Guthrie, T. Kimball Brooker, David H. Cohen,
Charles Marshall, Andrew McNally IV and Peter S. Willmott (1000
units each) (incorporated by reference to Exhibit 6 of the
company's Report on Form 10-K for the year ended December 31, 1990)
*(10u) Form of Directors 1991 Stock Units Compensation Agreement with Harry
G. Beckner, T. Kimball Brooker, David H. Cohen, G. Ralph Guthrie,
Charles Marshall, Andrew McNally IV and Peter S. Willmott (1,000
units each) (incorporated by reference to Exhibit 10d of the
company's Quarterly Report on Form 10-Q for the Quarter ended
June 29, 1991)
*(10v) Form of Amendment, dated as of July 24, 1991, to Directors Stock
Units Compensation Agreements for 1987, 1988, 1990 and 1991
(incorporated by reference to Exhibit 10e of the company's Quarterly
Report on Form 10-Q for the Quarter ended June 29, 1991)
*(10w) Directors Retirement Plan and form of Agreement (incorporated by
reference to Exhibit 10 of the company's Report on Form 10-K for the
year ended December 31, 1989)
*(10x) Form of Amendment, dated as of July 24, 1991, to Directors
Retirement Plan and form of Agreement (incorporated by reference
to Exhibit 10f of the company's quarterly Report on Form 10-Q for
the Quarter ended June 29, 1991)
(10y) Investment Agreement, dated as of February 25, 1991, with GoldStar
Co., Ltd. (incorporated by reference to Exhibit 1 of the company's
Current Report on Form 8-K, dated February 25, 1991)
(10z) Registration Rights Agreement, dated as of February 25, 1991, with
GoldStar Co., Ltd. (incorporated by reference to Exhibit 2 of
the company's Current Report on Form 8-K, dated February 25, 1991)
(10aa) Investment Agreement dated as of March 25, 1993 between Zenith
Electronics Corporation and Fletcher Capital Markets, Inc.
(incorporated by reference to Exhibit 1 of the company's Current
Report on Form 8-K dated March 26, 1993)
(10bb) Investment Agreement dated as of July 29, 1993 between Zenith
Electronics Corporation and Fletcher Capital Markets, Inc.
(incorporated reference to Exhibit 5(a) of the company's Current
Report on Form 8-K dated July 29, 1993)
(21) Subsidiaries of the company
(23) Consent of Independent Public Accountants
* Represents a management contract, compensation plan or arrangement.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter ended December
31, 1993.
A report on Form 8-K dated October 21, 1993 was filed by the company
stating under Item 5 that Zenith had issued a press release which reported
third quarter 1993 financial results.
A report on Form 8-K dated November 19, 1993 was filed by the company
stating under Item 5 that Zenith had sold to certain institutional investors
$42 million principal amount of its 8.5% Senior Subordinated Convertible
Debentures due November 19, 2000, pursuant to a Debenture Purchase Agreement
dated November 19, 1993, entered into by the company and the purchasers.
A report on Form 8-K dated November 24, 1993 was filed by the company
stating under Item 5 that Zenith had agreed to sell to certain institutional
investors an additional $13 million principal amount of its 8.5% Senior
Subordinated Convertible Debentures due November 19, 2000, pursuant to a
Debenture Purchase Agreement dated November 19, 1993 entered into by the
company and amended on November 24, 1993 to add the additional purchasers.
A report on Form 8-K dated December 14, 1993 was filed by the company
stating under Item 5 that Zenith had issued a press release announcing that it
has called for redemption of its outstanding 12 1/8% Notes due on January 13,
1994.
A report on Form 8-K dated December 15, 1993 was filed by the company
stating under Item 5 that Zenith had issued a press release announcing that it
is planning to restructure its computer monitor and magnetics areas and
re-engineer its core consumer electronics and cable business which will result
in a fourth quarter special charge of up to $30 million.
(c) and (d) Exhibits and Financial Statement Schedules
Certain exhibits and financial statement schedules required by this portion
of Item 14 are filed as a separate section of this report.
<PAGE>
SIGNATURES
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.
ZENITH ELECTRONICS CORPORATION
(Registrant)
By: /S/ Jerry K. Pearlman
---------------------
Jerry K. Pearlman
Chairman, and Chief Executive Officer
Date March 1, 1994
--------------------
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.
Signatures Title Date
------------------------- ---------------------- ------------------
Director
- --------------------------
Harry G. Beckner
/s/ T. Kimball Brooker Director March 1, 1994
- -------------------------
T. Kimball Brooker
/s/ David H. Cohen Director March 1, 1994
- -------------------------
David H. Cohen
/s/ Charles Marshall Director March 1, 1994
- ------------------------
Charles Marshall
/s/ Gerald M. McCarthy Director, Executive Vice March 1, 1994
- ----------------------- President - Sales and Marketing,
Gerald M. McCarthy and President - Zenith Sales
Company
/s/ Andrew McNally IV Director March 1, 1994
- ----------------------
Andrew McNally IV
/s/ Albin F. Moschner Director, President and Chief March 1, 1994
- ---------------------- Operating Officer
Albin F. Moschner
/s/ Jerry K. Pearlman Director, Chairman and Chief March 1, 1994
- --------------------- Executive Officer
Jerry K. Pearlman (Principal Executive Officer)
/s/ Peter S. Willmott Director March 1, 1994
- ---------------------
Peter S. Willmott
/s/ Kell B. Benson Vice President - Finance and March 1, 1994
- -------------------- Chief Financial Officer
Kell B. Benson (Principal Financial Officer)
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
Page
Number
------
Report of Independent Public Accountants on
Financial Statement Schedules 24
Financial Statement Schedules:
Schedule V - Property, Plant and Equipment 25
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment 26
Schedule VIII - Valuation and Qualifying Accounts 27
Schedule IX - Short-Term Borrowings 28
Schedule X - Supplementary Income Statement Information 29
Consolidated Financial Statements 30
Notes to Consolidated Financial Statements 33
Report of Independent Public Accountants 41
Unaudited Quarterly Financial Data 42
Exhibits:
(10e) Amendment, dated March 28, 1988, to Restricted Stock
Agreement of Jerry K. Pearlman 43
(10n) Form of Stock Indemnification Rights Grant with
Jerry K. Pearlman and Kell B. Benson 46
(21) Subsidiaries of the company 50
(23) Consent of Independent Public Accountants 51
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
-------------------------------------------
FINANCIAL STATEMENT SCHEDULES
-----------------------------
To the Stockholders of
Zenith Electronics Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in ZENITH ELECTRONICS
CORPORATION's annual report to stockholders included in this Fork 10-K, and
have issued our report thereon dated February 14, 1994. Our audit was made
for the purpose of forming an opinion on those statements taken as a whole.
The schedules listed in the preceding index are the responsibility of the
Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
consolidated financial statements. These schedules have been subjected to
the auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to
the basic consolidated financial statements taken as a whole.
/s/ARTHUR ANDERSEN & CO.
------------------------
ARTHUR ANDERSEN & CO.
Chicago, Illinois,
February 14, 1994
<PAGE>
FINANCIAL STATEMENT SCHEDULES
---------------------------------------------------
ZENITH ELECTRONICS CORPORATION
SCHEDULE V-PROPERTY, PLANT AND EQUIPMENT
(Amounts in millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- -----------------------------------------------------------------------------------------------
Balance at Other Balance at
beginning Additions changes end of
Classification of period at cost Retirements add (deduct) period
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Land $ 8.0 $ - $ - $ (.6) $ 7.4
Buildings 159.5 4.5 .2 (12.8) 151.0
Machinery and equipment 537.0 21.6 8.7 - 549.9
-----------------------------------------------------------------
Total $704.5 $ 26.1 $ 8.9 $(13.4) (1) $708.3
=================================================================
YEAR ENDED DECEMBER 31, 1992
Land $ 8.0 $ - $ - $ - $ 8.0
Buildings 154.6 4.9 - - 159.5
Machinery and equipment 522.0 27.7 11.8 (.9) 537.0
-----------------------------------------------------------------
Total $684.6 $ 32.6 $ 11.8 $ (.9) $704.5
=================================================================
YEAR ENDED DECEMBER 31, 1991
Land $ 8.4 $ - $ .4 $ - $ 8.0
Buildings 154.0 6.4 5.8 - 154.6
Machinery and equipment 500.8 30.3 9.1 - 522.0
----------------------------------------------------------------
Total $663.2 $ 36.7 $ 15.3 $ - $684.6
================================================================
<FN>
(1) Represents the reclassification of property pending disposal into other
noncurrent assets.
</TABLE>
<PAGE>
ZENITH ELECTRONICS CORPORATION
SCHEDULE VI-ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(Amounts in millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- ------------------------------------------------------------------------------------------------------
Additions Other
Balance at charged to changes Balance at
beginning costs and (add) end of
Classification of period expenses(1) Retirements (deduct) period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Buildings $ 84.0 $ 6.0 $ .2 $ (7.5) $ 82.3
Machinery and equipment 434.4 29.4 7.0 15.3 472.1
---------------------------------------------------------------------
Total $ 518.4 $ 35.4 $ 7.2 $ 7.8 (3) $ 554.4
=====================================================================
YEAR ENDED DECEMBER 31, 1992
Buildings $ 78.0 $ 6.0 $ - $ - $ 84.0
Machinery and equipment 406.1 31.7 8.9 5.5 434.4
---------------------------------------------------------------------
Total $ 484.1 $ 37.7 $ 8.9 $ 5.5 (2) $518.4
=====================================================================
YEAR ENDED DECEMBER 31, 1991
Buildings $ 74.4 $ 5.5 $ 1.9 $ - $ 78.0
Machinery and equipment 379.8 32.4 6.1 - 406.1
--------------------------------------------------------------------
Total $ 454.2 $ 37.9 $ 8.0 $ - $484.1
=====================================================================
<FN>
(1) Additions of plant and equipment with lives of eight years or more are
depreciated by the straight-line method over their useful lives.
Accelerated methods are used for depreciation of virtually all other
plant and equipment items, including high technology equipment that may
be subject to rapid economic obsolescence.
(2) Represents adjustments to manufacturing equipment reserves as a part of
the company's restructuring actions.
(3) Represents the net effect of adjustments to manufacturing equipment
reserves as a part of the company's restructuring actions and the
reclassification of property pending disposal into other noncurrent
assets.
</TABLE>
<PAGE>
ZENITH ELECTRONICS CORPORATION
SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS
(Amounts in millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------------------
Additions
-------------------------
Balance at Charged Balance at
Reserves and allowances beginning to costs Charged to end of
deducted from asset accounts of period & expenses other accts. Deductions period
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year Ended December 31, 1993 $ 2.7 $ 1.8 $ - $ 2.0 (1) $ 2.5
======================================================================
Year Ended December 31, 1992 $ 2.6 $ 5.7 $ - $ 5.6 (1) $ 2.7
======================================================================
Year Ended December 31, 1991 $ 1.5 $ 1.8 $ - $ .7 (1) $ 2.6
======================================================================
Valuation allowance for deferred
tax assets: (2)
Year Ended December 31, 1993 $ 134.5 $ 44.7 $ - $ - $ 179.2
======================================================================
Year Ended December 31, 1992 $ 88.6 $ 45.9 $ - $ - $ 134.5
=======================================================================
<FN>
(1) Uncollectible accounts written off, net of recoveries.
(2) This account reflects the adoption of SFAS No. 109, Accounting for Income
Taxes, which was adopted in 1992.
</TABLE>
<PAGE>
ZENITH ELECTRONICS CORPORATION
SCHEDULE IX-SHORT-TERM BORROWINGS
(Amounts in millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- -------------------------------------------------------------------------------------------------
Maximum Average Weighted
Weighted amount amount average
Balance average outstanding outstanding rate
at end of interest during the during the during the
Short-Term Borrowings period rate period(2) period(3) period(4)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Amounts payable to banks (1) $ - - % $ 66.4 $ 35.0 8.1%
===============================================================
YEAR ENDED DECEMBER 31, 1992
Amounts payable to banks (1) $ 10.1 7.3% $ 40.1 $ 23.1 7.5%
===============================================================
YEAR ENDED DECEMBER 31, 1991
Amounts payable to banks (1) $ - - % $ - $ - - %
===============================================================
<FN>
(1) Amounts payable to banks represent borrowings under credit arrangements
which are established to cover short-term borrowing needs for portions
of the year.
(2) Represents maximum amount outstanding at any month-end during the period.
(3) The average amount outstanding during the period was computed by dividing
the total of daily principal balances outstanding by 365.
(4) The weighted average interest rate during the period was computed based on
the interest rates applicable to the average amount outstanding during the
period.
</TABLE>
<PAGE>
ZENITH ELECTRONICS CORPORATION
SCHEDULE X-SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Amounts in millions)
<TABLE>
<CAPTION>
Column A Column B
------------------------ -------------------------------------------
Item Charged to costs and expenses
------------------------ -------------------------------------------
Year Ended December 31
1993 1992 1991
-----------------------------------
<S> <C> <C> <C>
Maintenance and repairs $ 29.1 $ 31.2 $ 34.5
Advertising costs $ 34.9 $ 32.8 $ 35.5
</TABLE>
Amounts for royalties; depreciation and amortization of intangible assets,
pre-operating costs and similar deferrals; and taxes other than payroll
and income taxes are not presented as such amounts are less 1% of total
sales and revenues.
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------
Statements of Consolidated operations and retained earnings
In millions, except per share amounts
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Net sales $1,228.2 $1,243.5 $1,321.6
-----------------------------
Costs, Expenses and Other
Cost of products sold 1,163.9 1,179.3 1,208.4
Selling, general and administrative 92.5 94.0 101.2
Engineering and research 47.8 55.4 54.1
Other operating expense (income), net
(Notes 1 and 6) (25.2) (24.3) .5
Restructuring and other charges (Note 3) 31.0 48.1 -
-----------------------------
Income
Operating income (loss) (81.8) (109.0) (42.6)
Interest expense (15.5) (13.7) (12.4)
Interest income .3 .9 3.6
-----------------------------
Income (loss) before income taxes (97.0) (121.8) (51.4)
Income taxes (credit) (Note 4) - (15.9) .2
-----------------------------
Net income (loss) $(97.0) $(105.9) $(51.6)
=============================
Per Share
Income (loss) per common share (Note 1) $(3.01) $(3.59) $(1.79)
Retained Earnings
Balance at beginning of year $8.9 $114.8 $166.4
Net income (loss) (97.0) (105.9) (51.6)
----------------------------
Retained earnings (deficit) at end of year $(88.1) $8.9 $114.8
============================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
<PAGE>
Consolidated balance sheets
In millions
<TABLE>
<CAPTION>
December 31
1993 1992
- -----------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash (Note 1) $ 20.8 $ 5.8
Receivables, net of allowance for doubtful
accounts of $2.5 and $2.7, respectively 162.5 179.7
Inventories (Note 7) 206.2 197.9
Other 6.1 6.2
--------------------
Total current assets 395.6 389.6
Noncurrent Assets
Property, plant and equipment, net (Note 8) 153.9 186.1
Other (Note 1) 9.9 2.9
--------------------
Total assets $559.4 $578.6
====================
Liabilities and Stockholders' Equity
Current Liabilities
Short-term debt (Note 9) $ - $10.1
Current portion of long-term debt (Note 10) 34.5 -
Accounts payable (Note 9) 81.8 73.5
Compensation and retirement benefits (Note 13) 25.9 42.4
Product warranties 24.2 21.2
Co-op advertising and merchandising programs 21.7 22.5
Income taxes payable 1.1 2.3
Other accrued expenses 47.8 47.0
------------------
Total current liabilities 237.0 219.0
Noncurrent Liabilities
Long-term debt (Note 10) 170.0 149.5
Stockholders' Equity
Preferred stock, $1 par value; 8,000,000
shares authorized; none outstanding - -
Common stock, $1 par value; 100,000,000
shares authorized; 35,909,617 and 30,283,769
shares issued 35.9 30.3
Additional paid-in capital 205.1 171.4
Retained earnings (deficit) (88.1) 8.9
Cost of 21,000 common shares in treasury (.5) (.5)
--------------------
Total stockholders' equity (Note 11) 152.4 210.1
--------------------
Total liabilities and stockholders' equity $559.4 $578.6
====================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
<PAGE>
Statements of Consolidated cash flows
In millions
<TABLE>
<CAPTION>
Increase (Decrease) in Cash
Year Ended December 31
1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Income (loss) from operations $(97.0) $(105.9) $(51.6)
Adjustments to reconcile income (loss)
to net cash used by operations:
Depreciation 35.4 37.7 37.9
Write down of fixed assets as a part of
restructuring (Note 3) 16.2 3.7 -
Employee retirement plan contribution in stock 14.6 6.2 -
Other (Note 3) .2 1.1 (8.9)
Changes in assets and liabilities:
Current accounts 3.4 40.7 12.9
Other assets (1.0) .6 .7
----------------------------
Net cash used by operating activities (28.2) (15.9) (9.0)
----------------------------
Cash Flows from Investing Activities
Capital additions (26.1) (32.6) (36.7)
Proceeds from sale of property, plant
and equipment .4 6.9 12.8
----------------------------
Net cash used by investing activities (25.7) (25.7) (23.9)
----------------------------
Cash Flows from Financing Activities
Short-term borrowings, net (10.1) 10.1 -
Proceeds from issuance of long-term debt 55.0 - -
Proceeds from issuance of common stock, net 24.0 1.0 14.5
Principal payments on long-term debt - - (1.6)
----------------------------
Net cash provided by financing activities 68.9 11.1 12.9
----------------------------
Cash
Increase (decrease) in cash 15.0 (30.5) (20.0)
Cash at beginning of year 5.8 36.3 56.3
----------------------------
Cash at end of year $20.8 $5.8 $36.3
============================
Changes in Current Assets and Liabilities
Increase (decrease) in cash attributable
to changes in:
Receivables, net $15.2 $20.6 $1.1
Income taxes, net .8 (14.5) (7.4)
Inventories (8.3) 38.6 12.1
Other assets .1 .1 .3
Accounts payable and accrued expenses (4.4) (4.1) 6.8
---------------------------
Net change in current accounts $3.4 $40.7 $12.9
===========================
Supplemental Disclosure
Supplemental disclosure of cash flow information-
Cash paid (refunded) during the period for:
Interest $15.0 $13.5 $12.3
Income taxes (1.2) (1.5) 7.5
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
<PAGE>
Notes to Consolidated Financial Statements
---------------------------------------------------------
Note One - Significant Accounting Policies:
Principles of consolidation: The consolidated financial statements include
the accounts of Zenith Electronics Corporation and all domestic and
foreign subsidiaries (the company). All significant intercompany balances
and transactions have been eliminated.
Statements of consolidated cash flows: The company considers time
deposits, certificates of deposit and all highly liquid investments purchased
with an original maturity of three months or less to be cash.
Inventories: Inventories are stated at the lower of cost or market. Costs are
determined for all inventories except picture tube inventories using the
first-in, first-out (FIFO) method. Picture tube inventories are valued using
the last-in, first-out (LIFO) method.
Properties and depreciation: Additions of plant and equipment with lives
of eight years or more are depreciated by the straight-line method over
their useful lives. Accelerated methods are used for depreciation of
virtually all other plant and equipment items, including high technology
equipment that may be subject to rapid economic obsolescence.
Property held for disposal is stated at the lower of cost or estimated net
realizable value. As of December 31, 1993, $5.9 million of property held
for disposal was included in Other Noncurrent Assets and included certain
facilities and land no longer used in the company's operations.
Most tooling expenditures are charged to expense in the year acquired,
except for picture tube tooling which is amortized over four years. Certain
production fixtures are capitalized as machinery and equipment.
Rental expenses under operating leases were $9.0 million, $8.8 million
and $8.9 million in 1993, 1992 and 1991, respectively. Commitments for
lease payments in future years are not material.
The company capitalizes interest on major capital projects. Such interest
has not been material.
Engineering, research, product warranty and other costs: Engineering and
research costs are expensed as incurred. Estimated costs for product
warranties are provided at the time of sale based on experience factors. The
costs of co-op advertising and merchandising programs are also provided
at the time of sale.
Foreign currency: The company uses the U.S. dollar as the functional
currency for all foreign subsidiaries. Foreign exchange gains and losses are
included in Other Operating Expense (Income) and were not material in
1993, 1992 and 1991.
Earnings per share: Primary earnings per share are based upon the
weighted average number of shares outstanding and common stock
equivalents, if dilutive. Fully diluted earnings per share, assuming
conversion of the 6 1/4% convertible subordinated debentures and the
8.5% convertible senior subordinated debentures, are not presented
because the effect of the assumed conversion is antidilutive. The number of
shares used in the computation were 32.3 million, 29.5 million and 28.8
million in 1993, 1992 and 1991, respectively.
Note Two - Financial Results and Liquidity:
The company has incurred losses from operations of $97.0 million, $105.9
million and $51.6 million in 1993, 1992 and 1991, respectively. For many
years the company's major competitors, many with greater resources, have
aggressively lowered their selling prices in an attempt to increase market
share. Although the company has benefited from cost reduction programs,
these lower color television prices together with inflationary cost increases
have more than offset such cost reduction benefits.
The company's 1994 operating plan is designed to improve financial
results through cost reductions, repositioning of product lines and
intensified asset management. The plan also seeks to improve the
profitability of the core business and contemplates the introduction of new
products such as home theater TVs. These efforts along with continued
investments in the development of new technologies (such as high
definition television and new digital cable products) are expected to involve
significant expenditures by the company in 1994 and beyond.
The company's Credit Agreement (see Note Nine) expires on December
31, 1994. The maximum commitment for funds available for borrowing
under the Credit Agreement is $90 million, but is limited by a defined
borrowing base formula related to eligible accounts receivable and inventory.
Although the company believes that the Credit Agreement, together with
extended-term payables expected to be available from a foreign supplier
and its continuing efforts to obtain other financing sources, will be
adequate to meet its seasonal working capital needs in 1994, there can be
no assurances that the company will not experience liquidity problems in
the future because of adverse market conditions or other unfavorable
events.
<PAGE>
Note Three - Restructuring and Other Charges:
During the fourth quarter of 1993, the company recorded a charge of $31.0
million primarily to restructure certain product areas and re-engineer its
core consumer electronics and cable business. The restructuring will affect
computer monitors and magnetics, product areas in which the company is
bringing its production capacity more in line with expected reduced levels
of business. The fourth-quarter charge was primarily for non-cash fixed asset
and inventory write-downs, as well as severance costs, and is designed to
reduce fixed costs and operating expenses.
During 1992, the company recorded $48.1 million of restructuring and
other charges. These included provisions for severance, inventory valuation
and other restructuring costs, along with writeoffs of trade receivables.
Designed to reduce fixed costs and operating expenses, the restructuring
actions include manufacturing consolidations and related employment
reductions in Mexico, consolidation of company-owned distribution and
other activities, and salaried employment reductions throughout the
company.
During 1991, the company initiated certain restructuring actions.
Integral to the restructuring was the sale and leaseback of the land and
building in Taiwan and the consolidation of the color television final
assembly operation into Mexico. Taken as a whole, the restructuring
actions had no impact on the operating results of the company as the $8.9
million net gain on the sale of the Taiwan property was offset by charges
relating to the restructuring.
Note Four - Income Taxes:
In the fourth quarter of 1992, the company elected early adoption of
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", which requires the use of the liability
method in accounting for income taxes. This statement superseded SFAS
No. 96, which the company adopted retroactively in October 1989. The
adoption of SFAS No. 109 had no effect on the financial statements of the
company because the related net deferred tax assets were offset by a
valuation allowance. The valuation allowance was established since the
realization of these assets cannot be reasonably assured, given the
company's recurring losses.
The components of income taxes (credit) were:
<TABLE>
<CAPTION>
Year Ended December 31
In millions 1993 1992 1991
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable (refundable):
Federal $(.1) $ (5.9) $ -
State .1 .1 .1
Foreign - (.1) .1
Currently deferred - (10.0) -
------------------------
Total income taxes (credit) $ - $ (15.9) $ .2
========================
</TABLE>
The $15.9 million income tax credit in 1992, resulted from the reversal
of $10.0 million of previously accrued tax reserves no longer required in
connection with earnings of a foreign subsidiary and $5.9 million of net
operating loss carryback applications which resulted in cash refunds.
The statutory federal income tax rate and the effective tax rate are
compared below:
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate (35.0)% (34.0)% (34.0)%
State income taxes, net .1 .1 .2
Foreign tax effects .5 2.0 .9
Tax benefits not recognized
subject to future realization 34.5 31.9 33.2
Net operating loss carryback (.1) (4.9) -
Reversal of previously
accrued reserve - (8.2) -
Other - - .1
-------------------------
Effective tax rate - (13.1)% .4%
=========================
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31
In millions 1993 1992
- -----------------------------------------------------------------------
<S> <C> <C>
Loss carryforwards $145.3 $114.8
Inventory valuation 16.5 12.7
Product warranty 13.0 10.1
Co-op advertising 4.0 1.4
Merchandising 6.7 7.0
Other 25.7 21.4
----------------------
Deferred tax assets 211.2 167.4
----------------------
Depreciation 12.6 14.0
Employee benefits .6 .5
Other 18.8 18.4
----------------------
Deferred tax liabilities (32.0) (32.9)
----------------------
Valuation allowance (179.2) (134.5)
----------------------
Net deferred tax assets $ - $ -
======================
</TABLE>
<PAGE>
As of December 31, 1993, the company had $383.5 million of net
operating loss carryforwards (NOLs) available for financial statement
purposes. For federal income tax purposes, the company had net operating
loss carryforwards of $365.5 million and unused tax credits of $4.6 million,
(which expire from 2000 through 2008).
The company expects these NOLs and tax credits to be available in the
future to reduce the Federal income tax liability of the company. However,
should there occur a 50% "ownership change" of the company as defined
under section 382 of the Internal Revenue Code of 1986, the company's
ability to utilize the NOLs and available tax credits would be restricted
to a prescribed annual amount (currently 5.06% of the market value of
the company at the time of the ownership change). The company has
knowledge of equity holdings and stock options which must be counted
as changes in the ownership of the company aggregating about 37 percent
as of the three years ended December 31, 1993. As of the three years
ended February 28, 1994, this percentage has decreased to about 33 percent.
Additional equity-related transactions initiated by the company as well as
investment decisions made independently by investors may increase this
percentage in the future.
Note Five - Geographic Segment Data:
The company's operations involve a dominant industry segment-the
design, development, manufacture and sale of video products, including
color television sets, video cassette recorders and other consumer
electronics products, color picture tubes, computer monitors, cable TV
products, and parts and accessories for these products.
Financial information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
In millions 1993 1992 1991
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Domestic companies $1,158.8 $1,183.7 $1,258.6
Foreign companies 69.4 59.8 63.0
------------------------------
Total net sales $1,228.2 $1,243.5 $1,321.6
==============================
Income (loss) before income taxes:
Domestic companies $ (97.6) $ (116.9) $ (48.4)
Foreign companies .6 (4.9) (3.0)
------------------------------
Total income (loss) before income taxes $ (97.0) $ (121.8) $ (51.4)
==============================
Identifiable assets:
Domestic companies $ 448.6 $ 467.3 $ 559.8
Foreign companies 110.8 111.3 127.1
------------------------------
Total identifiable assets $ 559.4 $ 578.6 $ 686.9
=============================
</TABLE>
Foreign operations consist of manufacturing and sales subsidiaries in
Mexico and distribution subsidiaries in Canada and Taiwan. Sales to
affiliates are principally accounted for at amounts based on local costs of
production plus a reasonable return.
Note Six -- Other Operating Expense (Income):
Major manufacturers of televisions and video cassette recorders agreed
during 1992 to take licenses under some of the company's U.S. tuning
system patents (the licenses expire in 2003). Royalty income related to the
tuning system patents (after deducting legal expenses) was $25.7 million
and $26.0 million in 1993 and 1992, respectively, and is included in Other
Operating Expense (Income). The $26.0 million in 1992 included $5.3
million of past royalties.
Note Seven - Inventories:
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31
In millions 1993 1992
- --------------------------------------------------------------------
<S> <C> <C>
Raw materials and work-in-process $137.2 $130.4
Finished goods 78.1 72.8
-----------------
215.3 203.2
Excess of FIFO cost over LIFO cost (9.1) (5.3)
-----------------
Total inventories $206.2 $197.9
=================
</TABLE>
As of December 31, 1993 and 1992, inventories of $24.1 million and
$19.6 million, respectively, were valued using the LIFO method.
Note Eight - Property, Plant and Equipment:
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31
In millions 1993 1992
- ---------------------------------------------------------------------
<S> <C> <C>
Land $ 7.4 $ 8.0
Buildings 151.0 159.5
Machinery and equipment 549.9 537.0
----------------------
708.3 704.5
Less accumulated depreciation (554.4) (518.4)
----------------------
Total property, plant and equipment, net $153.9 $186.1
======================
</TABLE>
<PAGE>
Note Nine - Short-term Debt and Credit Arrangements:
The company entered into a Credit Agreement dated as of May 21, 1993,
with a lending group led by General Electric Capital Corporation, for
working capital purposes. Borrowings under the Credit Agreement are
secured by accounts receivable, inventory, general intangibles, trademarks
and the tuning system patent license agreements of the company and
certain of its domestic subsidiaries. The Credit Agreement is scheduled to
expire on December 31, 1994. The maximum commitment of funds available
for borrowing under the Credit Agreement is $90 million, but is limited by
a defined borrowing base formula related to eligible receivables and eligible
inventory. Net proceeds arising from material asset transactions will result
in a partial reduction in the maximum commitment of the lenders
thereunder. Interest on borrowing is based on market rates with a
commitment fee of 1/2 % per annum payable monthly on the unused
balance of the facility. As of December 31, 1993, no borrowings were
outstanding under the Credit Agreement.
The Credit Agreement contains restrictive financial covenants that must
be maintained as of the end of each fiscal quarter, including a liabilities to
net worth ratio and a minimum net worth amount. As amended, the ratio of
liabilities to net worth, as of December 31, 1993, was required to be not
greater than 3.70 to 1.0 and was actually 2.67 to 1.0, and net worth was
required to be equal to or greater than 140.0 million and was actually 152.4
million. At the end of each of the first three fiscal quarters of 1994, the
liabilities to net worth ratio is required to be maintained at various levels
ranging from a high of 4.95 to 1.0 to a low of 3.70 to 1.0 and minimum net
worth is required to be maintained at amounts ranging from a high of
$120.0 million to a low of $101.0 million. In addition, there are restrictions
regarding capital expenditures, specified dollar limits on the amount of
inventory for certain of the company's products, investments, acquisitions,
guaranties, transactions with affiliates, sales of assets, mergers and
additional borrowings, along with limitations on liens. The Credit
Agreement prohibits dividend payments on the company's common stock,
restricts dividend payments on any of its preferred stock, if issued, and
prohibits the redemption or repurchase of stock.
As of December 31, 1992, the company had $10.1 million outstanding
under its previous $60 million revolving credit and security agreement. The
agreement, which was terminated by the company on May 21, 1993,
contained restrictive covenants similar in nature to the current Credit
Agreement.
Borrowings and interest rates on short-term debt were:
<TABLE>
<CAPTION>
Year Ended December 31
In millions 1993 1992 1991
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum month-end borrowings $66.4 $40.1 $-
Average daily borrowings 35.0 23.1 -
Weighted average interest rate 8.1% 7.5% -
</TABLE>
Contracts with certain foreign suppliers permit the company to elect
interest-bearing extended-payment terms. As of December 31, 1993 and
1992, $8.5 million and $10.8 million, respectively, of these obligations
were outstanding and shown as accounts payable.
Note Ten - Long-term Debt:
The components of long-term debt were:
<TABLE>
<CAPTION>
December 31
In millions 1993 1992
- ---------------------------------------------------------------------
<S> <C> <C>
12 1/8% notes due 1995 $ 34.5 $ 34.5
6 1/4% convertible subordinated
debentures due 2011 115.0 115.0
8.5% senior subordinated
convertible debentures due 2000 55.0 -
------------------
204.5 149.5
Less current portion 34.5 -
------------------
Total long-term debt $170.0 $149.5
==================
</TABLE>
Subsequent to December 31, 1993, the company redeemed its
outstanding 12 1/8% notes due 1995 at a redemption price equal to par
value, totaling $34.5 million plus accrued interest.
The 6 1/4% convertible subordinated debentures are unsecured general
obligations, subordinate in right of payment to certain other debt
obligations, and are convertible into common stock at $31.25 per share.
Terms of the debenture agreement include annual sinking-fund payments of
$5.8 million beginning in 1997. The debentures are redeemable at the
option of the company, in whole or in part, at specified redemption prices
at par or above. In November 1993, the company sold to certain institutional
investors $55 million of 8.5% senior subordinated convertible debentures
due 2000. The debentures are unsecured general obligations, subordinate
in right of payment to certain other debt obligations, and are convertible
into shares of common stock at an initial conversion price of $9.76 per
share. The debentures are redeemable at the option of the company,
in whole or in part, at any time on or after November 19, 1997, at
specified redemption prices at par or above.
The fair value of long-term debt is $134.4 million as of December 31,
1993, as compared to the carrying amount of $170.0 million. The fair value
of the company's 6 1/4% convertible subordinated debentures is based on
the quoted market price from the New York Stock Exchange. The fair
value of the 8.5% convertible senior subordinated debentures is based on
the quoted price obtained from third party financial institutions. Currently,
the company's Credit Agreement would not allow the company to
extinguish the long-term debt through purchase and thereby realize the
gain.
<PAGE>
Note Eleven - Stockholders' Equity:
Changes in stockholders' equity accounts are shown below:
<TABLE>
<CAPTION>
Additional
Common Paid-in Treasury
In millions Stock Capital Shares
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1990 $27.7 $152.5 $(.7)
Sale of common stock 1.5 12.9 -
Other - (.1) .2
-------------------------------
Balance, December 31, 1991 29.2 165.3 (.5)
Stock issued for benefit plans 1.0 5.2 -
Stock issued for stock options .1 .7 -
Other - .2 -
-------------------------------
Balance, December 31, 1992 30.3 171.4 (.5)
Sales of common stock 3.4 19.8 -
Stock issued for benefit plans 2.0 12.6 -
Stock issued for stock options .1 .6 -
Other .1 .7 -
-------------------------------
Balance, December 31, 1993 $35.9 $205.1 $(.5)
===============================
</TABLE>
A Registration Statement filed with the Securities and Exchange
Commission covering 5 million shares of common stock became effective
in May 1993. The company sold 3.4 million shares of authorized but
unissued shares of common stock to investors under this shelf registration
during 1993. Subsequent to December 31, 1993, the company sold the
remaining 1.6 million shares under this registration and an additional 2.0
million shares under a new shelf registration and intends to file a
shelf registration for an additional 5.0 million shares.
On February 25, 1991, the company entered into investment and
technology agreements with GoldStar Co. Ltd. Under the investment
agreement, the company sold to GoldStar 1,450,000 shares of previously
authorized but unissued common stock for $15.0 million.
Pursuant to a Rights Agreement (as amended), a "right" entitling the
holder thereof to purchase under certain conditions, one-half of one share
of common stock at an exercise price of $37.50, subject to adjustment, was
distributed with respect to each outstanding share of common stock in
1986, and with respect to each additional share of common stock that has
become outstanding since then.
The rights will become exercisable upon the earlier to occur of (i) the
10th day after a public announcement that a third party has become the
beneficial owner of 25% or more of the outstanding common stock (an
"acquiring person") or (ii) the 10th day after the commencement of, or the
announcement of an intention to commence, an offer the consummation of
which would result in a third party beneficially owning 25% or more of the
common stock.
In the event any person becomes an acquiring person, each holder of a
right (other than the acquiring person) will thereafter have the right to
receive upon exercise that number of shares of common stock having a
market value of two times the exercise price of the right. The rights, which
have no voting rights, expire in 1996. The rights may be redeemed at the
option of the company at any time prior to such time as any person
becomes an acquiring person. Under certain conditions and following a
stockholder vote, the rights shall be redeemed by the company. In either
case, the redemption price will be $.05 per right, subject to adjustment.
The Rights Agreement also provides that under certain circumstances at
any time after any person has become an acquiring person, the Board of
Directors may exchange the rights (other than rights owned by such
person) in whole or in part, for common stock at an exchange ratio of one-
half of a share of common stock per right, subject to adjustment.
At the company's Annual Meeting of Stockholders in May 1993, the
stockholders approved the authorization of 8 million shares of preferred
stock of which none are issued or outstanding as of December 31, 1993.
The Board of Directors of the company is authorized to issue the preferred
stock from time to time in one or more series and to determine all relevant
terms of each such series, including but not limited to the following (i)
whether and upon what terms, the shares of such series would be
redeemable; (ii) whether a sinking fund would be provided for the
redemption of the shares of such series and, if so, the terms thereof; and
(iii) the preference, if any, to which shares of such series would be entitled
in the event of voluntary or involuntary liquidation of the company.
Note Twelve - Stock Options and Awards:
The 1987 Stock Incentive Plan authorizes the granting of incentive and
non-qualified stock options, restricted stock awards and stock appreciation
rights to key management personnel. The purchase price of shares under
option is the market price of the shares on the date of grant. Options expire
10 years from the date granted.
Transactions in 1993 and 1992 are summarized below:
<TABLE>
<CAPTION>
1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at January 1 1,854,430 1,598,206
Options granted 433,550 471,050
Options exercised (95,675) (98,600)
Options canceled or expired (211,300) (116,226)
--------------------------
Options outstanding at December 31 1,981,005 1,854,430
Options exercisable at December 31 1,388,005 1,192,255
Shares available for grant at December 31 695,431 189,309
Option prices per share:
Outstanding at January 1 6 3/8 - 13 3/4 6 3/8 - 14 1/8
Granted 6 3/4 - 7 1/4 6 5/8 - 9 3/4
Exercised 6 3/8 - 8 3/8 6 7/8 - 8 3/8
Canceled or expired 6 7/8 - 13 3/4 6 7/8 - 14 1/8
Outstanding at December 31 6 3/8 - 9 3/4 6 3/8 - 13 3/4
</TABLE>
The company had 63,837 and 69,836 restricted stock awards issued and
outstanding as of December 31, 1993 and 1992, respectively. The market
value of the restricted shares is deferred in the additional paid-in capital
account and amortized over the years the restrictions lapse. Total
compensation expense in 1993 and 1992, related to these awards, was not
material.
<PAGE>
Note Thirteen - Retirement Plans and Employee Benefits:
Virtually all employees in the United States and Canada are eligible to
participate in noncontributory profit-sharing retirement plans after
completing one full year of service. The plans provide for a minimum
annual contribution of 6% of employees' eligible compensation.
Contributions above the minimum could be required based upon profits in
excess of a specified return on net worth. Profit-sharing contributions were
$9.7 million, $11.1 million and $11.5 million in 1993, 1992 and 1991,
respectively. The 1993, 1992 and 1991 contributions were partially funded
through the issuance of approximately 1,021,000, 982,000 and 1,000,000
shares, respectively, of the company's common stock.
Employees in Mexico and Taiwan are covered by government- mandated
plans, the costs of which are accrued by the company.
In the fourth quarter of 1993, the company elected early adoption of
Statement of Financial Accounting Standards (SFAS) No.112, "Employers'
Accounting for Postemployment Benefits." This statement requires that the
company follow an accrual method of accounting for the benefits payable
to employees when they leave the company other than by reason of
retirement. Since most of these benefits were already accounted for by the
company by the accrual method, adoption of SFAS No 112 did not have a
material effect on the financial statements of the company, nor is it
expected to have a material effect on future results of operations.
Presently, the company does not offer any postretirement benefits; as a
result, the 1992 adoption of SFAS No. 106 did not have any effect on the
financial statements of the company.
Note Fourteen - Contingencies:
The company is involved in various legal actions, environmental matters,
patent claims, and other proceedings relating to a wide range of matters
that are incidental to the conduct of its business. In addition, the company
remains liable for certain retained obligations of a discontinued business,
principally income and other taxes prior to the closing of the sale. The
company believes, after reviewing such matters and consulting with the
company's counsel, that any liability which may ultimately be incurred with
respect to these matters is not expected to have a material effect on either
the company's consolidated financial position or results of operations.
Note Fifteen - Reclassifications:
Certain prior-year amounts have been reclassified to conform with the
presentation used in the current year.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------
To the Stockholders of Zenith Electronics Corporation:
We have audited the accompanying consolidated balance sheets of Zenith
Electronics Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1993 and 1992, and the related statements of consolidated
operations and retained earnings and cash flows for each of the three years
in the period ended December 31, 1993. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these 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 Zenith
Electronics Corporation and subsidiaries as of December 31, 1993 and
1992, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles.
/S/ARTHUR ANDERSEN & CO.
------------------------
ARTHUR ANDERSEN & CO.
Chicago, Illinois,
February 14, 1994
<PAGE>
UNAUDITED QUARTERLY FINANCIAL INFORMATION
-----------------------------------------------------
In millions, except per share amounts
<TABLE>
<CAPTION>
1993 Quarters Ended 1992 Quarters Ended
----------------------------------- -------------------------------------------
Dec. 31(1) Oct. 2 July 3 April 3 Dec. 31(2) Sept. 26(3) June 27 Mar. 28
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $361.2 $301.8 $274.7 $290.5 $385.0 $313.3 $280.0 $265.2
Gross margin 26.1 17.2 9.0 12.0 27.1 17.4 9.6 10.1
Net income (loss) (36.0) (14.5) (24.7) (21.8) (20.3) (41.8) (15.2) (28.6)
Per share of common
stock (primary and
fully diluted):
Net income (loss) $(1.04) $(.44) $(.79) $(.72) $(.67) $(1.42) $(.52) $(.98)
New York Stock Exchange
market price per
share:
High 8 1/8 8 3/8 10 1/2 8 3/8 7 8 9 3/8 11 1/8
Low 6 1/4 6 1/4 6 1/2 5 7/8 5 6 1/8 6 3/4 7 1/4
End of quarter 7 6 1/2 7 7/8 7 5 7/8 6 1/4 7 1/4 9 1/8
<FN>
(1) Includes $31.0 million of restructuring and other charges (see Note 3
of Notes to Consolidated Financial Statements).
(2) Includes $24.8 million of restructuring and other charges (see Note 3
of Notes to Consolidated Financial Statements) and $10.0 million of income
tax credits (see Note 4 of Notes to Consolidated Financial Statements).
(3) Includes $23.3 million of restructuring and other charges (see Note 3
of Notes to Consolidated Financial Statements).
</TABLE>
<PAGE>
EXHIBIT (10e)
AMENDMENT TO
RESTRICTED STOCK AGREEMENT
AGREEMENT, made and entered into this 28th day of March, 1988
between Zenith Electronics Corporation, a Delaware corporation (the "Company")
and Jerry K. Pearlman ("Executive").
Recitals
Pursuant to a Restricted Stock Agreement dated December 3, 1986
between the Company and Executive (the "Restricted Stock Agreement"), the
Company issued to Executive certain shares of Common Stock of the Company
subject to restrictions on transfer and risks of forfeiture (the "Restricted
Shares").
Sections 6 and 7 of the Restricted Stock Agreement require, in
certain circumstances, that the Company repurchase from the Executive some
or all of the Restricted Shares.
In recognition of the fact that the Company may, by contractual or
legal requirements, be prohibited from repurchasing Restricted Shares, the
Company and Executive desire to amend the Restricted Stock Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Section 6(a) of the Restricted Stock Agreement is amended
by adding the following sentence at the end of said subsection:
"Notwithstanding the foregoing provision, the
Company may, by written notice delivered to the
Executive's estate within 90 days following the
date of Executive's death, elect not to repurchase
any Restricted Shares owned by Executive at the
date of his death in which event all Restricted
Shares so held shall be and become free of all
restrictions under this Agreement and, in addition,
the Company shall pay to Executive's estate as
additional compensation for Executive's past ser-
vices a lump sum cash amount equal to the excess,
if any, of $20.00 per share for each Restricted
Share so held, (appropriately adjusted to reflect
any stock splits, stock dividends or other capital
changes) over the market price per share determined
as of the date of Executive's death."
2. Section 7(b) of the Restricted Stock Agreement is amended
by adding the following sentence at the end of said subsection:
"Notwithstanding the foregoing provision of this
subsection, the Company may, by written notice
delivered to Executive within 90 days following the
determination date, elect to waive all restrictions
and risks of forfeiture, so as to permit the sale
of all Restricted Shares by Executive, in which
event the Company shall not be obligated to pur-
chase the Restricted Shares. In the event of such
election by the Company, the Company shall direct
the Escrow Agent to deliver certificates repre-
senting the Restricted Shares to Executive. If
Executive desires to sell such Restricted Shares,
he shall within 90 days following receipt of the
certificates therefore, advise the Company in writ-
ing and the Company shall within 20 days after
receipt of such written advice designate a third
party purchaser to purchase such shares for cash.
Within 20 days following the closing of such sale
and purchase, the Company shall pay to executive as
additional compensation a lump sum cash payment
equal to the excess, if any, of the market value of
the Restricted Shares on the determination date
over the sales price received by Executive upon sale
of the Restricted Shares to the designated third
party. If Executive does not advise the Company
within 90 days following receipt of a certificate
for the Restricted Shares that he desires to
sell them, the Company shall have no further
obligations under this Agreement."
IN WITNESS WHEREOF, the parties have executed
this Agreement this 28th day of March, 1988.
ZENITH ELECTRONICS CORPORATION
By /s/ H.H Graham
--------------------------
/s/ Jerry K. Pearlman
--------------------------
<PAGE>
Exhibit (10n)
ZENITH ELECTRONICS CORPORATION
STOCK INDEMNIFICATION RIGHTS GRANT
AGREEMENT, made this______day of___________, 1988 between
ZENITH ELECTRONICS CORPORATION, a Delaware corporation (the "Corporation")
and ________________________________________________("Grantee").
WHEREAS, the 1987 Zenith Stock Incentive Plan (the "Plan") of the
Corporation permits the grant of Stock Indemnification Rights with respect
to previously or simultaneously granted stock options; and
WHEREAS, under date(s) of Grantee was granted option(s) to purchase
shares respectively of common stock (the "related options"); and
WHEREAS, Grantee has been granted Stock Indemnification Rights
with respect to the related options pursuant to the Plan; and
WHEREAS, the Corporation desires by this Agreement to set forth
the terms and conditions of the Stock Indemnification Rights;
NOW, THEREFORE, the parties agree as follows:
1. Definitions. As used in this Agreement, the following
terms shall have the following defined meanings:
(a) "Rights" shall mean the Stock Indemnification
Rights granted by this Agreement.
(b) "Window Period" shall mean the ten consecutive
business day period beginning on the third business day
following the release by the Corporation of its quarterly or
annual summary statement of sales and earnings.
(c) "Fair Market Value" shall mean the mean between
the high and low sales price of a share of common stock of the
Corporation of the New York Stock Exchange Composite Tape on
the date for which such value is to be determined as reported
in the Wall Street Journal, or if there are no sales prices so
reported for the date upon which such value is to be determined,
the value as so determined on the latest date preceding the date
for which the value is to be determined for which sales prices
are reported, or if the Corporation's common stock is not traded
on the New York Stock Exchange, the value determined by the
Corporation on such other basis as it shall, in its discretion,
deem reasonable.
(d) "Option Price" shall mean the per share price which
Grantee is required to pay to the Corporation as the
consideration for the purchase of shares under the related option.
(e) "Exercise Date" shall mean the date or dates upon
which Grantee shall exercise the related options.
(f) "Valuation Date" shall mean the date occurring six
months following the Exercise Date, provided that if prior to the
date occurring six months following the Exercise Date the Grantee
is free to sell shares purchased under the related options free of
any restrictions imposed by the Corporation and without liability
under Section 16(b) of the Securities and Exchange Act of 1934,
the Valuation Date shall mean the first date upon which Grantee
may so sell such shares.
(g) "Sale Date" shall mean the date occurring on or after
the Valuation Date and during the term of the Right on which
Grantee, or in the event of his death, his personal representative,
estate or beneficiary shall sell in an arm's length transaction
shares purchased on the Exercise Date pursuant to exercise of the
related option.
<PAGE>
2. Grant. Provided that Grantee is an officer, director, or
employee of the Corporation on whom the Corporation or the Securities and
Exchange Commission imposes a holding period restriction with respect to
shares of common stock of the Corporation acquired at the time of exercise,
in whole or in part, of the related option, the Grantee is hereby granted
Rights with respect to shares of common stock so purchased on exercise of
the related option if such exercise occurs during a Window Period.
3. Term of Rights. The term of the Rights shall commence with
respect to shares purchased pursuant to exercise of the related option on
the Exercise Date and shall terminate on the first to occur of (i) the
fifth anniversary of the Exercise Date, or (ii) the date upon which the
Grantee voluntarily terminates his employment with the Corporation other
than by reason of disability or retirement, provided that if Grantee's
employment shall terminate by reason of his death, the right shall
terminate on the first to occur of the third anniversary of the date
of death of Grantee or the fifth anniversary of the Exercise Date.
4. Indemnification. In the event Grantee, or in the event of
his death, his personal representative, estate of beneficiary, shall
sell in an arm's length transaction shares of common stock of the
Corporation purchased by Grantee upon exercise of the related option
during the period commencing on the Valuation Date and during the term of
the Right, the Corporation agrees to indemnify the Grantee, or in
the event of his death, his personal representative, estate or beneficiary
to the extent herein provided. If on the Sale Date, the Fair Market Value
of the shares so sold shall be less than the Fair Market Value of such
shares on the Exercise Date, the Corporation shall pay to Grantee, or
his personal representative, estate or beneficiary, an indemnification
payment (the "indemnification payment") in an amount equal to the lesser of
(a) the excess of the Fair Market Value on the Sale Date or (b) the
excess of the Fair Market Value of such shares on the Exercise
Date over the Option Price, or (c) the excess of the Fair Market Value of
such shares on the Exercise Date over the Fair Market Value of such shares
on the Valuation Date.
5. Form and Time of Payment. Any indemnification payment to
which Grantee or his personal representative, estate or beneficiary is
entitled pursuant to Section 4 above shall be made in cash as soon as
practicable following delivery to the Corporation of evidence of the sale
of the shares at a price and on conditions giving rise to entitlement
to the indemnification payment.
6. Non-Transferability. The rights of Grantee hereunder may
not be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above stated.
ZENITH ELECTRONICS CORPORATION
By
-----------------------------
-------------------------------
GRANTEE
<PAGE>
EXHIBIT 21
ZENITH ELECTRONICS CORPORATION SUBSIDIARIES
State or Other
Jurisdiction of Incorporation
- -----------------------------------------------------------------------------
Cableproductos de Chihuahua, S.A. de C.V. Mexico
Electro Partes de Matamoros, S.A. de C.V. Mexico
Interocean Advertising Corporation New York
Interocean Advertising Corporation of California California
Interocean Advertising Corporation of Illinois Illinois
Productos Magneticos de Chihuahua, S.A. de C.V. Mexico
Partes de Television de Reynosa, S.A. de C.V. Mexico
Radio Componentes de Mexico, S.A. de C.V. Mexico
Telson, S.A. de C.V. Mexico
Zenco de Chihuahua, S.A. de C.V. Mexico
Zenith Distributing Corporation of Illinois Illinois
Zenith Distributing Corporation-Midstates Kansas
Zenith Distributing Corporation of New England Delaware
Zenith Distributing Corporation of New York New York
Zenith Distributing Corporation-Southeast Delaware
Zenith Distributing Corporation-West California
Zenith Distributing Corporation of Arizona Arizona
Zenith Electronics Corporation of Pennsylvania Pennsylvania
Zenith Electronics Corporation of Texas Texas
Zenith Electronics (Europe) Limited England
Zenith Electronics (Ireland) Limited Ireland
Zenith Electronics (Pacific) Ltd. Hong Kong
Zenith Electronics Universal Sales Corporation Delaware
Zenith/Inteq, Inc. Delaware
Zenith Microcircuits Corporation Delaware
Zenith Radio Canada Ltd/Zenith Radio Canada Ltee Canada
Zenith Taiwan Corporation Taiwan
Zenith Video Tech Corporation Delaware
Zenith Video Tech Corporation-Florida Delaware
Zentrans, Inc. Delaware
* All subsidiaries are wholly-owned by Zenith Electronics Corporation except
for Radio Componentes de Mexico, S.A. de C.V. which is a wholly-owned
subsidiary of Cableproductos de Chihuahua S.A. de C.V.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
of our reports dated February 14, 1994, included in this Form 10-K for the
year ended December 31, 1993, into the Company's previously filed
Registration Statements on Form S-8, File Nos. 33-15643 and 33-11295.
/s/ ARTHUR ANDERSEN & CO.
-------------------------
ARTHUR ANDERSEN & CO.
Chicago, Illinois,
March 3, 1994
