<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
________________ to _________________
Commission file number: 1-5260
Z E R O C o r p o r a t i o n
(Exact name of registrant as set forth in its charter)
Delaware 95-1718077
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
444 South Flower Street, Suite #2100, Los Angeles, CA 90071-2922
(Address of principal executive offices) (Zip Code)
(213) 629-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Common stock outstanding as of September 30, 1996 -- 12,169,795 shares.
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PART I - FINANCIAL INFORMATION
Corporation for which information is given:
This report is filed for ZERO Corporation and its subsidiaries (hereafter
"Registrant" or "Company") for the quarterly period ended September 30, 1996.
Item 1. Financial Statements.
a. The Statements of Consolidated Income required by Rule 10-01
of Regulation S-X are herewith filed as Exhibit Ia and are
incorporated herein by reference.
The Consolidated Balance Sheets required by Rule 10-01 of
Regulation S-X are herewith filed as Exhibit Ib and are
incorporated herein by reference.
The Statements of Consolidated Cash Flows required by Rule 10-01
of Regulation S-X are as follows:
<TABLE>
<CAPTION>
For The Six Months Ended
September 30,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES:
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 9,855,000 $ 4,820,000
INVESTING ACTIVITIES:
DECREASE IN SHORT-TERM INVESTMENTS 965,000 16,937,000
EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT (5,975,000) (2,639,000)
PURCHASE OF NON-CASH ASSETS OF ACQUIRED BUSINESSES (1,927,000) (3,777,000)
PROCEEDS FROM SALE OF ASSETS 1,258,000 1,670,000
OTHER 153,000 140,000
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (5,526,000) 12,331,000
FINANCING ACTIVITIES:
DIVIDENDS PAID (727,000) (3,519,000)
OTHER (INCLUDING EFFECT OF EXCHANGE RATE CHANGES) 574,000 787,000
NET CASH USED IN FINANCING ACTIVITIES (153,000) (2,732,000)
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,176,000 14,419,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,018,000 17,132,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD* $11,194,000 $ 31,551,000
These Statements of Consolidated Cash Flows for the six months ended
September 30, 1996 and 1995 are unaudited but, in the opinion of management,
reflect all adjustments (consisting of normal recurring adjustments) necessary
to present fairly the results for the periods.
<F01>
* Cash and Cash Equivalents include investments purchased with
maturities of three months or less. At September 30, 1996 there are no
short-term investments with maturities longer than three months. At
September 30, 1995 short-term investments with maturities longer than three
months totaled $2,965,000.
</TABLE>
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The following should be read in conjunction with the financial statements
included or incorporated herein by reference.
Results of Operations
Net sales for the three and six months ended September 30, 1996 increased
3.9% and 8.0%, respectively, when compared to the prior year periods due
primarily to increased orders within the telecommunication, data processing and
consumer markets.
Operating income as a percent of net sales decreased for the three months ended
September 30, 1996 to 12.9% from 13.4% for the same period in the prior year
primarily due to costs associated with combining an acquisition with an
existing business. Operating income as a percent of net sales was 12.6% for the
six months ended September 30, 1996 and 1995.
Interest expense increased to $1,150,000 and $2,285,000 for the three and six
months ended September 30, 1996, respectively, from $237,000 and $433,000 for
the same periods in fiscal 1996 primarily due to the issuance of long-term debt
in connection with the repurchase of common stock in February 1996.
Financial Condition and Liquidity
The Company's working capital increased to $62,311,000 at September 30, 1996
when compared to $58,174,000 at March 31, 1996, primarily due to the increase
in cash and short-term investments to $11,194,000 at September 30, 1996 from
$7,983,000 at March 31, 1996.
Net cash provided by operating activities for the six months ended
September 30, 1996 totaled $9,855,000 versus $4,820,000 for the prior year
period. The increase was primarily attributable to decreased levels of accounts
receivable.
Management believes that cash from operations, together with the ability to
obtain financing and the reduction in the dividend rate, will provide
sufficient funds to finance current and forecasted operations, including
potential acquisitions, for the next twelve month period. The Company will
continue to invest its available funds in liquid, low-risk investments.
Recent Acquisition
In July 1996, the Company acquired Cambridge Aeroflo, Inc., a
manufacturer of electronic controls for thermal management systems, which has
been accounted for using the purchase method of accounting. The operating
results of the acquisition, which were not material, were included in
the consolidated financial statements from the acquisition date.
Exhibit Ia - The Company's Statements of Consolidated Income for the
Three and Six Months Ended September 30, 1996 and 1995.
Exhibit Ib - The Company's Consolidated Balance Sheets as of
September 30, 1996 and March 31, 1996.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Environmental Matters - In March 1994 the Company, along with twenty-three
other potentially responsible parties (PRPs), entered into a consent decree
with the U.S. Environmental Protection Agency (the EPA) relating to the
remedial design work for the Glendale North and South Operable Units of the San
Fernando Valley Superfund Site (the Site). In October 1995 the Company,
along with forty-four other PRPs, received a Special Notice Letter from the
EPA in connection with the construction, operation and maintenance costs for
the twelve year interim remedy for the Site, and for response costs incurred
by the government. The PRP Group formed in connection with the EPA's initial
remedial design notice continues its negotiations commenced with the EPA in
1995 for the formulation of a good faith offer for the implementation of the
interim remedy. The process to determine the allocation of the costs associated
with the interim remedy, government costs and the design costs, has not been
completed. The process may also be affected by a federal action filed by one
of the PRPs seeking a court allocation of these costs.
The Company's ultimate liability related to the interim remedy for the Site
will be dependent upon the outcome of the allocation process, as well as other
factors including changes in the design and/or costs of remediation systems.
The Company has provided for its share of the design costs. However, because
its share is not estimable at this time, the Company has accrued no liabilities
for its share of the construction, operation and maintenance costs related to
the implementaion of the interim remedy.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibit - 27. Financial Data Schedule
b. Reports on Form 8-K - None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZERO Corporation
Date: November 13, 1996 /s/ D. N. KAJIKAMI
D. N. Kajikami, Controller
and Chief Accounting Officer
Date: November 13, 1996 /s/ G. A. DANIELS
G. A. Daniels, Vice President
and Chief Financial Officer
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ZERO CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET SALES $53,387,000 $51,387,000 $108,051,000 $100,004,000
COST OF SALES 36,015,000 33,361,000 71,925,000 65,384,000
SELLING AND ADMIN. EXPENSE 10,511,000 11,135,000 22,483,000 21,995,000
OPERATING INCOME 6,861,000 6,891,000 13,643,000 12,625,000
OTHER INCOME 460,000 463,000 1,158,000 639,000
INTEREST INCOME 139,000 467,000 224,000 932,000
INTEREST EXPENSE 1,150,000 237,000 2,285,000 433,000
INCOME BEFORE INCOME TAXES 6,310,000 7,584,000 12,740,000 13,763,000
INCOME TAXES 2,588,000 3,034,000 5,218,000 5,506,000
NET INCOME $ 3,722,000 $ 4,550,000 $ 7,522,000 $ 8,257,000
PRIMARY EARNINGS PER SHARE $0.30 $0.28 $0.61 $0.51
DIVIDENDS DECLARED PER SHARE $0.03 $0.11 $0.06 $0.22
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 12,411,000 16,210,000 12,402,000 16,152,000
</TABLE>
These Statements of Consolidated Income for the Three and Six Months
Ended September 30, 1996 and 1995 are unaudited but, in the opinion of
management, reflect all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the results for the periods.
Exhibit Ia
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ZERO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND SHORT-TERM INVESTMENTS $ 11,194,000 $ 7,983,000
ACCOUNTS RECEIVABLE (LESS ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $811,000 AND $759,000,
RESPECTIVELY) 32,045,000 33,973,000
INVENTORIES
RAW MATERIALS AND SUPPLIES 20,055,000 18,266,000
WORK IN PROCESS 7,738,000 7,810,000
FINISHED GOODS 5,573,000 5,485,000
OTHER 3,970,000 4,931,000
TOTAL CURRENT ASSETS 80,575,000 78,448,000
PROPERTY, PLANT AND EQUIPMENT 94,790,000 89,400,000
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION (52,372,000) (49,679,000)
NET PROPERTY, PLANT AND EQUIPMENT 42,418,000 39,721,000
GOODWILL 31,008,000 31,425,000
OTHER ASSETS 18,722,000 16,244,000
TOTAL ASSETS $172,723,000 $165,838,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 7,923,000 $ 8,318,000
ACCRUED WAGES AND COMMISSIONS 5,946,000 6,258,000
ACCRUED INCOME AND OTHER TAXES 143,000 1,574,000
OTHER 4,252,000 4,124,000
TOTAL CURRENT LIABILITIES 18,264,000 20,274,000
OTHER NON-CURRENT LIABILITIES (INCLUDING
DEFERRED COMPENSATION OF $8,716,000 AND
$7,903,000, RESPECTIVELY) 10,737,000 9,208,000
NOTES PAYABLE 51,522,000 51,525,000
STOCKHOLDERS' EQUITY
PREFERRED STOCK $.01 PAR VALUE; NONE ISSUED
COMMON STOCK $.01 PAR VALUE;
ISSUED SHARES, 16,349,693 AND 16,285,343,
RESPECTIVELY;
OUTSTANDING SHARES, 12,169,795 AND
12,105,840, RESPECTIVELY 163,000 163,000
ADDITIONAL PAID-IN-CAPITAL 35,282,000 34,248,000
RETAINED EARNINGS 130,462,000 124,184,000
165,907,000 158,595,000
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (208,000) (243,000)
TREASURY STOCK (4,179,898 AND 4,179,503 SHARES,
RESPECTIVELY), AT COST (73,499,000) (73,521,000)
TOTAL STOCKHOLDERS' EQUITY 92,200,000 84,831,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $172,723,000 $165,838,000
</TABLE>
The Consolidated Balance Sheet as of September 30, 1996 is unaudited but, in
the opinion of management, reflects all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the Company's financial
position.
Exhibit Ib
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF CONSOLIDATED INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 11,194
<SECURITIES> 0
<RECEIVABLES> 32,856
<ALLOWANCES> 811
<INVENTORY> 33,366
<CURRENT-ASSETS> 80,575
<PP&E> 94,790
<DEPRECIATION> 52,372
<TOTAL-ASSETS> 172,723
<CURRENT-LIABILITIES> 18,264
<BONDS> 0
<COMMON> 163
0
0
<OTHER-SE> 92,037
<TOTAL-LIABILITY-AND-EQUITY> 172,723
<SALES> 108,051
<TOTAL-REVENUES> 109,433
<CGS> 71,925
<TOTAL-COSTS> 71,925
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,285
<INCOME-PRETAX> 12,740
<INCOME-TAX> 5,218
<INCOME-CONTINUING> 7,522
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,522
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
</TABLE>
