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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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Commission file number 1-5260
ZERO CORPORATION
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(Exact name of registrant as set forth in its charter)
Delaware 95-1718077
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
444 South Flower Street, Ste. 2100, Los Angeles, CA 90071-2922
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 213/629-7000
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Securities registered pursuant to Section 12(B) of the Act:
Title of each class Name of each exchange on which registereD
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Common Stock, $.01 Par Value New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the registrant's voting common stock held by non-
affiliates was $253,302,847 as of June 12, 1996 (based upon the closing sale
price of $21.25 per share of such stock on the New York Stock Exchange on June
12, 1996).
Common stock outstanding as of June 12, 1996 -- 12,130,849 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Only those portions of Registrant's Annual Report for the year ended March 31,
1996 attached hereto as Exhibit 13 and specifically incorporated by reference
herein (the "1996 Annual Report") and the proxy statement for its annual meeting
to be held July 24, 1996 (the "1996 Proxy Statement"), which are specifically
referred to in Part I - Items 1 and 3, Part II - Items 5, 6, 7, and 8 and Part
III - Items 10, 11 and 12, are incorporated herein by reference.
1
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PART I
ITEM 1. BUSINESS.
ZERO Corporation (the "Company", ZERO, or "Registrant") was incorporated in
Delaware in 1988 as a successor in interest to a California corporation of the
same name that was originally incorporated in 1952. Its executive offices are
located at 444 South Flower Street, Suite 2100, Los Angeles, CA 90071-2922,
telephone (213) 629-7000.
Approximately 74% of ZERO's net sales in fiscal 1996 were to the electronics
industry, primarily to customers doing business in the telecommunications,
instrumentation and data processing markets. For these markets the Company
designs, manufactures and markets system packaging solutions, thermal
management products and engineered cases and cabinets to protect electronic
equipment. ZERO's products, which range from standard to highly customized,
can be used individually or integrated into complete systems. These products
include components such as card cages for printed circuit boards, backplanes,
filter fan packages and microprocesser controlled fan trays, blowers, heat
exchangers and air conditioners. Other products include cabinets, racks, deep
drawn aluminum ZERO boxes, other fabricated cases, specialized case hardware
and other specialized enclosures.
The remaining 26% of the Company's net sales in fiscal 1996 were primarily to
the air cargo, consumer and other markets. These products include
specialized aluminum, polycarbonate and fiberglass air cargo containers,
patented telescoping baggage/cargo systems, air cargo restraint systems and
hardware, food service containers and other specialized enclosures. In
addition, the Company produces the ZERO Halliburton-Registered Trademark-
luggage, carrying cases and attaches for consumers worldwide.
ZERO's operations are classified under two business segments: "Enclosures and
Accessories" for the electronics industry and "Other". Information about ZERO's
business segments, as well as activity from its foreign operations and export
sales by domestic operations, is set forth in Note 11 "Segment Information" on
page 31 of the 1996 Annual Report, which is incorporated herein by reference.
During the three years ended March 31, 1996, the Company has been dependent on
no single customer or on a few customers, the loss of which would have a
material adverse effect on its operations. No one customer accounted for more
than 5% of the Company's net sales. The Company has over 21,000 customers.
Patents, licenses, franchises nor concessions are materially important factors
in ZERO's overall production process and are not material to its results of
operation.
Research and development activities are not a significant part of the Company's
business. During the year ended March 31, 1996, the Company spent less than 1%
of net sales on research and development activities. However, the Company works
with its customers in providing engineered solutions to satisfy their specific
requirements often resulting in the development of new products.
Acquisitions and Divestitures
ZERO is committed to enhance its growth through acquisitions that would
complement the existing businesses. During the year ended March 31, 1996, the
Company acquired three businesses, all of which were accounted for under the
purchase method of accounting. In June 1995, the Company acquired the assets of
Electro-Mechanical Imagineering, Inc., a manufacturer of products to encase,
protect and mount closed-circuit television security devices. In July 1995, the
Company acquired the assets of G.W. Pearce & Sons Limited, a British
manufacturer of deep drawn products. The third acquisition, completed in
January 1996, was Precision Fabrication Technologies, Inc., a manufacturer and
marketer of modular enclosures, data communications products, racks, chassis and
related accessories for the electronics and telecommunications industries.
Subsequent to March 31, 1996, the Company acquired the assets of Instrument
Enclosures, a manufacturer of deep drawn aluminum enclosures. These
acquisitions all complement the Company's existing business.
The Company expects to announce additional acquisitions in fiscal 1997 and has
negotiated a $20 million credit facility to support its acquisition efforts.
2
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In April 1996, the Company sold Anvil Cases, Inc., which manufactures riveted
cases primarily for the music, packing specialists and audio/video markets. As
part of the Anvil sale, the purchaser agreed to buy all of its case hardware
from ZERO's Nielsen Hardware Corporation subsidiary for the next ten years.
Anvil Cases generated sales of over $7.5 million in fiscal 1996.
Market Trends
Three primary trends have increased ZERO's sales activity within the rapidly
growing electronics marketplace. One trend is the miniaturization of electronics
products, which has increased the demand for highly specialized systems
packaging and thermal management solutions. A second trend is lower-priced
electronic products, which has increased both unit sales and the size of markets
ZERO serves. A third trend is the worldwide growth in telecommunications, which
has globally expanded the opportunity to both enclose and cool products.
ZERO's sales to the electronics industry increased to $152.4 million from $126.8
million for the years ended March 31, 1996 and 1995, respectively. This is due
to the strength in the telecommunications, instrumentation and data processing
markets. In addition to growth in these markets, acquisitions completed
during fiscal 1996 contributed to the increase in net sales to the
electronics industry.
Marketing
ZERO employs manufacturers' representatives, direct sales people and
distributors to market its non-consumer products worldwide. Technical support is
provided by engineering personnel from ZERO's plants. The Company's standard
enclosures products and accessories are sold through catalogs, advertisements,
trade journals and independent distributors. Nonstandard or specialized
enclosure products and accessories are marketed through
manufacturers' representatives and direct sales people. ZERO's consumer oriented
products are marketed worldwide through catalogs, advertisements, telemarketing
programs and trade journals, and are distributed through established independent
dealers.
Competition
While reliable statistics are not available to permit the Company to accurately
estimate its share of the total market for each of its business segments, the
Company believes it is a leading manufacturer and marketer of products to the
Enclosures and Accessories markets that it serves. ZERO competes with a number
of other larger and smaller companies, including customers which design and
manufacture products for their own use. The degree and type of competition that
ZERO encounters varies for both of these business segments.
The Company believes it effectively competes in both of its business segments by
providing engineering expertise, innovative design, superior quality and on-time
delivery at competitive prices. ZERO's ability to successfully compete in the
Enclosures and Accessories segment is also attributable to its broad range of
standard products. Approximately 2,500 dies, capable of producing over 100,000
standard deep drawn aluminum enclosures, provide ZERO with both a cost and
service advantage in a large portion of its metal case and enclosures business.
In addition, ZERO offers thousands of sizes of fabricated cases and hundreds of
standard configurations for system packaging. The thermal management systems,
which cool or heat a wide range of electronics, includes products such as
blowers, fans, air conditioning systems and electronic controlling systems.
Competitive strength is also derived by the Company's ability to modify standard
products to satisfy a variety of applications and customer requirements.
Sales and Backlog
Many of ZERO's products are sold with short lead times, therefore, backlog is
not necessarily indicative as a predictor of ZERO's future sales.
A majority of ZERO's sales orders are in amounts of less than $25,000 each.
These orders generally are delivered 1 to 6 weeks from the time the order is
booked. Larger orders and custom orders may take several weeks to over a year
depending on the delivery schedule set by the customer. Because of the large
number of customers served (in excess of 21,000), the relatively small size of
each order and the relatively short delivery cycles involved, the Company
believes the risk is low of any order being canceled which would have a
significant adverse effect on operations.
3
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ZERO's backlog at March 31, 1996 and 1995 was $42,137,000 and $40,278,000,
respectively. Backlog is based on contracts which were signed as of the
respective dates set forth. The backlog at March 31, 1996 is scheduled for
delivery during fiscal 1997.
For the year ended March 31, 1996, approximately 10% of ZERO's sales were made
to the government/military market. Certain contracts, particularly those with
the United States Government and its contractors, provide for cancellation for
convenience of the customer. If such cancellation occurs, the contractor is paid
for costs incurred to date plus the costs of settling and paying claims of
terminated subcontractors, other settlement expenses and a reasonable profit on
its costs. During the five years ended March 31, 1996, the aggregate amount of
orders canceled for the convenience of the United States Government has not been
material. However, no assurance can be given that this pattern will continue in
the future.
Raw Materials
The principal raw materials used by ZERO in manufacturing its products are
aluminum and steel and, to a lesser extent, plastics. Such materials are
purchased under competitive bids at levels sufficient to meet foreseeable
production and delivery schedules from an adequate source of suppliers. Other
raw materials and supplies necessary for the production of ZERO's products are
purchased from a variety of suppliers. As of May 31, 1996, the Company was not
experiencing shortages in the supply of its raw materials. Based on market and
economic conditions at that date, ZERO believes that the supply and availability
of these materials will be adequate to support its level of operations projected
through March 31, 1997. However, the Company can make no assurances that such
materials will be available beyond that period, and any shortage of such
materials could have a significant and material adverse impact on the operations
of the Company.
Environmental Matters
The information regarding environmental matters discussed in Note 10 -
"Contingent Liabilities" on page 30 and in the "Management's Discussion and
Analysis of Results of Operations and Financial Condition" on page 15 of the
1996 Annual Report, including environmental matters in which ZERO has been named
a "potentially responsible party," is incorporated herein by reference.
ZERO has developed and implemented an environmental program to reduce or
eliminate the use of hazardous material in its current operations. Through
changes in production processes, capital expenditures, proper training and the
use of state-of-the-art treatment and monitoring equipment, the Company believes
its program is controlling the use and discharge of hazardous materials and is
in substantial compliance with applicable local, state and Federal regulations.
The Company does not expect that any assertions of noncompliance with such laws
relating to its current operations will materially adversely affect its earnings
or competitive position or will require any significant capital expenditures
during fiscal year 1997.
Employees
As of May 31, 1996, ZERO employed approximately 1,860 persons. Employee
relations are considered good. Only certain employees at the Company's Samuel
Groves & Co. Limited subsidiary and ZERO Stantron Cabinets division are
represented by unions which are not affiliated with any national union.
Safe Harbor Statement
The information under the caption "Safe Harbor Statement" in the "Management's
Discussion and Analysis of Results of Operations and Financial Condition" on
page 16 of the 1996 Annual Report is incorporated herein by reference.
4
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ITEM 2. PROPERTIES.
As of May 31, 1996, ZERO used manufacturing plants, facilities and office
buildings containing an aggregate of approximately 1,726,000 square feet of
floor space. ZERO's plants and facilities are located in California (Camarillo,
Chino, El Monte, Pacoima, Rancho Dominguez and San Diego); Utah (North Salt
Lake); Indiana (Monon); Massachusetts (Monson); New Jersey (Princeton Junction
and Windsor); Minnesota (Champlin); Connecticut (Hartford); Tijuana, Mexico; and
Birmingham, Feltham, and West Midlands, England. The plants located in
Camarillo, El Monte, Oxnard, Pacoima and San Diego, California; Princeton
Junction and Windsor, New Jersey; Champlin, Minnesota; Monan, Indiana, and West
Midlands, England are used in the production of enclosures and accessories for
the electronics industry. The remaining plants are used by both business
segments.
As of May 1, 1996, the Company sold Anvil Cases, Inc. and no longer operates in
City of Industry, California.
ZERO owns all of its plants and facilities, except for the following leased
properties:
PLANT SQUARE FOOTAGE LEASE EXPIRES
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Camarillo, CA 35,000 June 30, 2000
Chino, CA 7,000 March 31, 1997*
El Monte, CA 72,000 May 31, 2004
Hartford, CT 8,000 January 31, 1997*
Hartford, CT 6,000 September 30, 1997*
Oxnard, CA 13,000 June 30, 2000
Pacoima, CA 113,000 August 5, 1999
Rancho Dominguez, CA 110,000 September 29, 1999
Windsor, NJ 24,000 September 30, 1996*
Tijuana, Mexico 35,000 July 31, 1996*
Birmingham, England 54,000 July 31, 2006
Feltham, England 31,000 October 1, 2007
West Midlands, England 30,000 June 30, 2010
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TOTAL 538,000
* Lease contains renewal option.
ZERO's plants and facilities used in operations are generally constructed of
concrete block, brick, concrete tilt-up, steel or a combination thereof. ZERO's
facilities and equipment are well maintained and are believed to be adequate to
support a substantial increase in its operations, assuming a comparable product
mix.
ITEM 3. LEGAL PROCEEDINGS.
Information concerning legal proceedings in Note 10 - "Contingent Liabilities"
on page 30 of the 1996 Annual Report is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Registrant submitted no matters to a vote of its security holders during the
fiscal quarter ended March 31, 1996.
5
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EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's officers as of May 31, 1996 is as follows:
<TABLE>
<CAPTION>
EXECUTIVE
NAME AGE POSITION OFFICER SINCE
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<S> <C> <C> <C>
Howard W. Hill 69 Chairman of the Board 1960
John B. Gilbert 75 Chairman Emeritus and Director 1952
Wilford D. Godbold Jr. 58 President, Chief Executive Officer and Director 1982
George A. Daniels 58 Vice President and Chief Financial Officer 1987
Bernard B. Heiler 50 Vice President of Marketing and Sales and Director 1992
James F. Hermanson 59 Vice President 1984
Michael D. LeRoy 48 Vice President of Corporate Development 1995
Anita J. Cutchall 57 Director of Legal Affairs and Corporate Secretary 1992
</TABLE>
None of the directors or executive officers are related to one another. All
executive officers except Messrs. Heiler and LeRoy and Ms. Cutchall have served
in their current capacities or in other managerial positions with the Company
for a minimum of five years. Mr. Heiler has held his current position with the
Company since October 1992, prior to which he was Vice President of GTE
California, a telephone public utility, from 1984 through 1992, and President of
GTEL, a telecommunications integrator and a subsidiary of GTE, from 1986 through
1992. Mr. LeRoy has held his current position with the Company since January
1995, prior to which he was Chief Operating Officer of Biner Ellison Packaging
Systems, Inc., a manufacturing company, from 1990 through 1994. Ms. Cutchall
has held her current position with the Company since August 1992, prior to which
she held the same position with Continental Graphics Corporation, a provider of
specialty graphics, commercial printing and film services, from 1990 through
1992.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information under the caption "Market and Dividend Information" on page 36
of the 1996 Annual Report is incorporated herein by reference. On June 12, 1996
the Company had 6,129 stockholders of record.
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Five-Year Consolidated Financial Highlights"
on the inside front cover of the 1996 Annual Report is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
The information under the caption "Management's Discussion and Analysis of
Results of Operations and Financial Condition" on page 13 of the 1996 Annual
Report is incorporated herein by reference.
6
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements of the Registrant and its
subsidiaries included in the 1996 Annual Report (on the page numbers shown) are
incorporated herein by reference:
Statements of Consolidated Income--Years Ended March 31, 1996, 1995 and 1994.
(Page 17)
Consolidated Balance Sheets--March 31, 1996 and 1995. (Pages 18 and 19)
Statements of Consolidated Stockholders' Equity--Years Ended March 31, 1996,
1995 and 1994. (Page 20)
Statements of Consolidated Cash Flows--Years Ended March 31, 1996, 1995 and
1994. (Page 21)
Notes to Consolidated Financial Statements. (Pages 22 to 32, inclusive)
Quarterly Results of Operations. (Page 35)
The independent auditors' report on page 33 and management's report on page 34
of the 1996 Annual Report covering ZERO's consolidated financial statements are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information under the caption "Election of Director" in the 1996 Proxy
Statement is incorporated herein by reference.
Information concerning the Company's executive officers is included under the
caption "Executive Officers of the Registrant" following Part I, Item 4 of this
report.
ITEM 11. EXECUTIVE COMPENSATION.
The information under the captions "Meetings of the Board of Directors,
Committees of the Board and Directors' Fees" and "Executive Compensation" in the
1996 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the captions "General Information" and "Voting Securities
and Certain Stockholders" in the 1996 Proxy Statement is incorporated herein by
reference.
Registrant does not know of any arrangement, including any pledge by any person
of securities of Registrant, which may at a subsequent date result in a change
of control of Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
7
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1). Financial Statements.
Reference is made to Item 8 in Part II of this report, where these statements
are listed.
(a)(2). Financial Statement Schedule.
The following consolidated financial statement schedule of Registrant is
included in Item 14(d) below:
Schedule II--Valuation and Qualifying Accounts for the years ended March 31,
1996, 1995 and 1994.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(a)(3). Exhibits.
The following exhibits are part of this Form 10-K and are either incorporated by
reference to the prior filings indicated below or are filed herewith under Item
14(c):
3.1 The Restated Certificate of Incorporation filed as Exhibit 3-(3)(a) of
the Company's Form 8-B filed on September 7, 1988.
3.2 Bylaws of ZERO Corporation, as amended on April 22, 1994 filed as Exhibit
3.2 to the Company's Form 10-K for the year ended March 31, 1994.
4.2 Specimen form of certificate of common stock $0.01 par value per share
filed as Exhibit 3-(4) of the Company's Form 8-B filed on September 7,
1988.
10.1 Deferred Compensation Plan adopted by the Board of Directors on December
17, 1973 as amended by the Board of Directors on December 11, 1974 filed
as Exhibit 13.10 to the Company's Form 10-K for the year ended March 31,
1975.
10.2 Deferred Compensation Plan as amended through April 1, 1986 filed as
Exhibit 10.13 to the Company's Form 10-K for the year ended March 31,
1986.
10.3 Directors' Deferred Compensation Plan adopted by the Board of Directors
on October 20, 1993 filed as Exhibit 10.3 to the Company's Form 10-K for
the year ended March 31, 1994.
10.4 Executive Deferred Compensation Plan adopted by the Board of Directors on
October 20, 1993 filed as Exhibit 10.4 to the Company's Form 10-K for the
year ended March 31, 1994.
10.5 ZERO Corporation Management Bonus Plan adopted by the Board of Directors
on April 22, 1994 filed as Exhibit 10.5 to the Company's Form 10-K for
the year ended March 31, 1994.
10.6 ZERO Corporation 1988 Stock Option Plan, as amended, filed on Form S-8
Registration Statements (File Nos. 33-44143 and 33-27929).
10.7 ZERO Corporation 1994 Stock Option Plan, filed on Form S-8 Registration
Statement (File No. 33-56175).
10.8 Description of ZERO Corporation Pension Restoration Plan adopted by the
Board of Directors on January 19, 1994 filed as Exhibit 10.9 to the
Company's Form 10-K for the year ended March 31, 1994, as amended.
8
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10.9 Description of ZERO Corporation Contract and Joint Supplemental Life
Insurance Plan adopted by the Board of Directors on April 22, 1994 filed
as Exhibit 10.10 to the Company's Form 10-K for the year ended
March 31, 1994.
10.10 Form of Private Shelf Agreement (the "Private Shelf Agreement") by and
among the Company, the Subsidiary, The Prudential Insurance Company of
America, and each Prudential Affiliate (as defined in the Private Shelf
Agreement) which becomes bound by certain provisions of the Private Shelf
Agreement, dated as of January 31, 1996, filed as Exhibit (b) to the
Company's Schedule 13E-4 filed on February 1, 1996.
10.11 Credit Agreement dated March 31, 1996 between ZERO Corporation and Wells
Fargo Bank, National Association providing for a line of credit of $28
million to be utilized for general corporate purposes through March 31,
1998.
13 Annual Report for the year ended March 31, 1996 (not deemed filed except
for those portions specifically incorporated by reference herein).
21 Listing of the Company's subsidiaries as of March 31, 1996.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
(b). REPORTS ON FORM 8-K.
During the quarter ended March 31, 1996 the Company filed no reports on Form 8-
K.
(c). EXHIBITS.
See listing of exhibits filed herewith on page 13 of this report.
(d). FINANCIAL STATEMENT SCHEDULE.
The financial statement schedule listed in Item 14(a)(2) above is shown on page
12 of this report. The report of the Registrant's independent auditors, Deloitte
& Touche LLP, is set forth on page 11 of this report.
9
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Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Registrant
and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
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/s/ George A. Daniels Vice President and Chief June 28, 1996
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George A. Daniels Financial Officer
/s/ Diane N. Kajikami Controller and Chief June 28, 1996
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Diane N. Kajikami Accounting Officer
DIRECTORS:
/s/ Gary M. Cusumano Director June 28, 1996
- ------------------------
Gary M. Cusumano
/s/ Bruce J. DeBever Director June 28, 1996
- ------------------------
Bruce J. DeBever
/s/ Clinton G. Gerlach Director June 28, 1996
- ------------------------
Clinton G. Gerlach
/s/ John B. Gilbert Director June 28, 1996
- -------------------------
John B. Gilbert
/s/ Wilford D. Godbold, Jr. Director and Chief June 28, 1996
- -------------------------
Wilford D. Godbold, Jr. Executive Officer
/s/ Bernard B. Heiler Director June 28, 1996
- -------------------------
Bernard B. Heiler
/s/ Howard W. Hill Director June 28, 1996
- -------------------------
Howard W. Hill
/s/ Whitney A. McFarlin Director June 28, 1996
- ------------------------
Whitney A. McFarlin
10
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INDEPENDENT AUDITORS' REPORT
To the Stockholders of ZERO Corporation:
We have audited the consolidated financial statements of ZERO Corporation and
its subsidiaries as of March 31, 1996 and 1995, and for each of the three years
in the period ended March 31, 1996, and have issued our report thereon dated May
10, 1996; such financial statements and report are included in your 1996 Annual
Report to Stockholders and are incorporated herein by reference. Our audits also
included the financial statement schedule of the Company listed in Item
14(a)(2). This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
May 10, 1996
11
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SCHEDULE II
ZERO CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Balance at Provision Doubtful Balance at
Beginning Charged to Accounts End of
of Year Income Written Off (1) Year
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
April 1, 1995 to March 31, 1996 $ 724,000 $ 236,000 ($ 201,000) $ 759,000
April 1, 1994 to March 31, 1995 $ 829,000 $ 208,000 ($ 313,000) $ 724,000
April 1, 1993 to March 31, 1994 $ 886,000 $ 489,000 ($ 546,000) $ 829,000
</TABLE>
(1) Net of recoveries
12
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ZERO CORPORATION AND SUBSIDIARIES
FORM 10K, ITEM 14(c)
EXHIBITS FILED HEREWITH
10.11 Credit Agreement dated March 31, 1996 between ZERO Corporation and
Wells Fargo Bank, National Association providing for a line of
credit of $28 million to be utilized for general corporate purposes
through March 31, 1998.
13 Annual Report for the year ended March 31, 1996 (not deemed filed except
for those portions specifically incorporated by reference herein).
21 Subsidiaries of Registrant as of March 31, 1996.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
13
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EXHIBIT 10.11
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of March 31, 1996, by and between
ZERO CORPORATION, a Delaware corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITALS
A. Bank and Borrower have previously entered into that certain
letter agreement dated as of January 31, 1994 (as amended from time to time, the
"Prior Agreement") pursuant to which Bank issued for the account of Borrower
sight commercial and standby letters of credit.
B. Borrower has requested from Bank the credit accommodation
described below, and Bank has agreed to provide said credit accommodation to
Borrower on the terms and conditions contained herein.
C. The Prior Agreement shall be replaced by this Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as
follows:
ARTICLE 1
THE CREDIT
Section 1.1 LINE OF CREDIT.
(a) LINE OF CREDIT. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower, and, as described in
the subfeatures set forth below, to issue letters of credit for the account of
Borrower, from time to time up to and including March 31, 1998, not to exceed at
any time the aggregate principal amount of Twenty-Eight Million Dollars
($28,000,000.00) ("Line of Credit"), the proceeds of which shall be used for
general corporate purposes. Borrowers obligation to repay advances under the
Line of Credit shall be evidenced by a promissory note substantially in the form
of EXHIBIT A attached hereto ("Line of Credit Note"), all terms of which are
incorporated herein by this reference.
(b) LIMITATION ON CASH ADVANCES. Notwithstanding anything to the
contrary contained herein or in the Line of Credit Note, outstanding cash
advances under the Line of Credit (unrelated to drafts paid by Bank under
Standby Letters of Credit and Commercial Letters of Credit as defined below)
shall not at any time exceed the aggregate principal amount of TWENTY MILLION
DOLLARS ($20,000,000.00).
(c) STANDBY LETTER OF CREDIT SUBFEATURE. As a subfeature under the
Line of Credit, Bank agrees from time to time during the term thereof to issue
standby letters of credit for the account of Borrower to support various
financial obligations of Borrower and its Subsidiaries (as defined in Section
2.11 below) (each, a "Standby Letter of Credit" and collectively, "Standby
Letters of Credit") provided however, that the form and substance of each
Standby Letter of Credit (OTHER THAN the face amount thereof) shall be subject
to approval by Bank, in its sole discretion. Notwithstanding the foregoing or
anything else
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contained herein or in any other Loan Document (as defined in Section 2.2 below)
to the contrary, the aggregate undrawn amount of all outstanding Standby Letters
of Credit shall not at any time exceed SEVEN MILLION FIVE HUNDRED THOUSAND
DOLLARS ($7,500,000.00). Each Standby Letter of Credit shall be issued for a
term not to exceed three hundred sixty-five (365) days, as designated by
Borrower provided however, that no Standby Letter of Credit shall have an
expiration date subsequent to the date seven (7) months after the maturity date
of the Line of Credit. The undrawn amount of all Standby Letters of Credit
shall be reserved under the Line of Credit and shall not be available for
borrowings thereunder. Each Standby Letter of Credit shall be subject to the
additional terms and conditions of the Standby Letter of Credit Agreement and
related documents, if any, required by Bank in connection with the issuance
thereof (each, a "Standby Letter of Credit Agreement" and collectively, "Standby
Letter of Credit Agreements"). Each draft paid by Bank under a Standby Letter
of Credit shall be deemed an advance under the Line of Credit and shall be
repaid by Borrower in accordance with the terms and conditions of this Agreement
applicable to such advances provided however, that if advances under the Line of
Credit are not available, for any reason whatsoever, at the time any draft is
paid by Bank, then the full amount of such draft shall be immediately due and
payable, together with interest thereon, from the date such amount is paid by
Bank to the date such amount is fully repaid by Borrower, at the rate of
interest applicable to advances under the Line of Credit. Any standby letters
of credit issued under the Prior Agreement which are outstanding as of the date
hereof shall be deemed Standby Letters of Credit hereunder.
(d) COMMERCIAL LETTER OF CREDIT SUBFEATURE. As a subfeature under
the Line of Credit, Bank agrees from time to time during the term thereof to
issue sight commercial letters of credit for the account of Borrower to support
commercial trade obligations of Borrower and its Subsidiaries (each, a
"Commercial Letter of Credit" and collectively, "Commercial Letters of Credit");
provided however, that the form and substance of each Commercial Letter of
Credit (OTHER THAN the face amount thereof) shall be subject to approval by
Bank, in its sole discretion. Notwithstanding the foregoing or anything else
contained herein or in any other Loan Document to the contrary, the aggregate
undrawn amount of all outstanding Commercial Letters of Credit shall not at any
time exceed FIVE HUNDRED THOUSAND DOLLARS ($500,000.00). Each Commercial Letter
of Credit shall be issued for a term not to exceed one hundred eighty (180)
days, as designated by Borrower: provided however, that no Commercial Letter of
Credit shall have an expiration date subsequent to September 30, 1998. The
undrawn amount of all Commercial Letters of Credit shall be reserved under the
Line of Credit and shall not be available for borrowings thereunder. Each
Commercial Letter of Credit shall be subject to the additional terms and
conditions of the Commercial Letter of Credit Agreement and related documents,
if any, required by Bank in connection with the issuance thereof (each, a
"Commercial Letter of Credit Agreement" and collectively, "Commercial Letter of
Credit Agreements"). Each draft paid by Bank under a Commercial Letter of
Credit shall be deemed an advance under the Line of Credit and shall be repaid
by Borrower in accordance with the terms and conditions of this Agreement
applicable to such advances provided however, that if advances under the Line of
Credit are not available, for any reason whatsoever, at the time any draft is
paid by Bank, then the full amount of such draft shall be immediately due and
payable, together with interest thereon, from the date such amount is paid by
Bank to the date such amount is fully repaid by Borrower, at the rate of
interest applicable to advances under the Line of Credit. Any sight commercial
letters of credit issued under the Prior Agreement which are outstanding as of
the date hereof shall be deemed Commercial Letters of Credit hereunder.
(e) BORROWING AND REPAYMENT. Borrower may from time to time during-
the term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of
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the limitations, terms and conditions contained herein or in the Line of Credit
Note: provided however, that the total outstanding borrowings under the Line of
Credit shall not at any time exceed the maximum principal amount available
thereunder, as set forth above.
Section 1.2 INTEREST/FEES.
(a) INTEREST. The outstanding principal balance of the Line of
Credit shall bear interest at the rates of interest set forth in the Line of
Credit Note.
(b) COMPUTATION AND PAYMENT. Interest shall be computed on the basis
of a 360-day year, actual days elapsed. Interest shall be payable at the times
and place set forth in the Line of Credit Note.
(c) UNUSED COMMITMENT FEE. Borrower shall pay to Bank a fee equal to
one quarter percent (.2S%) per annum (computed on the basis of a 360-day year,
actual days elapsed) on the average daily unused amount of the Line of Credit,
which fee shall be calculated on a quarterly basis by Bank and shall be due and
payable by Borrower in arrears on the last day of each quarter.
(d) STANDBY LETTER OF CREDIT FEES. Borrower shall pay to Bank fees
upon the issuance (and automatic renewal, if any) of each Standby Letter of
Credit equal to one percent (1%) per annum of the face amount thereof,
calculated on the basis of a 360-day year, actual days elapsed. Borrower shall
pay to Bank fees upon the payment or negotiation by Bank of each draft under any
Standby Letter of Credit and upon the occurrence of any other activity with
respect to any Standby Letter of Credit (including without limitation, the
transfer, amendment or cancellation of any Standby Letter of Credit) determined
in accordance with Bank's standard fees and charges then in effect, or as
otherwise set forth in the applicable Standby Letter of Credit Agreement, for
such activity.
(e) COMMERCIAL LETTER OF CREDIT FEES. Borrower shall pay to Bank
fees upon the issuance or amendment of each Commercial Letter of Credit and upon
the payment or processing by Bank of each draft under any Commercial Letter of
Credit determined in accordance with Bank's standard fees and charges in effect,
or as otherwise set forth in the applicable Commercial Letter of Credit
Agreement, at the time any Commercial Letter of Credit is issued or amended or
any draft is paid or processed.
Section 1.3 COLLECTION OF PAYMENTS. Borrower authorizes Bank to
collect all interest and fees due under, the Line of Credit by charging
Borrower's demand deposit account number 4600-177174 with Bank. Should there be
insufficient funds in such demand deposit account to pay all such sums when due,
the full amount of such deficiency shall be immediately due and payable by
Borrower.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
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Section 2.1 LEGAL STATUS. Borrower is acorporation, duly organized
and existing and in good standing under the laws of the State of Delaware, and
is qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
Section 2.2 AUTHORIZATION AND VALIDITY. This Agreement, the Line of
Credit Note, and each other document, contract and instrument required hereby or
at any time hereafter delivered to Bank in connection herewith (collectively,
the "Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal, valid
and binding agreements and obligations of Borrower or the entity which executes
the same, enforceable in accordance with their respective terms.
Section 2.3 NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
Section 2.4 LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower or any of its Subsidiaries OTHER
THAN those disclosed by Borrower to Bank in SCHEDULE 2.4 attached hereto.
Section 2.5 CORRECTNESS OF FINANCIAL STATEMENT. The consolidated
financial statement of Borrower dated December 31, 1995, a true copy of which
has been delivered by Borrower to Bank prior to the date hereof, (a) is complete
and correct in all material respects and presents fairly the financial condition
of Borrower and its Subsidiaries, (b) discloses all liabilities of Borrower and
its Subsidiaries that are required to be reflected or reserved against under
generally accepted accounting principles, whether liquidated or unliquidated,
fixed or contingent, and (c) has been prepared in accordance with generally
accepted accounting principles consistently applied. Since the date of such
financial statement there has been no material adverse change in the financial
condition of Borrower or any of its Subsidiaries except for Borrower's purchase
of $21,3&3,8s0 and Electronic Solutions' purchase of $50,000,000 of Borrower's
capital stock, nor has Borrower or any of its Subsidiaries mortgaged, pledged,
granted a security interest in or otherwise encumbered any of its assets or
properties except as permitted by Bank in writing.
Section 2.6 INCOME TAX RETURNS. Borrower has no knowledge of any
pending material assessments or adjustments of its income tax payable with
respect to any year.
Section 2.7 NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrowers
obligations under this Agreement and the other Loan Documents to any other
obligation of Borrower.
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Section 2.8 PERMITS. FRANCHISES. Borrower and each of its
Subsidiaries possesses, and will hereafter possess, all material permits,
franchises and licenses required and rights to all material trademarks, trade
names, patents, and fictitious names, if any, necessary to enable it to conduct
the business in which it is now engaged in compliance with applicable law.
Section 2.9 ERISA. Borrower and each of its Subsidiaries is in
compliance in all material respects with all applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended or recodified from
time to time ("ERISA"): neither Borrower nor any of its Subsidiaries has
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower or such Subsidiary (each, a
"Plan"): no Reportable Event as defined in ERISA has occurred and is continuing
with respect to any Plan initiated by Borrower or any of its Subsidiaries:
Borrower and each of its Subsidiaries has met its minimum funding requirements
under ERISA with respect to each Plan: and each Plan will be able to fulfill ill
its benefit obligations as they come due in accordance with the Plan documents
and under generally accepted accounting principles.
Section 2.10 OTHER OBLIGATIONS. Neither Borrower nor any of its
Subsidiaries is in default on any obligation for borrowed money, any purchase
money obligation or any other material lease, commitment, contract, instrument
or obligation.
Section 2.11 SUBSIDIARIES. As of the date hereof, the
Subsidiaries of Borrower are those entities listed on Exhibit B attached
hereto. As used herein, the term "Subsidiaries" shall mean any corporation
at least 80% of the outstanding Voting Stock of which is, as of the date
hereof, owned by borrower either directly or through Subsidiaries. As used
herein, the term "Voting Stock" shall mean, with respect to any corporation,
any shares of stock of such corporation whose holders are entitled under
ordinary circumstances to vote for the election of directors of such
corporation (irrespective of whether at the time stock of any other class or
classes shall have or might have voting power by reason of the happening of
any contingency).
ARTICLE 3
CONDITIONS
Section 3.1 CONDITIONS OF INITIAL EXTENSION OF CREDIT. The
obligation of Bank to extend any credit contemplated by this Agreement is
subject to the fulfillment to Banks satisfaction of all of the following
conditions:
(a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank's counsel.
(b) DOCUMENTATION. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Line of Credit Note.
(ii) Corporate Borrowing and Letters of Credit Resolution.
(iii) Certificate of Incumbency.
(iv) Articles of Incorporation.
(v) Continuing Standby and Commercial
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Letter of Credit Agreement.
(vi) Such other documents as Bank may
require under any other Section of
this Agreement.
(c) FINANCIAL CONDITION. There shall have been no material adverse
change, as determined by Bank, in the consolidated financial condition or
business of Borrower or any of its Subsidiaries, nor any material decline, as
determined by Bank, in a substantial or material portion of the assets of
Borrower or any of its Subsidiaries.
Section 3.2 CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained herein and in each of the other Loan Documents shall be
true on and as of the date of the signing of this Agreement and on the date of
each extension of credit by Bank pursuant hereto, with the same effect as though
such representations and warranties had been made on and as of each such date
EXCEPT (i) for representations and warranties that expressly relate to a
particular date or which are no longer true as a result of a change permitted by
this
Agreement or the other Loan Documents or (ii) as disclosed by Borrower and
approved in writing by Bank.
(b) NO DEFAULT. On the date of the signing of this Agreement and on
the date of each extension' of credit by Bank pursuant hereto, no Event of
Default as defined herein, and no condition, event or act which with the giving
of notice or the passage of time or both would constitute such an Event of
Default, shall have occurred and be continuing or shall exist.
(c) LITIGATION. With respect to extensions of credit subsequent to
the date of the signing of this Agreement, OTHER THAN matters approved in
writing by Bank, no action, suit, proceeding or investigation shall be pending
or, to the best knowledge, of Borrower threatened against or affecting Borrower
or any of its Subsidiaries or any property of any of them before any
governmental agency or authority that could constitute or have a material
adverse impact on the business, operations or condition (financial or otherwise)
of Borrower or any of its Subsidiaries.
(d) DOCUMENTATION. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
ARTICLE 4
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise -consents in
writing:
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Section 4.l PUNCTUAL PAYMENTS. Punctually pay all principal,
interest, fees or other liabilities due under any of the Loan Documents at
the times and place and in the manner specified therein, and immediately upon
demand by Bank, the amount by which the outstanding principal balance of the
Line of Credit at any time exceeds any limitation on borrowings applicable
thereto.
Section 4.2 ACCOUNTING RECORDS. Maintain, and cause the Subsidiaries
to maintain, adequate books and records in accordance with generally accepted
accounting principles consistently applied, and permit any representative of
Bank, at any reasonable time during normal business hours to inspect, audit and
examine such books and records, to make copies of the same, and to inspect the
properties of Borrower and its Subsidiaries.
Section 4.3 FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than 90 days after and as of the end of each fiscal
year, (i) consolidated financial statements of Borrower and its Subsidiaries,
audited by a certified public accountant acceptable to Bank, to include balance
sheet, income statement, statement of cash flow and shareholders equity, (ii)
consolidating statements of income of Borrower and its Subsidiaries, prepared by
Borrower in the normal course of business, (iii) to the extent prepared by
Borrower or reviewed or audited by Borrower's certified public accountants in
the normal course of business, consolidating statements of cash flows and
shareholders' equity, and a consolidating and a consolidated balance sheet of
Borrower and its Subsidiaries as at the end of such year, setting forth in each
case in comparative form corresponding consolidated figures from the preceding
annual audit: PROVIDED, HOWEVER, that delivery pursuant to clause (c) below of
copies of the Annual Report on Form 10-K of the Borrower for such fiscal year
filed with the Securities and Exchange Commission shall be deemed to satisfy the
requirements of this clause (a) (including with respect to consolidating
statements):
(b) not later than 45 days after and as of the end of each fiscal
quarter, in each case setting forth in comparative form figures for the
corresponding period in the preceding fiscal year, (i) a consolidated financial
statement of Borrower and its Subsidiaries, prepared by Borrower, to include
balance sheet, income statement, statement of cash flow and shareholders' equity
PROVIDED, HOWEVER, that delivery pursuant to clause (c) below of copies of the
Quarterly Report on Form 10-Q of the Borrower for such fiscal quarter filed with
the Securities and Exchange Commission shall be deemed to satisfy the
requirements of this clause (b)
(c) promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports as Borrower shall send to its
public stockholders and copies of all registration statements (without exhibits)
and all reports (if any) which Borrower files with the Securities and Exchange
Commission (or any governmental body or agency succeeding to the functions of
the Securities and Exchange Commission)
(d) from time to time such other information as Bank may reasonably
request regarding the business, operations and condition (financial or
otherwise) of Borrower and its Subsidiaries.
Section 4.4 COMPLIANCE. Preserve and maintain, and cause each of its
Subsidiaries to preserve and maintain, all licenses, permits, governmental
approvals, rights, privileges and franchises
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necessary for the conduct of its business and comply, and cause each of its
Subsidiaries to comply, with the provisions of all documents pursuant to which
it is organized and/or which govern its continued existence and with the
requirements of all laws, rules, regulations and orders of any governmental
authority applicable to it and/or its business.
Section 4.5 INSURANCE. Maintain and keep in force, and cause each of
its Subsidiaries to maintain and keep in force, insurance of the types and in
amounts customarily carried in lines of business similar to that of Borrower or
such Subsidiary, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with financially sound and nationally reputable companies and
in any event in amounts customarily carried by companies similarly situated as
Borrower, and deliver to Bank from time to time at Bank's request certificates
of insurance setting forth all insurance then in effect.
Section 4.6 FACILITIES. Keep, and cause each of its Subsidiaries to
keep, all properties useful or necessary to its business in good repair and
condition, and from time to time make necessary repairs, renewals and
replacements thereto so that such properties shall be fully and sufficiently
preserved and maintained.
Section 4.7 TAXES AND OTHER LIABILITIES. Pay and discharge when due,
and cause each of its Subsidiaries to pay and discharge when due, any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation Federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower or any such
Subsidiary may in good faith contest or as to which a bona fide dispute may
arise, and (b) for which Borrower or any such Subsidiary has made provision, to
Bank's satisfaction (acting reasonably), for eventual payment thereof in the
event Borrower or any such Subsidiary is obligated to make such payment.
Section 4.8 FINANCIAL CONDITION. Maintain Borrower's and the
Subsidiaries' consolidated financial condition as follows using generally
accepted accounting principles consistently applied and used consistently with
prior practices, except to the extent modified by the following definitions:
(a) Current Ratio not at any time less than 1.25 to 1.0, with
"Current Ratio" defined as total current assets divided by total current
liabilities (to include all cash advances outstanding under this Agreement even
if such amounts would not be considered current liabilities under generally
accepted accounting principles).
(b) Consolidated Tangible Net Worth not at any time less than Base
Net Worth plus, to the extent positive, 25Z of cumulative earnings, with
"Consolidated Tangible Net Worth" defined as the aggregate of total
stockholders' equity less any intangible assets in excess of $2,000,000.00 which
are booked subsequent to September 30, 1995, and with "Base Net Worth" defined
as the greater of (i) an amount equal to 75% of consolidated stockholders'
equity (after giving effect to the purchase of Borrower's stock by Electronic
Solutions pursuant to a tender offer as disclosed to Bank prior to the date
hereof), or (ii) $65,000,000.00.
(c) EBITDA not less than $1.00 as of each fiscal year end, with
"EBITDA" defined as net profit before tax plus interest expense (net of
capitalized interest expense), depreciation expense and amortization expense.
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Section 4.9 NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default (b) any change in the name or
the organizational structure of Borrower or any of its Subsidiaries having a net
worth in excess of $5,000,000; (c) the occurrence and nature of any Reportable
Event or Prohibited Transaction, each as defined in ERISA, or any funding
deficiency with respect to any Plan or (d) any termination or cancellation of
any insurance policy which Borrower or any of its Subsidiaries is required to
maintain, or any uninsured or partially uninsured loss through liability or
property damage, or through fire, theft or any other cause affecting Borrower's
or any Subsidiary's property.
ARTICLE 5
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
Section 5.1 USE OF FUNDS. Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article 1 hereof.
Section 5.2 OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist, or permit any of its Subsidiaries to create, incur, assume or permit to
exist, any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
(b) indebtedness of any Subsidiary to Borrower, (c) indebtedness of Borrower to
any Subsidiary, provided such indebtedness is subordinated in right of repayment
to all indebtedness of Borrower to Bank pursuant to subordination agreements in
form and substance satisfactory to Bank, (d) indebtedness and other liabilities
of Borrower or any of its Subsidiaries existing as of the date hereof and
specified on SCHEDULE 5.2 attached hereto, and (e) other indebtedness so long as
(i) total long term debt does not exceed 55% of Consolidated Tangible
Capitalization, with "Consolidated Tangible Capitalization" defined as the sum
of Consolidated Tangible Net Worth (as defined in Section 4.8(b) above) of
Borrower and its Subsidiaries plus long term debt, and (ii) all current debt is
reduced to a zero balance for sixty (60) consecutive days each rolling twelve
(12) month period.
Section 5.3 MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Except as
permitted below, merge into or consolidate with any other entity, or permit any
Subsidiary to do so make any substantial change in the nature of Borrower's
business as conducted as of the date hereof or permit any Subsidiary to do so
with regard to its business: acquire all or substantially all of the assets of
any other entity, or permit any Subsidiary to do so: or sell, lease, transfer or
otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business, or permit any Subsidiary
to do so with regard to its assets. Notwithstanding the foregoing, (a) any
Subsidiary may merge or consolidate with or into Borrower, provided that
Borrower is the continuing or surviving corporation, (b) any Subsidiary may
merge or consolidate with or into a Subsidiary wholly-owned by Borrower, (c)
Borrower may merge with any other solvent corporation, provided that Borrower
shall be the continuing or surviving
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corporation, and no Event of Default, or any condition which with the giving of
notice or the passage of time or both would constitute an Event of Default, has
occurred and is continuing or would result immediately after giving effect to
such merger, (d) Borrower may merge with a Subsidiary wholly-owned by Borrower
which has essentially no assets or liabilities and has been formed solely for
purposes of effecting a change of domicile of Borrower through such merger, so
long as no Event of Default, or any event which with the giving of notice or the
passage of time or both would constitute an Event of Default, has occurred and
is continuing or would exist immediately after giving effect to such merger, (e)
any Subsidiary may transfer assets to Borrower or to a Subsidiary wholly-owned
by Borrower, and Borrower or any Subsidiary may sell inventory in the ordinary
course of business, (f) Borrower and the Subsidiaries may transfer the assets
or stock set forth on SCHEDULE 5.3 attached hereto, provided that each such
transfer shall be effected on or before February 1, 1998, Borrower or the
Subsidiary selling such assets receives in each case an amount equal to the fair
market value thereof, and if the transfer involves the transfer of a Subsidiary,
no additional loan, advance or investment is made in or to such Subsidiary
subsequent to the date hereof (except for such loans, advances or investments
made in the ordinary course of business of Borrower), and (9) Borrower or any
Subsidiary may otherwise transfer assets, provided that after giving effect
thereto (i) the twelve Month Percentage of Assets Transferred pursuant to this
clause (9) and Section 5.6 shall not exceed 15%, and (ii) the cumulative
Percentage of Assets Transferred pursuant to this clause (7) and Section 5.6
shall not exceed 30%. As used in clause (9) above, the term "Twelve Month
Percentage of Assets Transferred" shall mean, as of any time of determination
thereof, the sum of the Percentages of Assets Transferred for all assets of
Borrower and the Subsidiaries transferred pursuant to clause (9) or Section 5.6
during the immediately preceding twelve month period. The term "Percentages of
Assets Transferred" shall mean, with respect to each asset transferred pursuant
to Section 5.6 and clause (9) above, the percentage of the total assets of
Borrower and the Subsidiaries determined on a consolidated basis which is
represented by the greater of the book value or fair market value of such asset,
in each case as of the last day of the fiscal quarter most recently ended prior
to the effective date of such transfer. In each instance where a calculation is
made utilizing an asset's fair market value, the total assets of Borrower and
the Subsidiaries on a consolidated basis shall be increased by the difference
between such asset's fair market value and its book value for purposes of such
calculation. The term "Cumulative Percentage of Assets Transferred" shall mean,
as of any time of determination, thereof, the sum of the Percentages of Assets
Transferred for all assets of Borrower and the Subsidiaries transferred pursuant
to Section 5.6 and clause (9) after the date hereof.
Section 5.4 LOANS, ADVANCES, INVESTMENTS. Make, or permit any
Subsidiary to make, any loans or advances to or investments in any person or
entity, except (a) loans or advances to any Subsidiary, (b) Electronic Solutions
may purchase shares of the common stock of Borrower in connection with a tender
offer as disclosed to Bank in writing prior to the date hereof, (c) the purchase
of stock, obligations or securities of a Subsidiary or of another entity which
immediately after such purchase or acquisition will be a Subsidiary or a
division of Borrower, (d) investments in (i) direct obligations of, or
obligations guaranteed by, the United States of America, (ii) certificates of
deposit and bankers' acceptances, and repurchase agreements with respect to the
same, in each case payable in the United States in United States dollars and
maturing not more than one year from the date of purchase and issued by a
commercial bank located and incorporated in the United States or Canada with
capital and surplus in excess of $250 million (U.S.), iii) commercial paper
rated P-l by Moody's Investors Service, Inc. ("Moody's") or A-l by Standard &
Poor's Corporation ("S&P") and maturing not more than one year from the date of
purchase thereof and (iv) bonds, debentures, notes or similar debt obligations
issued by a United States domiciled corporation or by a state or municipality
which are rated "A" or better by Moody's or S&P and mature not more than two
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years from the date of purchase, (e) stock, obligations or securities received
in settlement of debts (created in the ordinary course of business) owing to
Borrower or to any of its Subsidiaries, (f) travel and other like advances to
officers and employees of Borrower or of any Subsidiary in the ordinary course
of business, (9) the cash value of life insurance policies purchased or
otherwise owned by Borrower on the lives of members of Borrower's management,
(h) loans, advances and investments existing on the date hereof as disclosed to
Bank in writing prior to the date hereof, (i) other loans, advances and
investments, provided that the aggregate amount thereof (determined using
original cost in the case of investments) shall at no time exceed 10Z of
Consolidated Tangible Net Worth, with "Consolidated Tangible Net Worth" as
defined in Section 4.8 (b) above.
Section 5.5. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's or
any Subsidiary's assets now owned or hereafter acquired, except (a) liens for
taxes not yet due and payable or which are being actively contested in good
faith by appropriate proceedings, (b) liens incidental to the conduct of its
business or the ownership of its property and assets which were not incurred in
connection with the borrowing of money or the obtaining of advances or credit,
and which do not in the aggregate materially detract from the value of its
property or assets or materially impair the use thereof in the operation of its
business, (c) liens on property or assets of a Subsidiary to secure obligations
of such Subsidiary to Borrower or to a Subsidiary wholly-owned by Borrower, (d))
liens existing on any property of any corporation at the time it becomes a
Subsidiary (so long as such lien was not created or incurred in anticipation of
such corporation becoming a Subsidiary), or existing prior to the time of
acquisition upon any property acquired by Borrower or any Subsidiary through
purchase, merger or consolidation or otherwise, whether or not assumed by
Borrower or such Subsidiary, or placed upon property at the time of acquisition
by Borrower or any Subsidiary to secure all or a portion of for to secure debt
incurred to pay all or a portion of) the purchase price thereof, provided that
(i) any such lien shall not encumber any other property of Borrower or such
Subsidiary, and (ii) the aggregate amount of debt secured by all such liens at
no time exceeds an amount equal to 15Z of Consolidated Tangible Net Worth (as
defined in Section 5.4 above), and (e) other liens securing debt so long as the
aggregate amount of Priority Debt at no time exceeds an amount equal to 15% of
Consolidated Tangible Net Worth. As used herein, Priority Debt" means debt of
Borrower secured by any lien, and debt and preferred stock of Subsidiaries
(including any guarantee by a Subsidiary of debt of Borrower), but excluding (a)
debt and preferred stock of Subsidiaries which are held by Borrower or a
Subsidiary wholly-owned by Borrower, (b) the guaranteed senior promissory notes
of Electronic Solutions in the aggregate principal amount of $50,000,000.00
dated as of March 8, 1996, and (c) debt secured by any lien described in clause
(e) of this Section 5.5.
Section 5.6. SALE OF STOCK AND DEBT OF SUBSIDIARIES. Sell or
otherwise dispense of, or part with control of, or permit any Subsidiary to sell
or otherwise dispense of, or part with control of, any shares of stock or debt
of any Subsidiary, except to Borrower or a Subsidiary wholly-owned by Borrower,
and except that all shares of stock and debt of any Subsidiary (other than
Electronic Solutions) at the time owned by or owed to Borrower and all
Subsidiaries may be sold as an entirety for a cash consideration which
represents the fair value (as determined in good faith by the Board of Directors
of Borrower) at the time of sale of the shares of stock and debt so sold
provided that (a) such sale or other disposition is treated as a transfer of the
assets of such Subsidiary and is permitted by Section 5.3, and (b) at the time
of such sale, such Subsidiary shall not own, directly or indirectly, any shares
of stock or debt of any other Subsidiary (unless all of the shares of stock and
debt of such other Subsidiary owned, directly or indirectly, by Borrower and all
Subsidiaries are simultaneously being sold as permitted by this Section).
-11-
<PAGE>
Section 5.7. LEASE RENTALS. Enter into or permit to remain in
effect, or permit any Subsidiary to enter into or permit to remain in effect,
any operating lease as lessee if the aggregate rentals payable by Borrower and
Subsidiaries on a consolidated basis under all operating leases during any
fiscal year would exceed 2.5% of the consolidated revenue of Borrower and the
Subsidiaries for the immediately preceding fiscal year of Borrower.
Section 5.8. SUBSIDIARY DIVIDEND RESTRICTIONS. Enter into or
otherwise be subject to, or permit any Subsidiary to enter into or otherwise be
subject to, any contract or agreement (including its charter) which limits the
amount of, or otherwise imposes restrictions on the payment of, dividends by any
Subsidiary.
ARTICLE 6
EVENTS OF DEFAULT
Section 6.1 The occurrence of any of the following shall constitute
an "Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal payable under
any of the Loan Documents or Borrower shall fail to pay any interest, letter of
credit fees or other fees and amounts payable under any of the Loan Documents
within five (5) banking days after Borrower is notified by Bank in writing that
the same are, or shall become, due.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any other
party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other Loan
Document (other than those referred to in subsections (a) and (b) above), and
with respect to any such default which by its nature can be cured, such default
shall continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or
any defined event of default, under the terms of any contract or instrument
(other than any of the Loan Documents) pursuant to which Borrower or any of its
Subsidiaries has incurred any debt or other liability to any person or entity,
including Bank provided, however, that in the case of a default or defined event
of default under the terms of indebtedness to a person or entity other than
Bank, any cure period applicable thereto has expired and such indebtedness is in
excess of $2,500,000.00 individually or in the aggregate for all such defaults
by Borrower and its Subsidiaries combined.
(e) The filing of a notice of judgment lien against Borrower or any
of its Subsidiaries or the recording of any abstract of judgment against
Borrower or any of its Subsidiaries in any county in which Borrower or such
Subsidiary has an interest in real property: or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower or of any of its Subsidiaries: or the entry of a judgment
against Borrower or any of its Subsidiaries provided, however, that such
judgments, liens, levies, writs, executions and other process involve debts of
or claims against Borrower or any of its Subsidiaries in excess of
$2,500,000.00, individually or in the aggregate for all such
-12-
<PAGE>
judgments, liens, levies, writs, executions and other process against Borrower
and its Subsidiaries combined, and within twenty (20) days after the creation
thereof, or at least ten (10) days prior to the date on which any assets could
be lawfully sold in satisfaction thereof, such debt or claim is not satisfied or
stayed pending appeal and insured against in a manner satisfactory to Bank.
(f) Borrower or any of its Subsidiaries shall become insolvent, or
shall suffer or consent to or' apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or shall generally
fail to pay its debts as they become due, or shall make a general assignment for
the benefit of creditors Borrower or any of its Subsidiaries shall file a
voluntary petition in bankruptcy, or seeking reorganization, in order to effect
a plan or other arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time ("Bankruptcy Code"), or under any state or Federal
law granting relief to debtors, whether now or hereafter in effect or any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or Federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower or any of its
Subsidiaries, or Borrower or any of its Subsidiaries shall file an answer
admitting the jurisdiction of the court and the material allegations of any
involuntary petition: or Borrower or any of its Subsidiaries shall be
adjudicated a bankrupt, or an order for relief shall be entered against Borrower
or any of its Subsidiaries by any court of competent jurisdiction under the
Bankruptcy Code or any other applicable state or Federal law relating to
bankruptcy, reorganization or other relief for debtors.
(g) There shall exist or occur any event or condition which Bank in
the exercise of its reasonable discretion from the perspective of a commercial
lender believes impairs, or is substantially likely to impair, the prospect of
payment or performance by Borrower of its obligations under any of the Loan
Documents.
(h) The dissolution or liquidation of Borrower or Borrower, or any of
its directors, stockholders or members, shall take action seeking to effect the
dissolution or liquidation of Borrower.
Section 6.2 REMEDIES. Upon the occurrence of any Event of Default:
(a) all indebtedness of Borrower under each of the Loan Documents, any term
thereof to the contrary notwithstanding, shall at Bank's option and without
notice become immediately due and payable without presentment, demand, protest
or notice of dishonor, all of which are hereby expressly waived by Borrower: (b)
the obligation, if any, of Bank to extend any further credit under any of the
Loan Documents shall immediately cease and terminate: and (c) Bank shall have
all rights, powers and remedies available under each of the Loan Documents, or
accorded by law. All rights, powers and remedies of Bank may be exercised at
any time by Bank and from time to time after the occurrence of an Event of
Default, are cumulative and not exclusive, and shall be in addition to any other
rights, powers or remedies provided by law or equity.
ARTICLE 7
MISCELLANEOUS
Section 7.1 NO WAIVER. No delay, failure or discontinuance of Bank
in exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or
-13-
<PAGE>
remedy. Any waiver, permit, consent or approval of any kind by Bank of any
breach of or default under any of the Loan Documents must be in writing and
shall be effective only to the extent set forth in such writing.
Section 7.2 NOTICES. All notices, requests and demands which any
party is required or may desire to give to any other party under any provision
of this Agreement must be in writing delivered to each party at the following
address:
BORROWER: ZERO CORPORATION
444 S. Flower Street
Los Angeles, CA 90071
Attn: Anita J. Cutchall
Director of Legal Affairs
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
333 S. Grand Avenue, 3rd Floor
Los Angeles, CA 90071
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid and (c) if sent by telecopy, upon
receipt.
Section 7.3 COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay
to Bank immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Bank's in-house counsel),
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, Bank's continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (c) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding relating to Borrower.
Section 7.& SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents provided that such assignee,
transferee or participant is an "Eligible Assignee." For purposes of this
Agreement, "Eligible Assignee" means (a) any affiliate of Bank, (b) any
commercial bank, savings bank, savings and loan association or similar
institution, insurance company, mutual fund or other financial institution or
associations, provided that each Eligible Assignee must be domiciled in North
America, Europe, Australia or South America unless otherwise approved by
Borrower (which approval shall not be unreasonably withheld, delayed or
conditioned). In connection therewith but subject to the provisions of Section
7.5
-14-
<PAGE>
below, Bank may disclose all documents and information which Bank now has or may
hereafter acquire relating to any credit extended by Bank to Borrower, Borrower
or its business, or any Subsidiary of Borrower or its business.
Section 7.5 CONFIDENTIALITY. Bank agrees to use its best efforts to
hold any material confidential information that it may receive from Borrower
pursuant to this Agreement and the other Loan Documents in confidence, EXCEPT
for disclosure: (a) to Bank's directors, officers, employees and agents (b) to
legal counsel and accountants for Bank or for Borrower or any of its
Subsidiaries: (c) to other professional advisers to Bank or Borrower or any of
its Subsidiaries, provided that the recipient has been informed in advance of
the confidential nature of such information (d) to regulatory officials having
jurisdiction over Bank: (e) as required by Law or legal process or otherwise in
connection with any legal proceeding or litigation involving Bank and Borrower
or any of its Subsidiaries and (f) to another financial institution in
connection with the disposition or proposed disposition to that financial
institution of all or a part of Bank's interest hereunder or of a participation
interest hereunder, provided that the recipient has been expressly informed by
Bank in advance of the confidential nature of such information and is otherwise
an Eligible Assignee as described in Section 7.e. For purposes of the foregoing,
"confidential information" shall mean any information respecting Borrower or its
Subsidiaries reasonably considered by Borrower to be confidential, OTHER THAN
(i) information previously filed with any governmental agency or authority and
available to the public, (ii) information previously published in any public
medium from a source other than, directly or indirectly, Bank, and (iii)
information previously disclosed by Borrower or any of its Subsidiaries to any
person or entity not associated with Borrower or its Subsidiaries without a
confidentiality agreement or obligation substantially similar to this Section
7.5. Nothing in this Section shall be construed to create or give rise to any
fiduciary duty on the part of Bank to Borrower.
Section 7.6 WAIVER OF CERTAIN SETOFF RIGHTS. Bank hereby waives and
agrees that it will not exercise any setoff rights it may have, whether by
operation of law or otherwise, in and to any and all deposit accounts now or
hereafter maintained with Bank for the payment of any principal, interest and/or
fees due under or with respect to the Line of Credit. The foregoing waiver shall
not apply to or otherwise affect or impair any right of Bank to debit any demand
deposit account of Borrower maintained with Bank for any fees and charges
associated with or otherwise arising in connection with the administration,
maintenance and/or operation of demand deposit or other cash management services
by Bank and the foregoing waiver shall not affect or supersede any provision
contained in any such demand deposit or cash management services agreements
providing for such debit rights.
Section 7.7 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to any extension of credit by Bank subject hereto and supersede all
prior negotiations, communications, discussions and correspondence concerning
the subject matter hereof. This Agreement may be amended or modified only by a
written instrument executed by each party hereto.
Section 7.8 NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
-15-
<PAGE>
Section 7.9 TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.
Section 7.10 SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
Section 7.11 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, except to the
extent Bank has greater rights or remedies under Federal law, whether as a
national bank or otherwise, in which case such choice of California law shall
not be deemed to deprive Bank of any such rights and remedies as may be
available under Federal law.
Section 7.12 CONFLICTING PROVISIONS. The provisions of this
Agreement are not intended to supersede the provisions of the Loan Documents,
but shall be construed as supplemental thereto. However, in the event of any
ACTUAL IRRECONCILABLE conflict between the provisions hereof and provisions of
the other Loan Documents, it is intended that the provisions of this Agreement
shall control: PROVIDED that the inclusion of supplemental rights and remedies
in favor of Bank in any other Loan Document shall not be deemed a conflict with
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written above.
ZERO CORPORATION WELLS FARGO BANK
NATIONAL ASSOCIATION
By: /s/ Wilford D. Godbold, Jr.
----------------------------
Wilford D. Godbold, Jr.
Title: President and Chief Executive Officer
-------------------------------------
By: /s/ David Martin
----------------------
By: /s/ George A. Daniels David Martin
----------------------------------- Vice President
George A. Daniels
Title: Vice President and Chief Financial Officer
--------------------------------------------
16
<PAGE>
Exhibit 13
Five-Year Consolidated Financial Highlights
(In $000s except per share data)
<TABLE>
<CAPTION>
Year Ended March 31, 1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $160,279 $160,466 $171,821 $179,694 $206,247
Net Income 9,695 11,635 12,851 14,825 16,950
Working Capital 56,223 59,576 66,980 73,531 58,174
Total Assets 150,479 153,871 158,734 171,524 165,838
Stockholders' Equity 123,065 128,671 136,477 145,594 84,831
Long-Term Debt 1,172 - - - 51,525
Return on Average
Stockholders' Equity 8.0% 9.2% 9.7% 10.5% 14.7%
Current Ratio 3.8:1 3.9:1 5.0:1 4.8:1 3.9:1
Per Share Data:
Earnings $0.62 $0.74 $0.81 $0.93 $1.07
Dividends Paid 0.40 0.40 0.40 0.41 0.44
Stockholders' Equity 7.83 8.15 8.57 9.12 7.01
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The Company reported record Net Income, Earnings Per Share and Net Sales in
fiscal 1996. For the years ended March 31, 1996, 1995 and 1994, Net Income was
$16,950,000, $14,825,000 and $12,851,000 and Earnings Per Share were $1.07, $.93
and $.81, respectively.
Net Sales in fiscal 1996 were $206.2 million, an increase of 14.8% over
fiscal 1995. This compares to sales growth of 4.6% in 1995 when compared to
1994. The increases in both years were primarily attributable to higher sales
applicable to the telecommunications, instrumentation and data processing
markets and, in 1996, to acquisitions. These increases were partially offset by
declines in the air cargo market and, in 1995, the government/military market.
Operating income margin was 12.9% in 1996 versus 12.2% in 1995 and 11.3% in
1994. The increase in each year was primarily due to higher volume, favorable
product mix and cost-containment efforts, partially offset by increased material
and supply costs and, in 1995, increased expenditures related to environmental
matters and a facility reorganization.
- -- EFFECTS OF INFLATION Price increases by ZERO did not contribute
significantly to increases in the Company's Net Sales. The impact of rising
costs of labor, material and supplies, and equipment was mitigated, in part, by
changes in product design, overall manufacturing and purchasing efficiencies,
and effective management and control of operating expenses.
- -- STOCK REPURCHASE In a Dutch Auction Tender Offer during fiscal year 1996,
the Company repurchased
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (CONT.)
approximately 25% of its outstanding shares, funded by the issuance of long-term
promissory notes aggregating $50 million, together with approximately $22
million of cash and cash derived from the sale of short-term investments.
Interest expense increased to $1,163,000 in 1996 from $662,000 in 1995
primarily due to the issuance of long-term debt in connection with the stock
repurchase.
- -- ACQUISITIONS AND DIVESTITURES The Company acquired three companies during
fiscal 1996, all of which complement existing operations. These acquisitions
were accounted for using the purchase method of accounting. The operating
results of the entities acquired, which were not material, were included in the
consolidated financial statements from their respective acquisition dates.
- -- LIQUIDITY AND CAPITAL RESOURCES The Company's growth was financed through a
combination of available cash and short-term investments and cash provided by
operations. Cash provided by operating activities amounted to $17,326,000 in
1996, $18,141,000 in 1995 and $14,817,000 in 1994 and is currently the primary
source of liquidity, together with a $20 million revolving bank credit facility
and a $20 million shelf facility available to finance acquisitions. Receivables
and inventories increased $7,663,000 and $5,340,000, respectively, from March
31, 1995 to March 31, 1996 primarily due to increased volume and acquisitions.
At March 31, 1996, the Company's cash and short-term investments decreased to
$7,983,000 from $37,034,000 at March 31, 1995 primarily as a result of the stock
repurchase which required approximately $22 million of cash in addition to the
$50 million notes, as well as property additions, the acquisition of three
companies and payment of dividends. The stock repurchase is also the primary
reason for the decrease in working capital to $58,174,000 at March 31, 1996 from
$73,531,000 at March 31, 1995.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (CONT.)
In fiscal 1995 and 1994, cash utilized for investing and financing activities
was used primarily for capital expenditures and payment of dividends.
The Company announced a reduction in its annual cash dividend rate from $.44
per share to $.12 per share, effective with the April 1996 dividend declaration,
to enhance cash flow. The reduction, if maintained, will provide sufficient
funds to repay the $50 million notes and related interest.
Management believes cash from operations, together with the Company's $20
million revolving bank credit facility, $20 million shelf facility available to
finance acquisitions and the reduction in cash dividends, 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 cash reserves in liquid, lower-risk investments.
- -- CONTINGENCIES The Company has been notified by certain governmental agencies
that it is, or may be, potentially responsible for costs associated with the
investigation and remediation of four sites where soil and/or groundwater
contamination is alleged. The Company is working with the governmental agencies
to resolve these matters. The Company has provided reserves to cover those costs
which can be reasonably estimated at this time. Refer to Note 10 of Notes to
Consolidated Financial Statements for further discussion of environmental and
other contingencies.
- -- NEW ACCOUNTING STANDARDS During 1996 the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The adoption did
not have a material effect on the Company's financial position or operating
results.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (CONT.)
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation, effective in fiscal years
beginning after December 15, 1995. As permitted by SFAS No. 123, the Company
expects to continue to apply Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and include the necessary disclosures
in its 1997 financial statements.
- -- OUTLOOK FOR 1997 The Company announced that it expects fiscal 1997 to be
stronger than fiscal 1996. Net Sales and Earnings Per Share are expected to be
in the range of $230 million to $240 million and $1.35 to $1.40, respectively,
based on the continued growth of the electronics industry and the Company's
leadership in the niche markets it serves.
- -- SAFE HARBOR STATEMENT STATEMENTS WHICH ARE NOT HISTORICAL FACTS, INCLUDING
STATEMENTS ABOUT OUR CONFIDENCE, STRATEGIES AND EXPECTATIONS, TECHNOLOGIES AND
OPPORTUNITIES, INDUSTRY AND MARKET SEGMENT GROWTH, DEMAND AND ACCEPTANCE OF NEW
AND EXISTING PRODUCTS, AND RETURN ON INVESTMENTS IN PRODUCTS AND MARKETS, ARE
FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING
WITHOUT LIMITATION, THE EFFECT OF GENERAL ECONOMIC AND MARKET CONDITIONS,
INDUSTRY MARKET CONDITIONS CAUSED BY CHANGES IN THE SUPPLY AND DEMAND FOR OUR
PRODUCTS, THE CONTINUING STRENGTH OF THE MARKETS WE SERVE, COMPETITOR PRICING,
MAINTENANCE OF OUR CURRENT MOMENTUM AND OTHER FACTORS.
16
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED INCOME
Years Ended March 31, 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $206,247,000 $179,694,000 $171,821,000
COST OF SALES 135,708,000 118,084,000 115,957,000
SELLING AND ADMINISTRATIVE EXPENSES 43,933,000 39,769,000 36,482,000
- --------------------------------------------------------------------------------
OPERATING INCOME 26,606,000 21,841,000 19,382,000
- --------------------------------------------------------------------------------
OTHER INCOME 1,077,000 1,344,000 1,078,000
INTEREST INCOME 1,727,000 1,703,000 984,000
INTEREST EXPENSE 1,163,000 662,000 481,000
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 28,247,000 24,226,000 20,963,000
INCOME TAXES 11,297,000 9,401,000 8,112,000
- --------------------------------------------------------------------------------
NET INCOME $16,950,000 $14,825,000 $12,851,000
- --------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE $1.07 $0.93 $0.81
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
17
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,018,000 $17,132,000
Short-term investments 965,000 19,902,000
Receivables (less allowances for doubtful accounts of
$759,000 in 1996 and $724,000 in 1995) 33,973,000 26,310,000
Inventories
Raw materials and supplies 18,266,000 15,028,000
Work in process 7,810,000 7,046,000
Finished goods 5,485,000 4,147,000
Other (including deferred tax assets of $2,334,000
in 1996 and $2,205,000 in 1995) 4,931,000 3,327,000
- -------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 78,448,000 92,892,000
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 39,721,000 33,989,000
GOODWILL (less accumulated amortization of $10,644,000
in 1996 and $9,558,000 in 1995) 31,425,000 29,624,000
OTHER ASSETS 16,244,000 15,019,000
- -------------------------------------------------------------------------------------
TOTAL ASSETS
$165,838,000 $171,524,000
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
</TABLE>
18
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Current portion of long-term debt $ 69,000 $ --
Accounts payable 8,318,000 8,326,000
Income taxes payable 1,101,000 1,252,000
Accrued liabilities
Other taxes 473,000 419,000
Wages and commissions 6,258,000 5,426,000
Workers' compensation 634,000 780,000
Other 3,421,000 3,158,000
- --------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 20,274,000 19,361,000
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
NON-CURRENT LIABILITIES (including deferred compensation of
$7,903,000 in 1996 and $6,352,000 in 1995) 9,208,000 6,569,000
LONG-TERM DEBT 51,525,000 --
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)
STOCKHOLDERS' EQUITY
Preferred stock -- authorized 1,000,000 shares of $.01 par value; none issued
Common stock -- authorized 30,000,000 shares of $.01 par value;
issued shares, 16,285,343 in 1996 and 16,124,144 in 1995;
outstanding shares, 12,105,840 in 1996, and 15,963,256 in 1995
163,000 161,000
Additional paid-in capital 34,248,000 31,079,000
Retained earnings 124,184,000 115,754,000
- --------------------------------------------------------------------------------------------------------------
158,595,000 146,994,000
Foreign currency translation adjustment (243,000) 261,000
Treasury stock (4,179,503 shares in 1996 and
160,888 shares in 1995), at cost (73,521,000) (1,661,000)
- --------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 84,831,000 145,594,000
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $165,838,000 $171,524,000
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
FOREIGN
ADDITIONAL CURRENCY
ISSUED COMMON PAID-IN RETAINED TRANSLATION TREASURY
SHARES* STOCK CAPITAL EARNINGS ADJUSTMENTS STOCK
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1993 15,953,203 $160,000 $28,273,000 $102,020,000 $(105,000) $(1,677,000)
Net income for the year --- --- --- 12,851,000 --- ---
Cash dividends declared --
$.40 per share --- --- --- (6,340,000) --- ---
Exercise of stock options and
issuance of treasury stock 126,297 1,000 2,332,000 (1,005,000) 3,000
Foreign currency translation
adjustments and other --- --- --- (17,000) (19,000) ---
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1994 16,079,500 161,000 30,605,000 107,509,000 (124,000) (1,674,000)
Net income for the year --- --- --- 14,825,000 --- ---
Cash dividends declared --
$.41 per share --- --- --- (6,533,000) --- ---
Exercise of stock options and
issuance of treasury stock 44,644 --- 474,000 (42,000) --- 13,000
Foreign currency translation
adjustments and other --- --- --- (5,000) 385,000 ---
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1995 16,124,144 161,000 31,079,000 115,754,000 261,000 (1,661,000)
Net income for the year --- --- --- 16,950,000 --- ---
Cash dividends declared --
$.44 per share --- --- --- (7,059,000) --- ---
Exercise of stock options and
issuance of treasury stock 161,199 2,000 3,169,000 (1,461,000) --- 11,000
Stock repurchase --- --- --- --- --- (71,871,000)
Foreign currency translation
adjustments and other --- --- --- --- (504,000) ---
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1996 16,285,343 $163,000 $34,248,000 $124,184,000 $(243,000) $(73,521,000)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
*OUTSTANDING SHARES AT MARCH 31, 1996, 1995 AND 1994 WERE 12,105,840, 15,963,256 AND 15,917,110, RESPECTIVELY.
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED CASH FLOWS
YEARS ENDED MARCH 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $16,950,000 $14,825,000 $12,851,000
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 5,069,000 4,642,000 4,470,000
Amortization 1,086,000 1,025,000 996,000
Changes in operating assets and liabilities,
net of effect of business acquisitions
Receivables (4,833,000) (1,823,000) (873,000)
Inventories (1,852,000) (4,379,000) 226,000
Other non-current assets (215,000) (710,000) (1,162,000)
Accounts payable (8,000) 2,287,000 985,000
Accrued liabilities 118,000 141,000 (4,021,000)
Other non-current liabilities 2,639,000 1,245,000 711,000
Other (1,628,000) 888,000 634,000
- -----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,326,000 18,141,000 14,817,000
- -----------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
(Purchases) sales of short-term investments, net 18,937,000 (1,377,000) 2,010,000
Purchase of non-cash assets of acquired businesses (11,418,000) -- (2,100,000)
Expenditures for property, plant and equipment (9,240,000) (8,561,000) (4,160,000)
Proceeds from sale of assets 1,670,000 -- --
Other 324,000 (215,000) 280,000
- -----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 273,000 (10,153,000) (3,970,000)
- -----------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Stock repurchase (71,871,000) -- --
Cash dividends paid (7,059,000) (6,533,000) (6,340,000)
Proceeds from issuance of long-term debt 50,000,000 -- --
Payments of long-term debt -- -- (197,000)
Exercise of stock options 1,710,000 432,000 1,331,000
Other (including effect of exchange rate changes) (493,000) 402,000 (344,000)
- -----------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (27,713,000) (5,699,000) (5,550,000)
- -----------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,114,000) 2,289,000 5,297,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,132,000 14,843,000 9,546,000
- -----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $7,018,000 $17,132,000 $14,843,000
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES
- -- PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries. All
significant intercompany balances and transactions have been eliminated.
- -- CASH EQUIVALENTS Cash equivalents include mutual funds and other highly
liquid investments purchased with maturities of three months or less. As of
March 31, 1996 and 1995, the carrying values of cash equivalents approximated
market values.
- -- SHORT-TERM INVESTMENTS Short-term investments at March 31, 1996 and 1995
consist primarily of treasury notes, treasury bills and municipal bonds which
are classified as securities available-for-sale. Market prices, which
approximated cost at the balance sheet dates, are reasonable estimates of the
portfolio's fair value.
- -- INVENTORIES Inventories are stated at the lower of cost (first-in, first-out
or average) or market.
- -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at
cost. Depreciation is computed principally using the straight-line method over
the estimated useful lives of the assets. Capital leases and leasehold
improvements are amortized over the life of the related assets or the life of
the lease, whichever is shorter.
- -- INTANGIBLE ASSETS Costs in excess of the fair value of net assets acquired
in purchase transactions are recorded as goodwill and amortized over periods of
up to 40 years. The Company reviews the recoverability of intangible assets to
determine if there has been any permanent impairment. Such review includes
estimating cash flows based on operating performance and future prospects of the
business. If a permanent impairment has occurred, a reserve for such impairment
would be recorded.
- -- EARNINGS PER COMMON SHARE Earnings per common share are computed using the
weighted average number of shares of common stock and common stock equivalents
(stock options) outstanding, which for 1996, 1995 and 1994 was 15,865,866,
16,020,063, and 15,958,366, respectively.
- -- FOREIGN CURRENCY TRANSLATION Assets and liabilities of foreign subsidiaries
are translated into U.S. dollars at the year-end exchange rate and gains and
losses are being accumulated in stockholders' equity. The related income
22
<PAGE>
statement is translated at the average exchange rate for the year.
- -- SUPPLEMENTAL CASH FLOW INFORMATION For the years ended March 31, 1996, 1995
and 1994 cash paid for income taxes was $12,065,000, $8,333,000 and $8,588,000,
respectively, and cash paid for interest was not material.
In connection with acquisitions during fiscal year 1996, the following
liabilities were created:
1996
--------------------------------------------------------------------------
Estimated fair value of assets acquired $ 9,113,000
Goodwill and identifiable intangible assets 3,899,000
Cash paid (11,418,000)
--------------------------------------------------------------------------
Liabilities created $ 1,594,000
--------------------------------------------------------------------------
--------------------------------------------------------------------------
- -- CONCENTRATION OF CREDIT RISKS Financial instruments that potentially subject
the Company to concentration of credit risk consist primarily of cash
equivalents, short-term investments and receivables. The Company places its
cash equivalents and short-term investments with high credit quality
institutions and limits the amount of credit exposure with any one institution.
Credit risk on trade receivables is minimized as a result of the diverse nature
of the Company's customer base. The Company performs ongoing credit evaluations
of its customers and maintains an allowance for potential credit losses.
- -- USE OF ESTIMATES The preparation of financial statements, in conformity with
generally accepted accounting principles, requires management to make estimates
and assumptions. Such estimates and assumptions affect the reported amounts of
assets and liabilities, and the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
- -- NEW ACCOUNTING STANDARDS During 1996, the Company adopted Statement of
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of. The adoption did not
have a material effect on the Company's financial position or operating results.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
Compensation, effective in fiscal years beginning after December 15, 1995. As
permitted by SFAS No. 123, the Company expects to continue to apply Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
include the necessary disclosures in its 1997 financial statements.
- -- FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments
consist primarily of cash equivalents, short-term investments, receivables,
accounts payable, accrued liabilities and debt instruments. The carrying values
of all financial instruments, other than debt instruments, are representative of
their fair values due to their short maturities. The estimated fair value of the
notes payable has been determined using the appropriate valuation methodologies
and approximates book value.
- -- REPORT PRESENTATION Certain amounts reported in prior years have been
reclassified to conform to the 1996 presentation.
NOTE 2 -------------------------------------------------------------------------
- -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment and accumulated
depreciation and amortization at March 31, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 2,908,000 $ 2,997,000
Buildings/land improvements 10-40 years 19,156,000 19,888,000
Machinery/equipment 3-15 years 62,739,000 55,193,000
Leasehold improvements 5-9 years 4,597,000 3,836,000
------------------------------------------------------------------------------------------
Total 89,400,000 81,914,000
Less accumulated depreciation and amortization 49,679,000 47,925,000
------------------------------------------------------------------------------------------
Net property, plant and equipment $39,721,000 $33,989,000
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
NOTE 3 -------------------------------------------------------------------------
- -- EMPLOYEE BENEFITS The Company has a defined contribution pension plan and,
as of January 1, 1995, a 401(k) plan which, except for employees covered by a
collective bargaining agreement at one plant, cover all employees who have
completed at least one year of service and are employed by U.S. divisions which
have elected to
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
participate. The pension plan cost, which is fully funded on a current basis, is
based upon percentages of eligible employees' compensation. The Company's
contributions to the pension plan aggregated $1,539,000, $1,507,000 and
$1,460,000 in 1996, 1995 and 1994, respectively, and to the 401(k) plan
aggregated $427,000 and $95,000 in 1996 and 1995, respectively.
The Company has nonqualified deferred compensation plans covering key
employees who can elect to have a portion of their compensation deferred. The
amounts set aside earn interest at rates generally higher than the average prime
interest rate. Interest expense accrued on the participants' accounts totalled
$714,000, $620,000 and $463,000 in 1996, 1995 and 1994, respectively. Generally,
payment of a participant's account balance will be deferred until death,
disability, retirement or termination.
NOTE 4 -------------------------------------------------------------------------
- -- LONG-TERM DEBT At March 31, 1996, long-term debt consisted of:
1996
--------------------------------------------------------------------------
Senior promissory notes due March 8, 2011 $50,000,000
Other notes payable due March 7, 2002 and March 31, 2005 1,594,000
--------------------------------------------------------------------------
Total 51,594,000
Less current portion 69,000
--------------------------------------------------------------------------
Total long-term debt $51,525,000
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The Company issued senior promissory notes in the aggregate of $50,000,000,
which bear interest at 7.13%, and are payable in eleven annual payments of
$4,545,000, beginning March 8, 2001. The proceeds from the notes were used
solely for the repurchase of the Company's Common Stock in the Dutch Auction
Tender Offer and for payment of related expenses. The Company has also
negotiated a $20,000,000 shelf facility for future acquisitions.
On March 31, 1996, the Company entered into a credit agreement with a bank,
which provides for a revolving line of credit of $20,000,000 through March 31,
1998, and for letters of credit totaling $8,000,000. The revolving line of
credit bears interest either at the prime rate or London Interbank Offered Rate
plus 1%, at the Company's
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
option, at the time of borrowing. No amounts were outstanding under the line at
March 31, 1996.
Aggregate maturities of long-term debt over the next five fiscal years are as
follows: $69,000 in 1997, $134,000 in 1998, $163,000 in 1999, $242,000 in 2000,
$4,828,000 in 2001, and $46,158,000 thereafter.
NOTE 5 -------------------------------------------------------------------------
- -- ACQUISITIONS AND DIVESTITURES The Company acquired three companies during
fiscal 1996, all of which complement existing operations. These acquisitions
were accounted for using the purchase method of accounting. The operating
results of the entities acquired, which were not material, were included in the
consolidated financial statements from their respective acquisition dates. The
purchase prices of these acquisitions were allocated to the net assets acquired,
including intangible assets, based upon their estimated fair values at the dates
of acquisition. Intangible assets, principally the excess of cost over the fair
value of identifiable net assets of purchased businesses, are being amortized
using the straight-line method over a period of 15 years.
Subsequent to March 31, 1996, the Company acquired the assets of another
manufacturer of deep drawn aluminum and fabricated enclosures primarily sold to
the electronics industry, and completed the sale of Anvil Cases, Inc., a
subsidiary of the Company, which manufactures riveted cases primarily for the
music, packaging specialists and audio/video markets. The pro forma effect of
these two transactions on 1996 was not material.
NOTE 6 -------------------------------------------------------------------------
- -- COMMON STOCK The Company has a stock option plan which provides for the
granting of options to purchase shares of the Company's stock to directors,
officers and other key employees at a price not less than the fair market value
on the date of grant. Options are granted for terms of five to eight years and
are exercisable in annual installments (generally one-third of the total grant)
commencing one year from date of grant, on a cumulative basis.
The Company's stock option plan provides for the granting of qualified and
nonqualified options as well as stock appreciation rights (SARs) in tandem with
options. The SARs entitle a holder to receive an amount equal to the excess of
the fair market value of the Company's common stock on the date of exercise over
the option price. The exercise of
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
SARs automatically cancels the option on the related shares. Compensation
expense recognized in connection with SARs during the years ended March 31,
1996, 1995 and 1994 was not material.
Changes in the number of shares subject to options during the three years
ended March 31, 1996, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 866,048 772,000 793,593
Options granted
(1996, $15.38 to $15.63 per share;
1995, $12.63 to $12.88 per share;
1994, $13.56 to $13.75 per share) 253,500 272,600 219,800
Options exercised
(1996, $10.38 to $14.50 per share;
1995, $10.38 to $13.75 per share;
1994, $10.38 to $15.25 per share) (250,871) (44,644) (195,626)
Options cancelled as a result of SARs exercised
(1996, none; 1995, none;
1994, $12.24 per share) -- -- (1,142)
Options cancelled or expired
(1996, $11.31 to $15.38 per share;
1995, $11.31 to $17.50 per share;
1994, $10.38 to $17.50 per share) (41,936) (133,908) (44,625)
- --------------------------------------------------------------------------------------------
Outstanding at end of year
($11.31 to $15.63 per share) 826,741 866,048 772,000
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
Of the total outstanding options at March 31, 1996 and 1995, options for 370,447
and 399,685 shares, respectively, were exercisable; and options for 214,292,
160,226 and 81,776 shares will become exercisable during the fiscal years ending
March 31, 1997 through 1999, respectively. As of March 31, 1996, options for
255,868 shares remained available for future grants.
NOTE 7 -------------------------------------------------------------------------
- -- COMMON STOCK REPURCHASE On February 29, 1996, the Company repurchased
4,019,373 shares of its Common Stock at a cost of approximately $71,871,000 in a
Dutch Auction Tender Offer.
The source of the funds to repurchase such shares was provided by the
issuance of promissory notes totaling
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
$50,000,000 by the Company (refer to Note 4), together with available cash and
cash derived from the sale of short-term investments.
NOTE 8 -------------------------------------------------------------------------
- -- INCOME TAXES The Company uses the asset and liability method of accounting
for income taxes. This approach requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the financial reporting basis and tax basis of assets and
liabilities.
The provision for income taxes is summarized as follows:
1996 1995 1994
- --------------------------------------------------------------------------------
Current
Federal $10,031,000 $7,867,000 $6,451,000
State 2,145,000 1,580,000 1,332,000
Other -- -- (48,000)
Deferred
Federal (740,000) (38,000) 275,000
State (139,000) (8,000) 102,000
- -------------------------------------------------------------------------------
Total $11,297,000 $9,401,000 $8,112,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Deferred tax assets and liabilities were comprised of the following as of
March 31,
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation/amortization $ -- $2,388,000 $ -- $2,346,000
Provision for estimated expenses 952,000 -- 1,008,000 --
Employee benefit plans 4,465,000 -- 3,782,000 --
State and foreign taxes 604,000 -- 441,000 --
Other -- 1,078,000 -- 1,209,000
- -----------------------------------------------------------------------------------------------------
Total $6,021,000 $3,466,000 $5,231,000 $3,555,000
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
A reconciliation between the income taxes computed at the Federal statutory
rate and the provision for income taxes is as follows:
1996 1995 1994
- -------------------------------------------------------------------------------
Income taxes computed at the
Federal statutory rate $ 9,886,000 $8,479,000 $7,337,000
State income taxes, net of
Federal income tax benefit 1,304,000 1,022,000 932,000
Tax exempt income (90,000) (152,000) (244,000)
Other 197,000 52,000 87,000
- -------------------------------------------------------------------------------
Total provision $11,297,000 $9,401,000 $8,112,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Effective income tax rate 40.0% 38.8% 38.7%
- -------------------------------------------------------------------------------
NOTE 9 ------------------------------------------------------------------------
- -- COMMITMENTS Future minimum lease payments under operating leases at March
31, 1996 are summarized as follows:
YEAR ENDING MARCH 31,
1997 $2,067,000
1998 1,676,000
1999 1,676,000
2000 1,299,000
2001 982,000
Thereafter 3,034,000
--------------------------------------------------
Total $10,734,000
--------------------------------------------------
--------------------------------------------------
Rental expense under operating leases was $2,059,000, $2,049,000 and
$2,141,000 for 1996, 1995 and 1994, respectively. Obligations under capital
leases at March 31, 1996 were not material.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 10 ------------------------------------------------------------------------
CONTINGENT LIABILITIES
- -- ENVIRONMENTAL MATTERS In October 1995, the Company, along with 44 other
parties, received notice from the Environmental Protection Agency (EPA) with
regard to the construction, operation and maintenance of the interim remedy for
the Glendale North and South Operable Units of the San Fernando Valley Crystal
Springs Superfund Site (the Site), as well as the reimbursement of certain costs
incurred by the EPA in its response to conditions at the Site. The Company, and
26 other potentially responsible parties (PRPs), had previously signed a consent
decree with the EPA for the design of the interim remedy for the Site. The
design has been substantially completed.
The Company has provided reserves for its share of the design costs for the
interim remedy for the Site to the extent they may be reasonably estimated at
this time. However, the Company's ultimate liability related to environmental
matters at the Site is dependent upon a variety of factors, including changes in
the design and cost of the construction, operation and maintenance of the
interim remedy and the final remedy, as well as the allocation of those costs
among the PRPs including any additional participants. The Company continues to
pursue litigation commenced against certain of its insurance carriers in early
1994 for the recovery of expenditures related to the Site.
The Company is also engaged in remediation and/or environmental monitoring
at three other locations, and has been named by the State of California as
potentially responsible at one additional location. The Company has provided
reserves for the cleanup costs associated with these sites to the extent they
could be reasonably estimated at this time.
- -- OTHER MATTERS On January 4, 1994, the Company responded to an
administrative subpoena received from the U.S. Government General Services
Administration (GSA), Office of Inspector General, seeking documents related to
certain GSA contracts of a division of the Company. The Company has heard
nothing further from the GSA since that date and, therefore, is unable to
accurately assess the situation further at this time. The Company believes that
the subpoena was directed to an examination of freight charges under GSA
contracts.
The Company is subject to other legal proceedings that arise in the ordinary
course of its business activities. In the opinion of management, any liability
that may result from the resolution of these matters will not have a
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
material adverse effect on its financial statements.
- -- SEGMENT INFORMATION Business segment information as of and for the years
ended March 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
ENCL. AND ENCL. AND ENCL. AND
(IN $000s) ACCESSORIES OTHER TOTAL ACCESSORIES OTHER TOTAL ACCESSORIES OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $152,378 $53,869 $206,247 $126,805 $52,889 $179,694 $109,964 $61,857 $171,821
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating profit
before general
corporate expenses 30,547 2,435 32,982 24,868 2,939 27,807 19,421 3,960 23,381
-------- -------- -------- -------- -------- --------
General corporate
expenses, net (3,572) (2,919) (1,937)
Interest expense (1,163) (662) (481)
Income before -------- -------- --------
income taxes $ 28,247 $ 24,226 $ 20,963
-------- -------- --------
Identifiable assets $ 99,570 $ 47,264 $146,834 $ 74,493 $ 45,288 $119,781 $ 67,242 $ 43,380 $110,622
-------- -------- -------- -------- -------- --------
Corporate assets 19,004 51,743 48,112
-------- -------- --------
Total assets $165,838 $171,524 $158,734
-------- -------- --------
Depreciation $ 3,280 $ 1,789 $ 5,069 $ 2,781 $ 1,861 $ 4,642 $ 2,631 $ 1,839 $ 4,470
-------- -------- -------- -------- -------- -------- -------- -------- --------
Capital expenditures $ 6,573 $ 2,667 $ 9,240 $ 7,107 $ 1,454 $ 8,561 $ 3,242 $ 918 $ 4,160
-------- -------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
In fiscal 1996, the Company redefined its Enclosures and Accessories segment
which consists of products that serve the system packaging, thermal management
and engineered case requirements of the telecommunications, instrumentation,
data processing and government/military markets of the electronics industry.
These products include cabinets, metal and plastic enclosures, instrumentation
cases, card cages for printed circuit boards, as well as precision slides,
blowers, fans, cooling systems and other similar products. The Company also
manufactures and sells aluminum luggage, camera cases, industrial carrying
cases, air cargo enclosures and hardware, food service containers and other
custom metal products. Accordingly, all previous years presented have been
restated to reflect
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
this change.
The following presents a summary of operations by geographic area as of and
for the years ended March 31, 1996, 1995 and 1994:
(IN $000S) 1996 1995 1994
- --------------------------------------------------------------------------------
Net Sales
U.S. operations $183,662 $167,306 $163,331
European operations 22,585 12,388 8,490
- --------------------------------------------------------------------------------
Consolidated $206,247 $179,694 $171,821
- --------------------------------------------------------------------------------
Net Sales between operations $ 3,230 $ 1,461 $ 815
- --------------------------------------------------------------------------------
Operating profit
U.S. operations $ 25,163 $ 21,063 $ 19,292
European operations 1,443 778 90
- --------------------------------------------------------------------------------
Consolidated $ 26,606 $ 21,841 $ 19,382
- --------------------------------------------------------------------------------
Identifiable assets at year end
U.S. operations $149,394 $162,602 $152,954
European operations 16,444 8,922 5,780
- --------------------------------------------------------------------------------
Consolidated $165,838 $171,524 $158,734
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total export sales from U.S. operations and net sales from European
operations were $34,323,000, $20,706,000 and $15,535,000, or 17%, 12% and 9% of
total net sales, for the fiscal years ended March 31, 1996, 1995 and 1994,
respectively.
Sales under U.S. Government contracts and subcontracts accounted for
approximately 10%, 9% and 12% of total sales in 1996, 1995 and 1994,
respectively.
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS OF ZERO CORPORATION:
We have audited the accompanying consolidated balance sheets of ZERO
Corporation and its subsidiaries as of March 31, 1996 and 1995, and the related
statements of consolidated income, stockholders' equity, and cash flows for each
of the three years in the period ended March 31, 1996. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of ZERO Corporation and its
subsidiaries at March 31, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended March 31, 1996
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Los Angeles, California
May 10, 1996
33
<PAGE>
MANAGEMENT'S REPORT
The accompanying consolidated financial statements have been prepared by
management in accordance with generally accepted accounting principles and,
where appropriate, include amounts based on management's judgment and estimates.
The integrity of the financial statements and the other financial information in
the Annual Report is the responsibility of management. The financial statements
have been audited by Deloitte & Touche LLP, independent auditors, appointed by
the Board of Directors.
The Company maintains internal accounting control systems that are adequate
to provide reasonable, but not absolute, assurance that the assets are
safeguarded from loss or unauthorized use. These systems produce records
adequate for preparation of financial information. In establishing and
maintaining internal controls, the Company exercises judgment in determining
that the costs of such controls do not exceed the benefits to be derived.
The Board of Directors has an Audit Committee composed solely of directors
who are not officers or employees. The Committee meets regularly with
management, with the Company's internal audit staff, and with the independent
auditors. The independent auditors and the internal audit staff periodically
meet alone with the Audit Committee and have free access to the Audit Committee
at any time.
In management's opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of ZERO Corporation and
its subsidiaries at March 31, 1996 and 1995, and the results of operations and
cash flows for each of the three years in the period ended March 31, 1996 in
conformity with generally accepted accounting principles.
/S/Wilford D. Godbold, Jr. /S/George A. Daniels /S/Diane N. Kajikami
Wilford D. Godbold, Jr. George A. Daniels Diane N. Kajikami
PRESIDENT AND CHIEF VICE PRESIDENT AND CONTROLLER AND CHIEF
EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER ACCOUNTING OFFICER
May 10, 1996
34
<PAGE>
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
(IN $000S, EXCEPT PER SHARE DATA)
Years Ended March 31, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $206,247 $179,694 $171,821 $160,466 $160,279
Cost of Sales 135,708 118,084 115,957 107,663 109,700
Selling and Administrative Expenses 43,933 39,769 36,482 35,388 36,782
Other Income, Net 1,641 2,385 1,581 1,587 2,263
Income Before Income Taxes 28,247 24,226 20,963 19,002 16,060
Net Income 16,950 14,825 12,851 11,635 9,695
Per Share Data:
Earnings $1.07 $0.93 $0.81 $0.74 $0.62
Dividends Paid 0.44 0.41 0.40 0.40 0.40
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
TOTAL GROSS INCOME BEFORE NET EARNINGS PER
QUARTER ENDED: NET SALES PROFIT INCOME TAXES INCOME COMMON SHARE
- -----------------------------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C>
March 31, 1996 $55,915,000 $19,144,000 $8,064,000 $4,841,000 $0.32
December 31, 1995 50,328,000 16,775,000 6,420,000 3,852,000 0.24
September 30, 1995 51,387,000 18,026,000 7,584,000 4,550,000 0.28
June 30, 1995 48,617,000 16,594,000 6,179,000 3,707,000 0.23
1995
March 31, 1995 $44,493,000 $15,426,000 $6,424,000 $3,969,000 $0.25
December 31, 1994 44,902,000 15,481,000 5,845,000 3,550,000 0.22
September 30, 1994 46,583,000 16,027,000 6,587,000 4,028,000 0.25
June 30, 1994 43,716,000 14,676,000 5,370,000 3,278,000 0.21
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
MARKET AND DIVIDEND INFORMATION
The Company's common stock is traded on the New York Stock Exchange and the
Pacific Stock Exchange under the ticker symbol ZRO. The trading range and
dividends paid by quarter for the two fiscal years ended March 31, 1996 are as
follows:
Trading Range
Dividends
- --------------------------------------------------------------------------------
TRADING RANGE DIVIDENDS
QUARTER ENDED HIGH LOW PAID
- --------------------------------------------------------------------------------
1996
MARCH 31, 1996 $18.25 $15.13 $.11
DECEMBER 31, 1995 17.88 14.88 .11
SEPTEMBER 30, 1995 16.88 14.63 .11
JUNE 30, 1995 15.00 13.00 .11
1995
MARCH 31, 1995 $14.75 $12.63 $.11
DECEMBER 31, 1994 14.00 12.13 .10
SEPTEMBER 30, 1994 13.50 12.13 .10
JUNE 30, 1994 14.00 11.63 .10
- --------------------------------------------------------------------------------
36
<PAGE>
EXHIBIT 21
ZERO CORPORATION
Subsidiaries of Registrant*
As of March 31, 1996
1. Air Cargo Equipment Corporation, a Delaware corporation
2. Air Cargo Equipment (UK) Limited, a U.K. corporation
3. Air Cooling Technology, Inc., a California corporation
4. Anvil Cases, Inc., a California corporation**
5. Contempo Engineering Co., a California corporation
6. Electronic Solutions, a Nevada corporation
7. McLean Midwest Corporation, a Minnesota corporation
8. Nielsen Hardware Corporation, a Connecticut corporation
9. Productos Aereos, S.A., a Mexican corporation
10. Samuel Groves & Co. Limited, a U.K. corporation
11. ZERO FSC Corporation, a Virgin Islands corporation
12. ZERO-East Division, ZERO Corporation, a Massachusetts corporation
13. ZERO International, Inc., a California corporation
14. ZERO Manufacturing Corporation, a California corporation
15. ZERO McLean Europe LTD., a U.K. corporation
16. ZERO Integrated Systems, a California corporation
17. Precision Fabrication Technologies, Inc., an Indiana corporation
* All are 100% owned
** Sold as of May 1, 1996
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement No.
33-56175 on Form S-8, Registration Statement No. 33-27929 on Form S-8 and
Registration Statement No. 33-44143 on Form S-8 of ZERO Corporation of our
reports dated May 10, 1996, appearing in and incorporated by reference in this
Annual Report on Form 10-K of ZERO Corporation for the year ended March 31,
1996.
/s/DELOITTE & TOUCHE LLP
Los Angeles, California
June 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ZERO CORPORATION AND ITS SUBSIDIARIES
INCLUDED IN THE 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 7,018
<SECURITIES> 965
<RECEIVABLES> 34,732
<ALLOWANCES> 759
<INVENTORY> 31,561
<CURRENT-ASSETS> 78,448
<PP&E> 89,400
<DEPRECIATION> 49,679
<TOTAL-ASSETS> 165,838
<CURRENT-LIABILITIES> 20,274
<BONDS> 0
0
0
<COMMON> 163
<OTHER-SE> 84,668
<TOTAL-LIABILITY-AND-EQUITY> 165,838
<SALES> 206,247
<TOTAL-REVENUES> 209,051
<CGS> 135,708
<TOTAL-COSTS> 135,708
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,163
<INCOME-PRETAX> 28,247
<INCOME-TAX> 11,297
<INCOME-CONTINUING> 16,950
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,950
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>
