<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
________________ to _________________
Commission file number: 1-5260
Z E R O C o r p o r a t i o n
(Exact name of registrant as set forth in its charter)
Delaware 95-1718077
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
444 South Flower Street, Suite #2100, Los Angeles, CA 90071-2922
(Address of principal executive offices) (Zip Code)
(213) 629-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Common stock outstanding as of December 31, 1995 -- 16,093,380 shares.
<PAGE>
PART I - FINANCIAL INFORMATION
Corporation for which information is given:
This report is filed for ZERO Corporation and its subsidiaries (hereafter
"Registrant" or "Company") for the quarterly period ended December 31, 1995.
Item 1. Financial Statements.
a. The Statements of Consolidated Income required by Rule 10-01
of Regulation S-X are herewith filed as Exhibit Ia and are
incorporated herein by reference.
The Consolidated Balance Sheets required by Rule 10-01 of
Regulation S-X are herewith filed as Exhibit Ib and are
incorporated herein by reference.
The Statements of Consolidated Cash Flows required by Rule 10-01
of Regulation S-X are as follows:
<TABLE>
<CAPTION>
For The Nine Months Ended
December 31,
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES:
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 8,964,000 $ 13,899,000
INVESTING ACTIVITIES:
DECREASE (INCREASE) IN SHORT-TERM INVESTMENTS 17,929,000 (14,995,000)
EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT (5,399,000) (4,337,000)
PURCHASE OF NON-CASH ASSETS OF ACQUIRED BUSINESSES (5,519,000)
PROCEEDS FROM SALE OF ASSETS 1,670,000
OTHER 283,000 (5,000)
NET CASH PROVIDED (REQUIRED) BY
INVESTING ACTIVITIES 8,964,000 (19,337,000)
FINANCING ACTIVITIES:
DIVIDENDS PAID (5,286,000) (4,778,000)
INCREASE IN NOTES PAYABLE 1,772,000
OTHER (INCLUDING EFFECT OF EXCHANGE RATE CHANGES) 984,000 897,000
NET CASH REQUIRED BY FINANCING ACTIVITIES (2,530,000) (3,881,000)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 15,398,000 (9,319,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,132,000 14,843,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD* $32,530,000 $ 5,524,000
These Statements of Consolidated Cash Flows for the nine months ended
December 31, 1995 and 1994 are unaudited but, in the opinion of
management, reflect all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the results for the periods.
<F01>
* Cash and Cash Equivalents include investments purchased with
maturities of three months or less. At December 31, 1995 and 1994
short-term investments with maturities longer than three months
totaled $1,973,000 and $33,520,000, respectively.
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The following should be read in conjunction with the financial statements
included or incorporated herein by reference.
Results of Operations
Net sales for the three and nine months ended December 31, 1995 increased 12.1%
and 11.2%, respectively, when compared to the prior year periods due primarily
to increased orders within the telecommunication/instrumentation and data
processing/peripherals markets partially offset by weakness in the air cargo
market.
Cost of sales and selling and administrative expenses, as a percent of net
sales, remained relatively consistent in the three and nine months ended
December 31, 1995 when compared to the same periods in the prior year.
Financial Condition and Liquidity
The financial condition of the Company remained strong at December 31, 1995.
Cash and short-term investments totaled $34,503,000 compared to $37,034,000 at
March 31, 1995. The Company's working capital increased to $83,523,000 from
$73,531,000 at March 31, 1995.
Net cash provided by operating activities for the nine months ended
December 31, 1995 totaled $8,964,000, versus $13,899,000 during the fiscal
1995 period. The decrease was primarily attributable to increased levels of
accounts receivable and inventory.
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 manufacturer of deep
drawn products for the food service industry.
Recent Acquisition
In January 1996, the Company completed the cash acquisition of
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.
Dutch Tender Offer
On February 1, 1996, the Company and a subsidiary offered to repurchase up
to 4,000,000 shares of common stock shares of the Company at a single price
to be determined by the Company not greater than $18.00 nor less than $15.75
per share in a "Dutch Tender Offer" (the "Offer"). Concurrently with the Offer,
the Company announced that upon consummation of the Offer, its Board of
Directors intends to reduce the annual cash dividend of the Company from $.44
per share to $.12 per share effective for the April 1996 quarterly dividend
declaration. The transactions are more fully described in Schedule 13E-4 and
the exhibits attached thereto filed with the Securities and Exchange
Commission on February 1, 1996 to which reference is made.
On January 31, 1996, the Company and a subsidiary of the Company, executed and
delivered a Private Shelf Agreement providing for the issue of its unsecured
senior promissory notes by the subsidiary, guaranteed by the Company, in the
aggregate principal amount of up to $50,000,000 to Prudential Insurance
Company of America or an affiliate(s) thereof. The subsidiary will use the
proceeds from the sale of the subsidiary notes solely for the purchase of the
shares pursuant to the Offer and for payment of related expenses. The
remaining balance required by the Offer will be funded by the Company's
available cash balances and/or cash derived from the sale of short-term
investments. The Private Shelf Agreement also provided for a $20,000,000 Shelf
Facility to the Company (see Exhibit (b) to Schedule 13E-4 referred to above).
The Company intends to enter into a two-year $20,000,000 unsecured revolving
credit agreement with a commercial bank. Any borrowings under this revolving
credit facility would be used for working capital and for general corporate
purposes.
Management believes that cash from operations, together with the $20,000,000
Shelf Facility, the $20,000,000 revolving credit agreement and the reduction
in the dividend rate, will provide sufficient funds to finance current and
forecasted operations, including potential acquisitions. The Company will
continue to invest its available funds in liquid, low-risk investments.
Exhibit Ia - The Company's Statements of Consolidated Income for the
Three and Nine Months Ended December 31, 1995 and 1994.
Exhibit Ib - The Company's Consolidated Balance Sheets as of
December 31, 1995 and March 31, 1995.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Environmental Matters - In March 1994 the Company, along with twenty-three
other potentially responsible parties (PRPs), entered into a consent decree
with the U.S. Environmental Protection Agency (the EPA) relating to the
remedial design work for the Glendale North and South Operable Units of the San
Fernando Valley Superfund Site (the Site). On October 20, 1995 the Company,
along with forty-four other PRPs, received a Special Notice Letter from the
EPA in connection with the construction, operation and maintenance costs for
the twelve year interim remedy for the Site, and for response costs incurred
by the government. The PRP Group formed in connection with the EPA's initial
remedial design notice has commenced negotiations with the EPA for the
formulation of a good faith offer for the implementation of the interim remedy.
The PRP Group is currently involved in a process to allocate the costs for the
interim remedy and to determine the final allocation for the costs related to
the remedial design work.
The Company's ultimate liability related to the Site will be dependent upon the
outcome of the allocation process, as well as other factors including changes
in the design and/or costs of remediation systems. The Company has provided
for its share of the design costs. The Company has provided no reserves for its
share of the construction, operation and maintenance costs, because its share
is not estimable at this time.
On January 26, 1996 the Company executed a De Minimis Consent Decree in final
settlement of environmental claims brought in 1988 against the Company as a
third-party defendant. Under the Consent Decree the Company's liability was
not material and was expensed in the current period.
In its Form 10-Q for the quarterly period ended September 30, 1995, the Company
reported that it had been notified by the U.S. Environmental Protection Agency
(the EPA) that it may be a potentially responsible party (PRP) with respect to
the South El Monte Operable Unit of the San Gabriel Valley Superfund Sites.
The EPA informed certain PRPs that the EPA had entered into an Administrative
Order on Consent (AOC) with one PRP-entity for a PRP-lead remedial
investigation and feasibility study (RI/FS) at the Site. The EPA encouraged
the other notified PRPs to cooperate with that entity concerning the
performance of the RI/FS work. The amount paid by the Company was not material
and was expensed in the current period.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibit - 27. Financial Data Schedule
b. 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,
incorporated herein by reference.
c. Reports on Form 8-K - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZERO Corporation
Date: February 14, 1996 /s/ D. N. KAJIKAMI
D. N. Kajikami, Controller
and Chief Accounting Officer
Date: February 14, 1996 /s/ G. A. DANIELS
G. A. Daniels, Vice President
and Chief Financial Officer
<PAGE>
ZERO CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
NET SALES $50,328,000 $44,902,000 $150,332,000 $135,201,000
INTEREST INCOME 474,000 539,000 1,406,000 1,299,000
OTHER INCOME 201,000 349,000 840,000 1,022,000
TOTAL 51,003,000 45,790,000 152,578,000 137,522,000
COST AND EXPENSES:
COST OF SALES 32,541,000 28,792,000 95,977,000 86,516,000
SELLING AND ADMIN. EXP. 10,542,000 9,827,000 32,049,000 29,242,000
DEPRECIATION 1,245,000 1,140,000 3,681,000 3,470,000
INTEREST EXPENSE 255,000 186,000 688,000 492,000
TOTAL 44,583,000 39,945,000 132,395,000 119,720,000
INCOME BEFORE TAXES 6,420,000 5,845,000 20,183,000 17,802,000
INCOME TAXES 2,568,000 2,295,000 8,074,000 6,946,000
NET INCOME $ 3,852,000 $ 3,550,000 $ 12,109,000 $ 10,856,000
PRIMARY EARNINGS PER SHARE $0.24 $0.22 $0.75 $0.68
DIVIDENDS DECLARED PER SHARE $0.11 $0.10 $0.33 $0.30
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 16,251,000 16,008,000 16,185,000 15,985,000
</TABLE>
These Statements of Consolidated Income for the Three and Nine Months
Ended December 31, 1995 and 1994 are unaudited but, in the opinion of
management, reflect all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the results for the periods.
Exhibit Ia
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ZERO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1995 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND SHORT-TERM INVESTMENTS $ 34,503,000 $ 37,034,000
ACCOUNTS RECEIVABLE (LESS ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $817,000 AND $724,000,
RESPECTIVELY) 30,926,000 26,310,000
INVENTORIES
RAW MATERIALS AND SUPPLIES 17,960,000 15,028,000
WORK IN PROCESS 8,006,000 7,046,000
FINISHED GOODS 4,622,000 4,147,000
OTHER 5,450,000 3,327,000
TOTAL CURRENT ASSETS 101,467,000 92,892,000
PROPERTY, PLANT AND EQUIPMENT 83,740,000 81,914,000
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION (49,147,000) (47,925,000)
NET PROPERTY, PLANT AND EQUIPMENT 34,593,000 33,989,000
GOODWILL 29,831,000 29,624,000
OTHER ASSETS 16,508,000 15,019,000
TOTAL ASSETS $182,399,000 $171,524,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 6,535,000 $ 8,326,000
ACCRUED WAGES AND COMMISSIONS 4,920,000 5,426,000
ACCRUED INCOME AND OTHER TAXES 1,702,000 1,671,000
OTHER 4,787,000 3,938,000
TOTAL CURRENT LIABILITIES 17,944,000 19,361,000
NOTES PAYABLE 1,515,000
OTHER NON-CURRENT LIABILITIES (INCLUDING
DEFERRED COMPENSATION OF $7,652,000 AND
$6,352,000, RESPECTIVELY) 9,539,000 6,569,000
STOCKHOLDERS' EQUITY
PREFERRED STOCK $.01 PAR VALUE; NONE ISSUED
COMMON STOCK $.01 PAR VALUE 162,000 161,000
ADDITIONAL PAID-IN-CAPITAL 33,189,000 31,079,000
RETAINED EARNINGS 121,640,000 115,754,000
154,991,000 146,994,000
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS 64,000 261,000
TREASURY STOCK (160,445 AND 160,888 SHARES,
RESPECTIVELY) AT COST (1,654,000) (1,661,000)
TOTAL STOCKHOLDERS' EQUITY 153,401,000 145,594,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $182,399,000 $171,524,000
</TABLE>
The Consolidated Balance Sheet as of December 31, 1995 is unaudited but, in
the opinion of management, reflects all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the Company's financial
position.
Exhibit Ib
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF CONSOLIDATED INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 32,530
<SECURITIES> 1,973
<RECEIVABLES> 31,743
<ALLOWANCES> 817
<INVENTORY> 30,588
<CURRENT-ASSETS> 101,467
<PP&E> 83,740
<DEPRECIATION> 49,147
<TOTAL-ASSETS> 182,399
<CURRENT-LIABILITIES> 17,944
<BONDS> 0
<COMMON> 162
0
0
<OTHER-SE> 153,239
<TOTAL-LIABILITY-AND-EQUITY> 182,399
<SALES> 150,332
<TOTAL-REVENUES> 152,578
<CGS> 95,977
<TOTAL-COSTS> 95,977
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 688
<INCOME-PRETAX> 20,183
<INCOME-TAX> 8,074
<INCOME-CONTINUING> 12,109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,109
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.75
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF CONSOLIDATED INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1995 MAR-31-1996 MAR-31-1996
<PERIOD-END> MAR-31-1995 JUN-30-1995 SEP-30-1995
<CASH> 17,132 27,321 31,551
<SECURITIES> 19,902 6,160 2,965
<RECEIVABLES> 27,034 29,346 31,559
<ALLOWANCES> 724 758 772
<INVENTORY> 26,221 28,974 30,666
<CURRENT-ASSETS> 92,892 94,452 100,646
<PP&E> 81,914 80,280 81,677
<DEPRECIATION> 47,925 47,447 48,456
<TOTAL-ASSETS> 171,524 175,633 179,448
<CURRENT-LIABILITIES> 19,361 19,474 18,524
<BONDS> 0 0 0
<COMMON> 161 161 162
0 0 0
0 0 0
<OTHER-SE> 145,433 147,578 150,957
<TOTAL-LIABILITY-AND-EQUITY> 171,524 175,633 179,448
<SALES> 179,694 48,617 100,004
<TOTAL-REVENUES> 182,741 49,258 101,575
<CGS> 115,068 30,839 63,436
<TOTAL-COSTS> 115,068 30,839 63,436
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 662 196 433
<INCOME-PRETAX> 24,226 6,179 13,763
<INCOME-TAX> 9,401 2,472 5,506
<INCOME-CONTINUING> 14,825 3,707 8,257
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 14,825 3,707 8,257
<EPS-PRIMARY> 0.93 0.23 0.51
<EPS-DILUTED> 0.93 0.23 0.51
</TABLE>
