<PAGE>
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, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM__________TO___________
Commission file number 1-5260
ZERO CORPORATION
- --------------------------------------------------------------------------------
(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, Ste. 2100, Los Angeles, CA 90071-2922
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 213/629-7000
------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 Par Value New York Stock Exchange
Pacific Exchange, Inc.
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 $286,004,649 as of June 17, 1997 (based upon the closing sale
price of $23.75 per share of such stock on the New York Stock Exchange on June
17, 1997).
Common stock outstanding as of June 17, 1997-- 12,263,200 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Only those portions of Registrant's Annual Report for the year ended March 31,
1997 attached hereto as Exhibit 13 and specifically incorporated by reference
herein (the "1997 Annual Report") and the Proxy Statement for its annual meeting
to be held July 23, 1997 (the "1997 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.
<PAGE>
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 78% of ZERO's net sales in fiscal 1997 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 to protect electronic equipment. ZERO's products,
which range from standard to highly customized, can be used individually or
combined to create first-level system integration. These products include
components such as card cages for printed circuit boards, backplanes, filter fan
packages and microprocessor-controlled fan trays, blowers, motorized impellers,
heat exchangers, air conditioners and computerized thermal management controls.
Other products include electronic cabinets and consoles, cable management racks,
deep drawn aluminum ZERO boxes and cases, fabricated cases, specialized case
hardware and other specialized enclosures.
The remaining 22% of the Company's net sales in fiscal 1997 were primarily to
the consumer/other and air cargo markets. These products include ZERO
Halliburton(R) luggage, carrying cases and attaches for consumers worldwide,
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.
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 27 of the 1997 Annual Report, which is incorporated herein by reference.
During the three years ended March 31, 1997, 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 6% of the Company's net sales. The Company has over 22,000 customers.
Patents, licenses, franchises and concessions are not materially important
factors in ZERO's overall production process and are not material to its results
of operation.
The Company works with its customers in providing engineered solutions to
satisfy their specific requirements often resulting in the development of new
products, while research and development activities are not a significant part
of the Company's business. During the year ended March 31, 1997, the Company
spent less than 1% of net sales on research and development activities.
Acquisitions and Divestiture
ZERO is committed to enhance its growth through acquisitions that would
complement the existing businesses. During the year ended March 31, 1997, the
Company acquired two businesses, both of which were accounted for under the
purchase method of accounting. In April 1996, the Company acquired the assets
of Instrument Enclosures, Inc., a manufacturer of deep drawn and fabricated
aluminum enclosures with net sales of approximately $2 million. In July 1996,
the Company acquired Cambridge Aeroflo, Inc., a manufacturer of electronic
controls for thermal management, with sales of approximately $3.5 million, net
of sales to ZERO.
The Company continues to actively pursue acquisitions and negotiated a $20
million credit facility during fiscal 1996 to support this effort.
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
requirements from ZERO's Nielsen Hardware Corporation subsidiary for ten years.
Anvil Cases generated sales of over $7.5 million in fiscal 1996.
2
<PAGE>
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 used in
this industry.
ZERO's sales to the electronics industry increased to $175.1 million from $152.4
million for the years ended March 31, 1997 and 1996, 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 1997 and 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 maintain the temperature in a wide range of electronics, include
products such as blowers, fans, air conditioning systems and electronic control
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
Generally, 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.
However, recently the size and timing of orders from telecommunications
customers have increased the backlog for that industry. ZERO's backlog at March
31, 1997 and 1996 was $57,689,000 and $42,137,000, respectively. Backlog is
based on contracts which were signed as of the respective dates set forth. The
backlog at March 31, 1997 is scheduled for delivery during fiscal 1998.
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 22,000), 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
<PAGE>
For the year ended March 31, 1997, approximately 10% of ZERO's sales were made
to the U.S. 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, 1997, 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, 1997, 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, 1998. 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 26 and in the "Management's Discussion and
Analysis of Results of Operations and Financial Condition" on page 11 of the
1997 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 1998.
Employees
As of May 31, 1997, ZERO employed approximately 2,000 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 12 of the 1997 Annual Report is incorporated herein by reference.
4
<PAGE>
ITEM 2. PROPERTIES.
As of May 31, 1997, ZERO used manufacturing plants, facilities and office
buildings containing an aggregate of approximately 1,702,000 square feet of
floor space. ZERO's plants and facilities are located in California (Camarillo,
Chino, El Monte, Oxnard, Pacoima, Rancho Dominguez and San Diego); Utah (North
Salt Lake); Indiana (Monon); Massachusetts (Monson and Shirley); 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;
Shirley, Massachusetts; 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.
ZERO owns all of its plants and facilities, except for the following leased
properties:
<TABLE>
<CAPTION>
SQUARE
PLANT FOOTAGE LEASE EXPIRES
- ------------------------------------------------------------
<S> <C> <C>
Camarillo, CA 35,000 June 30, 2000*
Chino, CA 7,000 March 31, 1998*
El Monte, CA 72,000 May 31, 2004
Hartford, CT 8,000 June 30, 1997*
Hartford, CT 6,000 June 30, 1997*
Oxnard, CA 13,000 June 30, 2000
Pacoima, CA 113,000 August 30, 1999
Rancho Dominguez, CA 110,000 September 29, 1999
Shirley, MA 8,000 December 31, 2006*
Windsor, NJ 24,000 June 30, 1998*
Tijuana, Mexico 33,000 July 31, 1997*
Birmingham, England 4,000 July 31, 2006
Feltham, England 13,000 October 1, 2002
Feltham, England 18,000 October 1, 2007
West Midlands, England 20,000 August 31, 2010
West Midlands, England 30,000 May 22, 2010
-------
TOTAL 514,000
</TABLE>
* Lease contains renewal option.
The Company has expanded the facility of its Nielsen Hardware, a subsidiary, by
25,000 square feet and plans to exit leases in Hartford, Connecticut, by August
1997. Subsequent to May 31, 1997, the Company began construction of a new
facility for its McLean Engineering, a division. Completion of this facility is
expected near the end of fiscal 1998, at which time Mclean Engineering will
relocate.
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 increases in its operations, assuming a comparable product mix.
ITEM 3. LEGAL PROCEEDINGS.
Information concerning legal proceedings in Note 10 - "Contingent Liabilities"
on page 26 of the 1997 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, 1997.
5
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
Information regarding the Company's officers as of May 31, 1997 is as follows:
<TABLE>
<CAPTION>
EXECUTIVE
NAME AGE POSITION OFFICER SINCE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Howard W. Hill 70 Chairman of the Board 1960
John B. Gilbert 76 Chairman Emeritus and Director 1952
Wilford D. Godbold Jr. 59 President, Chief Executive Officer and 1982
Director
Anita J. Cutchall 58 Vice President - Legal and Corporate 1992
Secretary
George A. Daniels 59 Vice President and Chief Financial 1987
Officer
Bernard B. Heiler 51 Vice President of Marketing and Sales 1992
and Director
James F. Hermanson 60 Vice President 1984
Michael D. LeRoy 49 Vice President of Corporate Development 1995
John G. Mogler 57 Vice President 1996
</TABLE>
None of the directors or executive officers are related to one another. All
executive officers except Ms. Cutchall, Messrs. Heiler, LeRoy and Mogler have
served in their current capacities or in other managerial positions with the
Company for a minimum of five years. Ms. Cutchall has served as Vice
President - Legal since August 1996, prior to which she was Director of Legal
Affairs and Corporate Secretary for the Company since August 1992, and prior to
that she held the same position with Continental Graphics Corporation, a
provider of specialty graphics, commercial printing and film services, from 1990
through 1992. 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. Mr. Mogler was
elected Vice President in October 1996, and continues to serve as President of
McLean Midwest Corporation, a subsidiary of the Company, since 1991.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded on the New York Stock Exchange and the
Pacific Exchange, Inc. under the ticker symbol ZRO.
<TABLE>
<CAPTION>
TRADING RANGE DIVIDENDS
QUARTER ENDED HIGH LOW PAID
<S> <C> <C> <C>
1997
March 31, 1997 $23.75 $18.75 $.03
December 31, 1996 20.88 17.13 .03
September 30, 1996 22.13 17.88 .03
June 30, 1996 22.88 16.63 .03
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
</TABLE>
On June 17, 1997 the Company had 5,234 stockholders of record.
6
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Consolidated Highlights" on page 1 of the
1997 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 10 of the 1997 Annual
Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements of the Registrant and its
subsidiaries included in the 1997 Annual Report (on the page numbers shown) are
incorporated herein by reference:
Statements of Consolidated Income--Years Ended March 31, 1997, 1996 and 1995.
(Page 13)
Consolidated Balance Sheets--March 31, 1997 and 1996. (Pages 14 and 15)
Statements of Consolidated Stockholders' Equity--Years Ended March 31, 1997,
1996 and 1995. (Page 16)
Statements of Consolidated Cash Flows--Years Ended March 31, 1997, 1996 and
1995. (Page 17)
Notes to Consolidated Financial Statements. (Pages 18 to 28, inclusive)
Quarterly Results of Operations. (Page 31)
The independent auditors' report on page 29 and management's report on page 30
of the 1997 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 Directors" in the 1997 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
1997 Proxy Statement is incorporated herein by reference.
7
<PAGE>
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 1997 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.
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,
1997, 1996 and 1995.
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 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.
10.2 ZERO Corporation 1988 Stock Option Plan, as amended, filed on Form S-8
Registration Statements (File Nos. 33-44143 and 33-27929).
10.3 ZERO Corporation 1994 Stock Option Plan, filed on Form S-8 Registration
Statement (File No. 33-56175), as amended effective as of July 24, 1996 and
as proposed to be amended by Amendment No. 2 to be submitted to
stockholders of the Company for approval at the Company's Annual Meeting on
July 23, 1997 as filed with the 1997 Proxy Statement.
10.4 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
<PAGE>
10.5 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.
10.6 Credit Agreement dated March 31, 1996 between ZERO Corporation and Wells
Fargo Bank, National Association providing for a line of credit of $28
million ($8 million of which is for letters of credit) to be utilized for
general corporate purposes through March 31, 1998 filed as Exhibit 10.11 to
the Company's Form 10-K for the year ended March 31, 1996.
10.7 Directors' Deferred Compensation Plan as adopted October 20, 1993 and as
amended effective as of January 1, 1996.
10.8 Executive Deferred Compensation Plan as adopted October 20, 1993 and as
amended effective as of January 1, 1996.
13 Annual Report for the year ended March 31, 1997 (not deemed filed except
for those portions specifically incorporated by reference herein).
21 Listing of the Company's subsidiaries as of March 31, 1997.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
(b). REPORTS ON FORM 8-K.
During the quarter ended March 31, 1997 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
<PAGE>
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ -------------
<S> <C> <C>
Vice President and Chief Financial
/s/ George A. Daniels Officer June 27, 1997
- ----------------------------
George A. Daniels
Controller and Chief Accounting
/s/ Diane N. Kajikami Officer June 27, 1997
- ----------------------------
Diane N. Kajikami
DIRECTORS:
/s/ Gary M. Cusumano Director June 27, 1997
- ----------------------------
Gary M. Cusumano
/s/ Bruce J. DeBever Director June 27, 1997
- ----------------------------
Bruce J. DeBever
/s/ John B. Gilbert Director June 27, 1997
- ----------------------------
John B. Gilbert
Director and Chief
/s/ Wilford D. Godbold, Jr. Executive Officer June 27, 1997
- ----------------------------
Wilford D. Godbold, Jr.
/s/ Bernard B. Heiler Director June 27, 1997
- ----------------------------
Bernard B. Heiler
/s/ Howard W. Hill Director June 27, 1997
- ----------------------------
Howard W. Hill
/s/ Whitney A. McFarlin Director June 27, 1997
- ----------------------------
Whitney A. McFarlin
</TABLE>
10
<PAGE>
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, 1997 and 1996, and for each of the three years
in the period ended March 31, 1997, and have issued our report thereon dated May
12, 1997; such financial statements and report are included in your 1997 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 12, 1997
11
<PAGE>
SCHEDULE II
ZERO CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<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, 1996 to March 31, 1997 $759,000 $101,000 ($253,000) $607,000
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
</TABLE>
(1) Net of recoveries
12
<PAGE>
ZERO CORPORATION AND SUBSIDIARIES
FORM 10-K, ITEM 14(c)
EXHIBITS FILED HEREWITH
10.7 Directors' Deferred Compensation Plan as adopted October 20, 1993 and as
amended effective as of January 1, 1996.
10.8 Executive Deferred Compensation Plan as adopted October 20, 1993 and as
amended effective as of January 1, 1996.
13 Annual Report for the year ended March 31, 1997 (not deemed filed except
for those portions specifically incorporated by reference herein).
21 Subsidiaries of Registrant as of March 31, 1997.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
13
<PAGE>
EXHIBIT 10.7
ZERO CORPORATION
DIRECTORS' DEFERRED COMPENSATION PLAN
AS ADOPTED OCTOBER 20, 1993
AND AS AMENDED EFFECTIVE AS OF JANUARY 1, 1996
PURPOSE
The purpose of the ZERO Corporation Directors' Deferred Compensation Plan
is to provide the opportunity to defer the receipt of compensation payable to
the members of the Board of Directors of ZERO Corporation upon whose judgment,
initiative and efforts the continued success of ZERO Corporation and its
divisions and subsidiaries is dependent.
ARTICLE I
TITLE AND EFFECTIVE DATE
------------------------
1.01 TITLE This Plan shall be known as the ZERO Corporation Directors'
-----
Deferred Compensation Plan.
1.02 EFFECTIVE DATE The effective date of this Plan shall be January 1,
--------------
1994.
ARTICLE II
DEFINITIONS
-----------
2.01 Unless otherwise clearly apparent from the context, the phrases or
terms used herein shall be as defined on Appendix A attached to this Plan.
ARTICLE III
ELIGIBILITY
-----------
3.01 Only Eligible Directors may participate in the Plan. As a condition
to becoming a Participant hereunder, however, an Eligible Director must complete
and return to the Named Fiduciary a duly executed Election Form prior to the
applicable Election Date. Election Forms remain in effect for the Plan Year to
which they apply. A Participant must file a new Election Form for any
subsequent Plan Year.
ARTICLE IV
DEFERRAL OF COMPENSATION
------------------------
4.01 Each Participant in the Plan may irrevocably elect to have all or a
portion of his or her Plan Compensation during a Plan Year following the
applicable Election Date deferred and credited to the Participant's Bookkeeping
Account in accordance with the terms and conditions hereof. The amount of such
Plan Compensation to be so deferred under this paragraph 4.01 for a Plan Year
shall be any whole number or percentage as the Participant shall select on his
or her Election Form; provided, that such amount for any Plan Year shall not be
less than Five Thousand ($5,000) Dollars.
<PAGE>
4.02 An Eligible Director desiring to participate in the Plan must submit
his or her written Election Form to the Named Fiduciary before the applicable
Election Date. Valid Election Forms filed by the applicable Election Date shall
cause Plan Compensation to be deferred for the Plan Year (or portion thereof in
the case of Participants for whom paragraph 2.08(b) of Article II is the
applicable Election Date) for which such Election is made.
4.03 A Participant who has not submitted to or does not have on file a
valid Election Form with the Named Fiduciary before the applicable Election Date
may not defer any Plan Compensation for the applicable Plan Year.
ARTICLE V
DEFERRAL ACCOUNT AND CREDITING
------------------------------
5.01 Plan Compensation deferred by a Participant under a written Election
Form shall be credited in a dollar amount to a separate Bookkeeping Account for
each Participant as of the date on which such Plan Compensation would otherwise
be payable to the Participant.
5.02 The deferrals credited to the Participant's Bookkeeping Account shall
also be credited earnings on a quarterly basis equal to the Moody's Seasoned
Corporate Bond Rate for the last month of each quarter on which earnings are
applied plus three percent (3%) until such account value is distributed pursuant
to Article VI hereof. Plan Compensation deferred shall be deemed to be invested
and accruing earnings starting on the date the amounts deferred are credited to
the Bookkeeping Account.
5.03 The Participant shall at all times have a nonforfeitable right to the
value of his or her Bookkeeping Account attributable to his or her own deferrals
under paragraph 4.01 of Article IV hereof plus interest credited thereon, with
no right of offset by the Company except as set forth in paragraph 6.06(b) of
Article VI hereof.
ARTICLE VI
DISTRIBUTIONS
-------------
6.01 At the time of electing deferrals for each Plan Year, a Participant
shall specify the amount to be deferred, and any other matter required to be
specified by the Company on its Election Form. In addition, in his or her
initial deferral election, Participant shall specify the payment method and
commencement date (relative to the date of Separation from Service) for his or
her Bookkeeping Account which shall apply to all amounts deferred in the initial
year and in all subsequent years. A separate designation of payment
commencement time and method of distribution shall be made depending upon
whether a Participant's Separation from Service occurs on or after attaining age
55 or before
2
<PAGE>
attaining age 55. The period of deferral shall end, and distribution of the
value of a Participant's Bookkeeping Account shall begin on the date specified
in the Participant's initial deferral election. The Participant may elect to
receive distributions in substantially equal installments over a five (5) or ten
(10) year period or in a lump sum, or in such other payment form as offered by
the Company. In the case of any payment deferred beyond Separation from
Service, interest at the rate specified in paragraph 5.02 of Article V shall be
credited on all amounts remaining in the Bookkeeping Account of the Participant
from which the payments are to be made.
Notwithstanding the foregoing, a Participant may, after the initial
deferral election, modify any election with respect to either time of payment
commencement or the method of distribution without penalties so long as such
change is made at least one (1) year before the commencement date previously
elected; provided, however, that a modification made on or before December 31,
1996 to create an installment payment stream of ten (10) years in response to
H.R. 394 (pertaining to pension source taxation) need not be made within one (1)
year before the payment commencement date and such modification shall apply to
all remaining payments due hereunder; provided further, however, the Named
Fiduciary must make a determination that any subsequent modification in election
would not have a detrimental effect on the tax consequences of benefits deferred
by other Participants hereunder or such subsequent modification will be
disregarded.
6.02 In the event of a Participant's death before the payments have
commenced hereunder, the Participant's Bookkeeping Account shall be distributed
as soon as practicable after his or her death to his or her Beneficiary(ies)
designated in accordance with Article VIII hereof in the manner selected on the
Participant's most recent Election Form designating his or her Beneficiary(ies).
In the event of a Participant's death after payments have commenced, any
remaining amounts in the Participant's Bookkeeping Account shall be distributed
to the Participant's Beneficiary(ies) in the same manner of distribution as was
being followed at the time of his or her death. A Beneficiary may not, upon the
Participant's death or other incapacity, change the form and/or commencement
time of the death benefit otherwise payable to him or her to any other form
and/or commencement time available under Section 6.01.
6.03 Notwithstanding paragraphs 6.01 and 6.02 hereof, if the total amount
in a Participant's Bookkeeping Account is Fifty Thousand ($50,000) Dollars or
less, such Bookkeeping Account shall be distributed to him or her in full within
thirty (30) days after Separation from Service or upon the occurrence of a
Disability or shall be distributed in full to his or her Beneficiary upon his or
her death. In the event that either the Named Fiduciary or the Committee
determines, in their sole discretion, that a Change in
3
<PAGE>
Control is likely, the Company will, effective automatically and concurrently
with the Change in Control, deposit in one or more grantor trusts (within the
meaning of Section 671 of the Internal Revenue Code of 1986) funds in an amount
sufficient to pay Participant that amount which is the value of his or her
Bookkeeping Account. For purposes of this Section 6.03, "Change in Control"
shall be as defined on Appendix A hereto.
6.04 All distributions of a Participant's Bookkeeping Account hereunder
shall be made in cash payments only and shall commence not later than January 1
of the first year following the Director's Separation from Service.
6.05 The Company shall have the right to deduct from all payments any
federal, state, local or foreign taxes or other charges required by law to be
withheld or elected by the Participant to be withheld with respect to such
payments.
6.06 Notwithstanding any provision hereunder to the contrary, a
Participant may take a distribution of all or a portion of his or her
Bookkeeping Account in a manner inconsistent with his or her deferral election
even though the Participant is not then suffering a financial hardship, as
defined in paragraph 7.01 of Article VII hereof, provided that the distribution
is reduced by (a) five percent (5%) if the Participant is still then in the
active service of the Company or (b) ten percent (10%) if the Participant is not
then in the active service of the Company. If clause (a) of the previous
sentence applies, the Participant may not again make deferrals hereunder until
the beginning of the third year following the year in which a distribution under
this Section 6.06 is made. All reductions hereunder shall be forfeited to the
Company.
ARTICLE VII
HARDSHIP DISTRIBUTIONS
----------------------
7.01 At the request of a Participant before complete distribution of his
or her Bookkeeping Account, the Committee may, in its sole discretion,
accelerate and pay all or part of the value of a Participant's Bookkeeping
Account due under the Plan. Accelerated distributions at the request of the
Participant or a Participant's Beneficiary may be allowed only in the event of a
financial emergency beyond the Participant's or Beneficiary's control due to
unforeseeable circumstances and only if disallowance of a distribution would
create a severe hardship for the Participant or Beneficiary. An accelerated
distribution must be limited to only that amount necessary to relieve the
financial emergency.
4
<PAGE>
ARTICLE VIII
BENEFICIARY
-----------
8.01 A Participant shall, by completing the Beneficiary Designation Form,
designate one or more Beneficiaries to receive benefits under the Plan payable
in the event of his or her death before complete distribution of his or her
Bookkeeping Account. If more than one Beneficiary is named, the share and/or
precedence of each Beneficiary shall be indicated. A Participant shall have the
right to change the Beneficiary by notifying the Named Fiduciary in the
appropriate spaces of a revised Beneficiary Designation Form. However, no
designation or change in designation of Beneficiary shall be effective until
received, accepted and acknowledged by the Company.
8.02 The Committee shall be entitled to rely on the last Beneficiary
Designation Form filed by the Participant and accepted and acknowledged by the
Company prior to his or her death. If the Committee has any doubt as to the
proper Beneficiary to receive payments hereunder, the Committee shall have the
right to direct the Company to deposit any and all payments due Beneficiary into
a separate bank account in the name of the Estate of Participant until the
matter is finally adjudicated. However, any payment made by the Company, in good
faith and in accordance with the Plan and the directions of the Committee, shall
fully discharge the Company and the Committee from all further obligations with
respect to that payment.
8.03 In making any payments to or for the benefit of any minor or
incompetent Beneficiary, the Committee, in its sole discretion, may direct the
Company to make a distribution to a legal or natural guardian or other relative
of a minor or court appointed committee of such incompetent. Alternatively, the
Committee may direct the Company to make a payment to any adult with whom the
minor or incompetent temporarily or permanently resides. The receipt by a
guardian, committee, relative or other person shall be a complete discharge to
the Company and the Committee. Neither the Committee nor the Company shall have
any responsibility to see to the proper application of any payments so made.
ARTICLE IX
ADMINISTRATION OF THE PLAN
--------------------------
9.01 The Plan shall be administered by the Employee Benefits Committee as
constituted and approved from time to time by the Board. Such persons shall
serve at the pleasure of the Board. Participants in this Plan may serve as
members of the Committee. All resolutions or other actions taken by the
Committee shall be by vote of a majority of those present at a meeting at which
a majority of the members are present, or in writing by a majority of all the
members at the time in office if they act without a meeting.
5
<PAGE>
9.02 Subject to the terms of the Plan, the Committee shall, from time to
time, establish rules, forms and procedures for the administration of the Plan.
Except as herein otherwise expressly provided, the Committee shall have the
exclusive right to interpret the Plan and to make, amend, interpret and enforce
all rules adopted in connection with the Plan and to decide any and all matters
arising hereunder or in connection with the administration of the Plan, and it
shall endeavor to act, whether by general rules or by particular decisions, so
as not to discriminate in favor of or against any person. The decisions, actions
and records of the Committee shall be conclusive and binding upon the Company
and all persons having or claiming to have any right or interest in or under the
Plan.
9.03 In the administration of the Plan, the Committee may, from time to
time, employ agents and delegate to them such administrative duties as it deems
appropriate and may, from time to time, consult with counsel who may be counsel
to the Company.
9.04 The members of the Committee and the officers and Directors of the
Company shall be entitled to rely on all certificates and reports made by any
duly appointed accountants, and on all opinions given by any duly appointed
legal counsel, which legal counsel may be counsel for the Company.
9.05 To enable the Committee to perform its functions, the Company shall
supply full and timely information to the Committee on all matters relating to
the compensation of Participants and the date and circumstances of the
Separation from Service or death or Disability of a Participant and such other
pertinent information as the Committee may reasonably require.
9.06 The Company shall indemnify and save harmless each member of the
Committee against any and all expenses and liabilities arising out of his or her
membership on the Committee. Expenses against which a member of the Committee
shall be indemnified hereunder shall include, without limitation, the amount of
any settlement or judgment, costs, counsel fees, and related charges reasonably
incurred in connection with a claim asserted, or a proceeding brought or
settlement thereof. The foregoing right of indemnification shall be in addition
to any other rights to which any such member of the Committee may be entitled as
a matter of law.
ARTICLE X
CLAIMS PROCEDURE
----------------
10.01 Benefits shall be paid automatically in accordance with the
provisions of this instrument. The Participant, or a Beneficiary or any other
person claiming through the Participant, shall make a written request for
benefits under this Plan. This written claim shall be mailed or delivered to the
Named Fiduciary who shall review such claim.
6
<PAGE>
10.02 If the claim is denied, in full or in part, the Named Fiduciary
shall provide a written notice within forty-five (45) days setting forth the
specific reasons for denial, and any additional material or information
necessary to perfect the claim, and an explanation of why such material or
information is necessary, and appropriate information and explanation of the
steps to be taken if a review of the denial is desired.
10.03 If the claim is denied and a review by the full Committee is
desired, the Participant (or Beneficiary) shall notify the Named Fiduciary in
writing within thirty (30) days (a claim shall be deemed denied if the Named
Fiduciary does not take any action within the aforesaid forty-five (45) day
period) after receipt of the written notice of denial. In requesting a review,
the Participant or his or her Beneficiary may request a review of the Plan
document or other pertinent documents, may submit any written issues and
comments, and may request that a hearing be held, but the decision to hold a
hearing shall be within the sole discretion of the Committee.
10.04 The decision on the review of the denied claim shall be rendered by
the Committee within thirty (30) days after the receipt of the request for
review (if a hearing is not held) or within sixty (60) days after the hearing if
one is held. The decision shall be written and shall state the specific reasons
for the decision including reference to specific provisions of the Plan on which
the decision is based.
10.05 If, after the review process, a claimant seeks further redress, the
subject of the dispute shall be submitted to arbitration in Los Angeles,
California, in accordance with the Commercial Rules of the American Arbitration
Association then in effect, which arbitration shall be the exclusive remedy of
the parties hereto. The resulting arbitration award shall be deemed a final
order of a court having jurisdiction over the subject matter and shall not be
appealable. All fees and expenses connected with the arbitration proceeding,
other than counsel fees incurred by either party, if any, shall be shared
equally by both parties.
ARTICLE XI
AMENDMENT AND TERMINATION
-------------------------
11.01 The Company, by action of the Board, may amend or modify this Plan
from time to time; provided that no such amendment or modification shall in any
way reduce the vested portion of affected Participants' (or Beneficiaries')
Bookkeeping Accounts measured as of the date the amendment or modification is
made, or, if later, the effective date of such actions; and, provided
7
<PAGE>
further, no amendment or modification may assess costs or fees to Participants
or reduce (evenon a prospective basis) the interest rates payable hereunder on
Bookkeeping Accounts below Moody's Seasoned Corporate Bond Rate (as set forth in
paragraph 5.02), or take effect until the end of a calendar year.
In addition, the Company, by action of its Board of Directors, may
terminate this Plan by discontinuing all future deferrals hereunder; provided,
that no such termination may affect the crediting of interest hereunder (either
pursuant to Participant elections or otherwise) or otherwise accelerate the
liquidation of Bookkeeping Accounts hereunder.
ARTICLE XII
MISCELLANEOUS
-------------
12.01 The Company's obligation under the Plan shall in every case be an
unfunded and unsecured promise to pay. Participants' rights as to benefits
hereunder shall be no greater than that of general, unsecured creditors of the
Company. The Company may establish one or more grantor trusts as described in
Section 671 of the Internal Revenue Code of 1986. Any assets which the Company
may acquire or set aside to cover its financial liabilities are and must remain
general assets of the Company and such assets as well as any assets set aside in
any grantor trust shall be subject to the claims of its general creditors.
Neither the Company nor the Plan gives the Participant any beneficial ownership
interest in any asset of the Company. All rights of ownership in any such assets
are and remain in the Company.
12.02 Except insofar as permitted by applicable law, no sale, transfer,
alienation, assignment, pledge, collateralization or attachment of any benefits
under the Plan shall be valid or recognized by the Company. Neither the
Participant, his or her spouse, or designated Beneficiary shall have any power
to hypothecate, mortgage, commute, modify or otherwise encumber in advance of
any of the benefits payable hereunder, nor shall any of said benefits be subject
to seizure for the payment of any debts, judgments, alimony maintenance, owed by
the Participant or his Beneficiary, or be transferable by operation of law in
the event of bankruptcy, insolvency, or otherwise. Notwithstanding the
foregoing, the Company may, if the Committee so determines in its sole
discretion, follow the terms of any court order issued in connection with any
domestic relations proceeding including but not limited to marital dissolution
or child support.
12.03 The Plan shall be binding upon the Company, its assigns, and any
successor company which shall succeed to substantially all of its assets and
business through merger, acquisition or consolidation, and upon a Director, his
or her Beneficiary, assigns, heirs, executors and administrators.
8
<PAGE>
12.04 The terms and conditions of the Plan shall not be deemed to
constitute a contract of employment between the Company and a Director. Nothing
in this Plan shall of itself be deemed to give a Director the right to be
retained in the service of the Company or to interfere with any right of the
Company to discipline or discharge the Director at any time.
12.05 A Director will cooperate with the Company by furnishing any and all
information reasonably requested by the Company and take such other actions as
may be requested in order to facilitate the administration of the Plan and the
payment of benefits hereunder.
12.06 In case any provisions of this Plan shall be found illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but the Plan shall be construed and enforced as if such
illegal and invalid provision had never been included herein.
12.07 Any notice which shall be or may be given under the Plan or an
Election Form shall be in writing and shall be mailed by United States mail,
postage prepaid. If notice is to be given to the Company, such notice shall be
addressed to the Company at 444 South Flower Street, Suite 2100, Los Angeles,
California 90071-2922, marked for the attention of the Corporate Secretary of
the Company or, if notice to a Director, addressed to the address shown on such
Director's Election Form or the last known address on the Company's personnel
records. Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and sent by facsimile, hand
delivered, or sent by mail, to the last known address of the Participant. Any
party may, from time to time, change the address to which notices shall be
mailed by giving written notice of such new address.
12.08 The interest in the benefits hereunder of a spouse of a Participant
who has predeceased the Participant shall automatically pass to the Participant
and shall not be transferable by such spouse in any manner, including but not
limited to such spouse's will, nor shall such interest pass under the laws of
intestate succession.
12.09 If, for any reason, all or any portion of a Participant's benefit
under this Plan becomes taxable to the Participant prior to receipt, a
Participant may petition the Committee for a distribution of any portion that
becomes taxable. Upon the grant of such a petition, which grant shall not be
unreasonably withheld, the Company shall distribute to the Participant
immediately available funds in an amount equal to that portion of Participant's
benefit that is taxable. If the petition
9
<PAGE>
is granted, such distribution shall be made within ninety (90) days of the date
when the Participant's petition is granted. Such a distribution shall affect and
reduce the benefits to be paid under Articles VI or VII hereof.
12.10 The benefits provided for a Participant and Participant's
Beneficiary under the Plan are in addition to any other benefits available to
such Participant under any other plan or program for employees of the Company.
The Plan shall supplement and shall not supersede, modify or amend any other
such plan or program except as may otherwise be expressly provided.
12.11 The payment of benefits under the Plan to a Participant or
Beneficiary shall fully and completely discharge the Company and the Committee
from all further obligations under this Plan with respect to a Participant, and
that Participant's Election Form shall terminate upon such full payment of
benefits.
12.12 Without limiting the provisions of paragraph 9.06 above, if any
action at law or in equity is necessary by a Participant or Beneficiary to
enforce the terms of the Plan, the Participant or Beneficiary shall be entitled
to recover reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which that party may be entitled.
12.13 Titles and headings of the Articles of the Plan are included for
ease of reference only and are not to be used for the purpose of construing any
portion or provision of the Plan document.
12.14 To the extent not preempted by Federal law, this Plan shall be
governed by and construed pursuant to the laws of the State of California.
12.15 Any Election Form may be executed in one or more counterparts, each
of which is legally binding and enforceable.
AS ADOPTED BY THE BOARD OF DIRECTORS
OF ZERO CORPORATION APRIL 25, 1997
10
<PAGE>
APPENDIX A
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1. ACTIVE PLAN shall mean a plan which is accepting deferrals of a portion of
-----------
an Executive's compensation, and/or amounts credited to a Participant under
the Company's Pension Restoration Plan adopted January 19, 1994 and the
401(k) Executive Restoration Plan adopted July 27, 1994.
2. BENEFICIARY shall mean the person or persons, trust or the estate of a
-----------
Participant entitled to receive any benefits under the Plan, as indicated
by the Participant on the Beneficiary Designation Form.
3. BOARD shall mean the Board of Directors of ZERO Corporation.
-----
4. BOOKKEEPING ACCOUNT means the bookkeeping record established for each
-------------------
Participant who elects to defer compensation under the Plan.
5. CHANGE IN CONTROL shall mean the date upon which the first of the following
-----------------
events occurs:
(a) Consummation of (i) any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or
pursuant to which shares of the Company's common stock would be
converted into cash, securities or other property, other than a merger
of the Company in which the holders of the Company's common stock
immediately prior to the merger have substantially the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (ii) any sale, lease, exchange or
other transfer (in one transaction or a series of transactions) of
all, or more than fifty percent (50%), of the assets of the Company;
(b) The stockholders of the Company approve a plan or proposal for the
liquidation or dissolution of the Company; or
(c) Any "person" (as such term is used in Sections 13 and 14(d)(2) of the
Securities Exchange Act of 1934) other than a person owned by or
directly or indirectly managed by the Company, shall become the
beneficial owner, directly or indirectly, of twenty- five percent
(25%) or more of the common stock of the Company.
11
<PAGE>
6. COMMITTEE shall mean the Employee Benefits Committee appointed by the Board
---------
to administer the Plan in accordance with the provisions of the Plan.
7. COMPANY shall mean ZERO CORPORATION.
-------
8. DISABILITY shall be deemed to occur if a Participant cannot engage in any
----------
substantial, gainful activity because of a physical or mental impairment
(as verified to the Committee's satisfaction) likely to result in death or
to be of a continuous period of not less than twelve (12) months.
9. ELECTION DATE is the date established by the Plan as the date before which
-------------
an Executive or Eligible Director must submit a valid Election Form to the
Named Fiduciary. The applicable Election Dates are as follows: (a) January
1 of any Plan Year, or (b) thirty (30) days after a newly eligible
Executive or Eligible Director is first notified of his or her right to
participate in the Plan.
10. ELECTION FORM means the written form which is submitted to the Named
-------------
Fiduciary before the relevant Election Date which indicates whether the
Executive or Eligible Director wishes to defer a portion of his or her
compensation, and the portion of such compensation to be deferred. No
Election Form shall be effective until received, acknowledged, and executed
by the Company. Each Election Form is, with respect to the applicable
Executive or Eligible Director, incorporated herein by reference and made
an integral part of the Plan.
11. EXECUTIVE shall mean each of the key employees designated by the Board to
---------
include generally corporate officers, division and subsidiary presidents
and general managers and any other person designated by the Board to
participate in the Plan.
12. MOODY'S SEASONED CORPORATE BOND RATE, sometimes referred to as "Moody's",
------------------------------------
means the Moody's Corporate Bond Yield Average as published by Moody's
Investors Service, Inc. (or any successor thereto).
13. NAMED FIDUCIARY shall mean the Corporate Secretary of the Company.
---------------
14. PARTICIPANT means an Executive (including such Executive's estate and/or
-----------
Beneficiary) for purposes of the Executive Deferred Compensation Plan as
adopted October 20, 1993, or an Eligible Director (including such Eligible
Director's estate and/or Beneficiary) for purposes of the Directors'
Deferred Compensation Plan as adopted October 30, 1993, who has deferred a
portion of Plan Compensation pursuant to the terms of the Plan, and whose
Bookkeeping Account has not yet been distributed in full, plus those
participants in the ZERO Corporation Deferred Compensation Plan as amended
as of April 1, 1986, and the ZERO Corporation Alternate II Deferred
Compensation Plan dated April 1, 1986.
12
<PAGE>
16. PLAN COMPENSATION shall mean the Participant's annual salary and/or bonus,
-----------------
and/or amounts credited to a Participant under the Company's Pension
Restoration Plan adopted January 1, 1994 and the 401(k) Executive
Restoration Plan adopted July 27, 1994.
17. PLAN YEAR is the period (i) for the Executive Deferred Compensation Plan
---------
and the Directors Deferred Compensation Plan as Adopted October 30, 1993
from the Effective Date through December 31 and each successive twelve (12)
calendar month period thereafter or (ii) for the Deferred Compensation Plan
as Amended as of April 1, 1986 and the Alternate II Deferred Compensation
Plan dated April 1, 1986 which begins on April 1 of each year and ends on
March 31 of the following year.
18. SEPARATION FROM SERVICE means the termination of the Participant's
-----------------------
employment as a regular employee of the Company.
13
<PAGE>
EXHIBIT 10.8
ZERO CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
AS ADOPTED OCTOBER 20, 1993
AND AS AMENDED EFFECTIVE AS OF JANUARY 1, 1996
PURPOSE
The purpose of the ZERO Corporation Executive Deferred Compensation Plan
(the "Plan") is to provide the opportunity to defer the receipt of compensation
to a select group of management employees upon whose judgment, initiative and
efforts the continued success of ZERO Corporation and its divisions and
subsidiaries is dependent. Except as specifically modified in Appendix A
hereto, the Plan shall also, as of the date hereof, govern the ZERO Corporation
Deferred Compensation Plan as amended as of April 1, 1986 ("Basic" and "Alt I")
and the ZERO Corporation Alternate II Deferred Compensation Plan dated April 1,
1986 ("Alt II"), which are incorporated herein.
ARTICLE I
TITLE AND EFFECTIVE DATE
------------------------
1.01 TITLE This Plan shall be known as the ZERO Corporation Executive
-----
Deferred Compensation Plan.
1.02 EFFECTIVE DATE The effective date of this Plan shall be January 1,
--------------
1994.
ARTICLE II
DEFINITIONS
-----------
2.01 Unless otherwise clearly apparent from the context, the phrases or
terms used herein shall be as defined on Appendix B attached to this Plan.
ARTICLE III
ELIGIBILITY
-----------
3.01 Only Executives may participate in the Plan. As a condition to
becoming a Participant hereunder, however, an Executive must complete and return
to the Named Fiduciary a duly executed Election Form prior to the applicable
Election Date. Election Forms remain in effect for the Plan Year to which they
apply. A Participant must file a new Election Form for any subsequent Plan
Year.
ARTICLE IV
DEFERRAL OF COMPENSATION
------------------------
4.01 Each Participant in the Plan may irrevocably elect to have all or a
portion of his or her Plan Compensation during a Plan Year following the
applicable Election Date deferred and credited to the Participant's Bookkeeping
Account in accordance with the
<PAGE>
terms and conditions hereof. The amount of such Plan Compensation to be so
deferred under this paragraph 4.01 for a Plan Year shall be any whole number or
percentage as the Participant shall select on his or her Election Form;
provided, that such amount for any Plan Year shall not be less than Five
Thousand ($5,000) Dollars.
4.02 An Executive desiring to participate in the Plan must submit his or
her written Election Form to the Named Fiduciary before the applicable Election
Date. Valid Election Forms filed by the applicable Election Date shall cause
Plan Compensation to be deferred for the Plan Year (or portion thereof in the
case of Participants for whom paragraph 2.08(b) of Article II is the applicable
Election Date) for which such Election is made.
4.03 A Participant who has not submitted to or does not have on file a
valid Election Form with the Named Fiduciary before the applicable Election Date
may not defer any Plan Compensation for the applicable Plan Year.
ARTICLE V
DEFERRAL ACCOUNT AND INTEREST EARNINGS CREDITING
------------------------------------------------
5.01 Except as set forth in Appendix A hereto, Plan Compensation
deferred by a Participant under a written Election Form shall be credited earned
in a dollar amount to a separate Bookkeeping Account for each Participant as of
the date on which such Plan Compensation would otherwise be payable to the
Participant.
5.02 Except as set forth in Appendix A hereto, the deferrals credited to
the Participant's Bookkeeping Account shall also be credited with interest
earnings on a quarterly basis equal to the Moody's Seasoned Corporate Bond Rate
for the last month of each quarter on which earnings are applied plus three
percent (3%) until such account value is distributed pursuant to Article VI
hereof. Plan Compensation deferred shall be deemed to be invested and accruing
interest earnings starting on the date the amounts deferred are credited to the
Bookkeeping Account.
5.03 The Participant shall at all times have a nonforfeitable right to the
value of his or her Bookkeeping Account attributable to his or her own deferrals
under paragraph 4.01 of Article IV hereof plus interest earnings credited
thereon, with no right of offset by the Company except as set forth in paragraph
6.06(b) of Article VI hereof.
ARTICLE VI
DISTRIBUTIONS
-------------
6.01 At the time of electing deferrals for each Plan Year, a Participant
shall specify the amount to be deferred, and any other matter required to be
specified by the Company on its Election
2
<PAGE>
Form. In addition, in his or her initial deferral election, Participant shall
specify the payment method and commencement date (relative to the date of
Separation from Service) for his or her Bookkeeping Account which shall apply to
all amounts deferred in the initial year and in all subsequent years. A
separate designation of payment commencement time and method of distribution
shall be made depending upon whether a Participant's Separation from Service
occurs on or after attaining age 55 or before attaining age 55. The period of
deferral shall end, and distribution of the value of a Participant's Bookkeeping
Account shall begin on the date specified in the Participant's deferral
election. The Participant may elect to receive distributions in substantially
equal installments over a five (5) or ten (10) year period or in a lump sum, or
in such other payment form as offered by the Company. In the case of any
payment deferred beyond Separation from Service, interest at the rate specified
in paragraph 5.02 of Article V shall be credited on all amounts remaining in the
Bookkeeping Account of the Participant from which the payments are to be made.
Notwithstanding the foregoing, a Participant may, after the initial
deferral election, modify any election with respect to either time of payment
commencement or the method of distribution without penalties so long as such
change is made at least one (1) year before the payment commencement date
previously elected; provided, however, that a modification made on or before
December 31, 1996 to create an installment payment stream of ten (10) years in
- -----------------
response to H.R. 394 (pertaining to pension source taxation) need not be made
within one (1) year before the payment commencement date and such modification
shall apply to all remaining payments due hereunder; provided further, however,
the Named Fiduciary must make a determination that any subsequent modification
in election would not have a detrimental effect on the tax consequences of
benefits deferred by other Participants hereunder or such subsequent
modification will be disregarded.
6.02 In the event of a Participant's death before the payments have
commenced hereunder, the Participant's Bookkeeping Account shall be distributed
as soon as practicable after his or her death to his or her Beneficiary(ies)
designated in accordance with Article VIII hereof in the manner selected on the
Participant's most recent Election Form designating his or her Beneficiary(ies).
In the event of a Participant's death after payments have commenced, any
remaining amounts in the Participant's Bookkeeping Account shall be distributed
to the Participant's Beneficiary(ies) in the same manner of distribution as was
being followed at the time of his or her death. A Beneficiary may not, upon the
Participant's death or other incapacity, change the form and/or commencement
time of the death benefit otherwise payable to him or her to any other form
and/or commencement time available under Section 6.01.
3
<PAGE>
6.03 Notwithstanding paragraphs 6.01 and 6.02 hereof, if the total amount
in a Participant's Bookkeeping Account is Fifty Thousand ($50,000) Dollars or
less, such Bookkeeping Account shall be distributed to him or her in full within
thirty (30) days after Separation from Service or upon the occurrence of a
Disability or shall be distributed in full to his or her Beneficiary upon his or
her death. In the event that either the Named Fiduciary or the Committee
determines, in their sole discretion, that a Change in Control is likely, the
Company will, effective automatically and concurrently with the Change in
Control, deposit in one or more grantor trusts (within the meaning of Section
671 of the Internal Revenue Code of 1986) funds in an amount sufficient to pay
Participant that amount which is the value of his or her Bookkeeping Account.
For purposes of Section 6.03, "Change in Control" shall be as defined on
Appendix B hereto.
6.04 All distributions of a Participant's Bookkeeping Account hereunder
shall be made in cash payments only and shall commence not later than January 1
of the first year following the Executive's attainment of age 65; provided,
--------
however, notwithstanding the foregoing, any Participant who as of January 1,
- -------
1994 had more than twenty (20) years of service with the Company must commence
distribution not later than the January 1 following the year in which he or she
attains age 65 or has a Separation from Service, whichever is later.
6.05 The Company shall have the right to deduct from all payments any
federal, state, local or foreign taxes or other charges required by law to be
withheld or elected by the Participant to be withheld with respect to such
payments.
6.06 Notwithstanding any provision hereunder to the contrary, a
Participant may take a distribution of all or a portion of his or her
Bookkeeping Account in a manner inconsistent with his or her deferral election
even though the Participant is not then suffering a financial hardship, as
defined in paragraph 7.01 of Article VII hereof, provided that the distribution
is reduced as follows:
(a) If the Bookkeeping Account from which the distribution is
requested is an Active Plan Account (i.e., one into which deferrals are
permitted) and if the Participant is still then an active employee of the
Company, five percent (5%); or
(b) In circumstances other than (a) above, ten percent (10%).
If clause (a) of the previous sentence applies, the Participant may not again
make deferrals hereunder until the beginning of the third year following the
year in which a distribution under this Section 6.06 is made. All reductions
hereunder shall be forfeited to the Company.
4
<PAGE>
ARTICLE VII
HARDSHIP DISTRIBUTIONS
----------------------
7.01 At the request of a Participant before complete distribution of his
or her Bookkeeping Account, the Committee may, in its sole discretion,
accelerate and pay all or part of the value of a Participant's Bookkeeping
Account due under the Plan. Accelerated distributions at the request of the
Participant or a Participant's Beneficiary may be allowed only in the event of a
financial emergency beyond the Participant's or Beneficiary's control due to
unforeseeable circumstances and only if disallowance of a distribution would
create a severe hardship for the Participant or Beneficiary. An accelerated
distribution must be limited to only that amount necessary to relieve the
financial emergency.
ARTICLE VIII
BENEFICIARY
-----------
8.01 A Participant shall, by completing the Beneficiary Designation Form,
designate one or more Beneficiaries to receive benefits under the Plan payable
in the event of his or her death before complete distribution of his or her
Bookkeeping Account. If more than one Beneficiary is named, the share and/or
precedence of each Beneficiary shall be indicated. A Participant shall have the
right to change the Beneficiary by notifying the Named Fiduciary in the
appropriate spaces of a revised Beneficiary Designation Form. However, no
designation or change in designation of Beneficiary shall be effective until
received, accepted and acknowledged by the Company.
8.02 The Committee shall be entitled to rely on the last Beneficiary
Designation Form filed by the Participant and accepted and acknowledged by the
Company prior to his or her death. If the Committee has any doubt as to the
proper Beneficiary to receive payments hereunder, the Committee shall have the
right to direct the Company to deposit any and all payments due Beneficiary into
a separate bank account in the name of the Estate of Participant until the
matter is finally adjudicated. However, any payment made by the Company, in
good faith and in accordance with the Plan and the directions of the Committee,
shall fully discharge the Company and the Committee from all further obligations
with respect to that payment.
8.03 In making any payments to or for the benefit of any minor or
incompetent Beneficiary, the Committee, in its sole discretion, may direct the
Company to make a distribution to a legal or natural guardian or other relative
of a minor or court appointed committee of such incompetent. Alternatively, the
Committee may direct the Company to make a payment to any adult with whom the
minor or incompetent temporarily or permanently resides. The receipt by a
guardian, committee, relative or other
5
<PAGE>
person shall be a complete discharge to the Company and the Committee. Neither
the Committee nor the Company shall have any responsibility to see to the proper
application of any payments so made.
ARTICLE IX
ADMINISTRATION OF THE PLAN
--------------------------
9.01 The Plan shall be administered by the Employee Benefits Committee as
constituted and approved from time to time by the Board. Such persons shall
serve at the pleasure of the Board. Participants in this Plan may serve as
members of the Committee. All resolutions or other actions taken by the
Committee shall be by vote of a majority of those present at a meeting at which
a majority of the members are present, or in writing by a majority of all the
members at the time in office if they act without a meeting.
9.02 Subject to the terms of the Plan, the Committee shall, from time to
time, establish rules, forms and procedures for the administration of the Plan.
Except as herein otherwise expressly provided, the Committee shall have the
exclusive right to interpret the Plan and to make, amend, interpret and enforce
all rules adopted in connection with the Plan and to decide any and all matters
arising hereunder or in connection with the administration of the Plan, and it
shall endeavor to act, whether by general rules or by particular decisions, so
as not to discriminate in favor of or against any person. The decisions,
actions and records of the Committee shall be conclusive and binding upon the
Company and all persons having or claiming to have any right or interest in or
under the Plan.
9.03 In the administration of the Plan, the Committee may, from time to
time, employ agents and delegate to them such administrative duties as it deems
appropriate and may, from time to time, consult with counsel who may be counsel
to the Company.
9.04 The members of the Committee and the officers and directors of the
Company shall be entitled to rely on all certificates and reports made by any
duly appointed accountants, and on all opinions given by any duly appointed
legal counsel, which legal counsel may be counsel for the Company.
9.05 To enable the Committee to perform its functions, the Company shall
supply full and timely information to the Committee on all matters relating to
the compensation of Participants and the date and circumstances of the
Separation from Service or death or Disability of a Participant and such other
pertinent information as the Committee may reasonably require.
9.06 The Company shall indemnify and save harmless each member of the
Committee against any and all expenses and liabilities arising out of his or her
membership on the Committee.
6
<PAGE>
Expenses against which a member of the Committee shall be indemnified hereunder
shall include, without limitation, the amount of any settlement or judgment,
costs, counsel fees, and related charges reasonably incurred in connection with
a claim asserted, or a proceeding brought or settlement thereof. The foregoing
right of indemnification shall be in addition to any other rights to which any
such member of the Committee may be entitled as a matter of law.
ARTICLE X
CLAIMS PROCEDURE
----------------
10.01 Benefits shall be paid automatically in accordance with the
provisions of this instrument. The Participant, or a Beneficiary or any other
person claiming through the Participant, may make a written request for benefits
under this Plan. This written claim shall be mailed or delivered to the Named
Fiduciary who shall review such claim.
10.02 If the claim is denied, in full or in part, the Named Fiduciary
shall provide a written notice within forty-five (45) days setting forth the
specific reasons for denial, and any additional material or information
necessary to perfect the claim, and an explanation of why such material or
information is necessary, and appropriate information and explanation of the
steps to be taken if a review of the denial is desired.
10.03 If the claim is denied and a review by the full Committee is
desired, the Participant (or Beneficiary) shall notify the Named Fiduciary in
writing within thirty (30) days (a claim shall be deemed denied if the Named
Fiduciary does not take any action within the aforesaid forty-five (45) day
period) after receipt of the written notice of denial. In requesting a review,
the Participant or his or her Beneficiary may request a review of the Plan
document or other pertinent documents, may submit any written issues and
comments, and may request that a hearing be held, but the decision to hold a
hearing shall be within the sole discretion of the Committee.
10.04 The decision on the review of the denied claim shall be rendered by
the Committee within thirty (30) days after the receipt of the request for
review (if a hearing is not held) or within sixty (60) days after the hearing if
one is held. The decision shall be written and shall state the specific reasons
for the decision including reference to specific provisions of the Plan on which
the decision is based.
10.05 If, after the review process, a claimant seeks further redress, the
subject of the dispute shall be submitted to arbitration in Los Angeles,
California, in accordance with the Commercial Rules of the American Arbitration
Association then in effect, which arbitration shall be the exclusive remedy of
the
7
<PAGE>
parties hereto. The resulting arbitration award shall be deemed a final order
of a court having jurisdiction over the subject matter and shall not be
appealable. All fees and expenses connected with the arbitration proceeding,
other than counsel fees incurred by either party, if any, shall be shared
equally by both parties.
ARTICLE XI
AMENDMENT AND TERMINATION
-------------------------
11.01 Except as set forth in Appendix A hereto, the Company, by action of
the Board, may amend or modify this Plan from time to time; provided that no
such amendment or modification shall in any way reduce the vested portion of
affected Participants' (or Beneficiaries') Bookkeeping Accounts measured as of
the date the amendment or modification is made, or, if later, the effective date
of such actions; and, provided further, no amendment or modification may assess
costs or fees to Participants or reduce (even on a prospective basis) the
interest rates payable hereunder on Bookkeeping Accounts below Moody's
Seasoned Corporate Bond Rate (as set forth in paragraph 5.02), or take effect
until the end of a calendar year.
In addition, the Company, by action of its Board of Directors, may
terminate this Plan by discontinuing all future deferrals hereunder; provided,
that no such termination may affect the crediting of interest hereunder (either
pursuant to Participant elections or otherwise) or otherwise accelerate the
liquidation of Bookkeeping Accounts hereunder.
ARTICLE XII
MISCELLANEOUS
-------------
12.01 The Company's obligation under the Plan shall in every case be an
unfunded and unsecured promise to pay. Participants' rights as to benefits
hereunder shall be no greater than that of general, unsecured creditors of the
Company. The Company may establish one or more grantor trusts as described in
section 671 of the Internal Revenue Code of 1986. Any assets which the Company
may acquire or set aside to cover its financial liabilities are and must remain
general assets of the Company and such assets as well as any assets set aside in
any grantor trust shall be subject to the claims of its general creditors.
Neither the Company nor the Plan gives the Participant any beneficial ownership
interest in any asset of the Company. All rights of ownership in any such
assets are and remain in the Company.
12.02 Except insofar as permitted by applicable law, no sale, transfer,
alienation, assignment, pledge, collateralization or attachment of any benefits
under the Plan shall be valid or recognized by the Company. Neither the
Participant, his or her spouse, or designated Beneficiary shall have any power
to hypothecate, mortgage, commute, modify or otherwise encumber in advance of
any of the benefits payable hereunder, nor shall any of
8
<PAGE>
said benefits be subject to seizure for the payment of any debts, judgments,
alimony maintenance, owed by the Participant or his Beneficiary, or be
transferable by operation of law in the event of bankruptcy, insolvency, or
otherwise. Notwithstanding the foregoing, the Company may, if the Committee so
determines in its sole discretion, follow the terms of any court order issued in
connection with any domestic relations proceeding including but not limited to
marital dissolution or child support.
12.03 The Plan shall be binding upon the Company, its assigns, and any
successor company which shall succeed to substantially all of its assets and
business through merger, acquisition or consolidation, and upon an Executive,
his or her Beneficiary, assigns, heirs, executors and administrators.
12.04 The terms and conditions of the Plan shall not be deemed to
constitute a contract of employment between the Company and an Executive.
Nothing in this Plan shall of itself be deemed to give an Executive the right to
be retained in the service of the Company or to interfere with any right of the
Company to discipline or discharge the Executive at any time.
12.05 An Executive will cooperate with the Company by furnishing any and
all information reasonably requested by the Company and take such other actions
as may be requested in order to facilitate the administration of the Plan and
the payment of benefits hereunder.
12.06 In case any provisions of this Plan shall be found illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but the Plan shall be construed and enforced as if such
illegal and invalid provision had never been included herein.
12.07 Any notice which shall be or may be given under the Plan or an
Election Form shall be in writing and shall be mailed by United States mail,
postage prepaid. If notice is to be given to the Company, such notice shall be
addressed to the Company at 444 South Flower Street, Suite 2100, Los Angeles,
California 90071-2922, marked for the attention of the Corporate Secretary of
the Company or, if notice to an Executive, addressed to the address shown on
such Executive's Election Form or the last known address on the Company's
personnel records. Any notice or filing required or permitted to be given to a
Participant under this Plan shall be sufficient if in writing and sent by
facsimile, hand delivered, or sent by mail, to the last known address of the
Participant. Any party may, from time to time, change the address to which
notices shall be mailed by giving written notice of such new address.
12.08 The interest in the benefits hereunder of a spouse of a Participant
who has predeceased the Participant shall automatically pass to the Participant
and shall not be transferable by such spouse in any manner, including but not
limited to such
9
<PAGE>
spouse's will, nor shall such interest pass under the laws of intestate
succession.
12.09 If, for any reason, all or any portion of a Participant's benefit
under this Plan becomes taxable to the Participant prior to receipt, a
Participant may petition the Committee for a distribution of any portion that
becomes taxable. Upon the grant of such a petition, which grant shall not be
unreasonably withheld, the Company shall distribute to the Participant
immediately available funds in an amount equal to that portion of Participant's
benefit that is taxable. If the petition is granted, such distribution shall be
made within ninety (90) days of the date when the Participant's petition is
granted. Such a distribution shall affect and reduce the benefits to be paid
under Articles VI or VII hereof.
12.10 The benefits provided for a Participant and Participant's
Beneficiary under the Plan are in addition to any other benefits available to
such Participant under any other plan or program for employees of the Company.
The Plan shall supplement and shall not supersede, modify or amend any other
such plan or program except as may otherwise be expressly provided.
12.11 The payment of benefits under the Plan to a Participant or
Beneficiary shall fully and completely discharge the Company and the Committee
from all further obligations under this Plan with respect to a Participant, and
that Participant's Election Form shall terminate upon such full payment of
benefits.
12.12 Without limiting the provisions of Section 9.06 above, if any action
at law or in equity is necessary by a Participant or Beneficiary to enforce the
terms of the Plan, the Participant or Beneficiary shall be entitled to recover
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which that party may be entitled.
12.13 Titles and headings of the Articles of the Plan are included for
ease of reference only and are not to be used for the purpose of construing any
portion or provision of the Plan document.
12.14 To the extent not preempted by Federal law, this Plan shall be
governed by and construed pursuant to the laws of the State of California.
12.15 Any Election Form may be executed in one or more counterparts, each
of which is legally binding and enforceable.
AS ADOPTED BY THE BOARD OF DIRECTORS
OF ZERO CORPORATION APRIL 25, 1997
10
<PAGE>
APPENDIX A
The provisions set forth below relate to the following plans previously
identified as:
I. The ZERO Corporation Deferred Compensation Plan as amended as of April
1, 1986 (the "Basic and Alt I Accounts"), and
II. The ZERO Corporation Alternate II Deferred Compensation Plan dated
April 1, 1986 (the "Alt II Accounts").
Unless specifically modified below, the provisions of the ZERO Corporation
Executive Deferred Compensation Plan as Adopted October 20, 1993, and as amended
effective as of January 1, 1996, to which this Appendix A is attached (the
"Plan"), shall govern the operation, interpretation and administration of the
Basic, Alt I and Alt II Accounts.
A. AMOUNTS CREDITED
----------------
1. Basic, Alt I and Alt II - No further deferrals of Plan Compensation
shall be permitted in the Basic, Alt I or Alt II Accounts.
2. Interest earnings crediting shall be made as follows:
(a) Basic and Alt I - Exhibit 1 to this Appendix A sets forth the
list of participants and their interest accrual crediting. Basic
and Alt I shall each be credited on a semi-annual basis.
(b) Alt II - Moody's plus 4% on a semi-annual basis.
B. DISTRIBUTIONS
1. Distributions under Basic, Alt I and Alt II shall be governed by the
provisions of the Plan. Because of the merger of the Basic, Alt I and Alt II
plans into the Plan, Participants in such plans shall complete a written
Election Form as discussed in paragraph 2 below. Those Participants receiving
distributions pursuant to the Basic, Alt I and Alt II plans shall continue to
receive distributions as currently provided.
2. Special election - Notwithstanding anything to the contrary,
Participants to whom Appendix A may be applicable may modify, on a one-time
basis without penalties, any election with respect to either time of payment
commencement or the method of distribution without regard to the one year
requirement set forth in Article VI, paragraph 6.01 of the Plan, so long as such
change is made no later than May 31, 1997.
11
<PAGE>
C. AMENDMENT AND TERMINATION OF PLAN
---------------------------------
No amendment or modification may assess costs or fees to Participants or
reduce (even on a prospective basis) the interest rates payable hereunder or on
the Bookkeeping Accounts below the floor rates set forth in the following table:
Account Floor Rate
------- ----------
Basic Greater of Prime Rate (as
described in Exhibit 1 to
Appendix A) or 6 percent
Alt I and Alt II Moody's Seasoned Corporate
Bond Rate plus 0.5 percent
12
<PAGE>
EXHIBIT 1 TO APPENDIX A
INTEREST
INTENTIONALLY OMITTED
13
<PAGE>
APPENDIX B
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the context,
the following phrases or terms shall have the following indicated meanings:
1. ACTIVE PLAN shall mean a plan which is accepting deferrals of a portion of
-----------
an Executive's compensation, and/or amounts credited to a Participant under
the Company's Pension Restoration Plan adopted January 19, 1994 and the
401(k) Executive Restoration Plan adopted July 27, 1994.
2. BENEFICIARY shall mean the person or persons, trust or the estate of a
-----------
Participant entitled to receive any benefits under the Plan, as indicated
by the Participant on the Beneficiary Designation Form.
3. BOARD shall mean the Board of Directors of ZERO Corporation.
-----
4. BOOKKEEPING ACCOUNT means the bookkeeping record established for each
-------------------
Participant who elects to defer compensation under the Plan.
5. CHANGE IN CONTROL shall mean the date upon which the first of the following
-----------------
events occurs:
(a) Consummation of (i) any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or
pursuant to which shares of the Company's common stock would be
converted into cash, securities or other property, other than a merger
of the Company in which the holders of the Company's common stock
immediately prior to the merger have substantially the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (ii) any sale, lease, exchange or
other transfer (in one transaction or a series of transactions) of
all, or more than fifty percent (50%), of the assets of the Company;
(b) The stockholders of the Company approve a plan or proposal for the
liquidation or dissolution of the Company; or
(c) Any "person" (as such term is used in Sections 13 and 14(d)(2) of the
Securities Exchange Act of 1934) other than a person owned by or
directly or indirectly managed by the Company, shall become the
beneficial owner, directly or indirectly, of twenty- five percent
(25%) or more of the common stock of the Company.
14
<PAGE>
6. COMMITTEE shall mean the Employee Benefits Committee appointed by the Board
---------
to administer the Plan in accordance with the provisions of the Plan.
7. COMPANY shall mean ZERO CORPORATION.
-------
8. DISABILITY shall be deemed to occur if a Participant cannot engage in any
----------
substantial, gainful activity because of a physical or mental impairment
(as verified to the Committee's satisfaction) likely to result in death or
to be of a continuous period of not less than twelve (12) months.
9. ELECTION DATE is the date established by the Plan as the date before which
-------------
an Executive or Eligible Director must submit a valid Election Form to the
Named Fiduciary. The applicable Election Dates are as follows: (a) January
1 of any Plan Year, or (b) thirty (30) days after a newly eligible
Executive or Eligible Director is first notified of his or her right to
participate in the Plan.
10. ELECTION FORM means the written form which is submitted to the Named
-------------
Fiduciary before the relevant Election Date which indicates whether the
Executive or Eligible Director wishes to defer a portion of his or her
compensation, and the portion of such compensation to be deferred. No
Election Form shall be effective until received, acknowledged, and executed
by the Company. Each Election Form is, with respect to the applicable
Executive or Eligible Director, incorporated herein by reference and made
an integral part of the Plan.
11. EXECUTIVE shall mean each of the key employees designated by the Board to
---------
include generally corporate officers, division and subsidiary presidents
and general managers and any other person designated by the Board to
participate in the Plan.
12. MOODY'S SEASONED CORPORATE BOND RATE, sometimes referred to as "Moody's",
------------------------------------
means the Moody's Corporate Bond Yield Average as published by Moody's
Investors Service, Inc. (or any successor thereto).
13. NAMED FIDUCIARY shall mean the Corporate Secretary of the Company.
---------------
14. PARTICIPANT means an Executive (including such Executive's estate and/or
-----------
Beneficiary) for purposes of the Executive Deferred Compensation Plan as
adopted October 20, 1993, or an Eligible Director (including such Eligible
Director's estate and/or Beneficiary) for purposes of the Directors'
Deferred Compensation Plan as adopted October 30, 1993, who has deferred a
portion of Plan Compensation pursuant to the terms of the Plan, and whose
Bookkeeping Account has not yet been distributed in full, plus those
participants in the ZERO Corporation Deferred Compensation Plan as amended
as of April 1, 1986, and the ZERO Corporation Alternate II Deferred
Compensation Plan dated April 1, 1986.
15
<PAGE>
16. PLAN COMPENSATION shall mean the Participant's annual salary and/or bonus,
-----------------
and/or amounts credited to a Participant under the Company's Pension
Restoration Plan adopted January 1, 1994 and the 401(k) Executive
Restoration Plan adopted July 27, 1994.
17. PLAN YEAR is the period (i) for the Executive Deferred Compensation Plan
---------
and the Directors Deferred Compensation Plan as Adopted October 30, 1993
from the Effective Date through December 31 and each successive twelve (12)
calendar month period thereafter or (ii) for the Deferred Compensation Plan
as Amended as of April 1, 1986 and the Alternate II Deferred Compensation
Plan dated April 1, 1986 which begins on April 1 of each year and ends on
March 31 of the following year.
18. SEPARATION FROM SERVICE means the termination of the Participant's
-----------------------
employment as a regular employee of the Company.
16
<PAGE>
EXHIBIT 13
Consolidated Highlights
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended March 31, 1992 1993 1994 1995 1996 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $160,279 $160,466 $171,821 $179,694 $206,247 $225,442
Net Income 9,695 11,635 12,851 14,825 16,950 15,888
Working Capital 56,223 59,576 66,980 73,531 58,174 70,341
Total Assets 150,479 153,871 158,734 171,524 165,838 185,956
Stockholders' Equity 123,065 128,671 136,477 145,594 84,831 101,253
Long-Term Debt 1,172 - - - 51,525 51,503
Return on Average
Stockholders' Equity 8.0% 9.2% 9.7% 10.5% 14.7% 17.1%
Current Ratio 3.8:1 3.9:1 5.0:1 4.8:1 3.9:1 4.3:1
Per Share Data:
Earnings $ 0.62 $ 0.74 $ 0.81 $ 0.93 $ 1.07 $ 1.28
Dividends Paid 0.40 0.40 0.40 0.41 0.44 0.12
</TABLE>
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
Net Sales in fiscal 1997 were $225.4 million, an increase of 9.3% over fiscal
1996. This compares to sales growth of 14.8% in 1996 when compared to 1995. The
increases in both years were primarily attributable to higher sales applicable
to the telecommunications, instrumentation and data processing markets and to
acquisitions. These increases were partially offset by the sale of Anvil Cases,
Inc. in May 1996 and by declines in the air cargo market in 1996 and 1995.
Operating income margin in 1997 decreased to 12.8% as compared with 12.9%
in 1996, primarily due to losses at two European operations. Operating income
margin increased 5.7% in 1996 from 12.2% in 1995 primarily due to higher volume,
favorable product mix and cost-containment efforts, partially offset by
increased material and supply costs.
. 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 Repurchases
In a Dutch Auction Tender Offer during fiscal 1996, the Company repurchased
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. As a
result, net income for fiscal 1997 was reduced by approximately $2.8 million due
to the interest expense on the $50 million notes together with the foregone
investment income on the $22 million cash used.
In November 1996, the Board of Directors authorized the repurchase of up to
an additional 400,000 shares, as well as the shares of "odd lot" stockholders.
During fiscal 1997, approximately 15,400 shares were repurchased.
. Acquisitions and Divestiture
The Company acquired two companies in fiscal 1997 and 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
Company also completed the sale of Anvil Cases, Inc. in fiscal 1997.
. Liquidity and Capital Resources
The Company's source of liquidity is a combination of cash and cash equivalents
and cash provided by operations, together with a $20 million revolving bank
credit facility and a $20 million shelf facility available to finance
acquisitions.
10
<PAGE>
At March 31, 1997, the Company's cash and cash equivalents and short-term
investments increased to $16,201,000 from $7,983,000 at March 31, 1996,
primarily due to cash provided by operating activities which amounted to
$19,204,000 in 1997, partially offset by cash used for capital expenditures,
acquisitions and dividend payments. Cash dividends paid during fiscal 1997
decreased $5,599,000 as compared with fiscal 1996 due to the reduction in the
annual cash dividend rate from $.44 per share to $.12 per share, which was
effective April 1996, and the reduction in outstanding shares as a result of the
stock repurchases.
At March 31, 1996, the Company's cash and cash equivalents 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,
partially offset by cash provided by operating activities of $17,326,000.
In fiscal 1995, cash provided by operating activities was used primarily
for capital expenditures and payment of dividends.
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 smaller acquisitions, for the next 12-month period. For larger
acquisitions, management believes the balance sheet will sustain additional
borrowing. The Company will continue to invest its cash reserves in liquid,
lower-risk investments.
. Contingencies
The Company was 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 that 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.
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 has
continued to apply Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees,"
11
<PAGE>
and has included the necessary disclosures in its 1997 financial statements.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which is applicable to the Company in fiscal year
ending March 31, 1998. The Company has determined that the effect of SFAS No.
128 would not have a material effect on the Company's financial statements for
the year ended March 31, 1997.
. Outlook for 1998
The Company announced that it expects fiscal 1998 to be stronger than fiscal
1997 due in part to the continued growth of the electronics markets it serves
and the level of backlog at the beginning of the fiscal year.
. SAFE HARBOR STATEMENT
STATEMENTS THAT 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, THE CONTINUING STRENGTH OF
THE ELECTRONICS MARKETS WE SERVE, COMPETITOR PRICING, MAINTENANCE OF OUR CURRENT
MOMENTUM AND OTHER FACTORS.
12
<PAGE>
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Years Ended March 31, 1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $225,442,000 $206,247,000 $179,694,000
Cost of Sales 151,131,000 135,708,000 118,084,000
Selling and Administrative Expenses 45,522,000 43,933,000 39,769,000
- ------------------------------------------------------------------------------------
Operating Income 28,789,000 26,606,000 21,841,000
====================================================================================
Other Income 1,847,000 1,077,000 1,344,000
Interest Income 515,000 1,727,000 1,703,000
Interest Expense 4,670,000 1,163,000 662,000
- ------------------------------------------------------------------------------------
Income Before Income Taxes 26,481,000 28,247,000 24,226,000
Income Taxes 10,593,000 11,297,000 9,401,000
- ------------------------------------------------------------------------------------
Net Income $ 15,888,000 $ 16,950,000 $ 14,825,000
====================================================================================
Earnings Per Common Share $1.28 $1.07 $0.93
- ------------------------------------------------------------------------------------
====================================================================================
The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
March 31, 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
. ASSETS
Current Assets
Cash and cash equivalents $ 16,201,000 $ 7,018,000
Short-term investments --- 965,000
Receivables (less allowances for doubtful accounts of
$607,000 in 1997 and $759,000 in 1996) 35,966,000 33,973,000
Inventories
Raw materials and supplies 21,504,000 18,266,000
Work in process 7,821,000 7,810,000
Finished goods 5,685,000 5,485,000
Other (including deferred tax assets of $1,864,000
in 1997 and $2,334,000 in 1996) 4,172,000 4,931,000
- ----------------------------------------------------------------------------------------------
Total Current Assets 91,349,000 78,448,000
==============================================================================================
Net Property, Plant and Equipment 44,375,000 39,721,000
Goodwill (less accumulated amortization of $11,844,000
in 1997 and $10,644,000 in 1996) 30,602,000 31,425,000
Other Assets 19,630,000 16,244,000
- ----------------------------------------------------------------------------------------------
Total Assets $185,956,000 $165,838,000
==============================================================================================
==============================================================================================
The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
March 31, 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
. LIABILITIES
Current Liabilities
Current portion of long-term debt $ 35,000 $ 69,000
Accounts payable 8,901,000 8,318,000
Income taxes payable --- 1,101,000
Accrued liabilities
Other taxes 675,000 473,000
Wages and commissions 6,579,000 6,258,000
Workers' compensation 1,128,000 634,000
Other 3,690,000 3,421,000
- ----------------------------------------------------------------------------------------------
Total Current Liabilities 21,008,000 20,274,000
==============================================================================================
Non-Current Liabilities (including deferred compensation
of $9,443,000 in 1997 and $7,903,000 in 1996) 12,192,000 9,208,000
Long-term Debt 51,503,000 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, 16,445,332 in 1997 and
16,285,343 in 1996; outstanding shares, 12,250,427
in 1997 and 12,105,840 in 1996 164,000 163,000
Additional paid-in capital 37,021,000 34,248,000
Retained earnings 137,750,000 124,184,000
- ----------------------------------------------------------------------------------------------
174,935,000 158,595,000
Foreign currency translation adjustment 132,000 (243,000)
Treasury stock (4,194,905 shares in 1997 and
4,179,503 shares in 1996), at cost (73,814,000) (73,521,000)
- ----------------------------------------------------------------------------------------------
Total Stockholders' Equity 101,253,000 84,831,000
- ----------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $185,956,000 $165,838,000
==============================================================================================
==============================================================================================
The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
15
<PAGE>
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
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, 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)
Net income for the year --- --- --- 15,888,000 --- ---
Cash dividends declared --
$.12 per share --- --- --- (1,460,000) --- ---
Exercise of stock options 159,989 1,000 2,773,000 (862,000) --- ---
Stock repurchase --- --- --- --- --- (293,000)
Foreign currency translation
adjustments and other --- --- --- --- 375,000 ---
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 16,445,332 $164,000 $37,021,000 $137,750,000 $132,000 $(73,814,000)
===================================================================================================================================
===================================================================================================================================
</TABLE>
* Outstanding shares at March 31, 1997, 1996 and 1995 were 12,250,427,
12,105,840 and 15,963,256, respectively.
The Notes to Consolidated Financial Statements are an integral part of these
statements.
16
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Years Ended March 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flow From Operating Activities
Net income $15,888,000 $16,950,000 $14,825,000
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 6,249,000 5,069,000 4,642,000
Amortization 1,200,000 1,086,000 1,025,000
Gain on sale of assets (511,000) (46,000) --
Changes in operating assets and liabilities,
net of effect of business acquisitions
Receivables (2,046,000) (4,833,000) (1,823,000)
Inventories (2,711,000) (1,852,000) (4,379,000)
Other non-current assets (2,239,000) (215,000) (710,000)
Accounts payable 603,000 (8,000) 2,287,000
Accrued liabilities 49,000 118,000 141,000
Other non-current liabilities 1,417,000 2,639,000 1,245,000
Other 1,305,000 (1,582,000) 888,000
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 19,204,000 17,326,000 18,141,000
- ----------------------------------------------------------------------------------------------------
Cash Flow From Investing Activities
(Purchases) sales of short-term investments, net 965,000 18,937,000 (1,377,000)
Purchase of non-cash assets of
acquired businesses (1,936,000) (11,748,000) --
Expenditures for property, plant
and equipment (10,822,000) (8,657,000) (8,561,000)
Proceeds from sale of assets 1,651,000 1,670,000 --
Other (142,000) 324,000 (215,000)
- ----------------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (10,284,000) 526,000 (10,153,000)
- ----------------------------------------------------------------------------------------------------
Cash Flow From Financing Activities
Stock repurchases (293,000) (71,871,000) --
Cash dividends paid (1,460,000) (7,059,000) (6,533,000)
Proceeds from issuance of long-term debt -- 50,000,000 --
Payments of long-term debt (273,000) (253,000) --
Exercise of stock options 1,912,000 1,710,000 432,000
Other (including effect of exchange
rate changes) 377,000 (493,000) 402,000
- ----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 263,000 (27,966,000) (5,699,000)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 9,183,000 (10,114,000) 2,289,000
Cash and cash equivalents at
beginning of period 7,018,000 17,132,000 14,843,000
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $16,201,000 $7,018,000 $17,132,000
====================================================================================================
====================================================================================================
The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
17
<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, treasury bills and other highly liquid
investments purchased with maturities of three months or less. As of March 31,
1997 and 1996, the carrying values of cash equivalents approximated market
values.
. Short-term Investments
Short-term investments at March 31, 1996 consist primarily of municipal bonds
that 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 1997, 1996 and 1995 were 12,414,566, 15,865,866 and 16,020,063,
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 statement is translated at the average
exchange rate for the year.
. Supplemental Cash Flow Information
For the years ended March 31, 1997, 1996 and 1995, cash paid for income taxes
was $11,696,000, $12,065,000 and $8,333,000, respectively, and cash paid for
interest on long-term debt was $3,801,000, $118,000 and $0, respectively.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
In connection with acquisitions during fiscal years 1997 and 1996, the following
liabilities were created:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Estimated fair value of assets acquired $ 2,488,000 $ 9,696,000
Goodwill and identifiable intangible assets 1,331,000 3,899,000
Cash paid (1,936,000) (11,748,000)
- ----------------------------------------------------------------------------
Liabilities created $ 1,883,000 $ 1,847,000
============================================================================
</TABLE>
. 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 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.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," effective in years beginning
after December 15, 1995. As permitted by SFAS No. 123, the Company has continued
to apply Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," and has included the necessary disclosures in its 1997
financial statements.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share" (EPS), which is applicable to the Company in the
fiscal year ended March 31, 1998. The Statement replaces the presentation of
primary EPS with a presentation of basic EPS, which excludes dilution and is
computed by dividing income available to common stockholders
19
<PAGE>
by the weighted average number of common shares outstanding for the period.
Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion
No. 15. The Company has determined that the effect of SFAS No. 128 would not
have a material effect on the Company's financial statements for the year ended
March 31, 1997.
. 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.
. Impairment of Long-lived Assets
The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. If the estimated future cash flows (undiscounted and without
interest charges) from the use of an asset are less than the carrying value, a
write down would be recorded to reduce the related asset to its estimated fair
value.
. Report Presentation
Certain amounts reported in prior years have been reclassified to conform to the
1997 presentation.
- --------------------------------------------------------------------------------
NOTE 2
.Property, Plant and Equipment
Property, plant and equipment and accumulated depreciation and amortization at
March 31, 1997 and 1996 consisted of:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 2,866,000 $ 2,908,000
Buildings/land improvements 10-40 years 20,835,000 19,156,000
Machinery/equipment 3-15 years 68,894,000 62,739,000
Leasehold improvements 5-9 years 4,646,000 4,597,000
- --------------------------------------------------------------------------------------------
Total 97,241,000 89,400,000
Less accumulated depreciation and amortization 52,866,000 49,679,000
- --------------------------------------------------------------------------------------------
Net property, plant and equipment $44,375,000 $39,721,000
============================================================================================
</TABLE>
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
- --------------------------------------------------------------------------------
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 that have elected to 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 $1,607,000, $1,539,000 and $1,507,000 in 1997, 1996
and 1995, respectively, and to the 401(k) plan aggregated $489,000, $427,000 and
$95,000 in 1997, 1996 and 1995, respectively.
The Company has nonqualified deferred compensation plans for 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 $862,000,
$714,000 and $620,000 in 1997, 1996 and 1995, 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, 1997 and 1996, long-term debt consisted of:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Senior promissory notes due March 8, 2011 $50,000,000 $50,000,000
Other notes payable due July 3, 2002 and March 31, 2005 1,538,000 1,594,000
- --------------------------------------------------------------------------------------
Total 51,538,000 51,594,000
Less current portion 35,000 69,000
- --------------------------------------------------------------------------------------
Total long-term debt $51,503,000 $51,525,000
======================================================================================
</TABLE>
The Company issued senior promissory notes in the aggregate of $50,000,000,
which bear interest at 7.13%, and are payable in 11 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. Other notes payable have imputed
interest rates ranging from 8.5% to 10%.
On March 31, 1996, the Company entered into a credit agreement with a bank,
which provides for a revolving line of credit of
21
<PAGE>
$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 the London Interbank Offered Rate plus 1%, at the Company's option, at the
time of borrowing. No amounts were outstanding under the line at March 31, 1997
or at March 31, 1996. The Company has also negotiated a $20,000,000 shelf
facility for future acquisitions. The interest rate for the shelf facility would
be based on U.S. Treasury rates at the time of borrowing.
Aggregate maturities of long-term debt over the next five fiscal years are
as follows: $35,000 in 1998, $142,000 in 1999, $217,000 in 2000, $4,801,000 in
2001, $4,841,000 in 2002 and $41,502,000 thereafter.
- --------------------------------------------------------------------------------
NOTE 5
. Acquisitions and Divestiture
The Company acquired two companies during fiscal 1997 and three companies in
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 these purchased businesses, are being
amortized using the straight-line method over a period of 15 years.
During fiscal 1997, the Company 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 transactions on 1997 and 1996 was not material.
- --------------------------------------------------------------------------------
NOTE 6
. Common Stock
The Company has a stock option plan that 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
22
<PAGE>
of the fair market value of the Company's common stock on the date of exercise
over the option price. The exercise of SARs automatically cancels the option on
the related shares. Compensation expense recognized in connection with SARs
during the years ended March 31, 1997, 1996 and 1995 was not material.
Changes in the number of shares subject to options during the three years
ended March 31, 1997, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Avg. Exercise Avg. Exercise Avg. Exercise
Shares Price Shares Price Shares Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 826,741 $13.60 866,048 $12.82 772,000 $13.08
Granted 216,900 $19.47 253,500 $15.39 272,600 $12.87
Exercised (204,378) $13.17 (250,871) $12.74 (44,644) $11.91
Canceled or expired (29,035) $15.13 (41,936) $13.45 (133,908) $14.72
- --------------------------------------------------------------------------------------------------------------
Outstanding at end of year 810,228 $15.22 826,741 $13.60 866,048 $12.82
==============================================================================================================
Options exercisable
at year-end 392,262 370,447 399,685
Weighted average fair value
of options granted
during the year $6.10 $4.62
Options available for
future grant 56,768 255,868 482,300
==============================================================================================================
</TABLE>
The Company has recognized no compensation cost for its plan. Had
compensation cost for the Company's stock option plan been determined based on
the fair value at the grant dates for awards under this plan consistent with the
method of SFAS No. 123, the Company's pro forma net income and earnings per
share for fiscal year 1997 would have been $15.6 million and $1.25 per share,
respectively, and $16.9 million and $1.06 per share, respectively, for fiscal
year 1996.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for fiscal 1997 and 1996, respectively: risk-free interest rate of
6.3% and 5.8%; expected volatility of 22.6% and 23.3%; dividend yield of .6% and
.8%; and an expected life of five years. No adjustments have been made for non-
transferability or risk of forfeiture.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
The following table summarizes information about stock options outstanding at
March 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------- --------------------------------
Number Wtd. Avg. Number
Range of Outstanding at Remaining Wtd. Avg. Exercisable at Wtd. Avg.
Exercise Prices 3/31/97 Contractual Life Exercise Price 3/31/97 Exercise Price
- ------------------------------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
$11.31 - $13.75 385,189 3.8 $12.78 321,550 $12.77
$15.38 - $15.63 212,139 5.6 $15.39 70,712 $15.39
$19.38 - $21.38 212,900 6.6 $19.47
</TABLE>
- --------------------------------------------------------------------------------
NOTE 7
. Common Stock Repurchase
In February 1996, the Company repurchased approximately 4,019,000 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 the shares in February 1996 was
provided by the issuance of promissory notes totaling $50,000,000 by the Company
(refer to Note 4), together with available cash and cash derived from the sale
of short-term investments.
In November 1996, the Board of Directors authorized the repurchase of up to
an additional 400,000 shares, as well as the shares of "odd lot" stockholders.
During fiscal 1997, approximately 15,400 shares were repurchased.
- --------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 8,470,000 $10,031,000 $ 7,867,000
State 1,432,000 2,145,000 1,580,000
Deferred
Federal 708,000 (740,000) (38,000)
State (17,000) (139,000) (8,000)
- -----------------------------------------------------------------------
Total $10,593,000 $11,297,000 $ 9,401,000
=======================================================================
</TABLE>
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
Deferred tax assets and liabilities comprised the following as of March 31,
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------------
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation/amortization $ -- $2,814,000 $ -- $2,388,000
Provision for estimated expenses 444,000 --- 952,000 ---
Employee benefit plans 5,353,000 --- 4,465,000 ---
State and foreign taxes --- 235,000 604,000 ---
Other --- 884,000 --- 1,078,000
- --------------------------------------------------------------------------------------------------
Total $5,797,000 $3,933,000 $6,021,000 $3,466,000
==================================================================================================
</TABLE>
A reconciliation between the income taxes computed at the federal statutory rate
and the provision for income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes computed at the
federal statutory rate $ 9,268,000 $ 9,886,000 $8,479,000
State income taxes, net of
federal income tax benefit 909,000 1,304,000 1,022,000
Tax-exempt income (97,000) (90,000) (152,000)
Other 513,000 197,000 52,000
- ------------------------------------------------------------------------------
Total provision $10,593,000 $11,297,000 $9,401,000
==============================================================================
Effective income tax rate 40.0% 40.0% 38.8%
- ------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE 9
. Commitments
Future minimum lease payments under operating leases at March 31, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
Years Ending March 31,
<S> <C>
1998 $ 2,343,000
1999 2,191,000
2000 1,665,000
2001 1,089,000
2002 950,000
Thereafter 3,159,000
----------------------------
Total $11,397,000
============================
</TABLE>
Rental expense under operating leases was $2,090,000, $2,059,000 and
$2,049,000 for 1997, 1996 and 1995, respectively. Obligations under capital
leases at March 31, 1997 were not material.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
- --------------------------------------------------------------------------------
NOTE 10
CONTINGENT LIABILITIES
. Environmental Matters
In November 1996, the Company, along with 39 other potentially responsible
parties (PRPs), received an Administrative Order for Remedial Action from the
U.S. Environmental Protection Agency (the EPA) with regard to implementation of
the interim remedy for the Glendale North and Glendale South Operable Units of
the San Fernando Valley Superfund Site near Los Angeles, California ("the
Site"). An administrative order on consent relating to the design work for the
interim remedies was entered into in March 1994 between the EPA and 24 PRPs,
including the Company. The design work is complete.
An arbitrated award has resulted in the allocation of a 58.8% share of the
total costs associated with the Site to certain Burbank Operable Unit PRPs. The
remaining 41.2% share was allocated to the Glendale PRPs, including the Company.
The Company has provided reserves of approximately $900,000 for its estimated
share of the total costs of construction, operation and maintenance of the EPA
selected remedy, as well as certain response and oversight costs of the EPA and
the State of California in connection with the Site. The Company's liabilities
for these costs are based on management's best estimate of undiscounted future
costs, excluding possible insurance recoveries. The Company's ultimate liability
related to environmental matters at the Site is dependent upon a variety of
factors, including changes in the cost of the construction, operation and
maintenance of the interim remedy and the final remedy, as well as any changes
to the allocation of those costs among the PRPs including any additional
participants. The Company has received favorable rulings from the U.S. District
Court in response to its claim for reimbursement of defense costs related to the
Site from its insurance carriers. These rulings are currently being appealed by
the carriers.
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 location. The Company has provided reserves,
which are not deemed to be material, for the cleanup costs associated with these
sites to the extent they could be reasonably estimated at this time.
. Other Matters
In December 1996, the Company was contacted by the U.S. government General
Services Administration (GSA), Office of General Counsel, with respect to
responses of the Company in January 1994 to an administrative subpoena regarding
an examination of freight charges under certain GSA contracts with a division of
the Company. The Company again outlined
26
<PAGE>
its position with respect to the freight charges at that time. No further
information or response has been received from the GSA and, therefore, the
Company is unable to accurately assess the situation further at this time.
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
material adverse effect on its financial statements.
- --------------------------------------------------------------------------------
NOTE 11
Segment Information
Business segment information as of and for the years ended March 31, 1997, 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
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>
Net sales $175,119 $ 50,323 $225,442 $152,378 $53,869 $206,247 $126,805 $52,889 $179,694
---------------------------------------------------------------------------------------------------------
Operating profit
before general
corporate expenses 31,312 4,222 35,534 30,547 2,435 32,982 24,868 2,939 27,807
---------------------------------------------------------------------------------------------------------
General corporate
expenses, net (4,383) (3,572) (2,919)
Interest expense (4,670) (1,163) (662)
---------------------------------------------------------------------------------------------------------
Income before
income taxes $ 26,481 $ 28,247 $ 24,226
=========================================================================================================
Identifiable assets $102,194 $ 46,519 $148,713 $ 99,570 $47,264 $146,834 $ 74,493 $45,288 $119,781
---------------------------------------------------------------------------------------------------------
Corporate assets 37,243 19,004 51,743
---------------------------------------------------------------------------------------------------------
Total assets $185,956 $165,838 $171,524
=========================================================================================================
Depreciation $ 4,283 $ 1,966 $ 6,249 $ 3,280 $ 1,789 $ 5,069 $ 2,781 $ 1,861 $ 4,642
---------------------------------------------------------------------------------------------------------
Capital expenditures $ 9,063 $ 1,759 $ 10,822 $ 6,573 $ 2,667 $ 9,240 $ 7,107 $ 1,454 $ 8,561
---------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
The Company's Enclosures and Accessories segment 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.
The following presents a summary of operations by geographic area as of and
for the years ended March 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
(In $000s) 1997 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
U.S. operations $201,784 $183,662 $167,306
European operations 23,658 22,585 12,388
- ---------------------------------------------------------------------
Consolidated $225,442 $206,247 $179,694
=====================================================================
Net Sales between operations $ 2,198 $ 3,230 $ 1,461
=====================================================================
Operating income
U.S. operations $ 29,444 $ 25,163 $ 21,063
European operations (655) 1,443 778
- ---------------------------------------------------------------------
Consolidated $ 28,789 $ 26,606 $ 21,841
=====================================================================
Identifiable assets at year end
U.S. operations $168,242 $149,394 $162,602
European operations 17,714 16,444 8,922
- ---------------------------------------------------------------------
Consolidated $185,956 $165,838 $171,524
=====================================================================
</TABLE>
Total export sales from U.S. operations and net sales from European
operations were $36,276,000, $34,323,000 and $20,706,000, or 16%, 17% and 12% of
total net sales, for the fiscal years ended March 31, 1997, 1996 and 1995,
respectively.
Sales under U.S. government contracts and subcontracts accounted for
approximately 10%, 10% and 9% of total sales in 1997, 1996 and 1995,
respectively.
28
<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, 1997 and 1996, and the related
statements of consolidated income, stockholders' equity, and cash flows for each
of the three years in the period ended March 31, 1997. 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, 1997 and 1996, and the results of their operations and
their cash flows for each of the three years in the period ended March 31, 1997
in conformity with generally accepted accounting principles.
/S/ Deloitte & Touche LLP
Los Angeles, California
May 12, 1997
29
<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, 1997 and 1996, and the results of operations and
cash flows for each of the three years in the period ended March 31, 1997 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 Chief Controller and Chief
Executive Officer Financial Officer Accounting Officer
May 12, 1997
30
<PAGE>
SUPPLEMENTARY CONDENSED STATEMENTS
OF CONSOLIDATED INCOME
(In $000s, except per share data)
<TABLE>
<CAPTION>
Years Ended March 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $225,442 $206,247 $179,694 $171,821 $160,466
Cost of Sales 151,131 135,708 118,084 115,957 107,663
Selling and Administrative Expenses 45,522 43,933 39,769 36,482 35,388
Operating Income 28,789 26,606 21,841 19,382 17,415
Other Income, Net 2,362 2,804 3,047 2,062 2,106
Interest Expense 4,670 1,163 662 481 519
Income Before Income Taxes 26,481 28,247 24,226 20,963 19,002
Net Income $15,888 $16,950 $14,825 $12,851 $11,635
Per Share Data:
Earnings $1.28 $1.07 $0.93 $0.81 $0.74
Dividends Paid 0.12 0.44 0.41 0.40 0.40
========================================================================================================================
</TABLE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Gross Income Before Net Earnings Per
Quarter Ended: Net Sales Profit Income Taxes Income Common Share
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
March 31, 1997 $58,845,000 $18,975,000 $6,863,000 $4,167,000 $0.33
December 31, 1996 58,546,000 19,210,000 6,878,000 4,199,000 0.34
September 30, 1996 53,387,000 17,372,000 6,310,000 3,722,000 0.30
June 30, 1996 54,664,000 18,754,000 6,430,000 3,800,000 0.31
1996
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
========================================================================================================================
</TABLE>
31
<PAGE>
EXHIBIT 21
ZERO CORPORATION
Subsidiaries of Registrant*
As of March 31, 1997
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. Cambridge Aeroflo, Inc., a Massachusetts corporation
5. Electronic Solutions, a Nevada corporation
6. McLean Midwest Corporation, a Minnesota corporation
7. Nielsen Hardware Corporation, a Connecticut corporation
8. Precision Fabrication Technologies, Inc., an Indiana 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 Enclosures, Inc., a California corporation
14. ZERO Integrated Systems, a California corporation
15. ZERO International, Inc., a California corporation
16. ZERO Manufacturing Corporation, a California corporation
17. ZERO McLean Europe LTD., a U.K. corporation
* All are 100% owned
<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 12, 1997, appearing in and incorporated by reference in this
Annual Report on Form 10-K of ZERO Corporation for the year ended March 31,
1997.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
June 27, 1997
<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 1997 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-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 16,201
<SECURITIES> 0
<RECEIVABLES> 36,573
<ALLOWANCES> 607
<INVENTORY> 35,010
<CURRENT-ASSETS> 91,349
<PP&E> 97,241
<DEPRECIATION> 52,866
<TOTAL-ASSETS> 185,956
<CURRENT-LIABILITIES> 21,008
<BONDS> 0
164
0
<COMMON> 0
<OTHER-SE> 101,089
<TOTAL-LIABILITY-AND-EQUITY> 185,956
<SALES> 225,442
<TOTAL-REVENUES> 227,804
<CGS> 151,131
<TOTAL-COSTS> 151,131
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,670
<INCOME-PRETAX> 26,481
<INCOME-TAX> 10,593
<INCOME-CONTINUING> 15,888
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,888
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
</TABLE>
