<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
________________ to _________________
Commission file number: 1-5260
Z E R O C o r p o r a t i o n
(Exact name of registrant as set forth in its charter)
Delaware 95-1718077
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
444 South Flower Street, Suite #2100, Los Angeles, CA 90071-2922
(Address of principal executive offices) (Zip Code)
(213) 629-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Common stock outstanding as of December 31, 1996 -- 12,183,181 shares.
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PART I - FINANCIAL INFORMATION
Corporation for which information is given:
This report is filed for ZERO Corporation and its subsidiaries (hereafter
"Registrant" or "Company") for the quarterly period ended December 31, 1996.
Item 1. Financial Statements.
a. The Statements of Consolidated Income required by Rule 10-01
of Regulation S-X are herewith filed as Exhibit Ia and are
incorporated herein by reference.
The Consolidated Balance Sheets required by Rule 10-01 of
Regulation S-X are herewith filed as Exhibit Ib and are
incorporated herein by reference.
The Statements of Consolidated Cash Flows required by Rule 10-01
of Regulation S-X are as follows:
<TABLE>
<CAPTION>
For The Nine Months Ended
December 31,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES:
NET CASH PROVIDED BY OPERATING ACTIVITIES $13,203,000 $ 8,964,000
INVESTING ACTIVITIES:
DECREASE IN SHORT-TERM INVESTMENTS 965,000 17,929,000
EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT (7,994,000) (5,399,000)
PURCHASE OF NON-CASH ASSETS OF ACQUIRED BUSINESSES (1,930,000) (3,747,000)
PROCEEDS FROM SALE OF ASSETS 1,258,000 1,670,000
OTHER (295,000) 283,000
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (7,996,000) 10,736,000
FINANCING ACTIVITIES:
DIVIDENDS PAID (1,092,000) (5,286,000)
OTHER (INCLUDING EFFECT OF EXCHANGE RATE CHANGES) 1,075,000 984,000
NET CASH USED IN FINANCING ACTIVITIES (17,000) (4,302,000)
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,190,000 15,398,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,018,000 17,132,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD* $12,208,000 $ 32,530,000
These Statements of Consolidated Cash Flows for the nine months ended
December 31, 1996 and 1995 are unaudited but, in the opinion of management,
reflect all adjustments (consisting of normal recurring adjustments) necessary
to present fairly the results for the periods.
<F01>
* Cash and Cash Equivalents include investments purchased with
maturities of three months or less. At December 31, 1996 there are no
short-term investments with maturities longer than three months. At
December 31, 1995 short-term investments with maturities longer than three
months totaled $1,973,000.
</TABLE>
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The following should be read in conjunction with the financial statements
included or incorporated herein by reference.
Results of Operations
Net sales for the three and nine months ended December 31, 1996 increased
16.3% and 10.8%, respectively, when compared to the prior year periods due
primarily to increased orders within the telecommunication, data processing and
consumer markets.
Operating income as a percent of net sales for the three and nine months ended
December 31, 1996 increased to 13.0% and 12.8%, respectively, from 11.9% and
12.4% for the same periods in the prior year primarily due to higher sales
volume, favorable product mix and cost containment efforts.
Interest expense increased to $1,155,000 and $3,440,000 for the three and nine
months ended December 31, 1996, respectively, from $255,000 and $688,000 for
the same periods in fiscal 1996 primarily due to the issuance of long-term debt
in connection with the repurchase of common stock in February 1996.
Financial Condition and Liquidity
The Company's working capital increased to $66,990,000 at December 31, 1996
when compared to $58,174,000 at March 31, 1996, primarily due to higher sales
volume and includes an increase in cash and short-term investments of
$4,225,000 from March 31, 1996 to December 31, 1996.
Net cash provided by operating activities for the nine months ended
December 31, 1996 totaled $13,203,000 versus $8,964,000 for the prior year
period. The increase was primarily attributable to decreased levels of other
current assets and increased levels of accounts payable.
Management believes that cash from operations, together with the ability to
obtain financing and the reduction in the dividend rate, will provide
sufficient funds to finance current and forecasted operations, including
potential acquisitions, for the next twelve month period. The Company will
continue to invest its available funds in liquid, low-risk investments.
Exhibit Ia - The Company's Statements of Consolidated Income for the
Three and Nine Months Ended December 31, 1996 and 1995.
Exhibit Ib - The Company's Consolidated Balance Sheets as of
December 31, 1996 and March 31, 1996.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Environmental Matters - In March 1994 the Company, along with twenty-four
other potentially responsible parties (the PRP Group), entered into a consent
decree with the U.S. Environmental Protection Agency (the EPA) relating to the
remedial design work for the Glendale North and South Operable Units of the
San Fernando Valley Superfund Site (the Site). On November 26, 1996, the EPA
issued a Unilateral Administrative Order (UAO) which requires the PRP Group
and a number of other parties to perform certain work necessary to implement
the interim remedy at the Site. On January 16, 1997, the EPA also issued a
demand letter to the PRP Group, including the Company, seeking the recovery of
approximately $12 million in alleged past response costs. The process to
determine the allocation of the costs associated with the interim remedy,
government costs and the design costs, has not been completed. The process
may also be affected by a federal action filed by one of the potentially
responsible parties seeking a court allocation of these costs.
The Company's ultimate liability related to the interim remedy for the Site
will be dependent upon the outcome of the allocation process, as well as other
factors including changes in the design and/or costs of remediation systems.
The Company has provided for its share of the design costs. However, because
its share is not estimable at this time, the Company has accrued no liabilities
for its share of the past response costs, construction, operation and
maintenance costs related to the implementation of the interim remedy.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibit - 27. Financial Data Schedule
b. Reports on Form 8-K - None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZERO Corporation
Date: February 14, 1997 /s/ D. N. KAJIKAMI
D. N. Kajikami, Controller
and Chief Accounting Officer
Date: February 14, 1997 /s/ G. A. DANIELS
G. A. Daniels, Vice President
and Chief Financial Officer
<PAGE>
ZERO CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET SALES $58,546,000 $50,328,000 $166,597,000 $150,332,000
COST OF SALES 39,336,000 33,553,000 111,261,000 98,937,000
SELLING AND ADMIN. EXPENSE 11,597,000 10,775,000 34,080,000 32,770,000
OPERATING INCOME 7,613,000 6,000,000 21,256,000 18,625,000
OTHER INCOME 283,000 201,000 1,441,000 840,000
INTEREST INCOME 137,000 474,000 361,000 1,406,000
INTEREST EXPENSE 1,155,000 255,000 3,440,000 688,000
INCOME BEFORE INCOME TAXES 6,878,000 6,420,000 19,618,000 20,183,000
INCOME TAXES 2,679,000 2,568,000 7,897,000 8,074,000
NET INCOME $ 4,199,000 $ 3,852,000 $ 11,721,000 $ 12,109,000
PRIMARY EARNINGS PER SHARE $0.34 $0.24 $0.95 $0.75
DIVIDENDS DECLARED PER SHARE $0.03 $0.11 $0.09 $0.33
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 12,381,000 16,251,000 12,395,000 16,185,000
</TABLE>
These Statements of Consolidated Income for the Three and Nine Months
Ended December 31, 1996 and 1995 are unaudited but, in the opinion of
management, reflect all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the results for the periods.
Exhibit Ia
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ZERO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND SHORT-TERM INVESTMENTS $ 12,208,000 $ 7,983,000
ACCOUNTS RECEIVABLE (LESS ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $671,000 AND $759,000,
RESPECTIVELY) 35,304,000 33,973,000
INVENTORIES
RAW MATERIALS AND SUPPLIES 21,589,000 18,266,000
WORK IN PROCESS 7,796,000 7,810,000
FINISHED GOODS 5,553,000 5,485,000
OTHER 4,486,000 4,931,000
TOTAL CURRENT ASSETS 86,936,000 78,448,000
PROPERTY, PLANT AND EQUIPMENT 97,018,000 89,400,000
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION (53,761,000) (49,679,000)
NET PROPERTY, PLANT AND EQUIPMENT 43,257,000 39,721,000
GOODWILL 30,961,000 31,425,000
OTHER ASSETS 18,564,000 16,244,000
TOTAL ASSETS $179,718,000 $165,838,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 9,239,000 $ 8,318,000
ACCRUED WAGES AND COMMISSIONS 5,458,000 6,258,000
ACCRUED INCOME AND OTHER TAXES 809,000 1,574,000
OTHER 4,440,000 4,124,000
TOTAL CURRENT LIABILITIES 19,946,000 20,274,000
OTHER NON-CURRENT LIABILITIES (INCLUDING
DEFERRED COMPENSATION OF $9,020,000 AND
$7,903,000, RESPECTIVELY) 11,605,000 9,208,000
NOTES PAYABLE 51,631,000 51,525,000
STOCKHOLDERS' EQUITY
PREFERRED STOCK $.01 PAR VALUE; NONE ISSUED
COMMON STOCK $.01 PAR VALUE;
ISSUED SHARES, 16,377,798 AND 16,285,343,
RESPECTIVELY;
OUTSTANDING SHARES, 12,183,181 AND
12,105,840, RESPECTIVELY 163,000 163,000
ADDITIONAL PAID-IN-CAPITAL 35,620,000 34,248,000
RETAINED EARNINGS 134,169,000 124,184,000
169,952,000 158,595,000
FOREIGN CURRENCY TRANSLATION ADJUSTMENT 258,000 (243,000)
TREASURY STOCK (4,194,617 AND 4,179,503 SHARES,
RESPECTIVELY), AT COST (73,674,000) (73,521,000)
TOTAL STOCKHOLDERS' EQUITY 96,536,000 84,831,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $179,718,000 $165,838,000
</TABLE>
The Consolidated Balance Sheet as of December 31, 1996 is unaudited but, in
the opinion of management, reflects all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the Company's financial
position.
Exhibit Ib
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF CONSOLIDATED INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 12,208
<SECURITIES> 0
<RECEIVABLES> 35,975
<ALLOWANCES> 671
<INVENTORY> 34,938
<CURRENT-ASSETS> 86,936
<PP&E> 97,018
<DEPRECIATION> 53,761
<TOTAL-ASSETS> 179,718
<CURRENT-LIABILITIES> 19,946
<BONDS> 0
<COMMON> 163
0
0
<OTHER-SE> 96,373
<TOTAL-LIABILITY-AND-EQUITY> 179,718
<SALES> 166,597
<TOTAL-REVENUES> 168,399
<CGS> 111,261
<TOTAL-COSTS> 111,261
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,440
<INCOME-PRETAX> 19,618
<INCOME-TAX> 7,897
<INCOME-CONTINUING> 11,721
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,721
<EPS-PRIMARY> 0.95
<EPS-DILUTED> 0.95
</TABLE>
