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.
The Company, through nine U.S. companies and one foreign company, considers itself a leader in the engineering, manufacturing and marketing of engineered cases, system packaging, and various products used in the airline/air cargo industry. ZERO's engineered cases include custom and standard deep drawn aluminum ZERO boxes; ZERO Halliburton (Register Mark) luggage, attaches and carrying cases; thermoformed and rotationally molded plastic cases and enclosures; other standard and custom fabricated cases (marketed under the Anvil Cases (Register Mark) brand name); and specialized case hardware. The Company's engineered cases are widely used in commercial, industrial and government/military applications. The Company's system packaging business involves engineering, manufacturing and/or integrating standard and custom electronic enclosures and cabinets, and related components such as card cages, backplanes, and power supplies; and cooling equipment, including motorized impellers, blowers, fan trays, heat exchangers and air conditioners. The Company's airline/air cargo products include specialized aluminum, polycarbonate and fiberglass air cargo containers; patented telescoping baggage/cargo systems; air cargo restraint systems and hardware; and transit cases engineered to meet the Air Transport Association's highest specifications. Over fifty percent of ZERO's net sales in fiscal 1994 were linked to the electronics industry through customers doing business in the telecommunication/instrumentation, and data processing/peripherals markets.
ZERO's operations are classified under two business segments: Enclosures and Accessories, and Other. Information about ZERO's business segments is set forth in Note 8 "Segment Information" on page 28 of the 1994 Annual Report, which is incorporated herein by reference.
During the three years ended March 31, 1994, the Company did not derive a material portion of its sales or net income from its foreign operations nor has the Company been dependent upon a single customer, or a few customers, the loss of which would have a material adverse effect on its operations.
Patents, licenses, franchises and concessions are not an important factor in ZERO's overall production process and are not material to its results of operation.
Development of new products is not a significant part of the Company's business. During the year ended March 31, 1994, the Company spent less than 1% of net sales on research and development activities.
Marketing
In marketing non-consumer oriented products in its two business segments, ZERO employs manufacturers' representatives, direct salespeople and some distributors to market its products worldwide. Technical support for these manufacturers' representatives, salespeople and distributors is provided by engineering personnel from ZERO's various plants. The Company's standard enclosure 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. ZERO's consumer oriented products are marketed worldwide through catalogs, advertisements in selected publications, telemarketing programs, trade journals and are distributed through established independent dealers who specialize in the market to which each of ZERO's products is related.
Competition
While reliable statistics are not available that would permit the Company to accurately estimate its share of the total market for each of its business segments, the Company believes it has a significant share of the enclosures and accessories market that it serves. ZERO competes with a number of other companies, both larger and smaller. The degree and type of competition that ZERO encounters varies for both of its 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 a competitive price. ZERO's ability to successfully compete in the Enclosures and Accessories segment is also attributable to its broad range of standard products. Approximately 2,000 dies, capable of producing over 75,000 standard deep drawn aluminum enclosures, provides ZERO with both a cost and service advantage in a large portion of its metal case and enclosure business. In addition, ZERO offers thousands of sizes of fabricated cases and hundreds of standard configurations for system packaging. Competitive strength is also derived by the Company's ability to modify standard products to satisfy a virtually limitless number of applications and customer requirements.
Sales and Backlog
ZERO's backlog at March 31, 1994 and 1993 was $40,302,000 and $39,415,000, respectively. Backlog is based on contracts which were signed as of the respective dates set forth. Approximately 93% of the backlog at March 31, 1994 is scheduled for delivery during fiscal 1995.
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, 1994, the aggregate amount of orders cancelled 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.
For the year ended March 31, 1994, approximately 12% of Zero's sales were made to the government/military market.
A majority of ZERO's sales orders are in amounts of less than $10,000 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 19,000), the relatively small size of each order and the relatively short delivery cycles involved, the Company believes the risk of any order being cancelled which would have a significant adverse effect on operations is low.
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. For the year ended March 31, 1994, ZERO purchased aluminum and steel from over ten principal suppliers. Plastics and other raw materials and supplies necessary for the production of ZERO's products are purchased from a variety of suppliers. As of June 17, 1994, 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, 1995. 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
ZERO has developed and implemented an environmental program to reduce or eliminate the use of hazardous material and possible contamination. 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 will materially adversely affect its earnings or competitive position or will require any significant capital expenditures during fiscal year 1995.
Information in Note 7 - "Contingent Liabilities" on page 27 of the 1994 Annual Report addressing environmental matters in which ZERO has been named a "potentially responsible party" is incorporated herein by reference.
Employees
As of May 31, 1994, ZERO employed 1,684 persons. Employee relations are considered good. 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 unions. In the past ten years the Company has not experienced a significant work stoppage from a labor dispute.
Item 2.
Item 2. Properties.
As of June 17, 1994, ZERO used manufacturing plants and office buildings containing an aggregate of approximately 1,389,000 square feet of floor space. ZERO's plants are located in California (Camarillo, City of Industry, El Monte, Pacoima, Rancho Dominguez and San Diego); Utah (North Salt Lake); Massachusetts (Monson); New Jersey (Princeton Junction); Minnesota (Brooklyn Park); Connecticut (Hartford); Tijuana, Mexico; and Birmingham and Feltham, England. The plants located in Camarillo, City of Industry, El Monte, Pacoima and San Diego, California; in Brooklyn Park, Minnesota; in Princeton Junction, New Jersey; and in North Salt Lake, Utah, are used in the production of enclosures and accessories. The remaining plants are used by both business segments.
ZERO owns all its plants and facilities, except for the following leased properties:
PLANT SQUARE FOOTAGE LEASE EXPIRES - - --------------------------------------------------------------------------------
Camarillo, CA 36,000 June 30, 1996 Camarillo, CA 22,000 February 28, 1996* City of Industry, CA 63,000 November 30, 1996* El Monte, CA 72,000 May 31, 2006 Hartford, Ct 8,000 January 31, 1996 Pacoima, CA 114,000 August 5, 1999* Rancho Dominguez, CA 33,000 November 30, 1994* Rancho Dominguez, CA 121,000 September 30, 1999* Tijuana, Mexico 35,000 January 31, 1995* Feltham, England 31,000 October 1, 2002 --------- TOTAL 535,000 =========
* Lease contains renewal option.
ZERO's plants and facilities used in operations are generally constructed of concrete block, brick, concrete tilt-up, steel or a combination thereof. ZERO's facilities and equipment are well maintained and are believed to be adequate to support a substantial increase in its operations, assuming a comparable product mix.
Item 3.
Item 3. Legal Proceedings.
Information concerning legal proceedings in Note 7 - "Contingent Liabilities" on page 27 of the 1994 Annual Report is incorporated herein by reference.
Item 4.
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, 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT ------------------------------------
Information regarding the Company's officers as of June 17, 1994 is as follows:
EXECUTIVE NAME AGE POSITION OFFICER SINCE - - --------------------------------------------------------------------------------
John B. Gilbert 73 Chairman Emeritus 1952
Wilford D. Godbold Jr. 56 President, Chief Executive Officer and Director 1982
Howard W. Hill 67 Chairman of the Board 1960
George A. Daniels 56 Vice President and Chief Financial Officer 1987
James F. Hermanson 57 Vice President 1984
Bernard B. Heiler 48 Vice President of Marketing and Sales 1992
Anita J. Cutchall 55 Director of Legal Affairs and Corporate Secretary 1992
None of the directors or executive officers are related to one another. All executive officers except Mr. Heiler and Ms. Cutchall have served in their current capacities or in other managerial positions with the Company for a minimum of the past five years. Mr Heiler has held his current position with the Company since October 1992, prior to which he was Vice President of GTE California, a telephone public utility, from 1984 through 1992, and President of GTEL, a telecommunications integrator and a subsidiary of GTE, from January 1986 through October 1992. Ms. Cutchall has held her current position with the Company since August 1992, prior to which she held the same position with Continental Graphics Corporation, a provider of specialty graphics, commercial printing and film services, from July 1990 through August 1992, and was Legal Associate and Corporate Secretary at Triton Group Ltd,. a diversified holding company, from 1986 through 1990.
PART II
Item 5.
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters.
The information under the caption "Market and Dividend Information" on page 30 of the 1994 Annual Report is incorporated herein by reference. On June 17, 1994 the Company had 6,122 stockholders of record.
Item 6.
Item 6. Selected Financial Data.
The information under the caption "Five Year Consolidated Financial Highlights" on the inside front cover of the 1994 Annual Report is incorporated herein by reference.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The information under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" on page 18 of the 1994 Annual Report is incorporated herein by reference.
Item 8.
Item 8. Financial Statements and Supplementary Data.
The following consolidated financial statements of the Registrant and its subsidiaries included in the 1994 Annual Report (on the pages therein shown in parentheses) are incorporated herein by reference:
Statements of Consolidated Income--Years Ended March 31, 1994, 1993 and 1992. (Page 19)
Consolidated Balance Sheets--March 31, 1994 and 1993. (Pages 20 and 21)
Statements of Consolidated Stockholders' Equity--Years ended March 31, 1994, 1993 and 1992. (Page 22)
Statements of Consolidated Cash Flows--Years Ended March 31, 1994, 1993 and 1992. (Page 23)
Notes to Consolidated Financial Statements. (Pages 24 to 28, inclusive)
The independent auditors' report and management's report on page 29 of the 1994 Annual Report covering ZERO's consolidated financial statements are also incorporated herein by reference.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
The information under the caption "Election of Directors" in the 1994 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.
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 1994 Proxy Statement is incorporated herein by reference.
Item 12.
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 1994 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.
Item 13. Certain Relationships and Related Transactions.
Not applicable.
PART IV
Item 14.
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 Schedules.
The following consolidated financial statement schedules of Registrant are included in Item 14(d) below:
Schedule I--Short-Term Investments as of March 31, 1994.
Schedule VIII--Valuation and Qualifying Accounts for the years ended March 31, 1994, 1993 and 1992.
Schedule IX--Short-Term Bank Borrowings for the years ended March 31, 1994, 1993 and 1992.
Schedule X--Supplementary Income Statement Information for the years ended March 31, 1994, 1993 and 1992.
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.
4.2 Specimen form of certificate of common stock $0.01 par value per share filed as Exhibit 3-(4) of the Company's Form 8-B filed on September 7, 1988.
10.1 Deferred Compensation Plan adopted by the Board of Directors on December 17, 1973 as amended by the Board of Directors on December 11, 1974 filed as Exhibit 13.10 to the Company's Form 10-K for the year ended March 31, 1975.
10.2 Deferred Compensation Plan as amended through April 1, 1986 filed as Exhibit 10.13 to the Company's Form 10-K for the year ended March 31, 1986.
10.3 Directors' Deferred Compensation Plan adopted by the Board of Directors on October 20, 1993.
10.4 Executive Deferred Compensation Plan adopted by the Board of Directors on October 20, 1993.
10.5 ZERO Corporation Management Bonus Plan adopted by the Board of Directors on April 22, 1994.
10.6 Articles of Association of the ZERO Corporation Employees Stock Purchase Plan filed as Exhibit 1 to Form S-8 Registration Statement (File No. 2-26009).
10.7 ZERO Corporation 1988 Stock Option Plan, as amended, filed on Form S-8 Registration Statements (File Nos. 33-44143, 33-27929 and 2-54344).
10.8 ZERO Corporation 1994 Stock Option Plan, filed as Appendix A to the Company's 1994 Proxy Statement.
10.9 Description of ZERO Corporation Supplemental Executive Retirement Plan adopted by the Board of Directors on January 19, 1994.
10.10 Description of ZERO Corporation Contract and Joint Supplemental Life Insurance Plan adopted by the Board of Directors on April 22, 1994.
13 Annual Report for the year ended March 31, 1994 (not deemed filed except for those portions specifically incorporated by reference herein).
21 Listing of the Company's subsidiaries as of March 31, 1994.
23 Consent of Independent Auditors dated June 27, 1994 to the incorporation by reference of their reports filed herewith into the Company's Form S-8 Registration Statements (File Nos. 33-53943, 33-44143, 33-27929 and 2- 54344).
(b). REPORTS ON FORM 8-K.
During the quarter ended March 31, 1994 the Company filed no reports on Form 8-K.
(c). EXHIBITS.
See listing of exhibits filed herewith on page 16 of this report.
(d). FINANCIAL STATEMENT SCHEDULES.
The financial statement schedules listed in Item 14(a)(2) above are shown on pages 12 through 15 of this report. The report of the Registrant's independent auditors, Deloitte & Touche, is set forth on page 11 of this report.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - - --------- ----- ----
Vice President and Chief /s/ GEORGE A. DANIELS Financial Officer June 27, 1994 - - ----------------------- George A. Daniels
Controller and Chief /s/ ERIC A. SAND Accounting Officer June 27, 1994 - - ----------------------- Eric A. Sand
DIRECTORS:
/s/ GARY M. CUSUMANO Director June 27, 1994 - - ----------------------- Gary M. Cusumano
/s/ BRUCE J. DEBEVER Director June 27, 1994 - - ----------------------- Bruce J. DeBever
/s/ CLINTON G. GERLACH Director June 27, 1994 - - ----------------------- Clinton G. Gerlach
/s/ JOHN B. GILBERT Director June 27, 1994 - - ----------------------- John B. Gilbert
Director and Chief /s/ WILFORD D. GODBOLD JR. Executive Officer June 27, 1994 - - ----------------------- Wilford D. Godbold Jr.
/s/ BERNARD B. HEILER Director June 27, 1994 - - ----------------------- Bernard B. Heiler
/s/ HOWARD W. HILL Director June 27, 1994 - - ----------------------- Howard W. Hill
/s/ WHITNEY A. MCFARLIN Director June 27, 1994 - - ----------------------- Whitney A. McFarlin
INDEPENDENT AUDITORS' REPORT ----------------------------
To the Stockholders of ZERO Corporation:
We have audited the consolidated financial statements of ZERO Corporation and its subsidiaries (the "Company") as of March 31, 1994 and 1993, and for each of the three years in the period ended March 31, 1994, and have issued our report thereon dated May 12, 1994; such financial statements and report are included in your 1994 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedules of the Company, listed in Item 14(a)(2). These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE
Los Angeles, California May 12, 1994
S C H E D U L E I
ZERO CORPORATION AND SUBSIDIARIES
SHORT-TERM INVESTMENTS
AS OF MARCH 31, 1994
S C H E D U L E V I I I
ZERO CORPORATION AND SUBSIDIARIES ---------------------------------
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1994, 1993 AND 1992
(1) Net of recoveries
S C H E D U L E IX
ZERO CORPORATION AND SUBSIDIARIES ---------------------------------
SHORT-TERM BANK BORROWINGS
FOR THE YEARS ENDED MARCH 31, 1994, 1993 AND 1992
S C H E D U L E X
ZERO CORPORATION AND SUBSIDIARIES ---------------------------------
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED MARCH 31, 1994, 1993 AND 1992
ZERO CORPORATION AND SUBSIDIARIES
FORM 10K, ITEM 14(c)
EXHIBITS FILED HEREWITH
3.2 Bylaws of ZERO Corporation, as amended on April 22, 1994.
10.3 Directors' Deferred Compensation Plan adopted by the Board of Directors on October 20, 1993.
10.4 Executive Deferred Compensation Plan adopted by the Board of Directors on October 20, 1993.
10.5 ZERO Corporation Management Bonus Plan adopted by the Board of Directors on April 22, 1994.
10.9 Description of ZERO Corporation Supplemental Executive Retirement Plan adopted by the Board of Directors on January 19, 1994.
10.10 Description of ZERO Corporation Contract and Joint Life Insurance Plan adopted by the Board of Directors on April 22, 1994.
13 Annual Report for the year ended March 31, 1994 (not deemed filed except for those portions specifically incorporated by reference herein).
21 Subsidiaries of Registrant as of March 31, 1994.
23 Consent of Independent Auditors to incorporation by reference of $599,000 reports filed herewith into the Company's Form S-8 Registration Statements (File Nos. 33-53943, 33-44143, 33-27929 and 2-54344).