444 South Flower Street, Suite 2100
Zero Corporation's primary business is protecting electronics, where it serves the system packaging, thermal management and engineered case requirements of the telecommunications, instrumentation and data processing markets. Zero also serves the air cargo industry and produces the famous line of Zero Halliburton cases for consumers worldwide. With a global distribution network serving over 21,000 customers, Zero is strategically positioned for continued profitable growth.
Zero Corporation is a leading designer and manufacturer of enclosure, cooling, and other systems, primarily for the electronics industry. Zero products include electronic cabinets, card cages, backplanes, power supply, and such thermal management systems as closed-loop air conditioning systems and motorized impellers. Sales to the electronics and related industries account for nearly 75 percent of Zero's annual revenues. Zero is also a leading worldwide designer and manufacturer of air cargo containers, systems, and accessories for companies including American, United, Airbus, and others. On the consumer level, Zero manufactures the world-famous line of Zero Halliburton luggage; these distinctive metal suitcases, briefcases, and carrying cases are sold in more than 30 countries. With manufacturing plants in the United States, Europe, and Mexico, Zero serves a customer base of over 20,000, none of which accounts for more than five percent of Zero's annual sales, which reached $206 million in 1995 (fiscal year ended 3/31/96). Throughout its history, Zero has been so successful at capturing the largest share of its market that the "zero case" has become a generic term.
Scrap Metal Origins
German immigrant Herman Zierold founded a small sheet metal business in Los Angeles in the early part of the century. By the end of the Second World War, Zierold's company had ten employees and annual sales of about $300,000; Zierold himself delivered his company's precision aluminum and sheet metal products. In 1951, Zierold sold his business to Jack Gilbert, who renamed the company Zierold Manufacturing Co. Gilbert had dropped out of high school after his father died during the Depression. Working a variety of jobs, including a stint with Douglas Aircraft during the Second World War, Gilbert decided to go into business for himself. Gilbert's interest was in the nascent electronics industry and the need for precision sheet metal products. "I looked at 30 or 35 companies," Gilbert told Forbes, "until I found Zierold Metal Co. Zierold was into precision aluminum work, and that was the future in sheet metal."
Gilbert offered Zierold $350,000 for the company, with a $50,000 down payment raised by mortgaging his home. Gilbert and Zierold agreed that Zierold would finance the rest; if Gilbert missed installments, the business would revert back to Zierold. According to Gilbert: "Herman went down the street and made a bet with a scrap dealer that he'd have the business back in a year." By the time Gilbert paid off the last of his installments, however, Herman Zierold was accepting stock in the company instead of cash.
In the postwar years, Los Angeles and other areas were overcrowded with sheet metal companies, but Gilbert's former association with Douglas led him in a direction that would help Zierold stand out from the rest. From friends at Douglas, Gilbert learned that company was purchasing precision aluminum boxes to cover their electronic systems, paying as much as $600 for a custom-made box to house electronic components. As Gilbert told Forbes, "I couldn't believe it. I thought those parts ought to sell for about $35."
Gilbert set out to produce a box that was simple and inexpensive to make, developing a process to make deep-drawn boxes. In the deep-drawn process, aluminum was subjected to pressures high enough to press--rather than stretch--the metal around a die, creating a seamless box. Because the metal was pressed, causing its molecules to flow around the die, the process eliminated the weaknesses associated with stretching metal. By developing his own dies, Gilbert was able to produce boxes in standardized sizes far more quickly and cheaply than if the boxes needed to be custom-made. Gilbert began taking orders from the aerospace and electronics industries for boxes of various sizes. The company bore the cost for designing and building the dies, which at the time cost between $300 and $1,200, eating into the profits, if any, of an order and placing a heavy financial burden on the company.
By the mid-1950s, the strain of producing the dies forced Zierold to turn business away. Gilbert sought financing, but he worried about losing control of the company. A Small Business Administration loan, however, kept the business afloat, and in 1957, Zierold received new help in the form of a $250,000 investment by Alfred Reddock, a venture capitalist. After Reddock agreed to join the company's board of directors, Zierold gained the credibility it needed to go public, which it did in 1959. A name change soon followed. For years, many of the company's customers had been mistaking "Zierold" for "Zero," going so far as to make out checks to the company under that name. In response, Gilbert changed the company's name to Zero Manufacturing Co.
Over the next decade, the company continued building its collection of dies. An acquisition offer in the mid-1960s by Bendix led Zero to expand its operations beyond California. With no intention to sell, Gilbert nonetheless met with Bendix in order to discover the reasons behind that company's interest in Zero. Learning that Bendix was intent on acquiring sheet metal operations located near the Californian, southern, and New England aerospace markets, Gilbert traveled to manufacturers in those areas, signing on such large concerns as Martin Marietta and Raytheon as Zero customers. Soon after, Zero opened manufacturing facilities in Massachusetts and Florida. Despite gaining such large companies as customers, Gilbert remained determined that no company would account for more than five percent of Zero's sales; as a result orders generally averaged $10,000 or less.
A Brief Stumble in the 1970s
Gilbert next sought to diversify the company's operations. In 1969, Zero purchased the Halliburton luggage-making operations from the Halliburton oil service company. The Zero Halliburton line soon gained worldwide fame. Sales of the line of luggage and cases for photographic equipment rose from $200,000 at the time of the acquisition to nearly $3 million by the end of the 1970s. The company next moved into producing aircraft hydraulic systems and related aircraft devices. Zero's reputation was also enhanced by being chosen to build the cases that would transport moon rocks gathered from the first lunar landing back to Earth.
Yet the company stumbled in the early 1970s. Pursuing a plan to round out the company's operations, Zero made a number of other acquisitions seeking to bring the company into the heating and cooling business. However, a downturn in the economy, and especially in the electronics industry, cut deeply into Zero's profits and caused the company to post operating losses--including a $2 million write-off from selling its new acquisitions--in the first two years of the new decade. By 1973, Zero again turned profitable, earning $600,000 on sales of $22 million. The company changed its name again, to Zero Corporation. The company's success, particularly the success of its deep-drawn manufacturing process, had already caused the zero box to become a generic name in the electronics and aerospace industries.
Zero's collection of dies had grown to over 1,500, which gave the company an edge over competitors making costlier custom-made enclosures, while discouraging others from entering the field in direct competition with Zero. By the late 1970s, nearly all of Zero's die collection had been fully amortized. Sales, with customers including 35 of the 50 largest computer manufacturers in the United States, such as IBM, Burroughs, and Digital Equipment, reached $66 million by 1979, with net earnings of $4.7 million, and a five-year compounded growth rate of 25 percent. The following year, Gilbert retired from full-time management of the company and was replaced by Howard W. Hill. Two years later, Hill was joined by Wilford "Woody" Godbold, a former mergers and acquisitions specialist with Gibson Dunn & Crutcher, a Los Angeles law firm. Godbold, who was raised in Hawaii, went to Stanford as an undergraduate, and received a law degree from UCLA after a stint in the Navy, had served as Zero's corporate counsel before joining the company as executive vice-president. When Hill retired in 1985, Godbold took over as chief executive officer.
The 1980s and Beyond
Under Godbold, the company again began a series of acquisitions to diversify operations, buying eight companies in the first half of the decade for a total outlay of about $20 million. These new acquisitions--for example, the 1985 purchase of Contempo Engineering Co. of Glendale, California, a maker of air conditioning systems for computer installations--centered primarily on the electronics industry. The company's customer base grew to include 187 of the 200 largest electronics manufacturers, giving Zero an 85 percent share of the enclosure market. Zero's production facilities had grown to include 16 plants in the United States and England. By then, rather than contracting Zero to custom-make a die, many manufacturers were designing their electronics equipment to fit one of Zero's 1,700 basic dies, which had expanded to provide capacity for some 40,000 box sizes ranging from a few inches to six-foot boxes used to house Stinger missiles. "But there always seems to be one more size we haven't made," Godbold told the Los Angeles Business Journal, and Zero continued to design and produce custom dies for new orders. Most orders involved short production runs, producing high margins for the company--generally nine to ten percent, compared to three percent among most metal manufacturers.
Zero's 1985 sales topped $117 million, bringing net earnings of $11.5 million, which included a $7 million gain from the sale of its Ocean Technology subsidiary. Aiding Zero's growth was the growth of its subsidiaries, particular its Electronics Solutions subsidiary, a computer manufacturing subcontractor acquired in 1985. Between 1987 and 1988, revenues jumped from $139 million to $171 million, with a rise in earnings to $16 million in 1988.
However, a slump in the electronics industry, and cuts in defense spending as the Cold War ended, coupled with a slide into a recession as the 1990s began, slowed Zero down. Sales, which neared $200 million in 1990, fell to $160 million. Per share income also dropped, from $1.02 to $0.62. In an effort to cut operating costs, Godbold moved its Los Angeles factory to Salt Lake City, slashing the company's expenses for workers' compensation, health care, and wages. The company consolidated a number of its remaining California plants to cut operating costs further. Godbold, who served as chairman of the California Chamber of Commerce, was widely criticized for the move. Yet, as Godbold told World Trade, "It wasn't an easy thing for us, but the costs of doing business in the state were eating us alive. We had to do it to remain competitive."
The Utah move helped spur the company's sagging profits. Zero also began a new wave of acquisitions, including the 1993 purchase of J.H. Sessions & Sons of Connecticut, which manufactured case hardware such as handles and hinges and other materials for annual sales of $4 million. Orders from the airline industry also picked up--after a long slump due not only to the recession, but also to fears of terrorism surrounding the Gulf War--including a contact to supply baggage/cargo systems to 50 of United Airlines' Airbus planes. Yet the company's foreign sales were hurt by the slide into the European recession, which saw international revenues drop from over $21 million in 1992 to $15.5 million in 1994.
Total sales grew only at four percent between 1992 and 1995, as compared to the company's former 18-year, 25 percent average growth rate. Nonetheless, Zero remained solidly profitable, with net earnings climbing from $9.7 million in 1991 to nearly $15 million by 1994. In 1995, Zero began acquisitions of three new companies, Precision Fabrication Technologies, which manufactured modular enclosures, data communications products, and accessories for the electronics and telecommunications industries; Electro-Mechanical Imagineering, Inc. (EMI), a maker of enclosure, mounting, and protective devices for closed-circuit television security devices; and G.W. Pearce & Sons Ltd., a UK-based deep-drawn aluminum products manufacturer. Combined, these acquisitions added $16 million to Zero's revenues. Total revenues reached $206 million in fiscal year 1996, producing net earnings of nearly $17 million.
Several more acquisitions followed in the first half of 1996. The Zero Halliburton line expanded to include cases for the booming mobile computing market. In January 1996, Zero launched a new subsidiary, Zero Integrated Systems, to design, engineer, and manufacture completely integrated electronic systems, as well as to provide cost analysis and quality testing services. After more than forty years, Zero had at last moved inside the box.
Principal Subsidiaries: Air Cargo Equipment; Electronic Solutions; Integrated Systems; McLean Engineering; McLean Europe; McLean Midwest; Nielson/Sessions; Samuel Groves & Co. Limited (Birmingham, England); Stantron/PFT/EMI; Zero Enclosures.