<PAGE> 1
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934. FOR THE THREE MONTH PERIOD FROM DECEMBER 29, 1996 TO
MARCH 29, 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 0-20225
ZOLL MEDICAL CORPORATION
------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2711626
- --------------------------------- -----------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification number)
32 SECOND AVENUE, BURLINGTON, MA 01803-4420
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(617) 229-0020
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
ormer name, former address and former fiscal year, if changed since last
report.)
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 the number of shares outstanding of each of the issuer's classes of
common stock:
Class Outstanding at May 7, 1997
Common Stock, $.02 par value 6,191,659
This document consists of 13 pages.
--
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ZOLL MEDICAL CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets (unaudited)
March 29, 1997 and September 28, 1996 3
Condensed Consolidated Income Statements (unaudited)
Three Months Ended March 29, 1997 and March 30, 1996 4
Condensed Consolidated Income Statements (unaudited)
Six Months Ended March 29, 1997 and March 30, 1996 5
Condensed Consolidated Statements of Cash Flows (unaudited)
Six Months Ended March 29, 1997 and March 30, 1996 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 10
ITEM 2. Changes in Securities 10
ITEM 3. Defaults Upon Senior Securities 10
ITEM 4. Submission of Matters to a Vote of Security-Holders 10
ITEM 5. Other Information 11
ITEM 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZOLL MEDICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 29, SEPTEMBER 28,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,831 $ 4,962
Marketable securities 2,423 2,965
Accounts receivable, less allowance of
$1,063 at March 29, 1997; $888 at
September 28, 1996 14,524 16,271
Inventories:
Raw materials 2,807 2,319
Work-in-process 1,133 1,951
Finished goods 5,679 3,096
------- -------
9,619 7,366
Prepaid expenses and other current assets 1,433 1,203
------- -------
Total current assets 33,830 32,767
Property and equipment, at cost:
Land and building 925 997
Machinery and equipment 9,044 8,313
Tooling 2,309 2,327
Furniture and fixtures 596 584
Leasehold improvements 785 710
------- -------
13,659 12,931
Less accumulated depreciation 6,840 6,141
------- -------
Net property and equipment 6,819 6,790
Other assets, net 2,741 2,532
------- -------
$43,390 $42,089
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,575 $ 2,832
Accrued expenses and other liabilities 5,157 4,671
Current maturities of long-term debt 110 114
------- -------
Total current liabilities 8,842 7,617
Deferred income taxes 389 389
Long-term debt 609 661
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value, authorized
1,000 shares, none issued and outstanding
Common stock, $.02 par value, authorized
19,000 shares, 6,191 and 6,174 issued
and outstanding at March 29, 1997 and
September 28, 1996, respectively 124 124
Capital in excess of par value 20,613 20,540
Retained earnings 12,813 12,758
------- -------
Total stockholders' equity 33,550 33,422
------- -------
$43,390 $42,089
======= =======
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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4
ZOLL MEDICAL CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
March 29, March 30,
1997 1996
---- ----
<S> <C> <C>
Net sales $14,083 $13,106
Cost of goods sold 6,238 5,677
------- -------
Gross profit 7,845 7,429
Expenses:
Selling and marketing 4,286 3,958
General administrative 1,034 1,235
Research and development 1,298 1,113
------- -------
Total expenses 6,618 6,306
------- -------
Income from operations 1,227 1,123
Investment income 71 64
Interest expense 15 21
------- -------
Income before income taxes 1,283 1,166
Provision for income taxes 436 420
------- -------
Net income $ 847 $ 746
======= =======
Earnings per share $ 0.14 $ 0.12
======= =======
Weighted average common shares and
equivalent shares outstanding 6,223 6,294
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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ZOLL MEDICAL CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
March 29, March 30,
1997 1996
---- ----
<S> <C> <C>
Net sales $28,220 $25,437
Cost of goods sold 12,363 11,014
------- -------
Gross profit 15,857 14,423
Expenses:
Selling and marketing 8,634 7,940
General administrative 3,796 2,389
Research and development 3,516 2,145
------- -------
Total expenses 15,946 12,474
------- -------
Income (loss) from operations (89) 1,949
Investment income 205 192
Interest expense 32 48
------- -------
Income before income taxes 84 2,093
Provision for income taxes 29 753
------- -------
Net income $ 55 $ 1,340
======= =======
Earnings per share $ 0.01 $ 0.22
======= =======
Weighted average common shares and
equivalent shares outstanding 6,242 6,227
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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ZOLL MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
MARCH 29, MARCH 30,
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 55 $1,340
Charges not affecting cash:
Depreciation and amortization 708 765
Accounts receivable allowances 175 180
Provision for warranty expense 100 49
Acquisition of assets from
Westech Information Systems, Inc. 1,000 --
Changes in assets and liabilities:
Accounts receivable 1,572 1,055
Inventories (2,233) (892)
Prepaid expenses and other current assets (239) (105)
Accounts payable and accrued expenses 155 1,042
------ ------
Cash provided by operating activities 1,293 3,434
INVESTING ACTIVITIES:
Additions to property and equipment (494) (783)
Additions to marketable securities (1,691) (2,423)
Redemption of marketable securities 2,233 700
Other assets 69 (33)
Acquisition of assets from
Westech Information Systems, Inc. (558) --
Investment in Common Stock of Lifecor, Inc. -- (1,000)
------ ------
Cash used for investing activities (441) (3,539)
FINANCING ACTIVITIES:
Exercise of stock options, including income tax benefit 73 115
Repayment of long-term debt (56) (48)
------ ------
Cash provided by (used for) financing activities 17 67
------ ------
Net increase (decrease) in cash 869 (38)
Cash and cash equivalents at beginning of year 4,962 5,595
------ ------
Cash and cash equivalents at end of period $5,831 $5,557
====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year:
Income taxes $ 481 $ 868
Interest 32 48
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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ZOLL MEDICAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997
1. The Balance Sheet as of March 29, 1997, the Statements of Income for the
three months and six months ended March 29, 1997 and March 30, 1996, and
the Statements of Cash Flows for the six months ended March 29, 1997 and
March 30, 1996 are unaudited, but in the opinion of management include all
adjustments, consisting of normal recurring items, necessary for a fair
presentation of results for these interim periods. The results for the
interim periods are not necessarily indicative of results to be expected
for the entire year.
2. On November 6, 1996 the Company purchased the assets of the mobile
computing business of Westech Information Systems, Inc. for approximately
$1,500,000 in cash, payable in three equal installments through September
1997. The purchase price was primarily attributable to software development
and other intangible assets. Goodwill associated with the purchase will be
amortized on a straight line basis over 15 years. In addition, the Company
incurred a charge of approximately $1,000,000 during the quarter ending
December 28, 1996 for the purchase of in process technology.
3. During the quarter ended December 28, 1996 the Company incurred a charge of
approximately $1,300,000 to cover the litigation costs to defend itself in
a shareholder class action lawsuit initiated in 1994. The Company believed
that the unsubstantiated claims of the plaintiffs would allow the lawsuit
to be settled without litigation. However, the Company had been and still
is unable to reach a reasonable settlement with plaintiffs' attorneys. The
Company believes it has meritorious defenses and therefore it will prevail
in trial. As a result, the Company has accrued the estimated cost of such
trial and related expenses.
4. In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" (FAS 128) which is effective for financial
statements for both interim and annual periods ending after December 15,
1997. FAS 128 will require the presentation of "basic" and "diluted" EPS.
The Basic EPS calculation does not consider the potential effects of
potentially dilutive securities. Basic and diluted EPS calculated in
accordance with FAS 128 is not expected to differ significantly from EPS as
currently reported.
The information contained in the interim financial statements should be read in
conjunction with the Company's audited financial statements, included in its
Annual Report on Form 10-K for the year ended September 28, 1996 filed with the
Securities and Exchange Commission.
<PAGE> 8
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 29, 1997
---------------------------------
COMPARED TO THREE MONTHS ENDED MARCH 30, 1996
---------------------------------------------
The Company's net sales increased to $14,083,000 for the three months ended
March 29, 1997 from $13,106,000 for the three months ended March 30, 1996. The
increase was attributable to a 19% increase in the domestic defibrillator sales
to pre-hospital markets, a 15% increase in sales to the international markets,
and a 12% increase in disposable electrode sales. These amounts were offset
slightly by a decline in sales to the hospital market.
Selling and marketing expenses remained stable as a percentage of sales at 30%.
Selling and marketing expenses increased 8% to $4,286,000 from $3,958,000. Of
this increase, $306,000 is due to increased payroll, commissions and travel
related expenditures because of higher staffing levels and increased revenues.
General and administrative expenses decreased as a percentage of sales to 7%
from 9%. General and administrative expenses decreased 19% to $1,034,000 from
$1,235,000. Of this decrease, $304,000 was related to a decline in legal fees
due to Quarter 1 accrual for shareholder lawsuit, and insurance expense due to
lower worker's compensation expense. These declines were partially offset by
increases of $103,000 to payroll, office, and travel related costs because of
higher staffing levels.
Research and development expenses increased as a percentage of sales to 9% from
8%. Research and development expenses increased 17% to $1,298,000 from
$1,113,000. Of this increase, $266,000 is due to increased staffing and
non-recurring development expenses related to new product development.
SIX MONTHS ENDED MARCH 29, 1997
-------------------------------
COMPARED TO SIX MONTHS ENDED MARCH 30, 1996
-------------------------------------------
The Company's net sales increased to $28,220,000 for the six months ended March
29, 1997 from $25,437,000 for the six months ended March 30, 1996. The increase
was attributable to a 19% increase in the domestic defibrillator sales to
pre-hospital markets, an 18% increase in sales to the international markets, and
a 9% increase in disposable electrode sales.
Selling and marketing expenses remained stable as a percentage of sales at 31%.
Selling and marketing expenses increased 9% to $8,634,000 from $7,940,000. Of
this increase, $560,000 is due to increased payroll, commissions and travel
related expenditures because of higher staffing levels and increased revenues.
General and administrative expenses increased as a percentage of sales to 13%
from 9%. General and administrative expenses increased 59% to $3,796,000 from
$2,389,000. Of this increase, $1,300,000 was related to the estimated cost of
proceeding to trial in a class action shareholder lawsuit that was initiated in
1994; $258,000 was due to increased payroll related costs and travel
expenditures because of higher staffing levels and $100,000 was due to a
contribution into the company's 401(k) plan. These amounts were offset by
decreases in legal, insurance, training, recruiting and supplies of $381,000.
Research and development expenses increased as a percentage of sales to 12% from
8%. Research and development expenses increased 64% to $3,516,000 from
$2,145,000. Of this increase, $1,000,000 is applicable to the value of
in-process research and development acquired in the purchase of the assets from
Westech Information Systems, Inc. and $391,000 is due to increased staffing and
non-recurring expenses
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related to new product development. These amounts were partially offset by
declines in recruiting and travel expenses of $20,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and marketable securities at March 29, 1997 was $8,254,000
compared with $7,927,000 at September 28, 1996, an increase of $327,000.
Cash provided by operating activities for the six months ended March 29, 1997
was $2,141,000 less than the same period in 1996. This decrease was attributable
to a profit of $55,000 for the period as compared to a profit of $1,340,000 for
the same period in 1996; an increase in ending inventories to meet expected
future demands and a reduction of accounts payable and accrued expenses for the
six months ended March 29, 1997 as compared to the same period in 1996. This was
partially offset by a net reduction in accounts receivable of $517,000.
The amount of cash required to fund investing activities decreased by $3,098,000
in the six months ended March 29, 1997 compared to the same period in 1996. This
decrease was due to a reduction in additions to short term investments of
$732,000 and the investment in common stock of Lifecor, Inc. This was partially
offset by the acquisition of assets of Westech Information Systems, Inc. during
the quarter ended December 28, 1996.
The amount of cash provided by financing activities was essentially unchanged
for the six months ended March 29, 1997 compared to the same period in 1996.
The Company maintains a line of credit with its bank. Under this working capital
line, the Company may borrow up to $3,000,000 on a demand basis, subject to the
level of qualifying accounts receivable and inventory. The line is secured by
accounts receivable, inventory and general intangibles of the Company and bears
interest at 3/4% above the bank's base rate.
The company expects that the combination of the existing cash balances, funds
generated from operations and borrowings under the existing line of credit will
be adequate to meet its liquidity and capital requirements, including its
purchase of assets from Westech Information Systems, Inc., for the foreseeable
future.
SAFE HARBOR STATEMENTS
Except for the historical information contained herein, the matters set forth
herein are forward looking statements that are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
set forth in the forward looking statements. Such risks and uncertainties
include, but are not limited to: product demand and market acceptance risks, the
effect of economic conditions, results of pending or future litigation, the
impact of competitive products and pricing, product development and
commercialization, technological difficulties, the government regulatory
environment, trade environment, capacity and supply constraints or difficulties,
the results of financing efforts, actual purchases under agreements, and the
effect of the company's accounting policies.
<PAGE> 10
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In the course of normal operations the Company is involved in
litigation arising from commercial disputes and claims of
former employees which management believes will not have a
material impact on the Company's financial position or its
results of operations.
In addition, the Company and certain present and former
officers are defendants in a lawsuit regarding shareholder
claims. In light of the inherent uncertainties of the
litigation, it is not possible to predict with absolute
certainty the likely outcome of the litigation. The Company
expects that if the litigation is brought to trial, the cost
of defense will be approximately $1,300,000 and has recorded
such a charge for the quarter ended December 28, 1996. The
Company believes it has meritorious defenses to the lawsuit
and will prevail if the lawsuit is brought to trial.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security-Holders.
The following matters were voted upon and approved at
the Company's Annual Meeting of Stockholders held on February 4, 1997. On
the record date there were 6,182,534 shares of Common Stock outstanding
and eligible to vote, of which 5,401,745 or approximately 87%, were
represented at the meeting either in person or by proxy.
Election of Directors of the Company:
<TABLE>
<CAPTION>
Votes for Votes Withheld
--------- --------------
<S> <C> <C>
Willard M. Bright 5,335,445 46,300
Thomas M. Claffin II 5,355,815 45,930
M. Stephen Heilman 5,355,815 45,930
<CAPTION>
Proposal to approve the Company's Non-Employee Directors Stock Option
Plan:
Number of Shares
----------------
<S> <C>
For 5,184,227
Against 184,690
Abstain 32,828
</TABLE>
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Proposal to amend the Company's 1992 Stock Option Plan to increase the number of
shares of the Company's Common Stock subject to issuance under the Plan:
Number of Shares
For 4,920,212
Against 457,705
Abstain 23,828
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
Not Applicable.
(b) Reports on Form 8-K.
The registrant filed no reports on Form 8-K during the
quarter ended March 29, 1997.
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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 on May 7, 1997.
ZOLL MEDICAL CORPORATION
(Registrant)
Date: May 7, 1997 By: /s/ Rolf S. Stutz
---------------------------------------
Rolf S. Stutz, Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: May 7, 1997 By: /s/ William J. Knight
---------------------------------------
William J. Knight, Chief Financial
Officer
(Principal Financial and Accounting
Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000877568
<NAME> ZOLL MEDICAL
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1997
<PERIOD-END> MAR-29-1997
<EXCHANGE-RATE> 1
<CASH> 5,831
<SECURITIES> 2,423
<RECEIVABLES> 14,524
<ALLOWANCES> 1,063
<INVENTORY> 9,619
<CURRENT-ASSETS> 33,830
<PP&E> 13,659
<DEPRECIATION> 6,840
<TOTAL-ASSETS> 43,390
<CURRENT-LIABILITIES> 8,842
<BONDS> 609
0
0
<COMMON> 124
<OTHER-SE> 33,426
<TOTAL-LIABILITY-AND-EQUITY> 43,390
<SALES> 28,220
<TOTAL-REVENUES> 28,220
<CGS> 12,363
<TOTAL-COSTS> 12,363
<OTHER-EXPENSES> 15,946
<LOSS-PROVISION> 175
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> 84
<INCOME-TAX> 29
<INCOME-CONTINUING> 55
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55
<EPS-PRIMARY> .01
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</TABLE>
