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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 MARCH 30, 1997 TO
JUNE 28, 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
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(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
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former 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 August 7, 1997
Common Stock, $.02 par value 6,191,659
This document consists of 12 pages.
--
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2
ZOLL MEDICAL CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets (unaudited)
June 28, 1997 and September 28, 1996 3
Condensed Consolidated Income Statements (unaudited)
Three Months Ended June 28, 1997 and June 29, 1996 4
Condensed Consolidated Income Statements (unaudited)
Nine Months Ended June 28, 1997 and June 29, 1996 5
Condensed Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended June 28, 1997 and June 29, 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 10
ITEM 6. Exhibits and Reports on Form 8-K 10
Signatures 11
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3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZOLL MEDICAL CORPORATION
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<CAPTION>
JUNE 28, SEPTEMBER 28,
1997 1996
-------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,346 $ 4,962
Marketable securities 2,542 2,965
Accounts receivable, less allowance of $988 at
June 28, 1997; $888 at September 28, 1996 12,109 16,271
Inventories:
Raw materials 2,413 2,319
Work-in-process 1,746 1,951
Finished goods 6,006 3,096
------- -------
10,165 7,366
Prepaid expenses and other current assets 1,528 1,203
------- -------
Total current assets 32,690 32,767
Property and equipment, at cost:
Land and building 925 997
Machinery and equipment 9,486 8,313
Tooling 2,387 2,327
Furniture and fixtures 651 584
Leasehold improvements 785 710
------- -------
14,234 12,931
Less accumulated depreciation 7,207 6,141
Net property and equipment 7,027 6,790
Other assets, net 2,706 2,532
------- -------
$42,423 $42,089
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,264 $ 2,832
Accrued expenses and other liabilities 5,407 4,671
Current maturities of long-term debt 110 114
------- -------
Total current liabilities 7,781 7,617
Deferred income taxes 389 389
Long-term debt 580 661
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
June 28, 1997 and September 28, 1996, respectively 124 124
Capital in excess of par value 20,629 20,540
Retained earnings 12,920 12,758
------- -------
Total stockholders' equity 33,673 33,422
------- -------
$42,423 $42,089
======= =======
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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4
ZOLL MEDICAL CORPORATION
<TABLE>
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts )
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
----------------------
June 28, June 29,
1997 1996
-------- --------
<S> <C> <C>
Net sales $12,434 $13,971
Cost of goods sold 5,100 6,089
------- -------
Gross profit 7,334 7,882
Expenses:
Selling and marketing 4,710 4,368
General administrative 1,179 1,102
Research and development 1,381 1,016
------- -------
Total expenses 7,270 6,486
------- -------
Income from operations 64 1,396
Investment income 113 83
Interest expense 15 25
------- -------
Income before income taxes 162 1,454
Provision for income taxes 55 523
------- -------
Net income $ 107 $ 931
======= =======
Earnings per share $ 0.02 $ 0.15
======= =======
Weighted average common shares and
equivalent shares outstanding 6,224 6,318
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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5
ZOLL MEDICAL CORPORATION
<TABLE>
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts )
(Unaudited)
<CAPTION>
NINE MONTHS ENDED
----------------------
June 28, June 29,
1997 1996
-------- --------
<S> <C> <C>
Net sales $40,654 $39,408
Cost of goods sold 17,462 17,103
------- -------
Gross profit 23,192 22,305
Expenses:
Selling and marketing 13,345 12,307
General administrative 4,975 3,492
Research and development 4,897 3,161
------- -------
Total expenses 23,217 18,960
------- -------
Income (loss) from operations (25) 3,345
Investment income 317 275
Interest expense 46 73
------- -------
Income before income taxes 246 3,547
Provision for income taxes 84 1,277
------- -------
Net income $ 162 $ 2,270
======= =======
Earnings per share $ 0.03 $ 0.36
======= =======
Weighted average common shares and
equivalent shares outstanding 6,245 6,232
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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6
ZOLL MEDICAL CORPORATION
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<CAPTION>
NINE MONTHS ENDED
------------------
JUNE 28, JUNE 29,
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 162 $ 2,270
Charges not affecting cash:
Depreciation and amortization 1,075 1,157
Accounts receivable allowances 75 35
Provision for warranty expense 211 64
Acquisition of assets from
Westech Information Systems, Inc. 1,000 -
Changes in assets and liabilities:
Accounts receivable 4,087 502
Inventories (2,779) (1,688)
Prepaid expenses and other current assets (334) 7
Accounts payable and accrued expenses (1,014) 1,313
------- -------
Cash provided by operating activities 2,483 3,660
INVESTING ACTIVITIES:
Additions to property and equipment (1,072) (1,370)
Disposals of property and equipment - 214
Additions to marketable securities (2,152) (2,593)
Redemption of marketable securities 2,575 1,466
Other assets 104 (25)
Acquisition of assets from
Westech Information Systems, Inc. (558) -
Investment in Common Stock of Lifecor, Inc. - (2,000)
------- -------
Cash used for investing activities (1,103) (4,308)
FINANCING ACTIVITIES:
Exercise of stock options, including income tax benefit 89 419
Repayment of long-term debt (85) (76)
------- -------
Cash provided by financing activities 4 343
------- -------
Net increase (decrease) in cash 1,384 (305)
Cash and cash equivalents at beginning of year 4,962 5,595
------- -------
Cash and cash equivalents at end of period $ 6,346 $ 5,290
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year:
Income taxes $ 551 $ 1,171
Interest 47 73
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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ZOLL MEDICAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1997
1. The Balance Sheet as of June 28, 1997, the Statements of Income for the
three months and nine months ended June 28, 1997 and June 29, 1996, and the
Statements of Cash Flows for the nine months ended June 28, 1997 and June
29, 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
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 28, 1997
--------------------------------
COMPARED TO THREE MONTHS ENDED JUNE 29, 1996
--------------------------------------------
The Company's net sales decreased to $12,434,000 for the three months ended June
28, 1997 from $13,971,000 for the three months ended June 29, 1996. The decrease
was attributable to a 16% decrease in the domestic sales to hospital and
pre-hospital markets, an 18% decrease in sales to the international markets, and
a 14% increase in disposable electrode sales.
Selling and marketing expenses increased as a percentage of sales to 38%.
Selling and marketing expenses increased 8% to $4,710,000 from $4,368,000 due to
increased payroll, commissions and travel related expenditures because of higher
staffing levels and the acquisition of Westech Information Systems, Inc.
General and administrative expenses increased as a percentage of sales to 10%
from 8%. General and administrative expenses increased 7% to $1,179,000 from
$1,102,000 due to increased payroll because of higher staffing levels and the
acquisition of Westech Information Systems, Inc. This increase was partially
offset by a decline in legal and consulting fees.
Research and development expenses increased as a percentage of sales to 11% from
7%. Research and development expenses increased 36% to $1,381,000 from
$1,016,000 due to increased staffing and non-recurring development expenses
related to new product development and the acquisition of Westech Information
Systems, Inc.
NINE MONTHS ENDED JUNE 28, 1997
-------------------------------
COMPARED TO NINE MONTHS ENDED JUNE 29, 1996
-------------------------------------------
The Company's net sales increased to $40,654,000 for the nine months ended June
28, 1997 from $39,408,000 for the nine months ended June 29, 1996. The increase
was attributable to a 6% increase in sales to the international markets, and an
11% increase in disposable electrode sales.
Selling and marketing expenses increased as a percentage of sales to 33% from
31%. Selling and marketing expenses increased 8% to $13,345,000 from $12,307,000
due to increased payroll, commissions and travel related expenditures because of
higher staffing levels and increased revenues and the acquisition of Westech
Information Systems, Inc.
General and administrative expenses increased as a percentage of sales to 12%
from 9%. General and administrative expenses increased 43% to $4,975,000 from
$3,492,000. 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; $463,000 was due to increased payroll related costs and travel
expenditures because of higher staffing levels and the acquisition of Westech
Information Systems, Inc.; and $100,000 was due to a contribution into the
company's 401(k) plan. These amounts were offset by decreases in legal and
insurance of $404,000.
Research and development expenses increased as a percentage of sales to 12% from
8%. Research and development expenses increased 55% to $4,897,000 from
$3,161,000. 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 $534,000 is due to increased staffing and
non-recurring expenses related to new product development and the acquisition of
Westech Information Systems, Inc.
<PAGE> 9
9
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and marketable securities at June 28, 1997 was $8,888,000
compared with $7,927,000 at September 28, 1996, an increase of $961,000.
Cash provided by operating activities for the nine months ended June 28, 1997
was $1,177,000 less than the same period in 1996. This decrease was attributable
to a decrease in net income and a reduction of accounts payable and accrued
expenses. These declines were partially offset by a net reduction in accounts
receivable of $3,585,000.
The amount of cash required to fund investing activities decreased by $3,205,000
in the nine months ended June 28, 1997 compared to the same period in 1996. This
decrease was due to a reduction in additions to short term investments 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 decreased by $339,000 for
the nine months ended June 28, 1997 compared to the same period in 1996 due to
the decrease in the exercise of stock options.
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
10
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.
Not Applicable.
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 June 28, 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 August 8, 1997.
ZOLL MEDICAL CORPORATION
(Registrant)
Date: August 8, 1997 By: /s/ Rolf S. Stutz
---------------------------------------------------
Rolf S. Stutz, Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: August 8, 1997 By: /s/ William J. Knight
---------------------------------------------------
William J. Knight, Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> JUN-28-1997
<EXCHANGE-RATE> 1
<CASH> 6,346
<SECURITIES> 2,542
<RECEIVABLES> 12,109
<ALLOWANCES> 988
<INVENTORY> 10,165
<CURRENT-ASSETS> 32,690
<PP&E> 14,234
<DEPRECIATION> 7,207
<TOTAL-ASSETS> 42,423
<CURRENT-LIABILITIES> 7,781
<BONDS> 580
0
0
<COMMON> 124
<OTHER-SE> 33,549
<TOTAL-LIABILITY-AND-EQUITY> 42,423
<SALES> 40,654
<TOTAL-REVENUES> 40,654
<CGS> 17,462
<TOTAL-COSTS> 17,462
<OTHER-EXPENSES> 23,217
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> 246
<INCOME-TAX> 84
<INCOME-CONTINUING> 162
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 162
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
