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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 SEPTEMBER 28,
1996 TO DECEMBER 28, 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 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
Class Outstanding at February 7, 1997
Common Stock, $.02 par value 6,190,534
This document consists of 11 pages.
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<TABLE>
ZOLL MEDICAL CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION
<S> <C>
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets
December 28, 1996 (unaudited) and September 28, 1996 3
Condensed Consolidated Income Statements (unaudited)
Three Months Ended December 28, 1996 and December 30, 1995 4
Condensed Consolidated Statements of Cash Flows (unaudited)
Three Months Ended December 28, 1996 and December 30, 1995 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 9
ITEM 2. Changes in Securities 9
ITEM 3. Defaults Upon Senior Securities 9
ITEM 4. Submission of Matters to a Vote of Security-Holders 9
ITEM 5. Other Information 9
ITEM 6. Exhibits and Reports on Form 8-K 9
Signatures 10
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
ZOLL MEDICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
(in thousands, except per share amounts) DECEMBER 28,
1996 SEPTEMBER 28,
(UNAUDITED) 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,636 $ 4,962
Marketable securities 2,821 2,965
Accounts receivable, less allowance of $1,016 at
December 28, 1996; $888 at September 28, 1996 15,056 16,271
Inventories:
Raw materials 2,740 2,319
Work-in-process 1,250 1,951
Finished goods 5,169 3,096
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9,159 7,366
Prepaid expenses and other current assets 1,365 1,203
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Total current assets 33,037 32,767
Property and equipment, at cost:
Land and building 997 997
Machinery and equipment 8,536 8,313
Tooling 2,299 2,327
Furniture and fixtures 592 584
Leasehold improvements 710 710
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13,134 12,931
Less accumulated depreciation 6,480 6,141
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Net property and equipment 6,654 6,790
Other assets, net 2,775 2,532
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$42,466 $42,089
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,554 $ 2,832
Accrued expenses and other liabilities 5,103 4,671
Current maturities of long-term debt 110 114
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Total current liabilities 8,700 7,617
Deferred income taxes 389 389
Long-term debt 636 661
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,
6,183 and 6,174 issued and outstanding at
December 28, 1996 and September 28, 1996, respectively 124 124
Capital in excess of par value 20,585 20,540
Retained earnings 11,964 12,758
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Total stockholders' equity 32,693 33,422
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$42,466 $42,089
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</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
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December 28, December 30,
1996 1995
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<S> <C> <C>
Net sales $14,137 $12,331
Cost of goods sold 6,125 5,337
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Gross profit 8,012 6,994
Expenses:
Selling and marketing 4,349 3,982
General administrative 2,762 1,154
Research and development 2,218 1,032
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Total expenses 9,329 6,168
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Income (loss) from operations (1,317) 826
Investment income 133 129
Interest expense 16 27
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Income (loss) before income taxes (1,200) 928
Provision for income taxes (408) 334
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Net income (loss) $ (792) $ 594
======= =======
Earnings (loss) per share $ (0.13) $ 0.10
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Weighted average common shares and
equivalent shares outstanding 6,254 6,179
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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<TABLE>
ZOLL MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
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DECEMBER 28, DECEMBER 30,
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ (792) $ 594
Charges not affecting cash:
Depreciation and amortization 365 377
Accounts receivable allowances 128 35
Provision for warranty expense 86 32
Acquisition of assets from
Westech Information Systems, Inc. 1,000 --
Changes in assets and liabilities:
Accounts receivable 1,088 353
Inventories (1,773) (137)
Prepaid expenses and other current assets (153) (56)
Accounts payable and accrued expenses 152 740
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Cash provided by operating activities 101 1,938
INVESTING ACTIVITIES:
Additions to property and equipment (31) (343)
Additions to investments (266) (1,150)
Redemption of investments 409 349
Other assets (2) (21)
Acquisition of assets from
Westech Information Systems, Inc. (558) --
Investment in Common Stock of Lifecor, Inc. 0 (2,000)
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Cash used for investing activities (448) (1,165)
FINANCING ACTIVITIES:
Exercise of stock options, including income tax benefit 45 23
Repayment of long-term debt (24) (27)
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Cash provided by (used for) financing activities 21 (4)
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Net increase (decrease) in cash (326) 769
Cash and cash equivalents at beginning of year 4,962 5,595
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Cash and cash equivalents at end of year $ 4,636 $ 6,364
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year:
Income taxes $ 13 $ --
Interest 2 27
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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ZOLL MEDICAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 28, 1996
1. The Balance Sheet as of December 28, 1996, the Statements of Income for the
three months ended December 28, 1996 and December 30, 1995, and the
Statements of Cash Flows for the three months ended December 28, 1996 and
December 30, 1995 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 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. Until recently the
Company believed that the unsubstantiated claims of the plaintiffs would
allow the lawsuit to be settled without litigation. However, the Company
has been 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.
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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 28, 1996
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COMPARED TO THREE MONTHS ENDED DECEMBER 30, 1995
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The Company's net sales increased to $14,137,000 for the three months ended
December 28, 1996 from $12,331,000 for the three months ended December 30, 1995.
The increase was attributable to a 22% increase in sales to the international
markets, a 19% increase in the domestic defibrillator sales to pre-hospital
markets, and a 7% increase in disposable electrode sales.
Selling and marketing expenses decreased as a percentage of sales to 31% from
32%. Selling and marketing expenses increased 9% to $4,349,000 from $3,982,000.
Of this increase, $210,000 is due to increased payroll, commissions and travel
related expenditures because of higher staffing levels and increased revenues,
$94,000 was due to increases in the product service and support and $84,000 was
due to increased expenditures related to national and regional shows and
exhibitions.
General and administrative expenses increased as a percentage of sales to 20%
from 9%. General and administrative expenses increased 141% to $2,762,000 from
$1,154,000. 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; $122,000 was due to increased payroll related costs and travel
expenditures because of higher staffing levels; $98,000 was due to the
administrative costs of the operations of a new software development subsidiary
and $100,000 was due to a contribution into the company's 401(k) plan.
Research and development expenses increased as a percentage of sales to 16% from
8%. Research and development expenses increased 115% to $2,218,000 from
$1,032,000. Of this increase, $1,000,000 is applicable to the value of
in-process research and development acquired in the purchase of assets from
Westech Information Systems, Inc. and $167,000 is due to increased staffing,
consulting, and other related expenses associated with new product development.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and investments at December 28, 1996 was $7,457,000 compared
with $7,927,000 at September 28, 1996, a decrease of $470,000.
Cash provided by operating activities for the three months ended December 28,
1996 was $1,837,000 less than the same period in 1995. This decrease was
attributable to a net loss of $792,000 for the period as compared to a profit of
$594,000 for the same period in 1995, an increase in ending inventories to meet
expected future demands and a reduction of accounts payable and accrued expenses
for the three months ended December 28, 1996 as compared to the same period in
1995. This was partially offset by a net reduction in accounts receivable of
$735,000 and the acquisition of approximately $1,000,000 of in process
technology.
The amount of cash required to fund investing activities decreased by $717,000
in the three months ended December 28, 1996 compared to the same period in 1995.
This decrease was due to a reduction in additions to short term investments of
$884,000 and the investment in common stock of Lifecor, Inc. which was made
during the quarter ended December 30, 1995. This was partially offset by the
acquisition of assets of Westech Information Systems, Inc. during the quarter
ended December 28, 1996.
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The amount of cash provided by financing activities was essentially unchanged
for the three months ended December 28, 1996 compared to the same period in
1995.
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.
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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.
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 December 28, 1996.
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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 February 10, 1997.
ZOLL MEDICAL CORPORATION
(Registrant)
Date: February 10, 1997 By: /s/ Rolf S. Stutz
--------------------------------------
Rolf S. Stutz, Chairman and Chief
Executive Officer
(Principal Executive Officer)
Date: February 10, 1997 By: /s/ William J. Knight
--------------------------------------
William J. Knight, Chief Financial
Officer (Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000887568
<NAME> ZOLL MEDICAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> DEC-28-1996
<EXCHANGE-RATE> 1
<CASH> 4,636
<SECURITIES> 2,821
<RECEIVABLES> 15,056
<ALLOWANCES> 1,016
<INVENTORY> 9,159
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<PP&E> 13,134
<DEPRECIATION> 6,480
<TOTAL-ASSETS> 42,466
<CURRENT-LIABILITIES> 8,700
<BONDS> 636
0
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<COMMON> 124
<OTHER-SE> 32,549
<TOTAL-LIABILITY-AND-EQUITY> 42,466
<SALES> 14,137
<TOTAL-REVENUES> 14,137
<CGS> 6,125
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<OTHER-EXPENSES> 9,329
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<INCOME-PRETAX> (1,200)
<INCOME-TAX> (408)
<INCOME-CONTINUING> (792)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (792)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
