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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 SEPTEMBER 28,
1997 TO DECEMBER 27, 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)
(781) 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 5, 1998
Common Stock, $.02 par value 6,191,659
This document consists of 11 pages.
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ZOLL MEDICAL CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets (unaudited)
December 27, 1997 and September 27, 1997 3
Condensed Consolidated Income Statements (unaudited)
Three Months Ended December 27, 1997 and December 28, 1996 4
Condensed Consolidated Statements of Cash Flows (unaudited)
Three Months Ended December 27, 1997 and December 28, 1996 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
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZOLL MEDICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 27, SEPTEMBER 27,
1997 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,370 $ 9,760
Investments - 278
Accounts receivable, less allowance of $970 at
December 27, 1997; $1,207 at September 27, 1997 12,271 14,492
Inventories:
Raw materials 3,550 2,632
Work-in-process 842 840
Finished goods 4,044 4,004
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8,436 7,476
Prepaid expenses and other current assets 2,091 2,056
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Total current assets 32,168 34,062
Property and equipment, at cost:
Land and building 1,023 1,023
Machinery and equipment 10,467 10,116
Tooling 1,626 1,646
Furniture and fixtures 667 659
Leasehold improvements 737 737
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14,520 14,181
Less accumulated depreciation 6,849 6,769
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Net property and equipment 7,671 7,412
Other assets, net 2,736 2,736
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$42,575 $44,210
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,401 $ 2,029
Accrued expenses and other liabilities 6,232 7,377
Current maturities of long-term debt 110 110
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Total current liabilities 7,743 9,516
Deferred income taxes 103 103
Long-term debt 525 552
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,
6,192 issued and outstanding at December 27, 1997
and September 27, 1997 124 124
Capital in excess of par value 20,642 20,642
Retained earnings 13,438 13,273
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Total stockholders' equity 34,204 34,039
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$42,575 $44,210
======= =======
</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>
THREE MONTHS ENDED
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December 27, December 28,
1997 1996
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<S> <C> <C>
Net sales $12,440 $14,137
Cost of goods sold 5,406 6,125
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Gross profit 7,034 8,012
Expenses:
Selling and marketing 4,248 4,349
General and administrative 1,233 2,762
Research and development 1,416 2,218
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Total expenses 6,897 9,329
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Income (loss) from operations 137 (1,317)
Investment income 112 133
Interest expense 13 16
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Income (loss) before income taxes 236 (1,200)
Provision (benefit) for income taxes 71 (408)
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Net income (loss) $ 165 $ (792)
======= =======
Basic earnings (loss) per share $ 0.03 $ (0.13)
======= =======
Weighted average common shares 6,192 6,176
Diluted earnings (loss) per common and common
equivalent share $ 0.03 $ (0.13)
======= =======
Weighted average number of common and
common equivalent shares outstanding 6,208 6,176
</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>
THREE MONTHS ENDED
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DECEMBER 27, DECEMBER 28,
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 165 $ (792)
Charges not affecting cash:
Depreciation and amortization 332 365
Accounts receivable allowances (237) 128
Provision for warranty expense 2 86
In-process research and development - 1,000
Changes in assets and liabilities:
Accounts receivable 2,458 1,088
Inventories (960) (1,773)
Prepaid expenses and other current assets (35) (153)
Accounts payable and accrued expenses (1,775) 152
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Cash provided by (used for) operating activities (50) 101
INVESTING ACTIVITIES:
Additions to property and equipment, net (587) (31)
Additions to marketable securities - (266)
Redemption of marketable securities 278 409
Other assets (4) (2)
Acquisition of assets from -
Westech Information Systems, Inc. - (558)
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Cash used for investing activities (313) (448)
FINANCING ACTIVITIES:
Exercise of stock options, including income tax benefit - 45
Repayment of long-term debt (27) (24)
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Cash provided by (used for) financing activities (27) 21
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Net increase (decrease) in cash (390) (326)
Cash and cash equivalents at beginning of year 9,760 4,962
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Cash and cash equivalents at end of period $ 9,370 $ 4,636
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year:
Income taxes $ 608 $ 13
Interest 13 2
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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ZOLL MEDICAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1997
1. The Balance Sheet as of December 27, 1997, the Statements of Income for the
three months ended December 27, 1997 and December 28, 1996, and the
Statements of Cash Flows for the three months ended December 27, 1997 and
December 28, 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 lawsuit initiated in 1994. The Company has been unable to
reach a reasonable settlement with plaintiffs' attorneys. The Company
believes it has meritorious defenses to the lawsuit and therefore will
prevail in trial. The Company believes that such litigation accrual and
insurance reimbursement is adequate provision for probable losses arising
from the litigation, and as such the Company believes that the litigation
will not have a material adverse affect on its financial position or its
results of operations.
4. In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 (FAS 130), "Reporting Comprehensive Income" and Statement No. 131
(FAS 131) "Disclosures About Segments of an Enterprise and Related
Information." FAS 130 establishes standards for the reporting and display
of comprehensive income and its components. FAS 131 establishes standards
for the way that public companies report information about operating
segments in financial statements. This Statement supersedes Statement No.
14, "Financial Reporting for Segments of a Business Enterprise," but
retains the requirements to report information about major customers. The
Statements are effective for fiscal years beginning after December 15,
1997. The Company does not believe that the adoption of these Statements
will have a material effect on the Company's financial statements.
5. In 1998, Zoll adopted FAS 128 "Earnings per Share". FAS 128 requires the
company to present basic and diluted earnings per share amounts. All
periods presented have been restated.
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 27, 1997 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 27, 1997
COMPARED TO THREE MONTHS ENDED DECEMBER 28, 1996
The Company's net sales decreased to $12,440,000 for the three months ended
December 27, 1997 from $14,137,000 for the three months ended December 28, 1996.
The decrease was attributable to a 25% decrease in the domestic sales to
hospital and pre-hospital markets, a 10% decrease 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 34% from
31%. Selling and marketing expenses decreased 2% to $4,248,000 from $4,349,000
due to decreased commissions and travel related expenditures.
General and administrative expenses decreased as a percentage of sales to 10%
from 20%. General and administrative expenses decreased 55% to $1,233,000 from
$2,762,000. Of this decrease, $1,300,000 was due to a one-time charge of
$1,300,000 in December 1996 related to the estimated cost of proceeding to trial
in a class action shareholder lawsuit that was initiated in 1994, and the
remainder was due to a contribution into the company's 401(k) plan in 1996 and a
decrease in travel related expenses.
Research and development expenses decreased as a percentage of sales to 11% from
16%. Research and development expenses decreased 36% to $1,416,000 from
$2,218,000. This decrease was due to a $1,000,000 charge for the value of
in-process research and development acquired in the purchase of the assets of
the mobile computing business of Westech Information Systems, Inc. (Westech) in
1996. Absent this charge, the Company's research and development expenses
increased $198,000 due to increased staffing related to new product development.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and investments at December 27, 1997 was $9,370,000 compared
with $10,038,000 at September 27, 1997, a decrease of $668,000.
Cash provided by operating activities for the three months ended December 27,
1997 was $151,000 less than the same period in 1996. This decrease was
attributable to a reduction of accounts payable and accrued expenses which were
partially offset by a net reduction in accounts receivable.
The amount of cash required to fund investing activities decreased by $135,000
in the three months ended December 27, 1997 compared to the same period in 1996.
This decrease was primarily due to the acquisition of assets of the mobile
computing business of Westech during the quarter ended December 28, 1996.
The amount of cash provided by financing activities decreased by $48,000 for the
three months ended December 27, 1997 compared to the same period in 1996 due to
the decrease in the exercise of stock options.
The Company maintains a working capital line of credit with its bank. Under this
working capital line, the Company may borrow up to $3,000,000 on a demand basis.
Borrowings under this line bear interest at the bank's base rate.
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The company expects that the combination of the existing cash balances, cash
generated from operations and its existing line of credit will be adequate to
meet its liquidity and capital requirements for the foreseeable future.
SAFE HARBOR STATEMENTS
Except for the historical information contained herein, the matters set forth
herein are forward looking statements within the meaning of Section 27A of the
Securities Act of 1933 as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, 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 and actions, 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.
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 lawsuit initiated in 1994. The Company
has been unable to reach a reasonable settlement with
plaintiffs' attorneys. The Company believes it has
meritorious defenses to the lawsuit and therefore
will prevail in trial. The Company believes that such
litigation accrual and insurance reimbursement is
adequate provision for probable losses arising from
the litigation, and as such the Company believes that
the litigation will not have a material adverse
affect on its financial position or its results of
operations.
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 27, 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 February 6, 1998.
ZOLL MEDICAL CORPORATION
(Registrant)
Date: February 6, 1998 By: /s/ Rolf S. Stutz
--------------------------------------------
Rolf S. Stutz, Chairman and Chief Executive
Officer (Principal Executive Officer)
Date: February 6, 1998 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> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-26-1998
<PERIOD-START> SEP-28-1997
<PERIOD-END> DEC-27-1997
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<CASH> 9,370
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<RECEIVABLES> 12,271
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