<PAGE> 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 29, 1998 TO
JUNE 27, 1998. 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)
(781) 229-0020
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
(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 11, 1998
Common Stock, $.02 par value 6,191,659
This document consists of 13 pages.
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2
ZOLL MEDICAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
<S> <C>
Condensed Consolidated Balance Sheets (unaudited)
June 27, 1998 and September 27, 1997 3
Condensed Consolidated Income Statements (unaudited)
Three Months Ended June 27, 1998 and June 28, 1997 4
Condensed Consolidated Income Statements (unaudited)
Nine Months Ended June 27, 1998 and June 28, 1997 5
Condensed Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended June 27, 1998 and June 28, 1997 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 11
ITEM 4. Submission of Matters to a Vote of Security-Holders 11
ITEM 5. Other Information 11
ITEM 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
<PAGE> 3
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZOLL MEDICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 27, SEPTEMBER 27,
1998 1997
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,990 $ 9,760
Investments - 278
Accounts receivable, less allowance of $865 at
June 27, 1998; $1,207 at September 27, 1997 10,680 14,492
Inventories:
Raw materials 4,202 2,632
Work-in-process 1,214 840
Finished goods 3,112 4,004
------- -------
8,528 7,476
Prepaid expenses and other current assets 1,990 2,056
------- -------
Total current assets 31,188 34,062
Property and equipment, at cost:
Land and building 1,029 1,023
Machinery and equipment 12,559 10,116
Tooling 1,612 1,646
Furniture and fixtures 676 659
Leasehold improvements 737 737
------- -------
16,613 14,181
Less accumulated depreciation 7,561 6,769
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Net property and equipment 9,052 7,412
Other assets, net 2,734 2,736
------- -------
$42,974 $44,210
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,318 $ 2,029
Accrued expenses and other liabilities 6,269 7,377
Current maturities of long-term debt 110 110
------- -------
Total current liabilities 8,697 9,516
Deferred income taxes 103 103
Long-term debt 467 552
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 June 27, 1998 and
September 27, 1997. 124 124
Capital in excess of par value 20,642 20,642
Retained earnings 12,941 13,273
------- -------
Total stockholders' equity 33,707 34,039
------- -------
$42,974 $44,210
======= =======
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE> 4
4
ZOLL MEDICAL CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts )
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
June 27, June 28,
1998 1997
---- ----
<S> <C> <C>
Net sales $12,852 $12,434
Cost of goods sold 5,518 5,100
--------- --------
Gross profit 7,334 7,334
Expenses:
Selling and marketing 5,340 4,710
General administrative 1,290 1,179
Research and development 1,973 1,381
--------- --------
Total expenses 8,603 7,270
--------- --------
Income (loss) from operations (1,269) 64
Investment income 119 113
Interest expense 13 15
--------- --------
Income (loss) before income taxes (1,163) 162
Provision (benefit) for income taxes (349) 55
--------- --------
Net income (loss) $ (814) $ 107
========= ========
Basic earnings per share $ (0.13) $ 0.02
========= ========
Weighted average common shares 6,192 6,192
Diluted earnings per common and common $ (0.13) $ 0.02
========= ========
equivalent share
Weighted average number of common and
common equivalent shares outstanding 6,192 6,224
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE> 5
5
ZOLL MEDICAL CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts )
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
June 27, June 28,
1998 1997
---- ----
<S> <C> <C>
Net sales $38,877 $40,654
Cost of goods sold 16,746 17,462
-------- --------
Gross profit 22,131 23,192
Expenses:
Selling and marketing 13,998 13,345
General administrative 4,034 4,975
Research and development 4,899 4,897
-------- --------
Total expenses 22,931 23,217
-------- --------
Income (loss) from operations (800) (25)
Investment income 363 317
Interest expense 38 46
-------- --------
Income (loss) before income taxes (475) 246
Provision (benefit) for income taxes (143) 84
-------- --------
Net income (loss) $ (332) $ 162
======== ========
Basic earnings per share $ (0.05) $ 0.03
======== ========
Weighted average common shares 6,192 6,185
Diluted earnings per common and common $ (0.05) $ 0.03
========= =======
equivalent share
Weighted average number of common and
common equivalent shares outstanding 6,192 6,245
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE> 6
6
ZOLL MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 27, JUNE 28,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (332) $ 162
Charges not affecting cash:
Depreciation and amortization 1,164 1,075
Accounts receivable allowances (342) 75
Provision for warranty expense 74 211
In-process research and development - 1,000
Changes in assets and liabilities:
Accounts receivable 4,154 4,087
Inventories (1,052) (2,779)
Prepaid expenses and other current assets 66 (334)
Accounts payable and accrued expenses (893) (1,014)
------- -------
Cash provided by operating activities 2,839 2,483
INVESTING ACTIVITIES:
Additions to property and equipment, net (2,793) (1,072)
Additions to marketable securities - (2,152)
Redemption of marketable securities 278 2,575
Other assets (9) 104
------- -------
Acquisition of assets from
Westech Information Systems, Inc. - (558)
------- -------
Cash used for investing activities (2,524) (1,103)
FINANCING ACTIVITIES:
Exercise of stock options, including income tax benefit - 89
Repayment of long-term debt (85) (85)
------- -------
Cash provided by (used for) financing activities (85) 4
------- -------
Net increase in cash 230 1,384
Cash and cash equivalents at beginning of year 9,760 4,962
------- -------
Cash and cash equivalents at end of period $ 9,990 $ 6,346
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year:
Income taxes $ 1,002 $ 551
Interest 38 47
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE> 7
7
ZOLL MEDICAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 27, 1998
1. The Balance Sheet as of June 27, 1998, the Statements of Income for the
three months and nine months ended June 27, 1998 and June 28, 1997, and the
Statements of Cash Flows for the nine months ended June 27, 1998 and June
28, 1997 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. On July 9, 1998, the Company
announced an agreement in principle concerning the settlement of the
lawsuit against it and certain officers. This settlement is subject to
court approval and the Company anticipates that there will be no financial
impact as a result of the settlement.
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.
<PAGE> 8
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 27, 1998
--------------------------------
COMPARED TO THREE MONTHS ENDED JUNE 28, 1997
--------------------------------------------
The Company's net sales increased to $12,852,000 for the three months ended June
27, 1998 from $12,434,000 for the three months ended June 28, 1997. The increase
was attributable to a 4% increase in the domestic sales to hospital and
pre-hospital markets and a 6% increase in disposable electrode sales.
Selling and marketing expenses increased as a percentage of sales to 42% from
38%. Selling and marketing expenses increased 13% to $5,340,000 from $4,710,000.
Of this increase, approximately $400,000 was due to the realignment of the sales
force and $200,000 was due to increased commissions and recruiting expenditures
due to higher staffing levels.
General and administrative expenses remained unchanged as a percentage of sales
at 10%. General and administrative expenses increased 9% to $1,290,000 from
$1,179,000 due to increased travel expenses, the acquisition of Westech
Information Systems, Inc. and contributions made into the Company's 401(k) plan.
This increase was partially offset by a decline in insurance and professional
services.
Research and development expenses increased as a percentage of sales to 15% from
11%. Research and development expenses increased 43% to $1,973,000 from
$1,381,000 due to research and development and introduction expenses relating to
the M-Series product release.
NINE MONTHS ENDED JUNE 27, 1998
-------------------------------
COMPARED TO NINE MONTHS ENDED JUNE 28, 1997
-------------------------------------------
The Company's net sales decreased to $38,877,000 for the nine months ended June
27, 1998 from $40,654,000 for the nine months ended June 28, 1997. The decrease
was attributable to a 14% decrease in sales to the international markets and a
6% decrease in the domestic sales to hospital and pre-hospital markets, offset
in part by an 8% increase in disposable electrode sales.
Selling and marketing expenses increased as a percentage of sales to 36% from
33%. Selling and marketing expenses increased 5% to $13,998,000 from $13,345,000
due to increased payroll and commissions because of higher staffing levels. This
increase was partially offset by a decline in outside consulting services.
General and administrative expenses decreased as a percentage of sales to 10%
from 12%. General and administrative expenses decreased 19% to $4,034,000 from
$4,975,000. The decrease 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. This decrease was partially
offset by an increase in professional services and contributions into the
Company's 401(k) plan.
Research and development expenses increased as a percentage of sales to 13% from
12%. Research and development expenses increased slightly to $4,899,000 from
$4,897,000. In 1996 a charge of $1,000,000 was incurred for the value of
in-process research and development acquired in the purchase of Westech. Absent
this charge, the Company's research and development expenses increased
$1,002,000. Of this increase, $811,000 was applicable to new product development
and $231,000 was due to increased salaries and wages.
<PAGE> 9
9
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and marketable securities at June 27, 1998 was $9,990,000
compared with $10,038,000 at September 27, 1997, a decrease of $48,000.
Cash provided by operating activities for the nine months ended June 27, 1998
was $356,000 more than the same period in 1997. This increase was attributable
to increases to accrued expenses and a reduction of inventory.
The amount of cash used to fund investing activities increased by $1,421,000 in
the nine months ended June 27, 1998 compared to the same period in 1997. This
increase was primarily due to additions to property and equipment.
The amount of cash provided by financing activities decreased by $81,000 for the
nine months ended June 27, 1998 compared to the same period in 1997 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. The full
amount of the line was available to the Company at June 27, 1998
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.
<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.
The Company has announced an agreement in principle
concerning settlement of a shareholder class action lawsuit
filed against it and certain officers in 1994. This
settlement is subject to court approval and the Company
anticipates that there will be no financial impact as a
result of the settlement.
On August 3, 1998, Elliot Associates, L.P. and Westgate
International, L.P. (the "Plaintiffs") filed a complaint in
the United States District Court, District of
Massachusetts, against the Company and each of its
directors. The complaint primarily seeks an order by the
court (i) barring the Company from declaring the Plaintiffs
"Adverse Persons" under the Shareholder Rights Plan
described in Item 2 below; (ii) barring the Company from
advancing the date of its 1999 annual meeting; and (iii)
requiring the Company to provide the Plaintiffs with a list
of the Company's stockholders. The Company is currently
reviewing the complaint and will respond appropriately.
Item 2. Changes in Securities.
On June 8, 1998, the Company's Board of Directors adopted a
Shareholder Rights Plan. In connection with the Shareholder
Rights Plan, the Board of Directors declared a dividend
distribution of one preferred stock purchase right for each
outstanding share of common stock to stockholders of record
as of the close of business on June 9, 1998. Initially,
these rights will not be exercisable and will trade with
the shares of ZOLL's common stock. Under the Shareholder
Rights Plan, the rights generally become exercisable if a
person becomes an "acquiring person" by acquiring 15% or
more of the common stock of ZOLL, if a person who owns 10%
or more of the common stock of ZOLL is determined to be an
"adverse person" by the Board of Directors, or if a person
commences a tender offer that would result in that person
owning 15% or more of the common stock of ZOLL. Under the
Shareholder Rights Plan, a shareholder of ZOLL who
beneficially owns 15% or more of the Company's common stock
as of 12:01 AM, Boston time, on June 8, 1998 generally will
be deemed an "acquiring person" if such shareholder
acquires additional shares of the Company's common stock.
In the event that a person becomes an "acquiring person" or
is declared an "adverse person" by the Board, each holder
of a right (other than the acquiring person or the adverse
person) would be entitled to acquire such number of shares
of preferred stock which are equivalent to ZOLL common
stock having a value of twice the then-current exercise
price of the right. If ZOLL is acquired in a merger or
other business combination transaction after any such
event, each holder of a right would then be entitled to
purchase, at the then-current exercise price, shares of the
acquiring company's common stock having a value twice the
exercise price of the right.
<PAGE> 11
11
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.
During the quarter for which this report is
filed, the following Form 8-K was filed:
On June 11, 1998, Item 5, Other Events. The Board
of Directors of the Company Adopted a Shareholder
Rights Agreement.
<PAGE> 12
12
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 11, 1998.
ZOLL MEDICAL CORPORATION
(Registrant)
Date: August 11, 1998 By: /s/ Rolf S. Stutz
---------------------
Rolf S. Stutz, Chairman and Chief
Executive Officer (Principal
Executive Officer)
Date: August 11, 1998 By: /s/ William J. Knight
------------------------
William J. Knight, Chief Financial
Officer (Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-26-1998
<PERIOD-START> SEP-28-1997
<PERIOD-END> JUN-27-1998
<CASH> 9,990
<SECURITIES> 0
<RECEIVABLES> 10,680
<ALLOWANCES> 865
<INVENTORY> 8,528
<CURRENT-ASSETS> 31,188
<PP&E> 16,613
<DEPRECIATION> 7,561
<TOTAL-ASSETS> 42,974
<CURRENT-LIABILITIES> 8,697
<BONDS> 467
0
0
<COMMON> 124
<OTHER-SE> 33,583
<TOTAL-LIABILITY-AND-EQUITY> 42,974
<SALES> 38,877
<TOTAL-REVENUES> 38,877
<CGS> 16,746
<TOTAL-COSTS> 16,746
<OTHER-EXPENSES> 22,931
<LOSS-PROVISION> (342)
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> (475)
<INCOME-TAX> (143)
<INCOME-CONTINUING> (332)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (332)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
