<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 APRIL 4, 1999
TO JULY 3, 1999.
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 16, 1999
Common Stock, $.02 par value 6,238,659
This document consists of 12 pages.
<PAGE> 2
ZOLL MEDICAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
PART I. FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. Financial Statements:
Consolidated Balance Sheets (unaudited) 3
July 3, 1999 and September 26, 1998
Consolidated Income Statements (unaudited) 4
Three Months and Nine Months Ended July 3, 1999 and
June 27, 1998
Consolidated Statements of Cash Flows (unaudited) 5
Nine Months Ended July 3, 1999 and June 27, 1998
Notes to Consolidated Financial Statements (unaudited) 6
ITEM 2. Management's Discussion and Analysis of Results of Operations 7
and Financial Condition
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk 9
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
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZOLL MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
July 3, September 26,
1999 1998
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 859 $ 4,824
Accounts receivable, less allowance of $1,105
at July 3, 1999 and $914 at September 26, 1998 21,276 14,147
Inventories:
Raw materials 5,006 3,990
Work-in-process 2,418 1,735
Finished goods 3,711 3,680
------- -------
11,135 9,405
Prepaid expenses and other current assets 2,018 3,253
------- -------
Total current assets 35,288 31,629
Property and equipment, at cost:
Land and building 1,032 1,032
Machinery and equipment 14,811 12,999
Construction in progress 805 1,315
Tooling 2,635 1,806
Furniture and fixtures 705 674
Leasehold improvements 737 737
------- -------
20,725 18,563
Less accumulated depreciation 9,939 8,122
------- -------
Net property and equipment 10,786 10,441
Other assets, net 3,467 3,218
------- -------
$49,541 $45,288
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Credit line $ 836 $ -
Accounts payable 5,219 2,776
Accrued expenses and other liabilities 6,128 7,595
Current maturities of long-term debt 90 105
------- -------
Total current liabilities 12,273 10,476
Deferred income taxes 288 288
Long-term debt 368 442
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,
6,230 and 6,192 issued and outstanding at July 3,
1999 and September 26, 1998, respectively 124 124
Capital in excess of par value 20,952 20,642
Retained earnings 15,536 13,316
------- -------
Total stockholders' equity 36,612 34,082
======= =======
$49,541 $45,288
======= =======
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE> 4
ZOLL MEDICAL CORPORATION
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ -------------------------
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $19,318 $12,852 $51,601 $38,877
Cost of goods sold 8,381 5,518 22,186 16,746
------- ------- ------- -------
Gross profit 10,937 7,334 29,415 22,131
Expenses:
Selling and marketing 6,251 5,340 17,217 13,998
General and administrative 1,471 1,290 4,145 4,034
Research and development 1,695 1,973 4,801 4,899
------- ------- ------- -------
Total expenses 9,417 8,603 26,163 22,931
------- ------- ------- -------
Income (loss) from operations 1,520 (1,269) 3,252 (800)
Investment and other income 25 119 111 363
Interest expense 23 13 50 38
------- ------- ------- -------
Income (loss) before income taxes 1,522 (1,163) 3,313 (475)
Provision (benefit) for income taxes 502 (349) 1,093 (143)
------- ------- ------- -------
Net income (loss) $ 1,020 $ (814) $ 2,220 $ (332)
======= ======= ======= =======
Basic earnings (loss) per common share $ 0.16 $ (0.13) $ 0.36 $ (0.05)
======= ======= ======= =======
Weighted average common shares outstanding
6,222 6,192 6,207 6,192
Diluted earnings (loss) per common and
common equivalent share $ 0.16 $ (0.13) $ 0.35 $ (0.05)
======= ======= ======= =======
Weighted average number of common and
common equivalent shares outstanding 6,445 6,192 6,380 6,192
</TABLE>
See notes to unaudited consolidated financial statements.
4
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ZOLL MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
July 3, June 27,
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 2,220 $ (332)
Charges not affecting cash:
Depreciation and amortization 2,023 1,164
Changes in assets and liabilities:
Accounts receivable (7,129) 3,812
Inventories (1,730) (1,052)
Prepaid expenses and other current assets 1,235 120
Accounts payable and accrued expenses 976 (819)
-------- -------
Cash (used for) provided by operating activities (2,405) 2,893
INVESTING ACTIVITIES:
Additions to property and equipment (2,509) (2,793)
Redemption of marketable securities - 278
Other assets (108) (63)
-------- -------
Cash used for investing activities (2,617) (2,578)
FINANCING ACTIVITIES:
Exercise of stock options, including income tax benefit 310 -
Proceeds from credit line 836 -
Repayment of long-term debt (89) (85)
-------- -------
Cash provided by (used for) financing activities 1,057 (85)
-------- -------
Net increase (decrease) in cash (3,965) 230
Cash and cash equivalents at beginning of year 4,824 9,760
-------- -------
Cash and cash equivalents at end of period $ 859 $ 9,990
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period:
Income taxes $ 390 $ 1,002
Interest 50 38
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE> 6
ZOLL MEDICAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of July 3, 1999, the Consolidated Income
Statements for the three months and nine months ended July 3, 1999 and June
27, 1998, and the Consolidated Statements of Cash Flows for the nine months
ended July 3, 1999 and June 27, 1998 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. Certain reclassifications have been made to the prior years' unaudited
consolidated financial statements to conform to the current period
presentation with no impact on net income.
3. In June 1997, the FASB issued Statement No. 131 (FAS 131) "Disclosures
About Segments of an Enterprise and Related Information." 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 Statement is effective for fiscal years beginning after
December 15, 1997. However, application to interim financial statements
during the initial year of adoption is not required. The Company does not
believe that the adoption of this Statement will have a material effect on
the Company's financial statements.
4. The shares used for calculating basic earnings per common share were the
average shares outstanding and the shares used for calculating diluted
earnings per share were the average shares outstanding and the dilutive
effect of stock options.
5. 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 incorporated by reference in its Form 10-K as
of and for the year ended September 26, 1998 filed with the Securities and
Exchange Commission.
6
<PAGE> 7
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
THREE MONTHS ENDED JULY 3, 1999 COMPARED TO THREE MONTHS ENDED JUNE 27, 1998
The Company's net sales increased 50% to $19,318,000 for the three months ended
July 3, 1999 from $12,852,000 for the three months ended June 27, 1998. The
Company's sales growth was driven primarily by increasing demand for the new
M-Series line of defibrillators/pacemakers. Sales growth also reflected the
reorganization and enlargement of the North American sales force, initiated
during the third quarter of 1998. The Company experienced significant growth in
all major geographies and segments of its business. During the third quarter of
1999, North American sales increased 53% to $16,010,000 from $10,490,000 for the
comparable period last year. Equipment sales to both the hospital and
pre-hospital markets increased 87% and 40%, respectively, to $7,994,000 and
$4,196,000, respectively, as compared to the prior year. International sales
increased 40% to $3,308,000 compared to $2,362,000.
Gross margin for the third quarter of 1999 was 56.6% compared to 57.1% for the
comparable prior year quarter. An improvement in the business mix reflecting the
M-Series introduction was offset by a shift in sales to the international
market, particularly outside the United Kingdom, where the Company places a
greater reliance on the use of distributors.
Selling and marketing expenses as a percentage of net sales decreased to 32.4%
from 41.5%. This decrease reflected productivity improvement resulting from the
reorganization, initiated during the third quarter of 1998, of the North
American sales force. Selling and marketing expenses increased 17.1% to
$6,251,000 due primarily to an increase in sales force headcount.
General and administrative expenses decreased as a percentage of net sales to
7.6% from 10%. The decrease in the general and administrative expenses as a
percentage of sales reflects the absorption of relatively fixed operating
expenses by increased sales volume.
Research and development expenses decreased as a percentage of net sales to 8.8%
from 15.4%. Research and development expenses decreased 14.1% to $1,695,000 from
$1,973,000 for the comparable prior year quarter. This decrease reflected the
fact that the Company incurred significant expenditures prior to the launch of
the M-Series platform during the fourth quarter of 1998.
NINE MONTHS ENDED JULY 3, 1999 COMPARED TO NINE MONTHS ENDED JUNE 27, 1998
The Company's net sales increased 33% to $51,601,000 for the nine months ended
July 3, 1999 from $38,877,000 for the nine months ended June 27, 1998. The
Company's sales growth was driven primarily by increasing demand for the
M-Series line of defibrillators/pacemakers. Sales growth also reflected
enlargement of the North American sales force. North American sales increased
33% to $41,811,000 from $31,337,000 for the comparable period last year.
Equipment sales to the North American hospital market increased 56% to
$20,295,000 while pre-hospital equipment sales increased 15% to $10,054,000.
International sales increased 30% to $9,791,000.
Gross margin for the period of 57% remained consistent with the prior year.
Selling and marketing expenses decreased as a percentage of sales to 33.4% from
36%. Selling and marketing expenses increased 23% to $17,217,000 due primarily
to the increased size of the North American sales force following its
reorganization during the second half of 1998.
General and administrative expenses decreased as a percentage of net sales to 8%
from 10.4%. General and administrative expenses increased 2.8% to $4,145,000.
The decrease in the general and administrative expenses as a percentage of sales
reflects the absorption of relatively fixed operating expenses by increased
sales volume and the continued emphasis on expense controls.
Research and development expenses decreased as a percentage of net sales to 9.3%
from 12.6%. Research and development expenses decreased 2% to $4,801,000 from
$4,899,000 for the comparable prior year period. Expenditures in 1999 related to
planned spending on development of patented biphasic technology and new and
7
<PAGE> 8
forthcoming releases of additional models of the M-Series were offset by a
decrease, as compared to the third quarter 1998, resulting from expenditures
preceding the release of the M-Series platform in the fourth quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at July 3, 1999 totaled $859,000
compared with $4,824,000 at September 26, 1998, a decrease of $3,965,000.
Cash used in operating activities for the nine months ended July 3, 1999 totaled
$2,405,000 while cash generated over the same period in 1998 totaled $2,893,000.
The increased cash usage was primarily attributable to an increase in accounts
receivable and an increase in inventories. The increase in accounts receivable
reflected both overall sales growth and significant shipments in the latter part
of the third quarter of 1999. The increase in inventory, which moderated during
the third quarter, reflected the recent introduction of the M-Series product
line. During this period of introduction, the Company's mix of product shipments
is shifting and the Company is carrying a broader mix of product in inventory to
meet its customer needs. The Company expects both accounts receivable and
inventory to moderate during the fourth quarter of 1999.
The amount of cash required to fund investing activities remained consistent in
the nine months ended July 3, 1999 compared to the same period in 1998.
Cash provided by financing activities increased by $1,142,000 during the nine
months ended July 3, 1999 compared to the same period in 1998. This increase
resulted from the temporary use of the credit line and 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 on a demand basis. Currently, the
Company may borrow up to $6,000,000 at an interest rate equal to the bank's base
rate (currently 7.75%) or LIBOR plus 2%.
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.
YEAR 2000
Introduction. Many computer and software systems in use today are not designed
to process date information after 1999. This deficiency results from the ability
of such computer programs that perform arithmetic and logic operations on these
dates to use only the last two digits of the year when they make their
calculations. If not corrected, this year 2000 problem could cause computer
applications and other equipment used and manufactured by the Company, its
suppliers and its customers to fail to operate properly.
Year 2000 Project. In early 1998, the Company began a project to assess its
potential vulnerability to the year 2000 problem and to minimize the effect of
the problem on its operations. The project addresses five major areas of the
business at each of its locations: business systems, including management
information systems; factory and facilities equipment, including equipment that
uses a computer to control its operation either for producing end product or to
supply services; products, including equipment and software supplied to
customers; suppliers, including businesses that provide service and raw
materials to the Company; and customers.
The Company has completed a review of its business systems with regard to year
2000 compliance and will either replace or correct through programming
modifications those computer systems that have been found to have date related
deficiencies. The Company's information technology systems are being upgraded
with vendor supplied year 2000 software packages. Although the Company is
testing these systems, there can be no assurance that these systems will
function properly in an operational environment. The Company expects to complete
testing of these systems by December 1999. The Company is also assessing
factory, facility and telecommunication systems and equipment used to support
manufacturing. The Company has assessed the year 2000 readiness of the equipment
used in the manufacturing and testing of its products and believes this
equipment to be year 2000 compliant, but there can be no assurance that the
tests performed adequately ensure that such equipment will not experience year
2000 failure. In addition, the Company is assessing the readiness of third
parties (vendors, customers, etc.) that interact with the Company's systems. The
Company's products have been assessed and the Company believes them to be year
2000 compliant with the exception of a few requiring minor corrective actions.
The Company plans to devote the necessary resources to resolve all significant
year 2000 issues in a timely manner.
8
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Year 2000 Costs. External and internal costs specifically associated with
modifying internal use software for year 2000 compliance are expensed as
incurred. To date, these costs have totaled less than $500,000. Based upon
currently available information, the Company expects the total costs of
addressing the potential year 2000 issues to be less than $750,000. The Company
does not expect the costs of addressing potential year 2000 problems to have a
material adverse effect on the Company's financial position, results of
operations or liquidity in future periods.
Risks and Contingency Plans. The Company relies on a variety of either single or
critical source vendors in the production of its products. The Company
anticipates a reasonably worst case scenario to be the failure of a single or
critical source vendor to be year 2000 compliant. Such failure might cause the
third party vendor to be unable to supply critical components or other resources
that would have a material adverse effect on the Company.
If not remediated, year 2000 issues have the potential to severely disrupt the
Company's operations and to adversely affect its financial condition. While the
Company may monitor the readiness for the year 2000 of its suppliers and its
customers, it has very limited ability to assure the year 2000 readiness by such
parties. The failure of any supplier or customer to ensure its own year 2000
readiness could have a material adverse impact on the Company. The Company could
also be affected by the failure of government agencies on which the Company
depends to maintain services essential to operations and the failure of the
airline industry on which the Company relies to support the activities of the
sales force. The Company will develop contingency plans to address situations in
which year 2000 problems arise despite its efforts. These plans are expected to
be ready by December 1999.
LEGAL AND REGULATORY AFFAIRS
The Company is involved in the normal course of its business in various
litigation matters and regulatory issues, including product recalls. Although
the Company is unable to determine at the present time the exact amount of any
impact in any pending matters, the Company believes that none of the pending
matters will have an outcome material to the financial condition or business of
the Company.
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, potential warranty issues,
year 2000 issues, including expectations of readiness, and the effect of the
Company's accounting policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
9
<PAGE> 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.
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 July 3, 1999.
10
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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 17, 1999.
ZOLL MEDICAL CORPORATION
(Registrant)
Date: August 17, 1999 By: /s/ Rolf S. Stutz
--------------------------------------------
Rolf S. Stutz, Chairman and Chief
Executive Officer
(Principal Executive Officer)
Date: August 17, 1999 By: /s/ A. Ernest Whiton
--------------------------------------------
A. Ernest Whiton, Vice President of
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> SEP-27-1998
<PERIOD-END> JUL-03-1999
<EXCHANGE-RATE> 1
<CASH> 859
<SECURITIES> 0
<RECEIVABLES> 22,381
<ALLOWANCES> 1,105
<INVENTORY> 11,135
<CURRENT-ASSETS> 35,288
<PP&E> 20,725
<DEPRECIATION> 9,939
<TOTAL-ASSETS> 49,541
<CURRENT-LIABILITIES> 12,273
<BONDS> 368
0
0
<COMMON> 124
<OTHER-SE> 36,488
<TOTAL-LIABILITY-AND-EQUITY> 49,541
<SALES> 51,601
<TOTAL-REVENUES> 51,601
<CGS> 22,186
<TOTAL-COSTS> 22,186
<OTHER-EXPENSES> 26,163
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> 3,313
<INCOME-TAX> 1,093
<INCOME-CONTINUING> 2,220
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,220
<EPS-BASIC> .36
<EPS-DILUTED> .35
</TABLE>
