<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 JANUARY 3, 1999 TO
APRIL 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
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(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 May 14, 1999
Common Stock, $.02 par value 6,230,409
This document consists of 13 pages.
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ZOLL MEDICAL CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Balance Sheets (unaudited) 3
April 3, 1999 and September 26, 1998
Consolidated Income Statements (unaudited) 4
Three Months Ended April 3, 1999 and March 28, 1998
Consolidated Income Statements (unaudited) 5
Six Months Ended April 3, 1999 and March 28, 1998
Consolidated Statements of Cash Flows (unaudited) 6
Six Months Ended April 3, 1999 and March 28, 1998
Notes to Consolidated Financial Statements (unaudited) 7
ITEM 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 11
ITEM 2. Changes in Securities 11
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
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZOLL MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
April 3, September 26,
1999 1998
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,715 $ 4,824
Accounts receivable, less allowance of $780 at April 3,
1999 and $914 at September 26, 1998 17,396 14,147
Inventories:
Raw materials 4,230 3,990
Work-in-process 1,879 1,735
Finished goods 5,208 3,680
------- -------
11,317 9,405
Prepaid expenses and other current assets 1,729 3,253
------- -------
Total current assets 32,157 31,629
Property and equipment, at cost:
Land and building 1,032 1,032
Machinery and equipment 14,340 12,999
Construction in progress 908 1,315
Tooling 2,484 1,806
Furniture and fixtures 701 674
Leasehold improvements 737 737
------- -------
20,202 18,563
Less accumulated depreciation 9,321 8,122
------- -------
Net property and equipment 10,881 10,441
Other assets, net 3,429 3,218
------- -------
$46,467 $45,288
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,531 $ 2,776
Accrued expenses and other liabilities 5,740 7,595
Current maturities of long-term debt 90 105
------- -------
Total current liabilities 10,361 10,476
Deferred income taxes 288 288
Long-term debt 398 442
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, 6,209 and 6,192 issued and outstanding
at April 3, 1999 and September 26, 1998,
respectively 124 124
Capital in excess of par value 20,780 20,642
Retained earnings 14,516 13,316
------- -------
Total stockholders' equity 35,420 34,082
------- -------
$46,467 $45,288
======= =======
</TABLE>
See notes to unaudited consolidated financial statements.
3
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ZOLL MEDICAL CORPORATION
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts )
(Unaudited)
THREE MONTHS ENDED
----------------------
April 3, March 28,
1999 1998
Net sales $16,989 $13,585
Cost of goods sold 7,339 5,822
------- -------
Gross profit 9,650 7,763
Expenses:
Selling and marketing 5,588 4,409
General and administrative 1,391 1,512
Research and development 1,608 1,511
------- -------
Total expenses 8,587 7,432
------- -------
Income from operations 1,063 331
Investment income 16 134
Interest expense 16 12
------- -------
Income before income taxes 1,063 453
Provision for income taxes 351 136
======= =======
Net income $ 712 $ 317
======= =======
Basic earnings per common share $ 0.11 $ 0.05
======= =======
Weighted average common shares
outstanding 6,207 6,192
Diluted earnings per common and
common equivalent share $ 0.11 $ 0.05
======= =======
Weighted average number of common
and common equivalent shares
outstanding 6,417 6,211
See notes to unaudited consolidated financial statements.
4
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ZOLL MEDICAL CORPORATION
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts )
(Unaudited)
SIX MONTHS ENDED
----------------------
April 3, March 28,
1999 1998
Net sales $32,284 $26,025
Cost of goods sold 13,806 11,228
------- -------
Gross profit 18,478 14,797
Expenses:
Selling and marketing 10,966 8,657
General and administrative 2,674 2,745
Research and development 3,106 2,927
------- -------
Total expenses 16,746 14,329
------- -------
Income from operations 1,732 468
Investment income 86 246
Interest expense 27 25
------- -------
Income before income taxes 1,791 689
Provision for income taxes 591 207
======= =======
Net income $ 1,200 $ 482
======= =======
Basic earnings per common share $ 0.19 $ 0.08
======= =======
Weighted average common shares
outstanding 6,201 6,192
Diluted earnings per common and
common equivalent share $ 0.19 $ 0.08
======= =======
Weighted average number of common
and common equivalent shares
outstanding 6,350 6,211
See notes to unaudited consolidated financial statements.
5
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ZOLL MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
SIX MONTHS ENDED
---------------------
April 3, March 28,
1999 1998
OPERATING ACTIVITIES:
Net income $ 1,200 $ 482
Charges not affecting cash:
Depreciation and amortization 1,315 742
Changes in assets and liabilities:
Accounts receivable (3,249) 3,127
Inventories (1,912) (1,598)
Prepaid expenses and other current assets 1,524 131
Accounts payable and accrued expenses (100) (247)
------- --------
Cash (used for) provided by operating
activities (1,222) 2,637
INVESTING ACTIVITIES:
Additions to property and equipment (1,947) (1,426)
Redemption of marketable securities -- 278
Other assets (19) (53)
------- --------
Cash used for investing activities (1,966) (1,201)
FINANCING ACTIVITIES:
Exercise of stock options, including
income tax benefit 138 --
Repayment of long-term debt (59) (58)
------- --------
Cash provided by (used for) financing
activities 79 (58)
------- --------
Net increase (decrease) in cash (3,109) 1,378
Cash and cash equivalents at beginning of year 4,824 9,760
======= ========
Cash and cash equivalents at end of period $ 1,715 $ 11,138
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period:
Income taxes $ 69 $ 752
Interest 27 25
See notes to unaudited consolidated financial statements.
6
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ZOLL MEDICAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 3, 1999
1. The Consolidated Balance Sheet as of April 3, 1999, the Consolidated Income
Statements for the three months and six months ended April 3, 1999 and
March 28, 1998, and the Consolidated Statements of Cash Flows for the six
months ended April 3, 1999 and March 28, 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.
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Item 2. Management's Discussion And Analysis Of Financial Condition and
Results of Operations
THREE MONTHS ENDED APRIL 3, 1999 COMPARED TO THREE MONTHS ENDED MARCH 28, 1998
The Company's net sales increased 25% to $16,989,000 for the three months ended
April 3, 1999 from $13,585,000 for the three months ended March 28, 1998. The
Company's sales growth was driven primarily by increasing demand for the new
MSeries line of defibrillators/pacemakers and reflected an enlarged North
American sales force. During the second quarter of 1999, North American sales
increased 19% to $12,725,000 from $10,730,000 for the comparable period last
year. Equipment sales to the North American hospital market increased 53% to
$6,123,000 while pre-hospital equipment sales decreased 22% to $2,662,000 as a
result of shipment allocations. International sales increased 49% to $4,264,000
compared to $2,855,000.
Gross profit for the second quarter of 1999 was 56.8% compared to 57.1% for the
comparable prior year quarter. An improvement in the business mix reflecting the
MSeries introduction was offset by a shift in sales to the international market
where the Company places a greater reliance on the use of distributors.
Selling and marketing expenses as a percentage of net sales increased to 32.9%
from 32.5%. Selling and marketing expenses increased 26.7% to $5,588,000 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
8.2% from 11.1%. General and administrative expenses decreased 8.0% to
$1,391,000. 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 9.5%
from 11.1%. Research and development expenses increased 6.4% to $1,608,000 due
to planned spending on development of patented biphasic technology and new and
forthcoming releases of additional models of the MSeries.
SIX MONTHS ENDED APRIL 3, 1999 COMPARED TO SIX MONTHS ENDED MARCH 28, 1998
The Company's net sales increased 24% to $32,284,000 for the six months ended
April 3, 1999 from $26,025,000 for the six months ended March 28, 1998. The
Company's sales growth was driven primarily by increasing demand for the MSeries
line of defibrillators/pacemakers. North American sales increased 24% to
$25,801,000 from $20,847,000 for the comparable period last year. Equipment
sales to the North American hospital market increased 41% to $12,301,000 while
pre-hospital equipment sales increased 2% to $5,858,000. International sales
increased 25% to $6,483,000.
Gross profit for the period increased to 57.2% from 56.9% in 1998 reflecting an
improved business mix resulting from the introduction of the MSeries line.
Selling and marketing expenses increased as a percentage of sales to 34.0% from
33.3%. Selling and marketing expenses increased 26.7% to $10,966,000 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
8.3% from 10.5%. General and administrative expenses decreased 2.6% to
$2,674,000. 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 9.6%
from 11.2%. Research and development expenses increased 6.1% to $3,106,000 due
to planned spending on development of patented biphasic technology and new and
forthcoming releases of additional models of the MSeries.
8
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at April 3, 1999 was $1,715,000 compared
with $4,824,000 at September 26, 1998, a decrease of $3,109,000.
Cash used in operating activities for the six months ended April 3, 1999 totaled
$1,222,000 while cash generated over the same period in 1998 totaled $2,637,000.
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 second quarter of 1999. The increase in inventory reflected the recent
introduction of the MSeries 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 second
half of 1999.
The amount of cash required to fund investing activities increased by $765,000
in the six months ended April 3, 1999 compared to the same period in 1998. This
increase reflected capital expenditures relating to production tooling and
equipment and demonstration equipment, particularly for the new MSeries line.
Cash provided by financing activities was relatively consistent during the six
months ended April 3, 1999 and March 28, 1998.
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. The full amount
of this line was available to the Company at April 3, 1999. 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
inability of most 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 is also assessing factory, facility and
telecommunication systems and equipment used to support manufacturing. 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 found 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. The significant business systems found to have deficiencies will be
replaced or modified by the end of June 1999 while all underlying programs and
reports are scheduled to be reviewed and rewritten where needed by the end of
August 1999. Factory, facility and telecommunication systems will be replaced or
modified as considered appropriate by December 1999.
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
9
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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. 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 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 cover situations in which
year 2000 problems arise despite its efforts. These plans are expected to be
substantially 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.
10
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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.
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
April 3, 1999.
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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 May 17, 1999.
ZOLL MEDICAL CORPORATION
(Registrant)
Date: May 17, 1999 By: /s/ Rolf S. Stutz
------------------------------------------------------
Rolf S. Stutz, Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: May 17, 1999 By: /s/ A. Ernest Whiton
------------------------------------------------------
A. Ernest Whiton, Vice President of Administration and
Chief Financial Officer
(Principal Financial and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> SEP-27-1998
<PERIOD-END> APR-03-1999
<EXCHANGE-RATE> 1
<CASH> 1,715
<SECURITIES> 0
<RECEIVABLES> 18,176
<ALLOWANCES> 780
<INVENTORY> 11,317
<CURRENT-ASSETS> 32,157
<PP&E> 20,202
<DEPRECIATION> 9,321
<TOTAL-ASSETS> 46,467
<CURRENT-LIABILITIES> 10,361
<BONDS> 398
0
0
<COMMON> 124
<OTHER-SE> 35,296
<TOTAL-LIABILITY-AND-EQUITY> 46,467
<SALES> 32,284
<TOTAL-REVENUES> 32,284
<CGS> 13,806
<TOTAL-COSTS> 13,806
<OTHER-EXPENSES> 16,746
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 1,791
<INCOME-TAX> 591
<INCOME-CONTINUING> 1,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,200
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
