<PAGE> 1
Exhibit 13
ZOLL MEDICAL CORPORATION FIVE YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
YEAR ENDED
SEPT. 30, OCT. 2, SEPT. 26, SEPT. 27, SEPT. 28,
(000's omitted, except per share data) 2000 1999 1998 1997(1) 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $106,336 $78,682 $57,520 $57,833 $55,700
Cost of goods sold 46,351 32,486 24,268 25,372 24,545
-------------------------------------------------------------------------
Gross profit 59,985 46,196 33,252 32,461 31,155
Expenses:
Selling and marketing 31,238 24,364 20,152 18,484 16,773
General and administrative 8,606 7,422 6,239 6,749 4,809
Research and development 7,973 6,916 6,583 6,430 4,464
-------------------------------------------------------------------------
Total expenses 47,817 38,702 32,974 31,663 26,046
-------------------------------------------------------------------------
Income from operations 12,168 7,494 278 798 5,109
Net investment income (expense) 1,803 (45) 413 355 278
-------------------------------------------------------------------------
Income before income taxes 13,971 7,449 691 1,153 5,387
Provision for income taxes 5,169 2,010 18 266 1,758
-------------------------------------------------------------------------
Net income $8,802 $5,439 $673 $887 $3,629
=========================================================================
Basic earnings per common share $1.11 $0.82 $0.10 $0.13 $0.55
Weighted average common
shares outstanding 7,930 6,656 6,602 6,602 6,562
-------------------------------------------------------------------------
Diluted earnings per common and
equivalent share $1.07 $0.79 $0.10 $0.13 $0.55
Weighted average common and
equivalent shares outstanding 8,231 6,893 6,647 6,650 6,635
=========================================================================
Pro forma information(2):
Historical income before taxes $7,449
Pro forma incremental operating costs 272
------
Pro forma income before income taxes 7,177
Pro forma provision for income taxes 2,402
------
Pro forma net income $4,775
------
Pro forma diluted earnings per share $0.69
Balance Sheet Data:
Working capital $101,991 $26,728 $21,678 $24,361 $25,303
Total assets $137,808 $59,687 $46,656 $45,013 $42,507
Total long-term debt, excluding
current portion -- $2,069 $446 $565 $713
Stockholders' equity $122,416 $41,222 $34,787 $34,463 $33,614
</TABLE>
(1) For the year ended September 27,1997, excluding a one-time charge taken
in Q1 aggregating $2,300, net income would have been $2,405 and
earnings per common and equivalent share would have been $0.36.
(2) Pro forma information reflects the effect of (i) incremental operating
costs expected to be incurred by the Company as a result of the
Pinpoint merger and (ii) the provision for corporate income taxes on
the previously untaxed Subchapter S corporation earnings of Pinpoint.
See Note B to the consolidated financial statements.
8
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis in conjunction with our
financial statements and related notes included herein. All prior year results
have been restated to account for the Pinpoint Technologies, Inc. acquisition on
October 15, 1999, as a pooling of interests.
2000 COMPARED TO 1999
Net sales reached record levels, increasing 35% from the prior year to $106.3
million, reflecting continued acceptance and increased penetration of the full
featured M Series platform across each of our markets. Our continued sales
growth reflects an increase in the size of the North American sales force as
well as strong shipments to the International market.
We experienced 30% annual sales growth over 1999 in the North American market as
sales reached $84.7 million. Within North America, equipment sales to the
prehospital and hospital markets increased 46% and 31%, to $27.9 million and
$40.6 million, respectively. Sales in the International market increased 58%
from the prior year to a record level of $21.6 million, reflecting continued
widespread geographic growth. International sales in 2000 benefited from
shipments related to a significant contract to provide AED's to the Germany
Army.
Gross margin of 56.4% decreased from 1999 reflecting volume pricing on Germany
Army shipments. In addition, gross margin was also reduced as the rate of
capital equipment revenue growth exceeded that of higher margin electrodes and
data management products. This decrease was partially offset by increased sales
of new monitoring parameters, which we have added to our M Series platform.
Selling and marketing costs increased 28% over the prior year due to the
increase in size of our North American and International sales forces. Selling
and marketing costs as a percentage of sales decreased from 31% to 29.4%. In the
North American market, sales productivity increased as a result of increasing
our total number of sales people and reducing the size of individual sales
territories. Our International expenses increased primarily reflecting the
expansion of our direct sales force in Europe, including Germany, the
Netherlands and Scotland.
General and administrative expenses decreased as a percentage of sales, from 9%
to 8%, due to emphasis on expense controls and absorption of relatively fixed
expenses by higher sales.
Research and development expenses increased 15.3% from the prior year,
reflecting continued development of our cardiac resuscitation equipment.
Significant initiatives included spending on our biphasic technology, new
monitoring parameters for our M Series platform as well as new product
development for the public access market. Research and development expenses, as
a percentage of sales, decreased from 9% to 8%, reflecting our higher level of
sales.
We recognized net investment income in 2000 compared to net interest expense in
1999, due to the increase in average cash and investment balances from 1999 to
2000, largely reflecting investments in short-term debt and equity securities
during the year. During 2000, we generated net proceeds of approximately $67
million from our secondary offering. Our effective income tax rate increased
from 34% in 1999 to 37% in 2000. During 1999, our effective tax rate was reduced
by the utilization of certain foreign net operating loss carryforwards.
1999 COMPARED TO 1998
Net sales increased 37% from the prior year to $78.7 million, reflecting the
rapid market acceptance of the M Series platform introduced to the market during
the fourth quarter of 1998. Sales growth also reflected the reorganization and
enlargement of the North American sales force to allow for a market-focused
structure. Selling teams were changed to focus on each of North America's
markets: hospital and prehospital.
We experienced significant growth in all major geographies and segments of our
business. During 1999, North American sales increased 36% to $65.0 million.
Within North America, equipment sales to the hospital and prehospital markets
increased 55% and 28%, to $30.9 million and $19.1 million, respectively. Sales
in the International market increased 39% from the prior year.
Gross margin increased approximately 1% over the prior year. We experienced an
improvement in costs reflecting the M Series introduction and higher margins
from information management products, primarily Pinpoint products.
Selling and marketing costs increased 21% over the prior year, due to the
increase in size of the North American sales force. Additionally, we established
a direct sales force in Germany during the fourth quarter of 1999. Selling and
marketing costs as a percentage of sales decreased from 35% to 31%, reflecting
revenues that increased more rapidly than these costs as a result of the
reorganization of the North American sales force.
General and administrative expenses decreased as a percentage of sales, from 11%
to 9%, due to emphasis on expense controls and absorption of relatively fixed
expenses by higher sales.
Research and development expenses decreased as a percentage of sales, from 11%
to 9%. Total expenses increased slower than revenues, reflecting the completion
of development of the initial M Series platform and the related transfer of
available resources to the biphasic project and other initiatives.
We incurred net interest expense in 1999, as compared to net investment income
in 1998, due to the decrease in average cash balances from 1998 to 1999.
9
<PAGE> 3
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents at September 30, 2000 totaled $4.0 million
compared to $1.8 million at October 2, 1999. In addition, we had short-term
investments amounting to $51.8 million at September 30, 2000. This significant
increase in liquidity reflects the proceeds from our secondary stock offering of
1,725,000 shares of common stock during the second quarter of 2000.
Cash used for operating activities totaled $7.9 million in 2000, while cash used
over the same period in 1999 totaled $0.3 million. Significant uses of cash
included increases in our accounts receivable and inventory levels. Both
increases reflected the significant domestic and international sales growth of
our Company. The increase in inventory levels reflected a dramatic increase in
the number of product combinations, which our customers can now purchase as a
result of our introduction of new monitoring parameters to our M Series
platform. In addition, our prepaid expenses increased over the prior year,
reflecting excess payments of income taxes during the year ended September 30,
2000.
The amount of cash used to fund investing activities increased from the prior
year by $55.9 million. This increase reflected investment of the proceeds of our
secondary stock offering in short-term investments and an increase in capital
expenditures. Significant capital expenditures included the purchase of our new
Enterprise Wide Resource Planning (ERP) System and the expansion of our
Burlington, Massachusetts factory.
The increase in cash provided by financing activities of $69.4 million primarily
results from our secondary stock offering and the exercise of stock options. We
also used $2.2 million to repay long-term debt.
We maintain a working capital line of credit with our bank. Borrowings under
this line bear interest at the bank's base rate (8.59% at September 30, 2000).
The full amount of the line was available to us at September 30, 2000.
Currently, we may borrow up to $12.0 million on a demand basis.
We expect that the combination of existing funds, cash generated from operations
and our existing line of credit will be adequate to meet our operational
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, the following
general risks: 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 and the effect of the Company's accounting policies. In addition, we are
subject to the following specific risks, which are described in greater detail
in our Form 10K which we expect to file with the Securities and Exchange
Commission on or about December 29, 2000. If we fail to compete successfully in
the future against existing or potential competitors, our operating results may
be adversely affected; our operating results are likely to fluctuate which could
cause our stock price to be volatile and the anticipation of a volatile stock
price can cause greater volatility. We may be required to implement a costly
product recall. We can be sued for producing defective products and we may be
required to pay significant amounts to those harmed if we are found liable and
our business could suffer from adverse publicity. Our dependence on sole and
single source suppliers exposes us to supply interruptions that could result in
product delivery delays and substantial costs to redesign our products. Our
reliance on independent manufacturers creates several risks that could result in
product delivery delays, increased costs and other adverse effects on our
business. Failure to produce new products or obtain market acceptance for our
new products in a timely manner could harm our business. We may not be able to
obtain appropriate regulatory approvals for our products. If we fail to comply
with applicable regulatory laws and regulations, the FDA or other regulatory
bodies could exercise any of their regulatory powers that could have a material
adverse effect on our business. We are dependent upon licensed and purchased
technology for upgradeable features in our products and we may not be able to
renew these licenses or purchase agreements in the future. Future changes in
applicable laws and regulations could have an adverse effect on our business.
Changes in the health care industry may require us to decrease the selling price
for our products or could result in a reduction in the size of the market for
our products, each of which could have a negative impact on our financial
performance. Uncertain customer decision processes may result in long sales
cycles which could result in unpredictable fluctuations in revenues and delays
in replacement of cardiac resuscitation devices. Our international sales expose
our business to a variety of risks that could result in significant fluctuations
in our results of operations. Fluctuations in currency exchange rates may
adversely affect our international sales. We may fail to adequately protect or
enforce our intellectual property rights or secure rights to third party
patents, and our competitors can use some of our previously proprietary
technology. Reliance on overseas vendors for some of the components for our
products exposes us to international business risks, which could have an adverse
effect on our business. We rely heavily on several employees who may leave, and
tight labor markets may make it difficult to recruit employees. We may acquire
other businesses and we may have difficulty integrating these businesses or
generating an acceptable return from acquisitions. Provisions in our charter
documents, our stockholders rights agreement and state law may make it harder
for others to obtain control of ZOLL even though some stockholders might
consider such a development to be favorable. We have only one manufacturing
facility for each of our major products and any damage or incapacitation of
either of the facilities could impede our ability to produce these products. Our
current and future investments may lose value in the future. We may experience
short-term operating fluctuations as we introduce our new biphasic technology.
10
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS ZOLL MEDICAL CORPORATION
We have audited the accompanying consolidated balance sheets of ZOLL Medical
Corporation as of September 30, 2000 and October 2, 1999, and the related
consolidated statements of income, stockholders' equity and comprehensive
income, and cash flows for each of the three years in the period ended September
30, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ZOLL
Medical Corporation at September 30, 2000 and October 2, 1999, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 30, 2000, in conformity with accounting
principles generally accepted in the United States.
[ERNST & YOUNG LLP]
November 11, 2000
Boston, Massachusetts
11
<PAGE> 5
ZOLL MEDICAL CORPORATION CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPT. 30, OCT. 2,
(000's omitted) 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $4,025 $1,821
Marketable securities 51,823 --
Accounts receivable, less allowances of $1,895 at
September 30, 2000 and $2,096 at
October 2, 1999 37,325 25,464
Inventories:
Raw materials 7,762 5,332
Work-in-process 2,749 2,623
Finished goods 9,787 5,241
--------------------------
20,298 13,196
Prepaid expenses and other current assets 3,489 2,296
--------------------------
Total current assets 116,960 42,777
Property and equipment at cost:
Land and building 3,434 3,432
Machinery and equipment 18,247 15,382
Construction in progress 1,647 1,077
Tooling 5,268 2,695
Furniture and fixtures 1,203 883
Leasehold improvements 1,194 737
--------------------------
30,993 24,206
Less accumulated depreciation 14,647 10,875
--------------------------
Net property and equipment 16,346 13,331
Other assets, net of accumulated amortization of $1,011 at September 30, 2000
and $711 at October 2, 1999 4,502 3,579
--------------------------
$137,808 $59,687
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $8,140 $8,404
Accrued expenses and other liabilities 6,809 7,481
Current maturities of long-term debt 20 164
--------------------------
Total current liabilities 14,969 16,049
Deferred income taxes 423 347
Long-term debt -- 2,069
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, 8,798 and 6,772
issued and outstanding at September 30, 2000 and October 2, 1999,
respectively 176 136
Capital in excess of par value 94,799 22,439
Accumulated other comprehensive income 177 --
Retained earnings 27,264 18,647
--------------------------
Total stockholders' equity 122,416 41,222
--------------------------
$137,808 $59,687
==========================
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 6
ZOLL MEDICAL CORPORATION CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED
SEPT. 30, OCT. 2, SEPT. 26,
(000's omitted, except per share data) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $106,336 $78,682 $57,520
Cost of goods sold 46,351 32,486 24,268
------------------------------------------------
Gross profit 59,985 46,196 33,252
Expenses:
Selling and marketing 31,238 24,364 20,152
General and administrative 8,606 7,422 6,239
Research and development 7,973 6,916 6,583
------------------------------------------------
Total expenses 47,817 38,702 32,974
------------------------------------------------
Income from operations 12,168 7,494 278
Investment income 2,015 124 487
Interest expense 212 169 74
------------------------------------------------
Income before income taxes 13,971 7,449 691
Provision for income taxes 5,169 2,010 18
------------------------------------------------
Net income $8,802 $5,439 $673
================================================
Basic earnings per common share $1.11 $0.82 $0.10
Weighted average common
shares outstanding 7,930 6,656 6,602
------------------------------------------------
Diluted earnings per common and
equivalent share $1.07 $0.79 $0.10
Weighted average common and
equivalent shares outstanding 8,231 6,893 6,647
================================================
Unaudited pro forma information (Note B):
Historical income before taxes $7,449
Pro forma incremental operating expenses 272
------
Pro forma income before income taxes 7,177
Pro forma provision for income taxes 2,402
------
Pro forma net income $4,775
------
Pro forma diluted earnings per share $0.69
======
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 7
ZOLL MEDICAL CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
<TABLE>
<CAPTION>
CAPITAL IN ACCUMULATED TOTAL
COMMON EXCESS OF COMPREHENSIVE RETAINED STOCKHOLDERS'
(000's omitted) SHARES AMOUNT PAR VALUE INCOME EARNINGS EQUITY
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 27, 1997 6,561 $131 $20,635 -- $13,697 $34,463
Issuance of common stock by
Pinpoint Technologies, Inc 41 1 48 49
Adjustments to conform to pooled
companies fiscal year-ends (140) (140)
Distributions by Pinpoint
Technologies, Inc (258) (258)
Net income 673 673
--------------------------------------------------------------------------------
Balance at September 26, 1998 6,602 132 20,683 -- 13,972 34,787
Exercise of stock options 147 3 1,129 1,132
Tax benefit realized upon
exercise of stock options 628 628
Initial capitalization of Pinpoint
Property Management, LLC 23 1 (1) --
Contributions by Pinpoint
Technologies, Inc shareholders 550 550
Distributions by Pinpoint
Technologies, Inc (1,314) (1,314)
Net income 5,439 5,439
--------------------------------------------------------------------------------
Balance at October 2, 1999 6,772 136 22,439 -- 18,647 41,222
Exercise of stock options 298 6 2,143 2,149
Tax benefit realized upon
exercise of stock options 3,096 3,096
Stock compensation 3 77 77
Proceeds from sale of common
stock, net of expenses 1,725 34 67,044 67,078
Distributions by Pinpoint
Technologies, Inc (185) (185)
Comprehensive income:
Net income 8,802 8,802
Unrealized gain on
available-for-sale securities $177 177
--------
Total Comprehensive income 8,979
--------------------------------------------------------------------------------
Balance at September 30, 2000 8,798 $176 $94,799 $177 $27,264 $122,416
================================================================================
</TABLE>
14
<PAGE> 8
ZOLL MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
SEPT. 30, OCT. 2, SEPT. 26,
(000's omitted) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income $8,802 $5,439 $673
Charges not affecting cash:
Depreciation and amortization 4,283 3,035 1,478
Issuance of common stock for services 77 -- 49
Accounts receivable allowances (201) 1,294 243
Inventory reserve 372 129 53
Provision for warranty expense 178 180 (43)
Deferred income taxes 195 (339) 188
Changes in current assets and liabilities:
Accounts receivable (11,660) (12,129) 114
Inventories (7,474) (3,920) (1,982)
Prepaid expenses and other current assets (1,312) 1,358 (1,715)
Accounts payable and accrued expenses (1,114) 4,686 1,212
--------------------------------------------------
Cash provided by (used for) operating activities (7,854) (267) 270
Investing Activities:
Additions to property and equipment, net (7,006) (3,530) (4,493)
Purchase of marketable securities (59,646) (419) (2,675)
Proceeds from sales and maturities
of marketable securities 8,000 419 2,953
Other assets, net (1,215) (402) (62)
Acquisition of assets from
Westech Information Systems, Inc. -- -- (3)
--------------------------------------------------
Cash used for investing activities (59,867) (3,932) (4,280)
Financing Activities:
Proceeds from sale of common stock,
net of expenses 67,078 -- --
Exercise of stock options,
including income tax benefits 5,245 1,760 --
Distributions to stockholders (185) (1,314) (258)
Contributions from stockholders -- 550 --
Repayment of long-term debt (2,213) (497) (127)
--------------------------------------------------
Cash provided by (used for)
financing activities 69,925 499 (385)
--------------------------------------------------
Net increase (decrease) in cash 2,204 (3,700) (4,395)
Cash and cash equivalents at
beginning of year 1,821 5,521 9,916
--------------------------------------------------
Cash and cash equivalents
at end of year $4,025 $1,821 $5,521
====================================================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year:
Income taxes $4,243 $555 $1,002
Interest 212 169 74
Non-cash transaction:
Long-term debt incurred in purchase of assets -- $1,800 --
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 9
ZOLL MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A-SIGNIFICANT ACCOUNTING POLICIES
Description of Business: ZOLL Medical Corporation (the Company) designs,
manufactures and markets an integrated line of proprietary, non-invasive cardiac
resuscitation devices, disposable electrodes and accessories used for the
emergency resuscitation of cardiac arrest victims. The Company also designs and
markets software, which automates collection and management of both clinical and
non-clinical data for emergency medical service providers.
Business Combination: As described in Note B, on October 15, 1999, the Company
acquired Pinpoint Technologies, Inc. and Pinpoint Property Management LLC
(Pinpoint, individually and collectively) in a business combination accounted
for as a pooling of interests. The accompanying consolidated financial
statements reflect the combined historical results of the Company and of
Pinpoint for the periods ended October 2, 1999 and September 26, 1998.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Fiscal Year: The Company's fiscal year ends on the Saturday closest to September
30. The year ended October 2, 1999 included 53 weeks and the years ended
September 30, 2000 and September 26, 1998 included 52 weeks. In October of 2000
the Company changed its fiscal year end to the Sunday closest to September 30.
Cash and Cash Equivalents: The Company considers all highly liquid instruments
with an original maturity of three months or less to be cash equivalents.
Substantially all cash and cash equivalents are invested in a money market
investment account. These amounts are stated at cost, which approximates market.
Marketable Securities: The Company accounts for marketable securities in
accordance with Statement of Financial Accounting Standards No. 115 "Accounting
for Certain Investments in Debt and Equity Securities" (FAS 115). FAS 115
establishes the accounting and reporting requirements for all debt securities
and for investments in equity securities that have readily determinable fair
values. All marketable securities must be classified as one of the following:
held-to-maturity, available-for-sale, or trading. The Company classifies its
marketable securities as available-for-sale and, as such, carries the
investments at fair value, with unrealized holding gains and losses reported as
a separate component of stockholders' equity.
Concentration of Risk: The Company sells its products primarily to hospitals,
emergency care providers and universities. The Company performs periodic credit
evaluations of its customers' financial condition and does not require
collateral.
In addition, the Company sells its products to the international market.
Although the Company does not foresee a credit risk associated with these
receivables, repayment is dependent upon the financial stability of the national
economies of the customers to which it sells. In order to hedge the risk of loss
in geographical areas with historical credit risks, in some cases the Company
requires letters of credit from its foreign customers. Export sales accounted
for 26%, 19% and 18% of the Company's total revenues in 2000, 1999, and 1998,
respectively.
The Company maintains reserves for potential trade receivable credit losses, and
such losses have been within management's expectations.
Certain materials and components used in the Company's devices and electrodes
are purchased from various single sources. Although the Company believes that
alternative sources of supply for such materials and components could be
developed over a relatively short period of time, the failure to secure such
alternative sources when needed could have a material adverse effect on the
Company's business.
Financial Instruments: The fair value of the Company's financial instruments,
which include cash and cash equivalents, marketable securities, accounts
receivable, and accounts payable, are based on assumptions concerning the amount
and timing of estimated future cash flows and assumed discount rates reflecting
varying degrees of perceived risk. The carrying value of these financial
instruments approximated their fair value at September 30, 2000 and at October
2, 1999 due to the short-term nature of these instruments.
Inventories: Inventories, principally purchased parts, are valued at the lower
of first-in, first-out (FIFO) cost or market. Market is replacement value for
raw materials and net realizable value, after allowance for estimated costs of
completion and disposal, for work-in-process and finished goods.
Intangible Assets: Patents are stated at cost and amortized using the
straight-line method over five years. Prepaid license fees are amortized over
the term of the related contract, once commercialization of the related product
begins. The excess of cost over fair value of the acquired net assets of the
mobile computing business of Westech Information Systems, Inc. is amortized on a
straight-line basis over 15 years. The acquisition was accounted for as a
purchase, and the purchase price was allocated to the assets acquired and
liabilities assumed based on their respective fair values at the date of
acquisition.
Property and Equipment: Property and equipment are stated at cost. In general,
depreciation is computed on a straight-line basis over the estimated economic
useful lives of the assets (forty years for buildings, three to ten years for
machinery and equipment and five years for tooling, furniture, fixtures, and
software). Leasehold improvements are being amortized over the life of the
related lease.
Revenue Recognition: Revenue from product sales is recognized upon shipment of
the product and recorded net of estimated returns. The Company licenses software
under non-cancelable license agreements and provides services including
training, installation, consulting and maintenance, consisting of product
support services and periodic updates. Revenue from the sale of software is
recognized in accordance with the American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue
Recognition. License fee revenues are generally recognized when a non-cancelable
license agreement has been signed, the software product has been shipped, there
are no uncertainties surrounding product acceptance, the fees are fixed and
determinable, and collection is considered probable. For customer license
agreements, which meet these recognition criteria, the portion of the fees
related to software licenses will generally be recognized in the current period,
while the portion of the fees related to services is recognized as the services
16
<PAGE> 10
are performed. The Company allocates a portion of contractual license fees to
post-contract support activities covered under the contract including first year
maintenance, installation assistance and limited training services. In addition,
the Company also allocates a portion of the contractual license fees to future
unspecified upgrade rights. Revenues from maintenance agreements and upgrade
rights are recognized ratably over a three-month period, and a one-year period,
respectively.
Advertising Costs: Advertising costs are expensed as incurred and totaled
$757,000, $481,000 and $409,000 in 2000, 1999 and 1998 respectively.
Product Warranty: Expected future product warranty costs, included in accrued
expenses and other liabilities, are recognized at the time of sale for all
products covered under warranty. Warranty periods range from one to five years.
Foreign Currency: The financial position and results of operations of the
company's foreign subsidiaries are measured using the U.S. dollar as the
functional currency. All material translation and transaction gains and losses
are recorded in the income statement.
Earnings Per Share: In 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share," which requires the
presentation of basic and diluted earnings per share amounts. All periods
presented have been restated to reflect adoption of this statement.
The shares used for basic earnings per common share and diluted earnings per
common share are reconciled as follows:
<TABLE>
<CAPTION>
(000's omitted) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average shares outstanding
for basic earnings per share 7,930 6,656 6,602
Dilutive effect of stock options 301 237 45
---------------------------------------------
Average shares outstanding
for diluted earnings per share 8,231 6,893 6,647
=============================================
</TABLE>
Reclassifications: Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the 2000 presentation.
Use of Estimates: The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Stock Option Plans: As permitted by Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), the Company
measures compensation expense for its stock-based compensation plans using the
intrinsic method prescribed by Accounting Principles Board No. 25, "Accounting
for Stock Issued to Employees." In accordance with SFAS 123, the Company has
provided, in Note J, the pro forma disclosures of the effect on net income and
earnings per share as if SFAS 123 had been applied in measuring compensation
expense for all periods presented.
Segment Reporting: Effective October 2, 1999, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosure About Segments of an
Enterprise and Related Information" (SFAS 131). This statement supersedes
Statement No. 14, "Financial Reporting for Segments of a Business Enterprise."
SFAS 131 establishes standards for the way that public companies report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. SFAS 131 also establishes standards for disclosures
about products and services, geographic areas and major customers. The adoption
of SFAS 131 did not affect results of operations or financial position, but did
affect the disclosure of segment information (see Note L).
Comprehensive Income: The Company computes comprehensive income in accordance
with Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" (FAS 130). FAS 130 establishes standards for the reporting
and display of comprehensive income and its components in the financial
statements. Comprehensive income, as defined, includes all changes in equity
during a period from non-owner sources, such as unrealized gains and losses on
available-for-sale securities. Comprehensive income was equal to net income for
the years ended October 2, 1999 and September 26, 1998 since there were no other
elements of comprehensive income.
Recent Accounting Pronouncements: In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Financial Instruments and for Hedging Activities,"
which provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. SFAS 133, effective for years
beginning after June 15, 2000, is not expected to have a material effect on the
Company's financial statements.
In 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin
(SAB) 101, Revenue Recognition in Financial Statements, which must be adopted no
later than the fourth fiscal quarter of the fiscal year beginning after December
15, 1999. The Company is currently evaluating the effects of implementing this
SAB, but it is not expected to have a material effect on the Company's financial
statements.
17
<PAGE> 11
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation", an interpretation of APB Opinion No. 25 "Accounting for Stock
Issued to Employees" (APB 25). Interpretation 44 clarifies guidance for certain
issues that arose in the application of APB 25. Areas of focus within
Interpretation 44 include repricings, modifications to extend the option term,
change of grantee status, modifications to accelerate vesting and options
exchanged in a purchase business combination. Interpretation 44 will be applied
prospectively to new awards, modifications to outstanding awards, and changes in
employee status on or after October 1, 2000.
NOTE B-MERGER
On October 15, 1999, the Company acquired Pinpoint in a business combination
accounted for as a pooling of interests. Pinpoint, which creates, develops and
manufactures advanced information technology software, exclusively focused on
the emergency medical services (EMS) market, became a wholly owned subsidiary of
the Company through the exchange of approximately 433,000 shares of the
Company's common stock for all of the outstanding stock of Pinpoint. In January
1999, Pinpoint distributed cash to the stockholders of Pinpoint. All of the cash
distributed was contributed to newly formed Pinpoint Property Management LLC,
and used to fund the equity needed to acquire an office building (see Note G).
Summarized results of operations of the separate companies for the preceding two
years are as follows (in thousands):
<TABLE>
<CAPTION>
ZOLL PINPOINT COMBINED
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended October 2, 1999
Net sales $73,977 $4,705 $78,682
Net income 4,081 1,358 5,439
Year ended September 26, 1998
Net sales $55,080 $2,440 $57,520
Net income 43 630 673
</TABLE>
An adjustment of $140,000 is reflected in the consolidated Statements of
Stockholders' Equity to eliminate the effect of including Pinpoint's results of
operations for the three months ended December 31, 1997, in both the years ended
September 27, 1997 and September 26, 1998.
The following unaudited pro forma information has been prepared assuming
Pinpoint had been acquired as of the beginning of the periods presented. The pro
forma information is presented for informational purposes only and is not
necessarily indicative of what would have occurred if the acquisition had been
made as of those dates. In addition, the pro forma information is not intended
to be a projection of future results and does not reflect synergies resulting
from the integration of Pinpoint and the Company's Westech business.
<TABLE>
<CAPTION>
(000's omitted, except per share data) 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net sales $78,682
Net income $4,775
Basic earnings per common share $0.72
Diluted earnings per common share $0.69
</TABLE>
The following table reconciles the combined net income of the Company and
Pinpoint to the pro forma net income:
<TABLE>
<CAPTION>
(000's omitted) 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Combined net income $5,439
Pro forma income tax adjustment on Pinpoint's
S Corporation earnings 392
Pro forma incremental operating costs 272
------
Pro forma net income $4,775
======
</TABLE>
The pro forma income tax adjustment assumes Pinpoint was a taxable entity
subject to tax at ZOLL's incremental tax rate for the periods presented. The pro
forma operating expenses were incurred as a result of the merger.
18
<PAGE> 12
NOTE C-MARKETABLE SECURITIES
Marketable securities and debt securities are classified as available-for-sale
at September 30, 2000. There were no investments in marketable securities at
October 2, 1999. At September 30, 2000, available-for-sale securities consisted
of:
<TABLE>
<CAPTION>
(000's omitted)
-----------------------------------------------------------------------------------------------------------
<S> <C>
US Treasury Bonds $17,566
Corporate Obligations 16,708
Repurchase Agreements 17,549
-------
$51,823
=======
</TABLE>
The securities are carried at fair value, with unrealized gains and losses
reported in a separate component of stockholders' equity. At September 30, 2000,
the difference between the cost basis and the estimated market value on the
security portfolio amounted to a $177,000 gain. The maturity periods on the
majority of securities held is within one year, with $16,352,000 maturing in one
to five years. The cost of securities sold is based on the specific
identification method. Realized gains and losses, and declines in value judged
to be other than temporary, are included in investment income.
NOTE D-INVESTMENTS
During 1996, the Company invested $2 million in the common stock of Lifecor,
Inc. As of September 30, 2000 and October 2, 1999, this investment represented
approximately 3.8% and 6.0% of Lifecor's outstanding common stock, respectively.
The Company accounts for this investment at cost, which approximates market.
This investment is included in other assets on the balance sheet.
NOTE E-PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of:
<TABLE>
<CAPTION>
SEPT. 30, OCT. 2,
(000's omitted) 2000 1999
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income taxes-Note H $1,403 $1,522
Prepaid income taxes 1,399 --
Other 687 774
-------------------
Total prepaid expenses and other current assets $3,489 $2,296
===================
</TABLE>
NOTE F-ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
SEPT. 30, OCT. 2,
(000's omitted) 2000 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accrued salaries and wages and related expenses $2,820 $2,588
Accrued warranty expense 1,311 1,133
Accrued income taxes -- 1,164
Other accrued expenses 2,678 2,596
-------------------
Total accrued expenses and other liabilities $6,809 $7,481
===================
</TABLE>
19
<PAGE> 13
NOTE G-INDEBTEDNESS
The Company maintains an unsecured working capital line of credit with its bank.
This line of credit bears interest at the bank's base rate of 8.59% at September
30, 2000. The full amount of the line ($12.0 million) was available to the
Company at September 30, 2000.
In 1994, the Company purchased land and building, which replaced leased
operating facilities, for $900,000. The land and building were mortgaged under a
$900,000 bank note bearing interest at 8.2%. During the year ended September 30,
2000, the Company repaid the entire balance of the outstanding mortgage note
payable.
Also included in long-term debt is a promissory note (the Note) entered into in
March 1999 by Pinpoint in order to acquire an office building. The Note bears
interest at 7.95% per annum, is due in monthly installments of approximately
$18,000 with final payment due March 2014. During the year ended September 30,
2000, the Company repaid the entire balance of the Note.
At October 2, 1999, long-term debt consisted of:
<TABLE>
<CAPTION>
(000's omitted)
--------------------------------------------------------------------------------------------------------
<S> <C>
Mortgage notes payable $2,233
Less current portion 164
------
$2,069
======
</TABLE>
NOTE H-INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(000's omitted) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $4,262 $1,941 $(277)
Deferred 167 (58) 194
------------------------------------------
4,429 1,883 (83)
------------------------------------------
State:
Current 712 370 107
Deferred 28 (18) (6)
------------------------------------------
740 352 101
Foreign:
Current -- 37 --
Deferred -- (262) --
------------------------------------------
-- (225) --
------------------------------------------
$5,169 $2,010 $18
==========================================
</TABLE>
The following table shows income (loss) before taxes:
<TABLE>
<CAPTION>
(000's omitted) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $14,433 $6,479 $821
Foreign (462) 970 (130)
-------------------------------------------
$13,971 $7,449 $691
===========================================
</TABLE>
The income taxes recorded differed from the statutory federal income tax rate
due to:
<TABLE>
<CAPTION>
(000's omitted) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory income taxes $4,896 $2,132 $21
Tax credits, federal and state (299) (48) --
State income taxes, net of federal benefit 500 229 32
Unbenefited (benefited) foreign loss -- (262) --
Permanent differences (25) 35 35
Other 97 (76) (70)
------------------------------------------
$5,169 $2,010 $18
==========================================
</TABLE>
20
<PAGE> 14
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities are
as follow:
<TABLE>
<CAPTION>
SEPT. 30, OCT. 2,
(000's omitted) 2000 1999
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable and inventory $898 $999
Net operating loss carryforwards -- 68
Product warranty accruals 506 408
Purchased research and development 279 297
Other liabilities 445 258
---------------------------
Total deferred tax assets 2,128 2,030
Deferred tax liabilities:
Accelerated tax depreciation 867 712
Prepaid expenses 281 143
---------------------------
Total deferred tax liabilities 1,148 855
---------------------------
Net deferred tax asset $980 $1,175
===========================
</TABLE>
Prior to the merger Pinpoint elected to be taxed under the Subchapter S
provisions of the Internal Revenue Code. Accordingly, Pinpoint's income or loss
was included in the stockholders' individual income tax returns.
NOTE I-COMMITMENTS AND CONTINGENCIES
In the course of normal operations, the Company is involved in litigation
arising from commercial disputes and claims from former employees which
management believes will not have a material impact on the Company's financial
position or its results of operations.
The Company leases certain office and manufacturing space under operating
leases. Listed below are the future minimum rental payments required under
operating leases with non-cancelable terms in excess of one year at September
30, 2000.
<TABLE>
<S> <C> <C>
2001 $431
2002 404
2003 323
2004 38
2005 32
---------------------
$1,228
</TABLE>
The Company's office leases are subject to adjustments based on actual floor
space occupied. The leases also require payment of real estate taxes and
operating costs. In addition to the office leases, the Company leases
automobiles for business use by a portion of the sales force. Total rental
expense under operating leases for 2000, 1999, and 1998 was approximately
$1,059,000, $907,000 and $728,000, respectively.
NOTE J-STOCKHOLDER'S EQUITY
Preferred Stock: The Board of Directors is authorized to fix the designations,
relative rights, preferences and limitations on the Preferred Stock at the time
of issuance. 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 day on June 9, 1998. Initially, these rights
are not exercisable and 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 June 9, 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.
Sale of Common Stock: During 2000, the Company completed a secondary offering of
1,725,000 shares of common stock in exchange for net proceeds of approximately
$67 million, net of $5 million for underwriters discounts and other expenses
incurred with the offering.
21
<PAGE> 15
Stock Purchase Rights: On September 25, 1995, Pinpoint granted employee stock
purchase rights which entitled the employee to obtain 3% of the then existing
shares at a nominal price. The stock purchase rights vest 25% at the end of one
year of employment, another 25% vesting over the next three years, and the
remaining 50% vesting over the next six years. The rights to purchase 12,650
shares of common stock automatically vested upon the acquisition of Pinpoint. As
of September 30, 2000, the rights to purchase 3,650 shares of common stock had
not been exercised.
Stock Option Plans: The Company's 1983 and 1992 stock option plans provide for
the granting of options to officers and other key employees to purchase the
Company's Common Stock at a purchase price, in the case of incentive stock
options, at least equal to the fair market value per share of the outstanding
Common Stock of the Company at the time the option is granted, as determined by
the Compensation Committee of the Board of Directors. Options are no longer
granted under the 1983 plan. The options become exercisable ratably over two or
four years and have maximum duration of 10 years. The Company's Non-employee
Director Stock Option Plan provides for the granting of options to purchase
shares of Common Stock to Directors of the Company who are not also employees of
the Company or any subsidiary of the Company. The options vest in four equal
annual installments over a four year period. The options may be exercised at a
price equal to the fair market value of the Common Stock on the date the option
is granted.
The number of shares authorized for these plans was 2,545,000. Approximately
1,244,000 shares of Common Stock are reserved for issuance under the Company's
stock option plans as of September 30, 2000.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized with
respect to the Company's stock option grants. Had compensation cost for this
plan been determined based on the fair value methodology prescribed by FAS 123,
the Company's net earnings and earnings per share would have been reduced to the
pro forma amounts indicated below.
<TABLE>
<CAPTION>
(000's omitted, except per share data) 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income-as reported $8,802 $5,439 $ 673
Net income pro forma $7,618 $4,956 $ 313
Basic earnings per common share-as reported $ 1.11 $ 0.82 $0.10
Diluted earnings per common and equivalent
share-as reported $ 1.07 $ 0.79 $0.10
Basic earnings per common share-pro forma $ 0.96 $ 0.74 $0.05
Diluted earnings per common and equivalent
share-pro forma $ 0.93 $ 0.72 $0.05
</TABLE>
The above pro forma amounts may not be representative of the effects on reported
net earnings for future years. The fair value of each option grant is estimated
on the date of the grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 2000, 1999 and 1998:
<TABLE>
<CAPTION>
(000's omitted) 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Expected volatility 5.86% 6.56% 6.48%
Risk-free interest rate 6.21% 5.11% 4.53%
Expected lives 5 years 5 years 5 years
</TABLE>
Activity as to stock options under the two plans is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
(000's omitted, except per share data) SHARES PRICE SHARES PRICE SHARES PRICE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the beginning
of the year 866 $ 7.98 909 $ 7.23 793 $11.02
Granted during the year 368 32.41 253 10.11 214 7.08
Exercised during the year (298) 7.16 (147) 7.70 -- --
Cancelled during the year (103) 12.51 (149) 6.06 (98) 9.05
--------------------------------------------------------------------------------
Outstanding at the end of
the year 833 $19.94 866 $ 7.98 909 $ 7.23
================================================================================
Available for grant at the
end of the year 411 341 145
Weighted-average fair value
of options granted
during the year $17.87 $6.83 $4.12
Weighted-average exercise
price of options
exercisable at the
end of the year $ 7.71 $7.14 $7.20
</TABLE>
22
<PAGE> 16
The following table summarizes information about stock options outstanding at
September 30, 2000.
<TABLE>
<CAPTION>
(000's omitted, except per share data) OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.020 4 9.04 years $ 0.02 -- --
$3.690-$8.750 334 6.79 years $ 7.29 246 $ 7.18
$9.000-$12.313 144 8.49 years $11.01 38 $10.90
$25.875 170 9.04 years $25.88 -- --
$32.188-$38.250 136 9.80 years $37.02 -- --
$43.125 30 9.89 years $43.13 -- --
$51.250 15 9.57 years $51.25 -- --
------------------------------------------------------------------------------------------------------------------------
833 284
========================================================================================================================
</TABLE>
Under the Company's 1992 stock option plan, 417,850 options ranging in option
price from $10.00 to $14.75 per share were repriced to $6.88 per share during
1998. This repricing was accomplished by canceling the existing options and
issuing new options at new prices with vesting schedules recommencing as of the
date of reprice. The purpose of this transaction was to restore the incentive
effect of such options. In all other respects, the Plan remained unchanged.
NOTE K-EMPLOYEE BENEFIT PLAN
Defined contribution retirement plan--ZOLL has a defined contribution retirement
plan which contains a "401 (k)" program for all employees with three months of
service who have attained 21 years of age. Participants in the Plan may
contribute up to 15% of their eligible compensation. Effective January 1, 2000,
the Plan was amended to provide for an employer match of 25% of the employee
contribution up to 7% of eligible compensation. Prior to January 1, 2000, the
Company made discretionary contributions. The Company contributed $125,000 to
the Plan in 2000 and $100,000 in 1999 and 1998.
401 (k) Salary Deferral Plan--Beginning in 1998, Pinpoint has maintained a
retirement savings plan (the Plan) pursuant to which eligible employees may
defer compensation for income tax purposes under section 401 (k) of the Internal
Revenue code of 1986. Participants in the Plan may contribute up to 15% of their
eligible compensation which are matched by the company at 50% of the employee
contribution up to 6% of eligible compensation. Pinpoint may make discretionary
matching contributions to the Plan in an amount determined by its Board of
Directors. Pinpoint recorded expense related to the Plan of approximately
$55,000, $29,000 and $11,000 in 2000, 1999 and 1998, respectively.
NOTE L-SEGMENT AND GEOGRAPHIC INFORMATION
Segment Information: The Company reports revenue information to the chief
operating decision maker for four operating segments, determined on the type of
customer or product. These segments consist of (1) the sale of cardiac
resuscitation devices and accessories to the North American hospital market, (2)
the sale of the same items and data collection management software to North
American prehospital market, (3) the sale of disposable/other products in North
America, (4) the sale of cardiac resuscitation devices and accessories and
disposable electrodes to the international market. Each of these segments has
similar characteristics, manufacturing processes, distribution and marketing
strategies, as well as a similar regulatory environment.
In order to make operating and strategic decisions, ZOLL's chief operating
decision maker evaluates revenue performance based on the worldwide revenues of
each segment and, due to shared infrastructures, profitability based on an
enterprise-wide basis. Net sales by segment were as follows:
<TABLE>
<CAPTION>
(000's omitted) 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hospital Market-North America devices $ 40,555 $30,868 $19,962
Prehospital Market-North America devices 27,930 19,115 14,914
Other-North America 16,254 15,035 12,841
International Market-excluding
North America 21,597 13,664 9,803
-------------------------------------------
$106,336 $78,682 $57,520
===========================================
</TABLE>
The Company reports assets on a consolidated basis to the chief operating
decision maker.
23
<PAGE> 17
Geographic information: Net sales by major geographical area, determined on the
basis of destination of the goods, are as follows:
<TABLE>
<CAPTION>
(000's omitted, except per share data) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 79,143 $63,838 $46,952
Foreign 27,193 14,844 10,568
--------------------------------------------
$106,336 $78,682 $57,520
============================================
</TABLE>
In each of the years in the three year period ended September 30, 2000, no
single customer represented over 10% of the Company's consolidated net sales.
NOTE M-QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
JAN. 1, APRIL 1, JUL. 1, SEPT. 30,
(000's omitted, except per share data) 2000 2000 2000 2000
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000
Net sales $24,435 $25,654 $27,442 $28,805
Gross profit 13,592 14,525 15,115 16,753
Income from operations 2,235 2,622 3,260 4,051
Net income 1,364 1,783 2,543 3,112
Basic earnings per common share $ 0.20 $ 0.24 $ 0.29 $ 0.35
Diluted earnings per common
and equivalent share $ 0.19 $ 0.23 $ 0.28 $ 0.34
</TABLE>
<TABLE>
<CAPTION>
JAN. 2, APRIL 3, JUL. 3, OCT. 2,
(000's omitted, except per share data) 1999* 1999 1999 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Net sales $16,056 $17,941 $20,812 $23,872
Gross profit 9,524 10,502 12,314 13,856
Income from operations 876 1,283 2,073 3,262
Net income 702 936 1,534 2,267
Basic earnings per common share $ 0.11 $ 0.14 $ 0.23 $ 0.34
Diluted earnings per common
and equivalent share $ 0.10 $ 0.14 $ 0.22 $ 0.32
Pro forma diluted earnings per common
share and share equivalent** $ 0.09 $ 0.12 $ 0.19 $ 0.30
</TABLE>
*Quarter contains 14 weeks
**Pro forma adjustments have been made to the historical results to include
operating costs which are expected to be incurred as a result of the Pinpoint
merger and income tax expense, assuming that Pinpoint was a taxable entity
subject to ZOLL's incremental tax rate.
================================================================================
Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is traded on the National Association of Securities
Dealers Automated Quotation (NASDAQ) National Market System under the symbol
"ZOLL." The following table sets forth the high and low sales prices during the
fiscal quarters specified:
<TABLE>
<CAPTION>
SALES PRICES
2000 1999
HIGH LOW HIGH LOW
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $ 41-3/8 $ 22-5/8 $ 11-7/16 $ 7-1/16
Second Quarter 63-3/4 33-3/16 12-3/4 8-1/2
Third Quarter 59-1/16 37 12-7/8 9
Fourth Quarter 54 32-3/16 31-13/16 11-7/8
</TABLE>
The Company has never declared or paid cash dividends on its capital stock. The
Company currently intends to retain any future earnings to finance the growth
and development of its business, and therefore does not anticipate paying any
cash dividends in the foreseeable future.
24
<PAGE> 18
EXECUTIVE OFFICERS AND DIRECTORS
RICHARD A. PACKER
Chairman of the Board & Chief Executive Officer
A. ERNEST WHITON
Vice President of Administration &
Chief Financial Officer
WARD M. HAMILTON
Vice President, Marketing
E. J. JONES
Vice President, International Sales
DONALD R. BOUCHER
Vice President, Research & Development
STEVEN K. FLORA
Vice President, North American Sales
JOHN BERGERON
Vice President & Corporate Treasurer
WILLARD M. BRIGHT
Director & Chairman Emeritus
THOMAS M. CLAFLIN(1)
Director
M. STEPHEN HEILMAN, M.D.(1)
Director
DANIEL M. MULVENA(2)
Director
DR. JAMES W. BIONDI(2)
Director
BENSON F. SMITH(1)
Director
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
STOCKHOLDER INFORMATION
STOCK LISTING
ZOLL Medical Corporation Common Stock is
traded on the NASDAQ National Market System under
the symbol "ZOLL."
TRANSFER AGENT
State Street Bank and Trust Company
C/O Equiserve
P.O. Box 9187
Canton, Massachusetts 02021-9187
1-877-282-1169
GENERAL COUNSEL
Goodwin, Procter & Hoar LLP
Boston, Massachusetts
INDEPENDENT AUDITORS
Ernst & Young LLP
Boston, Massachusetts
ANNUAL MEETING
The annual meeting of stockholders will be held
at 10 a.m. on February 8, 2001 at Goodwin, Procter
and Hoar LLP, Conference Center, Exchange Place,
53 State Street, Boston, Massachusetts 02110.
INFORMATION REQUESTS
A copy of our Form 10-K, as filed with the Securities &
Exchange Commission, may be obtained upon written
request to the Company at:
Stockholder Relations
ZOLL Medical Corporation
32 Second Avenue
Burlington, Massachusetts 01803-4420
ZOLL and Westech are registered trademarks
of ZOLL Medical Corporation.
