<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 OCTOBER 3,
1999 TO JANUARY 1, 2000.
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 February 11, 2000
Common Stock, $.02 par value 6,865,209
This document consists of 11 pages.
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ZOLL MEDICAL CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Balance Sheets (unaudited) 3
January 1, 2000 and October 2, 1999
Consolidated Income Statements (unaudited) 4
Three Months Ended January 1, 2000 and January 2, 1999
Consolidated Statements of Cash Flows (unaudited) 5
Three Months Ended January 1, 2000 and January 2, 1999
Notes to Consolidated Financial Statements (unaudited) 6
ITEM 2. Management's Discussion and Analysis of Results of Operations 8
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 11
ITEM 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZOLL MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
January 1, October 2,
2000 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,284 $ 1,821
Accounts receivable, less allowance of $2,439 at January
1, 2000 and $2,096 at October 2, 1999 26,265 25,464
Inventories:
Raw materials 6,604 5,332
Work-in-process 3,295 2,623
Finished goods 5,605 5,241
------- -------
15,504 13,196
Prepaid expenses and other current assets 2,371 2,296
------- -------
Total current assets 45,424 42,777
Property and equipment, at cost:
Land and building 3,437 3,432
Machinery and equipment 16,476 15,382
Construction in progress 412 477
Tooling 2,979 2,695
Furniture and fixtures 931 883
Leasehold improvements 749 737
------- -------
24,984 23,606
Less accumulated depreciation 11,637 10,875
------- -------
Net property and equipment 13,347 12,731
Other assets, net 4,249 4,179
------- -------
$63,020 $59,687
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,636 $ 8,404
Accrued expenses and other liabilities 6,168 6,389
Current maturities of long-term debt 163 164
Deferred revenue 1,017 1,092
------- -------
Total current liabilities 16,984 16,049
Deferred income taxes 347 347
Long-term debt 2,029 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,
6,844 and 6,772 issued and outstanding at January 1,
2000 and October 2, 1999, respectively 137 136
Capital in excess of par value 23,697 22,439
Retained earnings 19,826 18,647
------- -------
Total stockholders' equity 43,660 41,222
------- -------
$63,020 $59,687
======= =======
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE> 4
ZOLL MEDICAL CORPORATION
CONSOLIDATED INCOME STATEMENTS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
January 1, January 2,
2000 1999
<S> <C> <C>
Net sales $24,435 $16,056
Cost of goods sold 10,843 6,532
------- -------
Gross profit 13,592 9,524
Expenses:
Selling and marketing 7,674 5,415
General and administrative 1,952 1,630
Research and development 1,731 1,603
------- -------
Total expenses 11,357 8,648
------- -------
Income from operations 2,235 876
Investment and other income 10 78
Interest expense 80 12
------- -------
Income before income taxes 2,165 942
Provision for income taxes 801 240
------- -------
Net income $ 1,364 $ 702
======= =======
Basic earnings per common share $ 0.20 $ 0.11
======= =======
Weighted average common shares outstanding 6,794 6,628
Diluted earnings per common and common equivalent share
$ 0.19 $ 0.10
======= =======
Weighted average number of common and common equivalent shares
outstanding 7,196 6,730
Unaudited pro forma information*:
Historical income before income taxes $ 942
Pro forma incremental operating costs 65
-------
Pro forma income before income taxes 877
Pro forma provision for income taxes 300
-------
Pro forma net income $ 577
=======
Pro forma diluted earnings per share $ 0.09
=======
</TABLE>
*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 merger with
Pinpoint and income tax expense, assuming that Pinpoint was a taxable entity
subject to ZOLL's incremental tax rate.
See notes to unaudited consolidated financial statements.
4
<PAGE> 5
ZOLL MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
January 1, January 2,
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,364 $ 702
Charges not affecting cash:
Depreciation and Amortization 886 723
Changes in assets and liabilities:
Accounts receivable (801) (2,586)
Inventories (2,308) (1,383)
Prepaid expenses and other current assets (79) 1,572
Accounts payable and accrued expenses(1) 1,015 (972)
Deferred Revenue (75) (150)
------- -------
Cash provided by (used for) operating activities 2 (2,094)
INVESTING ACTIVITIES:
Additions to property and equipment (1,442) (1,135)
Other assets (53) (14)
------- -------
Cash used for investing activities (1,495) (1,149)
FINANCING ACTIVITIES:
Exercise of stock options, including income tax benefit 1,182 68
Distributions to stockholders (185) --
Repayment of long-term debt (41) (41)
------- -------
Cash provided by financing activities 956 27
------- -------
Net decrease in cash (537) (3,216)
Cash and cash equivalents at beginning of year 1,821 5,521
------- -------
Cash and cash equivalents at end of period $ 1,284 $ 2,305
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period:
Income taxes $ 431 $ 44
Interest 80 12
(1) Includes payment of approximately $880,000 of accounts payable during the
first quarter of fiscal 2000 related to the 1999 purchase of our new
Enterprise Resource Planning information technology system from Oracle
Corporation.
</TABLE>
See notes to unaudited consolidated financial statements.
5
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ZOLL MEDICAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of January 1, 2000, the Consolidated
Income Statements for the three months ended January 1, 2000 and January 2,
1999, and the Consolidated Statements of Cash Flows for the three months
ended January 1, 2000 and January 2, 1999 are unaudited, but in the opinion
of management include all adjustments, consisting of normal recurring
items, necessary for a fair presentation of results for these interim
periods. The results for the interim periods are not necessarily indicative
of results to be expected for the entire year.
2. On 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.
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. The
accompanying unaudited consolidated financial statements are presented on
the basis that the companies were combined for all periods presented, and
unaudited financial statements of the prior quarter has been restated to
give effect to the combination.
The unaudited pro forma information reflects pro forma adjustments that
have been made to the historical results to include operating costs which
are expected to be incurred as a result of the merger with Pinpoint and
income tax expense, assuming that Pinpoint was a taxable entity subject to
ZOLL's incremental tax rate. 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 the beginning of that
period. In addition, the pro forma information is not intended to be a
projection of future results.
3. 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.
4. Segment and Geographic Information
Segment information: The Company reports information to the chief operating
decision maker for four operating segments, determined on the type of
customer or product. These segments include the sale of cardiac
resuscitation devices and accessories and data collection management
software to the North America hospital market and to the North America
pre-hospital market, and the sale of cardiac resuscitation devices and
accessories to the international market. Each of these segments have
similar characteristics, manufacturing processes, customers, 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 follow:
<TABLE>
<CAPTION>
(000's omitted) 2000 1999
- ------------------------------------------------------------------------------
<S> <C> <C>
Hospital Market - North America $10,527 $6,178
Pre-hospital Market - North America 4,845 3,957
Other - North America 3,821 3,702
International Market, excluding North America 5,242 2,219
----------------------
$24,435 $16,056
======================
</TABLE>
The Company reports assets on a consolidated basis to the chief operating
decision maker.
Geographic information: Net sales by major geographical area, determined on
the basis of destination of the goods, are as follow:
<TABLE>
<CAPTION>
(000's omitted) 2000 1999
- ------------------------------------------------------------------------------
<S> <C> <C>
United States $18,569 $13,715
Foreign 5,866 2,341
----------------------
Consolidated $24,435 $16,056
======================
</TABLE>
5. 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.
6. 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 October 2, 1999 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 JANUARY 1, 2000 COMPARED TO THREE MONTHS ENDED JANUARY 2,
1999
Our net sales increased 52.2% to $24,435,000 for the three months ended January
1, 2000 from $16,056,000 for the three months ended January 2, 1999. Our sales
growth was driven primarily by increasing demand for the new M-Series line of
defibrillators/pacemakers. Sales growth also reflected additional headcount in
our North America sales force. We experienced significant growth in all major
geographies and segments of our business. During the first quarter of 2000,
North American sales increased 38.7% to $19,193,000 from $13,837,000 for the
comparable period in 1999. Equipment sales to both the hospital and pre-hospital
markets increased 70.4% and 22.4%, respectively, to $10,527,000 and $4,845,000,
respectively, as compared to the same period in the prior year. International
sales increased 136.2% to $5,242,000 compared to $2,219,000 reflecting the
preferential allocation of the M-Series defibrillators toward the North American
market during the prior year first quarter as well as the revenue from the
initial German Army shipments under the multi-year agreement.
Gross margin for the first quarter of 2000 was 55.6% compared to 59.3% for the
comparable prior year quarter. The decrease reflected volume pricing on our
large German Army contract and the change in mix of electrode sales and capital
equipment.
Selling and marketing expenses as a percentage of net sales decreased to 31.4%
from 33.7%. The decrease in selling and marketing expenses as a percentage of
sales reflects leveraging from our reorganized, expanded North American sales
force as we increased sales volume. Selling and marketing expenses increased
41.7% to $7,674,000 due primarily to an increase in sales force headcount.
General and administrative expenses decreased as a percentage of net sales to
8.0% from 10.2%. 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 7.1%
from 10.0% reflecting primarily the significant increase in sales. Research and
development expenses increased 8.0% to $1,731,000 from $1,603,000 for the
comparable prior year quarter reflecting continued M-Series development and
other initiatives.
The effective tax rate increased from 25.5% to 37.0% for the three months ended
January 1, 2000 as compared to the same period in 1999. This increase primarily
related to the fact that, prior to our acquisition of Pinpoint Technologies,
Inc. in October 1999, the operating results of Pinpoint did not include any
provision for income taxes because Pinpoint operated as a Subchapter S
corporation for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents at January 1, 2000 totaled $1,284,000 compared
with $1,821,000 at October 2, 1999, a decrease of $537,000.
Cash provided by operating activities for the three months ended January 1, 2000
totaled $2,000, while cash used over the same period in 1999 totaled $2,094,000.
Cash provided by operating activities for the first quarter of fiscal 2000
included the payment of approximately $880,000 of accounts payable related to
the 1999 purchase of our new Enterprise Resource Planning information technology
system from Oracle Corporation. The increase in cash provided by operations was
primarily attributable to an increase in net income and a reduction in the usage
of cash for accounts receivable. Cash used for inventories reflected an increase
in production of the M-Series defibrillators resulting from the introduction of
new features, strong product demand, and year 2000 contingency planning.
The amount of cash required to fund investing activities increased by $423,000
during the three months ended January 1, 2000 compared to the same period in
1999. The increase primarily reflected the purchase of additional capital
equipment.
Cash provided by financing activities increased by $1,006,000 during the three
months ended January 1, 2000 compared to the same period in 1999. This increase
was primarily due to the exercise of stock options.
7
<PAGE> 8
We maintain a working capital line of credit with our bank. Under this working
capital line, we may borrow on a demand basis. Currently, we may borrow up to
$12,000,000 at an interest rate equal to the bank's base rate (currently 8.25%)
or LIBOR plus 2%. The outstanding balance under this line was zero at the end of
the first quarter of both fiscal 2000 and 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,
the effect of the Company's accounting policies, and those factors set forth
under the heading "Risk Factors" in our Registration Statement on Form S-3,
filed with the SEC on January 28, 2000, as subsequently amended.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
8
<PAGE> 9
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.
In October 1999, a wholly-owned subsidiary of the Company was merged
into Pinpoint Technologies, Inc. Pursuant to this merger, the Company
issued 433,000 shares of its common stock to the stockholders of
Pinpoint. The Company also issued 3,000 shares of its common stock as
consideration for non-competition agreements entered into by certain
officers of Pinpoint. The Company relied upon the exemption from
registration under Section 4 (2) of the Securities Act.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security-Holders.
The following matters were voted upon and approved at the Company's
Annual Meeting of Stockholders held on February 8, 2000. On the record
date of December 28, 1999 there were 6,843,809 shares issued,
outstanding and eligible to vote, of which 5,966,188 shares or 87%
were represented at the meeting either in person or by proxy.
The proposal to elect the following three Class II directors to serve
until a successor is duly elected and qualified:
Votes For Votes Withheld
Willard M. Bright 5,937,265 28,923
Thomas M. Claflin, II 5,934,772 31,416
M. Stephen Heilman 5,934,772 31,416
9
<PAGE> 10
Item 4. The proposal to amend the Company's 1992 Stock Option Plan to increase
(cont.) the number of shares available for issuance under the Plan by 335,000
shares.
Votes For Votes Against Votes Withheld
3,642,299 2,304,757 19,132
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 a Form 8-K on October 29, 1999 and amended that
report on December 29, 1999, January 18, 2000, and January 28, 2000.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on February 11, 2000.
ZOLL MEDICAL CORPORATION
(Registrant)
Date: February 11, 2000 By: /s/ Richard A. Packer
------------------------------------------------
Richard A. Packer, Chairman and Chief Executive
Officer (Principal Executive Officer)
Date: February 11, 2000 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
<CIK> 0000887568
<NAME> ZOLL MEDICAL CORP.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-03-1999
<PERIOD-END> JAN-01-2000
<EXCHANGE-RATE> 1
<CASH> 1,284
<SECURITIES> 0
<RECEIVABLES> 28,704
<ALLOWANCES> 2,439
<INVENTORY> 15,504
<CURRENT-ASSETS> 45,424
<PP&E> 24,984
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<TOTAL-ASSETS> 63,020
<CURRENT-LIABILITIES> 16,984
<BONDS> 2,029
0
0
<COMMON> 137
<OTHER-SE> 43,523
<TOTAL-LIABILITY-AND-EQUITY> 63,020
<SALES> 24,435
<TOTAL-REVENUES> 24,435
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<TOTAL-COSTS> 10,843
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<EPS-BASIC> .20
<EPS-DILUTED> .19
</TABLE>
