<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
October 15, 1999
ZOLL MEDICAL CORPORATION
(Exact Name of Registrant as specified in its charter)
Massachusetts 000-20225 04-2711626
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
32 Second Avenue, Northwest Park, Burlington, Massachusetts 01803
(Address of principal executive offices and zip code)
(781) 229-0020
(Registrant's telephone number, including area code)
<PAGE> 2
This Form 8-K/A Amendment No. 2 amends Item 7 of the Current Report on
Form 8-K/A of Zoll Medical Corporation previously filed with the Securities and
Exchange Commission on December 28, 1999, solely for the purpose of filing the
financial information set forth below.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(b) PRO FORMA FINANCIAL INFORMATION
The pro forma financial information required to be filed by Regulation S-X
promulgated by the Securities Exchange Commission is set forth in the
exhibits to this Form 8-K/A.
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule - October 2, 1999
99.1 ZOLL Medical Corporation Supplemental Combined Financial
Statements and Schedule - Three Years Ended October 2, 1999
</TABLE>
<PAGE> 3
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 hereunto duly authorized.
Dated: January 14, 2000 ZOLL MEDICAL CORPORATION
By: /s/ A. Ernest Whiton
------------------------------
Name: A. Ernest Whiton
Title: Vice President and
Chief Financial Officer
<PAGE> 4
ZOLL Medical Corporation
Index of Document Contents
EXHIBITS
23.1 Consent of Independent Auditors..........................................2
27.1 Financial Data Schedule - October 2, 1999................................3
99.1 Zoll Medical Corporation Supplemental Combined Financial
Statements and Schedule - Three Years Ended October 2, 1999
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333-9107) and related Prospectus of ZOLL Medical Corporation of
our report dated November 12, 1999 with respect to the supplemental combined
financial statements and schedule of ZOLL Medical Corporation for the year
ended October 2, 1999, included in this Current Report of ZOLL Medical
Corporation on Form 8-K/A No. 2 dated January 18, 2000, filed with the
Securities and Exchange Commission.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-68403, Form S-8 No. 33-90764, Form S-8 No. 33-56244)
pertaining to the ZOLL Medical Corporation 1992 Stock Option Plan and the
Registration Statement (Form S-8 No. 333-68401) pertaining to the Non-Employee
Directors' Stock Option Plan of ZOLL Medical Corporation of our reports dated
November 12, 1999 with respect to the supplemental combined financial
statements and schedule of ZOLL Medical Corporation for the year ended October
2, 1999, included in the Current Report of ZOLL Medical Corporation on Form
8-K/A No. 2 dated January 18, 2000, filed with the Securities and Exchange
Commission.
Ernst & Young LLP
Boston, Massachusetts
January 12, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> SEP-27-1998
<PERIOD-END> OCT-02-1999
<EXCHANGE-RATE> 1
<CASH> 1,822
<SECURITIES> 0
<RECEIVABLES> 27,560
<ALLOWANCES> 2,096
<INVENTORY> 13,196
<CURRENT-ASSETS> 42,777
<PP&E> 23,606
<DEPRECIATION> 10,875
<TOTAL-ASSETS> 59,687
<CURRENT-LIABILITIES> 16,049
<BONDS> 2,069
0
0
<COMMON> 136
<OTHER-SE> 41,086
<TOTAL-LIABILITY-AND-EQUITY> 56,687
<SALES> 78,682
<TOTAL-REVENUES> 78,682
<CGS> 32,486
<TOTAL-COSTS> 32,486
<OTHER-EXPENSES> 38,702
<LOSS-PROVISION> 1,294
<INTEREST-EXPENSE> 169
<INCOME-PRETAX> 7,449
<INCOME-TAX> 2,010
<INCOME-CONTINUING> 5,439
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,439
<EPS-BASIC> 0.82
<EPS-DILUTED> 0.79
</TABLE>
<PAGE> 1
EXHIBIT 99.1
ZOLL Medical Corporation
Supplemental Combined Financial Statements
September 26, 1998
CONTENTS
Five Year Financial Summary................................................ 2
Management's Discussion and Analysis....................................... 3
Report of Independent Auditors............................................. 6
Supplemental Combined Balance Sheets....................................... 7
Supplemental Combined Income Statements.................................... 8
Supplemental Combined Statements of Stockholders' Equity................... 9
Supplemental Combined Statements of Cash Flows............................. 10
Notes to Supplemental Combined Financial Statements........................ 11
Schedule II Valuation and Qualifying Accounts.............................. 24
<PAGE> 2
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus. The selected financial data below as of and for each of the
five most recent fiscal years have been derived from our audited supplemental
combined financial statements. These financial statements are supplemental to,
rather than in place of the historical financial statements. The supplemental
combined financial statements will become the historical financial statements
upon issuance of our interim financial statements for the quarter ended January
1, 2000.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------------------
SEPT. 30, SEPT. 28, SEPT. 27, SEPT. 26, OCT. 2,
1995 1996 1997(1) 1998 1999
--------- --------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 45,884 $ 55,700 $ 57,833 $ 57,520 $ 78,682
Cost of goods sold........................ 20,421 24,545 25,372 24,268 32,486
-------- -------- -------- -------- --------
Gross profit.............................. 25,463 31,155 32,461 33,252 46,196
Expenses:
Selling and marketing................... 15,575 16,773 18,484 20,152 24,364
General and administrative.............. 4,313 4,809 6,749 6,239 7,422
Research and development................ 4,360 4,464 6,430 6,583 6,916
-------- -------- -------- -------- --------
Total expenses....................... 24,248 26,046 31,663 32,974 38,702
-------- -------- -------- -------- --------
Income from operations.................... 1,215 5,109 798 278 7,494
Net investment income (expense)........... 243 278 355 413 (45)
-------- -------- -------- -------- --------
Income before income taxes................ 1,458 5,387 1,153 691 7,449
Provision for income taxes................ 496 1,758 266 18 2,010
-------- -------- -------- -------- --------
Net income................................ $ 962 $ 3,629 $ 887 $ 673 $ 5,439
-------- -------- -------- -------- --------
Basic earnings per share.................. $ 0.15 $ 0.55 $ 0.13 $ 0.10 $ 0.82
======== ======== ======== ======== ========
Weighted average common shares
outstanding............................. 6,519 6,562 6,602 6,602 6,656
Diluted earnings per share................ $ 0.15 $ 0.55 $ 0.13 $ 0.10 $ 0.79
======== ======== ======== ======== ========
Weighted average common and equivalent
shares outstanding...................... 6,613 6,635 6,650 6,647 6,893
Pro forma information(2):
Historical income before income taxes... $ 7,449
Pro forma incremental operating cost.... 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........................... $ 24,223 $ 25,303 $ 24,361 $ 21,678 $ 26,728
Total assets.............................. 36,263 42,507 45,013 46,656 59,687
Total long-term debt, excluding current
portion................................. 864 713 565 446 2,069
Total stockholders' equity................ 29,596 33,614 34,463 34,787 41,222
</TABLE>
- ---------------
(1) For the year ended September 27, 1997, excluding one-time charges totaling
$2,300, net income would have been $2,405 and basic and diluted earnings per
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
supplemental combined financial statements.
2
<PAGE> 3
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.
OVERVIEW
On October 15, 1999, we 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 market, became our wholly owned
subsidiary through the exchange of approximately 433,000 shares of our common
stock for all of the outstanding stock of Pinpoint. The Selected Financial Data
appearing elsewhere in this prospectus are derived from the supplemental
combined financial statements and presented on the assumption that the companies
were combined for all periods presented, and financial statements of prior years
have been restated to give effect to the combination. These supplemental
combined financial statements are supplemental to, rather than in place of, the
historical financial statements. The supplemental combined financial statements
will become the historical financial statements upon issuance of our interim
financial statements for the quarter ended January 1, 2000.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
Net sales reached record levels, increasing 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. Dedicated selling teams are now focused
on each of North America's markets: hospital and pre-hospital.
We experienced significant growth in all major geographies and segments of
its business. During 1999, North American sales increased 36% to $65 million.
Within North America, equipment sales to the hospital and pre-hospital 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 net sales decreased from 35% to 31%,
reflecting revenues which 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 investment expense in 1999, as compared to net investment
income in 1998, due to the decrease in average cash balances from 1998 to 1999
and increased interest expense.
The income tax provision increased from $18,000 in 1998 to $2,010,000 in
1999. This increase results primarily from increased domestic profitability
partially offset by the benefits resulting from the utilization
3
<PAGE> 4
of tax loss carryforwards from foreign operations. The operating results of
Pinpoint for all periods presented do not include any provision for income taxes
as the company operated as a Subchapter S corporation for income tax purposes.
In the future, the Company's consolidated income tax provision will include an
income tax provision for Pinpoint's taxable income.
1998 COMPARED TO 1997
Our net sales remained relatively flat at $57,520,000 for 1998. An increase
in sales of disposable electrodes and information systems management products,
particularly Pinpoint, was offset by a decrease in equipment sales. We believe
that the decrease in equipment sales in North America was primarily the result
of customers holding back on purchases while waiting for the release of the M
Series, which was not shipped until the end of the fourth quarter of 1998. In
addition, the decrease in sales in the international market was primarily a
result of depressed foreign markets. The M Series did not have any significant
impact on the sales to the international markets in 1998 as the roll out to
international distributors continued into 1999.
Gross profit increased as a percentage of sales from 56% to 58%. The
increase is a result of a higher mix of disposable electrodes and information
systems management products, particularly Pinpoint, relative to the equipment
business.
Selling and marketing expenses increased as a percentage of sales from 32%
to 35%. Selling and marketing expenses increased 9% from $18,484,000 to
$20,152,000. Of this increase, $1,419,000 was due to higher payroll related cost
and travel expenditures reflecting the reorganization of the North American
sales force. This mid-year reorganization increased the size of and split the
sales force to focus on two distinct markets: hospital and pre-hospital. The
increase in selling and marketing expenses was due also to an increase in
expenditures for promotion, advertising and other selling activities related to
the introduction of the M Series and higher international selling expenditures
offset by a decrease in product services and support.
General and administrative expenses slightly decreased as a percentage of
sales from 12% to 11%. General and administrative expenses decreased 8% from
$6,749,000 to $6,239,000. This decrease was due primarily to the occurrence of a
one-time charge recognized in 1997 of $1,300,000 related to the estimated cost
of proceeding to trial in a class action shareholder lawsuit. This decrease was
partially offset by an increase in 1998 for payroll related costs and
professional services.
Research and development expenses remained consistent as a percentage of
sales. Research and development expenses increased from $6,430,000 to
$6,583,000. In 1997, a charge of $1,000,000 was made to account for the value of
in-process research and development acquired in the purchase of assets from
Westech. Excluding this charge, research and development expenses increased by
21%, or $1,153. This increase was due primarily to an increase in prototype and
testing expenses for new technology and start-up costs for the M Series and an
increase in payroll related costs.
Net investment income increased from the prior year due primarily to higher
average cash balances.
At September 26, 1998, we had available tax loss carryforwards of
approximately $1.6 million, which were primarily attributable to the our foreign
operations and were not available to offset domestic taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and investments in 1999 decreased $3.7 million from the prior
year. While net income increased $4.7 million from the prior year, cash used for
operating activities for 1999 increased $0.5 million over the same period in
1998. The cash usage was due primarily to an increase in accounts receivable and
inventories, partially offset by an increase in accounts payable. The increase
in accounts receivable reflected both overall sales growth and significant
shipments made during the latter part of the fourth quarter of 1999. The
increase in inventory reflected the introduction of the M Series platform.
4
<PAGE> 5
During this period of introduction, our mix of product shipments is shifting and
we carried a broader mix of product in inventory to meets our customers' needs.
The amount of cash required to fund investing in 1999 activities remained
relatively consistent with the prior year at $4.0 million.
The $0.9 million increase in cash provided by financing activities in 1999
primarily results from the cash provided from the exercise of stock options
during the year, partially offset by distributions to Pinpoint stockholders.
We maintain a working capital line of credit with our bank. Borrowings
under this line bear interest at the bank's base rate (8.25% at October 2,
1999). The full amount of the line was available to us at October 2, 1999. On
November 5, 1999, we increased our line of credit to $12.0 million.
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, 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, the effect of the Company's accounting policies and those items set
forth in the section "Risk Factors" contained in the Company's Registration
Statement on Form S-3, filed on January 18, 2000 (the "Form S-3"). See the Form
S-3 for a detailed discussion regarding the risks and uncertainties that might
cause actual results to differ from those expressed or implied by such
forward-looking statements.
5
<PAGE> 6
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
ZOLL Medical Corporation
We have audited the supplemental combined balance sheets of ZOLL Medical
Corporation as of October 2, 1999 and September 26, 1998 and the related
supplemental combined statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended October 2, 1999. The
supplemental combined financial statements give retroactive effect to the merger
of ZOLL Medical Corporation and Pinpoint Technologies, Inc. on October 15, 1999,
which has been accounted for using the pooling of interests method as described
in the notes to the supplemental combined financial statements. These
supplemental combined financial statements are the responsibility of the
management of ZOLL Medical Corporation. Our responsibility is to express an
opinion on these supplemental 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, based on our audits, the supplemental combined financial
statements referred to above present fairly, in all material respects, the
combined financial position of ZOLL Medical Corporation at October 2, 1999 and
September 26, 1998, and the combined results of its operations and its cash
flows for each of the three years in the period ended October 2, 1999, after
giving retroactive effect to the merger of Pinpoint Technologies, Inc., as
described in the notes to the supplemental combined financial statements, in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
November 12, 1999
6
<PAGE> 7
ZOLL MEDICAL CORPORATION
SUPPLEMENTAL COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 26, OCTOBER 2,
1998 1999
------------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,521 $ 1,821
Accounts receivable, less allowance of $940 at September
30, 1998 and $2,096 at October 2, 1999................. 14,630 25,464
Inventories:
Raw materials.......................................... 3,990 5,332
Work-in-process........................................ 1,735 2,623
Finished goods......................................... 3,680 5,241
------- -------
9,405 13,196
Prepaid expenses and other current assets................. 3,257 2,296
------- -------
Total current assets........................................ 32,813 42,777
Property and equipment at cost:
Land and building......................................... 1,032 3,432
Machinery and equipment................................... 12,791 15,382
Construction in progress.................................. 1,162 477
Tooling................................................... 2,225 2,695
Furniture and fixtures.................................... 712 883
Leasehold improvements.................................... 737 737
------- -------
18,659 23,606
Less accumulated depreciation............................... 8,187 10,875
------- -------
Net property and equipment.................................. 10,472 12,731
Other assets, net of accumulated amortization of $496 at
September 26, 1998 and $711 at October 2, 1999............ 3,371 4,179
------- -------
$46,656 $59,687
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,902 $ 8,404
Accrued expenses and other liabilities.................... 7,724 6,958
Current maturities of long-term debt...................... 116 164
Deferred revenue.......................................... 393 523
------- -------
Total current liabilities................................... 11,135 16,049
Deferred income taxes....................................... 288 347
Long-term debt.............................................. 446 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,
6,602 and 6,772 issued and outstanding at September 26,
1998 and October 2, 1999 respectively.................. 132 136
Capital in excess of par value............................ 20,683 22,439
Retained earnings......................................... 13,972 18,647
------- -------
Total stockholders' equity.................................. 34,787 41,222
------- -------
$46,656 $59,687
======= =======
</TABLE>
See notes to supplemental combined financial statements.
7
<PAGE> 8
ZOLL MEDICAL CORPORATION
SUPPLEMENTAL COMBINED INCOME STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
SEPTEMBER 27, SEPTEMBER 26, OCTOBER 2,
1997 1998 1999
------------- ------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales.............................................. $57,833 $57,520 $78,682
Cost of goods sold..................................... 25,372 24,268 32,486
------- ------- -------
Gross profit........................................... 32,461 33,252 46,196
Expenses:
Selling and marketing................................ 18,484 20,152 24,364
General and administrative........................... 6,749 6,239 7,422
Research and development............................. 6,430 6,583 6,916
------- ------- -------
Total expenses......................................... 31,663 32,974 38,702
------- ------- -------
Income from operations................................. 798 278 7,494
Investment income...................................... 432 487 124
Interest expense....................................... 77 74 169
------- ------- -------
Income before income taxes............................. 1,153 691 7,449
Provision for income taxes............................. 266 18 2,010
------- ------- -------
Net income............................................. $ 887 $ 673 $ 5,439
======= ======= =======
Basic earnings per common share........................ $ 0.13 $ 0.10 $ 0.82
======= ======= =======
Weighted average common shares outstanding............. 6,602 6,602 6,656
Diluted earnings per common and equivalent share....... $ 0.13 $ 0.10 $ 0.79
======= ======= =======
Weighted average common and equivalent shares
outstanding.......................................... 6,650 6,647 6,893
</TABLE>
UNAUDITED PRO FORMA INFORMATION (NOTE B):
<TABLE>
<S> <C>
Combined income before income 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
=======
</TABLE>
See notes to supplemental combined financial statements.
8
<PAGE> 9
ZOLL MEDICAL CORPORATION
SUPPLEMENTAL COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN TOTAL
COMMON EXCESS OF RETAINED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE EARNINGS EQUITY
------ ------ ---------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 28, 1996.............. 6,543 $131 $20,533 $12,950 $33,614
Exercise of stock options.................. 18 59 59
Tax benefit realized upon exercise of
stock options......................... 43 43
Distributions by Pinpoint Technologies,
Inc................................... (140) (140)
Net income............................... 887 887
----- ---- ------- ------- -------
BALANCE AT SEPTEMBER 27, 1997.............. 6,561 131 20,635 13,697 34,463
Issuance of common stock by Pinpoint
Technologies, Inc. (See Note A)....... 41 1 48 49
Adjustments to conform 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 (See Note
A).................................... 23 1 (1) --
Contributions by Pinpoint Technologies,
Inc. shareholders..................... 550 550
Distribution 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
===== ==== ======= ======= =======
</TABLE>
See notes to supplemental combined financial statements.
9
<PAGE> 10
ZOLL MEDICAL CORPORATION
SUPPLEMENTAL COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
SEPTEMBER 27, SEPTEMBER 26, OCTOBER 2,
1997 1998 1999
------------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income............................................. $ 887 $ 673 $ 5,439
Charges not affecting cash:
Depreciation and amortization........................ 1,418 1,478 3,035
Issuance of common stock for services................ -- 49 1,294
Accounts receivable allowances....................... 361 243 --
Inventory reserve.................................... 318 53 129
Provision for warranty expense....................... 275 (43) 180
Deferred income taxes................................ (898) 188 (339)
In-process research and development.................. 1,000 -- --
Changes in current assets and liabilities:
Accounts receivable.................................. 1,102 114 (12,129)
Inventories.......................................... (408) (1,982) (3,920)
Prepaid expenses and other current assets............ (23) (1,715) 1,358
Accounts payable and accrued expenses................ 1,739 1,133 4,556
Deferred revenue..................................... 116 79 130
------- ------- --------
Cash provided by (used for) operating activities....... 5,887 270 (267)
Investing activities:
Additions to property and equipment.................. (1,801) (4,493) (2,930)
Investment in marketable securities.................. (2,575) (2,675) (419)
Redemption of marketable securities.................. 5,262 2,953 419
Other assets......................................... (166) (62) (1,002)
Acquisition of assets from Westech Information
Systems, Inc...................................... (1,558) (3) --
------- ------- --------
Cash used for investing activities..................... (838) (4,280) (3,932)
Financing activities:
Exercise of stock options, including income tax
benefits.......................................... 102 -- 1,760
Distributions to stockholders........................ (140) (258) (1,314)
Contributions from stockholders...................... -- -- 550
Repayment of long-term debt.......................... (160) (127) (497)
------- ------- --------
Cash provided by (used for) financing activities....... (198) (385) 499
------- ------- --------
Net increase (decrease) in cash........................ 4,851 (4,395) (3,700)
Cash and cash equivalents at beginning of year(1)...... 5,107 9,916 5,521
------- ------- --------
Cash and cash equivalents at end of year............... $ 9,958 $ 5,521 $ 1,821
======= ======= ========
</TABLE>
- ---------------
(1) Pinpoint Technologies, Inc.'s December 31 year-end was changed to conform
with ZOLL Medical Corporation's September 26, 1998 year-end (see Note A)
<TABLE>
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year:
Income taxes......................................... $ 551 $ 1,002 $ 555
Interest............................................. 77 74 169
Non-cash transaction:
Long-term debt incurred in purchase of assets........ $ 1,800
</TABLE>
See notes to supplemental combined financial statements.
10
<PAGE> 11
ZOLL MEDICAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED 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 and disposable electrodes. The Company's products are 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.
Basis of Presentation: 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 (See Note G). The accompanying
supplemental combined financial statements are based on the assumption that the
companies were combined for all periods presented, and financial statements of
prior years have been restated to give effect to the combination. Prior to the
combination, Pinpoint had a December 31 fiscal year end. Subsequent to the
combination Pinpoint changed its year-end to the Saturday closest to September
30, to conform with that of the Company. The accompanying supplemental combined
financial statements reflect the combined historical results of the Company for
the periods ended September 27, 1997, September 26, 1998 and October 2, 1999,
and the results of Pinpoint for December 31, 1997, September 26, 1998, and
October 2, 1999. An adjustment for $140,000 was reflected in the Combined
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. These
supplemental financial statements are supplemental to, rather than in place of
the historical financial statements. The supplemental combined financial
statements will become the historical financial statements upon issuance of the
interim financial statements of the Company for the quarter ended January 1,
2000.
Principles of Consolidation: The supplemental combined financial
statements include the accounts of the Company and its wholly owned subsidiaries
and Pinpoint Technologies, Inc. and Pinpoint Property Management LLC. 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 26, 1998 and September 27, 1997 included 52 weeks.
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.
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 and software are stated at cost and amortized
using the straight-line method. The excess of cost over fair value of the net
assets acquired is amortized on a straight-line basis over 15 years. Prepaid
license fees are amortized over the term of the related contract, once
commercialization of the related product begins.
11
<PAGE> 12
ZOLL MEDICAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment: Property and equipment are stated at cost and are
depreciated using the straight-line method over the estimated economic useful
lives of the assets (forty years for buildings, three to ten years for machinery
and equipment, and five to seven years for tooling and furniture and fixtures).
Leasehold improvements and equipment under capital leases are being amortized
over the life of the 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 the 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 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
$381,000, $409,000 and $481,000 in 1997, 1998 and 1999, 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 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Average shares outstanding for basic earnings per share..... 6,602 6,602 6,656
Dilutive effect of stock options............................ 48 45 237
----- ----- -----
Average shares outstanding for diluted earnings per share... 6,650 6,647 6,893
===== ===== =====
</TABLE>
Reclassifications: Certain reclassifications have been made to the prior
years' combined financial statements to conform to the 1998 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
12
<PAGE> 13
ZOLL MEDICAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Stock Option Plans: The Company accounts for its stock compensation awards
under the provisions of APB No. 25, "Accounting for Stock Issued to Employees,"
and will continue to do so in the future.
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 N.
Comprehensive Income: In June 1997, the Financial Accounting Standards
Board issued Statement of Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." SFAS 130 establishes standards for reporting and
displaying comprehensive income. Comprehensive income is equal to net income for
each fiscal year presented.
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 is effective for
years beginning after June 15, 2000 and is not anticipated to have a material
effect on the Company's financial statements when adopted.
NOTE B -- MERGER:
Summarized results of operations of the separate companies for the
preceding three years are as follows (in thousands):
<TABLE>
<CAPTION>
ZOLL PINPOINT COMBINED
------- -------- --------
<S> <C> <C> <C>
Year ended September 27, 1997
Net sales........................................... $56,336 $1,497 $57,833
Net income.......................................... 515 372 887
Year ended September 26, 1998
Net sales........................................... $55,080 $2,440 $57,520
Net income.......................................... 43 630 673
Year ended October 2, 1999
Net sales........................................... $73,977 $4,705 $78,682
Net income.......................................... 4,081 1,358 5,439
</TABLE>
Sales and net income of $579,000 and $140,000, respectively, for the
quarter ended December 31, 1997 were included in 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
13
<PAGE> 14
ZOLL MEDICAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
of future results and does not reflect synergies expected to result from the
integration of Pinpoint and the Company's Westech business.
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 costs are expected to be incurred as a result of the merger.
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Combined net income......................................... $887 $673 $5,439
Pro forma income tax adjustment on Pinpoint's S Corporation
earnings.................................................... 149 248 392
Pro forma incremental operating costs....................... -- -- 272
---- ---- ------
Pro forma net income........................................ $738 $425 $4,775
==== ==== ======
</TABLE>
NOTE C -- INVESTMENTS
During 1996, the Company invested $2 million in the common stock of
Lifecor, Inc., which represents approximately 6% of Lifecor's outstanding common
stock. The Company accounts for this investment at cost, which approximates
market. This investment is included in other assets on the balance sheet.
NOTE D -- PREPAID EXPENSES AND OTHER CURRENT ASSETS
Current assets consisted of:
<TABLE>
<CAPTION>
SEPTEMBER 26, OCTOBER 2,
1998 1999
------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred income taxes....................................... $1,124 $1,522
Insurance proceeds receivable -- See Note L................. 1,674 --
Other....................................................... 459 774
------ ------
Total prepaid expenses and other current assets............. $3,257 $2,296
====== ======
</TABLE>
NOTE E -- STOCKHOLDERS' 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 will not be
exercisable and will trade with the shares of the Company'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
the Company, if a person who owns 10% or more of the Common Stock of the Company
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 the Company. Under the Shareholder Rights Plan, a
shareholder of the Company 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
14
<PAGE> 15
ZOLL MEDICAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 the Company's Common Stock having a value of twice the
then-current exercise price of the right. If the Company 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.
Stock Purchase Rights: On September 25, 1995, Pinpoint granted an 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 October 2, 1999, none of the stock purchase rights had 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 2,210,000.
Approximately 1,208,000 shares of Common Stock are reserved for issuance under
the Company's stock option plans as of October 2, 1999.
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>
1997 1998 1999
-------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net income -- as reported.................................. $ 887 $ 673 $5,439
Net income -- pro forma.................................... 641 313 4,956
Basic earnings per common and equivalent share-as
reported................................................. $0.13 $0.10 $ 0.82
Diluted earnings per common and equivalent share-as
reported................................................. $0.13 $0.10 $ 0.79
Basic earnings per common and equivalent share-pro forma... $0.10 $0.05 $ 0.74
Diluted earnings per common and equivalent share-pro
forma.................................................... $0.10 $0.05 $ 0.72
</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-
15
<PAGE> 16
ZOLL MEDICAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Scholes option-pricing model with the following weighted-average assumptions
used for grants in 1999 and 1998:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Dividend yield.......................................... 0% 0% 0%
Expected volatility..................................... 4.84% 6.48% 6.56%
Risk-free interest rate................................. 5.98% 4.53% 5.11%
Expected lives.......................................... 5 years 5 years 5 years
</TABLE>
Activity as to stock options under the two plans is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------ ------------------ ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............ 731 $11.19 793 $11.02 909 $ 7.23
Granted during the year..................... 86 9.76 214 7.08 253 10.11
Exercised during the year................... (18) 3.43 -- -- (147) 7.70
Cancelled during the year................... (6) 12.55 (98) 9.05 (149) 6.06
---- ------ --- ------ ---- ------
Outstanding at end of year.................. 793 $11.02 909 $ 7.23 866 $ 7.98
---- ------ --- ------ ---- ------
Available for grant at end of year.......... 161 145 341
---- --- ----
Weighted-average fair value of options
granted during the year................... $ 4.48 $ 4.12 $ 6.83
Weighted-average exercise price of options
exercisable at end of year................ $10.08 $ 7.20 $ 7.14
</TABLE>
The following table summarizes information about stock options outstanding
at October 2, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ----------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICE OCTOBER 2, 1999 CONTRACTUAL LIFE EXERCISE PRICE OCTOBER 2, 1999 EXERCISE PRICE
- ----------------------- --------------- ---------------- ---------------- --------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
$3.687 - $6.875 429 7.54 Years $ 6.54 142 $5.89
$7.000 - $8.750 248 7.76 Years 8.27 95 8.50
$9.000 - $10.000 72 7.92 Years 9.60 18 9.77
$10.750 - $12.313 117 9.66 Years 11.70 -- --
--- ---
$3.687 - $12.313 866 255
=== ===
</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.
16
<PAGE> 17
ZOLL MEDICAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
SEPTEMBER 26, OCTOBER 2,
1998 1999
------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Accrued salaries and wages and related expenses............. $3,375 $2,588
Accrued warranty expense.................................... 953 1,133
Accrued income taxes........................................ -- 1,164
Accrued shareholder litigation settlement cost -- see Note
L......................................................... 1,400 --
Other accrued expenses...................................... 1,996 2,073
------ ------
Total accrued expenses and other liabilities................ $7,724 $6,958
====== ======
</TABLE>
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 (8.5% at
October 2, 1999 and September 26, 1998). The full amount of the line ($6.0
million) was available to the Company at October 2, 1999. On November 5, 1999,
the Company increased its line of credit to $12.0 million.
In 1994, the Company purchased land and building, which replaced leased
operating facilities, for $900,000. The land and building are mortgaged under a
$900,000 bank note bearing interest at 8.2%. The carrying value of the land and
building at September 26, 1998 and October 2, 1999 amounted to $948,000 and
$915,000, respectively. The mortgage requires equal monthly principal payments
of $7,500 plus interest over seven years, with a final payment of $270,000 due
in July 2001. The carrying amount of the long-term debt approximates the fair
value. The mortgage contains various covenants including minimum levels of net
worth, working capital and pre-tax earnings. The Company is in compliance with
all covenants of the agreement. As of October 2, 1999 the outstanding balance of
the note amounted to approximately $442,000.
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. As of October 2, 1999
the outstanding balance of the Note amounted to approximately $1,791,000.
Long-term debt consisted of:
<TABLE>
<CAPTION>
SEPTEMBER 26, OCTOBER 2,
1998 1999
------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Mortgage note payable....................................... $533 $2,233
Capital lease obligations................................... 29 --
---- ------
Total long-term debt........................................ 562 2,233
Less current portion........................................ 116 164
---- ------
$446 $2,069
==== ======
</TABLE>
17
<PAGE> 18
ZOLL MEDICAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The schedule of principal payments on long term debt is as follows:
<TABLE>
<S> <C>
2000................................................ $ 164
2001................................................ 435
2002................................................ 90
2003................................................ 98
2004................................................ 106
Thereafter.......................................... 1,340
------
$2,233
======
</TABLE>
NOTE H -- INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current................................................... $ 942 $(277) $1,941
Deferred................................................ (722) 194 (58)
----- ----- ------
220 (83) 1,883
State:
Current................................................. 222 107 370
Deferred................................................ (176) (6) (18)
----- ----- ------
46 101 352
Foreign:
Current................................................. -- -- 37
Deferred................................................ -- -- (262)
----- ----- ------
-- -- (225)
----- ----- ------
$ 266 $ 18 $2,010
===== ===== ======
</TABLE>
The following table shows income before income taxes:
<TABLE>
<CAPTION>
1997 1998 1999
------ ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.................................................. $1,137 $ 821 $6,479
Foreign................................................... 16 (130) 970
------ ----- ------
$1,153 $ 691 $7,449
====== ===== ======
</TABLE>
18
<PAGE> 19
ZOLL MEDICAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The income taxes recorded differed from the statutory federal income tax
rate due to:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory income taxes...................................... $265 $ 21 $2,132
Tax credits, federal and state.............................. -- -- (48)
State income taxes, net of federal benefit.................. 31 32 229
Unbenefitted (benefitted) foreign losses.................... 13 -- (262)
Permanent differences....................................... (20) 35 35
Other....................................................... (23) (70) (76)
---- ---- ------
$266 $ 18 $2,010
==== ==== ======
</TABLE>
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. The valuation allowance
decreased $262,000 as a result of the utilization of foreign net operating
losses.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 26, OCTOBER 2,
1998 1999
------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable and inventory........................... $ 625 $ 999
Net operating loss carryforwards.......................... 365 68
Product warranty accruals................................. 373 408
Purchased research and development........................ 336 297
Other liabilities......................................... 379 258
Valuation allowance for deferred tax assets............... (262) --
------ ------
Total deferred tax assets.............................. 1,816 2,030
Deferred tax liabilities:
Accelerated tax depreciation.............................. 731 712
Prepaid expenses.......................................... 248 143
------ ------
Total deferred tax liabilities......................... 979 855
------ ------
Net deferred tax asset................................. $ 837 $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
is included in the stockholders' individual income tax returns.
19
<PAGE> 20
ZOLL MEDICAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- LEASES
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 October 2,
1999.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
2000........................................... $ 414
2001........................................... 371
2002........................................... 353
2003........................................... 281
------
$1,419
======
</TABLE>
Pinpoint is obligated under a lease agreement for formerly occupied
facilities under a lease, which expires February 1, 2000. The lease provides for
the Company to pay an annual base rent plus expenses, totaling approximately
$43,000, which increases each year as determined by the Consumer Price Index.
Effective March 11, 1999, the Company subleased this space to an unrelated
company on a full-cost pass-through basis, whereby the sublease tenant pays the
landlord directly. The Company remains obligated on the lease payments to the
extent that the sublease tenant defaults on its payments.
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 1997, 1998 and 1999 was approximately
$625,000, $728,000 and $907,000, respectively.
NOTE J -- EMPLOYEE BENEFIT PLAN
Defined contribution retirement plan -- Zoll has a defined contribution
retirement plan which contains a "401(k)" program for all employees with six
months of service who have attained 21 years of age. The Company may make a
discretionary contribution and an additional discretionary profit sharing
contribution. The Company made a $100,000 contribution to the plan in fiscal
1997, 1998 and 1999.
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. The Company may make
discretionary matching contributions to the Plan in an amount determined by its
Board of Directors. The Company recorded expense related to the Plan of
approximately $11,000 and $29,000 for the year ended September 26, 1998 and
October 2, 1999, respectively.
NOTE K -- CONCENTRATION OF CREDIT 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 customer 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
20
<PAGE> 21
ZOLL MEDICAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
foreign customers. Export sales accounted for 22%, 19% and 20% of the Company's
total revenues in 1997, 1998 and 1999, 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.
NOTE L -- 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.
During the quarter ended December 28, 1996, the Company incurred a charge
of approximately $1,300,000 to cover the litigation costs to defend itself in a
shareholder lawsuit initiated in 1994. On July 9, 1998, the Company announced an
agreement in principle concerning the settlement of the lawsuit against it and
certain officers. The settlement, amounting to $1,500,000, was approved by the
court on October 5, 1998. There was no financial impact as a result of the
settlement. Included in accrued expenses at September 26, 1998 is the unpaid
settlement cost and remaining accrued legal fees related to the litigation. A
similar amount due from the insurance company is included in other current
assets at September 26, 1998. In November 1998, the Company received the
insurance reimbursements for the claim and legal costs and paid the remaining
settlement due to the shareholders.
NOTE M -- ACQUISITION
On November 6, 1996, the Company acquired the assets of the mobile
computing business of Westech Information Systems, Inc. for approximately
$1,500,000 in cash. 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. The excess of
the cost over the fair value of net assets acquired is being amortized over
fifteen years. In connection with the acquisition, the Company incurred a
non-recurring charge of $1,000,000 for acquired in-process research and
development which was charged to operations because in management's opinion,
technological feasibility for the acquired research and development had not been
established. The Company's combined results of operations include the operations
of the mobile computing business of Westech Information Systems, Inc. from
November 1996.
The following unaudited pro forma information for fiscal year 1997 shows
the results of operations as if the transaction occurred at the beginning the
year of acquisition (in thousands, except per share amounts):
<TABLE>
<S> <C>
Net sales................................................... $57,935
Net income.................................................. 876
Basic earnings per common share............................. $ 0.13
Diluted earnings per common and equivalent share............ $ 0.13
</TABLE>
The pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the purchase actually
been made at the beginning of the respective periods and is not necessarily
indicative of results that may be obtained in the future.
21
<PAGE> 22
ZOLL MEDICAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N -- 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 include the sale of cardiac resuscitation
devices and accessories and data collection management software to the hospital
market and to the prehospital market in North America, the sale of
disposable/other products and 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, the Company'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>
1997 1998 1999
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Hospital Market -- North America devices.............. $21,562 $19,962 $30,868
Pre-hospital Market -- North America devices.......... 12,721 14,914 19,115
Other -- North America................................ 11,855 12,841 15,035
International Market -- excluding North America....... 11,695 9,803 13,664
------- ------- -------
$57,833 $57,520 $78,682
======= ======= =======
</TABLE>
The Company reports assets on a combined 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>
1997 1998 1999
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States......................................... $45,523 $46,952 $63,838
Foreign............................................... 12,310 10,568 14,844
------- ------- -------
$57,833 $57,520 $78,682
======= ======= =======
</TABLE>
In each of the years in the three year period ended October 2, 1999, no
single customer represented over 10% of the Company's combined net sales.
NOTE O -- QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
DECEMBER 27, MARCH 29, JUNE 28, SEPTEMBER 27,
1997 1998 1998 1998
------------ --------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1998
Net sales.................................... $13,019 $14,354 $13,326 $16,821
Gross profit................................. 7,447 8,450 7,706 9,649
Income (loss) from operations................ 273 734 (1,148) 419
Net income (loss)............................ 305 743 (730) 355
Basic earnings (loss) per common share....... $ 0.05 $ 0.12 $ (0.12) $ 0.06
Diluted earnings (loss) per common and
equivalent share........................... $ 0.05 $ 0.11 $ (0.11) $ 0.05
</TABLE>
22
<PAGE> 23
ZOLL MEDICAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
JANUARY 2, APRIL 3, JULY 3, OCTOBER 2,
1999 1999 1999 1999
---------- -------- ------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1999
Net sales......................................... $16,056 $17,941 $20,813 $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 0.22 0.35
Diluted earnings per common and equivalent
share........................................... 0.11 0.14 0.22 0.32
</TABLE>
23
<PAGE> 24
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions Charged
Balance Beginning to Costs and Balance At End of
Classifications of Period Expenses Deductions Period
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended October 2, 1999
Allowance for doubtful accounts Total $ 940,000 $1,294,000 $138,000 $2,096,000
===================================================================
Year Ended September 26, 1998
Allowance for doubtful accounts Total $1,209,000(a) $ 244,000 $513,000 $ 940,000
===================================================================
Year Ended September 27, 1997
Allowance for doubtful accounts Total $ 888,000 $ 361,000 $ 5,000 $1,244,000
===================================================================
</TABLE>
(a) Pinpoint Technologies, Inc.'s December 31 year-end was changed to conform
with ZOLL Medical Corporation's September 26, 1988 year-end.
24
