-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lhg+/2sFtKHLIJX86LXLYuq+K2sKDzwIVoafvPZtio91WNnCEh4R79WD8h8zhHcg XP8Qr+alCPZSnkji1A8fsw== 0000950135-98-004605.txt : 19980812 0000950135-98-004605.hdr.sgml : 19980812 ACCESSION NUMBER: 0000950135-98-004605 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980627 FILED AS OF DATE: 19980811 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZOLL MEDICAL CORPORATION CENTRAL INDEX KEY: 0000887568 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 042711626 STATE OF INCORPORATION: MA FISCAL YEAR END: 0928 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20225 FILM NUMBER: 98682213 BUSINESS ADDRESS: STREET 1: 32 SECOND AVENUE CITY: BURLINGTON STATE: MA ZIP: 01803-4420 BUSINESS PHONE: 6172290020 MAIL ADDRESS: STREET 1: 32 SECOND AVENUE CITY: BURLINGTON STATE: MA ZIP: 01803-4420 10-Q 1 ZOLL MEDICAL CORPORATION FORM 10-Q 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 MARCH 29, 1998 TO JUNE 27, 1998. or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from _____to_____. Commission file number 0-20225 ZOLL MEDICAL CORPORATION ------------------------ (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2711626 ------------- ---------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification number) 32 SECOND AVENUE, BURLINGTON, MA 01803-4420 - -------------------------------- ---------- (Address of principal executive offices) (Zip Code) (781) 229-0020 -------------- (Registrant's telephone number, including area code) NOT APPLICABLE -------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock: Class Outstanding at August 11, 1998 Common Stock, $.02 par value 6,191,659 This document consists of 13 pages. 2 2 ZOLL MEDICAL CORPORATION INDEX
Page No. PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements: Condensed Consolidated Balance Sheets (unaudited) June 27, 1998 and September 27, 1997 3 Condensed Consolidated Income Statements (unaudited) Three Months Ended June 27, 1998 and June 28, 1997 4 Condensed Consolidated Income Statements (unaudited) Nine Months Ended June 27, 1998 and June 28, 1997 5 Condensed Consolidated Statements of Cash Flows (unaudited) Nine Months Ended June 27, 1998 and June 28, 1997 6 Notes to Condensed Consolidated Financial Statements (unaudited) 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 10 ITEM 2. Changes in Securities 10 ITEM 3. Defaults Upon Senior Securities 11 ITEM 4. Submission of Matters to a Vote of Security-Holders 11 ITEM 5. Other Information 11 ITEM 6. Exhibits and Reports on Form 8-K 11 Signatures 12
3 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements ZOLL MEDICAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (Unaudited)
JUNE 27, SEPTEMBER 27, 1998 1997 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 9,990 $ 9,760 Investments - 278 Accounts receivable, less allowance of $865 at June 27, 1998; $1,207 at September 27, 1997 10,680 14,492 Inventories: Raw materials 4,202 2,632 Work-in-process 1,214 840 Finished goods 3,112 4,004 ------- ------- 8,528 7,476 Prepaid expenses and other current assets 1,990 2,056 ------- ------- Total current assets 31,188 34,062 Property and equipment, at cost: Land and building 1,029 1,023 Machinery and equipment 12,559 10,116 Tooling 1,612 1,646 Furniture and fixtures 676 659 Leasehold improvements 737 737 ------- ------- 16,613 14,181 Less accumulated depreciation 7,561 6,769 ------- ------- Net property and equipment 9,052 7,412 Other assets, net 2,734 2,736 ------- ------- $42,974 $44,210 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,318 $ 2,029 Accrued expenses and other liabilities 6,269 7,377 Current maturities of long-term debt 110 110 ------- ------- Total current liabilities 8,697 9,516 Deferred income taxes 103 103 Long-term debt 467 552 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, 6,192 issued and outstanding at June 27, 1998 and September 27, 1997. 124 124 Capital in excess of par value 20,642 20,642 Retained earnings 12,941 13,273 ------- ------- Total stockholders' equity 33,707 34,039 ------- ------- $42,974 $44,210 ======= =======
See notes to unaudited condensed consolidated financial statements. 4 4 ZOLL MEDICAL CORPORATION CONDENSED CONSOLIDATED INCOME STATEMENTS (in thousands, except per share amounts ) (Unaudited)
THREE MONTHS ENDED June 27, June 28, 1998 1997 ---- ---- Net sales $12,852 $12,434 Cost of goods sold 5,518 5,100 --------- -------- Gross profit 7,334 7,334 Expenses: Selling and marketing 5,340 4,710 General administrative 1,290 1,179 Research and development 1,973 1,381 --------- -------- Total expenses 8,603 7,270 --------- -------- Income (loss) from operations (1,269) 64 Investment income 119 113 Interest expense 13 15 --------- -------- Income (loss) before income taxes (1,163) 162 Provision (benefit) for income taxes (349) 55 --------- -------- Net income (loss) $ (814) $ 107 ========= ======== Basic earnings per share $ (0.13) $ 0.02 ========= ======== Weighted average common shares 6,192 6,192 Diluted earnings per common and common $ (0.13) $ 0.02 ========= ======== equivalent share Weighted average number of common and common equivalent shares outstanding 6,192 6,224
See notes to unaudited condensed consolidated financial statements. 5 5 ZOLL MEDICAL CORPORATION CONDENSED CONSOLIDATED INCOME STATEMENTS (in thousands, except per share amounts ) (Unaudited)
NINE MONTHS ENDED June 27, June 28, 1998 1997 ---- ---- Net sales $38,877 $40,654 Cost of goods sold 16,746 17,462 -------- -------- Gross profit 22,131 23,192 Expenses: Selling and marketing 13,998 13,345 General administrative 4,034 4,975 Research and development 4,899 4,897 -------- -------- Total expenses 22,931 23,217 -------- -------- Income (loss) from operations (800) (25) Investment income 363 317 Interest expense 38 46 -------- -------- Income (loss) before income taxes (475) 246 Provision (benefit) for income taxes (143) 84 -------- -------- Net income (loss) $ (332) $ 162 ======== ======== Basic earnings per share $ (0.05) $ 0.03 ======== ======== Weighted average common shares 6,192 6,185 Diluted earnings per common and common $ (0.05) $ 0.03 ========= ======= equivalent share Weighted average number of common and common equivalent shares outstanding 6,192 6,245
See notes to unaudited condensed consolidated financial statements. 6 6 ZOLL MEDICAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
NINE MONTHS ENDED JUNE 27, JUNE 28, 1998 1997 ---- ---- OPERATING ACTIVITIES: Net income (loss) $ (332) $ 162 Charges not affecting cash: Depreciation and amortization 1,164 1,075 Accounts receivable allowances (342) 75 Provision for warranty expense 74 211 In-process research and development - 1,000 Changes in assets and liabilities: Accounts receivable 4,154 4,087 Inventories (1,052) (2,779) Prepaid expenses and other current assets 66 (334) Accounts payable and accrued expenses (893) (1,014) ------- ------- Cash provided by operating activities 2,839 2,483 INVESTING ACTIVITIES: Additions to property and equipment, net (2,793) (1,072) Additions to marketable securities - (2,152) Redemption of marketable securities 278 2,575 Other assets (9) 104 ------- ------- Acquisition of assets from Westech Information Systems, Inc. - (558) ------- ------- Cash used for investing activities (2,524) (1,103) FINANCING ACTIVITIES: Exercise of stock options, including income tax benefit - 89 Repayment of long-term debt (85) (85) ------- ------- Cash provided by (used for) financing activities (85) 4 ------- ------- Net increase in cash 230 1,384 Cash and cash equivalents at beginning of year 9,760 4,962 ------- ------- Cash and cash equivalents at end of period $ 9,990 $ 6,346 ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year: Income taxes $ 1,002 $ 551 Interest 38 47
See notes to unaudited condensed consolidated financial statements. 7 7 ZOLL MEDICAL CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 27, 1998 1. The Balance Sheet as of June 27, 1998, the Statements of Income for the three months and nine months ended June 27, 1998 and June 28, 1997, and the Statements of Cash Flows for the nine months ended June 27, 1998 and June 28, 1997 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 November 6, 1996 the Company purchased the assets of the mobile computing business of Westech Information Systems, Inc. for approximately $1,500,000 in cash, payable in three equal installments through September 1997. The purchase price was primarily attributable to software development and other intangible assets. Goodwill associated with the purchase will be amortized on a straight line basis over 15 years. In addition, the Company incurred a charge of approximately $1,000,000 during the quarter ending December 28, 1996 for the purchase of in process technology. 3. 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. This settlement is subject to court approval and the Company anticipates that there will be no financial impact as a result of the settlement. 4. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130 (FAS 130), "Reporting Comprehensive Income" and Statement No. 131 (FAS 131) "Disclosures About Segments of an Enterprise and Related Information." FAS 130 establishes standards for the reporting and display of comprehensive income and its components. FAS 131 establishes standards for the way that public companies report information about operating segments in financial statements. This Statement supersedes Statement No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains the requirements to report information about major customers. The Statements are effective for fiscal years beginning after December 15, 1997. The Company does not believe that the adoption of these Statements will have a material effect on the Company's financial statements. 5. In 1998, Zoll adopted FAS 128 "Earnings per Share". FAS 128 requires the company to present basic and diluted earnings per share amounts. All periods presented have been restated. 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 on Form 10-K for the year ended September 27, 1997 filed with the Securities and Exchange Commission. 8 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 27, 1998 -------------------------------- COMPARED TO THREE MONTHS ENDED JUNE 28, 1997 -------------------------------------------- The Company's net sales increased to $12,852,000 for the three months ended June 27, 1998 from $12,434,000 for the three months ended June 28, 1997. The increase was attributable to a 4% increase in the domestic sales to hospital and pre-hospital markets and a 6% increase in disposable electrode sales. Selling and marketing expenses increased as a percentage of sales to 42% from 38%. Selling and marketing expenses increased 13% to $5,340,000 from $4,710,000. Of this increase, approximately $400,000 was due to the realignment of the sales force and $200,000 was due to increased commissions and recruiting expenditures due to higher staffing levels. General and administrative expenses remained unchanged as a percentage of sales at 10%. General and administrative expenses increased 9% to $1,290,000 from $1,179,000 due to increased travel expenses, the acquisition of Westech Information Systems, Inc. and contributions made into the Company's 401(k) plan. This increase was partially offset by a decline in insurance and professional services. Research and development expenses increased as a percentage of sales to 15% from 11%. Research and development expenses increased 43% to $1,973,000 from $1,381,000 due to research and development and introduction expenses relating to the M-Series product release. NINE MONTHS ENDED JUNE 27, 1998 ------------------------------- COMPARED TO NINE MONTHS ENDED JUNE 28, 1997 ------------------------------------------- The Company's net sales decreased to $38,877,000 for the nine months ended June 27, 1998 from $40,654,000 for the nine months ended June 28, 1997. The decrease was attributable to a 14% decrease in sales to the international markets and a 6% decrease in the domestic sales to hospital and pre-hospital markets, offset in part by an 8% increase in disposable electrode sales. Selling and marketing expenses increased as a percentage of sales to 36% from 33%. Selling and marketing expenses increased 5% to $13,998,000 from $13,345,000 due to increased payroll and commissions because of higher staffing levels. This increase was partially offset by a decline in outside consulting services. General and administrative expenses decreased as a percentage of sales to 10% from 12%. General and administrative expenses decreased 19% to $4,034,000 from $4,975,000. The decrease was due to a one-time charge of $1,300,000 in December 1996 related to the estimated cost of proceeding to trial in a class action shareholder lawsuit that was initiated in 1994. This decrease was partially offset by an increase in professional services and contributions into the Company's 401(k) plan. Research and development expenses increased as a percentage of sales to 13% from 12%. Research and development expenses increased slightly to $4,899,000 from $4,897,000. In 1996 a charge of $1,000,000 was incurred for the value of in-process research and development acquired in the purchase of Westech. Absent this charge, the Company's research and development expenses increased $1,002,000. Of this increase, $811,000 was applicable to new product development and $231,000 was due to increased salaries and wages. 9 9 LIQUIDITY AND CAPITAL RESOURCES The Company's cash and marketable securities at June 27, 1998 was $9,990,000 compared with $10,038,000 at September 27, 1997, a decrease of $48,000. Cash provided by operating activities for the nine months ended June 27, 1998 was $356,000 more than the same period in 1997. This increase was attributable to increases to accrued expenses and a reduction of inventory. The amount of cash used to fund investing activities increased by $1,421,000 in the nine months ended June 27, 1998 compared to the same period in 1997. This increase was primarily due to additions to property and equipment. The amount of cash provided by financing activities decreased by $81,000 for the nine months ended June 27, 1998 compared to the same period in 1997 due to the decrease in the exercise of stock options. The Company maintains a working capital line of credit with its bank. Under this working capital line, the Company may borrow up to $3,000,000 on a demand basis. Borrowings under this line bear interest at the bank's base rate. The full amount of the line was available to the Company at June 27, 1998 The Company expects that the combination of the existing cash balances, cash generated from operations and its existing line of credit will be adequate to meet its liquidity and capital requirements for the foreseeable future. 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, and the effect of the Company's accounting policies. 10 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings. In the course of normal operations the Company is involved in litigation arising from commercial disputes and claims of former employees which management believes will not have a material impact on the Company's financial position or its results of operations. The Company has announced an agreement in principle concerning settlement of a shareholder class action lawsuit filed against it and certain officers in 1994. This settlement is subject to court approval and the Company anticipates that there will be no financial impact as a result of the settlement. On August 3, 1998, Elliot Associates, L.P. and Westgate International, L.P. (the "Plaintiffs") filed a complaint in the United States District Court, District of Massachusetts, against the Company and each of its directors. The complaint primarily seeks an order by the court (i) barring the Company from declaring the Plaintiffs "Adverse Persons" under the Shareholder Rights Plan described in Item 2 below; (ii) barring the Company from advancing the date of its 1999 annual meeting; and (iii) requiring the Company to provide the Plaintiffs with a list of the Company's stockholders. The Company is currently reviewing the complaint and will respond appropriately. Item 2. Changes in Securities. 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 on June 9, 1998. Initially, these rights will not be exercisable and will trade with the shares of ZOLL's common stock. Under the Shareholder Rights Plan, the rights generally become exercisable if a person becomes an "acquiring person" by acquiring 15% or more of the common stock of ZOLL, if a person who owns 10% or more of the common stock of ZOLL is determined to be an "adverse person" by the Board of Directors, or if a person commences a tender offer that would result in that person owning 15% or more of the common stock of ZOLL. Under the Shareholder Rights Plan, a shareholder of ZOLL who beneficially owns 15% or more of the Company's common stock as of 12:01 AM, Boston time, on June 8, 1998 generally will be deemed an "acquiring person" if such shareholder acquires additional shares of the Company's common stock. In the event that a person becomes an "acquiring person" or is declared an "adverse person" by the Board, each holder of a right (other than the acquiring person or the adverse person) would be entitled to acquire such number of shares of preferred stock which are equivalent to ZOLL common stock having a value of twice the then-current exercise price of the right. If ZOLL is acquired in a merger or other business combination transaction after any such event, each holder of a right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring company's common stock having a value twice the exercise price of the right. 11 11 Item 3. Defaults Upon Senior Securities. Not Applicable. Item 4. Submission of Matters to a Vote of Security-Holders. Not Applicable. Item 5. Other Information. Not Applicable. Item 6. Exhibits and reports on Form 8-K (a) Exhibits Not Applicable (b) Reports on Form 8-K. During the quarter for which this report is filed, the following Form 8-K was filed: On June 11, 1998, Item 5, Other Events. The Board of Directors of the Company Adopted a Shareholder Rights Agreement. 12 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on August 11, 1998. ZOLL MEDICAL CORPORATION (Registrant) Date: August 11, 1998 By: /s/ Rolf S. Stutz --------------------- Rolf S. Stutz, Chairman and Chief Executive Officer (Principal Executive Officer) Date: August 11, 1998 By: /s/ William J. Knight ------------------------ William J. Knight, Chief Financial Officer (Principal Financial and Accounting Officer) EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS SEP-26-1998 SEP-28-1997 JUN-27-1998 9,990 0 10,680 865 8,528 31,188 16,613 7,561 42,974 8,697 467 0 0 124 33,583 42,974 38,877 38,877 16,746 16,746 22,931 (342) 38 (475) (143) (332) 0 0 0 (332) (.05) (.05)
-----END PRIVACY-ENHANCED MESSAGE-----