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 quarterly period ended December 28, 2008.

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 of incorporation or organization)	(IRS Employer Identification No.)

269 Mill Road, Chelmsford, MA	01824-4105
(Address of principal executive offices)	(Zip Code)

(978) 421-9655

(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 by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer  ¨	Accelerated filer  x	Non-accelerated filer  ¨	Smaller reporting company  ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

Class	Outstanding at February 2, 2009
Common Stock, $0.01 par value	21,082,855

This document consists of 43 pages.

ZOLL MEDICAL CORPORATION

FORM 10-Q

INDEX

		Page No.
PART I.	FINANCIAL INFORMATION
ITEM 1.	Financial Statements:
	Condensed Consolidated Balance Sheets (unaudited) December 28, 2008 and September 28, 2008	3
	Condensed Consolidated Income Statements (unaudited) Three Months Ended December 28, 2008 and December 30, 2007	4
	Condensed Consolidated Statements of Cash Flows (unaudited) Three Months Ended December 28, 2008 and December 30, 2007	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	37
ITEM 4.	Controls and Procedures	37
PART II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings	38
ITEM 1A.	Risk Factors	38
ITEM 5.	Other Information	38
ITEM 6.	Exhibits	39
	Signatures	41

Forward-Looking Information

Except for historical information, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements that involve risks and uncertainties. ZOLL Medical Corporation (the “Company,” “we,” “our,” or “us”) makes such forward-looking statements under the provisions of the “Safe Harbor” section of the Private Securities Litigation Reform Act of 1995. Actual future results may vary materially from those projected, anticipated, or indicated in any forward-looking statements as a result of certain risk factors. Readers should pay particular attention to the considerations described in Part I, Item 2 of this report under the section of Management’s Discussion and Analysis of Financial Condition and Results of Operations entitled “Risk Factors.” Readers should also carefully review the risk factors described in the other documents that we file from time to time with the Securities and Exchange Commission (“SEC”). In this report, the words “anticipates,” “believes,” “expects,” “intends,” “future,” “could,” and similar words or expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward-looking statements. The Company assumes no obligation to update forward-looking statements or update the reasons why actual results, performances or achievements could differ materially from those provided in the forward-looking statements.

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ZOLL MEDICAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(000’s omitted, except per share data)

(Unaudited)

	December 28, 2008			September 28, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	43,552		$	36,675
Short-term marketable securities		22,391			32,597
Accounts receivable, less allowance of $6,410 at December 28, 2008 and $6,229 at September 28, 2008		77,637			84,423
Inventories:
Raw materials		26,149			24,682
Work-in-process		7,217			6,568
Finished goods		29,022			29,773
		62,388			61,023
Prepaid expenses and other current assets		12,484			12,313
Total current assets		218,452			227,031
Property and equipment, at cost:
Land, building and building improvements		1,289			1,271
Machinery and equipment		83,013			79,101
Construction in progress		1,059			1,569
Tooling		16,682			16,463
Furniture and fixtures		3,845			3,957
Leasehold improvements		5,322			5,372
		111,210			107,733
Less: accumulated depreciation		76,054			73,779
Net property and equipment		35,156			33,954
Investments		1,310			1,310
Notes receivable		3,048			3,581
Long-term marketable securities		1,604			1,772
Goodwill		41,811			42,146
Patents and developed technology, net		20,515			20,951
Intangibles and other assets, net		17,563			15,275
	$	339,459		$	346,020
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	19,109		$	17,539
Deferred revenue		26,435			25,771
Accrued expenses and other liabilities		22,017			31,931
Total current liabilities		67,561			75,241
Non-Current liabilities:
Other long-term liabilities		2,921			2,921
Total liabilities		70,482			78,162
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 1,000 shares authorized, none issued or outstanding; Common stock, $0.01 par value, 38,000 shares authorized, 21,021 and 21,018 issued and outstanding at December 28, 2008 and September 28, 2008, respectively		210			210
Capital in excess of par value		156,407			155,547
Accumulated other comprehensive loss		(10,228	)		(7,593	)
Retained earnings		122,588			119,694
Total stockholders’ equity		268,977			267,858
	$	339,459		$	346,020

See notes to unaudited condensed consolidated financial statements.

3

CONDENSED CONSOLIDATED INCOME STATEMENTS

(000’s omitted, except per share data)

(Unaudited)

	Three Months Ended
	December 28, 2008			December 30, 2007
Net sales	$	89,462		$	93,015
Cost of goods sold		42,549			47,870
Gross profit		46,913			45,145
Expenses:
Selling and marketing		26,549			25,128
General and administrative		7,633			7,610
Research and development		7,969			7,832
Total expenses		42,151			40,570
Income from operations		4,762			4,575
Investment and other income (loss), net		(869	)		393
Income before income taxes		3,893			4,968
Provision for income taxes		999			1,788
Net income	$	2,894		$	3,180
Basic earnings per common share	$	0.14		$	0.15
Weighted average common shares outstanding		21,061			20,712
Diluted earnings per common and common equivalent share	$	0.14		$	0.15
Weighted average common and common equivalent shares outstanding		21,304			21,081

See notes to unaudited condensed consolidated financial statements.

4

ZOLL MEDICAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(000’s omitted)

(Unaudited)

	Three Months Ended
	December 28, 2008			December 30, 2007
OPERATING ACTIVITIES:
Net income	$	2,894		$	3,180
Charges not affecting cash:
Depreciation and amortization		3,941			4,088
Stock-based compensation expense		816			592
Changes in current assets and liabilities:
Accounts receivable		4,910			(281	)
Inventories		(1,216	)		(1,341	)
Prepaid expenses and other current assets		(236	)		(31	)
Accounts payable and accrued expenses		(256	)		103
Cash provided by operating activities		10,853			6,310
INVESTING ACTIVITIES:
Purchases of marketable securities		(6,771	)		(4,972	)
Sales of marketable securities		16,939			4,083
Additions to property and equipment		(3,740	)		(5,458	)
Payment for acquisitions, net of cash acquired		(2,945	)		—
Milestone payments related to prior years’ acquisitions		(4,500	)		(6,816	)
Other assets, net		(240	)		(631	)
Cash used for investing activities		(1,257	)		(13,794	)
FINANCING ACTIVITIES:
Exercise of stock options		44			251
Cash provided by financing activities		44			251
Effect of exchange rates on cash and cash equivalents		(2,763	)		(98	)
Net increase (decrease) in cash and cash equivalents		6,877			(7,331	)
Cash and cash equivalents at beginning of period		36,675			37,631
Cash and cash equivalents at end of period	$	43,552		$	30,300
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period:
Income taxes	$	424		$	815
Non-cash activity during the period:
Common stock issued at fair value for acquisition of Revivant	$	—		$	5,756

See notes to unaudited condensed consolidated financial statements.

5

ZOLL MEDICAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only of adjustments of a normal recurring nature) considered necessary for a fair presentation have been included. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Examples include provisions for returns, bad debts and the estimated lives of fixed assets. Actual results may differ from these estimates. The results for the interim periods are not necessarily indicative of results to be expected for the entire year. The information contained in the interim financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended September 28, 2008 included in its Annual Report on Form 10-K filed with the SEC on December 8, 2008.

2. Segment and Geographic Information

Segment information: The Company operates in a single business segment: the design, manufacture and marketing of a range of non-invasive resuscitation devices and software solutions. These devices and software solutions help healthcare professionals, emergency medical service providers, and first responders diagnose and treat victims of trauma, as well as sudden cardiac arrest. In order to make operating and strategic decisions, the Company’s chief executive officer (the “chief operating decision maker”) evaluates revenue performance based on the worldwide revenues of four customer/product categories, but, due to shared infrastructures, profitability is based on an enterprise-wide measure. These customer/product categories consist of (1) the sale of resuscitation devices and accessories to the North American hospital market, including the military marketplace, (2) the sale/lease/rental of resuscitation devices, accessories and data collection management software to the North American pre-hospital market, (3) the sale of disposable/other products in North America, and (4) the sale/lease/rental of resuscitation devices, accessories, disposable electrodes and data collection management software to the international market.

Net sales by customer/product categories were as follows:

	Three Months Ended
(000’s omitted)	December 28, 2008		December 30, 2007
Hospital Market - North America	$	20,288	$	33,217
Pre-hospital Market - North America		39,110		32,457
Other - North America		6,291		5,256
International Market		23,773		22,085
	$	89,462	$	93,015

The Company reports assets on a consolidated basis to the chief operating decision maker.

Geographic information: Net sales by major geographical area, determined on the basis of destination of the goods, are as follows:

	Three Months Ended
(000’s omitted)	December 28, 2008		December 30, 2007
United States	$	60,253	$	68,338
Foreign		29,209		24,677
	$	89,462	$	93,015

6

No individual foreign country represented 10% or more of our revenues for the three months ended December 28, 2008 or December 30, 2007, respectively.

3. Comprehensive Income

The Company computes comprehensive income in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 130 (“SFAS 130”) “Reporting Comprehensive Income.” SFAS 130 establishes standards for the reporting and display of comprehensive income and its components in financial statements. Other comprehensive income, as defined, includes all changes in equity during a period from non-owner sources, such as unrealized gains and losses on available-for-sale securities, and foreign currency translation. Total comprehensive income for the three months ended December 28, 2008 and December 30, 2007, respectively, was as follows:

	Three Months Ended
(000’s omitted)	December 28, 2008			December 30, 2007
Net income	$	2,894		$	3,180
Unrealized loss on available-for-sales securities		(38	)		(16	)
Foreign currency translation adjustment		(2,597	)		(886	)
Total comprehensive income	$	259		$	2,278

4. Stock Option Plans

At December 28, 2008, the Company had two active stock-based compensation plans under which stock-based grants may be issued, and two other stock-based compensation plans under which grants are no longer being made. No further grants are being made under the Company’s 1992 Stock Option Plan (“1992 Plan”) and 1996 Non-Employee Directors’ Stock Option Plan (“1996 Plan”), but option grants remain outstanding under both plans. The Company’s active plans are the Amended and Restated 2001 Stock Incentive Plan (“2001 Plan”) and the Amended and Restated 2006 Non-Employee Director Stock Option Plan (“2006 Plan”).

On November 11, 2008, the Board of Directors adopted certain amendments to the 2001 Plan and 2006 Plan and recommended that the Company’s stockholders approve an additional 730,000 shares of Common Stock available for issuance under the 2001 Plan (for a total of 3,250,000 shares), and an additional 35,000 shares of Common Stock available for issuance under the 2006 Plan (for a total of 157,500 shares.) At the 2009 Annual Meeting of Stockholders held on January 20, 2009, the Company’s stockholders approved these increases. Under the 2001 Plan, no more than 150,000 of the authorized shares may be issued in the form of restricted stock awards, and the balance may be issued in the form of stock option awards. Only stock option awards can be issued under the 2006 Plan.

Stock options outstanding under the 1992 Plan, the 1996 Plan, the 2001 Plan, and the 2006 Plan generally vest over a four-year period and have exercise prices equal to the fair market value of the Common Stock at the date of grant. All options have a 10-year term. All options issued under the 2001 Plan and 2006 Plan must have an exercise price no less than fair market value on the date of grant. Restricted Common Stock grants made under the 2001 Plan will generally vest over a four-year period.

The Company adopted the provisions of SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”), beginning October 3, 2005, using the modified prospective transition method. SFAS 123R requires the Company to measure the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize cost over the requisite service period. Under the modified prospective transition method, financial statements for periods prior to the date of adoption are not adjusted for the change in accounting. However, compensation expense is recognized for (a) all share-based payments granted after the effective date under SFAS 123R, and (b) all awards granted under SFAS 123 to employees prior to the effective date that remain unvested on the effective date. The Company recognizes compensation expense on fixed awards with pro rata vesting on a straight-line basis over the vesting period.

7

Stock-based compensation charges totaled approximately $816,000 during the three months ended December 28, 2008 and totaled approximately $592,000 during the three months ended December 30, 2007. The effect of recording stock-based compensation by line item for the three months ended December 28, 2008 and December 30, 2007 was as follows:

	Three Months Ended
(000’s omitted)	December 28, 2008		December 30, 2007
Cost of goods sold	$	75	$	41
Selling and marketing expense		197		153
General and administrative expense		421		292
Research and development expense		123		106
Total stock-based compensation	$	816	$	592

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions for the three months ended December 28, 2008 and December 30, 2007:

	2009		2008
Dividend yield	0	%	0	%
Expected volatility	46.1	%	47.0	%
Risk-free interest rate	2.54	%	3.17	%
Expected lives (years)	5.13		6.25

At December 28, 2008, there was approximately $8.2 million of unrecognized compensation cost related to non-vested awards, which we expect to recognize over a weighted-average period of 2.75 years.

The weighted-average, grant-date fair value of options granted (estimated using the Black-Scholes option-pricing model) was $9.63 and $11.46 for the three months ended December 28, 2008 and December 30, 2007, respectively. During the three months ended December 28, 2008, the Company issued 3,102 shares of Common Stock pursuant to exercised options for proceeds of approximately $44,000. Total intrinsic value of options exercised for the three months ended December 28, 2008 and December 30, 2007 was approximately $17,000 and $107,000, respectively. It is the Company’s policy to issue new shares upon the exercise of options.

The following table summarizes the status of outstanding stock options as of December 28, 2008, as well as changes during the three months ended December 28, 2008:

	Shares		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term in Years	Aggregate Intrinsic Value ($000’s)
Outstanding at September 28, 2008	1,901,819		$	18.42
Granted	240,000			22.05
Exercised	(3,102	)		14.31
Forfeited	(750	)		11.88
Outstanding at December 28, 2008	2,137,967		$	18.83	6.25	$	3,502
Exercisable at December 28, 2008	1,270,075		$	17.12	4.60	$	2,660

The following table summarizes the status of unvested restricted stock awards as of December 28, 2008, as well as changes during the three months ended December 28, 2008:

	Shares		Weighted-Average Fair Value
Unvested at September 28, 2008	42,500		$	21.23
Granted	—			—
Vested	—			—
Forfeited	(519	)		27.07
Unvested at December 28, 2008	41,981		$	21.15

8

5. Earnings per Share

The shares used for calculating basic earnings per share of Common Stock were the weighted average shares of Common Stock outstanding during the period, and the shares used for calculating diluted earnings per share of Common Stock were the weighted average shares of Common Stock outstanding during the period plus the dilutive effect of stock options and unvested restricted stock.

	Three Months Ended
(000’s omitted)	December 28, 2008	December 30, 2007
Average shares outstanding for basic earnings per share	21,061	20,712
Dilutive effect of stock options	243	369
Average shares outstanding for diluted earnings per share	21,304	21,081

Average shares outstanding for diluted earnings per share for the three months ended December 28, 2008 and December 30, 2007 does not include options to purchase 1,042,000 and 686,000 shares of Common Stock, respectively, as their effect would have been antidilutive.

6. Derivative Instruments and Hedging Activities

The Company operates globally, and its earnings and cash flows are exposed to market risk from changes in currency exchange rates. The Company addresses these risks through a risk management program that includes the use of derivative financial instruments. The program is operated pursuant to documented corporate risk management policies. The Company does not typically enter into derivative transactions for speculative purposes.

The Company uses foreign currency forward contracts to manage its currency transaction exposures with intercompany receivables denominated in foreign currencies. These currency forward contracts are not designated as cash flow, fair value or net investment hedges under SFAS No. 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities” and, therefore, are marked to market with changes in fair value recorded to earnings. These derivative instruments do not subject the Company’s earnings or cash flows to material risk since gains and losses on those derivatives offset losses and gains on the assets and liabilities being hedged.

The Company had two foreign currency forward contracts outstanding at December 28, 2008, serving to mitigate the foreign currency risk of a substantial portion of the Company’s Euro-denominated intercompany balances, in the total notional amount of approximately 10.5 million Euros. The net settlement amount of these two contracts on December 28, 2008, is an unrealized gain of approximately $61,000, which is included in earnings within “investment and other income (loss), net.” The Company had a net realized gain of $1.6 million from foreign currency forward contracts during the quarter ended December 28, 2008, compared to net realized losses of $212,000 for the prior year’s quarter. Both amounts are included in the consolidated income statement within “investment and other income (loss), net.”

During the quarter ended December 28, 2008, the Company had contracts outstanding totaling $3.9 million to serve as a hedge of forecasted sales to the Company’s subsidiaries maturing prior to the end of the quarter. Because these derivatives did not qualify for hedge accounting in accordance with SFAS 133, the Company subsequently entered into offsetting derivatives, totaling $3.9 million. All of the contracts were marked to market with changes in fair value recorded in earnings. All of these contracts matured prior to December 28, 2008. The Company had a net realized loss of approximately $29,000 from these contracts for the quarter ended December 28, 2008, as compared to a net realized loss of approximately $122,000 for the quarter ended December 30, 2007, and these net realized losses were recorded in “investment and other income (loss), net” in the consolidated statement of income.

9

7. Product Warranties

The Company typically offers one-year or five-year product warranties for most of its products. The Company provides for the estimated cost of product warranties at the time product revenue is recognized. Factors that affect the Company’s warranty reserves include the number of units sold, historical and anticipated rates of warranty repairs and the cost per repair. The Company periodically assesses the adequacy of the warranty reserve and adjusts the amount as necessary.

Product warranty activity for the three months ended December 28, 2008 and December 30, 2007 is as follows:

(000’s omitted)	Beginning Balance		Accruals for Warranties Issued During the Period		Decrease to Pre-existing Warranties		Ending Balance
December 28, 2008	$	3,733	$	498	$	496	$	3,735
December 30, 2007	$	3,328	$	521	$	458	$	3,391

8. Acquisitions

Strategic Alliance with Welch Allyn

In October 2008, the Company announced a strategic alliance with Welch Allyn involving research and development, manufacturing, sales, service, and distribution related to Welch Allyn’s defibrillator and monitoring products. During the quarter, the Company paid approximately $2.9 million for the purchase of assets related to the Welch Allyn defibrillator products. The Company anticipates that the remaining elements of the strategic alliance will be implemented over the next several months in accordance with the transition plan. Total consideration for all assets to be acquired could approximate $6 million.

Contingent Consideration for Prior Period Acquisitions

The terms of the March 2004 acquisition of the assets of Infusion Dynamics, Inc. (“Infusion Dynamics”) and the April 2006 acquisition of the assets of Lifecor, Inc. (“Lifecor”), provide for possible annual earn-out payments based upon revenue growth over a multi-year period. Such payments may be due with respect to Infusion Dynamics and Lifecor through fiscal 2011. Because the prospective earn-out payments for Infusion Dynamics and Lifecor will be based upon revenue growth over several years, a reasonable estimate of the future payment obligations could not be determined. The annual earn-out payments will be recorded as an additional cost of the purchase and recorded as goodwill if the revenue growth specified in the respective acquisition agreements is achieved and becomes payable.

For fiscal 2008, approximately $19,000 was paid to the former shareholders of Infusion Dynamics. The annual earn-out payment to former shareholders of Infusion Dynamics, in the form of cash, for fiscal 2007 was approximately $11,000. For fiscal 2008, $4.5 million was paid to the former shareholders of Lifecor. The annual earn-out payment, in the form of cash, to the former shareholders of Lifecor for fiscal 2007 was approximately $3.2 million. Annual earn-out payments are accrued during the respective fiscal year in which they are earned and are paid in the respective subsequent fiscal year.

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9. Intangibles and Other Assets

Intangibles and other assets consist of:

(000’s omitted)	Weighted Average Life	December 28, 2008				September 28, 2008
		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Patents and developed technology	12 years	$	29,072	$	8,557	$	28,855	$	7,904
Prepaid license fees	17 years		11,433		3,207		11,426		3,072
Customer-related intangibles	10 years		4,750		1,252		4,750		1,137
Intangible assets not subject to amortization	—		890		—		890		—
Other assets	—		7,464		2,515		4,767		2,349
		$	53,609	$	15,531	$	50,688	$	14,462

Amortization of acquired intangibles for the three months ended December 28, 2008 and December 30, 2007 was approximately $813,000 and $728,000, respectively, and is included in operating expenses in the consolidated income statement.

10. Income Taxes

The Company’s effective tax rate for the three months ended December 28, 2008 was 26% as compared to the effective tax rate of 36% for the three months ended December 30, 2007. The difference in the effective tax rate is due to the fact that the U.S. Congress extended a research and development tax credit, retroactive from January 1, 2008, during the first quarter of fiscal 2009. A full-year tax credit estimate is included in the Company’s fiscal 2009 rate calculation along with a discrete period adjustment of approximately $400,000 recognized during the first quarter of fiscal 2009 to record the tax credit related to the retroactive application of the credit extension. The comparable prior-year period rate only contained one quarter of a full-year credit in the annual rate calculation. The Company currently estimates that its fiscal 2009 effective tax rate will be approximately 35%.

Effective October 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). As a result of the implementation of FIN 48, the Company recognized an increase of approximately $374,000 as a liability for unrecognized tax benefits. All of this increase was reflected as a reduction to the October 1, 2007 balance of retained earnings.

As of December 28, 2008 and September 28, 2008, the Company had $3.3 million of gross unrecognized tax benefits which, if recognized, could impact goodwill and/or the effective tax rate. Of the $3.3 million current-year balance, $1.2 million is expected to reverse in fiscal 2009. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense in the consolidated statements of income. As of December 28, 2008 and September 28, 2008, the Company had $480,000 of accrued interest and penalties in income taxes payable.

The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has concluded all U.S. federal and most state and foreign income tax matters through fiscal 2004. The Company does not currently have any income tax audits in progress and, therefore, foresees little change in the current reserve for uncertain tax positions in the next twelve months.

11. Fair Value Measurements

Effective September 29, 2008, SFAS No. 157, “Fair Value Measurement,” (“SFAS 157”) was implemented for financial assets and liabilities that are re-measured and reported at fair value at each reporting period-end date, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. In accordance with the provisions of FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157”, the Company has elected to defer implementation of SFAS 157 as it relates to any non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis until fiscal 2010. The Company is evaluating the impact, if any, SFAS 157 will have on its non-financial assets and liabilities. The adoption of SFAS 157 in relation to financial assets and liabilities and non-financial assets and liabilities that are re-measured and reported at fair value at least annually did not have a material impact on the Company’s financial results.

11

Financial assets and liabilities recorded on the accompanying condensed consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1 - Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the company has the ability to access at the measurement date (examples include active exchange-traded equity securities, listed derivatives and most U.S. Government and agency securities).

Level 2 - Financial assets and liabilities whose values are based on quoted prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. Level 2 inputs include the following:

• Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds which trade infrequently);

• Inputs other than quoted prices that are observable for substantially the full term of the asset or liability (examples include interest rate and currency swaps); and

• Inputs that are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability (examples include certain securities and derivatives).

Level 3 - Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability. We currently do not have any Level 3 financial assets or liabilities.

The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of December 28, 2008, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value (in thousands):

(000’s omitted)	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	11,338	$	11,338	$	—	$	—
Available for sale securities (1)		23,995		18,106		5,889		—
Total	$	35,333	$	29,444	$	5,889	$	—

(1) Included in short-term marketable securities and long-term marketable securities in the accompanying condensed, consolidated balance sheet.

There were no financial liabilities measured at fair value as of December 28, 2008, and there were no changes in the Company’s valuation techniques used to measure fair values on a recurring basis as a result of partially adopting SFAS 157.

The Company also adopted SFAS No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115,” during the first quarter of fiscal 2009. SFAS 159 allows companies to choose to measure eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. SFAS 159 requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings at each reporting date. The Company adopted SFAS 159 but has not elected the fair value option for any eligible financial instruments as of December 28, 2008.

12. Legal Proceedings

The Company is, from time to time, involved in the normal course of its business in various legal proceedings, including intellectual property, contract, employment and product liability suits. Although the Company is unable to quantify the exact financial impact of any of these matters, it believes that none of the currently pending matters will have an outcome material to its financial condition or business.

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13. Marketable Securities

During fiscal 2008, the Company reclassified approximately $2 million of its marketable securities from current assets to non-current assets due to the recent illiquidity in the auction-rate securities market. The underlying assets of these investments are student loans that are backed by the federal government. During fiscal 2008, auctions failed for the auction rate securities. As a result, the Company’s ability to liquidate and fully recover the carrying value of the auction rate securities in the near term may be limited. An auction failure means that the parties wishing to sell the securities could not do so. The Company’s auction rate securities are currently rated AAA. The Company recorded a $100,000 impairment charge in fiscal 2008 on these securities based on valuation models. Subsequently, the Company entered into a Rights Agreement with UBS Financial Services, Inc. (“UBS”), through which these securities were acquired. The Rights Agreement entitles the Company to sell these securities to UBS at any time between June 30, 2010 and July 2, 2012 for par value. The Company will continue to receive interest payments based on the default provisions in the instruments until the securities are sold on the market or sold to UBS during the period established by the Rights Agreement. If the Company does not exercise its right to sell the auction rate securities to UBS by July 2, 2012, they will expire and UBS will have no further obligation to the Company. The Rights Agreement releases UBS from all claims related to the securities except consequential damages. UBS has the right to purchase the auction rate securities at par value, without prior notice, from the Company at any time after the acceptance date. The Company believes these securities are not materially impaired, primarily due to the government guarantee of the underlying securities and also because of the agreement by UBS to purchase, at the Company’s option, from June 30, 2010 to July 2, 2012, the auction rate securities that the Company originally acquired from UBS.

At the end of fiscal 2008, the Company also held approximately $600,000 of marketable mortgage-backed securities. In fiscal 2008, the Company recorded a $100,000 impairment charge on these securities based on valuation models. During the quarter ended December 28, 2008, the Company sold the majority of its marketable mortgage-backed securities for a net realized loss of $89,000 in addition to the impairment charge recorded in fiscal 2008.

14. Recent Accounting Pronouncements

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP No. 142-3”). FSP No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The objective of FSP No. 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(revised 2007), “Business Combinations,” (“SFAS 141(R)”), and other accounting principles generally accepted in the United States. FSP No. 142-3 applies to all intangible assets, whether acquired in a business combination or otherwise, and shall be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years and should be applied prospectively to intangible assets acquired after the effective date. Early adoption is prohibited. The Company is in the process of evaluating FSP No. 142-3 and does not expect it to have a significant impact on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. SFAS 161 also requires entities to disclose additional information about the amounts and location of derivatives within the financial statements, how the provisions of SFAS 133 have been applied, and the impact that hedges have on an entity’s financial position, financial performance and cash flows. SFAS 161 will be effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company believes that this new pronouncement will have an immaterial impact on the Company’s financial statements in future periods.

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In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective as of the beginning of the Company’s fiscal year beginning after December 15, 2008. The Company believes that this new pronouncement will have an immaterial impact on the Company’s financial statements in future periods as they relate to transactions executed prior to adoption. With respect to potential transactions that may be executed subsequent to adoption, the accounting consequences could be materially different than under the current accounting rules.

In December 2007, the FASB issued SFAS No. 141 (R), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective as of the beginning of the Company’s fiscal year beginning after December 15, 2008. SFAS 141R will be adopted on a prospective basis for new acquisitions subsequent to the effective date. With respect to potential transactions that may be executed subsequent to adoption, the accounting consequences could be materially different than under the current accounting rules.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We are committed to developing technologies that help advance the practice of resuscitation. With products for pacing, defibrillation, circulation, ventilation, and fluid resuscitation, we provide a comprehensive set of technologies that can help clinicians, EMS professionals, and lay rescuers resuscitate sudden cardiac arrest or trauma victims. We also design and market software that automates the documentation and management of both clinical and non-clinical information.

We intend for this discussion and analysis to provide you with information that will assist you in understanding our consolidated financial statements. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. This discussion and analysis should be read in conjunction with our consolidated financial statements as of December 28, 2008 for the three months then ended, and the notes thereto.

Sales for the three months ended December 28, 2008 decreased 4%, as compared to the comparable period in the prior year. There were multiple factors affecting our results this quarter which include, in no particular order, (1) the absence of any single transaction comparable in size to the contract with the State of California last year, (2) the strengthening of the US dollar, and (3) an increasingly challenging capital equipment spending environment in North America. The slowdown in capital equipment sales in the North American market was somewhat offset by increased revenues from our LifeVest^® and AutoPulse^® products, as well as by our overall international business.

With respect to the strengthening US dollar, foreign exchange fluctuations had a negative impact on total revenues of approximately $3 million as compared to the prior year and approximately $2 million on our operating income. Of the $3 million impact on revenue, approximately $1 million related to the Canadian dollar within our North American operations with the remaining $2 million within our International operations related to the British Pound, Australian Dollar, and Euro.

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Three Months Ended December 28, 2008 Compared To Three Months Ended December 30, 2007

Sales

Net sales by customer/product categories are as follows:

(000’s omitted)	December 28, 2008		December 30, 2007		% Change
Devices and Accessories to the Hospital Market-North America	$	20,288	$	33,217	(39	%)
Devices, Accessories, and Data Management Software to the Pre-hospital Market-North America		39,110		32,457	20	%
Other Products to North America		6,291		5,256	20	%
Subtotal North America		65,689		70,930	(7	%)
All Products to the International Market		23,773		22,085	8	%
Net Sales	$	89,462	$	93,015	(4	%)

Net sales decreased 4% for the three months ended December 28, 2008, compared to the prior-year period.

Sales to the North American hospital market decreased approximately $12.9 million, or 39%, compared to the same period a year ago. This decrease primarily reflects curtailed spending by hospitals. We believe hospitals are assessing the general economic environment which constrained their capital spending. Since many of our products are standard-of-care, we believe the hospital business has not been lost, but merely delayed. The decrease was also attributable to a smaller volume of US Military/Big Government sales compared to the prior-year quarter. The contract with the State of California in the prior year contributed approximately $8 million of the $11 million in sales to the US Military/Big Government, in comparison to the $5.6 million in sales during the first quarter of fiscal 2009.

Sales to the North American pre-hospital market increased approximately $6.6 million, or 20%, compared to the same quarter in the prior year. The increase in North American pre-hospital market sales was the result of increased volume in LifeVest (our wearable defibrillator product) revenue, and increased volume in data management software sales, slightly offset by a lower volume of AEDs.

International sales increased approximately $1.7 million, or 8%, in comparison to the prior-year period, driven by increased sales volume of AEDs and, to a lesser extent, increased volume of AutoPulse sales. The increase was attributable to increased sales by our international distributors, namely in Europe and Latin America, and sales by our direct subsidiaries in France and Germany. Sales by our international subsidiaries were negatively impacted in the amount of approximately $2 million by foreign currency exchange rate fluctuations.

Total sales of the AutoPulse product increased, particularly in the North American pre-hospital markets. Total AutoPulse sales were approximately $4.5 million in comparison to $2.7 million in the prior-year quarter.

Gross Margins

Cost of sales consists primarily of material, direct labor, overhead, and freight associated with the manufacturing of our various medical equipment devices, data collection software and disposable electrodes. Material is the largest component of our products, comprising more than half the cost. Overhead includes indirect labor for such activities as supervision, procurement and shipping. Other components of overhead include such items as related employee benefits, rent and electricity. Our consolidated gross margin may fluctuate considerably depending on unit volume levels, mix of product and customer class, geographical mix, and overall market conditions.

Gross margin for the three months ended December 28, 2008 increased from 48.5% to 52.4%, compared to the same period in the prior year. Approximately four percentage points of the increase was due to the low margin State of California order in the prior year quarter. Other factors affecting the fluctuation in gross margin each individually represented less than one percentage point of our overall gross margin. Our gross margin tends to fluctuate from period to period as a result of product and geographical mix.

Backlog

Backlog increased to approximately $8.3 million at December 28, 2008, compared to approximately $7.9 million at the end of fiscal 2008. Backlog was approximately $16 million at December 30, 2007. Typically, our backlog decreases during the first and second quarters, remains flat during the third quarter, and increases during the fourth quarter due to the purchasing practices of our customers. We believe the maintenance of a modest backlog will help improve our efficiency, lower our costs and improve our profitability as it will make it less likely that we will be

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required to incur substantial additional costs at the end of the quarter. Due to possible changes in delivery schedules, cancellation of orders and delays in shipments, our backlog at any particular date is not necessarily an accurate predictor of revenue for any succeeding period.

Costs and Expenses

Operating expenses for the three months ended December 28, 2008 and December 30, 2007 were as follows:

(000’s omitted)	December 28, 2008		% of Sales		December 30, 2007		% of Sales		Change %
Selling and marketing	$	26,549	30	%	$	25,128	27	%	6	%
General and administrative		7,633	9	%		7,610	8	%	<1	%
Research and development		7,969	9	%		7,832	8	%	2	%
Total expenses	$	42,151	47	%	$	40,570	44	%	4	%

As a percentage of sales, selling and marketing expenses for the three months ended December 28, 2008 increased approximately 3% as compared to the three months ended December 30, 2007. This increase, as a percentage of sales, was primarily attributed to the relatively small incremental operating expense in the prior-year period associated with the revenue obtained from the State of California order. The increased dollar spending primarily reflected increased personnel-related expenses for the LifeVest sales force and related sales organization, including commission, salaries and fringe benefits that are supporting the increased LifeVest revenue.

As a percentage of sales, general and administrative expenses increased slightly to 9% of sales as compared to 8% of sales for the three months ended December 30, 2007. General and administrative expenses were consistent with the prior-year period at approximately $7.6 million. The increase in salaries and fringe benefits were offset by lower legal-related costs compared to the first quarter in the prior year.

As a percentage of sales, research and development expenses for the three months ended December 28, 2008 increased approximately 1% compared to the three months ended December 30, 2007. Research and development expenses increased slightly for the three months ended December 28, 2008 compared to the three months ended December 30, 2007, due predominantly to personnel-related costs.

Investment and other income (loss), net

Investment and other income (loss), net includes interest income, realized and unrealized foreign exchange gains and losses, and other income and expense. Investment and other income (loss), net totaled approximately $(869,000) and $393,000 for the three months ended December 28, 2008 and December 30, 2007, respectively. This decrease is primarily the result of the rapid strengthening of the US dollar during the quarter as we marked our foreign denominated intercompany receivables to market at the end of the quarter.

Income Taxes

Our effective tax rate for the three months ended December 28, 2008 and December 30, 2007 was 26% and 36%, respectively. During the first quarter of 2009, the U.S. Congress extended a research and development tax credit which was retroactive from January 1, 2008. The difference in our effective tax rate is due to a discrete U.S. research and development tax credit of approximately $400,000 recorded during the quarter ended December 28, 2008 for the retroactive portion of the tax credit and to a full-year projected tax credit for research and development in the annual rate calculation as opposed to only one quarter of a full-year credit in fiscal 2008.

Effective October 1, 2007, we adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). As a result of the implementation of FIN 48, we recognized approximately $374,000 of increase in our liability for unrecognized tax benefits. All of this increase was reflected as a reduction to the October 1, 2007 balance of retained earnings. At the adoption date of October 1, 2007, we had $1.3 million of gross unrecognized tax benefits, which, if recognized, would affect goodwill and our effective tax rate. At December 28, 2008 and September 28, 2008, we had $3.3 million of gross unrecognized tax benefits, all of which, if recognized, would affect goodwill and our effective tax rate. We recognize interest and penalties related to unrecognized tax benefits in income tax expense in the consolidated statements of income. We had $480,000 accrued interest and penalties at December 28, 2008 and September 28, 2008.

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We are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. We have concluded all U.S. federal and most state and foreign income tax matters through fiscal 2004.

We do not currently have any income tax audits in progress and, therefore, foresee little change in our current reserve for uncertain tax positions in the next twelve months.

We currently estimate that our fiscal 2009 effective tax rate will be approximately 35%.

Liquidity and Capital Resources

Our overall financial condition remains strong. Our cash, cash equivalents and short-term marketable securities at December 28, 2008 totaled $65.9 million, compared with $69.3 million at September 28, 2008. We continue to have no long-term debt.

As we have previously stated, with the January 2007 suspension of U.S. shipments from the Medtronic Physio-Control unit, we have used cash, and it is possible we will use additional cash, to assist customers who transition to our products with various financing arrangements. We also may use cash to assist creditworthy customers with various financing arrangements as a result of the current difficult liquidity and credit environment.

Cash Requirements

We believe that the combination of existing cash, cash equivalents, and highly liquid short-term investments, together with future cash to be generated by operations and amounts available under our line of credit, will be sufficient to meet our ongoing operating and capital expenditure requirements for the foreseeable future. We believe we have, and will maintain, sufficient cash to meet future contingency payments related to the Lifecor and Infusion Dynamics acquisitions. We may also need to draw on these funds in the future for potential acquisitions.

Sources and Uses of Cash

To assist with the discussion, the following table presents the abbreviated cash flows for the three months ended December 28, 2008 and December 30, 2007:

(000’s omitted)	Three months ended December 28, 2008			Three months ended December 30, 2007
Net income	$	2,894		$	3,180
Changes not affecting cash		4,757			4,680
Changes in current assets and liabilities		3,202			(1,550	)
Cash provided by operating activities		10,853			6,310
Cash used for investing activities		(1,257	)		(13,794	)
Cash provided by financing activities		44			251
Effect of foreign exchange rates on cash		(2,763	)		(98	)
Net change in cash and cash equivalents		6,877			(7,331	)
Cash and cash equivalents - beginning of period		36,675			37,631
Cash and cash equivalents - end of period	$	43,552		$	30,300

Operating Activities

Cash provided by operating activities of $10.9 million for the three months ended December 28, 2008 increased $4.5 million compared to cash provided by operating activities for the three months ended December 30, 2007 of $6.3 million. The increase in cash provided by operating activities for the three months ended December 28, 2008 was primarily attributable to a $5.2 million change in cash provided by accounts receivable.

Investing Activities

Cash used in investing activities during the three months ended December 28, 2008 decreased approximately $12.5 million as compared to the cash used in investing activities during the three months ended December 30, 2007. This decrease was primarily attributable to the generation of $10.2 million in cash from net sales of marketable securities in the three months ended December 28, 2008, as compared to the use of $0.9 million for the net purchase of marketable securities for the prior year period. Additionally, payments of contingent consideration on prior period acquisitions decreased approximately $2.3 million and additions of property and equipment decreased $1.7 million. The decrease in cash used in investing activities during the three months ended December 28, 2008 was partially offset by $2.9 million used for the acquisition of Welch Allyn assets, as compared to no expenditures for acquisitions made in the prior-year period.

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Financing Activities

Cash provided by financing activities during the three months ended December 28, 2008 was relatively flat compared to cash provided by financing activities from the previous year period.

Investments

In March 2004, we acquired substantially all the assets of Infusion Dynamics. Under the terms of the acquisition, we are obligated to make additional earn-out payments through 2011 (“contingencies”) based on performance of the acquired business. Because additional consideration is based on the growth of sales, a reasonable estimate of the future payments to be made cannot be determined. As these contingencies are resolved and the consideration is distributable, we record the fair value of the additional consideration as additional cost of the acquired assets. Our earn-out payments, in the form of cash, for fiscal 2006, 2007 and 2008 were approximately $445,000, $11,000, and $19,000, respectively. The annual earn-outs were accrued during the fiscal period when earned and paid out in the subsequent fiscal period.

We exercised our option to acquire Revivant, the manufacturer of the AutoPulse, on October 12, 2004. We paid $15 million in the form of cash and shares of our common stock as the initial merger consideration. Additional contingent consideration under the merger agreement was dependent upon certain clinical developments (milestone payments) and increases in revenue through fiscal 2007 (earn-out payments). In January 2007, we paid approximately $1.2 million in cash and issued 72,128 shares of common stock in payment of the 2006 earn-out, which was accrued during fiscal 2006, to the former shareholders of Revivant. In December 2007, we paid approximately $3.6 million in cash and issued 220,864 shares of common stock in payment of the fiscal 2007 earn-out, which was accrued during fiscal 2007, to the former shareholders of Revivant. The December 2007 payment represented the contingent consideration due to the former shareholders of Revivant for the final earn-out period related to this acquisition.

We exercised our option to acquire the business and assets of Lifecor on March 22, 2006 and acquired the business and assets on April 10, 2006. We assumed Lifecor’s outstanding debt (plus an additional $3.0 million owed to us, which was cancelled) and certain stated liabilities. We paid the third-party debt in April 2006. We agreed to pay additional consideration in the form of earn-out payments to Lifecor based upon future revenue growth of the acquired business over a five-year period. Earn-out payments to Lifecor were made in the form of cash for fiscal 2006, 2007 and 2008 in the approximate amounts of $77,000, $3.2 million and $4.5 million, respectively. The annual earn-outs were accrued during the fiscal period when earned and paid out in the subsequent fiscal period. Because additional consideration will be based on the growth of sales, a reasonable estimate of the total acquisition cost cannot be determined.

On May 22, 2007, we acquired the fire records management software business and related assets from BIO-key International, Inc. for approximately $7.0 million in cash. Under terms of the acquisition, no additional consideration will be paid.

On September 18, 2007, we acquired certain assets from Radiant Medical, Inc., a private medical technology company developing endovascular temperature therapy products, for approximately $5.8 million in cash. Under the terms of the acquisition, no additional consideration will be paid.

In October 2008, we announced a strategic alliance with Welch Allyn involving research and development, manufacturing, sales, service, and distribution related to Welch Allyn’s defibrillator and monitoring products. During the quarter, we paid approximately $2.9 million for the purchase of assets related to the Welch Allyn defibrillator products. We anticipate that the remaining elements of the strategic alliance will be implemented over the next several months in accordance with the transition plan. Total consideration for all elements could approximate $6 million.

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Debt Instruments and Related Covenants

We maintain an unsecured working capital line of credit with our bank. Under this working capital line, we may borrow, on a demand basis, up to $12 million. This line of credit bears interest at the bank’s rate of LIBOR plus 2% for short-term borrowings (2 – 3 months). For longer term loans, the line of credit bears interest at the rate of LIBOR plus 4% – 6%. No borrowings were outstanding on this line during fiscal 2008 or as of December 28, 2008. There are no covenants related to this line of credit.

Off-Balance Sheet Arrangements

The Company leases certain office and manufacturing space under operating leases. Purchase obligations include all legally binding contracts that are non-cancelable. The table shown below in the next section titled “Contractual Obligations and Other Commercial Commitments” shows the amounts of our operating lease commitments and purchase commitments payable by year. For liquidity purposes, we choose to lease our facilities and motor vehicles instead of purchasing them.

Contractual Obligations and Other Commercial Commitments

The following table sets forth certain information concerning our obligations and commitments to make future payments under contracts, such as lease agreements.

	Payments Due by Period
(000’s omitted)	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Contractual Obligations
Non-Cancelable Operating Lease Obligations	$	5,772	$	2,308	$	2,993	$	321	$	150
Purchase Obligations		4,773		1,526		1,632		1,615		—
Total Contractual Obligations	$	10,545	$	3,834	$	4,625	$	1,936	$	150

Purchase obligations include all legally binding contracts that are non-cancelable. Purchase orders or contracts for the purchase of raw materials and other goods and services are not included in the table above. Purchase orders represent authorizations to purchase rather than binding agreements. For the purposes of the table above, purchase obligations for purchase of goods and services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based upon our current inventory needs and are fulfilled by our suppliers within short time periods. We also enter into contracts for outsourced services; however, the obligations under these contracts are not significant and the contracts generally contain provisions allowing for cancellation without significant penalty.

Contractual obligations that are contingent upon future performance and growth of sales are not included in the table above. These include the additional earn-out payments for the assets of Infusion Dynamics through fiscal 2011 and additional earn-out payments for the assets of Lifecor through fiscal 2011. Because all of these earn-out payments are based upon the growth of sales over several years, a reasonable estimate of the future payment obligations cannot be determined.

Hedging Activities

We had two foreign currency forward contracts outstanding at December 28, 2008, serving to mitigate the foreign currency risk of a substantial portion of our Euro-denominated intercompany balances, in the total notional amount of approximately 10.5 million Euros. The net settlement amount of these two contracts on December 28, 2008 is an unrealized gain of approximately $61,000, which is included in earnings within “investment and other income.” We had a net realized gain of $1.6 million from foreign currency forward contracts during the quarter ended December 28, 2008, compared to net realized losses of $212,000 for the prior year’s quarter. Both amounts are included in the consolidated income statement within “investment and other income.”

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During the quarter ended December 28, 2008, we had contracts outstanding totaling $3.9 million to serve as a hedge of our forecasted sales to our subsidiaries maturing prior to the end of the quarter. Because these derivatives did not qualify for hedge accounting in accordance with SFAS 133, we subsequently entered into offsetting derivatives, totaling $3.9 million. All of the contracts were marked to market with changes in fair value recorded in earnings. All of these contracts matured prior to December 28, 2008. We had a net realized loss of approximately $29,000 from these contracts for the quarter ended December 28, 2008, as compared to a net realized loss of approximately $122,000 for the quarter ended December 30, 2007, and these net realized losses were recorded in “investment and other income” in the consolidated statement of income.

Legal and Regulatory Affairs

The Company is, from time to time, involved in the normal course of its business in various legal proceedings, including intellectual property, contract, employment and product liability suits. Although the Company is unable to quantify the exact financial impact of any of these matters, it believes that none of the currently pending matters will have an outcome material to its financial condition or business.

Critical Accounting Estimates

Our management strives to report our financial results in a clear and understandable manner, even though in some cases accounting and disclosure rules are complex and require us to use technical terminology. We follow accounting principles generally accepted in the United States in preparing our consolidated financial statements. These principles require us to make certain estimates of matters that are inherently uncertain and to make difficult and subjective judgments that affect our financial position and results of operations. Our most critical accounting policies include revenue recognition, and our most critical accounting estimates include accounts receivable reserves, warranty reserves, inventory reserves, and the valuation of long-lived assets. Management continually reviews its accounting policies, how they are applied and how they are reported and disclosed in our financial statements. Following is a summary of our more significant accounting policies, which include revenue recognition and those that require significant estimates and judgments and uncertainties, and potentially could result in materially different results under different assumptions and conditions, and how they are applied in preparation of the financial statements.

Revenue Recognition

Revenues from sales of cardiac resuscitation devices, disposable electrodes and accessories are recognized when a signed non-cancelable purchase order exists, the product is shipped, title and risk have passed to the customer, the fee is fixed or determinable, and collection is considered probable. Circumstances that generally preclude the immediate recognition of revenue include shipping terms of FOB destination or the existence of a customer acceptance clause in a contract based upon customer inspection of the product. In these instances, revenue is deferred until adequate documentation is obtained to ensure that these criteria have been fulfilled. Similarly, revenues from the sales of our products to distributors fall under the same guidelines. For all significant orders placed by our distributors, we require an approved purchase order, we perform a credit review, and we ensure that the terms on the purchase order or contract are proper and do not include any contingencies which preclude revenue recognition. We do not typically offer any special right of return, stock rotation or price protection to our distributors or end customers.

Our sales to customers often include a cardiac resuscitation device, disposable electrodes and other accessories. For the vast majority of our shipments, all deliverables are shipped together. In cases where some elements of a multiple element arrangement are not delivered as of a reporting date, we defer the fair value of the undelivered elements and only recognize the revenue related to the delivered elements in accordance with Emerging Issues Task Force (“EITF”) 00-21, “Revenue Arrangements with Multiple Deliverables.” Revenues are recorded net of estimated returns. Some sales to customers of our cardiac resuscitation devices may include some data collection software. The cardiac resuscitation device and software product can operate independently of each other and one does not affect the functionality of the other. In cases where both elements are included in a customer’s order but only one has been delivered by the reporting date, we defer the fair value of the undelivered element and recognize the revenue related to the delivered item in accordance with EITF 03-05, “Applicability of AICPA Statement of Position 97-2, Software Revenue Recognition to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software” and EITF 00-21.

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We also license software under non-cancelable license agreements and provide services including training, installation, consulting and maintenance, which consists of product support services, and unspecified upgrade rights (collectively, post-contract customer support, “PCS”). 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,” as amended. License fee revenues are recognized when a non-cancelable license agreement has been signed, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable, and collection is considered probable. Revenues from maintenance agreements and upgrade rights are recognized ratably over the period of service. Revenue for services, such as software deployment and consulting, is recognized when the service is performed. Our software arrangements contain multiple elements, which include software products, services and PCS. Generally, we do not sell computer hardware products with our software products. We will occasionally facilitate the hardware purchase by providing information to the customer such as where to purchase the equipment. We generally do not have vendor-specific objective evidence of fair value for our software products. We do, however, have vendor-specific objective evidence of fair value for items such as consulting and technical services, deployment and PCS based upon the price charged when such items are sold separately. Accordingly, for transactions where vendor-specific objective evidence exists for undelivered elements but not for delivered elements, we use the residual method as discussed in SOP 98-9, “Modification of SOP 97-2.” Under the residual method, the total fair value of the undelivered elements, as indicated by vendor-specific objective evidence, is deferred and the difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements.

We do not typically ship any of our software products to distributors or resellers. Our software products are sold by our sales force directly to the end user. We may sell software to system integrators who provide complete solutions to end users on a contract basis.

In fiscal 2007, the Company was awarded a contract of approximately $11.6 million with a contractor hired by the State of California to supply defibrillators and accessories. The contract also includes preventative maintenance and storage services for certain defibrillators and accessories over a five-year period. Based on the award, the Company shipped the defibrillators and accessories (“equipment”) in three installments over the course of four months beginning in the fourth quarter of fiscal 2007 and ending in the first quarter of fiscal 2008. At the request of the State, the equipment was shipped to three warehouse locations within California in order to provide for rapid deployment in the case of an emergency. Two of the warehouses are facilities leased by the Company. Due to the life support function of the equipment and the requirement that they be deployed at a moment’s notice to sustain life in the event of an emergency, it is important that they are stored in an appropriate condition and location. As a result, the State requested that we make arrangements to store and maintain certain of the equipment to ensure it performs its life support function when deployed. Individuals with the requisite background, skills and credentials store and maintain the products. The preventative maintenance services include preventative maintenance on the defibrillator units as well as battery and electrode replacement upon expiration of their shelf life within the five year period of the contract.

Although the Company delivered the first two installments of the equipment during the fourth quarter of the fiscal year ended September 30, 2007, no revenue was recognized since objective and reliable evidence of fair value did not exist for all undelivered elements. The Company recognized revenue related to the delivered equipment in the first quarter of fiscal 2008 as it determined that objective and reliable evidence of fair value exists for all remaining undelivered elements, including maintenance, storage, insurance and accessories. The Company recognized approximately $8 million of revenue during the first quarter of fiscal 2008. The remaining amount of consideration is being recognized over a five-year period as the undelivered elements are delivered. As of December 28, 2008, the Company had approximately $3.0 million in deferred revenue related to this contract.

In fiscal 2005, we began performance under a “state of readiness” contract awarded by the U.S. government to supply defibrillators on short notice. Based on the award, we received two types of payments from the U.S. government. The first payment of approximately $5 million was to reimburse us for the cost to acquire inventories required to meet potentially short-notice delivery schedules. This payment is carried within ‘Deferred revenue’ on our balance sheet as a liability under government contract.

We also received a payment from the U.S. government to compensate us for managing the purchase, build, storage and inventory rotation process. This payment also compensated us for making future production capacity available.

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The portion of this payment associated with the purchase and build aspects of the contract was recognized on a percentage of completion basis while the portion of the payment for the storage, inventory rotation and facilities charge was recognized ratably over the contract period.

This government contract is for a one-year term, and the U.S. government has four one-year extension options that require the payment of additional fees to us if exercised (the contract is currently in its fourth and final extension). These fees are for the storage, inventory rotation and facilities charge and are recognized ratably over the contract period. The U.S. government has two options to acquire defibrillators under this contract. They may buy on a replenishment basis, which means we will record a sale under our normal U.S. government price list and maintain our “state of readiness”, or they may buy on a non-replenishment basis, which will still allow us to obtain normal margins but will reduce our future obligations under this arrangement.

For those markets for which we sell separately priced extended warranties, revenue is deferred and recognized over the applicable warranty period, based upon the fair value of the contract.

Allowance for Doubtful Accounts / Sales Returns and Allowances / Trade-In Allowances

We maintain an allowance for doubtful accounts for estimated losses, for which related provisions are included in bad-debt expense, resulting from the inability of our customers to make required payments. Specifically identified reserves are charged to selling and marketing expenses. Provisions for general reserves are charged to general and administrative expenses. We determine the adequacy of this allowance by regularly reviewing the aging of our accounts receivable and evaluating individual customer receivables, considering customers’ financial condition, historical experience, communications with the customers, credit history and current economic conditions. We also maintain an estimated reserve for potential future product returns and discounts given related to trade-ins and to current period product sales, which is recorded as a reduction of revenue. We analyze the rate of historical returns when evaluating the adequacy of the allowance for sales returns, which is included in the sales returns and allowance accounts on our balance sheet.

As of December 28, 2008, our accounts receivable balance of $84.0 million is reported net of allowances of $6.4 million. We believe our reported allowances at December 28, 2008 are adequate. If the financial condition of our customers was to deteriorate, however, resulting in their inability to make payments, we might need to record additional allowances, resulting in additional expenses being recorded for the period in which such determination was made.

Although we are not typically contractually obligated to provide trade-in allowances under existing sales contracts, we may offer such allowances when negotiating new sales arrangements. When pricing sales transactions, we contemplate both cash consideration and the net realizable value of any used equipment to be traded in. The trade-in allowance value stated in a sales order may differ from the estimated net realizable value of the underlying equipment. Any excess in the trade-in allowance over the estimated net realizable value of the used equipment represents additional sales discount.

We account for product sales transactions by recording as revenue the total of the cash consideration and the estimated net realizable value of the trade-in equipment less a normal profit margin. Any difference between the estimated net realizable value of the used equipment and the trade-in allowance granted is recorded as a reduction to revenue at the time of the sale.

Used ZOLL equipment is recorded at the lower of cost or market consistent with Accounting Research Bulletin No. 43 . We regularly review our reserves to assure that the balance sheet value associated with our trade-in equipment is properly stated.

If the trade-in equipment is a competitor’s product, we will usually resell the product to a third-party distributor who specializes in sale of used medical equipment, without any refurbishment. We typically do not recognize a profit upon the resale of a competitor’s used equipment, although as a result of the inherent nature of the estimation process, we could recognize either a nominal gain or loss.

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Fair Value Measurements

During the first quarter of fiscal 2009, the Company adopted Financial Accounting Standards Board (“FASB”) SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), for all financial assets and liabilities and nonfinancial assets and liabilities which are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). In accordance with SFAS Position 157-2, “Effective Date of FASB Statement No. 157,” we have elected to defer implementation of SFAS 157 as it relates to our non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis until the first quarter of fiscal 2010. We are evaluating the impact, if any, SFAS 157 will have on our non-financial assets and liabilities. The adoption of SFAS 157 did not have a material effect on our financial condition or operating results.

The Company also adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115(“SFAS 159”), during the first quarter of fiscal 2009. SFAS 159 allows companies to choose to measure eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. SFAS 159 requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings at each reporting date. The Company adopted SFAS 159 but has not elected the fair value option for any eligible financial instruments as of December 28, 2008.

Refer to Note 11, “Fair Value Measurements,” of this Form 10-Q for additional information on the adoption of SFAS 157 and SFAS 159.

Warranty Reserves

Our products are sold with warranty provisions that require us to remedy deficiencies in quality or performance over a specified period of time, usually one year for pre-hospital and international customers and five years for hospital customers. In instances where pre-hospital customers receive warranty coverage beyond one year, revenue is deferred based upon vendor specific objective evidence of fair value and recognized over the period of extended warranty. We provide for the estimated cost of product warranties at the time product is shipped and revenue is recognized. The costs that we estimate include material, labor, and shipping. While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. We believe that our recorded liability of $3.7 million at December 28, 2008 is adequate to cover future costs for the servicing of our products sold through that date and under warranty. If actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required.

Inventory

We value our inventories at the lower of cost or market. Cost is determined by the first-in, first-out (“FIFO”) method, including material, labor and factory overhead.

Inventory on hand may exceed future demand either because the product is outdated, obsolete, or because the amount on hand is in excess of future needs. We provide for the total value of inventories that we determine to be obsolete based on criteria such as customer demand and changing technologies. We estimate excess inventory amounts by reviewing quantities on hand and comparing those quantities to sales forecasts for the next 12 months, identifying historical service usage trends, and matching that usage with the installed base quantities to estimate future needs. At December 28, 2008, our inventory was recorded at net realizable value requiring adjustments of $6.0 million, or 8.7% of our $68.3 million gross inventories.

Goodwill

At December 28, 2008, we had approximately $41.8 million in goodwill, primarily resulting from our acquisitions of Revivant (approximately $27 million), the assets of Lifecor (approximately $5 million), certain assets of BIO-key International, Inc. (approximately $5 million), and the assets of Infusion Dynamics (approximately $4 million.) In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” we test our goodwill for impairment at least annually by comparing the fair value of our reporting units to the carrying value of those reporting units. Fair value is determined based on an estimate of the discounted future cash flows expected from the reporting units. The determination of fair value requires significant judgment on the part of management about future revenues, expenses and other assumptions that contribute to the net cash flows of the reporting units. Additionally, we periodically review our goodwill for impairment whenever events or changes in circumstances indicate that an impairment has occurred.

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Long-Lived Assets

We periodically review the carrying amount of our long-lived assets, including property and equipment, and intangible assets, to assess potential impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. The determination includes evaluation of factors such as current market value, business climate and future cash flows expected to result from the use of the related assets. Our policy is to use undiscounted cash flows in assessing potential impairment and to record an impairment loss based on fair value in the period when it is determined that the carrying amount of the asset may not be recoverable. This process requires judgment on the part of management.

Stock-Based Compensation

The Company adopted the provisions of SFAS No. 123R, “Share Based Payment” (“SFAS 123R”), beginning October 3, 2005, using the modified prospective transition method. SFAS 123R requires the Company to measure the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize cost over the requisite service period. Under the modified prospective transition method, financial statements for periods prior to the date of adoption are not adjusted for the change in accounting. However, compensation expense is recognized for (a) all share-based payments granted after the effective date under SFAS 123R, and (b) all awards granted under SFAS 123 to employees prior to the effective date that remain unvested on the effective date. The Company recognizes compensation expense on fixed awards with pro rata vesting on a straight-line basis over the vesting period.

Prior to October 3, 2005, the Company used the intrinsic value method to account for stock-based employee compensation under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and, therefore, the Company did not recognize compensation expense in association with options granted at or above the market price of the Company’s Common Stock at the date of grant.

Refer to Note 4, “Stock Option Plans,” to the consolidated financial statements for further discussion.

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Risk Factors

There have been no material changes from the Risk Factors contained in our Annual Report on Form 10-K for the fiscal year ended September 28, 2008 which was filed with the SEC on December 8, 2008, with the following exception: we have added two new risk factors entitled, “Current and Future State and Other Municipality Budget Deficits Could Adversely Affect our Financial Performance,” and “The Company Has Entered Into A Strategic Alliance With Welch Allyn Which May Not Be Successful.”

If We Fail to Compete Successfully in the Future against Existing or Potential Competitors, Our Operating Results May Be Adversely Affected.

Our principal global competitors with respect to our entire cardiac resuscitation equipment product line are Physio-Control and Philips. Physio-Control is a subsidiary of Medtronic, Inc., a leading medical technology company, and has been the market leader in the defibrillator industry for over 20 years. As a result of Physio-Control’s dominant position in this industry, many potential customers have relationships with Physio-Control that could make it difficult for us to continue to penetrate the markets for our products. In addition, Physio-Control and Philips and other competitors each have significantly greater resources than we do. Accordingly, Physio-Control, Philips and other competitors could substantially increase the resources they devote to the development and marketing of products that are competitive with ours. These and other competitors may develop and successfully commercialize medical devices that directly or indirectly accomplish what our products are designed to accomplish in a superior and/or less expensive manner. In addition, although our biphasic waveform technology is unique, our competitors have devised alternative biphasic waveform technology. Medtronic previously announced its intention to spin off its external defibrillator business into a separate publicly traded company once it resolves quality issues with the Food and Drug Administration (“FDA”), which have disrupted shipments of its products. How these continuing developments will affect the competitive landscape in the future is unclear, but the Company has taken steps to pursue additional customers. (See additional discussion of this situation regarding Physio-Control, Medtronic’s external defibrillator business, in the risk factor below entitled, “The Resumption of Unrestricted Shipments of Physio-Control, a Division of Medtronic, May Adversely Affect our Revenues and Profits.”)

There are a number of smaller competitors in the United States, which include Cardiac Science Corporation, HeartSine Technology, and Defibtech. Internationally, we face the same competitors as in the United States as well as Nihon Kohden, Corpuls, Schiller, and other local competitors. It is possible the market may embrace these competitors’ products, which could negatively impact our market share.

Additional companies may enter the market. For example, GE Healthcare entered the hospital market through cooperation with Cardiac Science Corporation. They have currently been focused on the International market but could begin to focus on the U.S. market, as well, which may impair our ability to gain market share.

In addition to external defibrillation and external pacing with cardiac resuscitation equipment, it is possible that other alternative therapeutic approaches to the treatment of sudden cardiac arrest may be developed. These alternative therapies or approaches, including pharmaceutical or other alternatives, could prove to be superior to our products.

There is significant competition in the business of developing and marketing software for data collection, billing, scheduling, dispatching, records and resource management in the emergency medical system and fire markets. Our principal competitors in this business include Sansio, Healthware Technologies, Inc., Safety Pad Software, ImageTrend, Inc., eCore Software Solutions, Inc., PDSI Software, Inc., EnRoute Emergency Systems (formerly Geac Computer Corporation, Ltd.), DocuMed, Inc., Tritech Software Systems, Inc., Ortivus AB, RAM Software Systems, Inc., Intergraph Corporation, Affiliated Computer Services, Inc., Emergency Reporting, Inc., AmbPac, Inc., ESO Solutions, Golden Hour and Innovative Engineering, some of which have greater financial, technical, research and development and marketing resources than we do. Because the barriers to entry in this business are relatively low, additional competitors may easily enter this market in the future. It is possible that systems developed by competitors could be superior to our data management system. Consequently, our ability to sell our data management systems could be materially affected and our financial results could be materially and adversely affected.

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The Resumption of Unrestricted Shipments of Physio-Control, a Division of Medtronic, May Adversely Affect our Revenues and Profits.

Beginning in January 2007, Physio-Control, a division of Medtronic, had suspended most U.S. product shipments due to internal quality control issues. In August 2007, Physio-Control began shipping to U.S. customers under certain restrictions. As announced by Physio-Control on April 28, 2008, it has reached an agreement on a consent decree with the FDA regarding its quality system improvements for its external defibrillator products. Under the consent decree, Physio-Control will be allowed to continue limited shipments in the United States. In addition, under the consent decree, restrictions on shipments now apply to International shipments as well. Once certain conditions under the consent decree are met, Physio-Control will be allowed to resume unrestricted distribution. The full resumption of shipments may adversely affect our revenues in the future.

It is Possible that if Competitors Increase Their Use of Price Discounting, Our Gross Margins Could Decline.

Some competitors have, from time to time, used price discounting in order to attempt to gain market share. If this activity were to increase in the future it is possible that our gross margin and overall profitability could be adversely affected if we decided to respond in kind.

Our Operating Results are Likely to Fluctuate, Which Could Cause Our Stock Price to be Volatile, and the Anticipation of a Volatile Stock Price Can Cause Greater Volatility.

Our quarterly and annual operating results have fluctuated and may continue to fluctuate. Various factors have and may continue to affect our operating results, including:

• high demand for our products, which could disrupt our normal factory utilization and cause shipments to occur in uneven patterns;

• variations in product orders;

• timing of new product introductions;

• temporary disruptions of buying behavior due to changes in technology (e.g., shift to biphasic technology);

• changes in distribution channels;

• actions taken by our competitors such as the introduction of new products or the offering of sales incentives;

• the ability of our sales forces to effectively market our products;

• supply interruptions from our single-source vendors;

• temporary manufacturing disruptions;

• regulatory actions, including actions taken by the FDA or similar agencies; and

• delays in obtaining domestic or foreign regulatory approvals.

A large percentage of our sales are made toward the end of each quarter. As a consequence, our quarterly financial results are often dependent on the receipt of customer orders in the last weeks of a quarter. The absence of these orders could cause us to fall short of our quarterly sales targets, which, in turn, could cause our stock price to decline sharply. As we grow in size, and these orders are received closer to the end of a period, we may not be able to manufacture, test, and ship all orders in time to recognize the shipment as revenue for that quarter.

Based on these factors, period-to-period comparisons should not be relied upon as indications of future performance. In anticipation of less successful quarterly results, parties may take short positions in our stock. The actions of parties shorting our stock might cause even more volatility in our stock price. The volatility of our stock may cause the value of a stockholder’s investment to decline rapidly.

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The AED PAD (Public Access Defibrillation) Business is Highly Dynamic. If We are Not Successful in Competing in this Market, Our Operating Results May be Affected.

The PAD market has many new dynamics. This market involves many new types of non-traditional healthcare distributors, and the efficiency of these distributors may not be as robust as we expect. These new types of distributors may present credit risks since they may not be well established and may not have the necessary business volumes. In addition, we may not be successful in gaining greater market acceptance of our AED Plus into alternative PAD markets if our PAD distributors are not successful. All of these items could cause our operating results to be unfavorably affected.

We Acquired New Products and Technology, Such as the Catheter-Based Hypothermia Technology. If We Are Not Successful in Growing Our Business with These Products and Technology, Our Operating Results May Be Affected.

We have acquired a catheter-based hypothermia technology. As part of the successful development of the market for this technology, where applicable, we must:

• establish new marketing and sales strategies;

• identify respected health professionals and organizations to champion the products;

• work with potential customers to develop new sources of unbudgeted funding;

• conduct successful clinical trials; and

• achieve early success for the product in the field.

If we are delayed or fail to achieve these market development initiatives, we may encounter difficulties building our customer base for these products. Sub-par results from any of these items, such as inconclusive results from clinical trials, could cause our operating results to be unfavorably affected.

We Are Conducting Clinical Trials Related to Newer Technologies Which May Prove Unsuccessful and Have a Negative Impact on Future Sales.

We are conducting clinical trials related to the AutoPulse and the LifeVest. While we are confident in the future outcomes of these trials, an unsuccessful trial could affect the marketability of these products in the future.

Our Approach to Our Backlog Might Not Be Successful.

We maintain a backlog in order to generate operating efficiencies. If order rates are insufficient to maintain such a backlog, we may be subject to operating inefficiencies. For example, although our backlog typically increases in the fourth quarter, it did not increase in the fourth quarter of fiscal 2008. We believe this might be related to general economic concerns on the part of some professional customers. While we would anticipate that any such delay in purchasing behavior would be temporary, we cannot be certain as to when such purchases might actually be made.

We May be Required to Implement a Costly Product Recall.

In the event that any of our products proves to be defective, we can voluntarily recall, or the FDA could require us to redesign or implement a recall of, any of our products. Both our larger competitors and we have, on numerous occasions, voluntarily recalled products in the past, and based on this experience, we believe that future recalls could result in significant costs to us and significant adverse publicity, which could harm our ability to market our products in the future. Though it may not be possible to quantify the economic impact of a recall, it could have a material adverse effect on our business, financial condition and results of operations.

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Changes in the Healthcare Industry May Require Us to Decrease the Selling Price for Our Products or Could Result in a Reduction in the Size of the Market for Our Products, Each of Which Could Have a Negative Impact on Our Financial Performance.

Trends toward managed care, healthcare cost containment, and other changes in government and private sector initiatives in the United States and other countries in which we do business are placing increased emphasis on the delivery of more cost-effective medical therapies, which could adversely affect the sale and/or the prices of our products. For example:

• major third-party payers of hospital and pre-hospital services, including Medicare, Medicaid and private healthcare insurers, have substantially revised their payment methodologies during the last few years, which has resulted in stricter standards for reimbursement of hospital and pre-hospital charges for certain medical procedures;

• Medicare, Medicaid and private healthcare insurer cutbacks could create downward price pressure in the cardiac resuscitation pre-hospital market;

• numerous legislative proposals have been considered that would result in major reforms in the U.S. healthcare system, which could have an adverse effect on our business;

• there has been a consolidation among healthcare facilities and purchasers of medical devices in the United States who prefer to limit the number of suppliers from whom they purchase medical products, and these entities may decide to stop purchasing our products or demand discounts on our prices;

• there is economic pressure to contain healthcare costs in international markets;

• there are proposed and existing laws and regulations in domestic and international markets regulating pricing and profitability of companies in the healthcare industry; and

• there have been initiatives by third-party payers to challenge the prices charged for medical products, which could affect our ability to sell products on a competitive basis.

Both the pressure to reduce prices for our products in response to these trends and the decrease in the size of the market as a result of these trends could adversely affect our levels of revenues and profitability of sales, which could have a material adverse effect on our business.

General Economic Conditions, Which Are Largely Out of the Company’s Control, May Adversely Affect the Company’s Financial Condition and Results of Operations.

The Company’s businesses may be affected by changes in general economic conditions, both nationally and internationally. Recessionary economic cycles, higher interest rates, higher fuel and other energy costs, inflation, higher levels of unemployment, changes in the laws or industry regulations or other economic factors may adversely affect the demand for the Company’s products. Additionally, these economic factors, as well as higher tax rates, increased costs of labor, insurance and healthcare, and changes in other laws and regulations may increase the Company’s cost of sales and operating expenses, which may adversely affect the Company’s financial condition and results of operations.

Our primary business is the sale of capital equipment. While customers may delay their purchases of capital equipment in the near-term due to the current economic environment, the equipment will ultimately need to be replaced as defibrillator products are a standard of care. However, we cannot be sure as to how long such delays may continue.

Current and Future State and Other Municipality Budget Deficits Could Adversely Affect our Financial Performance.

Many of the Company’s customers include State and other municipal agencies. In a recent article by the Center on Budget and Policy Priorities, the Center estimated that approximately 45 states are facing or will face budget deficits in fiscal 2009 and/or fiscal 2010. Because of these budget deficits, our customers may delay their purchases of capital equipment from the Company in the near-term due to the current economic environment. Although the equipment will ultimately need to be replaced as defibrillator products are a standard of care, we cannot be sure as to how long such delays may continue. Significant purchasing delays may adversely affect the Company’s financial performance.

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Recent Economic Trends Could Adversely Affect our Financial Performance.

Economic downturns and declines in consumption in our markets may affect the levels of both our sales and profitability. As widely reported, the domestic and global financial markets have been experiencing disruption in recent months, including severely diminished liquidity and credit availability. Concurrently, economic weakness has grown more severe. We believe these conditions have not materially affected our financial position as of December 28, 2008 or our liquidity for the quarter ended December 28, 2008. However, we could be negatively impacted if these conditions continue for a sustained period of time, or if there is further deterioration in financial markets and major economies. The current tightening of credit in financial markets may adversely affect the ability of our customers and suppliers to obtain financing, which could result in a decrease in, or deferrals or cancellations of, the sale of our products and services. In addition, weakening economic conditions and outlook may result in a further decline in the level of our customers’ spending that could adversely affect our results of operations and liquidity. We are unable to predict the likely duration and severity of the current disruption in the domestic and global financial markets and the related adverse economic conditions.

We Can be Sued for Producing Defective Products and We May be Required to Pay Significant Amounts to Those Harmed If We are Found Liable, and Our Business Could Suffer from Adverse Publicity.

The manufacture and sale of medical products such as ours entail significant risk of product liability claims, and product liability claims are made against us from time to time. Our quality control standards comply with FDA requirements, and we believe that the amount of product liability insurance we maintain is adequate based on past product liability claims in our industry. We cannot be assured that the amount of such insurance will be sufficient to satisfy claims made against us in the future or that we will be able to maintain insurance in the future at satisfactory rates or in adequate amounts. Product liability claims could result in significant costs or litigation. A product liability lawsuit is currently pending. A successful claim brought against us in excess of our available insurance coverage or any claim that results in significant adverse publicity against us could have a material adverse effect on our business, financial condition and results of operations.

Recurring Sales of Electrodes to Our Customers May Decline.

We typically have recurring sales of electrodes to our customers. Other vendors have developed electrode adaptors that allow generic electrodes to be compatible with our defibrillators. If we are unable to continue to differentiate the superiority of our electrodes over these generic electrodes, our future revenue from the sale of electrodes could be reduced, or our pricing and profitability could decline.

Failure to Produce New Products or Obtain Market Acceptance for Our New Products in a Timely Manner Could Harm Our Business.

Because substantially all of our revenue comes from the sale of cardiac resuscitation devices and related products, our financial performance will depend upon market acceptance of, and our ability to deliver and support, new products. We cannot be assured that we will be able to produce viable products in the time frames we currently estimate. Factors which could cause delay in these schedules or even cancellation of our projects to produce and market these new products include: research and development delays, the actions of our competitors producing competing products, and the actions of other parties who may provide alternative therapies or solutions, which could reduce or eliminate the markets for pending products.

The degree of market acceptance of any of our products will depend on a number of factors, including:

• our ability to develop and introduce new products in a timely manner;

• our ability to successfully implement new product technologies;

• the market’s readiness to accept new products;

• the standardization of an automated platform for data management systems;

• the clinical efficacy of our products and the outcome of clinical trials;

• the ability to obtain timely regulatory approval for new products; and

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• the prices of our products compared to the prices of our competitors’ products.

If our new products do not achieve market acceptance, our financial performance could be adversely affected.

Our Dependence on Sole and Single Source Suppliers Exposes Us to Supply Interruptions and Manufacturing Delays Caused by Faulty Components, Which Could Result in Product Delivery Delays and Substantial Costs to Redesign Our Products.

Although we use many standard parts and components for our products, some key components are purchased from sole or single source vendors for which alternative sources at present are not readily available. For example, we currently purchase proprietary components, including capacitors, display screens, gate arrays and integrated circuits, for which there are no direct substitutes. Our inability to obtain sufficient quantities of these components as well as our limited ability to deal with faulty components may result in future delays or reductions in product shipments, which could cause a fluctuation in our results of operations.

These or any other components could be replaced with alternatives from other suppliers, which could involve a redesign of our products. Such a redesign could involve considerable time and expense. We could be at risk that the supplier might experience difficulties meeting our needs.

If our manufacturers are unable or unwilling to continue manufacturing our components in required volumes, we will have to transfer manufacturing to acceptable alternative manufacturers whom we have identified, which could result in significant interruptions of supply. The manufacture of these components is complex, and our reliance on the suppliers of these components exposes us to potential production difficulties and quality variations, which could negatively impact the cost and timely delivery of our products. Accordingly, any significant interruption in the supply, or degradation in the quality, of any component would have a material adverse effect on our business, financial condition and results of operations.

We May Not be Able to Obtain Appropriate Regulatory Approvals for Our New Products.

The manufacture and sale of our products are subject to regulation by numerous governmental authorities, principally the FDA and corresponding state and foreign agencies. The FDA administers the Federal Food, Drug and Cosmetic Act, as amended, and the rules and regulations promulgated thereunder. Some of our products have been classified by the FDA as Class II devices and others, such as our AEDs, have been classified as Class III devices. All of these devices must secure a 510(k) pre-market notification clearance before they can be introduced into the U.S. market. The process of obtaining 510(k) clearance typically takes several months and may involve the submission of limited clinical data supporting assertions that the product is substantially equivalent to an already approved device or to a device that was on the market before the Medical Device Amendments of 1976. Delays in obtaining 510(k) clearance could have an adverse effect on the introduction of future products. Moreover, approvals, if granted, may limit the uses for which a product may be marketed, which could reduce or eliminate the commercial benefit of manufacturing any such product.

We are also subject to regulation in each of the foreign countries in which we sell products. Many of the regulations applicable to our products in such countries are similar to those of the FDA. However, the national health or social security organizations of certain countries require our products to be qualified before they can be marketed in those countries. We cannot be assured that such clearances will be obtained. For example, although we received U.S. 510(k) clearance on our biphasic waveform in 1999, to date we have not been able to obtain similar clearance in Japan. As a result, our Japanese defibrillator revenues are very modest. Although we anticipate clearance in the future, we can provide no such assurance that we will succeed.

If We Fail to Comply With Applicable Regulatory Laws and Regulations, the FDA and Other U.S. and Foreign Regulatory Agencies Could Exercise Any of Their Regulatory Powers, Which Could Have a Material Adverse Effect on Our Business.

Every company that manufactures or assembles medical devices is required to register with the FDA and to adhere to certain quality systems, which regulate the manufacture of medical devices and prescribe record keeping procedures and provide for the routine inspection of facilities for compliance with such regulations. The FDA also

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has broad regulatory powers in the areas of clinical testing, marketing and advertising of medical devices. To ensure that manufacturers adhere to good manufacturing practices, medical device manufacturers are routinely subject to periodic inspections by the FDA. If the FDA believes that a company may not be operating in compliance with applicable laws and regulations, it could take any of the following actions:

• place the company under observation and re-inspect the facilities;

• issue a warning letter apprising of violating conduct;

• detain or seize products;

• mandate a recall;

• enjoin future violations; and

• assess civil and criminal penalties against the company, its officers or its employees.

We, like most of our U.S. competitors, have received warning letters from the FDA in the past, and may receive warning letters in the future. We have always complied with the warning letters we have received. However, our failure to comply with FDA regulations could result in sanctions being imposed on us, including restrictions on the marketing or recall of our products. These sanctions could have a material adverse effect on our business.

If a foreign regulatory agency believes that we are not operating in compliance with their laws and regulations, they could prevent us from selling our products in their country, which could have a material adverse effect on our business.

We are Dependent upon Licensed and Purchased Technology for Upgradeable Features in Our Products, and We May Not Be Able to Renew These Licenses or Purchase Agreements in the Future.

We license and purchase technology from third parties for upgradeable features in our products, including a 12 lead analysis program, SPO2, EtCO2, CO and NIBP technologies. We anticipate that we will need to license and purchase additional technology to remain competitive. We may not be able to renew our existing licenses and purchase agreements or to license and purchase other technologies on commercially reasonable terms or at all. If we are unable to renew our existing licenses and purchase agreements or we are unable to license or purchase new technologies, we may not be able to offer competitive products.

Fluctuations in Currency Exchange Rates May Adversely Affect Our International Sales.

Our revenue from foreign operations can be denominated in or significantly influenced by the currency and general economic climate of the country in which we make sales. A decrease in the value of such foreign currencies relative to the U.S. dollar could result in downward price pressure for our products or losses from currency exchange rate fluctuations. As we continue to expand our international operations, downward price pressure and exposure to gains and losses on foreign currency transactions may increase.

Approximately 25% to 33% of our revenue is generated in foreign markets. More than half of this revenue, representing our direct subsidiaries sales, is denominated in a foreign currency and, as such, is subject to direct foreign currency exposure. The currency exposure on the revenue is partially offset by the operating expenses which are also denominated in local currencies. The currency exposure is also partially offset by any forward contracts entered into to hedge our exposure to exchange rates. The other portion of revenue generated in the foreign markets is sold to distributors and is denominated in U.S. Dollars. This revenue could be subject to price pressure as the U.S. Dollar strengthens.

We may use forward contracts and other instruments to reduce our exposure to exchange rate fluctuations from intercompany accounts receivable and forecasted intercompany sales to our subsidiaries denominated in foreign currencies, and we may not be able to do this successfully. Accordingly, we may experience economic loss and a negative impact on our results of operations and equity as a result of foreign currency exchange rate fluctuations.

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Our Current and Future Investments May Lose Value in the Future.

We hold investments in two private companies and may in the future invest in the securities of other companies and participate in joint venture agreements. These investments and future investments are subject to the risks that the entities in which we invest will become bankrupt or lose money.

Investing in other businesses involves risks and no assurance can be made as to the profitability of any investment. Our inability to identify profitable investments could adversely affect our financial condition and results of operations. Unless we hold a majority position in an investment or joint venture, we will not be able to control all of the activities of the companies in which we invest or the joint ventures in which we are participating. Because of this, such entities may take actions against our wishes and not in furtherance of, and even opposed to, our business plans and objectives. These investments are also subject to the risk of impasse if no one party exercises ultimate control over the business decisions.

Future Changes in Applicable Laws and Regulations Could Have an Adverse Effect on Our Business.

Federal, state or foreign governments may change existing laws or regulations or adopt new laws or regulations that regulate our industry. Changes in or adoption of new laws or regulations could result in the following consequences that would have an adverse effect on our business:

• regulatory clearance previously received for our products could be revoked;

• costs of compliance could increase; or

• we may be unable to comply with such laws and regulations so that we would be unable to sell our products.

Some of Our Activities May Subject Us to Risks under Federal and State Laws Prohibiting “Kickbacks” and False or Fraudulent Claims.

We are subject to the provisions of a federal law commonly known as the Medicare/Medicaid anti-kickback law, and several similar state laws, which prohibit payments intended to induce physicians or others either to refer patients or to acquire or arrange for or recommend the acquisition of healthcare products or services. While the federal law applies only to referrals, products or services for which payment may be made by a federal healthcare program, state laws often apply regardless of whether federal funds may be involved. These laws constrain the sales, marketing and other promotional activities of manufacturers of medical devices by limiting the kinds of financial arrangements, including sales programs, with hospitals, physicians, laboratories and other potential purchasers of medical devices. Other federal and state laws generally prohibit individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, or are for items or services that were not provided as claimed. Anti-kickback and false claims laws prescribe civil and criminal penalties (including fines) for noncompliance that can be substantial. While we continually strive to comply with these complex requirements, interpretations of the applicability of these laws to marketing practices is ever evolving and even an unsuccessful challenge could cause adverse publicity and be costly to respond to, and thus could harm our business and prospects.

Patients May Not Be Able to Obtain Appropriate Insurance Coverage for Our LifeVest Product.

The ability of patients to obtain appropriate insurance coverage for our LifeVest product from government and third-party payors is critical to the success of the product. The availability of insurance coverage affects which products physicians may prescribe. Implementation of healthcare reforms in the United States and abroad may limit the price of, or the level at which, insurance is provided for our LifeVest product and adversely affect both our pricing flexibility and the demand for the product. Hospitals or physicians may respond to such pressures by substituting other therapies for our LifeVest product.

Further legislative or administrative reforms to the U.S. or international reimbursement systems that significantly reduce insurance coverage for our LifeVest product or deny coverage for our LifeVest product, or adverse decisions regarding coverage or reimbursement issues relating to our LifeVest product by administrators of such systems, would have an adverse impact on the sales of our LifeVest product. This in turn could have an adverse effect on our financial condition and results of operations.

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Our LifeVest Product is a Reimbursable Product and Is Subject to Laws that Are Different from Our Predominantly Capital Equipment Business.

The LifeVest product is our first reimbursed product which is different than our typical capital equipment business. The LifeVest product is governed by the Durable Medical Equipment Regulations and is subject to audit. The LifeVest is reimbursed by Medicare, Medicaid, or other third-party payors, for which reimbursement rates may fall with little notice.

Failure to Comply with HIPAA Obligations Puts Us at Risk.

The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created two new federal crimes: healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private payers. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government-sponsored programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines or imprisonment.

HIPAA also protects the security and privacy of individually identifiable health information maintained or transmitted by healthcare providers, health plans and healthcare clearinghouses. HIPAA restricts the use and disclosure of patient health information, including patient records. Although we believe that HIPAA does not apply to us directly, most of our customers have significant obligations under HIPAA, and we intend to cooperate with our customers and others to ensure compliance with HIPAA with respect to patient information that comes into our possession. Failure to comply with HIPAA obligations can entail criminal penalties. Some states have also enacted rigorous laws or regulations protecting the security and privacy of patient information. If we fail to comply with these laws and regulations, we could face additional sanctions.

Uncertain Customer Decision Processes May Result in Long Sales Cycles, Which Could Result in Unpredictable Fluctuations in Revenues and Delay the Replacement of Cardiac Resuscitation Devices.

Many of the customers in the pre-hospital market consist of municipal fire and emergency medical systems departments. As a result, there are numerous decision-makers and governmental procedures in the decision- making process. In addition, decisions at hospitals concerning the purchase of new medical devices are sometimes made on a department-by- department basis. Accordingly, we believe the purchasing decisions of many of our customers may be characterized by long decision-making processes, which have resulted in and may continue to result in long sales cycles for our products. For example, the sales cycles for cardiac resuscitation products typically have been between six to nine months, although some sales efforts have taken as long as two years.

Reliance on Domestic and International Distributors to Sell Our Products Exposes Us to Business Risks That Could Result in Significant Fluctuations in Our Results of Operations.

Although we perform credit assessments with sales to distributors, payment by the distributor may be affected by the financial stability of the customers to which the distributor sells. Future sales to distributors may also be affected by the distributor’s ability to successfully sell our products to their customers. Either of these scenarios could result in significant fluctuations in our results of operations.

Our International Sales Expose Our Business to a Variety of Risks That Could Result in Significant Fluctuations in Our Results of Operations.

Approximately 33% of our sales for the first quarter of fiscal 2009 were made to foreign purchasers, and we plan to increase the sale of our products to foreign purchasers in the future. As a result, a significant portion of our sales is and will continue to be subject to the risks of international business, including:

• fluctuations in foreign currencies;

• trade disputes;

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• changes in regulatory requirements, tariffs and other barriers;

• consequences of failure to comply with U.S. law and regulations concerning the conduct of business outside the U.S.;

• the possibility of quotas, duties, taxes or other changes or restrictions upon the importation or exportation of the products being implemented by the United States or these foreign countries;

• timing and availability of import/export licenses;

• political and economic instability;

• higher credit risk and difficulties in accounts receivable collections;

• increased tax exposure if our revenues in foreign countries are subject to taxation by more than one jurisdiction;

• accepting customer purchase orders governed by foreign laws, which may differ significantly from U.S. laws and limit our ability to enforce our rights under such agreements and to collect damages, if awarded;

• war on terrorism;

• disruption in the international transportation industry; and

• use of international distributors.

As international sales become a larger portion of our total sales, these risks could create significant fluctuations in our results of operations. These risks could affect our ability to resell trade-in products to domestic distributors, who in turn often resell the trade-in products in international markets. Our inability to sell trade-in products might require us to offer lower trade-in values, which might impact our ability to sell new products to customers desiring to trade in older models and then purchase newer products.

We intend to continue to expand our direct sales forces and our marketing support for these sales forces. We intend to continue to expand these areas, but if our sales forces are not effective, or if there is a sudden decrease in the markets where we have direct operations, we could be adversely affected.

We May Fail to Adequately Protect or Enforce Our Intellectual Property Rights or Secure Rights to Third Party Intellectual Property, and Our Competitors Can Use Some of Our Previously Proprietary Technology.

Our success will depend in part on our ability to obtain and maintain patent protection for our products, methods, processes and other technologies, to preserve our trade secrets and to operate without infringing the proprietary rights of third parties. We hold over 140 U.S. and over 90 foreign patents for our various inventions and technologies. Additional patent applications have been filed with the U.S. Patent and Trademark Office and outside the U.S. and are currently pending. The patents that have been granted to us are for a definitive period of time and will expire. We have filed certain corresponding foreign patent applications and intend to file additional foreign and U.S. patent applications as appropriate. We cannot be assured as to:

• the degree and range of protection any patents will afford against competitors with similar products;

• if and when patents will be issued;

• whether or not others will obtain patents claiming aspects similar to those covered by our patent applications;

• whether or not competitors will use information contained in our expired patents;

• whether or not others will design around our patents or obtain access to our know-how; or

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• the extent to which we will be successful in avoiding any patents granted to others.

We have, for example, patents and pending patent applications for our proprietary biphasic technology. Our competitors could develop biphasic technology that has comparable or superior clinical efficacy to our biphasic technology and if our patents do not adequately protect our technology, our competitors would be able to obtain patents claiming aspects similar to our biphasic technology or our competitors could design around our patents.

If certain patents issued to others are upheld or if certain patent applications filed by others issue and are upheld, we may be:

• required to obtain licenses or redesign our products or processes to avoid infringement;

• prevented from practicing the subject matter claimed in those patents; or

• required to pay damages.

There is substantial litigation regarding patent and other intellectual property rights in the medical device industry. Litigation or administrative proceedings, including interference proceedings before the U.S. Patent and Trademark Office, related to intellectual property rights have been and in the future could be brought against us or be initiated by us. Adverse determinations in any patent litigation could subject us to significant liabilities to third parties, could require us to seek licenses from third parties and could, if licenses are not available, prevent us from manufacturing, selling or using certain of our products, some of which could have a material adverse effect on the Company. In addition, the costs of any such proceedings may be substantial whether or not we are successful.

Our success is also dependent upon the skills, knowledge and experience, none of which is patentable, of our scientific and technical personnel. To help protect our rights, we require all U.S. employees, consultants and advisors to enter into confidentiality agreements, which prohibit the disclosure of confidential information to anyone outside of our Company and require disclosure and assignment to us of their ideas, developments, discoveries and inventions. We cannot be assured that these agreements will provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure of the lawful development by others of such information.

Reliance on Overseas Vendors for Some of the Components for Our Products Exposes Us to International Business Risks, Which Could Have an Adverse Effect on Our Business.

Some of the components we use in our products are acquired from foreign manufacturers, particularly countries located in Europe and Asia. As a result, a significant portion of our purchases of components is subject to the risks of international business. The failure to obtain these components as a result of any of these risks can result in significant delivery delays of our products, which could have an adverse effect on our business.

We May Acquire Other Businesses, and We May Have Difficulty Integrating These Businesses or Generating an Acceptable Return from Acquisitions.

We acquired Revivant (now ZOLL Circulation, Inc.) and the assets of each of Infusion Dynamics, Lifecor (now ZOLL Lifecor Corporation), Radiant Corporation (now part of ZOLL Circulation), and BIO-key International, Inc.’s fire records management software business (now a part of ZOLL Data Systems). We have also acquired certain assets from Welch Allyn, Inc. We may acquire other companies or make strategic purchases of interests in other companies related to our business in order to grow, add product lines, acquire customers or otherwise attempt to gain a competitive advantage in new or existing markets. Such acquisitions and investments may involve the following risks:

• our management may be distracted by these acquisitions and may be forced to divert a significant amount of time and energy into integrating and running the acquired businesses;

• we may face difficulties associated with financing the acquisitions;

• we may face the inability to achieve the desired outcomes justifying the acquisition;

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• we may face difficulties integrating the acquired business’ operations and personnel; and

• we may face difficulties incorporating the acquired technology into our existing product lines.

Intangibles and Goodwill We Currently Carry on Our Balance Sheet May Become Impaired.

At December 28, 2008, we had approximately $78 million of goodwill and intangible assets on our balance sheet. These assets are subject to impairment if the cash flow that we generate from these assets specifically, or our business more broadly, are insufficient to justify the carrying value of the assets. Factors affecting our ability to generate cash flow from these assets include, but are not limited to, general market conditions, product acceptance, pricing and competition, distribution, costs of production and operations.

In addition, volatility in our stock price and declines in our market capitalization could put pressure on the carrying value of our goodwill and other long-lived assets if the current period of economic uncertainty and related volatility in the financial markets persist for an extended period of time.

Provisions in Our Charter Documents, Our Shareholder Rights Agreement and State Law May Make It Harder for Others To Obtain Control of the Company Even Though Some Stockholders Might Consider Such a Development to be Favorable.

Our board of directors has the authority to issue up to 1,000,000 shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions of such shares without further vote or action by our stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock could have the effect of making it more difficult for third parties to acquire a majority of our outstanding voting stock. In addition, our restated articles of organization provide for staggered terms for the members of the board of directors, which could delay or impede the removal of incumbent directors and could make a merger, tender offer or proxy contest involving the Company more difficult. Our restated articles of organization, restated by-laws and applicable Massachusetts law also impose various procedural and other requirements that could delay or make a merger, tender offer or proxy contest involving us more difficult.

We have also implemented a so-called poison pill by adopting our shareholders rights agreement, which was renewed in April 2008. This poison pill significantly increases the costs that would be incurred by an unwanted third party acquirer if such party owns or announces its intent to commence a tender offer for more than 15% of our outstanding Common Stock or otherwise “triggers” the poison pill by exceeding the applicable stock ownership threshold. The existence of this poison pill could delay, deter or prevent a takeover of the Company.

All of these provisions could limit the price that investors might be willing to pay in the future for shares of our Common Stock, which could preclude our shareholders from recognizing a premium over the prevailing market price of our stock.

We Have Only One Manufacturing Facility for Each of Our Major Products and Any Damage or Incapacitation of Any of the Facilities Could Impede Our Ability to Produce These Products.

We have only one manufacturing facility for each of our major products. Damage to any such facility could render us unable to manufacture the relevant product or require us to reduce the output of products at the damaged facility. In addition, a severe weather event, other natural disaster or any other significant disruption affecting a facility occurring late in a quarter could make it difficult to meet product shipping targets. Any of these events could materially and adversely impact our business, financial condition and results of operations.

The Company Holds Various Marketable Securities Investments Which Are Subject to Market Risk, Including Volatile Interest Rates, A Volatile Stock Market, Etc.

Management believes it has a conservative investment policy. It calls for investing in high quality investment grade securities with an average duration of 24 months or less. However, with the volatility of interest rates and fluctuations in credit quality of the underlying investments and issues of general market liquidity, there can be no assurance that the Company’s investments will not lose value. Management does not believe it has material exposure currently. For example, a reduction in military expenditures in the monitoring and resuscitation markets would adversely affect business opportunities expected to result from the strategic alliance.

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The Company Has Entered Into A Strategic Alliance With Welch Allyn Which May Not Be Successful.

The Company recently announced a strategic alliance with Welch Allyn involving research and development, manufacturing, sales, service, and distribution related to Welch Allyn’s defibrillator and monitoring products. If we are delayed or fail to achieve our goals for this strategic alliance, our operating results could be unfavorably affected. For example, a reduction in military expenditures in the monitoring and resuscitation markets would adversely affect business opportunities expected to result from the strategic alliance.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have cash equivalents and marketable securities that primarily consist of money market accounts and fixed-rate, asset-backed corporate securities. The majority of these investments have maturities within one to five years. We believe that our exposure to interest rate risk is minimal due to the term and type of our investments and that the fluctuations in interest rates would not have a material adverse effect on our results of operations.

We have international subsidiaries in Canada, the United Kingdom, the Netherlands, France, Germany, Austria, Australia, and New Zealand. These subsidiaries transact business in their functional or local currency. Therefore, we are exposed to foreign currency exchange risks and fluctuations in foreign currencies, along with economic and political instability in the foreign countries in which we operate, all of which could adversely impact our results of operations and financial condition.

We use foreign currency forward contracts to manage our currency transaction exposures. These currency forward contracts are not designated as cash flow, fair value or net investment hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS 133”) and, therefore, are marked-to-market with changes in fair value recorded to earnings. These derivative instruments do not subject our earnings or cash flows to material risk since gains and losses on those derivatives generally offset losses and gains on the assets and liabilities being hedged.

We had two foreign currency forward contracts outstanding at December 28, 2008, serving to mitigate the foreign currency risk of a substantial portion of our Euro-denominated intercompany balances, in the total notional amount of approximately 10.5 million Euros. The fair value of these contracts at December 28, 2008 was approximately $14.8 million, resulting in an unrealized gain of $61,000. A sensitivity analysis of a change in the fair value of the Euro derivative foreign exchange contracts outstanding at December 28, 2008 indicates that, if the U.S. dollar weakened by 10% against the Euro, the fair value of this contract would decrease by approximately $1.5 million resulting in a total loss on the contract of approximately $1.4 million. Conversely, if the U.S. dollar strengthened by 10% against the Euro, the fair value of this contract would increase by approximately $1.3 million resulting in a total gain on the contract approximately of $1.4 million. Any gains and losses on the fair value of the derivative contract would be largely offset by losses and gains on the underlying transaction. These offsetting gains and losses are not reflected in the analysis below.

Intercompany Receivable Hedge

Exchange Rate Sensitivity: December 28, 2008

(Amounts in $)

	Expected Maturity Dates									Unrealized
	2009		2010	2011	2012	2013	Thereafter	Total		gain
Forward Exchange Agreements (Receive $/Pay Euro) Contract Amount	$	14,824,000						$	14,824,000	$	61,000
Average Contract Exchange Rate		1.4118	—	—	—	—	—		1.4118

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively) have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of December 28, 2008,

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the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective.

Changes in Internal Controls Over Financial Reporting

There have been no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended December 28, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is, from time to time, involved in the normal course of its business in various legal proceedings, including intellectual property, contract, employment and product liability suits. Although the Company is unable to quantify the exact financial impact of any of these matters, it believes that none of the currently pending matters will have an outcome material to its financial condition or business.

Item 1A. Risk Factors

There have been no material changes from the Risk Factors contained in our Annual Report on Form 10-K for the fiscal year ended September 28, 2008, which was filed with the SEC on December 8, 2008, with the following exception: we have added two new risk factors entitled, “Current and Future State and Other Municipality Budget Deficits Could Adversely Affect our Financial Performance,” and “The Company Has Entered Into A Strategic Alliance With Welch Allyn Which May Not Be Successful.” The risk factors as so modified have been repeated in their entirety for the reader’s convenience in Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Factors.”

Item 5. Other Information

(a) Not applicable.

(b) During the period covered by this report, there were no changes to the procedures by which security holders may recommend nominees to the Board of Directors.

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Item 6. Exhibits

Exhibit No.	Exhibit
3.1	Amended and Restated By-laws. (1)
3.2	Certificate of Amendment to the Company’s Amended and Restated By-laws. (2)
3.3	Certificate of Amendment to the Company’s Amended and Restated By-laws. (3)
10.1	Amended and Restated 2001 Stock Incentive Plan, as amended and restated by the Board of Directors on November 11, 2008 and approved by the Company’s stockholders on January 20, 2009. (4)
10.2	Amended and Restated 2006 Non-Employee Director Stock Option Plan, as amended and restated by the Board of Directors on November 11, 2008 and approved by the Company’s stockholders on January 20, 2009. (4)
10.3	Amended and Restated 2001 Stock Incentive Plan, as amended and restated by the Board of Directors on November 11, 2008. (5)
10.4	Amended and Restated 2006 Non-Employee Director Stock Option Plan, as amended and restated by the Board of Directors on November 11, 2008. (6)
10.5	Form of Non-Qualified Stock Option Agreement under Amended and Restated 2001 Stock Incentive Plan, as amended on November 11, 2008. (7)
10.6	Form of Restricted Stock Award Agreement under Amended and Restated 2001 Stock Incentive Plan, as amended on November 11, 2008. (8)
10.7	Form of Non-Qualified Stock Option Agreement under Amended and Restated 2006 Non-Employee Director Stock Option Plan, as amended on November 11, 2008. (9)
10.8	Amendment dated November 17, 2008 to Employment Agreement dated July 19, 1996 between the Company and Richard A. Packer. (10)
10.9	Amendment dated November 17, 2008 to Senior Executive Severance Agreement dated as of January 21, 2000 between the Company and Richard A. Packer. (11)
10.10	Amendment dated November 11, 2008 to Amended and Restated Executive Severance Agreement dated April 1, 2002 between the Company and A. Ernest Whiton. (12)
10.11	Amendment dated November 25, 2008 to Executive Severance Agreement dated May 17, 2002 between the Company and Edward Dunn. (13)
10.12	Amendment dated November 19, 2008 to Executive Severance Agreement dated April 25, 2002 between the Company and Donald Boucher. (14)
10.13	Amendment dated November 25, 2008 to Executive Severance Agreement dated May 7, 2002 between the Company and Ward Hamilton. (15)
10.14	Amendment dated December 1, 2008 to Executive Severance Agreement dated May 6, 2002 between the Company and Steven Flora. (16)

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10.15	Executive Severance Agreement dated as of November 11, 2008 between the Company and Jonathan Rennert. (17)
10.16	Executive Severance Agreement dated as of November 11, 2008 between the Company and E. Jane Wilson. (18)
10.17	Amendment dated November 11, 2008 to Executive Severance Agreement dated August 10, 2005 between the Company and Alexander Moghadam. (19)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (4)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (4)
32.1*	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (20)
32.2*	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (20)

(1) Incorporated by reference to the Company’s Registration Statement on Form S-1, as amended, under the Securities Act of 1933 (Registration Statement No. 333-47937) filed with the Securities and Exchange Commission on May 15, 1992).

(2) Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 25, 2007.

(3) Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 12, 2008.

(4) Filed herewith.

(5) Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(6) Incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(7) Incorporated by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(8) Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(9) Incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(10) Incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(11) Incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(12) Incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(13) Incorporated by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(14) Incorporated by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(15) Incorporated by reference to Exhibit 10.41 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(16) Incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

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(17) Incorporated by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(18) Incorporated by reference to Exhibit 10.44 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(19) Incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(20) Furnished herewith.

* This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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.

	ZOLL MEDICAL CORPORATION
Date: February 6, 2009	By:	/s/ RICHARD A. PACKER
		Richard A. Packer,
		Chief Executive Officer
		(Principal Executive Officer)

Date: February 6, 2009	By:	/s/ A. ERNEST WHITON
		A. Ernest Whiton,
		Vice President of Administration and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit No.	Exhibit
3.1	Amended and Restated By-laws. (1)
3.2	Certificate of Amendment to the Company’s Amended and Restated By-laws. (2)
3.3	Certificate of Amendment to the Company’s Amended and Restated By-laws. (3)
10.1	Amended and Restated 2001 Stock Incentive Plan, as amended and restated by the Board of Directors on November 11, 2008 and approved by the Company’s stockholders on January 20, 2009. (4)
10.2	Amended and Restated 2006 Non-Employee Director Stock Option Plan, as amended and restated by the Board of Directors on November 11, 2008 and approved by the Company’s stockholders on January 20, 2009. (4)
10.3	Amended and Restated 2001 Stock Incentive Plan, as amended and restated by the Board of Directors on November 11, 2008. (5)
10.4	Amended and Restated 2006 Non-Employee Director Stock Option Plan, as amended and restated by the Board of Directors on November 11, 2008. (6)
10.5	Form of Non-Qualified Stock Option Agreement under Amended and Restated 2001 Stock Incentive Plan, as amended on November 11, 2008. (7)
10.6	Form of Restricted Stock Award Agreement under Amended and Restated 2001 Stock Incentive Plan, as amended on November 11, 2008. (8)
10.7	Form of Non-Qualified Stock Option Agreement under Amended and Restated 2006 Non-Employee Director Stock Option Plan, as amended on November 11, 2008. (9)
10.8	Amendment dated November 17, 2008 to Employment Agreement dated July 19, 1996 between the Company and Richard A. Packer. (10)
10.9	Amendment dated November 17, 2008 to Senior Executive Severance Agreement dated as of January 21, 2000 between the Company and Richard A. Packer. (11)
10.10	Amendment dated November 11, 2008 to Amended and Restated Executive Severance Agreement dated April 1, 2002 between the Company and A. Ernest Whiton. (12)
10.11	Amendment dated November 25, 2008 to Executive Severance Agreement dated May 17, 2002 between the Company and Edward Dunn. (13)
10.12	Amendment dated November 19, 2008 to Executive Severance Agreement dated April 25, 2002 between the Company and Donald Boucher. (14)
10.13	Amendment dated November 25, 2008 to Executive Severance Agreement dated May 7, 2002 between the Company and Ward Hamilton. (15)
10.14	Amendment dated December 1, 2008 to Executive Severance Agreement dated May 6, 2002 between the Company and Steven Flora. (16)
10.15	Executive Severance Agreement dated as of November 11, 2008 between the Company and Jonathan Rennert. (17)
10.16	Executive Severance Agreement dated as of November 11, 2008 between the Company and E. Jane Wilson. (18)

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10.17	Amendment dated November 11, 2008 to Executive Severance Agreement dated August 10, 2005 between the Company and Alexander Moghadam. (19)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (4)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (4)
32.1*	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (20)
32.2*	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (20)

(1) Incorporated by reference to the Company’s Registration Statement on Form S-1, as amended, under the Securities Act of 1933 (Registration Statement No. 333-47937) filed with the Securities and Exchange Commission on May 15, 1992).

(2) Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 25, 2007.

(3) Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 12, 2008.

(4) Filed herewith.

(5) Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(6) Incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(7) Incorporated by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(8) Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(9) Incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(10) Incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(11) Incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(12) Incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(13) Incorporated by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(14) Incorporated by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(15) Incorporated by reference to Exhibit 10.41 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(16) Incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(17) Incorporated by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(18) Incorporated by reference to Exhibit 10.44 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(19) Incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 8, 2008.

(20) Furnished herewith.

* This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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