-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GqqepsDDkIXRnrLHmrEWEJwkrbN0G9EoTTth3wQzOlK9XncmeyYHVZ0i6o5/9MGl e8gNT96KKgLeabg0ruTKrQ== 0000950135-99-005728.txt : 19991230 0000950135-99-005728.hdr.sgml : 19991230 ACCESSION NUMBER: 0000950135-99-005728 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991015 ITEM INFORMATION: FILED AS OF DATE: 19991229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZOLL MEDICAL CORPORATION CENTRAL INDEX KEY: 0000887568 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 042711626 STATE OF INCORPORATION: MA FISCAL YEAR END: 0928 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-20225 FILM NUMBER: 99782043 BUSINESS ADDRESS: STREET 1: 32 SECOND AVENUE CITY: BURLINGTON STATE: MA ZIP: 01803-4420 BUSINESS PHONE: 6172290020 MAIL ADDRESS: STREET 1: 32 SECOND AVENUE CITY: BURLINGTON STATE: MA ZIP: 01803-4420 8-K/A 1 ZOLL MEDICAL CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (date of earliest event reported): October 15, 1999 ZOLL MEDICAL CORPORATION (Exact Name of Registrant as specified in its charter) Massachusetts 000-20225 04-2711626 (State or other jurisdiction (Commission File (I.R.S. Employer of incorporation) Number) Identification No.) 32 Second Avenue, Northwest Park, Burlington, Massachusetts 01803 (Address of principal executive offices and zip code) (781) 229-0020 (Registrant's telephone number, including area code) 2 This Form 8-K/A amends Item 7 of the Current Report on Form 8-K of Zoll Medical Corporation previously filed with the Securities and Exchange Commission on October 29, 1999, solely for the purpose of filing the financial information set forth below. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (b) PRO FORMA FINANCIAL INFORMATION The pro forma financial information required to be filed by Regulation S-X promulgated by the Securities Exchange Commission is set forth in the exhibits to this Form 8-K/A. (c) EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- ----------- 23.1 Consent of Independent Auditors 27.1 Financial Data Schedule - September 26, 1998 27.2 Financial Data Schedule - September 27, 1997 27.3 Financial Data Schedule - September 28, 1996 27.4 Financial Data Schedule - July 3, 1999 27.5 Financial Data Schedule - June 27, 1998 99.1 ZOLL Medical Corporation Supplemental Combined Financial Statements - Three Years Ended September 26, 1998 99.2 ZOLL Medical Corporation Supplemental Condensed Combined Financial Statements - Nine Months Ended July 3, 1999 and June 27, 1998 (unaudited) 99.3 Pinpoint Technologies, Inc. Financial Statements - Year Ended September 30, 1998 99.4 Pinpoint Technologies, Inc. Condensed Financial Statements - Nine Months Ended June 30, 1999 and June 30, 1998 (unaudited)
3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: December 28, 1999 ZOLL MEDICAL CORPORATION By: /s/ A. Ernest Whiton ------------------------------ Name: A. Ernest Whiton Title: Vice President and Chief Financial Officer EX-23.1 2 CONSENT OF INDEPENDENT AUDITORS 1 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3 No. 333-9107) and related Prospectus of ZOLL Medical Corporation for the registration of 218,059 shares of its common stock and to the incorporation by reference therein of our reports dated November 12, 1999, with respect to the supplemental combined financial statements and schedules of ZOLL Medical Corporation for the year ended September 26, 1998 and the financial statements of Pinpoint Technologies, Inc. for the year ended September 30, 1998, included in the Current Report of ZOLL Medical Corporation on Form 8-K/A dated December 28, 1999, filed with the Securities and Exchange Commission. We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-68403, Form S-8 No. 33-90764, Form S-8 No. 33-56244) pertaining to the ZOLL Medical Corporation 1992 Stock Option Plan and the Registration Statement (Form S-8 No. 333-68401) pertaining to the Non-Employee Directors' Stock Option Plan of ZOLL Medical Corporation of our reports dated November 12, 1999, with respect to the supplemental combined financial statements and schedules of ZOLL Medical Corporation for the year ended September 26, 1998 and the financial statements of Pinpoint Technologies, Inc. for the year ended September 30, 1998, included in the Current Report on Form 8-K/A of ZOLL Medical Corporation dated December 28, 1999, filed with the Securities and Exchange Commission. Ernst & Young LLP Boston, Massachusetts December 27, 1999 EX-99.1 3 SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS 1 EXHIBIT 99.1 ZOLL Medical Corporation Supplemental Combined Financial Statements September 26, 1998 CONTENTS Five Year Financial Summary................................................. Management's Discussion and Analysis........................................ Report of Independent Auditors.............................................. Supplemental Combined Balance Sheets........................................ Supplemental Combined Income Statements..................................... Supplemental Combined Statements of Stockholders' Equity.................... Supplemental Combined Statements of Cash Flows.............................. Notes to Supplemental Combined Financial Statements......................... Schedule II Valuation and Qualifying Accounts...............................
2 ZOLL MEDICAL CORPORATION FIVE YEAR FINANCIAL SUMMARY
YEAR ENDED SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30, OCTOBER 1, (000's omitted, except in per share data) 1998 1997 1996 1995 1994 ------------- ------------- ------------- ------------- ---------- INCOME STATEMENT DATA: Net sales $57,520 $57,833 $55,700 $45,884 $47,533 Cost of goods sold 24,268 25,372 24,545 20,421 19,943 ------- ------- ------- ------- ------- Gross profit 33,252 32,461 31,155 25,463 27,590 EXPENSES: Selling and marketing 20,152 18,484 16,773 15,575 12,876 General and administrative 6,239 6,749 4,809 4,313 4,075 Research and development 6,583 6,430 4,464 4,360 5,253 ------- ------- ------- ------- ------- Total expenses 32,974 31,663 26,046 24,248 22,204 ------- ------- ------- ------- ------- Income from operations 278 798 5,109 1,215 5,386 Net investment income 413 355 278 243 289 ------- ------- ------- ------- ------- Income before income taxes 691 1,153 5,387 1,458 5,675 Provision for income taxes 18 266 1,758 496 2,043 ------- ------- ------- ------- ------- Net income $ 673 $ 887 $ 3,629 $ 962 $ 3,632 ------- ------- ------- ------- ------- Basic earnings per share $ .10 $ .13 $ .55 $ .15 $ .60 Weighted average common shares outstanding 6,602 6,602 6,562 6,519 6,069 ------- ------- ------- ------- ------- Diluted earnings per share $ .10 $ .13 $ .55 $ .15 $ .58 Weighted average common and equivalent shares outstanding 6,647 6,650 6,635 6,613 6,249 ------- ------- ------- ------- ------- Balance Sheet Data: Working capital $21,678 $24,361 $25,303 $24,223 $23,295 Total assets $46,656 $45,013 $42,507 $36,263 $35,621 Total long-term debt, excluding current portion $ 446 $ 565 $ 713 $ 864 $ 894 Stockholders' equity $34,787 $34,463 $33,614 $29,596 $28,337
*During the year ended September 27,1997, excluding a one-time charge taken in Q1 aggregating $2.3 million, net income would have been $2,405 and earnings per common and equivalent share would have been $0.36. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Basis of Presentation: On October 15, 1999, the Company acquired Pinpoint Technologies, Inc. (Pinpoint) in a business combination accounted for as a pooling of interests. Pinpoint, which creates, develops and manufactures advanced information technology software, exclusively focused on the emergency medical services (EMS)market, became a wholly owned subsidiary of the Company through the exchange of approximately 410,000 shares of the Company's common stock for all of the outstanding stock of Pinpoint. The accompanying supplemental combined financial statements are based on the assumption that the companies were combined for all periods presented, and financial statements of prior years have been restated to give effect to the combination. Prior to the combination, Pinpoint had a December 31 fiscal year end. Subsequent to the pooling Pinpoint Technologies, Inc changed its year-end to the Saturday closest to September 30, to conform with that of the Company. The accompanying supplemental combined financial statements reflect the combined historical results of ZOLL Medical Corporation for the period ended September 26, 1998, September 27, 1997 and September 28, 1996 and the results of Pinpoint for September 26, 1998, December 31, 1997, and 1996. An adjustment for $140,000 was reflected in the Combined Statements of Stockholders' Equity to eliminate the effect of including Pinpoint's results of operations for the three months ended December 31, 1997, in both the years ended September 26, 1998 and September 27, 1997. These supplemental financial statements are supplemental to, rather than in place of, the historical financial statements. The supplemental financial statements will become the historical financial statements upon issuance of the interim financial statements of ZOLL Medical Corporation for the quarter ended January 1, 2000. 1998 COMPARED TO 1997 The Company's net sales decreased by 1/2 of 1% to $57,520,000 for the year ended September 26, 1998 from $57,833,000 for the year ended September 27, 1997. The decrease was primarily attributed to the net effect of an increase in sales of disposable electrodes and Westech management data software and hardware and a decrease in equipment sales. The Company believes that the decrease in equipment sales in North America was primarily the result of customers holding back on purchases while waiting for the release of the M Series, which was not shipped until the end of the fourth quarter of 1998. In addition, the decrease in sales in the international market was primarily a result of depressed foreign markets. The M Series did not have any significant impact on the sales to the international markets in 1998 as the roll out to international distributors continued into 1999. Gross profit increased as a percentage of sales to 58% from 56%. This increase is primarily a result of the improved business mix. Selling and marketing expenses increased as a percentage of sales to 35% from 32%. Selling and marketing expenses increased 9% to $20,152,000 from $18,484,000. Of this increase, $1,419,000 was due to higher payroll related cost and travel expenditures reflecting the reorganization of the North American sales force. This mid-year reorganization increased the size of and split the sales force to focus on two distinct markets: hospital and pre-hospital. The increase in selling and marketing expenses was due also to $85,000 in higher international selling expenditures and a $325,000 increase in expenditures for promotion, advertising and other selling activities related to the introduction of the M Series offset by a $392,000 decrease in product services and support. General and administrative expenses slightly decreased as a percentage of sales from 12% to 11%. General and administrative expenses decreased 8% to $6,239,000 from $6,749,000. This decrease was due primarily to the occurrence of a one-time charge recognized in 1997 of $1,300,000 related to the estimated cost of proceeding to trial in a class action shareholder lawsuit. This decrease was partially offset by an increase in 1998 of $413,000 for payroll related costs and professional services. Research and development expenses remained consistent as a percentage of sales. Research and development expenses decreased to $6,583,000 from $6,430,000. In 1997, a charge of $1,000,000 was made to account for the value of in-process research and development acquired in the purchase of assets from Westech. Excluding this charge, research and development expenses increased by 21%, or $998,000. This increase was due primarily to an increase of $665,000 in prototype and testing expenses for new technology and start-up costs for the M Series and an increase of $179,000 in payroll related costs. Net investment income increased from the prior year due primarily to higher average cash balances. At September 26, 1998, the Company has available tax loss carryforwards of approximately $1,603,000, of which $786,000 expire at various dates through 2003 and $817,000 has an indefinite life. Approximately $1,427,000 of the tax loss carryforwards is attributable to the Company's foreign operations and is not available to offset domestic taxable income. 1997 COMPARED TO 1996 The Company's net sales increased 4% to $57,833,000 for the year ended September 27, 1997 from $55,700,000 for the year ended September 28, 1996. The increase was primarily attributable to a 12% increase in sales of disposable electrodes and a 5% increase in sales to international markets. Gross profit as a percentage of sales remained at 56%. Selling and marketing expenses increased as a percentage of sales to 32% from 30%. Selling and marketing expenses increased 10% to $18,484,000 from $16,773,000. Of this increase, $734,000 was due to higher payroll related costs and travel expenditures due to higher staffing levels in North America, $350,000 was due to higher international selling expenditures, $295,000 was due to increased product services and support, and $349,000 was due to increased expenditures for promotion and advertising activities. 4 General and administrative expenses increased as a percentage of sales to 12% from 9%. General and administrative expenses increased 40% to $6,749,000 from $4,809,000. Of this increase, $1,300,000 was related to the estimated cost of proceeding to trial in a class action shareholder lawsuit that was initiated in 1994 and $591,000 was due to increased payroll related costs and travel expenditures because of higher staffing levels and the acquisition of the mobile computing business of Westech Information Systems, Inc. (Westech). Research and development expenses increased as a percentage of sales to 11% from 8%. Research and development expenses increased 44% to $6,430,000 from $4,464,000. Of this increase, $1,000,000 is applicable to the value of in-process research and development acquired in the purchase of assets from Westech, and $885,000 is due to increased staffing related to new product development. Net investment income increased to $355,000 from $278,000. The increase was due primarily to higher average cash balances. At September 27, 1997, the Company has available tax loss carryforwards of approximately $1,267,000 of which $720,000 expire at various dates through 2002 and $547,000 has an indefinite life. Approximately $1,157,000 of the tax loss carryforwards is attributable to the Company's foreign operations and is not available to offset domestic taxable income. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and investments at September 26, 1998 was $5,521,000 compared to $10,236,000 at September 27, 1997, a decrease of $4,715,000. Cash used for operating activities for the year ended September 26, 1998 increased $5,617,000 over the same period in 1997. This decrease was primarily due to an increase in inventories related to production of the M Series and an increase in prepaid expenses and other current assets. The amount of cash required to fund investing activities was $3,442,000 higher for the year ended September 26, 1998 compared to the same period in 1997. The increase was primarily due to an increase in property, plant and equipment amounting to $4,493,000. The Company maintains a working capital line of credit with its bank. Under this working capital line, the Company may borrow up to $3,000,000 on a demand basis. Borrowings under this line bear interest at the bank's base rate (8.5% at September 26, 1998). The full amount of the line was available to the Company at September 26, 1998. The Company expects that the combination of existing funds, cash generated from operations and its existing line of credit will be adequate to meet its liquidity and capital requirements for the foreseeable future. YEAR 2000 Introduction: Many computer and software systems in use today are not designed to process date information after 1999. This deficiency results from the inability of most computer programs that perform arithmetic and logic operations after this date to use only the last two digits of the year when they make their calculations. If not corrected, this year 2000 problem could cause computer applications and other equipment used and manufactured by the Company, its suppliers and its customers to fail to operate properly. Year 2000 Project: In early 1998, the Company began a project to assess its potential vulnerability to the year 2000 problem and to minimize the effect of the problem on its operations. The project addresses five major areas of the business at each of its locations: business systems, including management information systems; factory and facilities equipment, including equipment that uses a computer to control its operation either for producing end product or to supply services; products, including equipment and software supplied to customers; suppliers, including businesses that provide services and raw materials to the Company; and customers. The Company has completed a review of its business systems with regard to year 2000 compliance and will either replace or correct through programming modifications those critical computer systems that have been found to have date related deficiencies. The Company's information technology systems were upgraded with vendor supplied year 2000 software packages. Although the Company is testing these systems, there can be no assurance that these systems will function properly in an operational environment. The Company expects to complete testing of these systems by December 31, 1999. The Company is also assessing factory, facility and telecommunication systems and equipment used to support manufacturing processes. The Company has assessed the year 2000 readiness of the equipment used in the 5 manufacturing and testing of its products and believes this equipment to be year 2000 compliant, but there can be no assurance that the tests performed adequately ensure that such equipment will not experience year 2000 failure. In addition, the Company is assessing the readiness of third parties (vendors, customers, etc.) that interact with the Company's systems. The Company has tested its products and has found them to be year 2000 compliant. It is possible that this testing did not identify problems that might still occur in an operational environment. Year 2000 Costs: External and internal costs specifically associated with modifying internal use software for year 2000 compliance are expensed as incurred. To date, those costs have totaled less than $600,000. Based on currently available information, the Company expects the total cost of addressing the potential year 2000 issues to be less than $750,000. The Company does not expect the costs of addressing potential year 2000 problems to have a material adverse effect on the Company's financial position, results of operations or liquidity in future periods. Risks and Contingency Plan: The Company relies on a variety of either single or critical source vendors in the production of its products. The Company anticipates a reasonably worst case scenario to be the failure of a single or critical source vendor to be year 2000 compliant. Such failure might cause the third party vendor to be unable to supply critical components or other resources that would have a material adverse effect on the Company. If not remediated, year 2000 issues have the potential to severely disrupt the Company's operations and to adversely affect its financial condition. While the Company may monitor the readiness for the year 2000 of its suppliers and its customers, it has very limited ability to assure year 2000 readiness by such parties. The failure of any supplier or customer to ensure its own year 2000 readiness could have a material adverse impact on the Company. There can be no assurance that third party suppliers will not experience unforseen difficulties and be unable to supply components of the Company's products or that third party providers of the hardware upon which its software runs will not be materially harmed by year 2000 problems and be unable to continue to provide such hardware to the Company. Year 2000 problems could cause the Company's banks to experience disruption, which could adversely affect operations. Year 2000 problems could also adversely affect customers and their ability to pay the Company, which would adversely affect operation results. The Company could also be affected by the failure of government agencies on which the Company depends to maintain services essential to operations and the failure of the airline industry on which the Company relies to support the activities of the sales force. The Company could also be harmed materially by any significant enconomic, financial market or infrastructure disruption attributable to year 2000 problems. The Company is finalizing contingency plans to cover situations in which year 2000 problems arise despite its efforts. These plans are expected to be substantially ready by December 31, 1999. SAFE HARBOR STATEMENTS Except for the historical information contained herein, the matters set forth herein are forward looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward looking statements. Such risks and uncertainties include, but are not limited to: product demand and market acceptance risks, the effect of economic conditions, results of pending or future litigation, the impact of competitive products and pricing, product development and commercialization, technological difficulties, the government regulatory environment and actions, trade environment, capacity and supply constraints or difficulties, the results of financing efforts, actual purchases under agreements, year 2000 issues, including expectations of readiness, and the effect of the Company's accounting policies. 6 Report of Independent Auditors Board of Directors and Stockholders ZOLL Medical Corporation We have audited the supplemental combined balance sheets of ZOLL Medical Corporation (formed as a result of the combination of ZOLL Medical Corporation and Pinpoint Technologies, Inc.) as of September 26, 1998 and September 27, 1997 and the related supplemental combined statements of income, shareholders' equity, and cash flows for each of the three years in the period ended September 26, 1998. The supplemental combined financial statements give retroactive effect to the merger of ZOLL Medical Corporation and Pinpoint Technologies, Inc. on October 15, 1999, which has been accounted for using the pooling of interests method as described in the notes to the supplemental combined financial statements. These supplemental financial statements are the responsibility of the management of ZOLL Medical Corporation. Our responsibility is to express an opinion on these supplemental financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits, the supplemental financial statements referred to above present fairly, in all material respects, the combined financial position of ZOLL Medical Corporation at September 26, 1998 and September 27, 1997, and the combined results of its operations and its cash flows for each of the three years in the period ended September 26, 1998, after giving retroactive effect to the merger of Pinpoint Technologies, Inc., as described in the notes to the supplemental combined financial statements, in conformity with generally accepted accounting principles. Ernst & Young LLP Boston Massachusetts November 12, 1999 7 ZOLL MEDICAL CORPORATION SUPPLEMENTAL COMBINED BALANCE SHEETS
SEPTEMBER 26, SEPTEMBER 27, 1998 1997 ------------- ------------- (000's omitted, except per share amounts) ASSETS Current assets: Cash and cash equivalents $ 5,521 $ 9,958 Investments -- 278 Accounts receivable, less allowance of $940 at September 26, 1998 and $1,244 at September 27, 1997 14,630 14,988 Inventories: Raw materials 3,990 2,632 Work-in-process 1,735 840 Finished goods 3,680 4,004 ------- ------- 9,405 7,476 Prepaid expenses and other current assets 3,257 1,543 ------- ------- Total current assets 32,813 34,243 Property and equipment at cost: Land and building 1,032 1,023 Machinery and equipment 12,791 8,921 Construction in progress 1,162 1,329 Tooling 2,225 1,646 Furniture and fixtures 712 674 Leasehold improvements 737 737 ------- ------- 18,659 14,330 Less accumulated depreciation 8,187 6,810 ------- ------- Net property and equipment 10,472 7,520 Other assets, net of accumulated amortization of $496 at September 26, 1998 and $402 at September 27, 1997 3,371 3,250 ------- ------- $46,656 $45,013 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,902 $ 2,096 Accrued expenses and other liabilities 7,724 7,474 Current maturities of long-term debt 116 119 Deferred revenue 393 193 ------- ------- Total current liabilities 11,135 9,882 Deferred income taxes 288 103 Long-term debt 446 565 Stockholder's equity: Commitments and contingencies Preferred Stock, $.01 par value, authorized 1,000 shares, none issued and outstanding -- -- Common stock, $.02 par value, authorized 19,000 shares, 6,602 and 6,561 issued and outstanding at September 26, 1998 and September 27, 1997, respectively 132 131 Capital in excess of par value 20,683 20,635 Retained earnings 13,972 13,697 ------- ------- Total stockholders' equity 34,787 34,463 ------- -------
8 $46,656 $45,013 ======= =======
See notes to supplemental combined financial statements. 9 ZOLL MEDICAL CORPORATION SUPPLEMENTAL COMBINED INCOME STATEMENTS
YEAR ENDED --------------------------------------------- SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 28, 1998 1997 1996 ------------- ------------- ------------- (000's omitted, except per share data) Net sales $57,520 $57,833 $55,700 Cost of goods sold 24,268 25,372 24,545 ------- ------- ------- Gross profit 33,252 32,461 31,155 Expenses: Selling and marketing 20,152 18,484 16,773 General and administrative 6,239 6,749 4,809 Research and development 6,583 6,430 4,464 ------- ------- ------- Total expenses 32,974 31,663 26,046 ------- ------- ------- Income from operations 278 798 5,109 Investment income 487 432 382 Interest expense 74 77 104 ------- ------- ------- Income before income taxes 691 1,153 5,387 Provision for income taxes 18 266 1,758 ------- ------- ------- Net income $ 673 $ 887 $ 3,629 ======= ======= ======= Basic earnings per common share $ 0.10 $ 0.13 $ 0.55 Weighted average common shares outstanding 6,602 6,602 6,562 Diluted earnings per common and equivalent share $ 0.10 $ 0.13 $ 0.55 Weighted average common and equivalent shares outstanding 6,647 6,650 6,635
See notes to supplemental combined financial statements. 10 ZOLL MEDICAL CORPORATION SUPPLEMENTAL COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
CAPITAL IN TOTAL COMMON EXCESS OF RETAINED STOCKHOLDERS' SHARES AMOUNT PAR VALUE EARNINGS EQUITY ------ ------ ---------- -------- ------------- (000's omitted) Balance at September 30, 1995 6,117 $122 $20,123 $ 9,345 $29,590 Exercise of stock options 57 2 344 346 Tax benefit realized upon exercise of 73 73 stock options Pooling of interest with Pinpoint, Inc. (see Note A) 369 7 (7) 6 6 Distributions by Pinpoint Technologies, Inc. (30) (30) Net income 3,629 3,629 ----- ---- ------- ------- ------- Balance at September 28, 1996 6,543 131 20,533 12,950 33,614 Exercise of stock options 18 59 59 Tax benefit realized upon exercise of 43 43 stock options Distributions by Pinpoint Technologies, Inc. (140) (140) Net income 887 887 ----- ---- ------- ------- ------- Balance at September 27, 1997 6,561 131 20,635 13,697 34,463 Issuance of common stock by Pinpoint Technologies, Inc. (see Note A) 41 1 48 49 Adjustments to conform with pooled companies fiscal year-ends (140) (140) Distributions by Pinpoint Technologies, Inc. (258) (258) Net income 673 673 ----- ---- ------- ------- ------- Balance at September 26, 1998 6,602 $132 $20,683 $13,972 $34,787 ===== ==== ======= ======= =======
See notes to supplemental combined financial statements. 11 ZOLL MEDICAL CORPORATION SUPPLEMENTAL COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED ----------------------------------------------- SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 28, 1998 1997 1996 ------------- ------------- ------------- (000's omitted) Operating activities: Net income $ 673 $ 887 $ 3,629 Charges not affecting cash: Depreciation and amortization 1,478 1,418 1,554 Issuance of common stock for services 49 0 0 Accounts receivable allowances 243 361 143 Inventory reserve 53 318 33 Provision for warranty expense (43) 275 121 Deferred income taxes 188 (898) 133 In-process research and development 1,000 Changes in current assets and liabilities: Accounts receivable 114 1,102 (2,556) Inventories (1,982) (408) (71) Prepaid expenses and other current assets (1,715) (23) 119 Accounts payable and accrued expenses 1,133 1,739 2,176 Deferred revenue 79 116 77 ------- ------- ------- Cash provided by operating activities 270 5,887 5,358 Investing activities: Additions to property and equipment (4,493) (1,801) (1,942) Investment in marketable securities (2,675) (2,575) (4,674) Redemption of marketable securities 2,953 5,262 2,759 Other assets (62) (166) (320) Acquisition of assets from Westech Information Systems, Inc. (3) (1,558) Investment in common stock of Lifecor, Inc. (2,000) ------- ------- ------- Cash used for investing activities (4,280) (838) (6,177) Financing activities: Exercise of stock options, including income tax benefits 102 419 Distributions to stockholders (258) (140) (30) Proceeds from loans 0 0 96 Repayment of long-term debt (127) (160) (200) ------- ------- ------- Cash provided by (used for) financing activities (385) (198) 285 ------- ------- ------- Net increase (decrease) in cash (4,395) 4,851 (534) Cash and cash equivalents at beginning of year* 9,916 5,107 5,641 ------- ------- ------- Cash and cash equivalents at end of year $ 5,521 $ 9,958 $ 5,107 ======= ======= =======
* Pinpoint Technologies, Inc.'s year-end was changed from December 31 to match ZOLL Medical Corporation's September 26, 1998 year-end (see note A)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year: Income taxes $1,002 $ 551 $1,556 Interest 74 77 104 Non-cash transaction: Issuance of common stock for services $ 49
12 See notes to supplemental combined financial statements. 13 ZOLL MEDICAL CORPORATION NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS NOTE A-SIGNIFICANT ACCOUNTING POLICIES Description of Business: ZOLL Medical Corporation (the Company) designs, manufactures and markets an integrated line of proprietary, non-invasive cardiac resuscitation devices and disposable electrodes. The Company's products are used for the emergency resuscitation of cardiac arrest victims. The Company also designs and markets software, which automates collection and management of both clinical and non-clinical data for emergency medical service providers. Basis of Presentation: On October 15, 1999, the Company acquired Pinpoint Technologies, Inc. (Pinpoint) in a business combination accounted for as a pooling of interests. Pinpoint, which creates, develops and manufactures advanced information technology software, exclusively focused on the emergency medical services (EMS)market, became a wholly owned subsidiary of the Company through the exchange of approximately 410,000 shares of the Company's common stock for all of the outstanding stock of Pinpoint. The accompanying supplemental combined financial statements are based on the assumption that the companies were combined for all periods presented, and financial statements of prior years have been restated to give effect to the combination. Prior to the combination, Pinpoint had a December 31 fiscal year end. Subsequent to the pooling Pinpoint Technologies, Inc changed its year-end to the Saturday closest to September 30, to conform with that of the Company. The accompanying supplemental combined financial statements reflect the combined historical results of ZOLL Medical Corporation for the period ended September 26, 1998, September 27, 1997 and September 28, 1996 and the results of Pinpoint for September 26, 1998, December 31, 1997, and 1996. An adjustment for $140,000 was reflected in the Combined Statements of Stockholders' Equity to eliminate the effect of including Pinpoint's results of operations for the three months ended December 31, 1997, in both the years ended September 26, 1998 and September 27, 1997. These supplemental financial statements are supplemental to, rather than in place of the historical financial statements. The supplemental financial statements will become the historical financial statements upon issuance of the interim financial statements of Zoll Medical Corporation for the quarter ended January 1, 2000. Principles of Consolidation: The combined financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Fiscal Year: The Company's fiscal year ends on the Saturday closest to September 30. The years ended September 26, 1998, September 27, 1997 and September 28, 1996 all included 52 weeks. Cash and Cash Equivalents: The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. Substantially all cash and cash equivalents are invested in a money market investment account. These amounts are stated at cost which approximates market. Inventories: Inventories, principally purchased parts, are valued at the lower of first-in, first-out (FIFO) cost or market. Market is replacement value for raw materials and net realizable value, after allowance for estimated costs of completion and disposal, for work-in-process and finished goods. Intangible Assets: Patents and software are stated at cost and amortized using the straight-line method over five years. The excess of cost over fair value of the net assets acquired is amortized on a straight-line basis over 15 years. Property and Equipment: Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated economic useful lives of the assets (forty years for buildings, three to ten years for machinery and equipment, and five to seven years for tooling and furniture and fixtures). Leasehold improvements and equipment under capital leases are being amortized over the life of the lease. 14 NOTE A-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue Recognition: The Company licenses software under the non-cancelable license agreements and provides services including training, installation, consulting and maintenance, consisting of product support services and periodic updates. Revenue from the sale of software is recognized in accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue Recognition. License fee revenues are generally recognized when a non-cancelable license agreement has been signed, the software product has been shipped, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable, and collection is considered probable. For customer license agreements, which meet these recognition criteria, the portion of the fees related to software licenses will generally be recognized in the current period, while the portion of the fees related to services is recognized as the services are performed. The Company allocates a portion of contractual license fees to post-contract support activities covered under the contract including first year maintenance, installation assistance and limited training services. In addition, the Company also allocates a portion of the contractual license fees to future unspecified upgrade rights. Revenues from maintenance agreements and upgrade rights are recognized ratably over a three month period, and a one year period, respectively. Advertising Costs: Advertising costs are expensed as incurred and totaled $409,000, $381,000 and $260,000 in 1998, 1997 and 1996, respectively. Product Warranty: Expected future product warranty costs, included in accrued expenses and other liabilities, are recognized at the time of sale for all products covered under warranty. Warranty periods range from one to five years. Earnings Per Share: In 1998, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share," which requires the presentation of basic and diluted earnings per share amounts. All periods presented have been restated to reflect adoption of this statement. The shares used for basic earnings per common share and diluted earnings per common share are reconciled as follows (000's omitted):
1998 1997 1996 ----- ----- ----- Average shares outstanding for basic earnings per share 6,602 6,602 6,562 Dilutive effect of stock options 45 48 73 ----- ----- ----- Average shares outstanding for diluted earnings per share 6,647 6,650 6,635 ===== ===== =====
Reclassifications: Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the 1998 presentation. Use of Estimates: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Stock Option Plans: The Company accounts for its stock compensation awards under the provisions of APB No. 25, "Accounting for Stock Issued to Employees," and will continue to do so in the future. 15 NOTE A-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Newly Issued Pronouncements: In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income," and Statement No. 131 (SFAS 131), "Disclosures About Segments of an Enterprise and Related Information." SFAS 130 establishes standards for the reporting and display of comprehensive income and its components. SFAS 131 establishes standards for the way that public companies report information about operating segments in financial statements. This Statement supersedes Statement No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains the requirements to report information about major customers. The Statements are effective for fiscal years beginning after December 15, 1997. The Company does not believe that the adoption of these Statements will have a material effect on the Company's financial statements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for Derivative Financial Instruments and for Hedging Activities", which provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. SFAS 133 is effective for years beginning after June 15, 2000 and is not anticipated to have a material effect on the Company's financial statements when adopted. NOTE B- MERGER: Summarized results of operations of the separate companies for the preceding years are as follows (000's omitted):
ZOLL PINPOINT COMBINED ---- -------- -------- Year ended 1998 Net sales $55,080 $ 2,440 $57,520 Net income 43 630 673 ------- ------- ------- Year ended 1997 Net sales 56,336 1,497 57,833 Net income 515 372 887 ------- ------- ------- Year ended 1996 Net sales 54,762 938 55,700 Net income 3,413 216 3,629 ------- ------- -------
Sales and net income of $579 and $140, respectively, for the quarter ended December 31, 1997 were included in the years ended September 26, 1998 and September 27, 1997. The following unaudited pro forma information has been prepared assuming Pinpoint had been acquired as of the beginning of the periods presented. The pro forma information is presented for information purposes only and is not necessarily indicative of what would have occurred if the acquisition had been made as of those dates. In addition, the pro forma information is not intended to be a projection of future results and does not reflect synergies expected to result from the integration of Pinpoint and the Company's Westech business. The pro-forma tax adjustment assumes Pinpoint was a taxable entity subject to tax at ZOLL's incremental tax rate for the periods presented.
(000's omitted) 1998 1997 1996 ----- ----- ----- Combined net income $ 673 $ 887 $3,629 Income tax adjustment on Pinpoint's net income 248 149 86 ----- ----- ------ Pro forma combined net income $ 425 $ 738 $3,543 ===== ===== ======
NOTE C-INVESTMENTS Investments in equity and debt securities are classified as available for sale. There were no investments in equity or debt securities at September 26, 1998. Available for sale securities consisted of $278,000 of corporate obligations at September 27, 1997. The securities are carried at fair value, with unrealized gain and losses, net of tax, reported in a separate component of stockholders' equity. At September 27, 1997, there was no difference between the cost basis and the estimated market value of the security portfolio. The maturity periods of the securities held were due within one year. 16 The cost of securities sold is based on the specific identification method. Realized gains and losses and declines in value judged to be other than temporary are included in investment income. 17 NOTE C-INVESTMENTS (CONTINUED) During 1996, the Company invested $2 million in the common stock of Lifecor, Inc., which represents approximately 6% of Lifecor's outstanding common stock. The Company accounts for this investment at cost, which approximates market. This investment is included in other assets on the balance sheet. NOTE D-PREPAID EXPENSES AND OTHER CURRENT ASSETS Current assets consisted of:
SEPTEMBER 26, SEPTEMBER 27, 1998 1997 ------------- ------------- (000's omitted) Deferred income taxes $1,124 $1,127 Insurance proceeds receivable -- Note M 1,674 -- Other 459 416 ------ ------ Total prepaid expenses and other current assets $3,257 $1,543 ====== ======
NOTE E-STOCKHOLDERS' EQUITY Preferred Stock: The Board of Directors is authorized to fix the designations, relative rights, preferences and limitations on the Preferred Stock at the time of issuance. On June 8, 1998, the Company's Board of Directors adopted a Shareholder Rights Plan. In connection with the Shareholder Rights Plan, the Board of Directors declared a dividend distribution of one Preferred Stock purchase right for each outstanding share of Common Stock to stockholders of record as of the close of business day on June 9, 1998. Initially, these rights will not be exercisable and will trade with the shares of ZOLL's Common Stock. Under the Shareholder Rights Plan, the rights generally become exercisable if a person becomes an "acquiring person" by acquiring 15% or more of the Common Stock of ZOLL, if a person who owns 10% or more of the Common Stock of ZOLL is determined to be an "adverse person" by the Board of Directors or if a person commences a tender offer that would result in that person owning 15% or more of the Common Stock of ZOLL. Under the Shareholder Rights Plan, a shareholder of ZOLL who beneficially owns 15% or more of the Company's Common Stock as of June 9, 1998 generally will be deemed an "acquiring person" if such shareholder acquires additional shares of the Company's Common Stock. In the event that a person becomes an "acquiring person" or is declared an "adverse person" by the Board, each holder of a right (other than the acquiring person or the adverse person) would be entitled to acquire such number of shares of Preferred Stock which are equivalent to ZOLL Common Stock having a value of twice the then-current exercise price of the right. If ZOLL is acquired in a merger or other business combination transaction after any such event, each holder of a right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring company's Common Stock having a value twice the exercise price of the right. Stock Purchase Rights: On September 25, 1995, Pinpoint granted an employee stock purchase rights which entitled the employee to obtain 3% of the then existing shares at a nominal price. The stock purchase rights vest 25% at the end of one year of employment, another 25% vesting over the next three years, and the remaining 50% vesting over the next six years. The options have an accelerated vesting provision should there be a change in control. As of September 30, 1998, none of the stock purchase rights had been exercised. Stock Option Plans: The Company's 1983 and 1992 stock option plans provide for the granting of options to officers and other key employees to purchase the Company's Common Stock at a purchase price, in the case of incentive stock options, at least equal to the fair market value per share of the outstanding Common Stock of the Company at the time the option is granted, as determined by the Compensation Committee of the Board of Directors. Options are no longer granted under the 1983 plan. The options become exercisable ratably over two or four years and have maximum duration of 10 years. The Company's Non-employee Director Stock Option Plan provides for the granting of options to purchase shares of Common Stock to Directors of the Company who are not also employees of the Company or any subsidiary of the Company. The options vest in four equal annual installments over a four year period. The options may be exercised at a price equal to the fair market value of the Common Stock on the date the option is granted. The number of shares authorized for these plans was 1,910,000. Approximately 1,054,000 shares of Common Stock are reserved for issuance under the Company's stock option plans as of September 26, 1998. 18 NOTE E-STOCKHOLDERS' EQUITY (CONTINUED) The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized with respect to the Company's stock option grants. Had compensation cost for this plan been determined based on the fair value methodology prescribed by FAS 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below.
1998 1997 -------- -------- (000's omitted, except per share data) Net income -- as reported $ 673 $ 887 Net income (loss) -- pro forma 313 641 Basic and diluted earnings per common and equivalent share-as reported $ 0.10 $ 0.13 Basic and diluted earnings per common and equivalent share-pro forma $ 0.05 $ 0.10
The above pro forma amounts may not be representative of the effects on reported net earnings for future years. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1998 and 1997:
1998 1997 ------- ------- Dividend yield 0% 0% Expected volatility 6.48% 4.84% Risk-free interest rate 4.53% 5.98% Expected lives 5 years 5 years
Activity as to stock options under the two plans is as follows:
(000's omitted, except per share data) 1998 1997 1996 ------------------------------ ------------------------------ ---------------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------------ --------- ------------ --------- ----------- --------- Outstanding at the beginning of the year 793 $11.02 731 $11.19 623 $10.60 Granted during the year 214 7.08 86 9.76 230 12.22 Exercised during the year -- -- (18) 3.43 (57) 6.05 Cancelled during the year (98) 9.05 (6) 12.55 (65) 14.58 ------------ ------ ------------ ------ ----------- ------ Outstanding at the end of the year 909 $ 7.23 793 $11.02 731 $11.19 ------------ ------ ------------ ------ ----------- ------ Price range per share of outstanding options $3.687-10.75 $3.687-14.75 $ .50-14.75 Average price per share of outstanding options $ 7.23 $ 11.08 $ 11.31 Price range per share of exercised options $ 0.50-8.75 $0.31-14.00 Exercisable at the end of the year 177 277 129 Available for grant at he end of the year 145 161 41 ------------ ------ ------------ ------ ----------- ------ Weighted-average fair value of options granted during the year $ 4.12 $ 4.48 $ 5.55
19 Weighted-average exercise price of options exercisable at the end of the year $ 7.20 $10.08 $ 6.82
20 NOTE E-STOCKHOLDERS' EQUITY (CONTINUED) The following table summarizes information about stock options outstanding at September 26, 1998.
(000's omitted, except per share data) OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------------------------------------------ WEIGHTED-AVERAGE NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE Range of Exercise OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE EXERCISE price 9/26/98 LIFE PRICE AT 9/26/98 PRICE - -------------------------------------------------------------------------------------------------------------------- $3.687-$6.875 615 8.81 years $6.57 61 $3.93 $7.63 64 9.75 years 7.63 -- -- $8.75 194 7.17 years 8.75 97 8.75 $9.00-$10.75 36 7.15 years 9.74 19 9.87 - -------------------------------------------------------------------------------------------------------------------- $3.687-$10.75 909 177 ====================================================================================================================
Under the Company's 1992 stock option plan, 417,850 options ranging in option price from $10.00 to $14.75 per share were repriced to $6.88 per share during 1998. In 1996, 227,750 options ranging from $14.00 to $14.50 were repriced to $8.75 per share and 227,750 options ranging in price from $21.75 to $38.25 were repriced to $14.50 per share. The repricings were accomplished by canceling the existing options and issuing new options at new prices with vesting schedules recommencing as of the date of reprices. The purpose of these transactions was to restore the incentive effect of such options. In all other respects, the Plan remained unchanged. NOTE F-ACCRUED EXPENSES AND OTHER LIABILITIES Accrued liabilities consist of:
SEPTEMBER 26, SEPTEMBER 27, 1998 1997 ------------- ------------- (000's omitted) Accrued salaries and wages $2,703 $2,384 Accrued benefits and payroll taxes 644 458 Accrued professional services 433 1,003 Accrued warranty expense 953 996 Accrued income taxes -- 963 Accrued shareholder litigation settlement cost-Note M 1,400 -- Other accrued expenses 1,591 1,670 ------ ------ Total accrued expenses and other liabilities $7,724 $7,474 ====== ======
NOTE G-INDEBTEDNESS The Company maintains an unsecured working capital line of credit with its bank. Under this working capital line, the Company may borrow up to $3,000,000 on a demand basis. This line of credit bears interest at the bank's base rate (8.5% at September 26, 1998 and September 27, 1997), and requires a compensating balance of $275,000. The full amount of the line was available to the Company at September 26, 1998. The Company increased its borrowing capacity under its line of credit to $12,000,000 on November 5, 1999. In 1994, the Company purchased land and building, which replaced leased operating facilities, for $900,000. The land and building are mortgaged under a $900,000 bank note bearing interest at 8.2%. The carrying value of the land and building at September 26, 1998 and September 27, 1997 amounted to $948,000 and $958,000, respectively. The mortgage requires equal monthly principal payments of $7,500 plus interest over seven years, with a final payment of $270,000 due in July 2001. The carrying amount of the long-term debt approximates the fair value. The mortgage contains various covenants including minimum levels of net worth, working capital and pre-tax earnings. The Company is in compliance with all covenants of the agreement. 21 NOTE G-INDEBTEDNESS (CONTINUED) Long-term debt consisted of:
SEPTEMBER 26, SEPTEMBER 27, 1998 1997 ------------- ------------- (000's omitted) Mortgage note payable $533 $623 Capital lease obligations -- Note J 29 62 ---- ---- Total long-term debt $562 $685 Less current portion 116 120 ---- ---- $446 $565 ==== ====
The schedule of principal payments on long term debt is as follows: 1999 $116 2000 94 2001 352 ---- $562 ====
NOTE H- LICENSING AGREEMENTS On October 11, 1996, the Company entered into a development, licensing, and marketing agreement with a distributor. Pursuant to the agreement, the Company was granted the right to use and copy the distributor's own software for use in its products. Each license under the agreement was for a term of five years. On June 15, 1998, the Company terminated the development, licensing, and marketing agreement with this previous distributor. NOTE I-INCOME TAXES The provision for income taxes consists of the following:
(000's omitted) 1998 1997 1996 ------- ------- ------- Federal: Current $ (277) $ 942 $ 1,288 Deferred 194 (722) 144 ------- ------- ------- (83) 220 1,432 State: Current 107 222 337 Deferred (6) (176) (11) ------- ------- ------- 101 46 326 ------- ------- ------- $ 18 $ 266 $ 1,758 ======= ======= =======
The following table shows income before taxes:
(000's omitted) 1998 1997 1996 ------- ------- ------- Domestic $ 821 $ 1,137 $ 5,554 Foreign (130) 16 (167) ------- ------- ------- $ 691 $ 1,153 $ 5,387 ======= ======= =======
22 NOTE I-INCOME TAXES (CONTINUED) The income taxes recorded differed from the statutory federal income tax rate due to:
(000's omitted) 1998 1997 1996 ------- ------- ------- Statutory income taxes $ 21 $ 265 $ 1,758 Tax credits, federal and state -- -- (132) State income taxes, net of federal benefit 32 31 215 Unbenefited foreign losses -- 13 55 Permanent differences 35 (20) (99) Other (70) (23) (39) ------- ------- ------- $ 18 $ 266 $ 1,758 ======= ======= =======
At September 26, 1998, the Company has available tax loss carryforwards of approximately $1,603,000 of which $786,000 expire at various dates through 2003 and $817,000 has an indefinite life. Approximately $1,427,000 of the tax loss carryforwards is attributable to the Company's foreign operations and is not available to offset domestic taxable income. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The valuation allowance increased $89,000 as a result of foreign losses incurred in 1998. Significant components of the Company's deferred tax assets and liabilities are as follows:
SEPTEMBER 26, SEPTEMBER 27, (000's omitted) 1998 1997 ------------- ------------- Deferred tax assets: Accounts receivable and inventory $ 625 $ 718 Net operating loss carryforwards 576 420 Product warranty accruals 373 389 Purchased research and development 336 365 Shareholder litigation accrual -- 288 Other liabilities 379 206 Valuation allowance for deferred tax assets (473) (384) ------- ------- Total deferred tax assets 1,816 2,002 Deferred tax liabilities: Accelerated tax depreciation 731 700 Prepaid expenses 248 277 ------- ------- Total deferred tax liabilities 979 977 ------- ------- Net deferred tax asset $ 837 $ 1,025 ======= =======
Prior to the merger Pinpoint elected to be taxed under the Subchapter S provisions of the Internal Revenue Code. Accordingly, the Company's income or loss is included in the stockholders' individual income tax returns. 23 NOTE J-LEASES The Company leases certain office and manufacturing space and equipment under capital and under operating leases. Listed below are the future minimum rental payments required under capital leases and operating leases with non-cancelable terms in excess of one year at September 26, 1998, together with present value of net minimum lease payments.
CAPITAL OPERATING (000's omitted) LEASES LEASES TOTAL ------- --------- ------- 1999 $ 28 $ 645 $ 673 2000 4 799 803 2001 -- 715 715 2002 -- 708 708 2003 -- 641 641 Thereafter -- 150 150 ------- ------- ------- 32 $ 3,658 $ 3,690 ======= ======= Less interest payments (3) ------- Present value of minimum lease payments $ 29 =======
The Company is obligated under a lease agreement for formerly occupied facilities under a lease which expires February 1, 2000. The lease provides for the Company to pay an annual base rent plus expenses, totaling approximately $43,000, which increases each year as determined by the Consumer Price Index. Effective March 11, 1999, the Company subleased this space to an unrelated company on a full-cost pass-through basis, whereby the sublease tenant pays the landlord directly. The Company remains obligated on the lease payments to the extent that the sublease tenant defaults on its payments. Included in machinery and equipment at September 26, 1998 and September 27, 1997 are certain items recorded as capital leases with a book value of $179,000 and related accumulated depreciation of $133,000 and $102,000 at September 26, 1998 and September 27, 1997, respectively. The Company's office leases are subject to adjustments based on actual floor space occupied. The leases also require payment of real estate taxes and operating costs. Total rental expense under operating leases for 1998, 1997 and 1996 was approximately $728,000, $625,000 and $551,000, respectively. NOTE K-EMPLOYEE BENEFIT PLAN Defined contribution retirement plan- Zoll has a defined contribution retirement plan which contains a "401(k)" program for all employees with six months of service who have attained 21 years of age. The Company may make a discretionary contribution and an additional discretionary profit sharing contribution. The Company made a $100,000 contribution to the plan in fiscal 1999, 1998 and 1997. 401(k) Salary Deferral Plan- Beginning in 1998, Pinpoint has maintained a retirement savings plan (the Plan) pursuant to which eligible employees may defer compensation for income tax purposes under section 401(k) of the Internal Revenue Code of 1986. Participants in the Plan may contribute up to 15% of their eligible compensation which are matched by the Company at 50% of the employee contribution up to 6% of eligible compensation. The Company may make discretionary matching contributions to the Plan in an amount determined by its Board of Directors. The Company recorded expense related to the Plan of approximately $11,000 for the year ended September 30, 1998. NOTE L-CONCENTRATION OF CREDIT RISK The Company sells its products primarily to hospitals and universities. The Company performs periodic credit evaluations of its customers' financial condition and does not require collateral. Credit losses associated with these customers historically have been small, which is consistent with management's expectations. The Company entered 24 the pre-hospital market segment recently, and as a result the Company believes it will face a greater degree of credit risk as sales to this market segment expand. 25 NOTE L-CONCENTRATION OF CREDIT RISK (CONTINUED) The Company had export sales of approximately $10,574,000, $12,322,000, and $11,649,000 in 1998, 1997 and 1996, respectively. NOTE M-CONTINGENCIES In the course of normal operations, the Company is involved in litigation arising from commercial disputes and claims of former employees which management believes will not have a material impact on the Company's financial position or its results of operations. During the quarter ended December 28, 1996, the Company incurred a charge of approximately $1,300,000 to cover the litigation costs to defend itself in a shareholder lawsuit initiated in 1994. On July 9, 1998, the Company announced an agreement in principle concerning the settlement of the lawsuit against it and certain officers. The settlement, amounting to $1,500,000, was approved by the court on October 5, 1998. There was no financial impact as a result of the settlement. Included in accrued expenses is the unpaid settlement cost and remaining accrued legal fees related to the litigation. A similar amount due from the insurance company is included in other current assets. In November 1998, the Company received the insurance reimbursements for the claim and legal costs and paid the remaining settlement due to the shareholders. On August 3, 1998, two shareholders filed a complaint against the Company and each of its directors which primarily seeks an order by the court barring the Company from declaring the plaintiffs "adverse persons" under the Shareholder Rights Plan adopted on June 8, 1998 by the Company, barring the Company from advancing the date of its 1999 annual meeting and requiring the Company to provide the plaintiffs with a list of the Company's stockholders. The Company believes it has meritorious defenses to the lawsuit and therefore will prevail in trial. Management believes that this complaint will not have a material impact on the Company's financial position or its results of operations. NOTE N-ACQUISITION On November 6, 1996, the Company acquired the assets of the mobile computing business of Westech Information Systems, Inc. for approximately $1,500,000 in cash. The acquisition was accounted for as a purchase and the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. The excess of the cost over the fair value of net assets acquired is being amortized over fifteen years. In connection with the acquisition, the Company incurred a non-recurring charge of $1,000,000 for acquired in-process research and development which was charged to operations because in management's opinion, technological feasibility for the acquired research and development had not been established. The Company's consolidated results of operations include the operations of the mobile computing business of Westech Information Systems, Inc. from November 1996. The following unaudited pro forma information shows the results of operations as if the transaction occurred at the beginning the year of acquisition (in thousands, except per share amounts):
1997 1996 ---------- ---------- Net sales $ 57,935 $ 56,689 Net income 876 3,203 Basic earnings per common share $ 0.13 $ 0.49 Diluted earnings per common and equivalent share $ 0.13 $ 0.48
The pro forma results of operations are not necessarily indicative of the actual results of operations that would have occurred had the purchase actually been made at the beginning of the respective periods and is not necessarily indicative of results that may be obtained in the future. NOTE O -SUBSEQUENT EVENT 26 In December 1998, Pinpoint Technologies, Inc. signed a purchase and sales agreement to acquire an office building for approximately $2,400,000, of which approximately $1,800,000 was financed through its bank. 27 NOTE P-QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for 1998 and 1997 is as follows:
QUARTER ENDED (000's omitted, except per share data) DECEMBER 27 MARCH 28 JUNE 27 SEPTEMBER 26 1997 1998 1998 1998 - ----------------------------------------------------------------------------------------------------------------- 1998 Net sales $ 13,019 $ 14,354 $ 13,326 $ 16,821 Gross profit 7,447 8,450 7,706 9,649 Income (loss) from operations 273 734 (1,148) 419 Net income (loss) 305 743 (730) 355 Basic earnings (loss) per common and equivalent share $ 0.05 $ 0.12 $ (0.12) $ 0.06 Diluted earnings (loss) per common and equivalent share $ 0.05 $ 0.11 $ (0.11) $ 0.05
QUARTER ENDED DECEMBER 28 MARCH 29 JUNE 28 SEPTEMBER 27 1996 1997 1997 1997 - ----------------------------------------------------------------------------------------------------------------- 1997 Net sales $ 14,382 $ 14,495 $ 12,693 $ 16,263 Gross profit 8,228 8,224 7,540 8,469 Income (loss) from operations (1,274) 1,445 51 576 Net income (loss) (776) 1,066 94 503 Basic earnings (loss) per common and equivalent share $ (0.13) $ 0.18 $ 0.02 $ 0.09 Diluted earnings (loss) per common and equivalent share $ (0.12) $ 0.17 $ 0.08
- -------------------------------------------------------------------------------- 28 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions Charged Balance Beginning to Costs and Balance At End of Classifications of Period Expenses Deductions Period - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended September 26, 1998 Allowance for doubtful accounts Total $1,209,000 $244,000 $513,000 $ 940,000 ========== ======== ======== ========== Year Ended September 27, 1997 Allowance for doubtful accounts Total $ 888,000 $361,000 $ 5,000 $1,244,000 ========== ======== ======== ========== Year Ended September 28, 1996 Allowance for doubtful accounts Total $ 786,000 $143,000 $ 41,000 $ 888,000 ========== ======== ======== ==========
EX-99.2 4 SUPPLEMENTAL CONDENSED COMBINED FINANCIALS 1 EXHIBIT 99.2 ZOLL Medical Corporation Supplemental Condensed Combined Financial Statements Nine Months Ended July 3, 1999 and June 27, 1998 (unaudited) CONTENTS Supplemental Condensed Combined Balance Sheets (unaudited)................ 28 Supplemental Condensed Combined Income Statements (unaudited)............. 29 Supplemental Condensed Combined Statement of Cash Flows (unaudited)....... 30 Notes to Unaudited Supplemental Condensed Combined Financial Statements... 31 Management's Discussion and Analysis...................................... 32
2 ZOLL Medical Corporation Supplemental Condensed Combined Balance Sheets (in thousands) (unaudited)
JULY 3 SEPT 26 1999 1998 ------- ------- ASSETS Current assets: Cash and cash equivalents $ 1,012 $ 5,521 Accounts receivable, less allowance of $1,197 at July 3, 1999 and $940 at September 26, 1998 22,029 14,630 Inventories: Raw materials 5,006 3,990 Work-in-process 2,418 1,735 Finished goods 3,711 3,680 ------- ------- 11,135 9,405 Prepaid expenses and other current assets 2,041 3,257 ------- ------- Total current assets 36,217 32,813 Property and equipment, as cost: Land and building 3,432 1,032 Machinery and equipment 15,099 13,210 Construction in progress 805 1,315 Tooling 2,635 1,806 Furniture and fixtures 880 712 Leasehold improvements 737 737 ------- ------- 23,588 18,812 Less accumulated depreciation 10,134 8,187 ------- ------- Net property and equipment 13,454 10,625 Other assets, net 3,467 3,218 ------- ------- $53,138 $46,656 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Credit line $ 836 $ 2,902 Accounts payable 5,265 7,724 Accrued expenses and other liabilities 6,357 -- Current maturities of long-term debt 324 116 Deferred revenue 261 393 ------- ------- Total current liabilities 13,043 11,135 Deferred income taxes 288 288 Long-term debt 2,143 446 Commitments and contingencies -- -- Stockholders' equity Preferred stock, $.01 par value, authorized 1,000 shares, non issued and outstanding Common stock, $.02 par value, authorized 19,000 shares, 6,640 and 6,602 issued and outstanding at July 3, 1999 and September 26, 1998, respectively 132 132 Capital in excess of par value 20,993 20,683 Retained earnings 16,539 13,972 ------- ------- Total stockholders' equity 37,664 34,787 ------- ------- $53,138 $46,656 ======= =======
3 See notes to unaudited supplemental condensed combined financial statements. 4 ZOLL Medical Corporation Supplemental Condensed Combined Income Statements (in thousands, except per share amounts) (unaudited)
NINE MONTHS ENDED ------------------------- JULY 3 JUNE 27 1999 1998 -------- -------- Net sales $ 54,809 $ 40,699 Cost of goods sold 22,469 17,096 -------- -------- Gross profit 32,340 23,603 Expenses: Selling and marketing 17,409 14,068 General and administrative 5,473 4,583 Research and development 5,226 5,093 -------- -------- Total expenses 28,108 23,744 -------- -------- Income (loss) from operations 4,232 (141) Investment and other income 126 370 Interest expense 93 54 -------- -------- Income before income taxes 4,265 175 Provision (benefit) for income taxes 1,093 (143) -------- -------- Net income $ 3,172 $ 318 ======== ======== Basic earnings per common share $ .48 $ 0.05 Weighted average common shares outstanding 6,640 6,602 Diluted earnings per common and common equivalent share $ 0.46 $ 0.05 Weighted average common and common equivalent shares outstanding 6,825 6,614
See notes to unaudited supplemental condensed combined financial statements. 5 ZOLL Medical Corporation Supplemental Condensed Combined Statements of Cash Flows (in thousands) (unaudited)
NINE MONTHS ENDED -------------------------- JULY 3 JUNE 27 1999 1998 -------- -------- Operating activities: Net income $ 3,172 $ 318 Charges not affecting cash: Depreciation and amortization 2,153 1,185 Accounts receivable allowances 81 13 Issuance of common stock for services -- 49 Changes in assets and liabilities: Accounts receivable (7,503) 3,554 Inventories (1,730) (1,052) Prepaid expense and other current assets 1,239 120 Accounts payable and accrued expenses 997 (839) Deferred revenue (133) 66 -------- -------- Cash provided by (used for) operating activities (1,724) 3,414 Investing activities: Additions to property and equipment (3,076) (2,863) Investment in marketable securities -- -- Redemption of marketable securities -- 278 Other assets (108) (63) -------- -------- Cash used for investing activities (3,184) (2,648) Financing activities: Distributions to stockholders (1,154) (191) Contributions from stockholders 550 -- Exercise of stock options, including income tax benefits 310 -- Proceeds from credit line 836 -- Repayment of long-term debt (143) (99) -------- -------- Cash provided by (used for) financing activities 399 (290) -------- -------- Net increase (decrease) in cash (4,509) 476 Cash and cash equivalents at beginning of year 5,521 9,916 -------- -------- Cash and cash equivalents at end of year $ 1,012 $ 10,392 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year: Income taxes $ 390 $ 1,002 Interest 93 54
During 1999, Pinpoint acquired an office building for approximately $2,400,000 of which approximately $1,800,000 was financed through its bank. See notes to unaudited supplemental condensed combined financial statements. 6 ZOLL MEDICAL CORPORATION NOTES TO UNAUDITED SUPPLEMENTAL CONDENSED COMBINED FINANCIAL STATEMENTS 1. The Supplemental Condensed Combined Balance Sheet as of July 3, 1999, the Supplemental Condensed Combined Income Statements for the nine months ended July 3, 1999 and June 27, 1998, and the Supplemental Condensed Combined Statements of Cash Flows for the nine months ended July 3, 1999 and June 27, 1998 are unaudited, but in the opinion of management include all adjustments, consisting of normal recurring items, necessary for a fair presentation of results for these interim periods. The results for the interim periods are not necessarily indicative of results to be expected for the entire year. 2. In June 1997, the FASB issued Statement No. 131 (FAS 131) "Disclosures About Segments of an Enterprise and Related Information." FAS 131 establishes standards for the way that public companies report information about operating segments in financial statements. This Statement supercedes Statement No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains the requirements to report information about major customers. The Statement is effective for fiscal years beginning after December 15, 1997. However, application to interim financial statements during the initial year of adoption is not required. The Company does not believe that the adoption of this Statement will have a material impact on the Company's financial statements. 3. The shares used for calculating basic earnings per common share were the average shares outstanding and the shares used for calculating diluted earnings per share were the average shares outstanding and the dilutive effect of stock options. 4. The information contained in the interim financial statements should be read in conjunction with the Company's audited supplemental financial statements, included in its Current Report on Form 8-K/A dated December 28, 1999 filed with the Securities and Exchange Commission. 5. On October 15, 1999, the Company acquired Pinpoint Technologies, Inc. (Pinpoint) in a business combination accounted for as a pooling of interests. Pinpoint, which creates, develops and manufactures advanced information technology software, exclusively focused on the emergency medical services (EMS) market, became a wholly owned subsidiary of the Company through the exchange of approximately 410,000 shares of the Company's common stock for all of the outstanding stock of Pinpoint. The accompanying supplemental financial statements are based on the assumption that the companies were combined for all periods presented, and financial statements of prior years have been restated to give effect to the combination. The accompanying supplemental condensed combined financial statements reflect the combined historical results of ZOLL Medical Corporation and Pinpoint for the nine months ended July 3, 1999 and June 27, 1998. These supplemental financial statements are supplemental to, rather than in place of, the historical financial statements. The supplemental financial statements will become the historical financial statements upon issuance of the interim financial statements of Zoll Medical Corporation for the quarter ended January 1, 2000. 6. The following unaudited pro forma information has been prepared assuming Pinpoint had been acquired as of the beginning of the periods presented. The pro forma information is presented for information purposes only and is not necessarily indicative of what would have occurred if the acquisition had been made as of those dates. In addition, the pro forma information is not intended to be a projection of future results and does not reflect synergies expected to result from the integration of Pinpoint and the Company's Westech business. The pro-forma tax adjustment assumes Pinpoint was a taxable entity subject to tax at ZOLL's incremental tax rate for the periods presented. July 3, 1999 ------- Combined net income $3,172 Income tax adjustment on Pinpoint's net income 381 ------ Pro forma combined net income $2,791 ====== The pro-forma information for the nine-months ended June 27, 1998 was not presented as the pro-forma information for the year ended September 26, 1998 disclosed in the audited supplemental combined financial statements for the year ended September 26, 1998 is more meaningful. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION NINE MONTHS ENDED JULY 3, 1999 COMPARED TO NINE MONTHS ENDED JUNE 27, 1998 Basis of Presentation: On October 15, 1999, the Company acquired Pinpoint Technologies, Inc. (Pinpoint) in a business combination accounted for as a pooling of interests. Pinpoint, which creates, develops and manufactures advanced information technology software, exclusively focused on the emergency medical services (EMS) market, became a wholly owned subsidiary of the Company through the exchange of approximately 410,000 shares of the Company's common stock for all of the outstanding stock of Pinpoint. The accompanying supplemental financial statements are based on the assumption that the companies were combined for all periods presented, and financial statements of prior years have been restated to give effect to the combination. The accompanying supplemental condensed combined financial statements reflect the combined historical results of ZOLL Medical Corporation and Pinpoint for the nine months ended July 3, 1999 and June 27, 1998. These supplemental financial statements are supplemental to, rather than in place of, the historical financial statements. The supplemental financial statements will become the historical financial statements upon issuance of the interim financial statements of Zoll Medical Corporation for the quarter ended January 1, 2000. The Company's net sales increased 35% to $54,809,000 for the nine months ended July 3, 1999 from $40,699,000 for the nine months ended June 27, 1998. The Company's sales growth was driven primarily by increasing demand for the M-Series line of defibrillators/pacemakers. Sales growth also reflected enlargement of the North American sales force. North American sales increased 36% to $45,019,000 from $33,159,000 for the comparable period last year. Equipment sales to the North American hospital market increased 56% to $20,295,000 while pre-hospital equipment sales increased 15% to $10,054,000. International sales increased 30% to $9,791,000. Gross margin for the period of 59% remained relatively consistent with the prior year. Selling and marketing expenses decreased as a percentage of sales to 32% from 35%. Selling and marketing expenses increased 24% to $17,409,000 due primarily to the increased size of the North American sales force following its reorganization during the second half of 1998 General and administrative expenses decreased as a percentage of net sales to 10% from 11%. General and administrative expenses increased 19% to $5,473,000. The decrease in the general and administrative expenses as a percentage of sales reflects the absorption of relatively fixed operating expenses by increased sales volume and the continues emphasis on expense controls. Research and development expenses decreased as a percentage of net sales to 9.5% from 12.5%. Research and development expenses increased 3% to $5,226,000 from $5,093,000 for the comparable prior year period. Expenditures in 1999 related to planned spending on development of patented biphasic technology and new and forthcoming releases of additional models of the M-Series were offset by a decrease, as compared to the third quarter 1998, resulting from expenditures preceding the release of the M-Series platform in the fourth quarter of 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents at July 3, 1999 totaled $1,012,000 compared with $5,521,000 at September 26, 1998, a decrease of $4,509,000. Cash used in operating activities for the nine months ended July 3, 1999 totaled $1,724,000 while cash generated over the same period in 1998 totaled $3,414,000. The increased cash usage was primarily attributable to an increase in accounts receivable and an increase in inventories. The increase in accounts receivable reflected both overall sales growth and significant shipments in the latter part of the third quarter of 1999. The increase in inventory, which moderated during the third quarter, reflected the recent introduction of the M-Series product line. During this period of introduction, the Company's mix of product shipments is shifting and the Company is carrying a broader mix of product in inventory to meet its customer needs. The Company expects both accounts receivable and inventory to moderate during the fourth quarter of 1999. The amount of cash required to fund investing activities remained consistent in the nine months ended July 3, 1999 compared to the same period in 1998. Cash provided by financing activities increased by $689,000 during the nine months ended July 3, 1999 compared to the same period in 1998. This increase resulted from the temporary use of the credit line and the exercise of stock options. The Company maintains a working capital line of credit with its bank. Under this working capital line, the Company may borrow on a demand basis. Currently, the Company may borrow up to $6,000,000 at an interest rate equal to the bank's base rate (currently 7.75%) or LIBOR plus 2%. The Company expects that the combination of the existing cash balances, cash generated from operations and its existing line of credit will be adequate to meet its liquidity and capital requirements for the foreseeable future. YEAR 2000 8 Year 2000 Introduction: Many computer and software systems in use today are not designed to process date information after 1999. This deficiency results from the inability of most computer programs that perform arithmetic and logic operations after this date to use only the last two digits of the year when they make their calculations. If not corrected, this year 2000 problem could cause computer applications and other equipment used and manufactured by the Company, its suppliers and its customers to fail to operate properly. Year 2000 Project: In early 1998, the Company began a project to assess its potential vulnerability to the year 2000 problem and to minimize the effect of the problem on its operations. The project addresses five major areas of the business at each of its locations: business systems, including management information systems; factory and facilities equipment, including equipment that uses a computer to control its operation either for producing end product or to supply services; products, including equipment and software supplied to customers; suppliers, including businesses that provide service and raw materials to the Company; and customers. The Company has completed a review of its business systems with regard to year 2000 compliance and will either replace or correct through programming modifications those official computer systems that have been found to have date related deficiencies. The Company's information technology systems were upgraded with vendor supplied year 2000 software packages. Although the Company is testing these systems, there can be no assurance that these systems will function properly in an operational environment. The Company expects to complete testing of these systems by December 31, 1999. The Company is also assessing factory, facility and telecommunication systems and equipment used to support manufacturing processes. The Company has assessed the year 2000 readiness of the equipment used in the manufacturing and testing of its products and believes this equipment to be year 2000 compliant, but there can be no assurances that the tests performed adequately ensure that such equipment will not experience year 2000 failure. In addition, the Company is assessing the readiness of third parties (vendors, customers, etc.) that interact with the Company's systems. The Company has tested its products and has found them to be year 2000 compliant. It is possible that this testing did not identify problems that might still occur in an operational environment. Year 2000 Costs: External and internal costs specifically associated with modifying internal use software for year 2000 compliance are expensed as incurred. To date, those costs have totaled less than $600,000. Based upon currently available information, the Company expects the total costs of addressing the potential year 2000 issues to be less than $750,000. The Company does not expect the costs of addressing potential year 2000 problems to have a material adverse effect on the Company's financial position, results of operations or liquidity in future periods. Risks and Contingency Plans: The Company relies on a variety of either single or critical source vendors in the production of its products. The Company anticipates a reasonably worst case scenario to be the failure of a single or critical source vendor to be year 2000 compliant. Such failure might cause the third party vendor to be unable to supply critical components or other resources that would have a material adverse affect on the Company. If not remediated, year 2000 issues have the potential to severely disrupt the Company's operations and to adversely affect its financial condition. While the Company may monitor the readiness for the year 2000 of its suppliers and its customers, it has very limited ability to assure year 2000 readiness by such parties. The failure of any supplier or customer to ensure its own year 2000 readiness could have a material adverse impact on the Company. There can be no assurance that third party suppliers will not experience unforeseen difficulties and be unable to supply components of the Company's products or that third party providers of the hardware upon which its software runs will not be materially harmed by year 2000 problems and be unable to continue to provide such hardware to the Company. Year 2000 problems could cause the Company's banks to experience disruptions, which could adversely affect operations. Year 2000 problems could also adversely affect customers and their ability to pay the Company, which would adversely affect operating results. The Company could also be affected by the failure of government agencies on which the Company depends to maintain services essential to operations and the failure of the airline industry on which the Company relies to support the activities of the sales force. The Company could also be harmed materially by any significant economic, financial market or infrasturcture disruption attributable to year 2000 problems. The Company is finalizing contingency plans to cover situations in which year 2000 problems arise despite its efforts. These plans are expected to be ready by December 31, 1999. LEGAL AND REGULATORY AFFAIRS The Company is involved in the normal course of its business in various litigation matters and regulatory issues, including product recalls. Although the Company is unable to determine at the present time the exact amount of any impact in any pending matters, the Company believes that none of the pending matters will have an outcome material to the financial condition or business of the Company. 9 SAFE HARBOR STATEMENTS Except for the historical information contained herein, the matters set forth herein are forward looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward looking statements. Such risks and uncertainties include, but are not limited to: product demand and market acceptance risks, the effect of economic conditions, results of pending or future litigation, the impact of competitive products and pricing, product development and commercialization, technological difficulties, the government regulatory environment and actions, trade environment, capacity and supply constraints or difficulties, the results of financing efforts, actual purchases under agreements, year 2000 issues, including expectations of readiness, and the effect of the Company's accounting policies. EX-99.3 5 PINPOINT TECHNOLOGIES, INC. FINANCIAL STATEMENTS 1 EXHIBIT 99.3 Pinpoint Technologies, Inc. Financial Statements Year ended September 30, 1998 CONTENTS Report of Independent Auditors ................................... 36 Audited Financial Statements Balance Sheet..................................................... 37 Statement of Income............................................... 38 Statement of Stockholders' Equity................................. 39 Statement of Cash Flows........................................... 40 Notes to Financial Statements..................................... 41
2 Report of Independent Auditors The Board of Directors Pinpoint Technologies, Inc. We have audited the accompanying balance sheet of Pinpoint Technologies, Inc. (the "Company") as of September 30, 1998, and the related statements of income, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pinpoint Technologies, Inc. at September 30, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Ernst & Young LLP Denver, Colorado November 12, 1999 3 Pinpoint Technologies, Inc. Balance Sheet September 30, 1998 ASSETS Current assets: Cash and cash equivalents $ 696,836 Accounts receivable, less allowance for doubtful accounts of $25,991 483,201 Prepaid and other current assets 3,671 ----------- Total current assets 1,183,708 Property and equipment: Furniture and fixtures 37,775 Computer equipment 123,660 Software 41,884 Assets held under capital lease 44,810 ----------- 248,129 Accumulated depreciation (64,736) ----------- 183,393 ----------- Total assets $ 1,367,101 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 125,575 Accrued compensation 89,056 Other accrued liabilities 39,561 Deferred revenue 393,437 Current portion of capital lease obligations 10,954 ----------- Total current liabilities 658,583 Capital lease obligations, net of current portion 3,701 Commitments and contingencies Stockholders' equity: Class A common stock, no par value, 1,000 shares authorized, 111 shares issued and outstanding 111 Additional paid-in capital 49,021 Retained earnings 655,685 ----------- Total stockholders' equity 704,817 ----------- Total liabilities and stockholders' equity $ 1,367,101 ===========
See accompanying notes. 4 Pinpoint Technologies, Inc. Statement of Income Year ended September 30, 1998 Revenue: Software license fees $ 1,880,671 Maintenance and support 269,824 Upgrade rights 154,224 Other revenue 135,529 ----------- Total revenue 2,440,248 Cost of revenue 454,500 ----------- Gross profit 1,985,748 Sales and marketing 106,798 Research and development 350,311 General and administrative 887,889 ----------- 1,344,998 ----------- Operating income 640,750 Other income (expense): Interest income 13,073 Interest expense (22,793) ----------- Total other expense, net (9,720) ----------- Net income $ 631,030 ===========
See accompanying notes. 5 Pinpoint Technologies, Inc. Statement of Stockholders' Equity
Class A Additional Total Common Paid-In Retained Stockholders' Stock Capital Earnings Equity --------- ---------- -------- ------------- Balance, September 30, 1997 $ 100 $ -- $ 282,837 $ 282,937 Issuance of common stock for services 11 49,021 -- 49,032 Distributions -- -- (258,182) (258,182) Net income -- -- 631,030 631,030 --------- --------- --------- --------- Balance, September 30, 1998 $ 111 $ 49,021 $ 655,685 $ 704,817 ========= ========= ========= =========
See accompanying notes. 6 Pinpoint Technologies, Inc. Statement of Cash Flows Year ended September 30, 1998 OPERATING ACTIVITIES Net income $ 631,030 Adjustments to reconcile net income to net cash provided by operating activities: Bad debt expense 73,521 Depreciation and amortization 29,992 Issuance of common stock for services 49,032 Changes in operating assets and liabilities: Accounts receivable (61,115) Prepaid and other current assets (3,671) Accounts payable 91,946 Accrued liabilities 32,765 Deferred revenue 78,599 --------- Net cash provided by operating activities 922,099 INVESTING ACTIVITIES Purchase of property and equipment (110,913) --------- Net cash used in investing activities (110,913) FINANCING ACTIVITIES Principal payments on capital leases (12,487) Distributions to stockholders (258,182) --------- Net cash used in financing activities (270,669) --------- Net increase in cash and cash equivalents 540,517 Cash and cash equivalents at beginning of year 156,319 --------- Cash and cash equivalents at end of year $ 696,836 ========= Supplemental disclosure of cash flow information: Interest paid for 1998 was approximately $23,000.
See accompanying notes. 7 Pinpoint Technologies, Inc. Notes to Financial Statements September 30, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND PURPOSE Pinpoint Technologies, Inc. (the Company) was incorporated in December 1993, with operations beginning April 1995. Pinpoint creates, develops and manufactures advanced information technology software, exclusively focused on the emergency medical services (EMS) market. Its products are computer-aided dispatch and billing software targeted at public and private ambulance companies. The Company's operations are located in Boulder, Colorado. CASH AND CASH EQUIVALENTS The Company considers all short-term, highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. CONCENTRATIONS OF CREDIT RISK Financial instruments which subject the Company to credit risk consist principally of the Company's accounts receivable. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation is computed by using the straight-line method over the estimated useful lives of the assets, three to five years for computer equipment, five years for other equipment, and seven years for furniture and fixtures. The cost of normal maintenance and repairs is charged to operating expenses as incurred. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. 8 Pinpoint Technologies, Inc. Notes to Financial Statements (continued) September 30, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION The Company licenses software under noncancelable license agreements and provides services including training, installation, consulting and maintenance, consisting of product support services and periodic updates. Revenue from the sale of software is recognized in accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue Recognition. License fee revenues are generally recognized when a noncancelable license agreement has been signed, the software product has been shipped, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable, and collection is considered probable. For customer license agreements, which meet these recognition criteria, the portion of the fees related to software licenses will generally be recognized in the current period, while the portion of the fees related to services is recognized as the services are performed. The Company allocates a portion of contractual license fees to post-contract support activities covered under the contract including first-year maintenance, installation assistance and limited training services. In addition, the Company also allocates a portion of the contractual license fees to future unspecified upgrade rights. Revenues from maintenance agreements and upgrade rights are recognized ratably over a three-month period and a one-year period, respectively. ADVERTISING COSTS The Company expenses advertising costs as incurred. Total advertising costs were approximately $49,000 in fiscal 1998. INCOME TAXES The Company has elected to be taxed under the Subchapter S provisions of the Internal Revenue Code. Accordingly, the Company's income or loss is included in the stockholders' individual income tax returns. 9 Pinpoint Technologies, Inc. Notes to Financial Statements (continued) September 30, 1998 2. COMMITMENTS AND CONTINGENCIES LEASES The Company is obligated under a lease agreement for formerly occupied facilities under a lease which expires February 1, 2000. The lease provides for the Company to pay an annual base rent plus expenses, totaling approximately $43,000, which increases each year as determined by the Consumer Price Index. Effective March 11, 1999, the Company subleased this space to an unrelated company on a full-cost pass-through basis, whereby the sublease tenant pays the landlord directly. The Company remains obligated on the lease payments to the extent that the sublease tenant defaults on its payments. In December 1998, the individual stockholders of the Company signed a purchase and sale agreement to acquire an office building. In March 1999, the building was acquired by Pinpoint Property Management LLC (PPM), which is owned by the stockholders of the Company. The Company pays PPM what is believed to be fair market value rent under a five-year lease. Monthly rental expense in the amount of approximately $30,000 is due through 2004. As of September 30, 1998, future minimum rental commitments, by year and in the aggregate, for operating leases are as follows:
CAPITAL LEASE OPERATING OBLIGATIONS LEASES ----------- ---------- 1999 $ 12,785 $ 299,894 2000 3,966 433,654 2001 -- 360,000 2002 -- 360,000 2003 -- 360,000 Thereafter -- 150,000 ---------- ---------- Total minimum lease payments 16,751 $1,963,548 ========== Amounts representing interest (2,096) ---------- Present value of net minimum lease payments $ 14,655 ==========
Rental expense was approximately $87,000 for the year ended September 30, 1998. 10 Pinpoint Technologies, Inc. Notes to Financial Statements (continued) September 30, 1998 2. COMMITMENTS AND CONTINGENCIES (CONTINUED) SETTLEMENT AND RELEASE AGREEMENT On October 11, 1996, the Company entered into a development, licensing, and marketing agreement with a distributor. Pursuant to the agreement, the Company was granted the right to use and copy the distributor's own software for use in its products. Each license under the agreement was for a term of five years. On June 15, 1998, the Company terminated the development, licensing, and marketing agreement with this previous distributor. ROYALTY AGREEMENT In January 1995, the Company entered into an agreement with an unrelated third party whereby certain capital resources and software evaluation services were provided in order to develop and market the Company's software products. In consideration for these services, the Company is obligated for quarterly royalty payments based on total gross receipts, as defined in the agreement. Quarterly payments are due in arrears and are determined as two and one-half percent of the first $5,000,000 of annual gross receipts, two percent of annual gross receipts between $5,000,000 and $20,000,000, and one and one-half percent of the annual gross receipts in excess of $20,000,000. The Company had accrued approximately $23,000 as of September 30, 1998 related to this royalty agreement. 3. STOCKHOLDERS' EQUITY STOCK ISSUED FOR SERVICES On January 1, 1998, the Company issued an employee a 10% ownership interest in the Company for services previously rendered. As a result, 11 shares of Class A common stock were issued. The Company valued those shares at approximately $49,000. STOCK PURCHASE RIGHTS On September 25, 1995, the Company granted an employee stock purchase rights which entitled the employee to obtain 3% of the then existing shares at a nominal price. The stock purchase rights vest 25% at the end of one year of employment, another 25% vesting over the next three years, and the remaining 50% vesting over the next six years. The options have an accelerated vesting provision should there be a change in control. As of September 30, 1998, none of the stock purchase rights had been exercised. 4. 401(k) SALARY DEFERRAL PLAN Beginning in 1998, the Company has maintained a retirement savings plan (the Plan) pursuant to which eligible employees may defer compensation for income tax purposes under section 401(k) of the Internal Revenue Code of 1986. Participants in the Plan may contribute up to 15% of their eligible compensation, which is matched by the Company at 50% of the employee contribution up to 6% of eligible compensation. The Company may make discretionary matching contributions to the Plan in an amount determined by its Board of Directors. The Company recorded expense related to the Plan of approximately $11,000 for the year ended September 30, 1998. 5. SUBSEQUENT EVENTS During October 1999, the Company completed a business merger with Zoll Medical Corporation, which is located in Burlington, Massachusetts. Zoll Medical merged with both Pinpoint Technologies, Inc. and Pinpoint Property Management LLC, an affiliate of the Company through virtue of common ownership. 11 6. YEAR 2000 ISSUE (UNAUDITED) The Company has developed a plan to make its information technology ready for the year 2000 and believes the critical data processing systems are currently ready for the year 2000. Although the Company has not initiated formal communications with all of its significant suppliers and customers to determine the extent to which the Company's interface systems are vulnerable to those third parties' failure to remediate their own Year 2000 Issues, the Company does not expect this project to have a significant effect on operations. EX-99.4 6 PINPOINT TECHNOLOGIES CONDENSED FINANCIALS 1 EXHIBIT 99.4 Pinpoint Technologies, Inc. Condensed Combined Financial Statements Nine months ended June 30, 1998 and 1999 CONTENTS Condensed Combined Balance Sheets (unaudited) June 30, 1999 and September 30, 1998 ........................ 47 Condensed Combined Statements of Income (unaudited) Nine Months Ended June 30, 1999 and June 30, 1998............ 48 Condensed Combined Statements of Cash Flows (unaudited) Nine Months Ended June 30, 1999 and June 30, 1998............ 49 Notes to Condensed Combined Financial Statements (unaudited)........... 50
2 Pinpoint Technologies, Inc. Condensed Combined Balance Sheets (unaudited)
JUNE 30 SEPTEMBER 30 1999 1998 ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ 152,512 $ 696,836 Accounts receivable, less allowance of $91,661 in 1999 and $25,991 in 1998 752,474 483,201 Related party receivable 23,340 -- Prepaid and other current assets -- 3,671 ----------- ----------- Total current assets 928,326 1,183,708 Property and equipment: Building 2,400,000 -- Furniture and fixtures 7,477 37,775 Computer equipment 233,001 123,660 Software 55,142 41,884 Assets held under capital lease 167,938 44,810 ----------- ----------- 2,863,558 248,129 Accumulated depreciation (194,674) (64,736) ----------- ----------- 2,668,884 183,393 ----------- ----------- Total assets $ 3,597,210 $ 1,367,101 =========== ===========
JUNE 30 SEPTEMBER 30 1999 1998 ----------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 46,162 $ 125,575 Accrued compensation 145,168 89,056 Other accrued liabilities 83,662 39,561 Deferred revenue 260,628 393,437 Current portion of long-term debt 69,283 -- Current portion of capital lease obligations 164,779 10,954 ----------- ----------- Total current liabilities 769,682 658,583 Capital lease obligations, net of current portion -- 3,701 Long-term debt, net of current portion 1,774,989 -- Commitments and contingencies Stockholders' equity: Class A common stock, no par value, 1,000 shares authorized, 111 shares issued and outstanding 111 111 Additional paid-in capital 49,021 49,021 Retained earnings 1,003,407 655,685 ----------- ----------- Total stockholders' equity 1,052,539 704,817 ----------- ----------- Total liabilities and stockholders' equity $ 3,597,210 $ 1,367,101 =========== ===========
3 See notes to unaudited condensed combined financial statements. 4 Pinpoint Technologies, Inc. Condensed Combined Statements of Income (unaudited)
NINE MONTHS ENDED JUNE 30 1999 1998 ----------- ----------- Revenue: Software license fees $ 2,458,484 $ 1,472,344 Maintenance and support 348,295 172,488 Upgrade rights 268,124 131,879 Other revenue 132,718 45,210 ----------- ----------- Total revenue 3,207,621 1,821,921 Cost of revenue 282,886 349,777 ----------- ----------- Gross profit 2,924,735 1,472,144 Sales and marketing 192,222 70,012 Research and development 425,134 193,729 General and administrative 1,327,940 549,023 ----------- ----------- 1,945,296 812,764 ----------- ----------- Operating income 979,439 659,380 Other income (expense): Interest income 15,412 6,851 Interest expense (42,882) (15,842) ----------- ----------- Total other expense, net (27,470) (8,991) ----------- ----------- Net income $ 951,969 $ 650,389 =========== ===========
See notes to unaudited condensed combined financial statements. 5 Pinpoint Technologies, Inc. Condensed Combined Statements of Cash Flows (unaudited)
NINE MONTHS ENDED JUNE 30 1999 1998 ----------- ----------- OPERATING ACTIVITIES Net income $ 951,969 $ 650,389 Adjustments to reconcile net income to net cash provided by operating activities: Bad debt expense 81,455 12,867 Depreciation and amortization 129,938 21,300 Issuance of common stock for services -- 49,032 Changes in operating assets and liabilities: Accounts receivable (350,728) (257,933) Related party receivable (23,340) -- Prepaid expenses 3,671 -- Accounts payable (79,413) (6,023) Accrued liabilities 100,213 (14,581) Deferred revenue (132,809) 66,001 ----------- ----------- Net cash provided by operating activities 680,956 521,052 INVESTING ACTIVITIES Purchase of property and equipment (567,446) (69,623) ----------- ----------- Net cash used in investing activities (567,446) (69,623) FINANCING ACTIVITIES Principal payments on capital leases (17,859) (14,048) Principal payments on long-term debt (35,728) -- Contributions from stockholders 550,000 -- Distributions to stockholders (1,154,247) (191,516) ----------- ----------- Net cash used in financing activities (657,834) (205,564) ----------- ----------- Net (decrease) increase in cash and cash equivalents (544,324) 245,865 Cash and cash equivalents at beginning of year 696,836 156,319 ----------- ----------- Cash and cash equivalents at end of year $ 152,512 $ 402,184 =========== ===========
Supplemental disclosure of cash flow information: Interest paid for 1999 and 1998 was approximately $43,000 and $16,000, respectively. In 1999 the Company completed the purchase of an office building for approximately $2,400,000, of which approximately $1,800,000 was financed through its bank. See notes to unaudited condensed combined financial statements. 6 Pinpoint Technologies, Inc. Notes to Unaudited Condensed Combined Financial Statements (unaudited) 1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES Pinpoint Technologies, Inc. was incorporated in December 1993, with operations beginning April 1995. Pinpoint creates, develops and manufactures advanced information technology software, exclusively focused on the emergency medical services (EMS) market. Its products are computer-aided dispatch and billing software targeted at public and private ambulance companies. The Company's operations are located in Boulder, Colorado. The Company is a Sub S Corporation and is owned by three individuals. In January 1999, the Company distributed cash to the stockholders of the Company. The proceeds were contributed to newly formed Pinpoint Property Management LLC, and used to fund the equity needed to acquire an office building described below. The unaudited interim combined financial statements have been prepared by the Company in accordance with generally accepted accounting principles for interim financial reporting and the regulations of the Securities and Exchange Commission in regard to quarterly reporting. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, the statements include all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. Operating results for the nine month period ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ending September 30, 1999. For further information refer to the financial statements and footnotes thereto included in the Company's audited financial statements for the year ended September 30, 1998. PRINCIPLES OF COMBINATION The accompanying combined financial statements include the accounts of Pinpoint Technologies, Inc. and Pinpoint Properties Management, LLC. All significant intercompany transactions have been eliminated. 7 Pinpoint Technologies, Inc. Notes to Condensed Combined Financial Statements (continued) (unaudited) 2. ACQUISITION OF PROPERTY In December 1998, the individual stockholders of the Company signed a purchase and sale agreement to acquire an office building. In March 1999, the building was acquired by Pinpoint Property Management LLC (PPM), which is owned by the stockholders of the Company. The Company pays PPM rent under a five-year lease. Monthly rental expense in the amount of approximately $30,000 is due through 2004. 3. SUBSEQUENT EVENTS During October 1999, the Company completed a business merger with Zoll Medical Corporation, which is located in Burlington, Massachusetts. Zoll Medical merged with both Pinpoint Technologies, Inc. and Pinpoint Property Management LLC, an affiliate of the Company through virtue of common ownership. 4. YEAR 2000 ISSUE The Company has developed a plan to make its information technology ready for the year 2000 and believes the critical data processing systems are currently ready for the year 2000. Although the Company has not initiated formal communications with all of its significant suppliers and customers to determine the extent to which the Company's interface systems are vulnerable to those third parties' failure to remediate their own Year 2000 Issues, the Company does not expect this project to have a significant effect on operations. EX-27.1 7 FINANCIAL DATA SCHEDULE-26-SEPT-1998
5 1,000 U.S. DOLLARS YEAR SEP-26-1998 SEP-28-1997 SEP-26-1998 1 5,521 0 15,570 940 9,405 32,813 18,659 8,187 46,656 11,135 446 0 0 132 34,655 46,656 57,520 57,520 24,268 24,268 32,974 244 74 691 18 673 0 0 0 673 0.1 0.1
EX-27.2 8 FINANCIAL DATA SCHEDULE-27-SEPT-1997
5 1,000 U.S. DOLLARS YEAR SEP-27-1997 SEP-29-1996 SEP-27-1997 1 9,958 278 16,232 1,244 7,476 34,243 14,330 6,810 45,013 9,882 565 0 0 131 34,332 45,013 57,833 57,833 25,372 25,372 31,663 361 77 1,153 266 887 0 0 0 887 .13 .13
EX-27.3 9 FINANCIAL DATA SCHEDULE 28-SEPT-1996
5 1,000 US YEAR SEP-28-1996 SEP-29-1995 SEP-28-1996 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 55,700 55,700 24,545 24,545 26,046 143 104 5,387 1,758 3,629 0 0 0 3,269 .55 .55
EX-27.4 10 FINANCIAL DATA SCHEDULE 3-JUL-1999
5 1,000 U.S. DOLLARS 9-MOS JUL-03-1999 SEP-27-1998 JUL-03-1999 1 1,012 0 23,226 1,197 11,135 36,217 23,588 10,134 53,138 13,043 2,143 0 0 132 37,532 53,138 54,809 54,809 22,469 22,469 28,108 81 93 4,265 1,093 3,172 0 0 0 3,172 .48 .47
EX-27.5 11 FINANCIAL DATA SCHEDULE 27-JUN-1998
5 1,000 U.S. DOLLARS 9-MOS JUN-27-1998 SEP-27-1997 JUN-27-1998 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 40,699 40,699 17,096 17,096 23,744 355 54 175 143 318 0 0 0 318 .05 .05
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