UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]	Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934. For the three month period from September 29, 2003 to January 4, 2004.

[ ]	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from _____to_____.

Commission file number 0-20225

ZOLL MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)


Massachusetts		04-2711626
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification number)

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

(978) 421-9655
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ___

Indicate the number of shares outstanding of each of the issuer’s classes of common stock:


Class	Outstanding at January 30, 2004
Common Stock, $0.02 par value	9,140,800

This document consists of 26 pages.

ZOLL MEDICAL CORPORATION

INDEX

		Page No.
PART I.	FINANCIAL INFORMATION

ITEM 1	Financial Statements:

	Consolidated Balance Sheets (unaudited) January 4, 2004 and September 28, 2003	3

	Consolidated Income Statements (unaudited) Three Months Ended January 4, 2004 and December 29, 2002	4

	Consolidated Statements of Cash Flows (unaudited) Three Months Ended January 4, 2004 and December 29, 2002	5

	Notes to Consolidated Financial Statements (unaudited)	6

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	9

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	21

ITEM 4.	Controls and Procedures	23

PART II.	OTHER INFORMATION

ITEM 1.	Legal Proceedings	24

ITEM 2.	Changes in Securities and Use of Proceeds	24

ITEM 3.	Defaults Upon Senior Securities	24

ITEM 4.	Submission of Matters to a Vote of Security Holders	24

ITEM 5.	Other Information	24

ITEM 6.	Exhibits and Reports on Form 8-K	25

	Signatures	26

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ZOLL MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS

(000‘s omitted, except per share data)
(Unaudited)

ASSETS	January 4, 2004	September 28, 2003
Current assets:
Cash and cash equivalents	$ 34,533	$ 40,780
Marketable securities	22,833	19,992
Accounts receivable, less allowance of $5,668 at January 4, 2004, and $4,689 at September 28, 2003	50,478	47,906
Inventories:
Raw materials	13,628	13,662
Work-in-process	4,184	4,712
Finished goods	16,739	16,014
	34,551	34,388
Prepaid expenses and other current assets	5,229	5,042
Total current assets	147,624	148,108
Property and equipment, at cost:
Land and building	3,527	3,527
Machinery and equipment	36,093	34,512
Construction in progress	1,399	1,147
Tooling	7,827	7,678
Furniture and fixtures	2,400	2,173
Leasehold improvements	4,224	3,789
	55,470	52,826
Less: accumulated depreciation	31,286	29,780
Net property and equipment	24,184	23,046
Investments	12,804	12,804
Other assets, net	8,137	8,138
	$192,749	$192,096

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$ 11,108		$ 12,204
Accrued expenses and other liabilities	19,300		22,399
Total current liabilities	30,408		34,603
Deferred income taxes	1,502		1,502
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, authorized 1,000
shares, none issued and outstanding
Common stock, $0.02 par value, authorized 19,000 shares,
9,137 and 9,063 issued and outstanding at January 4, 2004
and September 28, 2003, respectively	183		181
Capital in excess of par value	101,562		99,714
Accumulated other comprehensive loss	(1,493	)	(1,810	)
Retained earnings	60,587		57,906
Total stockholders' equity	160,839		155,991
	$ 192,749		$ 192,096

See notes to unaudited consolidated financial statements.

ZOLL MEDICAL CORPORATION
CONSOLIDATED INCOME STATEMENTS

(000‘s omitted, except per share data)
Unaudited)

	Three Months Ended
	January 4, 2004	December 29, 2002
Net sales	$50,842	$43,092
Cost of goods sold	22,139	20,042
Gross profit	28,703	23,050

Expenses:
Selling and marketing	17,756	14,229
General and administrative	3,185	2,996
Research and development	4,340	3,056

Total expenses	25,281	20,281

Income from operations	3,422	2,769

Investment and other income	579	635

Income before income taxes	4,001	3,404
Provision for income taxes	1,320	1,123
Net income	$ 2,681	$ 2,281


Basic earnings per common share	$ 0.29	$ 0.25

Weighted average common shares outstanding	9,103	8,968

Diluted earnings per common and common equivalent share	$ 0.29	$ 0.25

Weighted average common and common equivalent shares outstanding	9,248	9,183

See notes to unaudited consolidated financial statements.

ZOLL MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

(000‘s omitted)
Unaudited)

	Three Months Ended
	January 4, 2004		December 29, 2002
OPERATING ACTIVITIES:

Net income	$ 2,681		$ 2,281

Charges not affecting cash:
Depreciation and amortization	2,221		1,907
Tax benefit from the exercise of stock options	315		451
Unrealized loss from hedging activities	40		--
Changes in current assets and liabilities:
Accounts receivable	(1,767	)	1,759
Inventories	143		(676	)
Prepaid expenses and other current assets	(172	)	(350	)
Accounts payable and accrued expenses	(5,693	)	2,108
Cash (used for) provided by operating activities	(2,232	)	7,480

INVESTING ACTIVITIES:
Purchases of marketable securities	(7,500	)	(15,580	)
Sales of marketable securities	4,400		2,320
Additions to property and equipment	(3,102	)	(1,259	)
Other assets, net	262		(3,160	)
Cash used for investing activities	(5,940	)	(17,679	)

FINANCING ACTIVITIES:
Exercise of stock options	1,537		517
Cash provided by financing activities	1,537		517

Effect of exchange rates on cash and cash equivalents	388		42

Net decrease in cash and cash equivalents	(6,247	)	(9,640	)
Cash and cash equivalents at beginning of period	40,780		55,658
Cash and cash equivalents at end of period	$ 34,533		$ 46,018


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period:
Income taxes	$ 1,184		$ 1,013

See notes to unaudited consolidated financial statements.

ZOLL MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

The Consolidated Balance Sheet as of January 4, 2004, the Consolidated Income Statements for the three months ended January 4, 2004 and December 29, 2002, and the Consolidated Statements of Cash Flows for the three months ended January 4, 2004 and December 29, 2002 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. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Examples include provisions for returns, bad debts and the estimated lives of fixed assets. Actual results may differ from these estimates. The results for the interim periods are not necessarily indicative of results to be expected for the entire year. The information contained in the interim financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended September 28, 2003 included in its Form 10-K filed with the Securities and Exchange Commission (“SEC”) on December 19, 2003.

2. Segment and Geographic Information

Segment information: The Company operates in a single business segment: the design, manufacture and marketing of an integrated line of proprietary non-invasive cardiac resuscitation devices, and systems used for emergency resuscitation of cardiac arrest victims. In order to make operating and strategic decisions, ZOLL’s chief operating decision maker evaluates revenue performance based on the worldwide revenues of four customer/product categories but, due to shared infrastructures, profitability is based on an enterprise-wide measure. These customer/product categories consist of (1) the sale of cardiac resuscitation devices and accessories to the North American hospital market, (2) the sale of the same items and data collection management software to the North American pre-hospital market, (3) the sale of disposable/other products in North America, (4) the sale of cardiac resuscitation devices and accessories and disposable electrodes to the international market.

Net sales by customer/product categories were as follows:

(000‘s omitted)

	Three Months Ended
	January 4, 2004	December 29, 2002
Hospital Market - North America	$19,254	$13,032
Pre-hospital Market - North America	14,820	11,343
Other - North America	5,289	4,742
International Market	11,479	13,975

	$50,842	$43,092

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

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

(000‘s omitted)

	Three Months Ended
	January 4, 2004	December 29, 2002
United States	$35,555	$27,335
Foreign	15,287	15,757

	$50,842	$43,092

3. Comprehensive Income

The Company computes comprehensive income in accordance with Statement of Financial Accounting Standards No. 130 (“SFAS 130”) “Reporting Comprehensive Income”. SFAS 130 establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Other comprehensive income, as defined, includes all changes in equity during a period from non-owner sources, such as unrealized gains and losses on available-for-sale securities, foreign currency translation and the changes in fair value of the effective portion of our outstanding cash flow hedge contracts. Total comprehensive income for the three months ended January 4, 2004 and December 29, 2002 were as follows:

(000‘s omitted)

	Three Months Ended
	January 4, 2004		December 29, 2002
Net income	$ 2,681		$ 2,281
Unrealized gain on available-for-sales securities, net of tax	1		169
Foreign currency translation adjustment	562		(15	)
Net unrealized losses on cash flow hedges	(246	)	--

Total comprehensive income	$ 2,998		$ 2,435

4. Stock Option Plans

At January 4, 2004, the Company had three stock-based compensation plans. The Company’s 1992 and 2001 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 1992 plan. The options become exercisable ratably over two or four years and have a maximum life of 10 years. The Company’s Non-employee Director Stock Option Plan provides for the grant of options to purchase 10,000 shares of Common Stock to Directors of the Company who are not also employees of the Company or any of its subsidiaries upon the Directors’ initial appointment to the Board of Directors. The Non-employee Director options vest in equal annual installments over a four year period. The Non-employee Director options are granted at an exercise price equal to the fair market value of the Common Stock on the date the option is granted.

The Company accounts for its stock-based plans under the recognition and measurement provisions of Accounting Principles Board No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the grant date. As required by SFAS No, 123 (“SFAS 123”), “Accounting for Stock-Based Compensation” and amended by SFAS 148, the following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to the stock-based employee compensation. The estimated fair value of each option is calculated using the Black-Scholes option-pricing model.

(000‘s omitted, except per share data)

	Three Months Ended
	January 4, 2004		December 29, 2002
Net income-as reported	$ 2,681		$ 2,281
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects	(621	)	(654	)

Net income-pro forma	$ 2,060		$ 1,627

Earnings per share:
Basic - as reported	$ 0.29		$ 0.25

Basic - pro forma	$ 0.23		$ 0.18


Diluted - as reported	$ 0.29		$ 0.25

Diluted - pro forma	$ 0.22		$ 0.18

5. Earnings per Share

The shares used for calculating basic earnings per common share were the average shares outstanding of common stock and the shares used for calculating diluted earnings per common share were the average shares outstanding of common stock plus the dilutive effect of stock options.

(000‘s omitted)

	Three Months Ended
	January 4, 2004	December 29, 2002
Average shares outstanding
for basic earnings per share	9,103	8,968
Dilutive effect of stock options	145	215

Average shares outstanding
for diluted earnings per share	9,248	9,183

6. Derivative Instruments and Hedging Activities

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

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

The Company had one foreign currency forward contract outstanding, serving as a hedge of a substantial portion of our Euro-denominated intercompany balances, in the notional amount of approximately 5.0 million Euros at January 4, 2004. The net settlement amount of this contract at January 4, 2004, was an unrealized loss of approximately $40,000.

The Company also uses foreign currency forward contracts to manage its currency transaction exposures from forecasted foreign currency denominated sales to its subsidiaries. These currency forward contracts are designated as cash flow hedges under SFAS 133 therefore the effective portion of the gain or loss is reported as a component of other comprehensive income and will be reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. The ineffective portion of the derivative’s change in fair value is recognized currently through earnings regardless of whether the instrument is designated as a hedge.

At January 4, 2004, the Company had twelve foreign currency forward contracts outstanding, all maturing in less than twelve months, to exchange the Euro, British Pound, Australian Dollar and Canadian Dollar for U.S. Dollars totaling $4.1 million. The net settlement amount of these contracts at January 4, 2004 was an unrealized loss of approximately $246,000.

Net recognized losses from foreign currency forward contracts totaled $509,000 during the quarter ended January 4, 2004 and are included in the consolidated statement of income. We did not enter into any derivative contracts in the first quarter of fiscal 2003.

7. Product Warranties

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

Product warranty activity for the three months ended January 4, 2004 is as follows:

(000‘s omitted)

Balance at September 28, 2003		Accruals for warranties issued during the period		Decrease to pre-existing warranties		Balance at January 4, 2004
$2,109		$321		$209		$2,221

8. Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities”, to clarify the conditions under which the assets, liabilities and activities of another entity should be consolidated into the financial statements of a company. FIN 46 requires the consolidation of a variable interest entity by a company that bears the majority of the risk of loss from the variable interest entity’s activities or is entitled to receive the majority of the variable interest entity’s residual returns. The Company currently holds equity investments in Revivant Corporation, LifeCOR, Inc., Advanced Circulatory Systems, Inc. (formerly ResQSystems, Inc.) and AED@Home with a total carrying value of approximately $12.8 million. The Company has evaluated the effect of adoption of FIN 46 and determined that it does not have an impact on the Company’s consolidated financial statements.

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

ZOLL Medical Corporation (“the Company”) designs, manufacturers, and markets an integrated line of proprietary, non-invasive cardiac resuscitation devices, disposable electrodes and accessories used for the emergency resuscitation of cardiac arrest victims. Pinpoint Technologies, a subsidiary of the Company, designs and markets software which automates collection and management of both clinical and non-clinical data for emergency medical service providers.

Three Months Ended January 4, 2004 Compared To Three Months Ended December 29, 2002

To assist with the discussion that follows our table of net sales by customer/product categories is shown here:

(000‘s omitted)

	Three Months Ended
	January 4, 2004	December 29, 2002
Hospital Market - North America	$19,254	$13,032
Pre-hospital Market - North America	14,820	11,343
Other - North America	5,289	4,742
International Market	11,479	13,975

	$50,842	$43,092

Net sales increased 18% to $50.8 million for the three months ended January 4, 2004, as compared to $43.1 million for the same period a year earlier. Sales to the North American hospital market amounted to $19.3 million, a 48% increase in comparison to $13.0 million for the same period a year prior. The increase in sales over the prior quarter in fiscal 2003 was attributed to U.S. Military shipments and increased sales of our AED Plus product. Sales to the North American pre-hospital market increased 31% to $14.8 million, up from $11.3 million in the first quarter of the previous fiscal year. The increase in the North American pre-hospital market was primarily due to increased AED Plus sales and sales of our data management products. Total North American sales increased 35% to $39.4 million in comparison to $29.1 million for the same period a year earlier. Total sales of the AED Plus product amounted to $6.8 million in comparison to $3.9 million for the same period last year. This increase reflects additional sales force resources assigned to the AED market. International sales decreased 18% to $11.5 million in comparison to $14.0 million for the same period a year earlier primarily resulting from German Army shipments in the first quarter of last year which did not repeat this year. Excluding the favorable impact of $0.9 million of foreign currency exchange rates, International sales decreased 24%.

Gross margin for the three months ended January 4, 2004 increased to 56.5% as compared to 53.5% for the comparable prior year quarter. The increased margin compared to the prior comparable period is due to the German Army shipments in the prior year which had lower margins due to volume pricing, and an improved product mix, including AEDs and disposable electrodes, on shipments in the current quarter.

Selling and marketing expenses increased as a percentage of net sales to 34.9% as compared to 33.0% for the same period a year earlier. Selling and marketing expenses in total increased $3.5 million or 25% for the three months ended January 4, 2004 compared to the three months ended December 29, 2002. The increase in selling and marketing expense reflects our increased sales force, tradeshow participation, and advertising costs.

General and administrative expenses decreased as a percentage of net sales to 6.3% from 7.0%. General and administrative expenses increased $189,000 or 6.3% for the three months ended January 4, 2004 compared to the three months ended December 29, 2002. This increase was due primarily to staffing and related personnel costs to support our growing business.

Research and development expenses increased as a percentage of net sales to 8.5% from 7.1%. Research and development expenses increased $1.3 million or 42% for the three months ended January 4, 2004 compared to the three months ended December 29, 2002. This change reflects additional personnel we have hired to support ongoing future product development, product variants of the M Series™ and AED Plus™ product lines, continued clinical trials and data management.

Our effective tax rate remained consistent at 33% for the three months ended January 4, 2004 as compared to the same period in fiscal 2003, reflecting the continued generation of research and development tax credits, the impact of foreign earnings taxed at differing rates, and the utilization of foreign loss carry forwards.

Liquidity and Capital Resources

Our total cash, cash equivalents and marketable securities decreased $3.4 million for the three months ended January 4, 2004. Our cash and cash equivalents at January 4, 2004 totaled $34.5 million compared with $40.8 million at September 28, 2003. In addition, we had marketable securities amounting to $22.8 million at January 4, 2004 in comparison to $20.0 million at September 28, 2003.

Cash used in operating activities for the three months ended January 4, 2004 was $2.2 million as compared to $7.5 million provided by operating activities during the same period in fiscal year 2003. This decrease was primarily attributable to a decrease in accounts payable due to the timing of our payments and increases in accounts receivable directly related to our sales growth, offset by improved net earnings and increased depreciation expense.

Cash used for investing activities amounted to $5.9 million during the three months ended January 4, 2004 compared to $17.7 million during the three months ended December 29, 2002. This change reflects greater fixed asset additions in the current year period offset by certain investments made during the prior year quarter which were not repeated during the first quarter of this year. These prior year first quarter investments included equity investments totaling approximately $3.0 million in LifeCOR, Inc., Advanced Circulatory Systems, Inc. (formerly ResQSystems, Inc.), and AED@Home, plus increased purchases of marketable securities in the prior year period. The increase in fixed assets additions was primarily due to additional demonstration units and laptop computers deployed to our growing sales force. Another factor was additional leasehold improvements for our new facility in Chelmsford, Massachusetts, most of which have been reimbursed to us by our landlord and will be accounted for as credits to rent expense over the life of our lease.

Cash provided by financing activities was $1.5 million for the three months ended January 4, 2004 compared to $517,000 for the same period in fiscal year 2003. The change reflects a higher number of stock options exercised during the current quarter (73,359 verses 54,841) at a higher average exercise price ($20.93 verses $9.57).

We have investments in privately held technology companies with a carrying value of $12.8 million. During the quarter ended January 4, 2004, as a result of significant cash flow constraints at LifeCOR, Inc., we performed a review to determine if the carrying value of $3.5 million was impaired. While no impairment loss was recognized, failure of this entity to obtain additional funding in the near term could result in an impairment charge in the future.

We have the option to acquire the remaining outstanding shares of Revivant Corporation (Revivant) at any time up through October 4, 2004. If the option is exercised, we will pay $15 million to Revivant’s shareholders to acquire the remaining outstanding shares. We may also subsequently make clinical milestone payments, up to an additional $15 million, tied to the completion of certain clinical trials with the AutoPulse™ Resuscitation System. We will make additional payments in the years 2005 through 2007 based on the growth of the AutoPulse sales. All payments will be a combination of cash and ZOLL common stock.

We maintain a working capital line of credit with our bank. Under this working capital line, we may borrow on a demand basis. Currently, we may borrow up to $12.0 million at an interest rate equal to the bank’s base rate. No borrowings were outstanding on this line at the end of the first quarter of fiscal 2004.

We believe that the combination of existing cash, cash equivalents, and highly liquid short-term investments on hand, future cash to be generated by operations and amounts available under our existing line of credit will be sufficient to meet our ongoing operating and capital expenditure requirements for the foreseeable future.

Off-Balance Sheet Arrangements

Our only off-balance sheet arrangements consist of non-cancelable operating leases entered into in the ordinary course of business. The table shown below in the next section titled “Contractual Obligations and Other Commercial Commitments” shows the amounts of our operating lease commitments payable by year. For liquidity purposes, we choose to lease our automobiles and the majority of our facilities instead of purchasing them.

Contractual Obligations and Other Commercial Commitments

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

	Payments Due by Period
Contractual Obligations	Total	Less than 1 Year	1-3 Years	4-5 Years	After 5 Years
Non-Cancelable Operating Lease Obligations	$9,007	$1,447	$2,646	$2,194	$2,720
Purchase Obligations	383	383	--	--	--

Total Contractual Obligations	$9,390	$1,830	$2,646	$2,194	$2,720

Legal and Regulatory Affairs

We are involved in the normal course of our business in various litigation matters and regulatory issues, including product recalls. Although we are unable to determine at the present time the exact amount of any impact in any pending matters, we believe that none of the pending matters will have an outcome material to our financial condition or business.

Critical Accounting Policies

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

Revenue Recognition

Revenues from sales of cardiac resuscitation devices, disposable electrodes and accessories are recognized when a signed non-cancelable purchase order exists, the product is shipped, title and risk have passed to the customer, the fee is fixed and determinable, and collection is considered probable. Revenues are recorded net of estimated returns.

We also license software under non-cancelable license agreements and provide services including training, installation, consulting and maintenance, which consist of product support services, periodic updates and unspecified upgrade rights (collectively, post-contract customer support (“PCS”)). Revenue from the sale of software is recognized in accordance with the American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended. License fee revenues are recognized when a non-cancelable license agreement has been signed, the software product has been shipped, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable, and collection is considered probable. Revenues from maintenance agreements and upgrade rights are recognized ratably over the period of service.

Our software arrangements contain multiple elements, which include software products, services and PCS. In general, we do not have vendor specific objective evidence of fair value for our software products. Accordingly, for transactions where vendor specific objective evidence exists for undelivered elements but not for delivered elements, we use the residual method as discussed in SOP 98-9, “Modification of SOP 97-2, With Respect to Certain Transactions.” Under the residual method, the total fair value of the undelivered elements, as indicated by vendor specific objective evidence, is deferred and the difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements.

Allowance for Doubtful Accounts / Sales Returns and Allowances

We maintain an allowance for doubtful accounts for estimated losses, which are included in bad debt expense, resulting from the inability of our customers to make required payments. We determine the adequacy of this allowance by regularly reviewing the aging of our accounts receivable and evaluating individual customer receivables, considering customers’ financial condition, historical experience, credit history and current economic condition. We also maintain an estimate of potential future product returns and discounts given related to trade-ins and to current period product receivables. We analyze the rate of historical returns when evaluating the adequacy of the allowance for sales returns, which are included with the allowance for doubtful accounts on our balance sheet.

As of January 4, 2004 our accounts receivable balance of $50.5 million is reported net of allowances of $5.7 million. We believe our reported allowances at January 4, 2004 are adequate. If the financial conditions of our customers were to deteriorate, however, resulting in their inability to make payments, we may need to record additional allowances, resulting in additional expenses being recorded for the period in which such determination was made.

Warranty Reserves

Our products are sold with warranty provisions that require us to remedy deficiencies in quality or performance over a specified period of time, usually one to five years. We provide for the estimated cost of product warranties at the time revenue is recognized. While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. We believe that our recorded liability of $2.2 million at January 4, 2004 is adequate to cover future costs for the servicing of our products sold through that date. If actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required.

Inventory Reserves

We value our inventories at the lower of cost or market. Cost is determined by the first-in, first-out (“FIFO”) method, including material, labor and factory overhead. Significant management judgment is required to determine the reserve for obsolete or excess inventory. Inventory on hand may exceed future demand either because the product is outdated, obsolete, or because the amount on hand is in excess of future needs. We provide for the total value of inventories that we determine to be obsolete based on criteria such as customer demand and changing technologies. At January 4, 2004, our inventory reserves were $2.3 million, or 6.2% of our $36.9 million gross inventories.

Safe Harbor Statements

Certain statements contained herein constitute “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 (the “Act”) and releases issued by the Securities and Exchange Commission and within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. Particularly, the Company’s expectations regarding future operational liquidity, contractual obligations and other commercial commitments, and capital requirements are forward-looking statements. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the length and severity of the current economic slowdown and its impact on capital spending budgets, the potential disruption in the transportation industry on the Company’s supply chain and product distribution channels and those other risks and uncertainties contained under the heading “Risk Factors”.

Risk Factors

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

Our principal global competitors with respect to our entire cardiac resuscitation equipment product line are Physio-Control Corporation and Royal Philips Electronics. Physio-Control is a subsidiary of Medtronic, Inc., a leading medical technology company. Physio-Control has been the market leader in the defibrillator industry for over twenty years. As a result of Physio-Control’s dominant position in this industry, many potential customers have relationships with Physio-Control that could make it difficult for us to continue to penetrate the markets for our products. In addition, Physio-Control, its parent and Royal Philips Electronics and other competitors each have significantly greater resources than we do. Accordingly, Physio-Control, Royal Philips Electronics and other competitors could substantially increase the resources they devote to the development and marketing of products that are competitive with ours. These and other competitors may develop and successfully commercialize medical devices that directly or indirectly accomplish what our products are designed to accomplish in a superior and/or less expensive manner. In addition, although our biphasic waveform technology is unique, our competitors have devised alternative biphasic waveform technology. We have also licensed our biphasic waveform technology to GE Medical Systems Information Technologies.

There are a number of smaller competitors in the United States, which include Welch Allyn, Inc. (formerly MRL), Cardiac Science, Inc., Cardio Access and Defibtech. Internationally, we face the same competitors as in the United States as well as Nihon Kohden, Corpuls, Schiller, and other local competitors. It is possible the market may embrace these competitors’ products which could negatively impact our market share.

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

There is significant competition in the business of developing and marketing software for data collection, billing, dispatching and management in the emergency medical system market. Our principal competitors in this business include Medusa Medical Technologies, Inc. Healthware Technologies, Inc., Safety Pad Software, Golden Hour Data Systems, DocuMed, Inc., Tritech Software Systems, Inc., Sweet Computer Services, Inc., RAM Software Systems, Inc., Intergraph Corporation and AmbPac, Inc., some of which have greater financial, technical, research and development and marketing resources than we do. Because the barriers to entry in this business are relatively low, additional competitors may easily enter this market in the future. It is possible that systems developed by competitors could be superior to our data management system. Consequently, our ability to sell our data management system could be materially affected and our financial results could be materially and adversely affected.

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

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


	•	high demand for our products which could disrupt our normal factory utilization and cause shipments to occur in uneven patterns;
	•	variations in product orders;
	•	timing of new product introductions;
	•	temporary disruptions on buying behavior due to changes in technology (e.g. shift to biphasic technology);
	•	changes in distribution channels;
	•	actions taken by our competitors such as the introduction of new products or the offering of sales incentives;
	•	the ability of our sales forces to effectively market our products;
	•	supply interruptions from our single source vendors;
	•	temporary manufacturing disruptions;
	•	regulatory actions, including actions taken by the FDA or similar agencies; and
	•	delays in obtaining domestic or foreign regulatory approvals.

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

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

The AED PAD (Public Access Defibrillation) Business is New to Us. If We are Not Successful in Entering This Business Segment, Our Operating Results May be Affected.

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

We have noticed that as the PAD market has grown, there have been an increasing number of smaller, start-up companies entering the market. In order to gain market share, these companies compete mainly on price. If these companies are able to capture a larger market share with lower prices, this may cause declining prices and negatively affect our operating results.

Two of our major competitors have announced plans to enter the home market. We also sell to the home market and if our plan turns out to be less effective or efficient, we might have difficulty building market share.

We May be Required to Implement a Costly Product Recall

In the event that any of our products proves to be defective, we can voluntarily recall, or the FDA could require us to redesign or implement a recall of any of our products. Both our larger competitors and we have, on numerous occasions, voluntarily recalled products in the past, and based on this experience, we believe that future recalls could result in significant costs to us and significant adverse publicity, which could harm our ability to market our products in the future. Though it is not possible to quantify the economic impact of a recall, it could have a material adverse effect on our business, financial condition and results of operations. For example, in 2003, we initiated a recall of approximately 8,000 M Series units to correct a potential fault with a vendors’ component that could occur during its operation. Very few of these units contained the faulty component. The cost of implementing this corrective action was less than $100,000.

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

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


	•	major third-party payers of hospital and pre-hospital services, including Medicare, Medicaid and private healthcare insurers, have substantially revised their payment methodologies during the last few years which has resulted in stricter standards for reimbursement of hospital and pre-hospital charges for certain medical procedures;
	•	Medicare, Medicaid and private healthcare insurer cutbacks could create downward price pressure in the cardiac resuscitation pre-hospital market;
	•	numerous legislative proposals have been considered that would result in major reforms in the U.S. healthcare system that could have an adverse effect on our business;
	•	there has been a consolidation among healthcare facilities and purchasers of medical devices in the United States who prefer to limit the number of suppliers from whom they purchase medical products, and these entities may decide to stop purchasing our products or demand discounts on our prices;
	•	there is economic pressure to contain healthcare costs in international markets;
	•	there are proposed and existing laws and regulations in domestic and international markets regulating pricing and profitability of companies in the healthcare industry; and
	•	there have been initiatives by third party payers to challenge the prices charged for medical products which could affect our ability to sell products on a competitive basis.

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

General Economic Conditions May Cause Our Customers to Delay Buying Our Products Resulting in Lower Revenues

The national economy of the United States and the global economy are both subject to economic downturns. An economic downturn in any market in which we sell our products may have a significant impact on the ability of our customers, in both the hospital and pre-hospital markets, to secure adequate funding to buy our products or might cause purchasing decisions to be delayed. Any delay in purchasing our products may result in decreased revenues and also allow our competitors additional time to develop products which may have a competitive edge over our M Series products, making future sales of our products more difficult.

For example, in the face of a difficult economic climate in the U.S., many states experienced deficits and shortfalls of revenue to cover expenditures. As a result, states cut their spending and support to local cities and towns, who then in-turn have reduced their spending for capital equipment purchases for their EMS services. We believe that this has had a negative impact on our revenues and may continue to do so.

The War on Terrorism and the Impact of a Bio-Terror Threat May Cause Our Customers to Stop or Delay Buying Our Products, Resulting in Lower Revenues

The current war on terrorism and a threat of a bio-terror attack may have a significant impact on our customers’ ability or willingness to buy our products, as well as our ability to timely deliver the product to the customers. Our customers may have to divert their funding, earmarked for capital equipment purchases to the purchase of other medical equipment and supplies to fight any potential bio-terror attack. The war on terrorism may cause the diversion of any government funding of hospitals and EMS services for capital equipment purchases to the war effort. This could result in decreased revenues.

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

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

Recurring Sales of Electrodes to Our Customers May Decline

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

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

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

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


	•	our ability to develop and introduce new products in a timely manner;
	•	our ability to successfully implement new product technologies;
	•	the market's readiness to accept new products such as our data management products and our PAD product;
	•	the standardization of an automated platform for data management systems;
	•	the clinical efficacy of our products and the outcome of clinical trials;
	•	the ability to obtain timely regulatory approval for new products; and
	•	the prices of our products compared to the prices of our competitors' products.

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

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

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

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

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

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

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

We are also subject to regulation in each of the foreign countries in which we sell products. Many of the regulations applicable to our products in such countries are similar to those of the FDA. However, the national health or social security organizations of certain countries require our products to be qualified before they can be marketed in those countries. We cannot be assured that such clearances will be obtained.

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

Every company that manufactures or assembles medical devices is required to register with the FDA and to adhere to certain quality systems, which regulate the manufacture of medical devices and prescribe record keeping procedures and provide for the routine inspection of facilities for compliance with such regulations. The FDA also has broad regulatory powers in the areas of clinical testing, marketing and advertising of medical devices. To ensure that manufacturers adhere to good manufacturing practices, medical device manufacturers are routinely subject to periodic inspections by the FDA. If the FDA believes that a company may not be operating in compliance with applicable laws and regulations, it could take any of the following actions:


	•	place the company under observation and re-inspect the facilities;
	•	issue a warning letter apprising of violating conduct;
	•	detain or seize products;
	•	mandate a recall;
	•	enjoin future violations; and
	•	assess civil and criminal penalties against the company, its officers or its employees.

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

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

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

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

Fluctuations in Currency Exchange Rates May Adversely Affect Our International Sales

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

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

We Have Licensed Our Biphasic Technology to GE Medical Systems Information Technologies

In 2001, we entered into a five-year license agreement with GE Medical Systems Information Technologies that permits GE to incorporate our patented biphasic waveform technology into their defibrillator and monitoring systems. At this time GE has taken only limited action to incorporate our technology into their products. However, GE has significantly greater resources than we do. If they bring our technology to market, it could impact our ability to market and sell our products, potentially lowering our revenues.

Our Current and Future Investments May Lose Value in the Future

We have made a $12 million debt and equity investment in Revivant Corporation, a development stage company, with the option to purchase the remaining equity in October 2004. We also have a $3.5 million investment in LifeCOR, Inc., a development stage company. In addition, we hold minor investments in Advanced Circulatory Systems, Inc. (formerly ResQSystems, Inc.) and AED@Home and may in the future invest in the securities of other companies and participate in joint venture agreements. These investments and future investments are subject to the risks that the entities in which we invest will become bankrupt or lose money. Investing in securities involves risks and no assurance can be made as to the profitability of any investment. Our inability to identify profitable investments could adversely affect our financial condition and results of operations. Unless we hold a majority position in an investment or joint venture, we will not be able to control all of the activities of the companies in which we invest or the joint ventures in which we are participating. Because of this, such entities may take actions against our wishes and not in furtherance of, and even opposed to, our business plans and objectives. These investments are also subject to the risk of impasse if no one party exercises ultimate control over the business decisions.

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

Although we are not aware of any pending changes in applicable laws and regulations governing our industry, we cannot be assured that federal, state or foreign governments will not change existing laws or regulations or adopt new laws or regulations that regulate our industry. Changes in or adoption of new laws or regulations could result in the following consequences that would have an adverse effect on our business:


	•	regulatory clearance previously received for our products could be revoked;
	•	costs of compliance could increase; or
	•	we may be unable to comply with such laws and regulations so that we would be unable to sell our products.

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

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

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

Approximately 30% of our sales for the three months ended January 4, 2004 were made to foreign purchasers and we plan to increase the sale of our products to foreign purchasers in the future. As a result, a significant portion of our sales is and will continue to be subject to the risks of international business, including:


	•	fluctuations in foreign currencies;
	•	trade disputes;
	•	changes in regulatory requirements, tariffs and other barriers;
	•	the possibility of quotas, duties, taxes or other changes or restrictions upon the importation or exportation of the products being implemented by the United States or these foreign countries;
	•	timing and availability of import/export licenses;
	•	political and economic instability;
	•	higher credit risk and difficulties in accounts receivable collections;
	•	increased tax exposure if our revenues in foreign countries are subject to taxation by more than one jurisdiction;
	•	accepting customer purchase orders governed by foreign laws which may differ significantly from U.S. laws and limit our ability to enforce our rights under such agreements and to collect damages, if awarded;
	•	war on terrorism;
	•	disruption in the international transportation industry; and
	•	use of international distributors

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

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

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

Our success will depend in part on our ability to obtain and maintain patent protection for our products, methods, processes and other technologies, to preserve our trade secrets and to operate without infringing the proprietary rights of third parties. To date, we have been issued 25 U.S. patents for our various inventions and technologies. Additional patent applications have been filed with the U.S. Patent and Trademark Office and are currently pending. The patents that have been granted to us are for a definitive period of time and will expire. We have filed certain corresponding foreign patent applications and intend to file additional foreign and U.S. patent applications as appropriate. We cannot be assured as to:


	•	the degree and range of protection any patents will afford against competitors with similar products;
	•	if and when patents will be issued;
	•	whether or not others will obtain patents claiming aspects similar to those covered by our patent applications;
	•	whether or not competitors will use information contained in our expired patents;
	•	whether or not others will design around our patents or obtain access to our know-how; or
	•	the extent to which we will be successful in avoiding any patents granted to others.

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

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


	•	required to obtain licenses or redesign our products or processes to avoid infringement;
	•	prevented from practicing the subject matter claimed in those patents; or
	•	required to pay damages.

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

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

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

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

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

We may attempt to acquire or make strategic investments in businesses and other assets. Such acquisitions will involve risks, including:


	•	the inability to achieve the strategic and operating goals of the acquisition;
	•	the inability to raise the required capital to fund the acquisition;
	•	difficulty in assimilating the acquired operations and personnel;
	•	disruption of our ongoing business; and
	•	inability to successfully incorporate acquired technology into our existing product lines and maintain uniform standards, controls, procedures and policies.

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

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

We have also implemented a so-called poison pill by adopting our shareholders rights agreement. This poison pill significantly increases the costs that would be incurred by an unwanted third party acquirer if such party owns or announces its intent to commence a tender offer for more than 15% of our outstanding common stock. The existence of this poison pill could delay, deter or prevent a takeover of the Company.

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

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

We have only one manufacturing facility, which produces defibrillators and one separate manufacturing facility which produces electrodes. Damage to either facility could render us unable to manufacture the relevant product or require us to reduce the output of products at the damaged facility. In addition, both of these facilities are located in the Northeastern United States. A severe weather event or other natural disaster occurring late in a quarter could make it difficult to meet product shipping targets. Any of these events could materially and adversely impact our business, financial condition and results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

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

We use forward contracts to reduce our exposure to foreign currency risk due to fluctuations in exchange rates underlying the value of intercompany accounts receivable denominated in foreign currencies as well as forecasted sales to subsidiaries denominated in foreign currencies. A forward contract obligates us to exchange predetermined amounts of specified foreign currencies at specified exchange rates on specified dates. These forward contracts are denominated in the same currency in which the underlying foreign currency receivables and forecasted sales are denominated and bear a contract value and maturity date that approximate the value and expected settlement date, respectively, of the underlying transactions. Unrealized gains and losses on open contracts at the end of each accounting period, resulting from changes in the fair value of these contracts, are recognized in earnings generally in the same period as exchange gains and losses on the underlying foreign denominated receivables and forecasted sales are recognized.

We had one forward exchange contract outstanding serving as a hedge of our Euro intercompany receivables in the notional amount of approximately 5.0 million Euros at January 4, 2004. The contract serves as a hedge of a substantial portion of our Euro-denominated intercompany balances. The fair value of the foreign currency derivative contract outstanding at January 4, 2004 was approximately $6.3 million resulting in an unrealized loss of $40,000. A sensitivity analysis of a change in the fair value of the Euro derivative foreign exchange contract outstanding at January 4, 2003 indicates that, if the U.S. dollar weakened by 10% against the Euro, the fair value of this contract would decrease by $630,000. Conversely, if the U.S. dollar strengthened by 10% against the Euro, the fair value of this contract would increase by $572,000. Any gains and losses on the fair value of the derivative contract would be largely offset by losses and gains on the underlying transaction. These offsetting gains and losses are not reflected in the analysis above.

Intercompany Receivable Hedge
Exchange Rate Sensitivity: January 4, 2004
(Amounts in $)

	Expected Maturity Dates
	2004	2005	2006	2007	2008	Thereafter	Total	Unrealized Gain /(Loss)
Forward Exchange Agreements (Receive $/Pay Euro) Contract Amount	$6,258,000						$6,258,000	($40,000	)
Average Contract Exchange Rate	1.2515	--	--	--	--	--	1.2515	--

We had twelve forward exchange contracts outstanding serving as a hedge of a portion our forecasted sales to our subsidiaries in the notional amount of approximately $4.1 million at January 4, 2004. The fair value of the foreign currency derivative contracts outstanding at January 4, 2004 was approximately $4.3 million. A sensitivity analysis of a change in the fair value of the derivative foreign exchange contracts outstanding at January 4, 2003 indicates that, if the U.S. dollar weakened by 10%, the fair value of these contracts would decrease by $432,000. Conversely, if the U.S. dollar strengthened by 10%, the fair value of these contracts would increase by $393,000. Any gains and losses on the fair value of the derivative contract would be largely offset by losses and gains on the underlying transaction. These offsetting gains and losses are not reflected in the analysis above.

Cash Flow Hedges
Exchange Rate Sensitivity: January 4, 2004
(Amounts in $)

	Expected Maturity Dates
	2004	2005	2006	2007	2008	Thereafter	Total	Unrealized Gain /(Loss)
Forward Exchange Agreements (Receive $/Pay Euro) Contract Amount	$1,517,000	--	--	--	--	--	$1,517,000	($120,000	)
Average Contract Exchange Rate	1.1666	--	--	--	--	--	1.1666	--

Forward Exchange Agreements (Receive $/Pay GBP) Contract Amount	$1,156,000	--	--	--	--	--	$1,156,000	($99,000	)
Average Contract Exchange Rate	1.6520	--	--	--	--	--	1.6520	--

Forward Exchange Agreements (Receive $/Pay AUD) Contract Amount	$410,000	--	--	--	--	--	$410,000	($45,000	)
Average Contract Exchange Rate	0.6833	--	--	--	--	--	0.6833	--

Forward Exchange Agreements (Receive $/Pay CAD) Contract Amount	$991,000	--	--	--	--	--	$991,000	$18,000
Average Contract Exchange Rate	1.3218	--	--	--	--	--	1.3218	--

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation had been performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Company’s management, including the CEO and CFO, concluded that, as of January 4, 2004, the Company’s disclosure controls and procedures were effective in ensuring that material information relating to the Company required to be included in the Company’s periodic SEC filings was made known to them on a timely basis.

Changes in Internal Controls Over Financial Reporting

There have been no significant changes in the Company’s internal controls over financial reporting that occurred during the quarter ended January 4, 2004, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In the course of normal operations the Company is involved in litigation arising from commercial disputes, claims of former employees, and product litigation claims, none of which management believes will have a material effect on the Company’s consolidated financial position or results of operations.

Item 2. Changes in Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security-Holders

The following matters were voted upon and approved at the Company’s Annual Meeting of Stockholders held on February 11, 2004. On the record date of December 9, 2003 there were 9,136,345 shares issued, outstanding and eligible to vote, of which 8,187,689 or 90% were represented at the meeting either in person or by proxy.

The proposal to elect the following three Class III directors to serve for a three year term:

	Votes For	Votes Withheld
Richard A. Packer	7,706,975	481,964
James W. Biondi, M.D.	7,884,785	304,154
Robert J. Halliday	7,950,510	238,429

The proposal to approve an amendment and restatement of the ZOLL Medical Corporation 2001 Stock Incentive Plan:


	Votes For:	5,573,584
	Votes Withheld:	755,272
	Votes Abstained	56,918

Item 5. Other Information

(a)

On January 30, 2004, M. Stephen Heilman, M.D. resigned from the Company’s Board of Directors. His resignation was not due to any disagreement on any matter relating to operations, policies, or practices.

(b)

During the period covered by this report, there have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors.

Item 6. Exhibits and Reports on Form 8-K

(a)


	1.	Exhibit 31.1 - Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	2.	Exhibit 31.2 - Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	3.	Exhibit 32.1* - Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	4.	Exhibit 32.2* - Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

Form 8-K, filed on January 24, 2004 related to the press release discussing the results of the three months ended January 4, 2004.

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on February 18, 2004.

ZOLL MEDICAL CORPORATION


Date: February 18, 2004		By: /s/ Richard A. Packer
		Richard A. Packer, Chairman and Chief Executive Officer
		(Principal Executive Officer)


Date: February 18, 2004		By: /s/ A. Ernest Whiton
		A. Ernest Whiton, Vice President of Administration and Chief Financial Officer
		(Principal Financial and Accounting Officer)

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

ZOLL MEDICAL CORPORATION(Exact name of registrant as specified in its charter)

ZOLL MEDICAL CORPORATION

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ZOLL MEDICAL CORPORATION CONSOLIDATED BALANCE SHEETS

ZOLL MEDICAL CORPORATION CONSOLIDATED INCOME STATEMENTS

ZOLL MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS

ZOLL MEDICAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3. Comprehensive Income

5. Earnings per Share

6. Derivative Instruments and Hedging Activities

7. Product Warranties

8. Recent Accounting Pronouncements

Three Months Ended January 4, 2004 Compared To Three Months Ended December 29, 2002

Liquidity and Capital Resources

Off-Balance Sheet Arrangements

Contractual Obligations and Other Commercial Commitments

Legal and Regulatory Affairs

Critical Accounting Policies

Safe Harbor Statements

Risk Factors

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Intercompany Receivable HedgeExchange Rate Sensitivity: January 4, 2004(Amounts in $)

Cash Flow HedgesExchange Rate Sensitivity: January 4, 2004(Amounts in $)

Item 4. Controls and Procedures

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Changes in Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

Item 4. Submission of Matters to a Vote of Security-Holders

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

ZOLL MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)

ZOLL MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS

ZOLL MEDICAL CORPORATION
CONSOLIDATED INCOME STATEMENTS

ZOLL MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

ZOLL MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Intercompany Receivable Hedge
Exchange Rate Sensitivity: January 4, 2004
(Amounts in $)

Cash Flow Hedges
Exchange Rate Sensitivity: January 4, 2004
(Amounts in $)