<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
--------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________to _____________________
Commission File Number 0-18724
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MARQUETTE MEDICAL SYSTEMS, INC.
- ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1046671
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
8200 W. Tower Avenue, Milwaukee, Wisconsin 53223
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(Address of Principal Executive Offices) (Zip Code)
(414) 355-5000
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes __X___ No _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding
at August 31, 1996
-----------------------------
Class A, $.10 par value 16,092,328 Shares
-----------------------------
Class C, $.01 par value 26,250,000 Shares
-----------------------------
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MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
------------------------------------------------
INDEX
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Page Number
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PART I - FINANCIAL INFORMATION:
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Item 1) Financial Statements -
<TABLE>
<CAPTION>
<S> <C>
Consolidated Condensed Statements of Income 3
For the Three Months Ended July 31, 1996
and 1995 (Unaudited)
Consolidated Condensed Balance Sheets As of 4
July 31, 1996 (Unaudited) and April 30, 1996
Consolidated Condensed Statements of Cash Flows 5
For the Three Months Ended July 31, 1996
and 1995 (Unaudited)
Notes to Consolidated Condensed Financial 6
Statements (Unaudited)
</TABLE>
Item 2) Management's Discussion and Analysis of Financial 7-9
Condition and Results of Operations
PART II - OTHER INFORMATION:
- ---------------------------
Item 4) Submission Of Matters To A Vote of Security Holders 10
Item 6) Exhibits and Reports on Form 8-K 10
SIGNATURE 11
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- 2-
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1 - Financial Statements
- ------ --------------------
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
------------------
1996 1995
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<S> <C> <C>
Net Sales $124,794 $81,127
Cost of Sales 64,409 42,486
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Gross profit 60,385 38,641
-------- -------
Engineering Expenses 11,794 8,229
Selling Expenses 31,373 21,486
General and Administrative
Expenses 10,578 6,940
-------- -------
Total operating expenses 53,745 36,655
-------- -------
Income from operations 6,640 1,986
Interest Expense 2,020 620
Other Income, Net (601) (243)
-------- -------
Income before provision for income
taxes 5,221 1,609
Provision for Income Taxes 1,951 630
-------- -------
Net Income $ 3,270 $ 979
======== =======
Net Income per Class A
Common Share $ .20 $ .06
======== =======
Shares used in per
share calculation 16,327 16,220
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
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MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
ASSETS As of As of
- ------ July 31, April 30,
1996 1996
-------- ---------
<S> <C> <C>
CURRENT ASSETS: (Unaudited)
Cash and cash equivalents $ 3,204 $ 2,890
Accounts receivable, less allowances
of $6,627 and $6,430, respectively 139,727 138,455
Inventories 112,412 106,168
Prepaid expenses and other 6,122 5,543
Deferred income tax benefits 6,751 7,904
------- --------
Total current assets 268,216 260,960
PROPERTY AND EQUIPMENT, NET 101,255 96,776
OTHER ASSETS 73,078 73,982
-------- --------
$442,549 $431,718
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Amounts due to bank $ 5,431 $ 7,101
Notes payable to bank 43,076 28,822
Current maturities of long-term debt 2,250 3,122
Accounts payable 32,585 31,764
Accrued liabilities 49,308 56,954
-------- --------
Total current liabilities 132,650 127,763
-------- --------
LONG-TERM DEBT, less current maturities 79,219 81,254
DEFERRED INCOME TAXES 20,854 21,404
PENSION AND OTHER LONG-TERM LIABILITIES 47,553 45,372
CLASS A COMMON STOCK UNDER
REPURCHASE AGREEMENTS 8,000 8,000
SHAREHOLDERS' EQUITY:
Class A Common Stock, $.10 par value,
30,000,000 shares authorized,
16,066,143 and 16,060,311 shares
issued, respectively 1,607 1,606
Class C Common Stock, $.01 par value,
50,000,000 shares authorized,
26,250,000 shares issued and
outstanding 263 263
Additional paid-in capital 31,423 31,569
Retained earnings 129,422 126,152
Cumulative translation adjustment (442) (3,665)
Class A Common Stock under repurchase
agreements (8,000) (8,000)
-------- --------
Total shareholders' equity 154,273 147,925
-------- --------
$442,549 $431,718
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
- 4 -
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Three Months Ended July 31, 1996 and 1995
(Amounts in Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $(4,237) $(1,248)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions, net (6,152) (2,717)
Net cash received from the sale of
Optical Devices, Inc. 905 --
------- -------
Net cash used in investing activities (5,247) (2,717)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 14,192 3,096
to bank, net
Payments on long-term debt (2,911) (20)
Proceeds from issuance of common stock 47 192
------- -------
Net cash provided by financing
activities 11,328 3,268
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (1,530) 332
------- -------
Net increase (decrease) in cash and
cash equivalents 314 (365)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,890 3,330
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,204 $ 2,965
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 1,871 $ 620
Income taxes $ 807 $ 517
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AS OF JULY 31, 1996
(Amounts in Thousands, Except Per Share Data)
(UNAUDITED)
(1) Basis of Presentation-
---------------------
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. However, in the
opinion of the Company, adequate disclosures have been presented to make
the information not misleading, and all adjustments necessary to present
fair statements of the results of operations, financial position and cash
flows have been included. It is suggested that these consolidated condensed
financial statements be read in conjunction with the consolidated financial
statements included in Marquette Medical Systems, Inc.'s Form 10-K for the
fiscal year ended April 30, 1996, and the Company's Current Reports on Form
8-K dated August 22, 1996 and February 21, 1996.
<TABLE>
<CAPTION>
(2) Inventories-
-------------
Inventories consist of the following:
<S> <C> <C>
July 31, 1996 April 30, 1996
------------- --------------
Raw materials and component parts $ 36,226 $35,716
Work in process and finished goods 50,751 45,869
Demonstration inventory 25,435 24,583
-------- --------
$112,412 $106,168
======== ========
</TABLE>
(3) Acquisition of E for M Corporation
----------------------------------
Effective January 1, 1996, the Company acquired 100% of the common stock of
E for M Corporation, an international medical equipment, software and
supplies company serving patient monitoring and cardiology, which includes
cardiac catheterization and electrophysiology laboratories. Related to this
purchase, the Company borrowed $90,000 under bank loan agreements payable
periodically over the next five years. The acquisition has been accounted
for as a purchase and the excess of the purchase price over the fair value
of the net assets acquired has been allocated to goodwill. Based on a
preliminary allocation of purchase price, the approximate value of such
goodwill is $26,196. In addition, the Company acquired intangible assets
related to in-process research and development (R&D), product technologies
and tradenames with values of $35,700, $12,672 and $8,468, respectively.
The acquired in-process R&D was entirely written-off at the acquisition
date. The remaining intangibles have estimated useful lives ranging from 7
to 40 years.
Unaudited pro-forma results of operations, assuming the acquisition of E
for M as of the beginning of the period indicated below, would be as
follows:
<TABLE>
<CAPTION>
Three Months Ended
July 31, 1995
------------------
<S> <C>
Net Sales $130,341
Net Income 1,722
Net Income per Class A Common Shares .11
</TABLE>
(4) Adoption of Newly Issued Accounting Standards
---------------------------------------------
On May 1, 1996, the Company adopted SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of."
The adoption of this statement did not have a material impact on the
financial position or results of operations of the Company.
- 6 -
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Financial
- ------ -------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations - Three-Month Period Ended July 31, 1996
- --------------------------------------------------------------
Net sales for the three-month period ended July 31, 1996 were $124.8 million, or
53.9% higher than the $81.1 million of net sales for the three-month period
ended July 31, 1995. The results include the activity from operations related
to E for M Corporation. Marquette Medical Systems, Inc. purchased the stock of
E for M Corporation, an international medical equipment, software and supplies
company serving patient monitoring and cardiology effective January 1, 1996.
Net sales for all product lines, other than the Corometrics product line,
achieved double digit sales growth as compared to the first quarter of last
year. The increases are mainly attributable to the E for M acquisition which
improved Marquette's depth and breadth of products. Strong sales in the U.S.
markets, particularly for the Patient Monitoring product line, also contributed
to the increase. U.S. sales for the Patient Monitoring products increased by
$6.2 million, or 41.1%, to $21.2 million for the quarter.
Gross profit increased to $60.4 million in the three-month period as compared to
$38.6 million for last year, mainly attributable to the E for M acquisition.
Gross margin increased to 48.4% from 47.6% last year.
Engineering expenses increased $3.6 million, or 43.3% for the period mainly
attributable to the acquisition of E for M Corporation. The addition of E for M
resulted in $2.9 million of the increase. The remaining increase is a result of
additional new product development. Management believes that the market for its
products is rapidly changing due to technological advances. Therefore, the
Company will continue to invest significantly in both new product development
and enhancements to current products in order to remain competitive in the
healthcare market. The increase in engineering is consistent with the level of
expenses management believes is necessary in order to maintain the Company's
competitive position through improved products.
Selling expenses increased to $31.4 million for the quarter as compared to $21.5
million for the prior year's quarter. The increased expenses were attributable
to the E for M activities in the current year. For the quarter, the selling
expenses were 25.1% as a percentage of sales as compared to 26.5% as a
percentage of sales for the previous year.
General and administrative expenses increased $3.6 million to $10.6 million for
the quarter. The E for M acquisition accounts for a significant majority of the
increase. For the quarter, the general and administrative expenses as a
percentage of sales remained constant at 8.5% of net sales.
- 7 -
<PAGE>
Operating income increased $4.6 million for the quarter from $2.0 million last
year to $6.6 million for this year's quarter. While the E for M activities
account for a portion of the increase, the increase also is attributable to the
benefits related to the restructuring plan which began in the preceding year's
fourth quarter. The restructuring plan consists of a consolidation of offices
in Europe as well as the integration of E for M's activities into Marquette's
activities. During the quarter, $2.5 million of the restructuring charges
accrued in the previous fiscal year in conjunction with the E for M acquisition
were paid. As of July 31, 1996, $5.2 million of the total E for M restructuring
charges remain in "Other current liabilities" in the Consolidated Balance Sheet.
In addition, $2.3 million of the restructuring charges accrued in the previous
fiscal year related to Marquette's worldwide restructuring remain in "Other
current liabilities". During the quarter $0.2 million was paid out with respect
to this restructuring plan.
Interest expense increased to $2.0 million for the three-month period ended July
31, 1996 as compared to $0.6 million for last year's quarter. The increase is
attributable to the increased borrowings related to the E for M acquisition.
Offsetting some of the increase related to this acquisition debt was the
retirement of the debt incurred for the Corometrics acquisition.
Financial Outlook
- -----------------
In as much as the Company's principal product lines are all related to the
healthcare industry, they are subject to the current uncertainty surrounding the
industry including consolidation of hospital groups and a move towards managed
care. While the Company cannot predict the impact, if any, that such
modifications might have on its business, the Company's operating results are
closely linked to the healthcare economy. If revenue or earnings fail to meet
expectations of the investment community, there could be a significant impact on
the trading price for the Company's stock. Management believes the introduction
of new products will put the Company in a competitive position as the healthcare
economy's demand for new equipment increases.
Liquidity and Capital Resources
- -------------------------------
Working capital was $135.6 million at July 31, 1996 compared to $133.2 million
at April 30, 1996. Inventories increased $6.2 million which relates to
increased demo inventory as well as an increased backlog of orders. Accrued
liabilities decreased by $7.6 million to $49.3 million as of July 31, 1996.
This decrease is partly attributable to the payment of the restructuring
liabilities.
- 8 -
<PAGE>
As of July 31, 1996 the Company had $15.0 million outstanding on lines of credit
of $20.0 million available for U.S. borrowings. In addition, the Company had
$28.1 million, U.S. dollar equivalent, in foreign currency loans outstanding on
lines of credit of $33.2 million for foreign currency borrowings. The foreign
currency loans were placed as a natural hedge against foreign currency
receivables.
Capital expenditures for the three-month period ended July 31, 1996 were $6.2
million as compared to capital expenditures of $2.7 million for the same period
last year. The increase is due to the major acquisition of a new business
system. The capital purchases were funded with draws from the working capital
line.
Effective January 1, 1996, the Company acquired 100% of the common stock of E
for M Corporation, an international medical equipment, software and supplies
company serving patient monitoring and cardiology. The cash acquisition price
of $90.3 million was funded by three term loans in the amounts of $30.0 million
each.
Each term note is payable in eight equal installments of $3.75 million each
beginning on April 30, 1997 and each October 31 and April 30, thereafter through
October 31, 2000. As of July 31, 1996, the Company had paid $9.0 million of the
debt, $3.0 million of each of the loans, through cash flow from operations.
Each note bears interest at a rate equal to the LIBOR Rate plus one percent,
reset monthly. At July 31, 1996 the rate was 6.4063% per annum.
On August 29, 1996, the Company converted $30.0 million of the E for M
acquisition debt into a longer term fixed rate debt. This senior debt is at a
fixed rate of 7.46% per annum with a maturity date of August 29, 2008.
The Company retired $2.9 million of installment promissory notes during the
first quarter. The payment was funded with a draw from the working capital
line.
Management believes the Company has the financial resources to meet its short
term and long term cash requirements. The current U.S. inflation rate has
little impact on company operations.
- 9 -
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 4 - Submission of Matters To A Vote of Security Holders
- ------ ---------------------------------------------------
(a) On Thursday, August 15, 1996 at 9:00 a.m. the Annual Meeting
of Shareholders of Marquette Medical Systems, Inc. was held
at the Company's offices, 8200 West Tower Avenue, Milwaukee,
Wisconsin 53223.
(b) Seven Directors were elected at the meeting to serve until
the next Annual Meeting of Shareholders and until their
successors are elected and qualified. The elected Directors
are Timothy C. Mickelson, Michael J. Cudahy, Frederick G.
Luber, Melvin S. Newman, Walter L. Robb, Peter P. Tong and
John G. Bollinger.
(c) The shareholders ratified the selection of Arthur Andersen
LLP as the Company's independent public accountants for the
year ending April 30, 1997.
(d) The shareholders approved the amendment of the Registrant's
Amended and Restated Articles of Incorporation to change the
Registrant's name from Marquette Electronics, Inc. to
Marquette Medical Systems, Inc. and to authorize 30,000,000
shares of Preferred stock, without par value, issuable in
series.
(e) The shareholders approved an amendment to the Registrant's
Stock Option Plan for Employees of Marquette Electronics,
Inc. increasing the number of shares of Class A Common Stock
issuable thereunder from 2,500,000 shares to 3,500,000
shares.
ITEM 6 - Exhibits and Reports on Form 8-K
- ------ --------------------------------
A report on Form 8-K was filed on August 22, 1996 related to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of
1995 for cautionary and forward-looking statements made by or on
behalf of the Company. The Form 8-K also reported the name change of
the registrant to Marquette Medical Systems, Inc. from Marquette
Electronics, Inc.
- 10 -
<PAGE>
SIGNATURE
---------
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.
Marquette Medical Systems, Inc.
---------------------------------
(Registrant)
Date: 9-10-96 /s/ Mary M. Kabacinski
--------------------- -------------------------------
Mary M. Kabacinski
Principal Financial Officer
and Duly Authorized Officer
- 11 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE REGISTRANT'S FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED JULY 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 3,204
<SECURITIES> 0
<RECEIVABLES> 146,354
<ALLOWANCES> 6,627
<INVENTORY> 112,412
<CURRENT-ASSETS> 268,216
<PP&E> 157,213
<DEPRECIATION> 55,958
<TOTAL-ASSETS> 442,549
<CURRENT-LIABILITIES> 132,650
<BONDS> 79,219
<COMMON> 1,607
0
0
<OTHER-SE> 152,666
<TOTAL-LIABILITY-AND-EQUITY> 442,549
<SALES> 124,794
<TOTAL-REVENUES> 124,794
<CGS> 64,409
<TOTAL-COSTS> 53,144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,020
<INCOME-PRETAX> 5,221
<INCOME-TAX> 1,951
<INCOME-CONTINUING> 3,270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,270
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
