<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 October 31, 1997
-------------------------------
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
----------------------------------------------------------------------
(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 November 30, 1997
----------------------------
Common Stock, $.10 par value 17,745,289 Shares
----------------------------
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
------------------------------------------------
INDEX
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<TABLE>
<CAPTION>
Page Number
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<S> <C>
PART I - FINANCIAL INFORMATION:
- ------------------------------
Item 1) Financial Statements -
Consolidated Condensed Statements of Income 3
For the Three Months and Six Months Ended
October 31, 1997 and 1996 (Unaudited)
Consolidated Condensed Balance Sheets As of 4
October 31, 1997 (Unaudited) and
April 30, 1997
Consolidated Condensed Statements of Cash Flows 5
For the Six Months Ended October 31, 1997
and 1996 (Unaudited)
Notes to Consolidated Condensed Financial 6
Statements (Unaudited)
Item 2) Management's Discussion and Analysis of Financial 7-9
Condition and Results of Operations
SIGNATURE 10
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</TABLE>
- 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 Six Months Ended
October 31, October 31,
-------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $148,568 $136,908 $280,637 $261,702
Cost of Sales 74,302 70,598 138,563 135,007
-------- -------- -------- --------
Gross profit 74,266 66,310 142,074 126,695
-------- -------- -------- --------
Engineering Expenses 12,862 11,993 25,587 23,787
Selling Expenses 35,554 32,870 69,745 64,243
General and Administrative
Expenses 12,653 11,304 24,361 21,883
-------- -------- -------- --------
Total operating expenses 61,069 56,167 119,693 109,913
-------- -------- -------- --------
Income from operations 13,197 10,143 22,381 16,782
Interest Expense 1,644 2,169 3,209 4,189
Other (Income) Expense, net 27 (517) (125) (1,118)
-------- -------- -------- --------
Income before provision
for income taxes 11,526 8,491 19,297 13,711
Provision for Income Taxes 4,828 3,275 8,298 5,225
-------- -------- -------- --------
Net Income $ 6,698 $ 5,216 $ 10,999 $ 8,486
-------- -------- -------- --------
Net Income per Class A
Common Share $ .38 $ .32 $ .62 $ .52
======== ======== ======== ========
Shares used in per
share calculation 17,710 16,289 17,665 16,305
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
- 3 -
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
As of As of
ASSETS October 31, April 30,
- ------ ----------- ---------
1997 1997
----------- ---------
CURRENT ASSETS: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 4,761 $ 2,704
Accounts receivable, less allowances
of $4,633 and $4,164, respectively 154,419 140,136
Inventories 118,807 110,779
Prepaid expenses and other 5,373 4,850
Deferred income tax benefits 10,512 8,304
-------- --------
Total current assets 293,872 266,773
PROPERTY AND EQUIPMENT, NET 106,522 96,992
OTHER ASSETS 61,607 64,567
-------- --------
$462,001 $428,332
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Amounts due to bank $ 8,819 $ 11,114
Notes payable to bank 44,666 30,422
Accounts payable 28,527 28,674
Accrued liabilities 56,869 47,381
-------- --------
Total current liabilities 138,881 117,591
-------- --------
LONG-TERM DEBT, less current maturities 52,500 57,000
DEFERRED INCOME TAXES 16,467 16,814
PENSION AND OTHER LONG-TERM LIABILITIES 49,686 45,727
CLASS A COMMON STOCK UNDER
REPURCHASE AGREEMENTS 8,000 8,000
SHAREHOLDERS' EQUITY:
Common Stock, $.10 par value,
30,000,000 shares authorized,
17,745,197 and 17,602,407 shares
issued, respectively 1,775 1,760
Additional paid-in capital 54,858 52,890
Retained earnings 158,342 147,343
Treasury Stock, zero and 18,900 shares,
at cost, respectively -- (312)
Cumulative translation adjustment (10,508) (10,481)
Class A Common Stock under repurchase
agreements (8,000) (8,000)
-------- --------
Total shareholders' equity 196,467 183,200
-------- --------
$462,001 $428,332
======== ========
</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
(Amounts in Thousands)
(UNAUDITED)
Six Months Ended
October 31,
---------------------
1997 1996
---------- ---------
<TABLE>
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 7,620 $ 823
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions, net (15,127) (10,358)
Net cash received from sale of Optical
Devices, Inc. -- 905
-------- --------
Net cash used in investing activities (15,127) (9,453)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to bank, net 11,687 18,319
Payments on long-term debt (4,500) (2,911)
Proceeds from issuance of common stock 2,293 617
Purchase of common stock -- (4,643)
-------- --------
Net cash provided by financing
activities 9,480 11,382
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 84 (272)
-------- --------
Net increase in cash and cash equivalents 2,057 2,480
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,704 2,890
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,761 $ 5,370
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 3,209 $ 3,382
Income taxes $ 6,437 $ 5,053
</TABLE>
The accompanying notes are an integral part of these statements.
- 5 -
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AS OF OCTOBER 31, 1997
(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, 1997.
(2) Inventories-
-----------
Inventories consist of the following:
<TABLE>
<CAPTION>
October 31, 1997 April 30, 1997
---------------- --------------
<S> <C> <C>
Raw materials and component parts $ 34,290 $ 31,629
Work in process and finished goods 60,103 56,434
Demonstration inventory 24,414 22,716
-------- --------
$118,807 $110,779
======== ========
</TABLE>
- 6 -
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Three-Month and Six-Month Periods Ended October 31,
1997
Net sales for the three-month period ended October 31, 1997 increased 8.5%
to $148.6 million from $136.9 million for the three-month period ended
October 31, 1996. Net sales for the six-month period ended October 31,
1997 increased 7.2% to $280.6 million from $261.7 million for the same
period last year. The Company's patient monitoring systems, diagnostic
cardiology and supplies and service product lines achieved sales growth of
16.4%, 1.0% and 0.4% for the three-month period ended October 31, 1997
compared to the same period in the previous fiscal year. For the current
six-month period, the patient monitoring systems and diagnostic cardiology
product lines achieved sales growth over the comparable period from last
year of 16.0% and 0.4%, respectively. The supplies and service product
lines had a decrease in net sales for the current six-month period of 2.7%
as compared to the previous year.
The sales growth in the patient monitoring systems product line is a result
of the strong demand for the Company's newest modular monitors, especially
in the U.S. market. The Company continues to experience softer market
conditions for all products in Europe. However, the increased demand in
the U.S. has more than offset the level of demand internationally. In
addition, certain strategic alliances are beginning to provide benefits
which are positively impacting net sales, for the patient monitoring
systems product line in particular.
The sales growth in the quarter was adversely affected by negative currency
conversions due to a stronger U.S. dollar and the devaluation of certain
Asian currencies. A stable U.S. dollar as compared to the previous year's
quarter would have provided additional net sales of $7.4 million, or 5.4%.
For the six-month period, a stable U.S. dollar would have provided an
additional $12.6 million of net sales, or 4.8%.
International net sales for the six-month period comprised 33.4% of total
net sales as compared to 39.7% of net sales for the previous year's period.
The negative currency conversions contributed to a portion of this
decrease. The softer European market was also a factor in the decrease.
Gross profit for the three-month period ended October 31, 1997 increased
12.0% to $74.3 million from $66.3 million for the same period in the
previous fiscal year. For the six-month period, gross profit increased
12.1% to $142.1 million from $126.7 million in the comparable period last
year. Gross margin for the three-month period ended October 31, 1997 was
50.0% as compared to 48.4% in the previous year's quarter. For the six-
month period ended October 31, 1997, the gross margin was 50.6% as compared
to the prior year of 48.4%. The increased gross margin for both the three-
month period and six-month period related mainly to the product mix which
was weighted towards higher margin products in the current periods.
- 7 -
<PAGE>
Engineering expenses for the three-month period ended October 31, 1997
increased 7.2% to $12.9 million from $12.0 million for the same period in
the previous fiscal year. Engineering expenses as a percentage of net
sales decreased slightly to 8.7% of net sales as compared to 8.8% of net
sales for the previous year's quarter. For the six-month period ended
October 31, 1997, engineering expenses increased 7.6% to $25.6 million from
$23.8 million. For the six-month period, engineering expenses as a
percentage of net sales remained constant at 9.1% of net sales. The
Company will continue to invest significantly in both new product
developments and continued enhancements to current products. Due to the
competitiveness and technological nature of the medical systems and
equipment industry, this investment is necessary in order to maintain the
Company's competitive position in the health care industry.
Selling expenses for the three-month period ended October 31, 1997
increased 8.2% to $35.6 million from $32.9 million in the previous year's
quarter. For the six-month period, selling expenses increased to $69.7
million from $64.2 million in the previous year's six-month period. The
increases for both the three-month period and six-month period relate to
additional expenses related to various strategic marketing alliances and
the continued increased emphasis on expanding the customer base in the Asia
Pacific region. As a percentage of net sales, selling expenses remained
relatively constant for the quarter at 23.9% of net sales as compared to
24.0% of net sales in the previous year's quarter. For the six-month
period, selling expenses were 24.9% of net sales in the current year
versus 24.5% on net sales in last year's period.
General and administrative expenses for the three-month period ended
October 31, 1997 increased 11.9% to $12.7 million from $11.3 million for
the same period last year. The increase relates to the ongoing conversion
costs associated with the change in business systems. For the six-month
period, general and administrative expenses increased 11.3% to $24.4
million from $21.9 million for the comparable period in the previous year.
For the quarter, general and administrative expenses as a percentage of net
sales increased to 8.5% of net sales as compared to 8.3% for the previous
year's quarter.
Operating income for the three-month period ended October 31, 1997
increased 30.1% to $13.2 million from $10.1 million for the same period in
the previous fiscal year. For the current six-month period, operating
income increased by 33.4% from $16.8 million to $22.4 million. The
increased operating profit for both the quarter and the six-month period is
attributable to the sales growth and increased gross margins.
Interest expense for the three-month period ended October 31, 1997
decreased to $1.6 million from $2.2 million for the same period in the
previous fiscal year. For the six-month period, interest expenses
decreased from $4.2 million to $3.2 million. The decreases are
attributable to the use of proceeds from a public stock offering completed
in March, 1997 for repayment of a portion of bank term debt.
The provision for income taxes for the three-month period ended October 31,
1997 was $4.8 million, or an effective tax rate of 41.9%, as compared to
$3.3 million, or an effective tax rate of 38.6% for the same period in the
previous fiscal year. The increased effective tax rate is a result of the
net operating losses generated in some of the European operations during
the quarter which have not been benefited.
- 8 -
<PAGE>
Liquidity and Capital Resources
Working capital was $155.0 million at October 31, 1997 as compared to
$149.2 million at April 30, 1997. Inventories increased by 7.2% to $118.8
million primarily due to increased sales levels and to give the Company the
continued ability to effectively manage its backlog. Accounts receivable
increased 10.2% to $154.4 million reflecting increased sales levels.
As of October 31, 1997, the Company had $14.1 million outstanding on U.S.
lines of credit of $25.0 million. In addition, the company had $30.6
million, U.S. dollar equivalent, outstanding on foreign lines of credit of
$49.7 million. As of April 30, 1997, the amounts outstanding on the U.S.
and foreign lines of credit were $8.0 million and $22.4 million,
respectively. A portion of the foreign currency denominated borrowings
are used to reduce the currency risks associated with foreign currency
receivables.
Capital expenditures for the six-month period ended October 31, 1997 were
$15.1 million, compared with $10.4 million for the same period in the
previous fiscal year. The increase was due to the continued capital
expenditures related to the acquisition of a new business system. The
capital purchases were funded by both cash flow from operations as well as
with draws from the working capital line.
The Company financed its $90.3 million fiscal 1996 acquisition of E for M
Corporation with three variable rate bank term loans each in the amount of
$30.0 million. Each bank term loan is payable in eight equal semi-annual
installments of $3.75 million each beginning on April 30, 1997 and
continuing on each October 31 and April 30 thereafter through October 31,
2000. During the fiscal year ended April 30, 1997, the Company incurred
$30.0 million of senior long-term fixed-rate debt to refinance a portion of
the bank term debt. This senior debt accrues interest at a fixed rate of
7.46% per annum and matures on August 29, 2008. As of April 30, 1997, the
Company had repaid or refinanced $63.0 million of such bank term debt. In
the six-month period ended October 31, 1997, the Company repaid an
additional $4.5 million of the bank term debt with draws from the working
capital line. The next required installment owed by the Company is April
30, 2000. The $22.5 million of remaining bank term debt outstanding on
October 31, 1997 accrued interest at a rate equal to the LIBOR rate plus
one percent, reset monthly. At October 31, 1997, the rate was 6.6563% per
annum. The Company intends to pay the interest and retire the remaining
long-term debt through cash flow from operations.
Management believes the Company has the financial resources to meet its
short term and long term cash requirements. Management believes its cash
flow from operations will be sufficient to continue to fund its current
obligations as well as fund the internal growth of the Company. The
current U.S. inflation rate has little impact on Company operations.
The Management Discussion and Analysis of Financial Conditions and Results
of Operations section in this report may contain certain forward-looking
statements regarding the Company and its products. These forward-looking
statements are based on current expectations and the Company assumes no
obligation to update this information. The Company's actual results could
differ materially from those discussed in this document.
- 9 -
<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: December 12, 1997 /s/ Mary M. Kabacinski
-------------------- _____________________________
Mary M. Kabacinski
Principal Financial Officer
and Duly Authorized Officer
- 10 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE REGISTRANT'S FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED OCTOBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 4,761
<SECURITIES> 0
<RECEIVABLES> 159,052
<ALLOWANCES> 4,633
<INVENTORY> 118,807
<CURRENT-ASSETS> 293,872
<PP&E> 171,405
<DEPRECIATION> 64,883
<TOTAL-ASSETS> 462,001
<CURRENT-LIABILITIES> 138,881
<BONDS> 52,500
0
0
<COMMON> 1,775
<OTHER-SE> 194,692
<TOTAL-LIABILITY-AND-EQUITY> 462,001
<SALES> 280,637
<TOTAL-REVENUES> 280,637
<CGS> 138,563
<TOTAL-COSTS> 119,568
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,209
<INCOME-PRETAX> 19,297
<INCOME-TAX> 8,298
<INCOME-CONTINUING> 10,999
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,999
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
