MARQUETTE MEDICAL SYSTEMS
MARKET STRENGTH
Working as a strategic partner with customers to improve patient care and
control costs through innovative diagnostic, monitoring, and clinical
information systems.
HISTORY OF GROWTH
. Founded in 1965
. Current annual revenues: more than $550M
. 3,000 employees
CUSTOMERS
Serving healthcare providers in more than 67 countries throughout the Americas,
Europe, Middle East, Africa, and Asia-Pacific regions. Customers include:
. National and regional health care systems
. Hospitals
. Teaching and research institutions
. Medical clinics
. Physician practices
. Emergency and alternative care providers
MAJOR PRODUCTS
. Clinical information systems
. Non-invasive cardiac diagnostics
. Catheterization laboratories
. Cardiovascular information systems
. Patient monitors
. Fetal and neonate monitoring
. Respiratory and anesthetic gas analysis
. Ventilator management systems
. Defibrillators
. Image processing and electronic imaging systems
Marquette Electronics, Inc. and Subsidiaries
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in Thousands Except Per Share Data)
Year Ended April 30,
------------------------------------------------
1996 1995 1994 1993 1992
------ ---- ---- ---- -----
INCOME STATEMENT DATA:
- ----------------------------------------------------------------------------
Net sales $416,293 $342,176 $253,808 $250,178 $233,140
- ----------------------------------------------------------------------------
Net income (loss) before
cumulative effect of
change in accounting
principle (24,868) 19,557 18,641 17,258 14,575
- ----------------------------------------------------------------------------
Net income (loss) (24,868) 19,557 18,641 17,790 14,575
- ----------------------------------------------------------------------------
PER SHARE AMOUNTS:
- ----------------------------------------------------------------------------
Net income (loss) before
cumulative effect of
change in accounting
principle $ (1.53) $ 1.21 $ 1.16 $ 1.08 $ .93
- ----------------------------------------------------------------------------
Net income (loss) (1.53) 1.21 1.16 1.11 .93
- ----------------------------------------------------------------------------
Shares used in per
share calculation 16,254 16,172 16,090 16,039 15,648
- ----------------------------------------------------------------------------
BALANCE SHEET DATA:
- ----------------------------------------------------------------------------
Working capital $133,197 $100,400 $109,560 $ 91,477 $ 82,789
- ----------------------------------------------------------------------------
Total assets 431,718 264,865 203,180 176,646 181,978
- ----------------------------------------------------------------------------
Long-term debt 81,254 8,112 102 747 12,825
- ----------------------------------------------------------------------------
Shareholders' equity 147,925 170,893 149,421 130,589 112,706
- ----------------------------------------------------------------------------
[LOGO]
To Our Shareowners
Throughout our thirty year history, Marquette has established itself as a leader
in developing technology for healthcare. Our organization has always prized
innovation, but also has an infrastructure to support growth, and is positioned
to capitalize on the fundamental changes taking place in healthcare.
We believe the acquisition of E for M Corporation in the third quarter will
greatly enhance our long-term potential. A respected developer of healthcare
systems and equipment since 1951, E for M is a well-known and highly regarded
brand name in the medical community. Its largest subsidiary, Hellige GmbH, has a
strong German/European franchise in healthcare equipment dating back 100 years.
Results in 1996 reflect the actions required to forge a new Marquette. By the
end of fiscal 1996, all non-recurring charges relating to the E for M
acquisition had been recorded, and the integration of E for M with Marquette
was complete, including redundant facility closings, relocations, product line
consolidations, and staffing reductions. We enter 1997 anticipating a definite
and positive contribution to earnings from E for M, and far greater market
penetration for Marquette, especially in Europe.
In the normal course of our business, excluding one-time charges relating to the
E for M acquisition, net income for the year was $13.3 million, or $0.82 per
share. With the acquisition completed, we elected to record $39.7 million on
one-time write-offs and non-recurring restructuring expenses, resulting in a net
loss for the year of $24.9 million, or $1.53 per share. Net sales for fiscal
year 1996, including E for M sales for the last four months of the year, were
$416.3 million, up 21.7% from net sales of $342.2 million for fiscal year 1995.
Fiscal 1996 ended on a strong note; fourth quarter income from operations,
excluding restructuring expenses, surpassed last year's level.
Looking ahead to fiscal 1997 and beyond, we are excited about the opportunities
to improve financial performance and growth. The changes we have made bring us
closer to our goals by adding new strengths to Marquette:
. Our product breadth, distribution channels, and market opportunities are
significantly greater than just two years ago.
. Marquette's annual revenues are expected to exceed the half-billion-dollar
level in fiscal 1997, giving us significant worldwide presence with 35%-40% of
our base in international markets.
. Long-standing business and technological partnerships with our customers
- --hospitals and integrated healthcare delivery networks in the U.S. and
worldwide--have been broadened and strengthened.
. Manufacturing and engineering capacity at our six production facilities can
now support our growth through 1997 with no meaningful addition to fixed costs.
Marquette's 15-year unbroken record of increased revenues is due chiefly to
our ability to develop systems that enable customers to improve patient care
while better managing costs. Along with maintaining our customer focus, we
intend to capitalize on our new strategic strength, increase our profitability,
and provide shareholders with an optimum long-term return on their investment.
Sincerely,
/s/ Timothy C. Mickelson /s/ Michael J. Cudahy
- ------------------------ ---------------------
Timothy C. Mickelson Michael J. Cudahy
President Chairman
[PHOTO]
[LOGO]
Stability and Evolution
[PHOTO]
The new Solar(R) 9000 anesthesia information monitor provides almost limitless
flexibility. Part of the Marquette Unity Network (TM), the Solar 9000 offers a
convenient "one-look" modern windows-style display that shows all data,
customized formats, and operation so simple it feels like second nature even to
first-time users.
Even for Marquette -- a company built on entrepreneurial risk-taking and
visionary thinking -- the past year has been a period of extraordinary change.
We tapped into new leadership, strengthened our presence in Europe, introduced
world-class products, added many new employees, consolidated facilities, re-
organized into eight divisions, became the number one cath lab supplier in the
world -- and even tinkered with our name.
But one thing we didn't change was our mindset.
We still believe that Marquette's greatest strength is our ability to listen
and then deliver innovative technologies that make a real difference to
patients, physicians, clinicians, and the people who manage the business side of
healthcare. Today we call it "improving cost and quality outcomes." Thirty
years ago, we called it "meeting customers' needs."
It's the same thing. Marquette continues to evolve so that we can continue to
help our customers succeed.
What's in a name?
This year the company acknowledged what the world already knows: that
Marquette produces much more than electronic "instruments." Clinical information
today is gathered from many sources, and our "systems" have become the most
important part of our business. To reflect this evolution, we are now calling
ourselves Marquette Medical Systems instead of Marquette Electronics.
[LOGO OF MARQUETTE MEDICAL SYSTEMS]
Today, no monitor is an island. What we offer to customers must either be a
medical system or fit into a system. How well our products sell is increasingly
a function of how successfully they integrate with hospital information systems
and other equipment, including our competitors' products.
The name change is also a clear reminder that Marquette is -- and always has
been -- focused exclusively on healthcare. Our resources are committed entirely
to making medical enterprises more efficient, from the NICU to home care.
4
Of course, this change will have only a minor effect on our customers. Most
of them refer to our company simply as "Marquette" and identify our products the
same way.
That's okay. We prefer being on a first name basis with customers anyway.
THE MISSING LINK
In rethinking our name, we've also taken a fresh look at our company
positioning to make sure that Marquette is differentiated clearly in the
marketplace.
Our strength lies in data. We gather, convert, store, and disseminate it.
What makes us different from other companies that do the same thing? The quality
of our information, and our ability to make it easily and cost-effectively
available to all decision makers within the medical institution.
Products like the MUSE(R) cardiovascular information system and the
Quantitative Sentinel(R) clinical information system are prime examples of what
today's medical buyers are looking for: immediate, convenient access to accurate
data that enables them to make better decisions.
More than providing devices or systems or networks, Marquette creates
solutions that encompass all these elements in ways that optimize patient care,
work flow, and economics. In short, it's being the link between data and
decision--the statement that defines Marquette's unique position in healthcare.
THE MUSE(R) CARDIOVASCULAR INFORMATION SYSTEM CONTINUES TO BE THE BEST SELLING
SYSTEM OF ITS KIND IN THE WORLD, PROBABLY BECAUSE IT'S THE MOST VERSATILE. THE
MUSE SYSTEM GIVES PHYSICIANS AND MANAGERS IMMEDIATE ACCESS TO PATIENT RESULTS
FROM CARDIOVASCULAR SERVICES AND TO VALUABLE CLINICAL AND ADMINISTRATIVE
OUTCOMES REPORTS.
[PHOTO HERE]
[LOGO]
Power through Change
In November 1995, Marquette took a major step in expanding the company's power
to serve customers throughout the world by acquiring E for M Corporation.
A manufacturer of cardiology, diagnostic imaging and patient monitoring
equipment since 1951, E for M is a well-known and highly regarded brand name in
the medical community. Its largest subsidiary -- Hellige GmbH of Germany, a
strong European franchise in healthcare systems and equipment -- was founded by
one of the pioneers in electrocardiography over 100 years ago.
The acquisition dramatically increases the breadth and depth of Marquette's
existing product lines, and adds new medical imaging and electrophysiology cath
lab products to our portfolio. It also turns "local" distribution channels into
international highways for technology transfer.
Hellige's leadership in European markets, for example, will open doors for
Marquette's monitoring systems. Cost-conscious buyers in the U.S., Latin
America, and the Asia-Pacific region will welcome the addition of Hellige's
electrocardiographs and exercise test systems to our cardiology offerings. The
combined resources of Marquette and E for M make us the largest, most complete
cath lab provider in the world.
Although the acquisition will nearly double Marquette's revenues and the
size of our sales force, this change is not about making the company bigger.
It's about increasing the power of each Marquette representative to serve
today's customers. It's being able to enter the office of any healthcare
decision-maker in the world, confident that we have solutions that span the
entire price-performance spectrum.
From office-based equipment to tertiary care systems, Marquette can now
satisfy all levels of the healthcare delivery system.
[PHOTO HERE]
The CardioSmart(TM) resting ECG system is Marquette's newest offering for
the rapidly growing non-hospital market. Configurable functionality gives
CardioSmart an edge over competitive systems. Users get a basic ECG system,
attractively priced, with the ability to add modular capabilities as needed.
[PHOTO HERE]
The new OnlineABG(TM) Monitoring System delivers arterial blood gas values
at the point of care in about 60 seconds, with no blood handling and no blood
loss. Blood gas values are integrated on the Solar 8000 monitor display with
other vital signs information, providing a fast, accurate, and cost effective
solution for ventilator management.
[PHOTO HERE]
Hellige had been unable to get a foothold in Sweden, where Marquette was
strong. The situation changed with the Marquette Hellige alliance. The first
CardioSmart(R) resting ECG cardiograph was recently sold in that country.
[LOGO]
Independent, yet Integrated
The E for M acquisition is the latest in a series of strategic moves to
expand our resources, which included the Corometrics and QMI acquisition in
1994. One reason we were drawn to all of these companies was that their
entrepreneurial drive and independent spirit complemented Marquette's own
approach.
The question then is -- how to integrate such companies without
disintegrating the unique strengths that made them so successful?
First, to preserve the essential nature of the core businesses, we have
formed eight independent divisions within the Marquette family. Second, their
efforts will be focused through strong unified vision from management. Third,
all of these resources will be applied to help customers meet their objectives.
The eight divisions within Marquette are:
CARDIOLOGY
ECG equipment; exercise testing systems; Holter systems; MUSE(R)
cardiovascular information system; MARS(R) Unity workstations,
defibrillators.
PATIENT MONITORING
Monitoring solutions for general purpose and ambulatory monitoring, as well
as critical care and anesthesia departments.
COROMETRICS FETAL AND NEONATAL MONITORING
Global leader in sophisticated perinatal and neonatal monitoring systems.
E FOR M CATH LAB PRODUCTS
The world's broadest array of cath lab solutions, including the Mac-Lab(R)
system; Midas(R) system; CardioWindow(R) system; and E for M
electrophysiology products.
QMI CLINICAL INFORMATION SYSTEMS
Point-of-care clinical information systems to automate hospital charting
and integrate patient information throughout the hospital.
[PHOTO HERE]
The quality and efficiency of obstetric care is being improved with the
Spectra-Tel(R) remote fetal monitoring system from the Corometrics division.
Obstetricians can be "in two places at once" -- evaluating fetal data on
actively laboring patients in the hospital, while also seeing patients in an
outpatient setting.
E FOR M IMAGING SYSTEMS
Leading supplier of specialized cine films and related imaging services, as
well as electronic imaging systems.
SUPPLIES
Everything needed to keep Marquette equipment performing at peak levels,
from recording paper to lead wires and electrodes.
SERVICE
Highly trained technicians provide fast service on any Marquette product
anywhere in the world, at any time day or night.
This structure offers the best of both worlds to the customer: integrated,
strategically focused solutions across all care areas, supported by clinical and
technical depth within each care area.
The challenge of integrating these divisions has been more logistical than
philosophical. After all, it was shared qualities, not differences, that brought
us together. A Marquette Engineering Manager put it best after meeting with
Hellige engineers from Germany: "Why shouldn't it work? We are very similar
people -- just operating in different time zones."
[PHOTE HERE]
Marquette's entry to the low- to mid-range monitor market -- the Eagle(R)
3000 monitor -- is designed for lower-activity, non-transport applications. This
large market includes pre- and post-anesthesia care, outpatient surgery centers,
CUs in rural and small hospitals and free-standing emergency centers.
[LOGO]
Change through Leadership
Marquette has also been an instrument of change in healthcare in the past year.
Increasingly, the hospitals, networks, and payer organizations that benchmark
the clinical, financial, and information management standards in healthcare are
looking to Marquette for the answers.
CHEST PAIN CENTERS: "THE CCUS OF THE 90's"
Health disease is the number one cost factor in hospitals, the major cost
driver in health plans, and the fastest growing medical problem in our aging
population base.
It's no wonder then that Marquette's Chest Pain Center solutions are
gaining so much attention. Perfected in collaboration with Dr. Tony Joseph,
president of American Medical Consulting, it's an alternative way to manage
patients with chest pain through continuous monitoring in an observation unit in
the ER.
Chest Pain Centers can save lives and money. Dr. Joseph estimates that
medical accuracy potential heart attack management can be increased to more than
99%, while the per patient cost can be lowered by 75%.
Many people believe that Chest Pain Centers will become as prevalent as
Coronary Care Units (CCUs). One HMO executive comments: "Often we see
improvements in medical technology that increase the quality of care but also
increase the cost. Here we have an improvement that reduces cost, which is what
employers are asking us to do."
MANAGED USE PROGRAM: "THE MOST INNOVATIVE PROGRAM IN THE INDUSTRY"
It's no longer a "we make it, you buy it" business. Under increasing
financial stain, medical customers expect us to share more than our best
thinking with them; they expect us to shoulder financial risk as well.
That's why Marquette has developed the Managed Use(TM) program. One major
for-profit healthcare organization calls it "the single most innovative program
in the capital equipment industry."
[PHOTO HERE]
The ST Guard(R) system is central to the success of Marquette's Chest Pain
Center solution. It displays patient data so that physicians can easily identify
serial ECG changes and make quicker, more informed diagnoses.
[LOGO]
The concept is simple but radical. Customers have a revenue-based expense,
with payment indexed to utilization. If patient use in affected areas -- like
the CCU, for example -- declines, so do payments. The Management use Program
combines the fiscal flexibility of a "fee for service" arrangement with the
traditionally lower rates of a long-term lease.
Why do we do it? Because we trust the broad applicability of our equipment
and the savvy of our sales consultants to understand a provider's needs.
We also believe that customers have the right to expect us to put our own
money where our products are.
INFORMATION SERVICES: "CONSISTENCY IN A NON-CONSISTENT WORLD"
Information Systems are a top priority and a major stress point for
healthcare enterprises these days. Marquette's Quantitative Sentinel(R) system
- -- an automated clinical information system -- is proving itself under the
scrutiny of the most demanding audiences.
A 725-bed U.S. hospital conducted an 18-month feasibility study to evaluate
providers for automated ICU records. Our QS(R) product was selected because of
its practicality: "The 'real [paper] world' is not necessarily consistent, but
the QS offers conformity and consistency.
Six months after installation, the selection team repeated the study and
reported these findings. The Quantitative Sentinel system improved charting
quality for 62% to 95%; saved more than $13,000 in overtime pay through more
efficient charting, enabled nurses to spend nearly an hour more on patient care
per shift; and increased positive cash flow at a projected annual rate of
$35,000 through more accurate documentation of patient charges.
"We are fully confident in its capabilities," commented one team member.
Even given the size of the facility, "there is no question that the QS can
handle it."
Perhaps the ability to inspire such trust -- and provide such quantifiable
benefits -- is why the QS clinical information system is Marquette's fastest
growing product line.
Marquette's newest address is www.mei.com -- our home page on the World
Wide Web. Visited by about 7,000 people a day from all over the world, it
recently received the highest rating of any medical device company by an
independent website evaluation firm.
[PHOTO HERE]
The Children's Medical Centre in Kazan is the site of the first MAC-Lab(R)
installation in Russia. An American doctor who came to demonstrate surgical
procedures was so impressed that he vowed to order a MAC-Lab for his facility in
California.
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996 AND 1995 (Dollars In Thousands Except Per Share Data)
ASSETS 1996 1995
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 2,890 $ 3,330
Accounts receivable, less allowances of
$6,430 and $1,066 138,455 91,118
Inventories 106,168 75,140
Prepaid expenses and other 5,543 4,112
Deferred income tax benefits 7,904 1,630
-------- --------
Total current assets 260,960 175,330
-------- --------
PROPERTY AND EQUIPMENT:
Land and improvements 23,669 6,238
Buildings 43,579 30,865
Equipment 82,896 66,663
Construction in Progress 458 1,817
-------- --------
150,602 105,583
Less- Accumulated depreciation 53,826 44,636
-------- --------
Net property and equipment 96,776 60,947
-------- --------
OTHER ASSETS:
Goodwill, less accumulated amortization of
$6,635 and $4,224 45,882 23,604
Other intangibles, less accumulated amortization
of $648 and $0 20,587 --
Cash surrender value and other 7,513 4,984
-------- --------
Total other assets 73,982 28,588
-------- --------
$431,718 $264,865
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
12
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES: 1996 1995
-------- --------
Amounts due to bank $ 7,101 $ 6,450
Notes payable to bank 28,822 22,544
Current maturities of long-term debt 3,122 100
Accounts payable 31,764 18,957
Accrued liabilities-
Payroll related expenses 22,014 12,258
Warranty 6,475 4,194
Other 28,465 10,460
-------- --------
Total current liabilities 127,763 74,963
-------- --------
LONG-TERM DEBT, less current maturities 81,254 8,112
DEFERRED INCOME TAXES 21,404 2,897
PENSION AND OTHER LONG-TERM LIABILITIES 45,372 --
CLASS A COMMON STOCK UNDER REPURCHASE
AGREEMENTS (Note 10) 8,000 8,000
SHAREHOLDERS' EQUITY:
Class A Common Stock, $.10 par value, 30,000,000
shares authorized, 16,060,311 and 15,946,605
shares issued and outstanding in 1996 and 1995,
respectively 1,606 1,594
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 31,569 26,870
Retained earnings 126,152 151,020
Cumulative translation adjustment (3,665) (854)
Class A Common Stock under repurchase
agreements (Note 10) (8,000) (8,000)
-------- -------
Total liabilities and shareholders' equity $431,718 $264,865
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
13
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
(Dollars In Thousands Except Per Share Data)
1996 1995 1994
-------- -------- --------
NET SALES $416,293 $342,176 $253,808
COST OF SALES 214,947 167,130 122,187
-------- -------- --------
Gross profit 201,346 175,046 131,621
-------- -------- --------
ENGINEERING EXPENSES 37,307 30,716 22,417
SELLING EXPENSES 105,259 85,072 62,397
GENERAL AND ADMINISTRATIVE EXPENSES 32,880 25,362 18,824
RESTRUCTURING EXPENSES 3,956 -- --
WRITE-OFF OF ACQUIRED IN-PROCESS
RESEARCH & DEVELOPMENT 35,700 -- --
-------- -------- --------
Total operating expenses 215,102 141,150 103,638
-------- -------- --------
Operating income(loss) (13,756) 33,896 27,983
INTEREST EXPENSE 4,386 2,973 322
OTHER EXPENSE(INCOME), net (1,162) (107) (554)
-------- -------- --------
Income(loss) before provision
for income taxes (16,980) 31,030 28,215
PROVISION FOR INCOME TAXES 7,888 11,473 9,574
-------- -------- --------
NET INCOME(LOSS) $(24,868) $ 19,557 $ 18,641
======== ======== =======
PER CLASS A COMMON SHARE:
Net Income (Loss) $(1.53) $1.21 $1.16
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
(Dollars In Thousands)
1996 1995 1994
-------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(24,868) $19,557 $18,641
Adjustments to reconcile net income (loss) to
net cash provided by operating activities-
Depreciation and amortization 12,042 14,378 9,817
Write-off of acquired in-process
research & development 35,700 - -
Deferred income taxes (634) 826 (695)
Changes in assets and liabilities
Accounts receivable 992 364 (4,050)
Inventories 2,379 (7,037) (2,325)
Prepaid expenses and other assets 6,497 (675) (184)
14
1996 1995 1994
---------- ------- -------
Accounts payable and accrued liabilities (8,123) 8,806 4,625
--------- ------- ------
Net cash provided by operating activities 23,985 36,219 25,829
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (11,399) (15,124) (8,858)
Purchase of E for M Corporation and Corometrics
Medical Systems, Inc., net of cash acquired (89,171) (70,045) -
--------- ------- -------
Net cashed used in investing activities (100,570) (85,169) (8,858)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable to bank 3,005 14,737 4,993
Proceeds from issuance of long-term debt 90,000 45,000 -
Payments on long-term debt (17,000) (37,003) (1,339)
Proceeds from issuance of common stock 1,393 1,110 551
--------- ------- -------
Net cash provided by financing activities 77,398 23,844 4,205
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (1,253) 626 (413)
--------- ------- -------
Net increase (decrease) in cash and cash (440) (24,480) 20,763
equivalents
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,330 27,810 7,047
--------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,890 $ 3,330 $27,810
========= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 4,153 $ 2,911 $ 343
Income taxes $ 9,789 $11,523 $ 8,835
Supplemental Schedule of Noncash Investing and
Financing Activities
The Company purchased all of the capital stock
of E for M Corporation and of Corometrics
Medical Systems, Inc. for $90,333 and $70,766,
in fiscal 1996 and 1995, respectively.
In conjunction with the acquisition, liabilities
were assumed as follows:
Fair value of assets acquired
(including goodwill) $ 215,524 $78,729
Cash paid for the capital stock 90,333 70,766
Stock options converted 3,083 -
--------- -------
Liabilities assumed $ 122,108 $ 7,963
========= =======
The accompanying notes are an integral part of these consolidated statements.
15
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994 (Dollars in Thousands)
Class A Class C
Common Stock Common Stock Additional Cumulative
---------------------- --------------------- Paid-In Retained Translation
Shares Amount Shares Amount Capital Earnings Adjustment
---------- ---------- ---------- ---------- ---------- -------- -----------
BALANCE, April 30, 1993 15,790,975 $1,579 26,250,000 $263 $24,992 $112,822 $(1,067)
.............................................................................................................................
Issuance of common stock under option 61,380 6 -- -- 545 -- --
.............................................................................................................................
Cumulative translation adjustment -- -- -- -- -- -- (413)
.............................................................................................................................
Other -- -- -- -- 53 -- --
.............................................................................................................................
Net income -- -- -- -- -- 18,641 --
...........................................----------....------....----------.....----.....-------.....--------....-------
BALANCE, April 30, 1994 15,852,355 $1,585 26,250,000 $263 $25,590 $131,463 $(1,480)
.............................................................................................................................
Issuance of common stock under option 94,250 9 -- -- 1,101 -- --
.............................................................................................................................
Cumulative translation adjustment -- -- -- -- -- -- 626
.............................................................................................................................
Other -- -- -- -- 179 -- --
.............................................................................................................................
Net income -- -- -- -- -- 19,557 --
...........................................----------....------....----------.....----.....-------.....--------....-------
BALANCE, April 30, 1995 15,946,605 $1,594 26,250,000 $263 $26,870 $151,020 $ (854)
.............................................................................................................................
Issuance of common stock under option 113,706 12 -- -- 1,381 -- --
.............................................................................................................................
Cumulative translation adjustment -- -- -- -- -- -- (2,811)
.............................................................................................................................
Conversion of E for M stock options
into Marquette options -- -- -- -- 3,083 -- --
.............................................................................................................................
Other -- -- -- -- 235 -- --
.............................................................................................................................
Net income(loss) -- -- -- -- -- (24,868) --
...........................................----------....------....----------.....----.....-------.....--------....-------
BALANCE, April 30, 1996 16,060,311 $1,606 26,250,000 $263 $31,569 $126,152 $(3,665)
...........................................==========....======....==========.....====.....=======.....========....=======
The accompanying notes are an integral part of these consolidated statements.
16
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
(1) Nature of Operations
Marquette Electronics, Inc. (the "Company") is a multi-national
manufacturer of medical electronic equipment and clinical information
systems for the diagnosis and monitoring of patients requiring
critical care. The Company's principal product lines include
electrocardiographic equipment, patient monitors, clinical information
systems, cardiac catheterization and electrophysiology laboratories,
defibrillators and a complete line of supplies. The Company's
principal markets are the major medical institutions and teaching
hospitals, particularly those institutions specializing in the diagnosis
and treatment of heart disease. The Company also markets its products to
smaller hospitals, medical clinics, physician offices, government
hospitals, research institutions, and providers of emergency care. The
Company covers the United States market, most of Western Europe and
Australia through its own sales force. The remainder of the
international market is served by dealers.
(2) Summary of Significant Accounting Policies-
(a) Basis of consolidation-
The consolidated financial statements include the accounts of Marquette
Electronics, Inc. and its foreign and domestic subsidiaries. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
(b) Revenue recognition-
Revenue is recognized on an accrual basis when equipment and supplies
are shipped. Revenue for service contracts is recognized over the term
of the contract, typically twelve months. Costs related to service
contracts are expensed as incurred.
(c) Inventories-
Inventories consist of the following:
April 30,
----------------
1996 1995
-------- -------
Raw materials and component parts $35,716 $20,551
Work-in-process and finished goods 45,869 33,561
Inventory on loan or consignment 24,583 21,028
-------- -------
$106,168 $75,140
======== =======
For its domestic inventories (representing 61% and 93% of total
inventories at April 30, 1996 and 1995, respectively), the Company
employs the last-in, first-out (LIFO) cost method. The first-in, first-
out (FIFO) cost method is used for all remaining inventories. If the
FIFO cost method had been used for domestic inventories instead of the
LIFO cost method, the carrying value assigned to inventories would have
been $1,962 and $2,651 less at April 30, 1996 and 1995, respectively.
(d) Property and equipment-
Property and equipment, along with improvements that significantly
extend the useful life of existing assets, are carried at cost.
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets which
17
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
range from 15-20 years for land improvements, 40-50 years for buildings
and 3-7 years for equipment.
(e) Research and development costs-
Research and development costs are charged to operations as incurred.
Such charges were $23,756, $22,501 and $17,413 in fiscal 1996, 1995 and
1994, respectively. The Company also charged to operations $35,700
related to the write-off of acquired in-process research and development
attributable to the E for M acquisition. See Note 3 for further
discussion of purchased research and development costs.
(f) Advertising costs-
Advertising costs are charged to operations as incurred. Such charges
were $2,260, $1,691 and $1,755 in fiscal 1996, 1995 and 1994,
respectively.
(g) Cash and cash equivalents-
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with a maturity of three months
or less at the time of purchase to be cash equivalents.
(h) Foreign currency-
Asset and liability accounts of the Company's foreign operations are
translated at the current exchange rate, and income and expense accounts
are translated at the average of the monthly exchange rates. Gains and
losses resulting from the translation of foreign currency financial
statements are classified as a separate component of shareholders'
equity.
Foreign currency transaction gains (losses) totalling $744, $124, and
$(490) are included in other income in the consolidated statements of
income for fiscal 1996, 1995 and 1994, respectively.
As a hedge against foreign accounts payable, the Company at times has
entered into various forward exchange contracts to exchange foreign
currencies for United States dollars at a fixed contract rate. Market
value gains and losses resulting from these contracts are recognized in
the consolidated statements of income and offset foreign exchange gains
or losses on the foreign payables at their maturity date. As of April
30, 1996, the Company has three such contracts to exchange various
foreign currencies for a total contract amount of $758 and a maturity
date of May 31, 1996. The carrying value of these contracts
approximates fair value.
(i) Net income per Class A common share-
Class C Common Stock participates in income with Class A Common Stock in
the ratio of 1:100. Consequently, the weighted average shares for
calculating net income per Class A common share is equal to the sum of
the weighted average number of shares of Class A Common Stock
outstanding and 1/100
18
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
of the weighted average number of shares of Class C Common Stock
outstanding during the year. Such weighted average shares were
16,254,000, 16,172,000 and 16,090,000 for fiscal 1996, 1995 and 1994,
respectively.
(j) Goodwill-
The excess of the purchase cost over the fair value of net assets
acquired is being amortized over a range of 15-20 years on a straight-
line basis. The Company continually evaluates whether later events and
circumstances have occurred that indicate the remaining estimated useful
life of goodwill may warrant revision or that the remaining balance of
goodwill may not be recoverable. When factors indicate that goodwill
should be evaluated for possible impairment, the Company uses an
estimate of the related business segment's discounted net cash flows
over the remaining life of the goodwill in measuring whether the
goodwill is recoverable. Goodwill (net of accumulated amortization) was
$45,882 and $23,604 at April 30, 1996 and 1995, respectively.
Amortization of goodwill was $2,453 in fiscal 1996, $1,871 in fiscal
1995 and $451 in fiscal 1994. See Note 3 for further discussion related
to the goodwill attributable to the E for M and Corometrics
acquisitions. In March, 1995, the Financial Accounting Standards Board
("FASB") issued SFAS No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of", which
addresses accounting for the impairment of long-lived assets that either
will be held and used in operations or that will be disposed of. The
Company does not believe that the adoption of this statement on May 1,
1996 will have a material impact on the financial position or results of
operations of the Company.
(k) Use of estimates-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(l) Reclassification of prior year amounts-
Certain prior year amounts have been reclassified to conform with
current year presentations.
(3) Acquisition of Corometrics Medical Systems, Inc. and E for M Corporation
On May 31, 1994, the Company acquired 100% of the common stock of
Corometrics Medical Systems, Inc.
19
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
("Corometrics"), a manufacturer of fetal monitors and related products.
The purchase price was approximately $70,800 and was paid in cash.
Related to this purchase, the Company borrowed $49,200 under a bank loan
agreement. As of April 30, 1996, these borrowings have been paid in
full. The acquisition has been accounted for as a purchase, and the
excess of the purchase price over the fair value of net assets acquired
has been allocated to goodwill. The value of such goodwill is $23,230.
Effective January 1, 1996, the Company acquired 100% of the common stock
of E for M Corporation ("E for M"), an international medical equipment,
software and supplies company serving patient monitoring and cardiology,
which includes cardiac catheterization and electrophysiology
laboratories. The purchase price was approximately $93,400 and was paid
in cash and through the issuance of stock options. The Company converted
outstanding options for E for M stock into options for Marquette stock
as part of the transaction. The fair value of the converted options was
$3,083. 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 during the year. The remaining intangibles
have estimated useful lives ranging from 7 to 40 years.
In connection with the acquisition, the Company implemented a
restructuring plan for the purpose of integrating the E for M operation
into the Company's existing operations. This restructuring plan
included consolidation of facilities as well as a reduction in the
number of employees required for the combined operations. The costs
expected to be incurred with respect to this restructuring plan were
recorded as liabilities of E for M which were assumed in the purchase
transaction. The total restructuring charges attributable to E for M
were $8,447. This total liability recorded at the acquisition included
$5,532 of severance costs, $992 of dealer termination costs and $1,923
of facility closing, legal and other costs. This restructuring plan is
expected to be completed by April 30, 1997. As of April 30, 1996,
20
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
$7,662 of the restructuring charges remained in "Other current
liabilities" in the Consolidated Balance Sheets.
Unaudited pro-forma results of operations, assuming the acquisition of
both Corometrics and E for M as of May 1, 1994, and the $35,700 write-
off of acquired in-process R&D in fiscal 1996, would be as follows:
Year Ended
April 30,
-------------------
1996 1995
-------- --------
Net Sales $540,936 $541,138
Net Income (Loss) (27,430) 11,493
Net Income (Loss) Per Class
A Common Share (1.69) .71
(4) Income Taxes-
Deferred income taxes are recorded to reflect the tax consequences on
future years on differences between the tax basis of assets and
liabilities and their financial reporting amounts at fiscal year end.
Deferred tax expense is the result of changes in deferred tax assets and
liabilities.
The provision for income taxes consists of the following:
Year Ended April 30,
-------------------------
1996 1995 1994
------ ------- ------
Current-
Federal $7,692 $ 8,609 $ 8,617
State 1,072 1,547 1,363
Foreign (242) 491 289
------ ------- ------
8,522 10,647 10,269
Deferred (634) 826 (695)
------ ------- ------
$7,888 $11,473 $ 9,574
====== ======= =======
A reconciliation of the statutory Federal income tax rate to the
consolidated effective income tax rate is as follows:
Year Ended April 30,
-----------------------
1996 1995 1994
------- ------ ------
Statutory Federal income tax rate (35.0)% 35.0% 35.0%
State and local income taxes, net
of Federal income tax benefit 4.1 3.4 3.0
Tax credits - (1.9) (1.8)
Foreign tax rate differences and
foreign tax losses not benefited 7.4 0.2 1.2
FSC benefit (2.7) (1.4) (2.5)
Purchased R&D 73.6 -- --
Other (0.9) 1.7 (1.0)
------- ------ ------
Effective income tax rate 46.5% 37.0% 33.9%
======= ====== ======
Temporary differences which give rise to the deferred tax assets and
liabilities at April 30, 1996 and 1995 are as follows:
April 30,
-------------------
1996 1995
-------- -------
Short-term deferred tax
assets (liabilities):
Net operating loss carryforward $ 14,281 $ 741
Pension 1,773 --
Warranty reserve 1,350 1,193
Inventories (999) (1,755)
Accrued vacation 1,216 942
Intercompany profit
in inventory 486 607
Restructuring reserve 4,371 --
Self-insurance reserve 341 199
Bad debt reserve 201 150
Capital loss carryforward 532 63
Other 406 231
Valuation allowance (16,054) (741)
-------- -------
$ 7,904 $ 1,630
======== =======
Long-term deferred tax
assets (liabilities):
Tax Basis Difference
of Fixed Assets $ (1,251) $(1,161)
Tax Basis Difference
of Intangible Assets (19,672) (1,872)
Other (481) 136
-------- -------
$(21,404) $(2,897)
======== =======
21
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
(5) Notes Payable to Bank-
The Company has an unsecured line of credit with a bank whereby it may
borrow up to $20,000. As of April 30, 1996, the borrowings outstanding
are $14,500. Standby letters of credit of $1,604 reduce the available
credit to $3,896 as of April 30, 1996.
The Company has loan authorizations and overdraft facilities with
various banks whereby it may borrow up to $33,244 (or Eurocurrency
equivalent) to be used for general purposes. As of April 30, 1996, the
borrowings outstanding are $14,322. Outstanding bank guarantees of
$4,924 reduce the available credit to $13,998 as of April 30, 1996.
The Company has entered into some of the above foreign currency loans in
an amount and term similar to the expected collection period of foreign
accounts receivable as a natural hedge against these amounts. The amount
outstanding on such loans was $6,236 and $8,803 in fiscal 1996 and
fiscal 1995, respectively.
The following table summarizes certain information regarding these
short-term borrowings:
Year Ended April 30,
------------------------
1996 1995 1994
------- ------- ------
Maximum amount of borrowings $28,742 $27,256 $7,806
Average amount of borrowings 21,975 20,924 3,462
Weighted average interest rate
during year 6.8% 6.1% 7.9%
Weighted average interest rate
at year end 6.5% 6.7% 7.6%
(6) Long-Term Debt-
Long-term debt consists of the following:
April 30,
---------------
1996 1995
------- ------
Term note, repaid in fiscal 1996
bearing interest at LIBOR + 1% $ -- $3,000
Term note, repaid in fiscal 1996
bearing interest at LIBOR + 1% $ -- 5,000
Term note, due in installments through
October 31, 2000, bearing interest at
LIBOR + 1% (6.4375% at April 30, 1996) 27,000 --
Term note, due in installments through
October 31, 2000, bearing interest at
LIBOR + 1% (6.4375% at April 30, 1996) 27,000 --
Term note, due in installments through
October 31, 2000, bearing interest at
LIBOR + 1% (6.4375% at April 30, 1996) 27,000 --
Installment promissory note, due
March 31, 1999, bearing interest at
fixed rate of 7.175% 1,224 --
Installment promissory note, due
September 30, 1999, bearing interest
at fixed rate of 8.750% 1,687 --
Other 465 212
------- ------
84,376 8,212
Less- Current maturities 3,122 100
------- ------
$81,254 $8,112
======= ======
Scheduled maturities:
Year Ending
April 30, Amount
----------- -------
1997 $ 3,122
1998 23,753
1999 23,470
2000 22,781
2001 11,250
-------
$84,376
=======
The carrying value of long-term debt approximates fair value.
The term notes contain restrictive covenants which, among other things,
require the Company to maintain a
22
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
minimum tangible net worth, a minimum interest coverage ratio and a
maximum liabilities to tangible net worth ratio. The Company was in
compliance with all such covenants at April 30, 1996.
(7) Commitments and Contingencies-
The Company leases plant, office space, and automobiles under various
operating lease agreements. Minimum rental commitments under leases
having initial or remaining terms of greater than one year are as
follows:
Year Ending
April 30, Amount
----------- -------
1997 $ 1,504
1998 1,253
1999 783
Thereafter 20
Rental expense charged to operations was $1,585, $1,591 and $1,727 in
fiscal 1996, 1995 and 1994, respectively.
The Company leases automobiles from a company owned by two directors.
Rental expense was $589, $1,028 and $1,058 in fiscal 1996, 1995 and
1994, respectively.
Various lawsuits and claims are pending against the Company. Although
the outcome of such lawsuits and claims cannot be predicted with
certainty, the resolution of these lawsuits and claims will not, in the
opinion of management, result in a material adverse effect on the
financial position or results of operations of the Company.
(8) Common Stock-
Class A and Class C Common Stock have equal voting rights. Dividends
may be declared on the Class A Common Stock without the declaration of
any dividend on the Class C Common Stock. Dividends may only be
declared on the Class C Common Stock if at the same time a dividend in
an amount at least 100 times as great per share is declared on the Class
A Common Stock. In the event of liquidation, amounts distributed with
respect to each share of Class A Common Stock must be 100 times as great
as amounts distributed with respect to each share of Class C Common
Stock.
(9) Stock Option Plans-
The Company has reserved 2,500,000 shares of Class A Common Stock for
issuance under the Amended and Restated Stock Option Plan for Employees
of Marquette Electronics Inc. (the "Plan"). The number of shares
reserved for issuance by the Company under this Plan increased from
2,500,000 shares to 3,500,000 on February 9, 1996 by a vote by the
Company's Board of Directors, subject to shareholder approval. Under
the Plan, incentive options may be granted to purchase shares at or
above fair market value on the date of grant and expire within ten
years, and non-qualified options may be granted at or above 85% of fair
market value on the
23
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
date of grant and expire within fifteen years. If stock options granted
under the Plan expire or otherwise terminate without being exercised,
the Class A Common Stock not issued under such stock options shall again
become available for issuance under the Plan.
Option activity during fiscal 1996, 1995 and 1994 is as follows:
Number of Shares
Under Option
----------------
Outstanding, April 30, 1993 349,921
Granted 1,090,000
Exercised (61,380)
Cancelled (73,875)
---------
Outstanding, April 30, 1994 1,304,666
Granted 292,200
Exercised (94,250)
Cancelled (80,250)
---------
Outstanding, April 30, 1995 1,422,366
Granted 895,600
Exercised (96,800)
Cancelled (407,950)
---------
Outstanding, April 30, 1996 1,813,216
=========
The prices of options exercised during fiscal 1994 were 15,000 shares at
$6.17 per share, 15,000 shares at $8.33 per share, 7,500 shares at $9.00
per share, 19,880 shares at $11.13 per share and 4,000 shares at $11.20
per share.
The prices of options exercised during fiscal 1995 were 51,750 shares at
$11.13 per share, 2,000 shares at $9.67 per share, 4,750 shares at
$10.00 per share, 15,750 shares at $11.20 per share, 15,000 shares at
$14.25 per share, and 5,000 shares at $15.50 per share.
The prices of options exercised during fiscal 1996 were 9,250 shares at
$9.67 per share, 10,250 shares at $10.00 per share, 1,250 shares at
$11.20 per share, 4,050 shares at $13.67 per share, 2,000 shares at
$16.75 per share, 50,000 shares at $14.25 per share, and 20,000 shares
at $16.25 per share.
The options outstanding at April 30, 1996, consist of the following:
Number of Shares
-------------------------
Outstanding Exercisable Option Price
------------------------- ---------------
611,116 199,366 $11.20 - $14.99
1,064,600 101,500 15.00 - 20.99
137,500 12,500 21.00 - 21.50
--------- -------
1,813,216 313,366
========= =======
The Company has reserved 276,042 shares of Class A Common Stock for
issuance under the E for M 1991 Stock Option Plan and E for M 1991 Key
Employee Stock Option Plan. The E for M stock options outstanding on
the acquisition date were converted into stock options of the Company in
conjunction with the acquisition. Each option converted by the Company
continues to have, and is subject to, the same terms and conditions set
forth in E for M's stock option plan prior to the acquisition. The E
for M stock options were converted into 276,042 stock options of the
Company pursuant to this plan based on an exchange ratio of the average
price of Marquette stock at the acquisition date to the tender price of
E for M stock.
24
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
Option activity related to this plan in fiscal 1996 is as follows:
Number of Shares
Under Option
----------------
Outstanding, April 30, 1995 --
Granted 276,042
Exercised (16,906)
Cancelled --
-------
Outstanding, April 30, 1996 259,136
=======
The prices of the options exercised during fiscal 1996 were 12,532
shares at $1.10 per share, 546 shares at $6.58 per share, 912 shares at
$7.61 per share, and 2,916 shares at $12.34 per share.
The options outstanding at April 30, 1996, consist of the following:
Number of Shares
------------------------ --------------
Outstanding Exercisable Option Price
------------------------ --------------
118,924 50,367 $5.93 - $ 8.99
90,170 74,091 9.00 - 10.99
50,042 16,052 11.00 - 12.76
------- -------
259,136 140,510
======= =======
On August 25, 1994, the Company's shareholders approved the Marquette
Electronics, Inc. Directors' (Non-Employee) Stock Option Plan (the
"Directors' Plan"). The Directors' Plan is designed to compensate non-
employee members of the Board of Directors by an annual grant of non-
qualified options for 4,000 shares of Class A Common Stock at the then
fair market value of the stock. These options become exercisable in
four equal annual installments on each of the first four anniversaries
of the date of grant and expire on the tenth anniversary date. The
aggregate number of shares that may be issued under the Directors' Plan
shall not exceed 250,000. During fiscal 1994, options to purchase
16,000 shares were granted at $14.50 per share. During fiscal 1995,
options to purchase 20,000 shares were granted at $16.00 per share.
During fiscal 1996, options to purchase 20,000 shares were granted at
$16.25 per share. All options granted were outstanding at April 30,
1996, 20,000 shares of which were exercisable.
(10) Stock Repurchase Agreements-
By agreement, the Company is obligated to repurchase up to $4,000 worth
of Class A Common Stock from each of two shareholders, in each case at
the shareholder's death and at a price per share determined in
accordance with the agreements. Life insurance with a face value of
$6,744 has been secured on the lives of the two shareholders to fund the
payments required under the repurchase agreements. As of April 30,
1996, 444,444 shares of Class A Common Stock were subject to these stock
repurchase agreements. The amount of the purchase price is payable
within 210 days of the death of the shareholder.
(11) Restructuring of Operations-
In fiscal 1996, the Company initiated and began to implement a plan to
restructure its worldwide operations, primarily in Europe. The
restructuring
25
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
plan consists of a consolidation of European offices as well as a
corresponding reduction in the number of employees. The restructuring
plan is undertaken for purposes of consolidating the distribution
function in Europe in order to address competitive conditions. In
addition, the restructuring plan is necessary as the existing Marquette
operations are integrated with E for M's European operations. In
connection with these actions, the Company recorded restructuring
charges of $3,956 to operating expenses in fiscal 1996. These charges
include $1,267 of severance costs, $1,366 of facility closing costs
including asset write-offs, and $1,323 of other costs such as dealer
termination fees and related legal fees. This restructuring plan
implementation is expected to be completed by the end of fiscal 1997.
As of April 30, 1996, $2,513 of the restructuring charges remained in
"Other current liabilities" in the Consolidated Balance Sheets.
(12) Employee Benefit Plans-
Profit Sharing and 401(k) Plan - The Company has a Profit Sharing and
401(k) Plan (the "Plan") covering substantially all non-union employees.
The Plan allows participants to make annual contributions ranging from
1% to 12% of their compensation, subject to certain limitations imposed
by the Internal Revenue Code. The Company matches 25% of the
Participants' contributions, subject to maximum annual matching per
participant of five hundred dollars or 1.5% of the participants
qualified compensation, whichever is greater. The Company may make
annual discretionary contributions as authorized by the Board of
Directors. Total Company contributions were $3,313, $3,300 and $2,449
in fiscal 1996, 1995 and 1994, respectively.
Defined Benefit Plans - E for M has an unfunded noncontributory defined
pension plan covering substantially all of its German-based employees
over 25 years of age and with at least 10 years of service. The benefits
are based on an employee's final month's salary and the number of years
of continuous service with E for M.
The components of net periodic pension cost for the four month period
ended April 30, 1996 are:
Service costs $ 377
Interest costs 1,127
Unrecognized net loss (503)
------
Net pension costs $1,001
======
The following is a reconciliation of the plan's projected benefit
obligation to the recorded pension obligation at April 30, 1996:
Accumulated benefit obligation $41,099
=======
Vested benefit obligation $38,364
=======
Projected benefit obligation $45,339
Unrecognized net loss (503)
-------
Accrued pension obligation $44,836
=======
26
MARQUETTE ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994 (Dollars In Thousands Except Per Share Data)
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation were 6% and 2.75%, respectively.
Corometrics established a defined benefit pension plan for certain of
its union employees effective June 1, 1994. Pension expense charges to
operations in fiscal 1996 and 1995 were not material.
(13) Segment and Geographic Information-
The Company operates primarily in one business segment, the medical
electronics equipment industry. Financial information by geographic
area is summarized as follows:
Year Ended April 30,
-------------------------------
1996 1995 1994
-------- -------- --------
Net sales originating from:
United States $355,689 $321,408 $236,497
Europe 98,137 45,634 38,283
Australia 5,479 6,281 3,749
Corporate and eliminations (43,012) (31,147) (24,721)
-------- -------- --------
$416,293 $342,176 $253,808
======== ======== ========
Income (loss) from operations:
United States $ 11,307 $ 34,198 $ 29,816
Europe (27,481) (1,103) (1,247)
Australia (157) 321 62
Corporate and eliminations 2,575 480 (648)
-------- -------- --------
$(13,756) $ 33,896 $ 27,983
======== ======== ========
Identifiable assets:
United States $332,492 $237,224 $183,241
Europe 98,141 21,199 16,443
Australia 2,680 2,167 1,919
Corporate and eliminations (1,595) 4,275 1,577
-------- -------- --------
$431,718 $264,865 $203,180
======== ======== ========
Transfers between geographic areas are recorded at market-based transfer
prices. Corporate assets are principally cash and cash equivalents.
Export sales, excluding sales to affiliates, totalled $39,566, $38,731
and $25,882 in fiscal 1996, 1995 and 1994, respectively.
(14) Derivative Financial Instruments
The Company uses foreign currency forward exchange contracts to hedge
specific foreign currency exposures. These derivative financial
instruments are not used for trading purposes.
(15) Quarterly Data (Unaudited)
1996
---------------------------------------
1st 2nd 3rd 4th
---------------------------------------
Net Sales $81,127 $84,511 $110,309 $140,346
Gross Profit 38,641 43,843 53,578 65,284
Net Income(loss) 979 4,043 (30,665) 775
Per Class A
Common Share .06 .25 (1.89) .05
1995
---------------------------------------
1st 2nd 3rd 4th
---------------------------------------
Net Sales $76,572 $86,720 $92,968 $85,916
Gross Profit 39,226 44,105 47,705 44,010
Net Income(loss) 4,224 5,502 6,112 3,719
Per Class A
Common Share .26 .34 .38 .23
The following table sets forth the high and low sales prices for the
Class A common stock as reported on the NASDAQ National Market System.
The prices reflect inter-dealer prices, without retail mark-up, mark-
down or commission:
Year Ended
April 30, 1996 April 30, 1995
---------------- ----------------
High Low High Low
First Quarter 19 13 16 1/2 15
Second Quarter 18 3/4 15 3/4 20 15 1/2
Third Quarter 21 17 3/4 23 1/2 19
Fourth Quarter 20 16 1/2 23 3/4 17
27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Marquette Electronics, Inc.:
We have audited the accompanying consolidated balance sheets of MARQUETTE
ELECTRONICS, INC. (a Wisconsin corporation) and subsidiaries as of April 30,
1996 and 1995, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended April 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Marquette Electronics, Inc. and
subsidiaries as of April 30, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
June 13, 1996.
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for 1996 were $416.3 million, an increase of 21.7% from $342.2 million
for 1995. The results include four months of activity from operations related to
E for M Corporation. Marquette Electronics, Inc. purchased the 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, effective January 1, 1996.
Sales increased $54.5 million related to the E for M product lines. The
remaining increase for the year of $19.6 million, or 5.7%, related to the
Company's historic product lines. An improving healthcare market contributed to
an increase in net sales of $8.6 million, or 7.6% for the patient monitoring
product line. The service, supplies and Corometrics product lines combined to
record a sales increase over 1995 of $11.7 million, or 8.7%. Prior year results
include eleven months activity from operations related to Corometrics Medical
Systems, Inc., a manufacturer of fetal monitors and clinical information systems
acquired on May 31, 1994. The cardiology product line (formerly known as the
diagnostics line) maintained a relatively level amount of net sales for 1996 as
compared to 1995 with a 0.7% decrease.
Gross profit was $201.3 million for 1996, an increase of $26.3 million as
compared to 1995. Gross margin was 48.4% for the year as compared to 51.1% for
1995. The decrease is primarily attributable to a lower gross margin realized on
the E for M product lines. The gross margin on the four months of E for M
activity from operations included in 1996 was 38.1%. Lower than expected
shipment levels for the E for M operations, attributable in part to the
integration of various operations into Marquette, resulted in an inability to
fully absorb fixed costs. All product lines experienced decreases in gross
margins mainly attributable to increased pricing pressures, especially in
Europe. In addition, the imaging line at Corometrics was liquidated at a
significant discount resulting in a margin decline in that line.
Engineering expenses increased $6.6 million, or 21.5%, for the year. Most of
this increase is related to the acquisition of E for M Corporation which had
$4.9 million of engineering expense in the four months since the acquisition.
The remaining increase is a result of additional new product development,
particularly in operating room and emergency care products. 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
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
product development and enhancements to current products in order to remain
competitive in the healthcare market.
During 1996, the Company took a charge related to the write-off of purchased in-
process research and development (R&D) in the amount of $35.7 million. This one-
time charge is attributable to the in-process R&D acquired from E for M in the
stock purchase. The purchase price of E for M was allocated to the fair value of
net tangible and intangible assets acquired. The portion of the purchase price
allocated to the in-process R&D costs of E for M was immediately written-off
resulting in this non-recurring charge.
Selling expenses increased $20.2 million, or 23.7%, for 1996 over last year
primarily related to the E for M acquisition. Of the total increase, $13.1
million related to the operations of E for M during 1996. In addition to the
increased expenses related to E for M, the increase is also related to the
incremental month of Corometrics expenses in the current year as compared to
last year. The remaining increase is primarily related to an increased sales
staff for all product lines. For the year, the selling expenses have remained
relatively constant as a percentage of sales as compared to last year. For 1996,
selling expenses were 25.3% of sales versus 24.9% of sales for 1995.
General and administrative expenses increased $7.5 million, or 29.6% for 1996 as
compared to 1995. General and administrative expenses increased $6.0 million for
1996 related to the operations of E for M Corporation. The remaining operations
of the Company had an increase of $1.5 million for 1996 as compared to 1995. In
addition to the increase related to E for M, an incremental month of Corometrics
expenses in the current year accounts for the remaining difference.
Interest expense for 1996 was $4.4 million as compared to $3.0 million for 1995.
This entire increase is attributable to the additional debt incurred for the
acquisition of E for M. The increased interest expense related to this
acquisition debt was offset to some extent by the decreased debt originally
incurred in connection with the Corometrics acquisition in May, 1994. Cash flow
from operations enabled the Company to retire the remaining debt related to the
Corometrics acquisition during 1996.
The Company incurred a restructuring charge of $4.0 million for 1996 mainly
related to its European operations. The restructuring was undertaken for
purposes of consolidating the distribution function in Europe as well as
integrating the E for M operations with Marquette. It is management's belief
that the Company
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
will be able to recover the restructuring costs in 1997 through decreased
operating expenses. Other income increased to $1.2 million for 1996 related to
increased foreign exchange gains of $0.6 million. In addition, losses related to
equity investments were $0.7 million less in 1996 as compared to 1995.
The provision for income taxes for 1996 was $7.9 million. Even though the
Company incurred a before-tax loss of $17.0 million for the year, the $35.7
million charge related to purchased in-process R&D is a permanent tax difference
for which the Company does not receive any tax benefit, either current or
deferred. Excluding this charge, the provision for taxes for the year was 42.1%
as compared to 37.0% for 1995. The increase in the provision is partly due to
the expiration of the research and development credit (1.9% benefit in 1995).
This credit has typically been extended by Congress, retroactively, for other
years it was to have expired. If this credit is reinstated retroactively, as it
has been in the past, when Congress finalizes a budget agreement, the Company
will have a tax credit of $0.7 million. The additional increase in the tax rate
is related to foreign net operating losses which the Company is unable to
utilize currently. It is the intention of management that the European
restructuring actions as well as the synergies gained from the integration of E
for M's foreign operations into Marquette, will put the Company in a position to
begin to generate benefit from these losses over the course of the next few
years.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for 1995 of $342.2 million were $88.4 million, or 34.8% higher than
net sales for 1994. The increase in net sales for 1995 was primarily related to
the acquisition of Corometrics Medical Systems, Inc. which added $77.1 million
to net sales for 1995. The Diagnostic and Monitoring product lines increased
sales $5.3 million and $5.2 million, or 6.5% and 4.8%, respectively.
Gross profit increased $43.4 million, or 33.0% in 1995 as compared with 1994
related to increased sales. The gross profit margin was 51.1% in 1995 as
compared with 51.9% in 1994. Productivity gains in manufacturing were offset
somewhat by lower gross margins due to pricing pressure in the United States. In
addition, including Corometrics in the product mix caused a decline in
consolidated gross margins.
Engineering expenses increased $8.3 million, or 37.0% in 1995 as compared with
1994. Approximately $6.3 million of the increase relates to engineering expenses
incurred by Corometrics and new product development. The increase in engineering
cost is also related
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
to the completion of the quadrupole project which was partially funded by NASA
on a cost-plus basis and the reassignment of those engineers to other internal
projects.
Selling expenses increased $22.7 million, or 36.3% in 1995 as compared with 1994
primarily as a result of selling expense incurred by Corometrics and the
addition of sales representatives to sell the Corometrics line direct in Europe.
General and administrative expenses increased $6.5 million, or 34.7% in 1995 as
compared with 1994. The majority of the increase is attributable to the
Corometrics acquisition, including $1.4 million in goodwill amortization.
Interest expense increased $2.7 million in 1995 as compared with 1994 due to the
additional debt incurred for the acquisition of Corometrics Medical Systems,
Inc. Significant cash flow from operations in 1995 and the liquidation of cash
equivalents enabled the Company to prepay approximately $30 million in
obligations related to the acquisition.
Other income decreased $0.4 million, or 80.8% in 1995 as compared with 1994 due
to a decrease in interest income as cash on hand in 1994 was used in the
Corometrics acquisition on June 1, 1994. This increased expense was offset to
some extent by foreign exchange losses in 1994 which did not recur in 1995.
The effective income tax rate increased to 37.0% in 1995 as compared with 33.9%
in 1994. The increase in the effective rate is attributable to an increase in
the effective state tax rate and decreased benefits associated with the
Company's Foreign Sales Corporation.
FINANCIAL OUTLOOK
In as much as the Company's principal product lines are all related to the
health care 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. However, the Company's results of
operation in the future will be affected by conditions both in the healthcare
industry as well as conditions in the general economy, such as interest and
foreign currency
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
exchange rate fluctuations, changes in trade policy, and
recessionary periods.
Effective January 1, 1996, the Company acquired 100% of the outstanding stock of
E for M Corporation. This acquisition resulted in significant restructuring
charges before the end of the fiscal year as the combined companies are
reorganized. In addition to restructuring charges, the Company experienced
recurring additional charges with respect to interest expense, intangible
amortization and goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1996, the Company had $14.5 million outstanding on lines of
credit of $20.0 million available for U.S. borrowings. In addition, the Company
had $14.3 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.
Working capital was $133.2 million at April 30, 1996 compared to $100.4 million
at April 30, 1995. Total inventories and receivables increased $31.0 and $47.3
million, respectively, primarily due to the E for M acquisition. In addition,
the increase in accounts payable and accrued liabilities is primarily
attributable to the acquisition of E for M.
Capital expenditures during the year ended April 30, 1996 were $11.4 million,
primarily related to replacement and addition of machinery and equipment needed
for future business requirements. The capital purchases were funded with cash
from operations.
Effective January 1, 1996, the Company acquired 100% of the common stock of E
for M Corporation. E for M Corporation is an international medical equipment,
software and supplies company serving patient monitoring and cardiology, which
includes cardiac catheterization and electrophysiology laboratories. 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 April 30, 1996, the Company had paid $9.0 million of the
debt, $3.0 million on 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 April 30, 1996 the rate was 6.4375% per annum. The Company intends
to pay the interest and retire the debt through the cash flow from operations.
The acquisition has been accounted for as a purchase and the excess of the
purchase price
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
over the fair value of net assets acquired has been allocated to goodwill. The
approximate value of such goodwill is $26.2 million. The Company expects to
amortize the goodwill over a life of 20 years. In addition, the Company acquired
intangible assets related to product technologies and tradenames with a value of
$12.7 million and $8.5 million, respectively. These intangibles will be
amortized over 7 years and 40 years, respectively.
On May 31, 1994, the Company acquired 100% of the common stock of Corometrics
Medical Systems, Inc., a manufacturer of fetal monitors and related products.
The acquisition price of $70.8 million was funded in part by two term loans in
the amount of $20.0 million and $25.0 million, a draw on the Company's line of
credit of $4.2 million and liquidation of investments in the amount of $21.6
million. Both term notes have been retired through cash flow from operations.
Management believes the Company has financial resources sufficient to meet its
short term and long term cash requirements. The current U.S. inflation rate has
little impact on company operations.
In 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123
"Accounting for Stock-Based Compensation." This statement will apply to fiscal
1997 and the Company will elect to disclose the required information in the
footnotes to the consolidated financial statements. In addition, FASB issued
SFAS No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", in 1995. The Company does not believe that the
adoption of this statement on May 1, 1996 will have a material impact on the
financial position or results of operations of the Company.
34
BOARD OF DIRECTORS
MICHAEL J. CUDAHY
Chairman
Marquette Electronics, Inc.
TIMOTHY C. MICKELSON
President
Marquette Electronics, Inc.
PETER P. TONG
Senior Advisor
Marquette Electronics, Inc.
FREDERICK G. LUBER
Chairman
Super Steel Products Corp.
MELVIN S. NEWMAN
Attorney
Schoenberg, Fisher & Newman, Ltd.
WALTER L. ROBB
Retired
Senior Vice President
General Electric Company
OFFICERS
MICHAEL J. CUDAHY
Chairman and Chief Executive Officer
TIMOTHY C. MICKELSON
President and Chief Operating Officer
MARY M. KABACINSKI
Vice President and Chief Financial Officer
GERALD G. WOODARD
Vice President, Sales and Marketing
LOUIS P. SCAFURI
Division President, Corometrics Medical Systems, Inc.
FREDERICK A. ROBERTSON
Division President, Patient Monitoring
STEVEN G. BOOKS
Division President, Cardiology
JAMES R. MERTENS
Division President, E for M Cath Lab
P. MICHAEL BREEDLOVE
Division President, E for M Imaging Systems
MARK STEGA
Division President, QMI Clinical
Information Systems
GERALD J. LENTZ
Division President, Service
KARL F. BRAUN
Vice President, Europe, Middle East,
Africa (EMEA)
GORDON W. PETERSEN
Secretary
MELVIN S. NEWMAN
Assistant Secretary
35
GENERAL INFORMATION
The 1996 annual meeting of shareholders will be held at 9:00 a.m. local time on
Thursday, August 15, 1996 at the Company's principal offices, 8200 West Tower
Avenue, Milwaukee, WI 53223.
WORLD HEADQUARTERS:
Marquette Electronics, Inc.
8200 W. Tower Avenue
Milwaukee, WI 53223
INDEPENDENT PUBLIC ACCOUNTANTS:
Arthur Andersen LLP
Milwaukee, WI
LEGAL COUNSEL:
Schoenberg, Fisher & Newman, Ltd.
Chicago, IL
PRINCIPAL INTERNATIONAL SUBSIDIARIES AND OFFICES:
Marquette Electronics (Australia) Pty Ltd
Sydney, AUSTRALIA
Hellige Ges.m.b.H.
Vienna, AUSTRIA
Marquette Benelux n.v./s.a.
Brussels, BELGIUM
Marquette Electronics, Inc.
Asia Pacific District
Tokyo, Japan
Marquette Hellige S.A.S.
Paris, FRANCE
Hellige GmbH
Freiburg, GERMANY
Marquette Italia, Srl
Milano, ITALY
Marquette Espana S.A.
Madrid, SPAIN
Marquette Scandinavia
Stockholm, SWEDEN
Marquette Electronics (G.B.) Ltd.
Manchester, UNITED KINGDOM
STOCKHOLDER AND SECURITY ANALYST INQUIRIES AND REQUESTS FOR FORM 10-K SHOULD BE
DIRECTED TO:
Mary M. Kabacinski
Chief Financial Officer
Marquette Electronics, Inc.
8200 W. Tower Avenue
Milwaukee, WI 53223
(414) 362-2560
STOCK LISTING - SYMBOL MARQA:
Marquette Electronics, Inc. Class A Common Stock is listed on NASDAQ National
Market System.
TRANSFER AGENT/REGISTRAR:
Firstar Trust Company
777 E. Wisconsin Avenue
Milwaukee, WI 53202
The Company's Class A common stock, par value $0.10, is, and since November 1,
1991 has been, traded on the NASDAQ National Market System under the symbol
MARQA.
At July 1, 1996, Marquette had approximately 891 shareholders of record
(excluding beneficial owners of stock held in street names). Marquette has not
declared or paid dividends on its Class A common stock. The Company intends to
retain its earnings for use in its business and therefore does not anticipate
paying any cash dividends in the foreseeable future.
36
GRAPHIC MATERIAL CROSS-REFERENCE PAGE
Graphs of the Registrant's Sales Revenue and Net Income between 1986 and 1996
appear on the inside cover
A photograph of Timothy C. Mickelson, President, and Michael J. Cudahy,
Chairman, appears on Page 3
A photograph of the Solar 9000 Anesthesia Information Monitor appears on the
left hand margin of Page 4
A photograph of a MUSE Cardiovascular Information System and an operator appears
in the lower right hand corner of Page 5
A photograph of the CardioSmart Resting ECG display appears in the margin of
Page 6
A photograph of a Patient Monitor appears in the lower left hand corner of Page
7
A photograph of a nurse observing a monitor appears in the margin of Page 8
A photograph of a patient, nurse and monitor appears in the upper right hand
corner of Page 9
A partial photograph of an ST Guard System appears in the lower left hand corner
of Page 10
A logo and photograph of Russian handicraft appears in the margin of Page 11