SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended April 30, 1997
Commission file number 0-18724
------------------------------
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 No.)
8200 West Tower Avenue, Milwaukee, Wisconsin 53223
(Address of Principal Executive Offices) (Zip Code)
(414) 355-5000
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.10 Par Value
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No
----- -----
Approximate aggregate market value of the registrant's Class A Common Stock
held by non-affiliates (based on the closing sales price of such stock as
reported in the NASDAQ National Market System) on July 1, 1997 was $264,616,590.
As of July 1, 1997, the number of shares of Class A Common Stock, $0.10 par
value, outstanding was 17,640,934.
DOCUMENTS INCORPORATED BY REFERENCE
Document Form 10-K Part
-------- --------------
1. Annual Report to Shareholders for fiscal year ended
April 30, 1997 II
2. Proxy Statement for Annual Meeting of Shareholders
scheduled to be held on August 13, 1997 III
_______________
* Excludes, among other shares, 3,569,857 shares of Common stock held by
officers and directors at July 1, 1997. Exclusion of such shares should not
be construed to indicate that any such person possesses the power, direct
or indirect, to direct or cause the direction of the management or policies
of the registrant or that such person is controlled by or under common
control with the registrant.
ITEM 1. BUSINESS
Overview
Marquette Medical Systems, Inc. (including its subsidiaries, the
"Company" or "Marquette") is a worldwide leader in the development and
manufacture of medical equipment and integrated systems for patient
monitoring and diagnostic cardiology applications. Marquette also develops
clinical information systems, designed to be integrated with medical
equipment, consisting of hardware and software used by integrated health
care delivery networks and individual hospitals to electronically acquire,
record, store, analyze and distribute patient medical data. The Company
believes that its ability to offer integrated clinical information systems
and patient monitoring and diagnostic cardiology equipment provides it with
significant competitive advantages over companies that market only
equipment or clinical information systems. The Company has made a
substantial commitment to research and development and is well known for
its technological innovation and quality, dating back to 1965 when it
introduced the first centralized ECG processing and storage system.
Patient monitoring systems and diagnostic cardiology products
accounted for approximately 48% and 33% of net sales, respectively, for the
year ended April 30, 1997 ("Fiscal 1997") with the remaining 19% of net
sales relating to supplies and after market services. The Company's
products are sold in more than 65 countries throughout the world, with the
U.S. and international markets accounting for approximately 61% and 39%,
respectively, of net sales for Fiscal 1997. The Company's products are used
principally in critical and intensive care units, operating and recovery
rooms, step-down units, labor and delivery units, the cardiology
department, the Cath Lab and related areas of acute care hospitals. In
addition, Marquette products increasingly are being used in smaller
hospitals, medical clinics, outpatient surgery centers, physician offices
and the home.
The Company estimates that the worldwide market for patient monitoring
systems is approximately $1.6 billion, of which approximately $800 million
is attributable to the U.S. Marquette's patient monitoring systems
continuously acquire, analyze, store, display and print patient
physiological information, providing attending medical personnel a means to
continuously evaluate a patient's condition. Patient monitoring systems
include bedside, telemetry, anesthetic and respiratory gas, maternal/fetal,
neonatal and
2
home care and clinical information systems. The Company believes it is one
of the leading manufacturers of maternal/fetal, bedside and telemetry
monitoring systems. The Company offers fully integrated, networked, open
architecture clinical information systems that process information obtained
from patient monitors and various other sources, including Marquette's and
other companies' products, to create an interactive electronic patient
medical record.
The Company estimates that the worldwide market for diagnostic
cardiology products is approximately $1 billion, of which approximately
$430 million is attributable to the U.S. Marquette's diagnostic cardiology
products are used to diagnose cardiac disorders through the detection,
recording and analysis of electrical signals and other information relating
to the heart. These include resting, exercise testing and Holter
(ambulatory) ECG equipment, cardiovascular information systems, cardiac
defibrillators, cardiac catheterization laboratory monitors, and photo
image and digital image processing equipment. The Company believes it is
one of the leading manufacturers of cardiovascular information systems and
cardiac catheterization laboratory monitors. The Company offers an open
architecture cardiovascular information system that accepts and stores data
from electrocardiographs and other diagnostic cardiology products to create
a patient-specific cardiology database for comparative and other purposes.
Addressing Market Needs
Health care providers are increasingly differentiating medical
equipment vendors based on their ability to provide clinical management and
patient administration systems that deliver better quality care at lower
costs. Marquette is addressing these market needs with a total systems
approach based on a combination of its broad product lines, open
architecture Unity Network and its clinical process expertise.
Marquette's Unity Network is an integrated system which enables a wide
range of patient monitoring, diagnostic cardiology and clinical information
systems to be interconnected and to interface with hospital information
systems maintained by its customers. Reports can be generated that provide
the data in both clinical and administrative form to aid in improving the
quality of care in the most cost effective manner. The Unity Network is
designed to (i) communicate patient information from bedside and telemetry
monitors to central nurses' stations, (ii) allow clinicians to view patient
information from various areas of the hospital or from remote locations via
telephone lines and modems, and (iii) electronically transfer patient
information
3
to care units, outpatient facilities or physicians' offices.
Marquette differentiates itself from other medical equipment vendors
by addressing market needs with a total solutions approach:
First, Marquette offers its customers a broad product line and the
ability to equip and supply multiple areas along the continuum of care,
thereby enabling integrated health care delivery networks and hospitals to
gain efficiencies through standardization with a single vendor.
Second, Marquette offers its customers the ability to construct an
information network infrastructure and clinical information systems to
enhance the utilization and clinical value of the Company's patient
monitoring and diagnostic cardiology products as well as other medical
equipment vendors' products to which the Unity Network can be interfaced.
Third, Marquette provides its customers expertise in clinical problem
solving, systems integration and process improvement to customize the
configuration of the Company's products and systems to optimize clinical
applications for the customers' various care areas and patient management
needs.
Business Strategy
The Company's objective is to be the premier provider of medical
systems for patient monitoring and diagnostic cardiology across the
continuum of care. The elements of the Company's strategy to achieve this
objective are identified below.
Enter New Care Areas. The Company seeks to capitalize on the shift
from critical care to subacute care, physician offices and home care
through the introduction of newly designed patient monitoring and
diagnostic cardiology products aimed specifically at these evolving care
areas. The Company believes that there is a greater potential for growth
in these care areas than in the hospital market in which the Company's
products have historically been sold. The Company is developing new
products that address the functional needs of these lower acuity care areas
based on the Company's technological expertise developed in connection with
its hospital products.
Broaden and Enhance Existing Product Lines. The Company is adding
depth to its product lines by introducing products at lower price points.
The Company has implemented this strategy by developing
4
products internally, forming strategic alliances and through acquisitions.
For example, as part of the E for M acquisition, the Company obtained
Hellige's development efforts relating to a high performance, compact,
portable, battery-powered, multiparameter patient monitor.
Continue Development of Clinical Information Systems. The networking
of the Company's products through clinical information systems enhances the
value of the Company's products to customers and will continue to be a
focus of the Company's product development efforts. The Company believes
that the development of expanded clinical information systems capabilities
is an important element of Marquette's competitive advantage in the patient
monitoring and diagnostic cardiology markets.
Increase Penetration of International Markets. International sales
have increased from approximately 33% of net sales for the year ended April
30, 1996 ("Fiscal 1996") to approximately 39% of net sales for Fiscal 1997
primarily due to the acquisition of E for M. The Company will continue to
seek greater penetration of the European market, where the E for M
acquisition has substantially broadened the Company's distribution network.
The Asia/Pacific market accounted for approximately 7% of the Company's net
sales for Fiscal 1997 and has been identified by the Company as an area for
potential growth.
Increase Recurring Revenue Streams. The Company is focused on
increasing its recurring revenue by actively developing the disposable
supplies market for the products it sells. The Company seeks to continue
to leverage its installed based to further increase sales of supplies and
services related to its equipment. Additionally, the Company seeks to
leverage the brand-name recognition generated through its equipment sales
to increase sales of technology-distinguished supplies related to a broad
range of medical products manufactured by the Company and others.
Enhance Profit Margins. The Company continually seeks to improve
gross margins by increasing capacity utilization at existing manufacturing
facilities and utilizing global purchasing contracts to reduce material and
component costs. Additionally, the Company seeks to control operating
costs such as engineering and general and administrative expenses relative
to sales growth in order to increase operating margins.
5
Patient Monitoring
Marquette's patient monitoring systems continuously acquire, analyze,
store, display and print patient physiological information such as ECGs,
pulse rate, blood pressure, temperature, gas measurements, respiration rate
and oxygen saturation in the blood. This information provides attending
medical personnel a means to continuously evaluate a patient's condition.
The Company estimates the worldwide market for patient monitoring is
approximately $1.6 billion, of which approximately $800 million is
attributable to the U.S. Recent market growth has been driven principally
by demographic trends resulting in larger numbers of ill and elderly
patients. Future market growth is also expected to result from emerging
monitoring demand in new care areas which previously did not use or require
monitoring. As health care providers seek to reduce costs, significant
portions of patient care are being delivered in lower acuity care areas.
Many patients who in the past would have remained in the intensive care
unit and received care with a 1:1 patient-to-nurse ratio for extended
periods of time are being moved to lower acuity care areas with a 4:1 or
6:1 patient-to-nurse ratio in which portable monitors or telemetry is used.
These areas, which include step-down and subacute areas of hospitals,
outpatient care facilities and home care, are expected to provide
significant growth opportunities.
Marquette has leveraged its expertise in microprocessor design,
advanced circuit development and software programming to establish itself
as a global leader in physiological data acquisition and analysis. The
Company has well known core competencies in ECG signal acquisition and
analysis, pulse oximetry monitoring, invasive and non-invasive blood
pressure measurement, cardiac output determination and respiratory gas
analysis, and is actively involved in the advancement of measurement
techniques and algorithms in these areas.
In May 1994 the Company acquired Corometrics Medical Systems, Inc.
("Corometrics"), a designer and manufacturer of fetal and neonatal
monitoring systems, and one of the leading providers of clinical
information systems for labor and delivery applications. The Corometrics
acquisition allowed the Company to expand its product offerings to the
labor and delivery care area with a well recognized trade name and an
established market position. The Company believes that its Corometrics and
Marquette brand names are widely recognized for excellence and innovation
in the patient monitoring sector.
6
The following table provides information with respect to the Company's
principal patient monitoring systems.
Approximate Introduc-
List Principal tion Care
Product Category Price Range Product Date Areas
---------------- ----------- ------- --------- ------
Modular Bedside Monitors $13,000- Solar 8000 1995 Intensive Care,
$25,000 Solar 9000 1996 Acute Care
Configured Bedside $ 6,500- Eagle 3000 1995 Intensive Care,
Monitors $20,000 Eagle 4000 1995 Acute Care, General
Eagle 1000 (Portable) 1996 Care, Portable and
Transport
Telemetry Monitoring $6,500 per CD - Telemetry LAN 1991 Ambulatory Care and
Systems bed System 1995 Sub Acute Care
APEX Transmitter
Anesthetic and Respiratory $10,000- RAMS Mass Spectrometer 1995 Intensive Care,
Gas Monitoring Equipment $60,000 SAM IR Anesthetic 1995 Acute Care
Agent
Module
Maternal/Fetal Monitoring $4,800- Model 150/Antepartum 1992 Labor and Delivery
Equipment $18,000 Model 151/Intrapartum 1994
Model 118/Intrapartum 1994
Model 155/Antepartum 1996
Model 340 Telemetry 1996
/Intrapartum
Model 120 Series 1997
Neonatal Monitoring $8,000- Eagle 4000N 1993 Intensive Care
Equipment $20,000 Model 556 (color) 1994
Solar 7000N 1995
Eagle 3000N 1996
Solar 8000N 1996
Home Care Monitoring $1,500-$3,800 500E 1986 Home Care
Equipment 500EXL 1995
510/511 1996
Event-Link 1996
Clinical Information $40,000- QS System 1996 All care areas
Systems $1,500,000
Modular Bedside Monitors are used to continuously acquire, analyze and
monitor physiological information from critically ill patients located in
intensive and critical care units and operating rooms. These devices use
multiple software modules for separate physiological parameters to adjust
the device configuration at the point of care to meet the monitoring needs
and acuity of any particular patient.
The Solar 8000, the Company's principal modular bedside monitor,
features a hardware base which offers the user the flexibility to choose
among various features and capabilities, including acquisition and analysis
of 12-lead ECGs and point-of-care blood gas analysis,
7
through the addition of software modules. A new single parameter Solar
module library can be configured for between one and eight physiological
parameters to meet a full range of monitoring configuration needs.
Marquette recently introduced the Solar 9000, a more advanced modular
bedside monitor that provides local area network computer and internet
connection capabilities. Initially, the Solar 9000 is targeted to
operating rooms that require combined vital signs monitoring and clinical
information management.
Configured Bedside Monitors are very similar to the modular bedside
monitors in their continuous vital signs monitoring capabilities. However,
they do not permit point-of-care configurability. In most cases, these
devices are used to monitor patients in less acute settings or in places
where general purpose monitoring is needed, such as post-anesthesia
care/recovery units or the emergency department.
The Company offers the Eagle 4000, 3000 and 1000 configured bedside
monitors. The Eagle 4000 is the most advanced of these products and is
capable of monitoring 12-lead ECGs, (including the ST segment of the ECG
waveform) and carbon dioxide levels. The Eagle 3000 is lower priced and
offers fewer features than the Eagle 4000. The Company believes that the
current features of the Eagle 3000, together with its lower price compared
to the Eagle 4000, should enable the Eagle 3000 to further penetrate the
configured bedside monitor market. The Eagle 1000 is a low cost battery-
powered portable monitor that is available in a variety of configurations
and is especially well suited to compete in cost sensitive markets outside
the U.S.
Telemetry Monitoring Systems continuously collect ECGs from a device
worn by the patient and transmit the data via radio frequency to a central
receiver unit and viewing station. These systems are designed for patients
who are not confined to their beds, which generally includes post-operative
patients and others in the recovery process. Telemetry monitoring systems
represent an increasing share of the market for monitoring equipment
because they allow patients to be ambulatory, which facilitates earlier
discharge from the hospital.
Marquette competes in this category with its CD-Telemetry LAN System
and APEX Telemetry Transmitter. The Company has entered into several
recent strategic alliances which add patient and staff tracking and
location capabilities, and clinician/caregiver paging with alarm
8
event view on the pager.
Anesthetic and Respiratory Gas Monitoring Equipment are used in tandem
with the Company's other vital sign monitors and diagnostic products for
cardiopulmonary monitoring in anesthesia, post-operative recovery, critical
care and pulmonary function laboratories. Gas monitoring products are used
to verify the accuracy of anesthetic gas vaporizers and delivery systems
before, during and after surgery, and measure pulmonary functions such as
oxygenation and ventilation. Gas monitors also detect potentially life-
threatening conditions such as hyperventilation (excessive pulmonary gas
exchange), hypoventilation (inadequate pulmonary gas exchange), pulmonary
air embolus (air bubbles in the pulmonary blood stream), and equipment
malfunction during surgery.
The Company offers products using two methodologies for multiple gas
detection and analysis: mass spectrometry and infrared spectroscopy. The
Company's mass spectrometry product, the RAMS, provides a comprehensive
analysis of gases administered/monitored during surgery. The Company's
infrared spectroscopy product, consisting of the SAM IR Anesthetic Agent
Modules, allows for cost-effective intraoperative monitoring of anesthetic
agents, carbon dioxide, and oxygen.
Maternal/Fetal Monitoring Equipment provides electronic monitoring of
the fetal heart rate and uterine activity as well as maternal parameters
such as ECG, non-invasive blood pressure and pulse oximetry. The Company
offers a broad line of Corometrics brand perinatal products used in
hospitals, physician offices and other clinical settings for care of mother
and child during pregnancy (antepartum) and delivery (intrapartum).
The antepartum monitors, Models 145, 150 and 155 offer a full range of
non-invasive fetal surveillance throughout high risk pregnancies. The
ability to offer dual ultrasound heart rate for twin monitoring, external
uterine contraction monitoring and electronic fetal movement detection
allows flexibility in assessing fetal well-being during pregnancy.
The intrapartum monitors, Models 151, 118 and 340 Telemetry allow for
both non-invasive and invasive fetal ECG monitoring and uterine
contractions. In addition, the Model 118 was the first product to combine
fetal monitoring with maternal vital signs, non-invasive blood pressure and
oxygen saturation. This combined maternal/fetal monitor allows assessment
of the maternal and fetal response to labor events
9
which may affect the intrauterine environment, including anesthesia,
induction of labor and recovery of the mother. The Model 118 is ideally
suited to the new concept in obstetrical care of providing labor, delivery,
recovery and postpartum (LDRP) in one room. The Model 120 series expands
the capability of the Model 118 and provides a display of maternal ECG
waveforms. This feature allows the clinician advanced monitoring
capability. The Model 340 Telemetry system allows ambulatory patients to
be monitored during labor.
Neonatal Monitoring Equipment provides continuous monitoring of
neonates and allows clinicians to record, analyze and react to a neonate's
changing conditions. The Company's neonatal product line meets the
monitoring requirements of the less critical to the most critically ill
neonate. These monitors are capable of displaying multiple measurements
such as ECG, respiration, invasive pressures, temperatures, pulse oximetry
and non-invasive blood pressure. Using the Eagle and Solar monitoring
platforms, the Corometrics brand products have added neonatal features such
as superior respiration detection algorithms and trending, thereby
customizing these monitors to the needs of the neonate in the neonatal
intensive care unit. In addition, the more compact and cost effective
Model 556 monitor is designed for lower acuity nurseries.
Home Care Monitoring Equipment incorporates the technological advances
of the Corometrics brand hospital based monitors with the simplicity that
home use requires. Corometrics introduced the first battery backup and
internal memory apnea monitor in the 1980s. In 1995, the Model 510/511
became the first apnea monitor with integrated pulse oximetry cleared by
the FDA for use in the home, and the Company believes the Model 510/511
remains the only monitor of its kind on the market today. The 500 series
of apnea products and Event-Link software allows home care clinicians to
collect, store and analyze monitoring data to provide objective
documentation of alarm cause and effect, allowing more cost efficient care
of the patient in the home.
Clinical Information Systems integrate and store data coming from
multiple patient care areas. The data can be charted, reviewed and
presented in hospital selected formats that provide clinicians with a
comprehensive overview of patient status. Reports can then be generated
that provide the data in both clinical and administrative form to aid in
improving the quality of care in the most effective manner.
The Company's product platform, the QS System, is designed to
integrate data from all care areas, including labor and delivery, the
10
neonatal intensive care unit, general floor, intensive care unit, critical
care unit, operating room and perioperative unit. Interfaces also exist
for most lab and hospital information systems as well as for all Company
patient monitoring systems and the patient monitoring products of other
companies. Integrated clinical applications can include remote site access
that enables satellite hospitals, clinics and physicians to be linked to
the centrally-located system. The QS System can be customized to meet the
most basic entry level requirements to the most complex whole hospital
solutions involving wide area networks. The Company believes that one of
the primary advantages of the QS System is its ability to interconnect and
interface with hospital information systems through the Unity Network.
Diagnostic Cardiology
Marquette's diagnostic cardiology products are used to diagnose
cardiac disorders through the detection, recording and analysis of
electrical signals and other information relating to the heart. Coronary
artery disease is the leading cause of death of adult Americans today, and
accounts for over 20 percent of the national health care budget.
The Company estimates the worldwide market for diagnostic cardiology
products is approximately $1 billion, of which approximately $430 million
is attributable to the U.S. An aging population, the increasing trend
towards preventative rather than corrective medicine and a general
preference for less invasive procedures are the factors expected to
generate increased demand for the Company's diagnostic cardiology products.
Marquette believes its cardiovascular information solution, the MUSE
CV/TM/ information system, is one of the leading products used to store,
manage, process and deliver the entire cardiology patient file. The system
delivers advances in patient databasing, hospital information system
interfaces, network connectivity, internet technology, e-mail accessibility
and health care protocol standards.
In January 1996, the Company acquired E for M Corporation ("E for M").
Through the acquisition, Marquette added new cardiac imaging capabilities,
broadened its diagnostic cardiology product line and expanded its customer
base for cardiology systems. E for M's product lines also include high
quality cineangiography film and digital imaging products. Also, the E for
M acquisition, which included all of the stock in Hellige GmbH ("Hellige"),
added European manufacturing, marketing and distribution facilities. The
acquisition of E for M
11
allowed the Company's MUSE CV cardiovascular information system to expand
its functionality into image and electrophysiology management. Management
believes Marquette has the only complete Cath Lab solution providing
electrophysiology and hemodynamic monitoring, digital imaging and
cardiology patient information management.
The following table provides information with respect to the Company's
principal diagnostic cardiology products.
Approximate Introduc-
List Principal tion Care
Product Category Price Range Products Date Area
---------------- ----------- --------- --------- ----
Resting ECG Equipment $1,800- Mac PC 1985 Intensive Care,
$15,000 Mac 6 1989 Acute Care,
Mac VU 1991 General Purpose,
Mac 8 1993 Emergency Care,
CardioSmart 1994 Sub Acute
MicroSmart 1996
Exercise Testing ECG $4,000- MAX 1 1989 General Purpose,
Systems $23,000 CASE 16 1994 Sub Acute
MAX Personal 1995
CardioSys XT 1996
CardioSmart ST 1997
Holter (Ambulatory) ECG $21,000- CENTRA 1989 Ambulatory Care,
Equipment $60,000 SXP 1991 Home Care
Memoport 1995
MARS 1996
Cardiovascular Information $30,000- MUSE CV 1996 Intensive Care,
Systems $300,000 Acute Care,
General Purpose,
Emergency Care,
Sub Acute Care
Cardiac Defibrillators $2,000- CardioServ 360+ 1991 Intensive Care,
$14,500 1250 Series 1991 Acute Care,
1500 Series 1991 General Purpose,
CardioServ 1993 Emergency Care,
2500 Series 1996 Portable and
Transport, Sub
Acute Care
Cardiac Catheterization $90,000- Mac Lab 1990 Intensive Care
Equipment $160,000 Midas 6000 1993
Midas 8000 1995
Photo Image and Digital $10,000- AccuVision Series 1995 Intensive Care
Image Processing Equipment $125,000
Resting ECG Equipment is designed to record an ECG of a patient who is
at rest, and are generally mounted on a wheeled cart for movement to the
patient's bedside or elsewhere as needed. The Company's
electrocardiographs permit as many as 14 lead wires to be attached to
patients, maximizing the amount of data that can be
12
acquired. The Company's extensive line of resting electrocardiographs is
designed for use across the spectrum of care areas, including acute care
hospitals, outpatient surgery centers, ambulances and physicians' offices.
The Company's resting electrocardiographs perform immediate analysis of
ECGs, store ECGs for further analysis and can communicate ECGs
electronically to other electrocardiographs or other equipment, including
cardiovascular information systems, for storage and comparison.
Exercise Testing ECG Systems are used to diagnose cardiac disease and
assess its severity by stressing the heart through physical exercise to
elevate its blood flow requirement. While this stress exists, any
significant obstruction in the coronary arteries limits the flow of blood
and results in cardiac dysfunction, which can be detected by a physician
using electrocardiography. The Company's exercise testing ECG systems are
predominantly used in physician offices and hospitals. The Company's
CardioSys/TM/ system is capable of communicating ECGs electronically to
other electrocardiographs or other equipment, including cardiovascular
information systems, for storage and comparison.
Holter (Ambulatory) ECG Equipment is designed to provide ECG
information from an ambulatory patient who experiences intermittent
symptoms such as palpitations, angina or loss of consciousness through a
small recording device over the course of an extended period (usually 24
hours), in or out of the hospital. The Company has recently introduced
MARS (Multiparameter Analysis Review Station), a new generation of Holter
(ambulatory) ECG equipment. It combines the ability to analyze signals
acquired from the Company's line of intensive care or telemetry monitors
with those of a traditional Holter monitor, thus reducing the length of
stay for many patients who might otherwise be delayed in the hospital
waiting for tests to be performed or interpreted.
Cardiovascular Information Systems are designed to accept data from
outlying electrocardiographs via telephone line, diskette or direct
connection, store hundreds of thousands of ECGs and quickly retrieve them
for comparison with ECGs currently being reviewed.
The Company's latest cardiovascular information system, the MUSE
CV/TM/, is an open architecture system designed for hospitals. In addition
to storing, analyzing and retrieving ECGs taken at rest, MUSE CV provides
similar capability for Holter ECGs, exercise testing ECGs, and other
testing procedures and integrates all of the Company's diagnostic
cardiology products together through networking and computer processing,
creating a complete cardiology patient file. MUSE CV also provides an
interface to the hospital's information system. MUSE CV can generate
billing and activity reports which can assist a hospital or other user in
cost control and decrease the possibility of tests remaining unbilled.
Many
13
MUSE CV systems serve more than one hospital, with outlying hospitals
employing workstations connected to the central MUSE CV by telephone lines,
permitting cardiologists at the central hospital to assist in treating
large numbers of patients in wide geographical areas.
Cardiac Defibrillators are designed to restart the heart of victims of
sudden cardiac arrest, a severe form of heart attack. Cardiac arrest is
among the leading causes of death in the U.S. The highest incidence of
cardiac arrest occurs outside the hospital. The Company markets a number
of defibrillator models for pre-hospital and hospital use. Marquette's
Model 1500 is the only pre-hospital defibrillator that provides 12-lead ECG
acquisition and pacing, and can transmit ECGs directly to the hospital's
cardiovascular information system. The Company's hospital line of
defibrillators can be used in all care areas, including the exercise
testing lab, patient transport and the emergency department.
Cardiac Catheterization Equipment is used in various cardiovascular
procedures performed in the Cath Lab and the EP Lab. In vascular or
"hemodynamic" studies, the catheter, with attached physiological sensors,
is used to measure temperature and blood pressure in various parts of the
heart and the surrounding circulatory system, as well as determining the
volume of blood being pumped by the heart. Electrophysiology studies are
performed to evaluate the process of the conduction of electricity through
the heart as the heart contracts and to diagnose the mechanisms of abnormal
heart rhythm. The Company's Midas System 8000 is the only system that
combines complete electrophysiology and hemodynamics into one workstation,
maximizing the utilization of the workstation. The system is specially
configured to assist cardiologists with fast, accurate collection and
analysis of physiological data.
Photo Image and Digital Image Processing Equipment is used to view the
performance and function of a patient's coronary vasculature to assist in
the detection, diagnosis, treatment and prevention of cardiac diseases and
injuries, particularly in connection with cardiac catheterization. The
Company's photographic and digital imaging systems allow the capture,
storage and review of these images. The Company's photographic systems
utilize a variety of 35mm high grade films produced under the Company's
label by third-party manufacturers and offer a number of different
processing chemistries. The Company's digital image processing systems
capture analog images from X-ray, ultrasound and other common imaging
sources and convert them to digital images. These systems then manage the
digitized images so they can be enhanced, quantified, reviewed in real-
time, transmitted over networks and/or archived on CD-R media. The Company
does not manufacture or sell the X-ray, ultrasound or other imaging source
14
associated with this process.
Supplies and Disposables
The Company manufactures, markets and distributes a broad spectrum of
disposable supplies and disposables used primarily in conjunction with the
Company's large installed base of patient monitoring systems and diagnostic
cardiology products. These products include ECG and other recording paper,
monitoring and diagnostic electrodes, patient belts and straps, disposable
and reusable blood pressure cuffs, disposable water traps, temperature
probes, pulse oximetry probes and ambulatory ECG/telemetry hookup kits. In
addition, the Company utilizes its product expertise and manufacturing
capacity to produce private label products for third parties.
The Company seeks to continue to leverage its installed base to
further increase sales of supplies and services related to its equipment.
Additionally, the Company seeks to leverage the brand-name recognition
generated through its equipment sales to increase sales of technology-
distinguished supplies related to a broad range of medical products
manufactured by the Company and others. To implement this strategy the
Company recently created supplies and disposable products as a separate
division of the Company and devoted additional management resources to the
division.
Customer Service
The Company's service operations are responsible for equipment
installation at customers' sites and for the fulfillment of the Company's
warranty and maintenance commitments. Most equipment sold by the Company
is fully warranted for all parts and labor for one year. The Company
offers a variety of post-warranty service agreements permitting customers
to contract for the level of equipment maintenance and repair they require.
In addition to warranty and post-warranty maintenance service, the
Company performs circuit board repairs on a 48-hour return basis, and
manufactures and markets replacement parts to the Company's dealers and
equipment users. The Company offers repair and maintenance training
classes throughout the year for customers and dealers. In addition, the
Company supports customers, dealers and the Company's field personnel by
providing telephone assistance on service problems.
The Company has a national network of approximately 167 service
technicians located throughout the U.S., and approximately 125 service
technicians located in Europe. At its operations in Germany, the Company
operates a parts and support center for European service. In some foreign
countries, if direct Company field engineers and technicians are not
conveniently located,
15
employees of local dealers provide warranty and field maintenance service.
Research and Development
Marquette has made a substantial commitment to product research and
development throughout its history and has introduced major new products in
each of its product lines during the past three years. The Company
expended $30.7 million, $37.3 million, and $48.1 million on research and
development, which represented approximately 9.0%, 9.0% and 8.9% of net
sales for the fiscal years ending April 30, 1995, 1996 and 1997,
respectively. Marquette has leveraged its expertise in microprocessor
design, advanced circuit development and software programming to establish
itself as a global leader in physiological data acquisition and analysis.
The Company has well-known core competencies in ECG signal acquisition and
analysis, pulse oximetry monitoring, invasive and non-invasive blood
pressure measurement, cardiac output determination and respiratory gas
analysis, and is actively involved in the advancement of measurement
techniques and algorithms associated with each area. The Company's primary
product development efforts are carried out at the division level. In
addition, the Company maintains a 17,000 square foot dedicated Research and
Development Center approximately one mile from its corporate offices in
Milwaukee, Wisconsin.
The Company's research and development strategy is to improve and
expand its product line through innovative engineering and to create
diagnostic and monitoring technologies that address problems brought to its
attention by contacts in the medical community, particularly those
technologies which improve quality of care and reduce costs. For example,
Marquette's telemetry products improve the quality of care by tracking
ambulatory patients and alerting the nurse at the central control station
if the patient has an event. Additionally, the Solar 8000 modular bedside
monitor was recently redesigned to reduce production costs by reducing the
number of circuit boards from three to one and by utilizing an off-the-
shelf display. In addition, the Company seeks to be first to market with
new products, to enter new markets and to respond to market trends.
The Company's product engineers work closely with the Company's sales
force and customers to modify and improve current products. In addition,
these engineers assist with the integration of components or technologies
across several Company product lines to enhance product competitiveness.
16
Sales, Distribution and Marketing
The Company's products are used principally in the critical and
intensive care units, operating and recovery rooms, step-down units and
related areas of acute care hospitals, particularly those institutions
specializing in the diagnosis and treatment of heart disease, together with
labor and delivery units. Marquette products increasingly are also being
used in medical clinics, outpatient surgery centers, physician offices and
the home.
The U.S. has been the principal geographic market for the Company's
products. Over the past ten years the Company has sought to develop its
international market standing, and international sales increased from
approximately 33% in Fiscal 1996 to approximately 39% in Fiscal 1997. The
Company will continue to seek greater penetration of the European market,
where the E for M acquisition has substantially broadened the Company's
distribution network.
The Company has a direct sales force in the U.S. of approximately 282
sales representatives, clinical specialists, and managers, as well as 7
national account managers. In addition, the Company has approximately 120
and 8 direct sales employees in Europe and Australia, respectively, as well
as numerous dealers in both markets. The remaining international markets,
primarily Japan, China, Southeast Asia, India, Latin America and Canada,
are served by distributorship arrangements under which a local dealer buys
products from the Company at a discount for resale within its own
territory.
Because most Company products are highly technical requiring extensive
training in their application and operation, the Company's sales
organization is organized along divisional product lines, including
technical support groups which consist primarily of nurses, biomedical
engineers and clinicians. In addition, the Company believes its reputation
in diagnostic cardiology enables it to obtain an entry to patient
monitoring systems sales. The Company has also designated certain senior
sales personnel to act as "Unity Team Managers" to coordinate multiple
product line sales to the same customer. The Company maintains
demonstration equipment so that sales personnel can make on-site clinical
demonstrations for equipment sales. The Company offers technical seminars
and training sessions on a worldwide basis, and furnishes instruction
manuals, maintenance manuals, operator guides, application information and
software in foreign languages, as required.
In recent years, many hospitals have joined buying groups or have been
acquired by large hospital chains permitting them to negotiate with
suppliers of hospital equipment to obtain more favorable pricing on large
quantity purchases. In addition, some
17
large hospitals, chains and buying groups prefer to negotiate with a
limited number of vendors who can provide a broad range of products used by
the hospital or group. While the Company believes that the existence of
these groups will present a marketing opportunity for the Company, there
can be no assurance that the Company will be able to negotiate purchasing
arrangements with all of these groups or on terms that are favorable to the
Company. The Company currently has purchasing arrangements in place with
many national and regional hospital systems, including Columbia/HCA
Healthcare Corporation, Tenet Healthcare, Inc., and many purchasing groups,
including MAGNET, AmeriNet, and CMMA (Catholic Materials Management
Alliance), as well as with various subdivisions of the federal government.
The Company has an arrangement with a third party leasing company
which provides customer financing. Under this arrangement, the Company is
paid in full for its products, and the leasing company assumes credit
risks. The Company also directly provides lease financing in certain
circumstances and equipment rentals.
The Company also offers a Managed Use Program, permitting hospitals to
make payments to the Company based upon the frequency of use of equipment
by the hospital. Under the Managed Use Program, the Company has the right
to increase or reduce the number of equipment units deployed at the
hospital to correlate with the degree of use of the units at the hospital.
The Company believes that the program is being well received by the market
and will further facilitate distribution of the Company's products by
permitting hospitals to better correlate their equipment to their needs.
The Company markets and distributes its supplies in the U.S. through
an in-house telemarketing group, its national direct sales force and a
number of dealers. The Company distributes its supplies outside of the
U.S. through its direct sales force in Europe, its Australian subsidiary
and through independent dealers.
Manufacturing
Marquette internally controls all critical manufacturing processes,
including state-of-the-art circuit board assembly and thick film hybrid and
multichip module assembly, utilizing advanced assembly and subassembly
burn-in systems. The Company partners with major suppliers by locating
supplier inventories on Marquette premises, thereby reducing Company
inventory costs and improving access to technical components.
The Company believes that its facilities are modern, well maintained
and adequate for its present needs. (See Item 2-Properties).
18
Competition
The markets for the Company's products have historically been highly
competitive. The consolidation of health care providers in the U.S. and
the national effort to curtail increases in medical care costs have
increased the level of competition. Although the Company competes directly
with other providers of medical equipment, no one company or group of
companies competes with the Company across its full line of products. The
Company's primary competitors in patient information monitoring include
Hewlett-Packard Corporation, Siemens Medical Systems, Inc., SpaceLabs
Medical, Inc. and Datex Company, and in diagnostic cardiology include
Hewlett-Packard Corporation, Schiller AG and Quinton Instrument Company, a
subsidiary of American Home Products Corporation. Certain of these
competitors are larger and have greater financial and marketing resources
than Marquette. The principal competitive factors that differentiate one
manufacturer from another in the market are a manufacturer's reputation for
producing accurate, reliable and technically advanced products, product
features, product line breadth, price, expected medical cost savings and
effectiveness of sales and marketing efforts.
The Company believes that it has a reputation for technological
leadership and product reliability, which, with its working relationship
with physicians at teaching and research hospitals as well as the breadth
of its product line, have provided it with a strong competitive position.
The Company's competitive position is strongest with respect to its
cardiology product line and fetal and neonatal monitoring products, where
the Company has been selling its products for the longest period of time,
has the greatest name recognition and competes primarily on the basis of
product features and technological advances.
Government Regulation
The medical devices manufactured and marketed by the Company are
subject to extensive and rigorous regulation by the FDA and, in many
instances, by state and foreign governments. Under the FDC Act, the FDA
regulates, among other things, the testing, manufacturing, labeling,
distribution and promotion of medical devices in the U.S. To facilitate
compliance with the FDC Act and regulations promulgated thereunder, the
Company, from time to time, may institute voluntary compliance actions such
as product recalls when it believes it advisable to do so. The failure of
the Company to comply with FDA requirements could result in warning
letters, injunctions, civil penalties, mandatory recall or seizure of
products, total or partial suspension of production, the government's
refusal to grant, or withdrawal of, marketing authorizations, and criminal
prosecution.
In general, before a new medical device may be marketed in the
19
U.S., the manufacturer must obtain marketing authorization from the FDA
through either clearance of a pre-market notification submission (a "510(k)
submission") or approval of a pre-market approval application. In
addition, changes to a medical device that significantly affect the safety
or efficacy of a marketed device are subject to FDA review and clearance or
approval.
The Company's products have not generally been subject to the
comprehensive pre-market approval requirements, but are generally subject
to pre-market notification requirements. The FDA may grant marketing
clearance of a new medical device pursuant to a 510(k) submission if it
determines that the device is substantially equivalent to a predicate
device that did not require pre-market approval. A 510(k) submission must
be supported by information demonstrating substantial equivalence. The FDA
recently has been requiring more rigorous demonstration of substantial
equivalence than in the past, including the submission of clinical data in
some cases. It generally takes from four to 12 months from submission to
obtain clearance of a 510(k) submission, but it may take longer. The FDA
has no specific time limit by which it must respond to a pre-market
notification submission.
As a manufacturer of medical devices, the Company is also subject to
certain other FDA regulations, including compliance with current good
marketing practices ("GMPs") and similar regulations in other countries,
which include testing, control and documentation requirements, and medical
device reporting requirements. The FDA recently revised its medical device
GMP regulation, and the new regulation, which goes into effect later this
year, permit the FDA to regulate the design as well as manufacture of
medical devices and make a number of other significant changes in
regulatory requirements. Ongoing compliance with GMP and other applicable
regulatory requirements is monitored through periodic inspections by
federal and state agencies, including the FDA, and by comparable agencies
in other countries.
Federal, state and foreign regulations regarding the development,
manufacture and sale of medical devices are subject to change. The Company
cannot predict what impact, if any, such changes might have on its
business. The Company also seeks, where appropriate, to comply with safety
standards of Underwriters Laboratories, the Canadian Standards Association,
the European Economic Community and other countries in which it markets
products.
The Company's products are used by health care providers for
diagnostic testing services and other services for which the providers may
seek reimbursement under the federal Medicare and Medicaid programs or from
other governmental and private payers. Such reimbursement is subject to
federal regulations and policies and regulations of other payers. For
example, the Medicare
20
program, which reimburses hospitals and physicians for services provided to
a significant percentage of hospital patients, places certain limitations
on the methods and levels of reimbursement of hospitals for procedure costs
and for capital expenditures made to purchase equipment such as that sold
by the Company. The Medicare program also limits the level of
reimbursement to physicians for diagnostic tests and recently has
instituted changes that may further limit the amount of such reimbursement
of both facilities and physicians for services provided in connection with
diagnostic and clinical procedures. Federal and state regulations
regarding the amount and manner of reimbursement are subject to change.
National health remains a priority item on its legislative agenda and there
are a number of bills presently being considered in both Houses of
Congress. The Company is unable to predict the impact, if any, that such
change or legislation might have on its business.
In addition to laws and regulations enforced by the FDA, the Company
is also subject to regulation under the Occupational Safety and Health Act,
the Environmental Protection Act, the Resource Conservation and Recovery
Act and other present and potential future federal, state and local
regulations.
Product Liability and Insurance
The use of the Company's products in the delivery of medical services
involves the possibility of adverse effects that could expose the Company
to product liability claims. A recent U.S. Supreme Court decision held
that product liability may exist despite FDA approval and future court
decisions may also increase the Company's risk of product liability. The
Company is involved in various legal proceedings, including product
liability suits of a nature considered normal to its business. The
Company's products are used by health care providers in connection with the
treatment of patients, who will, on occasion, sustain injury or die as a
result of their condition or medical treatment. If a lawsuit is filed
because of that occurrence, the Company, along with physicians and nurses,
hospitals and other medical suppliers, may be named as a defendant, and
whether or not the Company is ultimately determined to be liable, the
Company may incur significant legal expenses. In addition, such litigation
could damage the Company's reputation and therefore impair its ability to
market its products, and impair its ability to obtain product liability
insurance or cause the premiums for such insurance to increase. The
Company carries product liability insurance coverage under several policies
with an aggregate loss coverage which the Company believes is sufficient.
However, in the future the Company may be unable to obtain adequate product
liability coverage on acceptable terms, if at all. A successful product
liability claim or series of claims brought against the Company that are
not covered by insurance or exceed policy limits could have a material
adverse effect on the Company's business, financial condition and
21
results of operations.
Employees
At April 30, 1997, the Company had approximately 2,347 employees in
the U.S. and approximately 803 employees outside the U.S., including
approximately 1,005 employees engaged primarily in sales, approximately 927
employees engaged primarily in manufacturing, approximately 461 employees
engaged primarily in research and product development and approximately 353
employees primarily engaged in service. Management considers employee
relations to be excellent.
The Company believes that high levels of employee support and
participation significantly contribute to the Company's business success.
Therefore, the Company has implemented various employee benefit programs
and work-related policies. Employees are permitted to personalize their
work areas and determine their own flexible work schedules. The Company
also provides many of its employees with day care facilities, exercise
facilities, and a tuition reimbursement program. It also encourages direct
and individual ownership by employees of Common Stock through its 401(k)-
Profit Sharing Plan and grants of stock options.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information regarding executive officers who are
not also directors.
Name Age Position with the Company
Mary M. Kabacinski 48 Senior Vice President,
Chief Financial Officer and
Treasurer
Karl F. Braun 64 Vice President-EMEA
Gerald G. Woodard 50 Division President-Patient
Monitoring
Steven G. Books 47 Division President-Cardiology
Gerald J. Lentz 50 Division President-Service
P. Michael Breedlove 53 Division President-E for M
Imaging Systems
James R. Mertens 44 Division President-E for M
22
Cath Lab
Louis P. Scafuri 45 Division President-
Corometrics Medical
Systems
Mark R. Tauscher 45 Division President-Supplies
Division
Mary M. Kabacinski became the Senior Vice President of the Company in
August, 1996, Vice President and Chief Financial Officer of the Company in
July, 1991 and Treasurer of the Company in 1989. Prior to her employment
with the Company, Mrs. Kabacinski was a tax manager at Arthur Andersen LLP.
Gerald G. Woodard became Division President-Patient Monitoring in
January, 1997. Mr. Woodard was Vice President-Sales and Marketing from
October, 1995 to January, 1997 and Director of Operations of Quantitative
Medicine, Inc. from January, 1992 to October, 1995.
Karl F. Braun became Vice President-EMEA in May, 1996. Mr. Braun
became Managing Director of Hellige GmbH, a wholly-owned subsidiary of the
Company, in May, 1994 and was Director of Marketing and Development for
Hellige from June, 1993 to May, 1994. Mr. Braun was Vice President-
Cardiology of Hellige from September, 1989 to June, 1993.
Steven G. Books became Division President-Cardiology in May, 1996. Mr.
Books was Vice President-Cardiology Division from June, 1994 to May, 1996
and a manager in the Company's manufacturing and engineering departments
from 1982 to June, 1994.
Gerald J. Lentz became Division President-Service in May, 1996. Mr.
Lentz was a Product Manager from June, 1994 to May, 1996 and National
Service Manager from February, 1977 to June, 1994.
Mark R. Tauscher became Division President-Supplies in November, 1996.
Mr. Tauscher was General Manager of Medical Supplies for Hewlett Packard
Corporation from 1994 to November, 1996. Prior to joining the Company, Mr.
Tauscher was employed at Hewlett Packard for 21 years, where he also held
the positions of Director of National Accounts and Marketing Manager for
medical customer service.
P. Michael Breedlove became Division President-E for M Imaging
Services in May, 1996. Mr. Breedlove was Vice President-Field Operations
for E For M from October, 1995 to May, 1996, and a Vice President of Cerner
Corporation from 1993 until October, 1995 and Managing Director of Cerner
Corporation PTY LTD from 1991 until
23
1993. Mr. Breedlove was Vice President-Sales and Marketing of Cerner
Corporation from 1984 to 1991.
James R. Mertens became Division President-E For M Cathlab, in May,
1996. Mr. Mertens was Vice President-Software Technology for E For M from
June, 1994 to May, 1996 and Software Manager for Mortara Instruments
Company from November, 1983 to June, 1994. Mr. Mertens was a software
engineer for the Company from 1981 to November, 1983.
Louis P. Scafuri became Division President-Corometrics Medical
Systems, in May, 1996. Mr. Scafuri has also been President of Corometrics
since September, 1995. Mr. Scafuri was a Vice President of Aspect Medical
Systems, Inc. from September, 1992 to August, 1995. Mr. Scafuri was
Director of Sales, Western Hemisphere, for the Company from May, 1991 to
September, 1992 and held various field sales management positions
throughout the Company prior to May, 1991.
ITEM 2. PROPERTIES
The following table sets forth certain information as of April 30,
1997, relating to the Company's principal real estate facili ties:
Location
(Owned or Approximate
Leased) Square Feet Principal Uses
--------- ----------- --------------
Freiburg, Germany
(owned) 140,000 Engineering, research and development,
marketing and manu facturing of
diagnostic and monitoring products,
primarily for European distribution.
Freiburg, Germany 35,100 Research and development,
(leased until marketing and sale and
September 30, 2006) purchasing for Hellige
manufactured products
Jupiter, Florida 180,000 Manufacturing, engineering and
(owned) marketing of supplies and car-
diac catheterization products
and repair and maintenance of
products.
Milwaukee, 295,000 Corporate offices, engineering,
24
Wisconsin research and development, and
(owned) marketing and manufacturing of
diagnostic and adult monitoring
products
Paris, France 8,000 Marketing and sales,
(leased until general administration
February, 1999)
Torrance, California 65,500 Engineering, research and
(leased until December, development and marketing
2004) and manufacturing of
imaging systems
Wallingford, CT 180,000 Engineering, research and
(owned) development and marketing and
manufacturing of fetal and neo-
natal monitoring and diagnostic
products
The Company believes that its manufacturing facilities are sufficient
for its current needs. Because approximately 75% of its manufacturing
capacity is presently being utilized, the Company believes that such
facilities are sufficient for the next three years based on the Company's
expected rate of growth.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding other than
ordinary routine litigation incident to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Security
Holder Matters
The section labeled "General Information" appearing on page 42 of the
Company's 1997 Annual Report to Shareholders is incorpo rated herein by
reference.
25
The Registrant has three classes of stock, Class A Common Stock, $0.10
par value, Class C Common Stock, $0.01 par value and Preferred Stock,
without par value. There are no shares of Class C Common Stock or
Preferred Stock outstanding.
ITEM 6. Selected Financial Data
The section labeled "Five Year Summary of Selected Financial Data"
appearing on page 3 of the Company's 1997 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The section labeled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing on pages 34
through 40 of the Company's 1997 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The Report of Independent Public Accountants appearing on page 33 and
the Consolidated Financial Statements and Notes to Consoli dated Financial
Statements appearing on pages 16 through 32 of the Company's 1997 Annual
Report to Shareholders are incorporated herein by reference.
ITEM 9. Changes in, and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
(a) The section labeled "Nominees" appearing on page 2 of the
Company's Proxy Statement dated July 17, 1997 is incorporated herein by
reference.
26
(b) Information concerning the Company's executive officers who are
not directors is set forth in Part I of this Form 10-K.
ITEM 11. Executive Compensation
The sections labeled "Executive Officer Compensation" and "Report of
the Human Resources Committee" appearing on pages 7 through 10 of the
Company's Proxy Statement dated July 17, 1997 is incorporated herein by
reference to the extent necessary to be responsive to the requirements of
this Item.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The section labeled "Stock Ownership of Management and Others"
appearing on pages 5 and 6 of the Company's Proxy Statement dated July 17,
1997 is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
The subsection labeled "Certain Transactions" appearing on page 12 of
the Company's Proxy Statement dated July 17, 1997 is incorporated herein by
reference.
27
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Index to Financial Statements
The following Financial Statements
are included in the Company's
1997 Annual Report to Shareholders Page in 1997
and are incorporated herein by Annual Report
reference pursuant to Item 8: to Shareholders
---------------
Consolidated Balance Sheets at 16-17
April 30, 1997 and 1996
Consolidated Statements of Income 18
for the years ended April 30, 1997, 1996
and 1995
Consolidated Statements of Cash Flows 19
for the years ended April 30, 1997,
1996 and 1995
Consolidated Statements of Shareholders' 20
Equity for the years ended April 30,
1997, 1996 and 1995
Notes to Consolidated Financial 21-32
Statements
Selected Quarterly Data (Unaudited) 32
Report of Independent Public Accountants 33
2. Index to Financial Statement Schedules
The following schedule is filed as part of this Report on Form 10-K
and is covered by the "Report of Independent Public Accoun tants on
Supplementary Schedule" included herein.
Schedule
Number Description
-------- -----------
II Valuation and Qualifying Accounts
All other financial statement schedules not listed have been omitted
since the required information is included in the con solidated statements
or the notes thereto, or is not applicable or required under the rules of
Regulation S-X.
28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY SCHEDULE
To the Shareholders of Marquette Medical Systems, Inc.:
We have audited in accordance with generally accepted auditing
standards, the financial statements included in Marquette Medical Systems,
Inc.'s annual report to shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated June 5, 1997. Our audit was
made for the purpose of forming an opinion on those statements taken as a
whole. The following schedule is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Milwaukee, Wisconsin
June 5, 1997
29
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Balance Additions Additions Write-Offs Balance
Beginning Charged Due to Net of End
of Year to Income Acquisitions Recoveries of Year
--------- --------- ------------ ----------- -------
Year ended
April 30,
1995 $ 458 $196 $ 347 $ (65) $1,066
Year ended
April 30,
1996 $1,066 $817 $5,427 $ 880 $6,430
Year ended
April 30,
1997 $6,430 $398 $ -0- $2,664 $4,164
30
3. Exhibits
Exhibit
No.
2.1 Stock Purchase Agreement by and between the Company, AHP
Subsidiary Holding Corporation and American Home Products
Corporation dated April 7, 1994 (filed as Exhibit 2 to Form 8-K
dated May 31, 1994 and incorporated herein by reference). All
schedules to the Agreement have been omitted, the Company hereby
agreeing to furnish supplementary a copy of any omitted schedule
to the Commission upon request.
2.2 Closing Date Agreement between Marquette Electronics, Inc., AHP
Subsidiary Holding Corporation and American Home Products Corpo
ration dated May 23, 1994 (filed as Exhibit 2 to Form 8-K dated
May 31, 1994 and incorporat ed herein by reference)
2.3 Offer to Purchase for Cash dated November 10, 1995 made by
Marquette Subcorp (filed as Exhibit (a)(1) to Schedule 14D-1
filed on November 13, 1995 and incorporated herein by reference)
2.4 Agreement and Plan of Merger dated as of November 5, 1995 between
Registrant, Marquette Subcorp and E For M Corporation (filed as
Exhibit (a)(10) to Schedule 14D-1 filed on November 13, 1995 and
incorporated herein by reference)
3.1 (a) Restated Articles of Incorporation (filed as Exhibit 1.1 to
Form S-1 Registration Statement No. 33-35642, filed June 29, 1990
and incorporated herein by reference)
(b) Articles of Amendment to Amended and Restated Articles of
Incorporation (filed as Exhibit 99.2 to Form 8-K dated August 22,
1996 and incorporated herein by reference)
3.2 (a) Amended and Restated By-Laws of the Registrant adopted as of
January 8, 1996 (filed as Exhibit 3.2(a) to Form 10-K for the
fiscal year ended April 30, 1996 and incorporated herein by
reference)
31
Exhibit
No.
(b) Amendment No. 1 to Amended and Restated By-Laws of the
Registrant adopted May 21, 1996 (filed as Exhibit 3.2(b) to Form
10-K for the fiscal year ended April 30, 1996 and incorporated
herein by reference)
(c) Amendment No. 2 to Amended and Restated By-Laws of the
Registrant adopted November 20, 1996
(d) Amendment No. 3 to Amended and Restated By-Laws of the
Registrant adopted June 24, 1997
(e) A complete copy of the By-Laws as amended to date
4.1 Rights Agreement dated as of December 18, 1996 between Registrant
and Firstar Trust Company as Rights Agent (filed as Exhibit 4 to
Form 8-K dated December 18, 1996 and incorporated herein by
reference)
10.1 Post-Death Option Agreement, by and between Marquette
Electronics, Inc. and Michael J. Cudahy, dated April 6, 1992
(filed as Exhibit 10.67 to Form 10-K for the fiscal year ended
April 30, 1992 and incorporated herein by reference)
10.2 Post-Death Option Agreement, by and between Marquette
Electronics, Inc. and Warren B. Cozzens, dated April 6, 1992
(filed as Exhibit 10.68 to Form 10-K for the fiscal year ended
April 30, 1992 and incorporated herein by reference)
10.3 Amended and Restated Stock Option Plan for Employees of Marquette
Electronics, Inc. (filed as Exhibit 10.70 to Form 10-K for the
fiscal year ended April 30, 1992 and incorpo-
32
Exhibit
No.
rated herein by reference)
10.4 Amendment No. 1 to Amended and Restated Stock Option Plan for
Employees of Marquette Elec tronics, Inc. adopted September 10,
1993 (filed as Exhibit 10.15 to Form 10-K for the fiscal year
ended April 30, 1994 and incorpo rated herein by reference)
10.5 Amendment No. 2 to Amended and Restated Stock Option Plan for
Employees of Marquette Elec tronics, Inc. adopted June 2, 1994
(filed as Exhibit 10.16 to Form 10-K for the fiscal year ended
April 30, 1994 and incorporated herein by reference)
10.6 Amendment No. 3 to Amended and Restated Stock Option Plan for
Employees of Marquette Elec tronics, Inc. adopted May 21, 1996
(filed as Exhibit 10.6 to Form 10-K for the fiscal year ended
April 30, 1996 and incorporated herein by reference)
10.7 Letter Agreement between the Company and Warren B. Cozzens dated
July 11, 1994 (filed as Exhibit 10.21 to Form 10-K for the fiscal
year ended April 30, 1994 and incorporated herein by reference)
10.8 Marquette Electronics, Inc. Profit Sharing and 401(K) Plan and
Trust (as restated and amend ed) dated April 10, 1994 (filed as
Exhibit 10.22 to Form 10-K for the fiscal year ended April 30,
1994 and incorporated herein by reference)
10.9 Amendment No. 1 to Marquette Electronics, Inc. Profit-Sharing and
401(k) Plan and Trust (as restated and amended) adopted on August
1, 1994 (filed as Exhibit 10.9 to Form 10-K for the fiscal year
ended April 30, 1996 and
33
Exhibit
No.
incorporated herein by reference)
10.10 Amendment No. 2 to Marquette Electronics, Inc. Profit-Sharing and
401(k) Plan and Trust (as amended and restated) adopted on
February 9, 1996 (filed as Exhibit 10.10 to Form 10-K for the
fiscal year ended April 30, 1996 and incorporated herein by
reference)
10.11 Amendment No. 3 to Marquette Medical Systems, Inc. Profit-Sharing
Plan and 401(k) Plan and Trust (as amended and restated) adopted
on January 30, 1997
10.12 Marquette Electronics, Inc. Directors (non-employee) Stock Option
Plan adopted August 19, 1993 (filed as Exhibit 10.23 to Form 10-K
for the fiscal year ended April 30, 1994 and incorporated herein
by reference)
10.13 Loan Agreement dated May 31, 1994 between Marquette Electronics,
Inc., M&I Marshall & Ilsley Bank and NBD Bank, N.A. (filed as
Exhibit 10.19 to Form 10-K for the fiscal year ended April 30,
1995 and incorporated herein by reference)
10.14 Marquette Electronics, Inc. Management Deferred Compensation
Plan, as adopted on Febru ary 9, 1996 (filed as Exhibit 10.13 to
Form 10-K for the fiscal year ended April 30, 1996 and
incorporated herein by reference)
10.15 Employment Agreement dated September 20, 1995 between E For M
Corporation, a wholly-owned subsidiary of the Registrant, and P.
Michael Breedlove (filed as Exhibit 10.14 to Form 10-K for the
fiscal year ended April 30, 1996 and incorporated herein by
reference)
10.16 Employment Agreement dated May 14, 1996 be-
34
Exhibit
No.
tween Registrant and Peter P. Tong (filed as Exhibit 10.15 to
Form 10-K for the fiscal year ended April 30, 1996 and
incorporated herein by reference)
10.17 Stock Purchase Agreement, dated July 1, 1996, between the
Registrant, E For M Corporation and Polar Vision, Inc. (filed as
Exhibit 10.16 to Form 10-K for the fiscal year ended April 30,
1996 and incorporated herein by reference)
10.18 Loan Agreement between Registrant and M & I Marshall and Ilsley
Bank, Wachovia Bank of Georgia N.A. and NBD Bank, N.A. dated
December 12, 1995 (filed as Exhibit 10.17 to Form 10-K for the
fiscal year ended April 30, 1996 and incorporated herein by
reference)
10.19 Commercial and Industrial Lease Agreement dated March 29, 1995
between Bond Street Building Co. and E For M Corporation (a whol
ly-owned subsidiary of Registrant) (filed as Exhibit 10.19 to
Form 10-K for the fiscal year ended April 30, 1996 and
incorporated herein by reference)
10.20 Standard Industrial/Commercial Single Tenant-Tenant Lease-Net
dated May 24, 1994 between Albor Properties One LP and Enhanced
Imaging Technologies, Inc. (now known as E For M Corporation)
(filed as Exhibit 10.20 to Form 10-K for the fiscal year ended
April 30, 1996 and incorporated herein by reference)
10.21 Stock Option dated June 24, 1997 issued by Registrant to Michael
J. Cudahy (filed as Exhibit 1 to Form 8-K dated July 2, 1997 and
incorporated herein by reference)
13.1 1997 Annual Report to Shareholders
35
Exhibit
No.
21.1 List of subsidiaries
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated February 26, 1997 (filed on February 26, 1997) reporting the
issuance of a press release announcing a strategic alliance with Physio-
Control Corporation (Other Events).
36
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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.
Date: July 25, 1997
MARQUETTE MEDICAL SYSTEMS, INC.
By: /s/ Timothy C. Mickelson
---------------------------------
Timothy C. Mickelson, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Principal Executive Officer:
/s/ Michael J. Cudahy Chief Executive
------------------------------ Officer, Director July 25, 1997
Michael J. Cudahy
Principal Financial Officer:
/s/ Mary M. Kabacinski Senior Vice President,
------------------------------ Chief Financial
Mary M. Kabacinski Officer, Assistant
Secretary July 25, 1997
A Majority of Directors:
/s/ Michael J. Cudahy Chief Executive
------------------------------ Officer, Director July 25, 1997
Michael J. Cudahy
/s/ Frederick G. Luber Director July 25, 1997
------------------------------
Frederick G. Luber
/s/ Timothy C. Mickelson President,
------------------------------ Director July 25, 1997
Timothy C. Mickelson
/s/ Melvin S. Newman Director July 25, 1997
------------------------------
Melvin S. Newman
37