<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
UNITED STATES SURGICAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
UNITED STATES SURGICAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:/1
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
- ---------------
/1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
[INSERT SYMBOL] USSC
UNITED STATES SURGICAL CORPORATION
150 GLOVER AVENUE
NORWALK, CONNECTICUT 06856
NOTICE OF 1994 ANNUAL MEETING
PROXY STATEMENT
AND
ANNUAL REPORT TO STOCKHOLDERS
DATE OF MEETING:
MAY 18, 1994
<PAGE> 3
[LOGO]
TO OUR STOCKHOLDERS
This year, we have combined our annual report with the proxy statement and
will not be providing a separate annual report as we have in past years. This
format will significantly reduce the costs of printing and mailing the proxy
material. The annual report, which includes the Consolidated Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations, begins following the proxy statement portion of this
document.
Nineteen ninety-three was by far the most difficult year in our corporate
history. With the entire health care industry in the throes of change, many of
the strategies that contributed to our past successes became ineffective. As a
result, we have had to rethink our entire way of doing business. We have taken a
number of decisive steps to get the Company back on course; and we are beginning
to see some positive outcomes.
As 1992 came to a close, our core business of surgical stapling instruments
was in its twenty-fifth consecutive year of growth; we were beginning to make
inroads into the suture market; and our new line of products for laparoscopy was
skyrocketing.
This rapid growth ground to an abrupt halt when President Clinton announced
his intention to implement a sweeping program of health care reform. Hospitals
embarked on an all-out campaign to cut costs and reduce inventories. Concerned
about the future of reimbursement, they shunned the purchase of new technology.
Surgeons, who had been lining up to learn new laparoscopic techniques, grew
anxious about whether these procedures would be paid for under the Government's
new program. Many of them put training on hold. A principal beneficiary of this
new cost containment emphasis was our major competitor, who had always sold
against us on a price basis rather than through product efficacy.
Our most important contact in the hospital had always been the surgeon. The
Company's salespeople were expert at demonstrating the patient benefits and
superior technology of our devices to clinicians.
During 1993, a sea change took place in hospital management. Operating room
purchasing was controlled by a partnership consisting of the end user, in our
case the surgeon, and financial or materials management, areas of the hospital
where our salespeople had not previously developed strong ties or relationships.
In the clamor to cut costs, materials managers in many hospitals requested
their surgeons to evaluate the competition's lower priced products. In many
cases these evaluations lasted for 60 to 90 days or more, during which time we
received no business. Surgeon support for our products continued strong, and we
won many of the evaluations; but even in the accounts where we won, we lost the
business for several months.
Another short-term negative during 1993 was the expansion of Just-In-Time
(JIT) distribution. JIT is a method whereby a distributor purchases products
from a manufacturer, warehouses the inventory and then sells it to the hospital
on an as-needed basis. Because JIT significantly cuts hospital inventories and
the cost associated with carrying large inventories, the use of JIT became very
attractive to many of our domestic customers. When a hospital goes on JIT, it
either sells its inventory to the distributor or works its inventory down to a
desired level. During the inventory reduction period, we receive no orders from
the distributor or the hospital even though our products are being used.
Although the negative impact of JIT distribution is temporary, during 1993 the
large number of hospitals not ordering during their inventory adjustment time
had a negative effect on sales.
The Company's rapid growth between 1990 and 1992 and anticipated future
growth required significant expansion to properly service customers. As sales
became stagnant in 1993, USSC was left with excess capacity. The Company has
taken significant steps to bring capacity in line with sales. Restructuring
charges of approximately $138 million included layoffs and mothballing or
closing of certain facilities. All manufacturing facilities were closed for 13
days in November and December and, on January 1, 1994, production employees went
on a four-day work week. A company-wide wage freeze was put into effect for
1994. All corporate officers took a 10% salary cut and my salary was reduced
20%. The Board of Directors reduced the quarterly dividend from $.075 to $.02
per share, and decreased their fees by 10%.
<PAGE> 4
A total of 1,600 jobs were eliminated during late 1993 and early 1994,
representing 20% of our worldwide work force. Nine corporate officers will
effectively retire from the Company by March 31, 1994.
The Company is in the process of selling, leasing or closing redundant
manufacturing, warehousing and administrative facilities, and has reduced its
annual operating costs and manufacturing overhead by approximately $150 million.
The cost cutting program was across the board, but priority was given to
maintaining departments and personnel that contribute to sales growth and new
product development. The major portion of the expense cuts came from
administrative and manufacturing areas not associated with sales or R&D.
R&D expenditures will be reduced slightly during 1994, but the direction of
new product development will change significantly. We continue to develop unique
products for use in new surgical procedures and specialty areas; however, a
significant portion of R&D is being devoted to producing our same high-quality
instruments at a reduced cost.
During the past year, USSC's laparoscopic business suffered in part because
of what we believe to be a widespread misconception that reusable instruments
are more cost effective than disposables. A study published recently by the
international accounting firm, Deloitte & Touche, reported that disposable
instruments are at least as cost-effective as reusable instruments. Reusable
instruments are extremely labor intensive to clean, sterilize, package and
repair. We believe as hospital labor costs continue to rise, reusables will
become a less attractive economic alternative.
During the past year, the Food and Drug Administration has been extremely
slow in approving new technology. An approval process that formerly took 90 days
has now stretched to more than 300. This was bad news for USSC, because we have
always depended on a new crop of products to drive annual sales growth. But as
the clock runs, the pipeline is filling; and we expect that during 1994, a
number of new product releases will help sales.
What else do we see for 1994? There are many positive factors in play.
In early 1994, the Company improved its financial position significantly
through a $200 million convertible preferred stock offering subscribed to by a
number of institutional investors.
To combat competition, the marketing department has developed several
unique, total cost containment programs. While continuing to provide technical
support to surgeons and nurses, the Company's salespeople are working more
closely with those groups ultimately responsible for purchasing decisions. We
are offering not just price cutting, but a total cost containment program
customized for the individual hospital.
In the same way that our customer has changed, so has our product. We are
no longer selling instruments and sutures per se; we are selling cost
containment. We will apply the same innovation and energy that has served us
well in the past to make sure we sell this product better than anyone else in
the field.
Selling cost containment changes the complexion of the entire marketing
organization. USSC representatives are becoming cost managers as well as
technical experts. They will understand the customer's financial needs in
addition to their product needs. They will be able to demonstrate to the
materials manager how USSC's products can help total cost containment. They will
offer their expertise on reimbursement matters, and they will help the hospital
market itself to managed care organizations.
As the year unfolds, we believe we have turned the corner. The number of
hospitals evaluating competitive products has been reduced significantly, and we
will aggressively campaign to initiate evaluations of USSC's products in
competitive accounts.
Inventories at JIT distributors are down significantly. The inventories
contained in the hospital are at minimal levels for the first time in many
years; and, as a result, our hospital customers are no longer reducing inventory
by any meaningful amount. During the fourth quarter of 1993 and the first
quarter of 1994, distributor sales to hospitals were significantly higher than
distributor purchases from USSC. This represents a potential for incremental
sales well above present levels once distributor inventories are brought into
balance. We expect distributor inventories to reach an optimum level during June
of 1994.
In an effort to streamline their operations, hospitals are taking steps to
reduce the number of their suppliers. The ability to offer sutures in addition
to our stapling instrumentation allows the Company to
<PAGE> 5
compete much more effectively in this environment. Because USSC's sales
representatives handle the Company's full line of staplers, laparoscopic
products and sutures, they can service the hospital's wound closure needs much
more efficiently than competitive companies that maintain dual sales
organizations.
Orders for USSC's sutures for 1993 increased 130% over 1992 levels. We are
heartened by the acceptance of the Company's suture line.
New procedures are being developed by innovative surgeons who believe, as
we do, that laparoscopy is indisputably the wave of the future for many
operative procedures. One exciting new application, used to treat patients with
severe, recurrent heartburn, is gaining increasing acceptance among general
surgeons.
We are collaborating with a major colon-rectal center in a study of the
potential for laparoscopic bowel procedures, which represent close to 2 million
operations per year worldwide. We continue to collaborate with universities
across the country in the training of surgeons in procedures that have proven to
be cost effective.
Although it is too early to predict what health care reform program will
prevail, we are convinced some form of managed care is here to stay. USSC is
ideally positioned to benefit from managed care. No one can dispute that the
Company's laparoscopic products send patients home from the hospital days
earlier than other techniques, which translates into direct savings for hospital
reimbursement. Laparoscopic technology reduces postoperative healing time by as
much as four to six weeks, reducing significantly disability payments under a
managed care system.
In just three common procedures -- gallbladder removal, hernia repair and
hysterectomy -- the use of laparoscopy can eliminate more than 5 million
hospital days per year in the United States. Going further, 7.4 million weeks of
disability payments can be eliminated, and 296 million hours can be added to
worker productivity.
As the uncertainty surrounding health care reform subsides, innovative
companies that provide better health care and real cost containment will thrive.
As the Government, insurers, hospitals and employers continue to analyze the
considerable economic benefits of minimally invasive surgery and begin to
understand how much money laparoscopy can save the U.S. health care system, the
use of this technique should accelerate. And I believe that, when the fog
clears, USSC will be a principal beneficiary of this growth. I look forward to
1994 as a time of strengthening and renewal for United States Surgical
Corporation .
Sincerely,
Leon C. Hirsch, Chairman
March 30, 1994
<PAGE> 6
[LOGO]
UNITED STATES SURGICAL CORPORATION
150 GLOVER AVENUE
NORWALK, CONNECTICUT 06856
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 18, 1994
------------------
To the Stockholders of
United States Surgical Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of UNITED
STATES SURGICAL CORPORATION (the "Company") will be held at The Equitable
building, 787 Seventh Avenue, New York, New York 10019, on May 18, 1994, at 3:00
P.M. (local time), for the following purposes:
1. To elect a board of ten directors to serve until the next Annual
Meeting of Stockholders or until their successors are elected and
qualified; and
2. To transact such other business as may properly be brought before
the meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on March 24, 1994,
as the record date for determination of the stockholders entitled to notice of
and to vote at the Annual Meeting, and only stockholders of record on said date
will be entitled to receive notice of and to vote at said meeting.
Stockholders are cordially invited to attend the meeting. Whether or not
you plan to attend the meeting, please mark, sign, date and return the enclosed
Proxy. The giving of your Proxy will not affect your right to vote in person in
the event you find it convenient to attend the meeting. You may revoke the Proxy
at any time before the closing of the polls at the meeting.
ATTENDANCE AT THE ANNUAL MEETING WILL BE LIMITED TO STOCKHOLDERS AND
INVITED GUESTS OF THE COMPANY. ADMITTANCE TICKETS WILL BE REQUIRED.
If you are a stockholder and plan to attend, you must request an admittance
ticket by writing to the Office of the Secretary at the address shown above. If
your shares are not registered in your own name, evidence of your stock
ownership, which you can obtain from your bank, stockbroker, etc., must
accompany your letter. An admittance ticket will be sent to you.
By Order of the Board of
Directors
PAMELA KOMENDA
Corporate Secretary
March 30, 1994
PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD PROMPTLY IN THE
ENCLOSED ENVELOPE.
<PAGE> 7
UNITED STATES SURGICAL CORPORATION
150 GLOVER AVENUE
NORWALK, CONNECTICUT 06856
------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 1994
March 30, 1994
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of United States Surgical Corporation, a Delaware
corporation (the "Company"), of proxies to be voted at the Annual Meeting of
Stockholders of the Company to be held at The Equitable building, 787 Seventh
Avenue, New York, New York 10019, on May 18, 1994, at 3:00 P.M. (local time),
and at any adjournments thereof, for the purposes set forth in the attached
Notice of Annual Meeting of Stockholders.
When proxies in the enclosed form are returned properly executed, the
shares represented thereby will be voted at the meeting and, where instructions
have been given by the stockholder, will be voted in accordance therewith. If
the stockholder does not otherwise specify, the stockholder's shares will be
voted for the election of the nominees set forth in this Proxy Statement as
directors of the Company. If any other matter is properly presented for action
at the meeting, the persons named in the enclosed form of proxy will vote on
such matter in their discretion. Any proxy may be revoked by the stockholder,
either by attending the meeting and voting in person or by submitting a writing
to the Company (including a subsequent signed proxy) at any time prior to the
closing of the polls at the meeting.
STOCKHOLDER VOTE REQUIRED
To be elected a director, a nominee must receive the affirmative vote of a
plurality of shares present in person or represented by proxy at the meeting and
entitled to vote in the election of directors. Withheld votes will not affect
the outcome of the election of directors. The New York Stock Exchange, Inc. has
informed the Company that the election of directors is considered a routine item
on which brokerage firms may vote in their discretion on behalf of clients whose
shares are held by the brokerage firm, if such clients have not furnished voting
instructions within ten days of the stockholders' meeting.
The Company's auditors are Deloitte & Touche, 1633 Broadway, New York, New
York, 10019. A representative of Deloitte & Touche will be present at the
meeting, will have an opportunity to make a statement if the representative
desires to do so, and will be available to respond to appropriate questions.
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1993 WILL BE PROVIDED,
WITHOUT CHARGE, TO ANY STOCKHOLDER UPON WRITTEN REQUEST. REQUESTS SHOULD BE
DIRECTED TO MARIANNE SCIPIONE, VICE PRESIDENT, CORPORATE COMMUNICATIONS, UNITED
STATES SURGICAL CORPORATION, 150 GLOVER AVENUE, NORWALK, CT 06856.
OUTSTANDING SHARES, VOTING RIGHTS AND PRINCIPAL STOCKHOLDERS
Holders of record of outstanding shares of the Company's Common Stock, $.10
par value ("Common Stock"), at the close of business on March 24, 1994, will be
entitled to vote at the meeting. As of such record date, voting rights are
vested exclusively in the holders of Common Stock, with each share thereof being
entitled to one vote. Shares held as treasury shares by the Company are not
entitled to be voted. At the close of business on February 28, 1994, 56,351,560
shares of Common Stock were outstanding. Such number does not include 8,140,399
shares held as treasury shares.
<PAGE> 8
The following table sets forth the only person known to the Company to be
the beneficial owner as of February 28, 1994, of more than five percent of the
Company's Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OF STOCKHOLDER BENEFICIALLY OWNED(1) CLASS(2)
----------------------------------------- --------------------- ----------
<S> <C> <C>
Leon C. Hirsch........................... 4,030,763 6.9%
150 Glover Avenue
Norwalk, Connecticut 06856
</TABLE>
- ------------
(1) Mr. Hirsch has sole voting and investment powers with respect to the shares
listed as beneficially owned by him. Includes 1,432,000 shares purchased
pursuant to installment option purchase agreements, options to purchase
2,302,834 shares which are exercisable on or become exercisable within 60
days following February 28, 1994, and 6,100 shares held by a private
foundation of which Mr. Hirsch is the trustee. Excludes shares beneficially
owned, and options to purchase shares held by, his wife, an officer and
director of the Company, as to which shares Mr. Hirsch disclaims beneficial
ownership.
(2) Percent of class is based on 56,351,560 shares of Common Stock outstanding
on February 28, 1994 plus 2,302,834 shares subject to options held by Mr.
Hirsch which are exercisable on or become exercisable within 60 days
following such date.
SHARE OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the shares of
the Company's Common Stock beneficially owned as of February 28, 1994 by all
directors, nominees, executive officers identified in the Summary Compensation
Table below, and all executive officers and directors as a group. Except as
noted, each person listed has sole voting and investment powers as to shares
beneficially owned by such person.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED CLASS(1)
-------------------------------------------- ------------------ ----------
<S> <C> <C>
John A. Bogardus, Jr........................ 20,000(2) *
Thomas R. Bremer............................ 108,367(2) *
David T. Green.............................. 430,803(2) *
Leon C. Hirsch.............................. 4,030,763(3) 6.9%
Turi Josefsen............................... 765,742(2) 1.3%
Douglas L. King............................. 11,000(2) *
Robert A. Knarr............................. 142,108(2) *
Zanvyl Krieger.............................. 2,296,415(4) 4.1%
Bruce S. Lustman............................ 718,010(2) 1.3%
William F. May.............................. 14,250(2) *
Marianne Scipione........................... 87,945(2) *
Douglas T. Tansill.......................... 24,000(2) *
All executive officers and directors as a
group
(33 persons).............................. 9,843,008(5) 16.0%
</TABLE>
- ------------
(1) Percent of class for each person and all executive officers and directors
as a group is based on shares of Common Stock outstanding on February 28,
1994, plus shares subject to options held by the individual or the group,
as applicable, which are exercisable on or become exercisable within 60
days following such date. Ownership of less than one percent is indicated
by an asterisk.
(2) Includes the following shares which may be acquired on or within 60 days
following February 28, 1994, through the exercise of stock options under
Company sponsored plans: Mr. Bogardus, 16,000; Mr. Bremer, 94,000; Mr.
Green, 380,000; Ms. Josefsen, 640,000; Mr. King, 9,000; Mr. Knarr, 128,308;
Mr. Lustman, 640,000; Mr. May, 6,000; Ms. Scipione, 70,000; and Mr.
Tansill, 10,000. No voting or investment power exists with respect to such
shares prior to acquisition.
2
<PAGE> 9
(3) See Note 2 under "Outstanding Shares, Voting Rights and Principal
Stockholders".
(4) Consists of 493,096 shares held by Mr. Krieger as trustee for his children,
1,771,111 shares in a revocable trust of which Mr. Krieger is trustee and
beneficiary, and 32,208 shares held in trust by a nephew of Mr. Krieger for
the benefit of Mr. Krieger's daughters.
(5) Includes options to purchase 5,296,997 shares exercisable on or within 60
days following February 28, 1994, and 1,432,000 shares purchased pursuant
to installment option purchase agreements.
ELECTION OF DIRECTORS
NOMINEES
The persons named in the accompanying form of proxy intend, except as
otherwise directed, to vote for the election as directors of the ten nominees
listed below, each for a term expiring at the next Annual Meeting or until his
or her successor is duly elected and qualified. All nominees are now serving as
directors of the Company, and all have informed management that they are willing
to serve as directors of the Company. If any of the nominees should decline or
be unable to act as a director, the persons named as proxies in the form of
proxy will vote in accordance with their best judgment and shall have
discretionary authority to vote for a substitute nominee. The Board of Directors
has fixed its present size at, and for the purposes of this meeting authorized
the election of ten directors.
The following table sets forth certain information as to the nominees for
directors of the Company.
<TABLE>
<CAPTION>
SERVING AS
BUSINESS EXPERIENCE DURING LAST DIRECTOR
NAME AGE FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
- ------------------------------------ --- ------------------------------------ ----------
<S> <C> <C> <C>
John A. Bogardus, 66 Director, Alexander & Alexander 1981
Jr.(A)(B)(C)(D)(E)................ Services Inc., insurance brokerage
and financial services firm, New
York, N.Y., since 1988; prior
thereto, its Chairman of the Board
and Director since 1987; prior
thereto, its Chairman of the Board,
Chief Executive Officer and
Director.
Thomas R. Bremer(E)................. 41 Senior Vice President and General 1993
Counsel since January 1, 1994; Vice
President and General Counsel since
1989; prior thereto, General Counsel
since 1988.
Leon C. Hirsch(B)(D)(E)............. 66 Chairman of the Board, President and 1964
Chief Executive Officer since 1987;
prior thereto, President and Chief
Executive Officer.
Turi Josefsen(B).................... 57 Executive Vice President and, since 1977
January 1, 1992, President and Chief
Executive Officer of Auto Suture
Companies.
Douglas L. King(A)(C)(D)(E)......... 52 President and Director, Smyth, 1984
Sanford & Gerard Reinsurance
Intermediaries, Inc., insurance and
reinsurance brokers. Director,
Healthplex, Inc., a dental
administration service company, New
York, N.Y.
Zanvyl Krieger...................... 87 Chairman Emeritus since 1987; prior 1964
thereto, Chairman of the Board.
Counsel, law firm of Weinberg and
Green, Baltimore, Md.
</TABLE>
3
<PAGE> 10
<TABLE>
<CAPTION>
SERVING AS
BUSINESS EXPERIENCE DURING LAST DIRECTOR
NAME AGE FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
- ------------------------------------ --- ------------------------------------ ----------
<S> <C> <C> <C>
Bruce S. Lustman(B)................. 46 Executive Vice President and Chief 1981
Operating Officer since 1992; prior
thereto, Executive Vice President
and Chief Financial Officer.
Retiring as a corporate officer on
March 31, 1994.
William F. May(A)(B)(C)(D).......... 78 Chairman of the Board and Chief 1984
Executive Officer, Statue of Liberty
-- Ellis Island Foundation, Inc.,
New York, N.Y. Director, Salomon
Inc., New York, N.Y. Director,
Catalyst Thermal Corp., New York,
N.Y.
Marianne Scipione................... 47 Vice President, Corporate 1992
Communications since 1981; also,
Secretary from May 1988 to May 1989.
Douglas T. Tansill(A)............... 55 Managing Director, Kidder, Peabody & 1975
Co. Incorporated, investment
bankers, New York, N.Y.
</TABLE>
- ------------
(A) Member of Audit Committee. Mr. May is Chairman.
(B) Member of Executive Committee. Mr. Hirsch is Chairman.
(C) Member of Compensation/Option Committee. Mr. King is Chairman.
(D) Member of Nominating Committee. Mr. Bogardus is Chairman.
(E) Member of Transaction Committee. Mr. Hirsch is Chairman.
The terms of all current directors and committees expire at the Annual
Meeting.
Messrs. Bremer, Hirsch, Lustman (through March 31, 1994, when he will
retire) and Ms. Josefsen are also either officers or directors or both of one or
more of the Company's subsidiaries.
Leon C. Hirsch and Turi Josefsen are husband and wife. No other family
relationship exists between any of the directors or between any director and any
officer of the Company. With respect to certain relationships between the
Company and certain of the business entities listed in the above table, see
"Executive Compensation and Transactions -- Certain Transactions," below.
OTHER
During April, 1992, a complaint in a shareholder's derivative action was
filed in the Delaware Chancery Court, naming the Company and each member of the
Board of Directors as defendants. The complaint, as amended, alleges the payment
of excessive compensation in certain years to five individuals who are or
previously were executive officers of the Company, namely, Leon C. Hirsch, Turi
Josefsen, Bruce S. Lustman, David Fisher and Herbert W. Korthoff, primarily as
the result of their acquisitions of Company stock by the exercise of options
granted under Company sponsored stock option plans, and alleges payment of
excessive compensation to the non-employee directors and misappropriation of
inside information as to stock trades by the individual officers named above,
with the exception of Mr. Fisher. The plaintiff seeks an award to the Company of
such damages, if any, that the Company has sustained as the result of the
alleged excessive compensation, the establishment of alternative compensation
arrangements and the award to the plaintiff of the costs and disbursements of
the action, including attorneys', accountants', and experts' fees. During April,
1993, a second purported derivative claim was filed against the Company making
allegations comparable to those in the first suit. In January 1994 the Company
and the individual defendants entered a settlement with the plaintiff, subject
to court approval, of the claims asserted in the first suit, in order to avoid
the expense and distraction of extended litigation. Under the settlement, the
defendants deny the allegations but the Company and Mr. Hirsch, as Chief
Executive Officer, and Ms. Josefsen and Mr. Lustman, as Executive Vice
Presidents, have agreed to adjustments to the vesting and exercise terms of
those individuals' stock option grants within three years of the court's
approval of the settlement. A hearing was held on approval of the settlement on
March 9, 1994. Pursuant to an order of the Court, shareholders of record on
December 31, 1993, were given
4
<PAGE> 11
notice of the proposed settlement and the opportunity to make objections before
the Court. The settlement is before the Court for approval. The Company will pay
to Plaintiff's counsel the sum of up to $550,000 as attorney's fees. The
individual defendants are not required by the settlement terms to contribute to
this payment or to otherwise pay any money to the Company. Settlement of the
first suit would have the effect of resolving the claims in the second case.
MEETINGS AND COMMITTEES
In 1993, the Board of Directors held five meetings and committees of the
Board held the following number of meetings: Audit Committee, seven;
Compensation/Option Committee, six; Nominating Committee, one; and the Executive
Committee, one. The Transaction Committee did not meet in 1993. Each director in
1993 attended 100% of the total number of meetings held by the Board of
Directors and all committees of the Board of Directors on which he or she
served, except for Mr. Krieger, who due to illness attended three of the five
board meetings held.
The Audit Committee's function is to assist the Board in fulfilling its
duties in connection with the internal control, accounting and reporting
practices of the Company and to maintain communication between the Board and the
Company's auditors, including review of the Company's financial statements,
press releases and independent auditors' reports. Its authority includes power
to resolve certain disputes, if any, concerning accounting policies, practices
and internal controls and to retain attorneys, investigators and others as it
deems appropriate to assist it in carrying out its functions. The
Compensation/Option Committee's function is to approve officers' and key
employees' bonus objectives, compensation and bonuses, and to administer Company
sponsored stock and other benefit plans. The function of the Nominating
Committee is to nominate directors and committee members, subject to Board
approval. The Nominating Committee must act unanimously and will not consider
nominees recommended by stockholders. The Executive Committee's function is to
act on important matters occurring during time periods between scheduled
meetings of the Board of Directors. The Transaction Committee reviews certain
extraordinary transactions.
5
<PAGE> 12
EXECUTIVE COMPENSATION AND TRANSACTIONS
EXECUTIVE OFFICERS' COMPENSATION
The following table shows compensation paid by the Company and its
subsidiaries for services in all capacities during 1991, 1992 and 1993 to each
of the Chief Executive Officer and the other four most highly compensated
executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
-----------------------------------------------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING LTIP ALL OTHER
SALARY BONUS AWARDS OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($)(2) ($) (3)
- ----------------------------- ---- --------- -------- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Leon C. Hirsch............... 1993 $1,026,016 $352,680 0 0 $209,218 $1,169,839
Chairman and CEO 1992 $ 987,260 $707,297 0 0 $542,900 $1,231,647
1991 $ 758,916 $592,445 0 2,750,000 $427,760 $1,357,670
Turi Josefsen................ 1993 $ 635,080 $215,852 0 0 $ 90,185 $ 2,129
Executive Vice President 1992 $ 611,360 $352,835 0 0 $241,400 $ 66,213
1991 $ 448,360 $301,000 0 800,000 $176,342 0
Bruce S. Lustman............. 1993 $ 635,080 $215,852 0 0 $ 90,185 $ 1,556
Executive Vice President 1992 $ 611,360 $415,100 0 0 $241,400 0
1991 $ 448,360 $301,000 0 800,000 $176,342 0
David T. Green............... 1993 $ 532,640 $179,998 0 0 $ 79,133 $ 2,343
Senior Vice President 1992 $ 512,860 $346,150 0 0 $208,400 0
1991 $ 448,360 $301,000 0 500,000 $176,342 0
Robert A. Knarr.............. 1993 $ 317,360 $ 44,850 0 0 $ 27,604 $ 971
Senior Vice President,
Marketing 1992 $ 298,900 $ 76,475 0 0 $ 68,750 0
1991 $ 261,400 $175,000 0 150,000 0 0
</TABLE>
- ------------
(1) At December 31, 1993 there were no shares of restricted stock held by any of
the named executive officers.
(2) Although Company sponsored stock plans permit the granting of SARs, no SARs
have been granted.
(3) Represents for Mr. Hirsch and for Ms. Josefsen (1992) accrued bonuses
payable pursuant to the terms of installment option purchase agreements and
for all of the named executives the value of the benefit of premiums on life
insurance paid by the Company in 1993 (for Mr. Hirsch, $2,171). Mr. Hirsch's
agreement is described on page 12, "Certain Transactions". Ms. Josefsen's
agreement was satisfied in 1992 and was substantially similar to the
agreement with Mr. Hirsch.
Perquisites and other personal benefits, securities or property did not
exceed the lesser of either $50,000 or 10% of the total of annual salary and
bonus reported for the named executive officers.
OPTIONS
No options were awarded in 1993 to any executive officers of the Company.
See Report of Compensation/Option Committee, beginning on page 8 below.
The table below sets forth certain information about each exercise of stock
options during 1993 by each of the named executive officers and the value of
unexercised in-the-money options held by such officers at December 31, 1993.
6
<PAGE> 13
AGGREGATED OPTION/SAR EXERCISES IN LAST YEAR AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR-END(1) AT YEAR-END(1)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- ----------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leon C. Hirsch..................... 0 0 1,718,834 1,459,000 976,088 0
Turi Josefsen...................... 0 0 360,000 640,000 0 0
Bruce S. Lustman................... 0 0 360,000 640,000 0 0
David T. Green..................... 0 0 120,000 580,000 0 0
Robert A. Knarr.................... 0 0 84,308 164,000 655,138 0
</TABLE>
- ------------
(1) Although the Company's option plans permit the granting of SARs, no SARs
have been granted.
(2) Value is calculated by determining the difference between the fair market
value of the securities underlying the options at year-end and the exercise
price of the options.
LONG TERM INCENTIVE AWARDS
Under the Company's Long Term Incentive Plan, described more fully in the
Compensation/Option Committee's Report beginning on page 8 below, senior
executives have the opportunity to earn a cash payment at the end of a
performance cycle (currently three years) based on achievement of sales and
earnings per share growth. The table below sets forth certain information
regarding each award made to the named executive officers during 1993 under the
Company's Long Term Incentive Plan.
LONG TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS
OR OTHER UNDER NON-STOCK PRICE-BASED
NUMBER OF PERIOD OPTIONS
SHARES, UNITS UNTIL -----------------------------
OR OTHER MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS (#) OR PAYOUT ($) ($) ($)
- ------------------------------------------- ------------- ----------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Leon C. Hirsch............................. 155 Units 3 Years 155,179 310,358 620,716
Turi Josefsen.............................. 73 Units 3 Years 73,107 146,214 292,428
Bruce S. Lustman........................... 73 Units 3 Years 73,107 146,214 292,428
David T. Green............................. 61 Units 3 Years 60,964 121,927 243,854
Robert A. Knarr............................ 21 Units 3 Years 21,266 42,533 85,066
</TABLE>
Mr. Lustman and Mr. Green are retiring from the Company on March 31, 1994.
They will continue to receive their base salaries for a period of one year from
their date of retirement. In addition, the exercise period for stock options
which they hold, which would otherwise expire three months following retirement,
has been extended for a period of five years.
7
<PAGE> 14
Set forth below is a graph comparing the cumulative total shareholder
return on the Company's Common Stock with the cumulative total return of the S &
P 500 Index and the S & P Medical Products & Supplies Index. Cumulative total
shareholder return assumes reinvestment of dividends.
The comparison is based upon the assumption that $100 was invested on
December 31, 1988 in United States Surgical Corporation's Common Stock, the S &
P 500 Index and the S & P Medical Products & Supplies Index.
The following depiction of shareholder return shall not be deemed
incorporated by reference into any filings by the Company under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
PERFORMANCE GRAPH
[Graph]
DOLLARS
- -------
1988 1989 1990 1991 1992 1993
- -------------------------------------------------------------------
USSC 100 172 435 1415 880 290
- -------------------------------------------------------------------
S&P 500 100 132 128 166 179 197
- -------------------------------------------------------------------
S&P Medical Products 100 137 161 263 226 171
- -------------------------------------------------------------------
USSC S&P 500 S&P Medical Products
The following report shall not be deemed incorporated by reference into any
filings by the Company under the Securities Act of 1933, as amended, or under
the Securities Exchange Act of 1934, as amended.
REPORT OF COMPENSATION/OPTION COMMITTEE
The compensation of the Company's executive officers is reviewed and
approved on an annual basis by the Compensation/Option Committee (the
"Committee") of the Board of Directors, which consists exclusively of
independent, non-employee Directors.
GENERAL POLICY
The Company's compensation policy, which is endorsed by the Committee, is
to attract and retain the best management talent available, and to pay that
talent based on the Company's development and financial growth. To this end, a
substantial portion of an executive officer's compensation is "at risk" of
performance and is realized only for achievement of goals that benefit the
Company and the stockholders. The Committee thinks that these performance goals
should be objective and specific, and has chosen corporate financial results
(growth in sales, earnings, cash flow and stock price) as the best indicator of
success. This emphasis on overall corporate performance promotes teamwork and
ensures accountability for measurable enhancement of the
8
<PAGE> 15
value of the stockholders' investment. In addition, individual management
performance objectives have also been a component of incentive compensation. In
1993, the portion of cash compensation of executive officers (including the
Chief Executive Officer and the other persons named in the Summary Compensation
Table) which was "at risk" (subject to attainment of Company performance and
individual goals) ranged from 19% to 35%, and 35% of the cash compensation of
the Chief Executive Officer was "at risk".
In setting compensation, the Committee periodically reviews, with the
assistance of independent compensation consultants, available information as to
salaries and incentive opportunities for similar positions or levels at
comparable companies. The companies generally include a diverse sample of
manufacturing companies with sales within and above the range of those of the
Company. Medical device manufacturers are included in the sample but the
comparison is not limited to such companies, or to companies included in the
index for the stock price performance graph on page 8, because the median sales
of such companies tend to be low compared with those of the Company. In some
cases, private industry association surveys are also considered when they
provide useful information for certain positions. The Company targets annual
salaries and bonus opportunities at the high end of the range of the companies
used for comparison because the Company plans for growth and needs executives
who can both facilitate significant corporate development and manage the Company
effectively as it grows. The studies also indicated that most executive officers
of the Company typically have broader, more complex responsibilities than
corresponding positions in the comparative companies. In addition, the Company's
policy is to hire executives whose talent and performance place them within the
high end of the pool of available executives.
The total compensation program is designed to balance incentives between
short and long term performance, and consists of annual compensation, which
includes base salary and the opportunity to earn an annual bonus, and a long
term incentive program, which includes stock awards (primarily stock options)
and the opportunity to earn cash awards over a longer term performance period.
Each element of the compensation program, including a specific discussion
as to the Chief Executive Officer's compensation, is set out below.
ANNUAL COMPENSATION
Generally, annual compensation of executive officers under the Executive
Compensation Program for 1993 consisted of salary and EPS (defined below) and
MPO (defined below) bonus components.
1. SALARY
In 1993, salary represented 65% to 81% of the cash compensation of
executive officers (including the Chief Executive Officer and the other persons
named in the Summary Compensation Table) and 65% of the cash compensation of the
Chief Executive Officer.
Under the Company's compensation program, executive officers are placed
into "tiers" based upon their level of responsibility, and those in the same
tier are paid the same market-based salary, assuming they perform their duties
and comply with the Company's overall social and environmental policies. Such
compliance is reviewed on an annual basis. Tiering of salaries is beneficial to
the Company because it promotes harmony among executives, consistent with the
Company's emphasis on overall corporate performance. Therefore, individual
performance is not necessarily an important factor in establishing annual salary
levels for the Chief Executive Officer or any of the four other named
executives. The 1993 salaries of executive officers, including the Chief
Executive Officer, were reviewed and approved by the Compensation/Option
Committee in November, 1992. The Committee last reviewed compensation surveys in
setting 1992 base salaries; 1993 base salaries were raised by approximately 4
per cent from 1992 levels, as a cost of living increase. The Committee notes
that, at the request of Mr. Hirsch and the Company's other executives, it has
reduced Mr. Hirsch's base salary by 20%, and other officers by 10%, for 1994
from 1993 levels, as part of a cost reduction effort by the Company in a
difficult business environment.
2. BONUS
A significant portion of 1993 executive officer annual compensation was
based on financial performance of the Company and achievement of individual
management performance objectives. Annual bonuses under the Company's executive
compensation program were based on the Earnings Per Share ("EPS") bonus
component and the Management Performance Objectives ("MPO") bonus component.
9
<PAGE> 16
The same considerations that prompted tiering of salaries are equally
applicable to bonuses. Annual bonuses are based solely on performance. The bonus
opportunities are set as a percentage of annual base salary and, for 1993, were
allocated between the EPS component and an MPO component, as discussed below.
The two bonus elements were evaluated independently of each other. Bonus
opportunity levels were based on the same comparative studies as salary, and are
likewise targeted at the high end of the range of comparable companies. For
1993, bonus opportunities were increased by 4% for the Chief Executive Officer
and for the other named executives, commensurate with the salary increase.
During 1994, the bonus opportunity will be based predominantly on financial
performance, as measured by cash flow and EPS and, for certain executives, also
by sales objectives. Consistent with the emphasis on financial performance, MPOs
are not a component of 1994 compensation.
The EPS Bonus Component: The 1993 EPS Bonus component ranged from 20% to
45% of the salary levels of the executives named in the Summary Compensation
Table, and 45% for the Chief Executive Officer. A percentage of the bonus may be
earned based on a particular year's EPS above a minimum base, up to a maximum
determined by the Committee. Following year-end, the EPS is reported to the
Committee by the Company's independent auditors. The Committee then determines
the amount of the EPS bonus to be paid to the executive officers, if any. The
EPS goals were not met for 1993 and no amounts were paid for the EPS Bonus
Component to the Chief Executive Officer or to any other officer of the Company.
The MPO Bonus Component: The 1993 MPO Bonus component ranged from 30% to
35% of the salary levels of the executives named in the Summary Compensation
Table, and 35% for the Chief Executive Officer, and is earned based on
achievement of individual management performance objectives. These objectives
are ordinarily proposed by members of management, evaluated and reformulated, if
deemed appropriate, and ultimately, are approved by the Committee. Each
individual objective is related to the particular area for which an executive
officer is responsible and weighted based on its significance to the Company.
These objectives are intended to incent executives to take steps that improve
the performance of the Company beyond merely satisfying day to day
responsibilities. The MPO's were set so that, to the extent possible, they can
be evaluated objectively and performance can be documented. Examples of
objectives which were included in various officers MPO's include, but are not
limited to, budget control, marketing objectives, new product design,
manufacturing objectives, and environmental conduct. The Chief Executive
Officer's MPO's for 1993 related to budget control (35%) and strategic planning
(65%) requirements. Mr. Hirsch achieved 100% of his individual objectives and
was awarded the maximum MPO bonus component. Although MPO's are not a
performance measure during 1994, they could be used in future years.
LONG TERM INCENTIVE PROGRAM
The Company's long term incentive program, developed with the advice of
outside compensation consultants, consists of stock incentives, which directly
link the interests of recipients with those of the stockholders, and cash
incentives based on financial performance over a three year performance period.
Target levels are based on comparative data, as discussed above.
1. RESTRICTED STOCK AWARDS.
The restricted stock program is designed to encourage long-term focus and
retention because restricted stock may not be sold, transferred or assigned
prior to vesting, which has in the past occurred after a period of between three
and seven years. No awards of restricted stock were made in 1993 to any of the
executive officers, due primarily to the costs of such grants and to business
conditions.
2. STOCK OPTIONS.
The Company seeks to have its executives think of themselves as having a
personal stake in the Company by awarding stock options which give such officers
the opportunity to participate in the growth in the value of the Company's
stock. This approach aligns the interest of the executive officers with those of
the stockholders because the value of the executive officers' stock options will
depend exclusively on how the Company's stock performs. Stock options only have
value to the recipient when the price of Company Common Stock exceeds the
exercise price of the option, which is at least the fair market value at date of
grant. Thus, options provide a powerful incentive for the recipients to work to
maximize the Company's sales and profits, and build the value of the business,
all of which should be reflected in the price of the Company's Common Stock. In
prior years, executives of the Company have obtained substantial profits from
the exercise of stock options, in some cases placing them among the more highly
compensated executives in the nation. The Committee believes that
10
<PAGE> 17
shareholders benefited proportionately and that the use of options encouraged
the Company's substantial growth during the period from 1989 through 1992. No
awards of options were made in 1993 to any of the executive officers, including
those named in the Summary Compensation Table, since a large number of
unexercised options were held by these persons and because the Committee did not
consider an award of additional options appropriate given business conditions
during the year.
3. LONG TERM INCENTIVE PLAN.
Under the Executive Long Term Incentive Plan cash awards may be earned by a
limited number of senior executives based on achievement of a weighted
combination of sales growth (33%) and EPS (67%) during a three-year performance
cycle. The long term cash incentive opportunity encourages executives to take
steps which build the business for the future, avoiding a possible disincentive
for prudent long term steps out of concern as to the possible impact on short
term results. Levels of performance are graded on three tiers -- minimum, target
and maximum (corresponding to the threshold, target, and maximum columns under
the table describing Long Term Incentive Awards on page 7) -- with no
compensation payable if the performance is below the minimum tier and no
additional compensation if the performance is above the maximum tier. The amount
of the award is based on a percentage of the recipient's average annual base
salary during the cycle, ranging from 7.5% to 17.5% for achievement in the
minimum tier, 15% to 35% for achievement in the target tier and 30% to 70% for
achievement in the maximum tier, the exact percentage depending on the
executive's tier. For the Chief Executive Officer, the percentages for these
tiers was 17.5%, 35% and 70%.
The Company did not achieve the minimum tier for the EPS component for the
three year performance cycle ending in 1993. As a result the Chief Executive
Officer and the four other named executives received no award based on the EPS
component of LTIP. Sales for the performance period exceeded the maximum tier
and the Chief Executive Officer and the four other named executive officers
received the maximum payout based on the sales component.
Beginning in 1994, a new federal tax law limits deductions for each of the
five executives named in the summary compensation table to $1 million. Certain
compensation, including compensation based on performance, is not subject to
this limit if certain conditions are met, primarily, that the compensation is
based on objective performance criteria approved by the stockholders. The
Company's stock option plan under which options may be granted to executive
officers has been approved by the stockholders and qualifies for the exclusion
from the deduction limits for grants through 1996. Prior grants under the LTIP
which, depending on performance, may result in awards for performance periods
through 1995 predated the new law, are not subject to the limit and can be
claimed as a deduction. The Company's LTIP and the annual bonus are based on
objective performance criteria but have not been presented for stockholder
approval as contemplated by this new tax law. However, the Committee is not
proposing stockholder approval of these plans at this time since the Company is
in a difficult business environment and the entire compensation program is under
review. In addition, the loss of any deduction in the near future is expected to
have negligible, if any, impact since compensation amounts near term are not
expected to exceed the deduction limits significantly. The Committee will
reconsider the compensation program and tax deduction limits in the future.
ALL OTHER COMPENSATION.
Included with respect to the Chief Executive Officer in 1993 as "all other
compensation" reported in the Summary Compensation Table was interest accrued
and awarded as a bonus pursuant to the terms of an Installment Option Purchase
Agreement which was entered into in 1984 by the Chief Executive Officer and the
Company.
COMPENSATION/OPTION COMMITTEE:
Douglas L. King, Chairman
John A. Bogardus, Jr.
William F. May
11
<PAGE> 18
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. King, a member of the Committee, is President and a director of Smyth,
Sanford & Gerard Reinsurance Intermediaries, Inc., which provided certain
insurance brokerage services to the Company during 1993. Mr. King may have
received some benefit from brokerage fees received by such firms from the
premiums paid for such insurance. Bruce S. Lustman, as Executive Vice President
and Chief Operating Officer, served as a member of the Compensation Committee
during a portion of 1993 but abstained from voting on any matters affecting
executive compensation which were brought before the Compensation Committee. Mr.
Lustman resigned from the Compensation Committee during 1993 to avoid any
appearance that the Committee did not act independently.
DIRECTORS' COMPENSATION
Directors and Committee members who are also officers (currently, Messrs.
Hirsch, Lustman (until March 31, 1994), and Bremer and Mmes. Josefsen and
Scipione) serve as such without additional compensation. During 1993, outside
directors were each paid the following fees in each of the capacities served:
directors (including the Chairman Emeritus), $31,200 plus $2,500 for each Board
meeting attended; Chairman of a Committee, $4,375; other members of a Committee,
$3,120 per Committee; all Committee members received $1,250 for each Committee
meeting attended on a non-Board meeting day. As a part of the cost saving
measures discussed above, each element of director compensation has been reduced
by 10% for 1994.
Certain Eligible Directors (defined as directors who are not, and have not
been for the preceding 12 months, employees of the Company or its subsidiaries,
and who are not the beneficial owner of five percent or more of the outstanding
Common Stock) have received stock award and option grants under the Outside
Directors Stock Plan (the "Outside Directors Plan"). The Outside Directors Plan
provides for stock awards and option grants of up to an aggregate maximum of
160,000 shares of Common Stock, of which 64,000 shares remained available for
grant as of December 31, 1993. Upon the forfeiture of shares prior to vesting,
and upon expiration of an option, the forfeited shares and any shares subject to
the option which remain unexercised generally become available again under the
Outside Directors Plan. The Outside Directors Plan is administered by the
Compensation/Option Committee of the Board of Directors. The selection and
eligibility of grantees and the dates and amounts of option grants are defined
in the Outside Directors Plan and are not subject to the discretion of any
person.
Option grants of 4,000 shares are automatically made under the Outside
Directors Plan to Eligible Directors each year upon his or her reelection to the
Board by the stockholders. The option price is the fair market value of the
Common Stock on the date of grant. Each option becomes exercisable as to
one-half of the shares covered by it commencing one year after the date of grant
and as to the remaining one-half commencing two years after the date of grant,
provided the optionee has been in continuous service on the Board at all times
since the date of grant. However, each option becomes fully exercisable in the
event of the grantee's death or permanent disability, and may be exercised to
the extent otherwise exercisable if the grantee retires with the consent of the
Board or his or her service on the Board is terminated after a Change in
Control, as defined. The Eligible Directors each received an option for 4,000
shares in 1993, with an option exercise price of $31.88. Assuming an Eligible
Director is reelected, such director will receive an option for 4,000 shares
effective May 18, 1994. No stock awards were made in 1993.
CERTAIN TRANSACTIONS
(a) In connection with the exercise of certain options granted under the
1981 Employee Stock Option Plan, Leon C. Hirsch is indebted to the Company under
an installment option purchase agreement (the "Agreement") entered in 1984. The
Agreement provided for payment of the option price in three equal installments,
with the last installment payable by Mr. Hirsch on May 10, 1999. The annual
interest rates on installments under the Agreement were 9.47% for the first two
installments and 9.22% for the remaining installment. The largest aggregate
principal amount outstanding under Mr. Hirsch's Agreements at any time in 1993
was $6,000,000; as of December 31, 1993, $5,370,000 was outstanding.
Interest accrued in 1993 under the Agreement aggregated $1,167,668. Total
accrued interest under the Agreement at December 31, 1993 was $7,259,665. Under
the Agreement, an amount equal to 100% of the
12
<PAGE> 19
interest for the term of the Agreement is to be paid as a bonus to Mr. Hirsch
while he remains an employee of the Company as and when such interest is due.
During 1993, a bonus of $788,058 was paid to Mr. Hirsch by reason of the
Agreement. See Note (3) to the Summary Compensation Table above.
Any shares for which the option price is not fully paid are so legended and
held by the Company as security. However, whether or not the option price is
fully paid, the officer has full voting and dividend rights on all of the stock.
If stock subject to an Agreement is sold, the unpaid option price for such
shares becomes immediately due and payable. Whether or not the shares are sold,
the entire unpaid option price, together with accrued interest, becomes
immediately due and payable in the event of default or breach by the officer or
termination of the officer's employment, except in the event of termination by
death or termination within one year after either the acquisition of the Company
or its merger into another company.
(b) In 1993, Smyth Sanford & Gerard Reinsurance Intermediaries, Inc., of
which Mr. King, also a director of the Company, is President and a director,
performed certain insurance brokerage services for the Company for which it may
have received brokerage compensation from premiums paid for such insurance.
(c) The Company has retained Kidder, Peabody & Co., of which Mr. Tansill, a
director of the Company, is a managing director, to act as a financial adviser
to the Company in connection with efforts to obtain equity capital and consider
strategic alternatives.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and any persons who own more than ten percent
of the Company's Common Stock to file with the Securities and Exchange
Commission and the New York Stock Exchange various reports as to ownership of
such Common Stock. Such persons are required by Securities and Exchange
Commission regulation to furnish the Company with copies of all Section 16(a)
forms they file. To the Company's knowledge, based solely on its review of the
copies of such reports furnished to the Company and written representations to
the Company that no other reports were required, all the aforesaid Section 16(a)
filing requirements were complied with on a timely basis during 1993.
STOCKHOLDERS' PROPOSALS
Proposals of stockholders intended to be presented at the 1995 Annual
Meeting must be received at the Company's principal executive offices, 150
Glover Avenue, Norwalk, Connecticut 06856, Attention: Corporate Secretary, for
inclusion in the Company's Proxy Statement and form of proxy relating to that
Annual Meeting, no later than November 30, 1994.
EXPENSES OF SOLICITATION
The solicitation of proxies in the form enclosed is made on behalf of the
Board of Directors of the Company. The expenses of the solicitation of proxies,
including preparing, handling, printing and mailing the proxy soliciting
material, will be borne by the Company. Solicitation will be made by use of the
mails and, if necessary, by advertising, electronic telecommunications and
personal interview. The Company has retained the services of Kissel-Blake Inc.
to assist in connection with the soliciting of proxies by such methods for a fee
estimated at $12,000 plus out-of-pocket expenses. Management may use the
services of its directors, officers and employees in soliciting proxies, who
will receive no compensation therefor in addition to their regular compensation,
but who will be reimbursed for their out-of-pocket expenses incurred. The
Company will reimburse banks, brokers, nominees, custodians and fiduciaries for
their expenses in forwarding copies of the proxy soliciting material to the
beneficial owners of the stock held by such persons and in requesting authority
for the execution of proxies.
13
<PAGE> 20
OTHER MATTERS
The persons named in the enclosed form of proxy have no present intention
of bringing before the meeting for action any matters other than those
specifically referred to above, nor has management or the Board of Directors any
such intention, and none of such persons, management or the Board of Directors
is aware of any matters which may be presented by others. If any such business
should properly come before the meeting, the persons named in the form of proxy
intend to vote thereon in accordance with their best judgment.
By Order of the Board of
Directors
PAMELA KOMENDA
Corporate Secretary
Dated: March 30, 1994
14
<PAGE> 21
TABLE OF CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Operations.......................... 16
Consolidated Balance Sheets.................................... 17
Consolidated Statements of Changes in Stockholders' Equity..... 18
Consolidated Statements of Cash Flows.......................... 19
Notes to Consolidated Financial Statements..................... 20
Management Report on Responsibility for Financial Reporting.... 31
Independent Auditors' Report................................... 32
Quarterly Results of Operations (Unaudited).................... 33
Common Stock Prices and Dividends.............................. 33
Five Year Selected Financial Data.............................. 35
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ 36
</TABLE>
15
<PAGE> 22
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
--------- --------- --------
<S> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE
DATA
Net sales................................................ $1,037,200 $1,197,200 $843,600
---------- ---------- --------
Costs and expenses:
Cost of products sold.................................. 518,400 483,100 346,000
Research and development............................... 50,800 43,800 30,600
Selling, administrative and general.................... 449,300 462,700 324,700
Interest............................................... 18,500 14,700 12,000
Restructuring charges.................................. 137,600
--------- --------- --------
1,174,600 1,004,300 713,300
--------- --------- --------
Income (loss) before income taxes........................ (137,400) 192,900 130,300
Income taxes............................................. 1,300 54,000 39,100
--------- --------- --------
Net income (loss)........................................ $(138,700) $ 138,900 $ 91,200
--------- --------- --------
--------- --------- --------
Average number of common shares and common share
equivalents outstanding................................ 56,000 59,900 57,800
--------- --------- --------
--------- --------- --------
Net income (loss) per common share and common share
equivalent (primary and fully diluted)................. $ (2.48) $ 2.32 $ 1.58
--------- --------- --------
--------- --------- --------
Dividends paid per common share.......................... $ .245 $ .30 $ .2875
--------- --------- --------
--------- --------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
16
<PAGE> 23
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1993 1992
--------- ---------
<S> <C> <C>
IN THOUSANDS, EXCEPT
SHARE DATA
ASSETS
Current assets:
Cash............................................................. $ 900 $ 2,500
Receivables, less allowance of $5,000 (1993); $3,500 (1992)...... 197,900 283,500
Inventories:
Finished goods................................................ 113,000 112,900
Work in process............................................... 36,900 32,200
Raw materials................................................. 62,300 65,700
---------- ----------
212,200 210,800
Other current assets............................................. 53,800 20,500
---------- ----------
Total Current Assets........................................ 464,800 517,300
---------- ----------
Property, plant, and equipment (net)............................... 592,200 528,100
Other assets (net)................................................. 113,500 122,700
---------- ----------
Total Assets................................................ $1,170,500 $1,168,100
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 50,200 $ 47,700
Accrued expenses................................................. 137,500 110,700
Income taxes payable............................................. 28,800 4,800
---------- ---------
Total Current Liabilities................................... 216,500 163,200
Long-term debt..................................................... 505,300 394,500
Deferred income taxes.............................................. 4,800 20,400
Stockholders' equity:
Preferred stock $5.00 par value, authorized 2,000,000 shares;
none issued or outstanding
Common stock $.10 par value, authorized 250,000,000 shares;
issued, 64,402,144 at December 31, 1993 and 63,777,298 at
December 31, 1992............................................. 6,400 6,400
Additional paid-in capital....................................... 371,700 345,200
Retained earnings................................................ 178,300 330,700
Installment receivables from sale of common stock................ (5,400) (6,000)
Treasury stock at cost; 8,144,386 shares at December 31, 1993 and
8,149,567 shares at December 31, 1992......................... (86,700) (86,700)
Accumulated translation adjustments.............................. (20,400) 400
---------- ----------
Total Stockholders' Equity.................................. 443,900 590,000
---------- ----------
Commitments and contingencies
Total Liabilities and Stockholders' Equity.................. $1,170,500 $1,168,100
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
17
<PAGE> 24
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFERRED
COMPENSATION INSTALLMENT
ADDITIONAL ACCUMULATED ARISING FROM RECEIVABLES
YEARS ENDED DECEMBER 31, 1993, COMMON PAID-IN RETAINED TRANSLATION RESTRICTED FROM SALE OF TREASURY
1992 AND 1991 STOCK CAPITAL EARNINGS ADJUSTMENTS STOCK COMMON STOCK STOCK TOTAL
- ------------------------------ ------ ---------- --------- ----------- ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
Balance at January 1, 1991.... $2,800 $154,100 $131,700 $ 11,100 $ (8,300) $ (8,900) $(57,500) $225,000
Common stock issued to
employees-net (3,925,385
shares)................... 300 41,700 42,000
Amortization and adjustment
of deferred
compensation.............. 4,100 4,100
Acquisition of common stock
for treasury (242,489
shares)................... 800 (13,600) (12,800)
Aggregate adjustment
resulting from the
translation of foreign
financial statements...... (4,900) (4,900)
Dividends paid ($.2875 per
share).................... (14,700) (14,700)
Two-for-one stock split
(29,596,073 shares)....... 3,000 (3,000)
Net income.................. 91,200 91,200
------ -------- -------- --------- -------- -------- -------- --------
Balance at December 31,
1991........................ 6,100 192,800 208,200 6,200 (4,200) (8,100) (71,100) 329,900
Common stock issued to
employees-net (3,110,529
shares)................... 300 48,000 48,300
Amortization and adjustment
of deferred
compensation.............. (1,500) 4,200 2,700
Income tax benefit from
stock options exercised... 50,000 50,000
Acquisition of common stock
for treasury (269,204
shares)................... 2,100 (18,200) (16,100)
Reissuance of common stock
from treasury for
acquisition (580,020)
shares.................... 55,900 2,600 58,500
Aggregate adjustment
resulting from the
translation of foreign
financial statements...... (5,800) (5,800)
Dividends paid ($.30 per
share).................... (16,400) (16,400)
Net income.................. 138,900 138,900
------ -------- -------- --------- -------- -------- -------- --------
Balance at December 31,
1992........................ 6,400 345,200 330,700 400 0 (6,000) (86,700) 590,000
Common stock issued to
employees-net (626,079
shares)................... 12,100 12,100
Income tax benefit from
stock options exercised
recognized upon adoption
of FAS 109................ 14,400 14,400
Payment received on
installment receivables... 600 600
Aggregate adjustment
resulting from the
translation of foreign
financial statements...... (20,800) (20,800)
Dividends paid ($.245 per
share).................... (13,700) (13,700)
Net loss.................... (138,700) (138,700)
------ -------- -------- --------- -------- -------- -------- --------
Balance at December 31,
1993........................ $6,400 $371,700 $178,300 $(20,400) $ 0 $ (5,400) $(86,700) $443,900
------ -------- -------- --------- -------- -------- -------- --------
------ -------- -------- --------- -------- -------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
18
<PAGE> 25
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
---------- --------- --------
IN THOUSANDS
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers........................................... $1,103,300 $1,087,700 $773,700
Cash paid to vendors, suppliers, and employees......................... (941,200) (905,900) (710,600)
Interest paid.......................................................... (18,300) (15,600) (11,400)
Income taxes paid...................................................... (12,800 (18,400) (22,800)
---------- --------- --------
Net cash provided by operating activities........................... 131,000 147,800 28,900
---------- --------- --------
Cash flows from investing activities:
Additions to property, plant, and equipment............................ (216,400) (270,700) (146,900)
Other assets........................................................... (31,100) (31,100) (15,100)
---------- --------- --------
Net cash used in investing activities............................... (247,500) (301,800) (162,000)
---------- --------- --------
Cash flows from financing activities:
Long-term debt borrowings under credit agreements...................... 2,614,400 1,840,800 725,600
Long-term debt repayments under credit agreements...................... (2,495,900) (1,696,000) (605,000)
Common stock issued from stock plans................................... 12,100 48,000 41,800
Dividends paid......................................................... (13,700) (16,400) (14,700)
Acquisition of common stock for treasury............................... (16,100) (12,500)
---------- --------- --------
Net cash provided by financing activities........................... 116,900 160,300 135,200
---------- --------- --------
Effect of exchange rate changes.......................................... (2,000) (6,400) (2,500)
---------- --------- --------
Net decrease in cash..................................................... (1,600) (100) (400)
Cash, beginning of year.................................................. 2,500 2,600 3,000
---------- --------- --------
Cash, end of year........................................................ $ 900 $ 2,500 $ 2,600
---------- --------- --------
---------- --------- --------
Reconciliation of net income (loss) to net cash provided by operating
activities:
Net income (loss)........................................................ $ (138,700) $ 138,900 $ 91,200
---------- --------- --------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization....................................... 83,200 59,400 40,300
Amortization of deferred compensation............................... 4,200 4,100
Asset writedowns -- restructuring................................... 73,800
Adjustment of property, plant, and equipment reserves............... 17,400 3,900 7,500
Receivables -- decrease (increase).................................. 67,800 (108,200) (68,900)
Inventories -- (increase)........................................... (48,400) (75,800) (110,500)
Adjustment of inventory reserves.................................... 44,200 29,900 24,200
Other current assets -- (increase) decrease......................... (23,900) 9,900 (13,600)
Accounts payable and accrued expenses -- increase................... 34,300 51,400 38,500
Income taxes payable and deferred -- (decrease) increase............ (24,300) (14,100) 15,700
Income tax benefit from stock options exercised..................... 14,400 50,000
Other Assets -- decrease............................................ 28,100
Other adjustments -- net............................................ 3,100 (1,700) 400
---------- --------- --------
Total adjustments.............................................. 269,700 8,900 (62,300)
---------- --------- --------
Net cash provided by operating activities................................ $ 131,000 $ 147,800 $ 28,900
---------- --------- --------
---------- --------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
19
<PAGE> 26
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The consolidated financial statements include the accounts
and transactions of United States Surgical Corporation and Subsidiaries (the
"Company"), excluding intercompany accounts and transactions. Certain
subsidiaries (including branches), primarily operating outside the United
States, are included in the consolidated financial statements on a fiscal-year
basis ending November 30.
Property, Plant, and Equipment. Depreciation and amortization is provided
using the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Buildings................................................. 40
Molds and dies............................................ 5 to 7
Machinery and equipment................................... 3 to 10
Leasehold improvements.................................... 10 to 30
</TABLE>
The Company capitalizes interest incurred on funds used to construct
property, plant, and equipment. Interest capitalized during 1993, 1992 and 1991
was $9.5 million, $6.4 million and $2.7 million, respectively.
Inventories. Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Other Assets. The Company capitalizes and includes in Other Assets the
costs of acquiring patents on its products, the costs of computer software
developed and used in its information processing systems, goodwill arising from
the excess of cost over the fair value of net assets of purchased businesses and
deferred start-up costs incurred prior to 1991 relating to the Company's
entrance in 1991 into the suture portion of the wound management market. These
costs are amortized on the straight-line basis over the following estimated
useful lives:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Patents................................................... 10
Computer software costs................................... 3 to 4
Deferred start-up costs................................... 5
Goodwill.................................................. 10 to 40
</TABLE>
Revenue Recognition. Revenues from sales are recognized when products are
sold directly by the Company to ultimate consumers, primarily hospitals, or to
authorized distributors.
Foreign Currency Translation. For translation of the financial statements
of its international operations the Company has determined that the local
currencies of its international subsidiaries are the functional currencies.
Assets and liabilities of foreign operations are translated at year end exchange
rates, and income statement accounts are translated at average exchange rates
for the year. The resulting translation adjustments are made directly to the
Accumulated Translation Adjustments component of Stockholders' Equity. Foreign
currency transactions are recorded at the exchange rate prevailing at the
transaction date.
Net Income (Loss) per Common Share and Common Share Equivalent. Net income
(loss) per common share and common share equivalent is based on the weighted
average number of common shares and common share equivalents (stock options)
outstanding during 1992 and 1991. Common stock equivalents are not included in
the computation of net income (loss) per share in 1993 since the effect of their
inclusion would be antidilutive.
NOTE B -- RESTRUCTURING CHARGES
In the second half of 1993 the Company adopted a restructuring plan
designed to reduce its cost structure and improve its competitive position
through property divestitures and consolidations and a reduction in its
management, administrative and direct labor workforce. During the third and
fourth quarters of 1993 the Company recorded restructuring charges of $8.0
million and $129.6 million, respectively ($6 million and
20
<PAGE> 27
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$124 million after taxes, respectively). These charges consist primarily of
write downs of certain real estate to net realizable value ($79 million),
provisions for lease buyout expenses ($24 million), severance costs ($30
million) and write down of other assets ($5 million).
The majority of the restructuring charges were non-cash in nature. Accrued
Expenses at December 31, 1993 includes $56 million related primarily to
severance costs and accrued lease obligations, the majority of which will be
funded in the first half of 1994. Included in restructuring charges is a $58
million charge related to the Company's new European headquarters office
building. The Company decided to sublease rather than occupy approximately half
of its office building and the entire distribution center when it became
apparent that projected worldwide sales growth and the pace of reduction in
trade barriers and related considerations among European countries did not meet
Company expectations. The estimated net realizable value of these facilities was
based upon the present value of rental income expected to be received, assuming
the facilities are subleased after one year.
NOTE C -- ACQUISITION
In July 1992, the Company purchased all of the outstanding common stock of
EndoTherapeutics for approximately $60 million of the Company's common stock
(approximately 580,000 shares). Under the purchase agreement the Company
acquired EndoTherapeutics' laparoscopic surgical technology, including the
trocar and pneumoperitoneum needle patents which the Company previously licensed
from EndoTherapeutics, technical know-how and other assets. The acquisition has
been accounted for by the purchase method. The purchase price has been primarily
allocated to the acquired patents which are included in Other Assets.
NOTE D -- PROPERTY, PLANT, AND EQUIPMENT
At December 31, 1993 and 1992, Property, plant, and equipment (at cost)
were comprised of the following items:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
IN THOUSANDS
Land................................................................... $ 20,700 $ 18,600
Buildings.............................................................. 163,400 150,300
Molds and dies......................................................... 114,300 128,300
Machinery and equipment................................................ 306,600 262,600
Leasehold improvements................................................. 147,100 127,500
-------- --------
752,100 687,300
Less allowance for depreciation and amortization....................... 159,900 159,200
-------- --------
$592,200 $528,100
-------- --------
-------- --------
</TABLE>
Property, plant, and equipment at December 31, 1993 includes land and
building in Elancourt, France with a net book value of $71 million that the
Company uses under the terms of a capital lease. During 1993 the Company removed
from its Balance Sheet Property, plant, and equipment which was fully
depreciated with a cost of $45 million.
21
<PAGE> 28
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- OTHER ASSETS
At December 31, 1993 and 1992 Other Assets (at cost) were comprised of the
following items:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
IN THOUSANDS
Patents................................................................ $ 85,900 $ 64,600
Computer software costs................................................ 38,700 38,000
Deferred start-up costs................................................ 20,800 20,800
Goodwill............................................................... 6,400 24,700
Other.................................................................. 22,900 18,300
-------- --------
174,700 166,400
Less accumulated amortization.......................................... 61,200 43,700
-------- --------
$113,500 $122,700
-------- --------
-------- --------
</TABLE>
The increase in Patents during 1993 was primarily attributable to the
adoption of Statement of Financial Accounting Standards No. 109 -- "Accounting
for Income Taxes" (refer to Note F for further information).
NOTE F -- INCOME TAXES
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109 -- "Accounting for Income Taxes" (FAS 109) in
February 1992, and the Company was required to adopt FAS 109 by January 1, 1993.
This new statement requires that deferred income taxes reflect the tax
consequences on future years of differences between the tax return bases of
assets and liabilities and their financial statement amounts.
Prior to 1993, provisions were made by the Company for deferred income
taxes where differences existed between the time that transactions affected
taxable income and the time that these transactions entered into the
determination of income for financial reporting purposes. The effect of the
adoption of FAS 109 on a prospective basis from January 1, 1993 was not
material.
A summary of the source of income (loss) before income taxes follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------- -------- --------
<S> <C> <C> <C>
IN THOUSANDS
Domestic (a)............................................... $ (61,800) $171,800 $104,200
Foreign.................................................... (75,600) 21,100 26,100
--------- -------- --------
$(137,400) $192,900 $130,300
--------- -------- --------
--------- -------- --------
</TABLE>
- ---------------
(a) Includes Puerto Rico and U.S. branches in foreign locations.
22
<PAGE> 29
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the provision for income taxes follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
IN THOUSANDS
Current:
Federal......................................................
Foreign...................................................... $ 4,800 $13,900 $11,500
State and local (a).......................................... 4,700 4,000 2,300
Deferred:
Federal...................................................... 23,400 16,800
Foreign...................................................... (8,800) (300) 200
State and local (a).......................................... 600 13,000 8,300
------- ------- -------
$ 1,300 $54,000 $39,100
------- ------- -------
------- ------- -------
</TABLE>
- ---------------
(a) Includes Puerto Rico.
A reconciliation between income taxes based on the application of the
statutory federal income tax rate (1993 -- 35%; 1992 and 1991 -- 34%) to income
before income taxes and the provision for income taxes as set forth in the
Consolidated Statements of Operations follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
IN THOUSANDS
Provision (benefit) for taxes at statutory rates............ $(48,100) $ 65,600 $ 44,300
Benefit of operating loss not recognized for U.S. Federal or
foreign taxes............................................. 65,700
State and local income taxes, net of federal income tax
benefit................................................... 800 5,000 3,700
Foreign income taxed at rates different than U.S. statutory
rate...................................................... 1,600 6,400 2,600
Tax savings from operations in Puerto Rico.................. (18,700) (25,000) (11,700)
Other....................................................... 2,000 200
-------- -------- --------
$ 1,300 $ 54,000 $ 39,100
-------- -------- --------
-------- -------- --------
</TABLE>
The Company has provided for taxes on the income of its subsidiary's
operations in Puerto Rico at an effective rate that is significantly lower than
the U.S. federal income tax statutory rate. This rate reflects the fact that
approximately 90% of income is exempt from local taxes in Puerto Rico as well as
the availability of a tax credit under Section 936 of the Internal Revenue Code.
Withholding taxes at a negotiated rate of 6% (5% in 1992 and 7% in 1991) have
been provided on the expected repatriation of the income of this subsidiary.
23
<PAGE> 30
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1993 deferred tax liabilities and assets under FAS 109 were
comprised of the following:
<TABLE>
<S> <C>
Patent amortization................................. $ 23,100
Depreciation........................................ 25,200
Other amortization.................................. 6,000
Other............................................... 15,900
---------
Gross deferred tax liabilities.................... 70,200
---------
Restructuring reserves.............................. 50,300
Inventory reserves.................................. 26,500
Fixed asset reserves................................ 17,800
Accrued expenses.................................... 7,500
Other............................................... 13,300
Tax loss carryforwards.............................. 130,800
Tax credit carryforwards............................ 27,700
---------
Gross deferred tax assets......................... 273,900
Less: Valuation allowance........................... (197,800)
---------
76,100
---------
Net deferred tax assets............................. $ 5,900
---------
---------
</TABLE>
Deferred taxes in 1992 and 1991 result from timing differences in the
recognition of revenue and expense for tax and financial statement purposes. The
source of the timing differences, none of which are individually material, are:
the use of accelerated methods of computing depreciation for income tax purposes
and the straight-line method for financial reporting purposes; expensing certain
patent costs as incurred for income tax purposes and capitalizing and amortizing
them over their estimated useful lives for financial reporting purposes;
accruals and provisions not currently deductible for tax purposes; expensing
certain deferred start-up costs incurred for income tax purposes and deferring
and amortizing such costs over a five year period for financial reporting
purposes; and other timing differences applicable to current assets and
liabilities.
At December 31, 1993 current deferred tax assets of $7 million and
non-current deferred tax assets of $5 million were included in the Consolidated
Balance Sheet captions Other Current Assets and Other Assets, respectively.
Current deferred tax liabilities of $1 million and non-current deferred tax
liabilities of $5 million were included in the Consolidated Balance Sheet
captions Income Taxes Payable and Deferred Income Taxes, respectively.
The Company's loss carryforwards prior to 1993 are primarily attributable
to compensation expense deductions on its income tax return which were not
recognized for financial accounting purposes. A valuation allowance in the
amount of $198 million has been recorded as of December 31, 1993 because of the
uncertainty of the Company over the future utilization of the tax benefit of its
gross deferred tax assets. As of January 1, 1993, the date of adoption of FAS
109, the valuation allowance was $125 million.
At December 31, 1993 the Company's consolidated subsidiaries have
unremitted earnings of $105 million on which the Company has not accrued a
provision for federal income taxes since these earnings are considered to be
permanently invested. The amount of the unrecognized deferred tax liability
relating to unremitted earnings was approximately $25 million at December 31,
1993.
The Internal Revenue Service completed its examination of the Company's tax
returns through December 31, 1983 resulting in no material impact on the
Company's consolidated financial statements. The Internal Revenue Service is
presently examining the Company's tax returns for the period 1984 through 1990.
The Company does not believe that the results of the current tax audit will have
a material effect on the consolidated financial statements of the Company.
24
<PAGE> 31
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has available for U.S. Federal income tax return purposes the
following net operating loss and tax credit carryforwards:
<TABLE>
<CAPTION>
NET INVESTMENT RESEARCH AND
OPERATING LOSSES TAX CREDITS OTHER CREDITS
---------------- ----------- -------------
IN THOUSANDS
<S> <C> <C> <C>
YEAR SCHEDULED TO EXPIRE:
1994............................................ $ 400
1995............................................ 800
1996............................................ 1,400
1997............................................ 1,400
1998............................................ 1,300 $ 200
1999............................................ 900 100
2000............................................ $ 7,200 900 300
2001............................................ 500 500
2002............................................ 700
2003............................................ 800
2004............................................ 500
2005............................................ 23,500(a) 1,800
2006............................................ 52,400(a) 3,000
2007............................................ 133,600(a) 6,900
2008............................................ 23,000 3,000
-------- ------- -------
$239,700 $ 7,600 $17,800
-------- ------- -------
-------- ------- -------
</TABLE>
In addition, the Company has available for state and foreign income tax
return purposes net operating loss carryforwards of $149 million and $92
million, respectively, which expire at various dates.
(a) The exercise of stock options which have been granted under the
Company's various stock option plans and the vesting of restricted stock give
rise to compensation which is includable in the taxable income of the applicable
employees and deductible by the Company for federal and state income tax
purposes. Such compensation results from increases in the fair market value of
the Company's Common Stock subsequent to the date of grant of the applicable
exercised stock options and restricted stock and, accordingly, in accordance
with Accounting Principles Board Opinion No. 25, such compensation is not
recognized as an expense for financial accounting purposes and the related tax
benefits are taken directly to Additional Paid-in Capital. In the years ended
December 31, 1992 and 1991 such deductions resulted in significant federal and
state deductions which may be carried forward. Utilization of such deductions
will increase Additional Paid-in Capital.
NOTE G -- ACCRUED EXPENSES
Included in Accrued Expenses at December 31, 1993 are accrued restructuring
charges $56.2 million, accrued commissions $13.6 million (1992 -- $20.6 million)
and accrued payroll, property and sales taxes $14.5 million (1992 -- $13.2
million).
NOTE H -- LONG-TERM DEBT
At December 31, 1993 the Company had $436 million in borrowings outstanding
under its $675 million of revolving credit and term loan agreements (credit
facility) with various banks. In January and February 1994 the Company borrowed
an additional $22 million under these agreements.
25
<PAGE> 32
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The revolving credit facility provides the Company with a choice of
interest rates based upon the banks' prime commercial lending rate,
.625% -- .75% above the banks' London Interbank Offered Rate (LIBOR) or .75%
above the banks' CD Rate. The Company is obligated to pay commitment fees equal
to .25% per annum on the unutilized portion of the credit facility. Under the
terms of the credit facility, outstanding revolving loans are convertible to
term loans upon maturity (March 31, 1995) and repayable in ten equal quarterly
principal payments commencing in July 1995. Assuming all such revolving loans
are converted, the scheduled principal amounts of repayments are included in the
table below. The effective interest rate on long-term debt outstanding as of
December 31, 1993 and 1992 was 5.3% and 5.8%, respectively.
On January 14, 1993, the Company entered into a 30-year operating lease for
its primary domestic manufacturing, distribution and warehousing complex in
North Haven, Connecticut. Minimum lease payments under this lease will
approximate $475 million. The Company has now completed the capital lease
financing arrangements for its new European headquarters and office building in
Elancourt, France and it received an additional $12 million in financing
subsequent to December 31, 1993. Minimum annual rental payments under this lease
are set forth below.
The credit facility and the long-term lease for the Company's North Haven
facility provide for restrictions as to consolidations, mergers, sales of
assets, capital expenditures, dividends and subsidiary debt and requires the
maintenance of certain specified levels of minimum consolidated net worth, and a
maximum ratio of total debt to total capitalization, as defined. Under the most
restrictive covenants the Company's debt to total capitalization may not exceed
60% for purposes of the long-term lease agreement and 65% for purposes of the
credit facility, and at December 31, 1993 this ratio was 64.7%. Tangible net
worth as defined in the long-term lease agreement must exceed $462 million, and
at December 31, 1993 the Company's tangible net worth was $441 million. The
Company obtained waivers for the long-term lease covenant violations through
March 31, 1994. Subsequent to year-end, the Company's debt to total
capitalization ratio exceeded 65%, and as a condition of its credit facility the
Company is precluded from incurring additional indebtedness until its ratio
returns to below 60%.
On March 28, 1994 the Company issued approximately $200 million of 9.76%
Series A Convertible Preferred Stock in an exempt offering pursuant to Rule 144A
under the Securities Act of 1933, as amended (see Note L -- Subsequent Event),
the proceeds from which eliminated its tangible net worth covenant default and
reduced the Company's ratio of debt to total capitalization to below 60%. The
Company's current intention is to use the proceeds from the sale of the
Convertible Preferred Stock for general corporate purposes, to increase
liquidity and to ultimately reduce indebtedness after renegotiation of the terms
of the Company's credit facility.
The Company has swapped with certain banks its exposure to floating
interest rates on $50 million of its variable rate U.S. dollar debt and $34
million (200 million French francs) of variable rate French franc debt. These
swap agreements expire in August 1996 and December 1997 for the U.S. dollar debt
and French Franc debt, respectively. The Company makes fixed interest payments
at rates of approximately 7.8% for the U.S. dollar swap and 8.1% for the French
franc swap and receives payments based on the floating six-month LIBOR and
three-month LIBOR, respectively. The net gain or loss from the exchange of
interest rate payments, which is immaterial, is included in interest expense.
Based upon the fair value of the Company's interest rate swap agreements at
December 31, 1993, termination of such agreements would require a payment of
approximately $6 million. The Company does not currently intend to terminate its
interest rate swap agreements prior to their expiration dates.
26
<PAGE> 33
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying value of the Company's long-term debt and capital lease
obligations approximates fair value, which was estimated based upon current
rates offered to the Company for debt with similar remaining maturities. At
December 31, 1993, the scheduled principal repayments under loan agreements and
future minimum payments under a capital lease were as follows:
<TABLE>
<CAPTION>
BANK
CREDIT FACILITY CAPITAL LEASE TOTAL
--------------- ------------- --------
IN THOUSANDS
<S> <C> <C> <C>
1994.................................................... $ 5,000 $ 5,000
1995.................................................... $ 87,300 6,600 93,900
1996.................................................... 174,500 6,600 181,100
1997.................................................... 174,500 6,700 181,200
1998.................................................... 6,400 6,400
After 1998.............................................. 98,600 98,600
--------- --------- --------
436,300 129,900 566,200
Current portion long-term debt.......................... (600) (600)
Amount representing interest............................ (60,300) (60,300)
--------- --------- --------
Long-term debt.......................................... $ 436,300 $ 69,000 $505,300
--------- --------- --------
--------- --------- --------
</TABLE>
NOTE I -- STOCKHOLDERS' EQUITY
The Company had 56,257,758 and 55,627,731 shares of its $.10 par value
Common Stock outstanding as of December 31, 1993 and 1992, respectively. In the
past, the Company announced programs to repurchase up to a total of 9,200,000
shares of its outstanding Common Stock. As of December 31, 1993, a total of
8,712,537 shares (1,010 in 1993 and 269,204 in 1992) had been acquired at a
total cost of $89.3 million. Acquired shares are being held as treasury shares
and are being used for general corporate purposes.
Shares of Common Stock reserved for future issuance in connection with
restricted stock awards, stock option plans and an employee stock purchase plan,
etc. amounted to 16,057,440 and 14,774,446 at December 31, 1993 and 1992,
respectively. The Compensation/Option Committee (the Committee) of the Board of
Directors is responsible for administering the Company's stock compensation
plans.
The Restricted Stock Incentive Plan (the "Incentive Plan") provides for
grants to key employees of the Company's Common Stock in the maximum aggregate
amount of 5,000,000 shares. As of December 31, 1993, 3,839,740 shares were
issued and vested under the Incentive Plan and 142,160 shares were cancelled.
There were no restricted stock grants during the three-year period ended
December 31, 1993.
The 1990 Employee Stock Option Plan (the "1990 Option Plan") provides for
grants to key employees and certain key consultants of options and stock
appreciation rights for up to 11,000,000 shares of the Company's Common Stock at
the per share market price at the date of grant unless the Committee determines
otherwise. As of December 31, 1993, no stock appreciation rights have been
granted. Subject to a maximum exercise period of fifteen years, the exercise
period of awards under the 1990 Option Plan will be as determined by the
Committee.
The 1993 Employee Stock Option Plan (the "1993 Option Plan") provides for
grants to key employees of options and stock appreciation rights for up to
2,000,000 shares of the Company's Common Stock at the per share market price at
the date of grant unless the Committee deems otherwise. As of December 31, 1993
no stock appreciation rights have been granted. Subject to a maximum exercise
period of fifteen years, the exercise period of awards under the 1993 Option
Plan will be as determined by the Committee.
Certain members of management have elected under the 1981 Option Plan to
defer the payment of the exercise price by installment payments up to a maximum
of ten years. As of December 31, 1993, installment
27
<PAGE> 34
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
receivables amounted to $5.4 million ($6.0 million at December 31, 1992)
representing the exercise of stock options for 1,432,000 (1,600,000 at December
31, 1992) shares of Common Stock. Installment receivables from the sale of
Common Stock resulting from the exercise of stock options are classified as a
reduction of Stockholders' Equity. On December 31, 1990, the 1981 Option Plan
expired, and options can no longer be granted under the 1981 Option Plan.
The Service-Based Stock Option Plan (the "Service Option Plan") provides
for grants of options for up to 1,144,132 shares of the Company's Common Stock
at the per share market price at the date of grant to individuals employed by
the Company who are within an eligible category. Options under the Service
Option Plan are awarded for a fixed number of shares of Common Stock based
solely upon the eligible recipient's years of service within the eligible
category, and are exercisable for a period of up to ten years.
The Outside Directors Stock Plan provides for an aggregate maximum of up to
160,000 shares of Common Stock to be issued under restricted stock awards and
option grants to certain non-employee members of the Board of Directors. At
December 31, 1993 and 1992, restricted stock awards and option grants for 96,000
shares and 80,000 shares, respectively, had been granted under the Outside
Directors Stock Plan. As of December 31, 1993 and 1992, 64,000 and 80,000
shares, respectively, are reserved for future issuance under the Outside
Directors Stock Plan.
A summary of stock option transactions under the employee Option Plans and
the Outside Directors Stock Plan for each of the three years in the period ended
December 31, 1993 follows:
<TABLE>
<CAPTION>
NUMBER OPTION
OF SHARES PRICE RANGE
--------- ---------------
<S> <C> <C>
OUTSTANDING JANUARY 1, 1991..................................... 9,912,190 $ 3.28 - 25.59
Granted....................................................... 7,588,722 31.69 - 98.69
Exercised..................................................... (3,711,149) 3.38 - 75.13
Canceled or lapsed............................................ (42,334) 6.47 - 58.19
---------
OUTSTANDING DECEMBER 31, 1991................................... 13,747,429 3.28 - 98.69
Granted....................................................... 601,358 56.25 - 114.13
Exercised..................................................... (2,913,827) 3.28 - 103.69
Canceled or lapsed............................................ (581,354) 19.75 - 103.69
---------
OUTSTANDING DECEMBER 31, 1992................................... 10,853,606 3.28 - 114.13
Granted....................................................... 1,977,081 23.06 - 69.75
Exercised..................................................... (245,055) 3.28 - 58.19
Canceled or lapsed............................................ (1,080,079) 19.75 - 114.13
---------
OUTSTANDING DECEMBER 31, 1993................................... 11,505,553 3.58 - 114.13
---------
---------
At December 31, 1993:
Exercisable................................................... 4,925,804 3.58 - 111.94
</TABLE>
Under the USSC Employees 1979 Stock Purchase Plan ("Purchase Plan"), all
eligible employees may authorize payroll deductions of up to 10% of their base
earnings, as defined, to purchase shares of the Company's Common Stock at 85% of
the market price when such deductions are made. There are no charges or credits
to income in connection with the Purchase Plan. The Purchase Plan will continue
in effect as long as shares authorized under the Plan remain available for
issuance thereunder. The Company has reserved 2,400,000 shares of its Common
Stock for issuance under the Purchase Plan, of which 260,327 shares are
available for future issuance at December 31, 1993.
28
<PAGE> 35
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company develops, manufactures and markets wound management products
which constitute a single business segment. The following information sets forth
geographic information with respect to the Company's net sales, operating
profits and identifiable assets.
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
IN THOUSANDS
NET SALES:
United States......................................... $ 895,500 $1,058,500 $ 733,200
International(1)(2)................................... 341,000 341,200 242,300
Interarea transfers eliminated........................ (199,300) (202,500) (131,900)
--------- --------- --------
$1,037,200 $1,197,200 $ 843,600
--------- --------- --------
--------- --------- --------
OPERATING PROFIT (LOSS):
United States......................................... $ 30,500 $ 259,900 $ 162,000
International(1)...................................... (65,600) 43,600 39,900
Profit on interarea transfers eliminated.............. (83,800) (95,900) (59,600)
--------- --------- --------
$ (118,900) $ 207,600 $ 142,300
--------- --------- --------
--------- --------- --------
IDENTIFIABLE ASSETS AT DECEMBER 31:
United States......................................... $ 877,100 $ 889,200 $ 579,900
International(1)...................................... 304,900 291,600 173,400
Interarea assets eliminated........................... (11,500) (12,700) (11,700)
--------- --------- ---------
$1,170,500 $1,168,100 $ 741,600
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------
(1) Principally Europe.
(2) Does not include sales made to international distributors (1993 -- $69,600,
1992 -- $54,500 and 1991 -- $40,400) from a location in the United States.
The combination of sales to international distributors and international
sales above approximate 40% in 1993, 33% in 1992 and 34% in 1991 of
consolidated sales, respectively.
NOTE K -- COMMITMENTS AND CONTINGENCIES
The Company is engaged in litigation as a defendant in cases involving
alleged patent infringement, product liability claims and shareholders'
derivative and class action suits. In the opinion of management, based upon
advice of counsel, the ultimate outcome of these lawsuits should not have a
material adverse effect on the Company's consolidated financial statements.
As part of the ongoing expansion of its Puerto Rico operations, the Company
is committed to certain undertakings, including the maintenance of specified
levels of employment and capitalization for the Puerto Rican subsidiary.
The future minimum rental commitments for building space, leasehold
improvements, data processing and automotive equipment for all operating leases
as of December 31, 1993, were as follows: 1994 -- $37 million; 1995 -- $37
million; 1996 -- $52 million; 1997 -- $67 million; 1998 -- $66 million; after
1998 -- $305 million. Rent expense was $34 million, $24 million and $15 million
in 1993, 1992 and 1991, respectively.
NOTE L -- SUBSEQUENT EVENT
On March 28, 1994 the Company issued approximately $200 million of 9.76%
Series A Convertible Preferred Stock (convertible into a maximum of
approximately 8.9 million shares of the Company's Common
29
<PAGE> 36
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock), par value $5 per share, in an exempt offering pursuant to Rule 144A
under the Securities Act of 1933, as amended. Dividends on the Convertible
Preferred Stock are cumulative at the annual rate of $110 per share, payable
quarterly in arrears commencing July 1, 1994. On April 1, 1998 each share of
Convertible Preferred Stock still outstanding will automatically convert into 50
shares of Common Stock of the Company, and prior to this date it may be
converted into 47.65 shares of Common Stock at any time at the option of the
holder. The Company may redeem the Convertible Preferred Stock at any time after
April 1, 1997 for Common Stock together with an additional cash dividend of up
to $27.50 per share, declining ratably after April 1, 1997 to $0 by March 1,
1998. It is the Company's current intention to use the proceeds from the sale of
the Convertible Preferred Stock for general corporate purposes, to increase
liquidity and to ultimately reduce indebtedness after renegotiation of the terms
of the Company's credit facility.
30
<PAGE> 37
MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of United States Surgical Corporation and its subsidiaries
(the "Company") has the responsibility for preparing the accompanying
consolidated financial statements and related notes. The consolidated financial
statements were prepared in accordance with generally accepted accounting
principles and necessarily include amounts based upon judgments and estimates by
management. Management also prepared the other information in the annual report
and is responsible for its accuracy and consistency with the consolidated
financial statements.
Management of the Company has established and maintains a system of
internal control that provides reasonable assurance that the accounting records
may be relied upon for the preparation of the consolidated financial statements.
Management continually monitors the system of internal control for compliance.
Also, the Company maintains an internal auditing function that independently
assesses the effectiveness of the internal controls and recommends possible
improvements thereto. The Company's financial statements have been audited by
Deloitte & Touche, independent auditors. Management has made available to
Deloitte & Touche all the Company's financial records and related data. In
addition, as part of its audit of the Company's financial statements, Deloitte &
Touche completed a study and evaluation of internal accounting controls to
establish a basis for reliance thereon. Management believes that the Company's
system of internal control is adequate to accomplish the objectives discussed
herein.
The Board of Directors monitors the internal control system through its
Audit Committee which consists solely of outside directors. The Audit Committee
meets periodically with the independent auditors, internal auditors and senior
financial management to determine that they are properly discharging their
responsibilities.
LEON C. HIRSCH HOWARD M. ROSENKRANTZ
Chief Executive Officer Chief Financial Officer
31
<PAGE> 38
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
United States Surgical Corporation
We have audited the accompanying consolidated balance sheets of United
States Surgical Corporation and subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of United States Surgical
Corporation and subsidiaries at December 31, 1993 and 1992, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1993 in conformity with generally accepted
accounting principles.
Deloitte & Touche
New York, New York
February 1, 1994,
except for Notes H, K and L, as to
which the date is March 28, 1994.
32
<PAGE> 39
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1993 and 1992.
<TABLE>
<CAPTION>
FOURTH
FIRST SECOND THIRD QUARTER
QUARTER QUARTER(1) QUARTER(2) (1)(2)(3) YEAR(2)
-------- ---------- ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
1993
Net sales............................ $326,300 $228,800 $237,700 $ 244,400 $1,037,200
Cost of products sold................ 138,800 119,800 120,900 138,900 518,400
Income (loss) before income taxes.... 49,300 (30,100) (13,200) (143,400) (137,400)
Net income (loss).................... 36,000 (22,000) (14,300) (138,400) (138,700)
Net income (loss) per common share
and common share equivalent
(primary and fully diluted)........ $ .61 $ (.39) $ (.26) $ (2.46) $ (2.48)
1992
Net sales............................ $277,100 $304,800 $293,300 $ 322,000 $1,197,200
Cost of products sold................ 116,600 123,500 115,500 127,500 483,100
Income before income taxes........... 41,300 48,300 50,700 52,600 192,900
Net income........................... 29,700 34,800 36,500 37,900 138,900
Net income per common share and
common share equivalent (primary
and fully diluted)................. $ .49 $ .58 $ .61 $ .64 $ 2.32
</TABLE>
- ---------------
(1) In the second quarter of 1993 in anticipation of the pending purchase by the
Company of an international distributor, the Company accrued for the
reacquisition of inventory from this distributor and reduced Net sales by
$10 million and Cost of products sold by $4 million. In the fourth quarter
of 1993 the negotiations for the purchase of the distributor were suspended
and the Company reversed the second quarter entries and increased Net sales
by $9 million and Cost of products sold by $3 million.
(2) Income (loss) before income taxes for 1993 includes restructuring charges of
$138 million (third quarter -- $8 million; fourth quarter -- $130 million).
Net income (loss) for 1993 includes restructuring charges of $130 million or
$2.31 per share (third quarter -- $6 million or $.11 per share; fourth
quarter -- $124 million or $2.20 per share).
(3) Cost of products sold in the fourth quarter includes $19 million of
inventory and fixed asset reserves ($5 million in corresponding period in
1992) resulting from the continued introduction of new products and the
consequent obsolescence of production tooling and inventories.
COMMON STOCK PRICES AND DIVIDENDS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol USS. The following table sets forth for the periods indicated the
high and low of the daily sales prices, which represent actual transactions, as
reported by the New York Stock Exchange. In addition, the table sets forth the
amounts of quarterly cash dividends per share that were declared and paid by the
Company.
33
<PAGE> 40
On October 14, 1993 the Board of Directors reduced the quarterly dividend
from $.075 to $.02 per share for shareholders of record November 24, 1993
payable December 10, 1993.
<TABLE>
<CAPTION>
CASH DAILY SALES PRICES
DIVIDENDS ------------------
PAID HIGH LOW
--------- ------- -------
<S> <C> <C> <C>
1993
1st Quarter.................................................... $.075 $ 79.13 $ 51.38
2nd Quarter.................................................... .075 58.75 26.13
3rd Quarter.................................................... .075 28.75 20.25
4th Quarter.................................................... .020 26.50 19.88
1992
1st Quarter.................................................... $.075 $134.50 $100.50
2nd Quarter.................................................... .075 118.00 90.00
3rd Quarter.................................................... .075 106.75 59.75
4th Quarter.................................................... .075 76.25 54.00
</TABLE>
At December 31, 1993, the number of record holders of the Company's Common
Stock was 13,836.
DESCRIPTION OF THE COMPANY'S BUSINESS
United States Surgical Corporation (the Company) is a Delaware corporation
primarily engaged in developing, manufacturing and marketing a proprietary line
of technologically advanced surgical wound management products to hospitals
throughout the world. (Prior to reincorporating in Delaware in 1990, the Company
was a New York corporation which was organized in 1975 and was the successor to
a Maryland corporation activated in 1964.) The Company currently operates
domestically and internationally through subsidiaries, branches and
distributors. Except where the context otherwise requires, the term Company
includes the Company's divisions, subsidiaries, branches and predecessors.
The market that the Company services has been negatively affected by
proposals for health care reform and a new environment of cost consciousness
created by the uncertainty connected with the outcome of these reform proposals.
The Company has also been impacted negatively by aggressive pricing by
competition. The Company believes, however, that in any managed care scenario
that results from health care reform, its products offer a significant
opportunity for reducing costs for the total health care system while providing
considerable advantages for the patient. The Company continues to innovate and
develop new products that provide better patient care and an effective means of
reducing hospital costs.
In the current competitive environment, pricing has become a significant
factor. The Company is directing an expanding portion of its marketing efforts
to satisfying the needs of materials management and the financial end of the
hospital through cost effective pricing programs, and by demonstrating the
favorable economics associated with the use of the Company's products. In
addition, early in 1994, the Company took steps to significantly reduce the cost
of doing business in order to strengthen its competitive position.
34
<PAGE> 41
FIVE YEAR SELECTED FINANCIAL DATA
United States Surgical Corporation and Subsidiaries
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER YEAR ENDED DECEMBER 31,
SHARE, EMPLOYEE, RATIO --------------------------------------------------------
AND RETURN DATA 1993 1992 1991 1990 1989
--------------------------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operations Net sales..................
$1,037,200 $1,197,200 $843,600 $514,100 $345,200
Income (loss) before income
taxes....................
(137,400) 192,900 130,300 66,200 43,700
Net income (loss)..........
(138,700) 138,900 91,200 46,000 30,600
Net income (loss) per
common share and common
share equivalent (primary
and fully diluted).......
$(2.48) $2.32 $1.58 $.89 $.65
Average number of common
shares and common share
equivalents
outstanding..............
56,000 59,900 57,800 51,900 47,000
Dividends paid per common
share....................
$.245 $.30 $.2875 $.2375 $.175
---------- ---------- -------- -------- --------
Financial Current assets.............
Position $ 464,800 $ 517,300 $386,400 $218,500 $146,600
Current liabilities........
216,500 163,200 122,500 90,200 57,600
Current ratio..............
2.1 3.2 3.2 2.4 2.5
Total assets...............
1,170,500 1,168,100 741,600 460,900 326,800
Long-term debt.............
505,300 394,500 251,600 131,000 97,000
Stockholders' equity(1)....
443,900 590,000 329,900 225,000 167,700
Book value per share.......
$7.89 $10.61 $6.30 $4.62 $3.60
---------- ---------- -------- -------- --------
Financial Income (loss) from
Relationships operations before income
taxes as a percent of
sales....................
(13%) 16% 15% 13% 11%
Return on net sales........
(13%) 12% 11% 9% 8%
---------- ---------- -------- -------- --------
Additional Capital expenditures.......
Data $ 187,500 $ 272,000 $145,300 $ 71,700 $ 43,600
Research and development
expense..................
50,800 43,800 30,600 20,900 13,900
Number of employees........
7,600 8,100 7,300 4,600 3,300
----------
---------- ---------- -------- -------- --------
---------- -------- -------- --------
</TABLE>
- ---------------
(1) The Company did not have any preferred stock outstanding at the end of any
of the years presented above.
35
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In 1993, the Company attained sales of $1.04 billion compared with sales of
$1.20 billion in 1992 and sales of $844 million in 1991. Sales decreased by $160
million or 13% in 1993, and increased by $354 million or 42% in 1992 and by $329
million or 64% in 1991. In 1993, the Company reported a net loss of $139 million
or $2.48 per share, compared with net income of $139 million or $2.32 per share
in 1992 and net income of $91 million or $1.58 per share in 1991. Net income and
net income per share decreased 200% and 207%, respectively, in 1993 compared to
1992 and increased 52% and 47%, respectively, in 1992 over the comparable 1991
period and increased 98% and 78%, respectively, in 1991 over the comparable 1990
period. The effects of foreign currency exchange rate changes on net income in
1993, 1992 and 1991 were immaterial.
In the second half of 1993 the Company adopted restructuring plans designed
to reduce its cost structure and improve its competitive position through
property divestitures and consolidations and a reduction in its management,
administrative and direct labor workforce. These plans were adopted when it
became apparent that projected worldwide sales growth and the pace of reduction
in trade barriers and other related considerations among European countries did
not meet Company expectations. Increased price competition in the Company's
domestic markets also prompted the Company to reduce its cost structure. At the
end of the 1993 third quarter the Company announced a layoff of approximately
700 administrative staff, closure of its manufacturing plants for thirteen days
in the fourth quarter of 1993 and effective January 1, 1994 the adoption of a
four day work week for certain manufacturing employees. In the fourth quarter of
1993 the Company expanded its restructuring plan to include real estate
divestitures and consolidations and employee voluntary (completed) and
involuntary (in process) severance programs.
During the third and fourth quarters of 1993 the Company recorded
restructuring charges of $8.0 million and $129.6 million, respectively ($6
million or $.11 per share and $124 million or $2.20 per share net of taxes,
respectively). These charges consist primarily of write downs of certain real
estate to net realizable value ($79 million, of which $58 million relates to the
Company's new European headquarters and office building in Elancourt, France),
provisions for lease buyout expenses ($24 million), accruals for severance costs
($30 million) and write down of other assets ($5 million). The Company estimates
that $56 million of the restructuring charges will result in cash outflows
related to severance and accrued lease obligations, the majority of which will
be funded through operating cash flows and existing credit facilities and will
occur in 1994.
Other cost savings measures adopted by the Company for 1994 include
reducing the salaries of all corporate officers by 10% and the salary of the
Chief Executive Officer by 20% and freezing the salaries of all other employees
worldwide and requiring higher co-payments and deductibles in connection with
the employee health benefits program. The Company estimates that the annual
operating cost savings associated with the restructuring plans will approximate
$110 million of which more than $80 million represents cash flow savings from
reduced salaries expense and the remainder of which represents reduced rent and
depreciation expense. Cost saving measures other than the aforementioned
restructuring plans will result in annual operating cost savings of
approximately $40 million. Cost savings associated with the restructuring plans
started to be realized in the first quarter of 1994 (depreciation and rent
expense are expected to be $2 million lower and salaries are expected to be
reduced by an estimated $7 million in the 1994 first quarter as a result of the
restructuring) with the major effect beginning in the second quarter of 1994.
The Company will continue to evaluate opportunities for additional cost savings
throughout 1994 including additional facility consolidations, asset sales and
further headcount reductions.
Sales in 1993 decreased compared to the prior year for the first time in
the Company's history. The Company's principal competitor has made a major
effort to gain market share through discount pricing, and a number of hospitals
have asked their surgeons to evaluate competitors' products. Although surgeon
support is strong for the Company's products sales revenues are lost during the
time of the evaluation. Further, in order to "win" a number of these
evaluations, the Company has been forced to lower its prices to be more
competitive. Uncertainty over how the proposed United States government health
care plan will affect the domestic hospital industry has also greatly
contributed to the restrained growth in the Company's primary markets.
36
<PAGE> 43
The addition of "just-in-time" (JIT) distributors was undertaken to meet
the inventory control requirements of over 1400 domestic hospitals. While
working well to meet these needs, the switch to distributorship and the initial
stocking of JIT distributors created a situation which permitted the hospitals
to reduce their levels of inventory and to delay reorders. The reduction of JIT
and hospital inventories to optimal levels has taken longer than initially
anticipated by the Company, and this situation also contributed to the sales
decrease in 1993 and it continues to impact the Company's 1994 sales.
The Company's single-use products have been facing increasing competition
from reusable products as a result of what the Company believes to be a
misconception that reusable devices are more cost-effective than disposable
devices. An independent study of U.S. hospitals commissioned by the Company has
recently been completed and it concludes that minimally invasive disposable
devices are a cost-effective alternative to reusable devices.
The following table analyzes the change in sales in 1993, 1992 and 1991
compared with the prior years.
<TABLE>
<CAPTION>
1993 1992 1991
----- ---- ----
<S> <C> <C> <C>
(IN MILLIONS)
COMPOSITION OF SALES INCREASE (DECREASE):
Sales unit increases (decreases)...................................... $(114) $307 $293
Net price changes..................................................... (6) 37 41
Effects of changes in foreign currency exchange rates................. (40) 10 (5)
----- ---- ----
Sales increase (decrease)........................................... $(160) $354 $329
----- ---- ----
----- ---- ----
</TABLE>
Sales unit decreases and the effects of foreign currency exchange rate
fluctuations accounted for 71% and 25%, respectively, of the total 1993 sales
decrease compared with 1992. The net price change component of the 1993 sales
decrease reflects the net effect of selling price discounts granted to hospitals
and JIT distributors, partially offset by price list increases. Increased sales
of the Company's minimally invasive surgery products was the primary factor in
the strong sales gains in 1992 and 1991, when sales unit increases accounted for
87% and 89%, respectively, of the total sales increases.
Cost of products sold increased primarily as a result of higher costs
associated with the increase in productive capacity and the introduction of new
products. Also contributing to the higher cost of products sold in 1993 compared
to 1992 was a $28 million (82%) increase in inventory and fixed asset reserves
resulting from the continued introduction of new products and the consequent
obsolescence of production tooling and inventories. Cost of products sold
expressed as a percentage of sales was 50% in 1993, 40% in 1992 and 41% in 1991.
The increase in the cost of sales percentage in 1993 compared to 1992 and 1991
resulted from higher per unit indirect production costs due to lower production
volumes and lower margins realized on sales through the JIT program. Cost of
products sold is expected to be negatively affected by these factors in the
first half of 1994. Gross margin from operations (sales less cost of products
sold divided by sales) was 50%, 60% and 59% in 1993, 1992, and 1991,
respectively. Changes in foreign currency exchange rates from those existing in
1992 had the effect of reducing cost of products sold by $18 million in 1993.
The effects of foreign currency exchange rate changes on cost of products sold
in 1992 and 1991 were immaterial.
The Company's investment in research and development during the past three
years (1993 -- $51 million; 1992 -- $44 million; 1991 -- $31 million) has
yielded numerous product improvements as well as the development of numerous new
products. The primary focus of the Company's research and development program
has been directed at minimally invasive surgery products, and the Company
presently plans to continue its investment in research and development at levels
approximating 4% -- 5% of annual sales in the future.
Selling, administrative and general expenses expressed as a percentage of
sales was 43% in 1993, 39% in 1992, and 38% in 1991. The percentage increase in
1993 resulted primarily from higher depreciation and amortization charges
related to the Company's facilities expansion. Expressed in total dollars, the
reduction in these expenses in 1993 compared to 1992 reflects lower salespersons
commission and related expenses which are influenced by sales. In 1992 and 1991
these expenses increased primarily as a result of the continued expansion of the
Company's domestic and international sales organizations, growth in sales
expenses relating
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<PAGE> 44
to the Company's increased sales and an increase in expenses relating to
training of surgeons in the use of the Company's products. Changes in foreign
currency exchange rates from those existing in 1992 had the effect of reducing
selling, administrative and general expenses by $21 million in 1993. The effects
of foreign currency exchange rate changes on selling, administrative and general
expenses in 1992 and 1991 were immaterial.
The 1993 tax provision relates primarily to foreign taxes including taxes
in Puerto Rico, and is a result of the Company incurring net operating losses in
certain tax jurisdictions for which it is not able to recognize the
corresponding tax benefits. The Company's effective income tax rates in 1992 and
1991 were 28% and 30%, respectively, reflecting the lower effective tax rates on
a subsidiary's operations in Puerto Rico and the availability of a tax credit
under Section 936 of the Internal Revenue Code.
The Company was required to adopt Statement of Financial Accounting
Standards No. 109 -- "Accounting for Income Taxes", (FAS 109) by January 1,
1993. The Omnibus Budget Reconciliation Act of 1993 (OBRA), which was signed
into law in August 1993, and the adoption of FAS 109 did not have a material
effect on the Company's consolidated financial statements. The OBRA is expected
to increase the Company's effective income tax rate in the future, as the new
tax act places a limitation on the amount of the Section 936 tax credit that can
be claimed commencing in 1994.
FINANCIAL CONDITION
The Company's cash flows from operations, existing borrowing capacity and
the equity financing discussed below are expected to be sufficient to meet its
future operating cash requirements. The Company's revolving credit and term loan
agreements with various banks (credit facility) and the long-term lease
agreement for its North Haven, Connecticut facility include covenants which
require the maintenance of certain specified levels of working capital, tangible
net worth and a maximum ratio of total debt to total capital (leverage ratio).
At December 31, 1993 the Company was in compliance with all the credit facility
covenants, and the Company received waivers through March 31, 1994 for the lease
agreement covenant defaults associated with the maintenance of minimum tangible
net worth ($21 million deficiency) and a maximum leverage ratio of 60% (64.7%).
During the period January 1 - February 15, 1994 the Company borrowed an
additional $22 million from the banks, received the final $12 million under the
captial lease financing for its new European headquarters and office building in
Elancourt, France and as of March 28, 1994 it has $458 million outstanding under
its bank agreements. Under the terms of the credit facility, outstanding
revolving loans are convertible to term loans upon maturity (March 31, 1995) and
repayable in ten equal quarterly principal payments commencing in July 1995.
Assuming all such revolving loans are converted, the scheduled principal amounts
of repayments of bank borrowings outstanding at December 31, 1993 which are
included in long-term debt would be $87 million in 1995, $174 million in 1996
and $175 million in 1997. The additional $22 million borrowed in 1994 is
scheduled to be repaid as follows: $4 million in 1995, $9 million in 1996 and $9
million in 1997.
On March 28, 1994 the Company issued approximately $200 million of 9.76%
Series A Convertible Preferred Stock (convertible into a maximum of
approximately 8.9 million shares of the Company's Common Stock) in an exempt
offering pursuant to Rule 144A under the Securities Act of 1933, as amended (see
Note L of Notes to Consolidated Financial Statements) which brought the Company
into compliance with all of its financial covenants. It is the Company's current
intention to renegotiate the terms of its credit facility to extend the present
maturities of its current bank financing arrangements and to use the proceeds
from the sale of the Convertible Preferred Stock for general corporate purposes,
to increase liquidity and ultimately to reduce indebtedness.
The Company's building programs have been essentially completed, which will
enable the Company to reduce its capital spending by more than 50% in 1994
compared to 1993 levels. Additions to property, plant, and equipment on the
accrual method totaled $187 million ($216 million on a cash basis) in 1993,
compared with $272 million in 1992, and $145 million in 1991, and consist of
additions to machinery and equipment ($80 million), leasehold improvements ($29
million), molds and dies ($13 million) and land and buildings ($65 million).
During 1993 the Company removed from its Balance Sheet property, plant, and
equipment which was fully depreciated and out of service with a cost of $45
million.
The increase in Other Current Assets ($33 million) and Income Taxes Payable
($24 million) is primarily attributable to the Company's restructuring program
and the adoption of FAS 109 with effect from
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<PAGE> 45
January 1, 1993. The restructuring plans of the Company resulted in the
reclassification of certain property, plant, and equipment and other assets to
Other Current Assets in anticipation of their sale during 1994. The Company has
included in Accrued Expenses the accrued costs of employee severance programs
and noncancelable lease payments associated with facilities which will not be
used in the near future ($56 million). The adoption of FAS 109 resulted in the
recognition of certain deferred tax assets and liabilities not previously
recognized. These tax assets and liabilities are included in Other Current
Assets, Other Assets, Income Taxes Payable and Deferred Income Taxes. The
decrease in sales was the primary factor in the decrease in Accounts Receivable
($86 million). The decrease in Accounts Receivable, the adoption of FAS 109 and
the Company's restructuring program were the primary factors which contributed
to the decrease in the current ratio at December 31, 1993 to 2.1 to 1 from 3.2
to 1 at December 31, 1992 and 1991.
The Company routinely enters into foreign currency exchange contracts to
reduce its exposure to foreign currency exchange rate changes on the results of
operations of its foreign subsidiaries. As of December 31, 1993 the Company had
approximately $22 million of such contracts outstanding that will mature at
various dates through February 1994. Realized and unrealized foreign currency
gains and losses are recognized when incurred. As a result of the Company's
hedging program the changes in foreign currency exchange rates had an immaterial
effect on its results of operations. The strengthening of the dollar relative to
most foreign currencies caused the $21 million movement in the Company's
Accumulated Translation Adjustments component of Stockholders' Equity at
December 31, 1993 compared to the prior year end.
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<PAGE> 46
DIRECTORS
<TABLE>
<S> <C>
JOHN A. BOGARDUS, JR. ZANVYL KRIEGER
Retired Chairman of the Board Chairman Emeritus
and Chief Executive Officer United States Surgical Corporation
Alexander & Alexander Services Inc. Counsel, Weinberg and Green
THOMAS R. BREMER Baltimore, MD
Senior Vice President BRUCE S. LUSTMAN*
and General Counsel Executive Vice President
United States Surgical Corporation Chief Operating Officer
LEON C. HIRSCH United States Surgical Corporation
Chairman, President and WILLIAM F. MAY
Chief Executive Officer Chairman of the Board and
United States Surgical Corporation Chief Executive Officer
Statue of Liberty-Ellis Island
TURI JOSEFSEN Foundation, Inc. New York, NY
Executive Vice President
United States Surgical Corporation MARIANNE SCIPIONE
President and Chief Executive Officer Vice President,
Auto Suture Companies Corporation Communications
DOUGLAS L. KING President United States Surgical Corporation
Smyth, Sanford & Gerard Reinsurance DOUGLAS T. TANSILL
Intermediaries, Inc. Managing Director
New York, NY Kidder, Peabody & Co. Incorporated
New York, NY
</TABLE>
- ------------
*Mr. Lustman is retiring as a corporate officer effective March 31, 1994, but
will remain a member of the board.
COMMITTEES
<TABLE>
<S> <C>
AUDIT COMMITTEE
William F. May Chairman
John A. Bogardus, Jr.
Douglas L.King
Douglas T. Tansill
EXECUTIVE COMMITTEE COMPENSATION/OPTION COMMITTEE
Leon C. Hirsch, Chairman Douglas L. King, Chairman
John A. Bogardus, Jr. John A. Bogardus, Jr.
Turi Josefsen William F. May
Bruce S. Lustman
William F. May TRANSACTION COMMITTEE
Leon C. Hirsch, Chairman
NOMINATING COMMITTEE John A. Bogardus, Jr.
John A. Bogardus, Jr., Chairman Thomas R. Bremer
Leon C. Hirsch Douglas L. King
Douglas L. King
William F. May
</TABLE>
40
<PAGE> 47
OFFICERS
<TABLE>
<S> <C>
Leon C. Hirsch Thomas D. Guy*
Chairman of the Board, President Vice President
and Chief Executive Officer Charles E. Johnson
Turi Josefsen Vice President and
Executive Vice President; and Vice President, Sales,
President and Chief Executive Auto Suture Company
Officer of Auto Suture Companies Mark D. LoGuidice
Bruce S. Lustman* Vice President,
Executive Vice President and Marketing, Sutures
Chief Operating Officer Louis J. Mazzarese
Thomas R. Bremer Vice President, Quality
Senior Vice President and and Regulatory Affairs
General Counsel Bernard Murat
David T. Green* Group Vice President
Senior Vice President, Research Pier Paolo Partiseti
Donald S. Kaplan Group Vice President
Senior Vice President, Technology Louis G. Petti*
Robert A. Knarr Vice President, Management
Senior Vice President, Marketing Information Systems
Howard M. Rosenkrantz Frederick Preiss*
Senior Vice President, Finance and Vice President, Manufacturing
Chief Financial Officer Lynnea Prunkl*
Henry Bolanos* Vice President, Human Resources
Vice President, Research Joseph C. Scherpf
Peter Burtscher Vice President and Controller
Group Vice President Marianne Scipione
Richard A. Douville Vice President,
Vice President and Treasurer Corporate Communications
Louis J. Gagliano* Wilson F. Smith, Jr.
Vice President, Internal Audit Group Vice President
Richard N. Granger Judith M. Stant
Vice President, Research Vice President and
and Development General Manager,
Roy D. Gravener* Auto Suture Company, Australia
Vice President, Pamela Komenda
Value Engineering Corporate Secretary
</TABLE>
*Effective March 31, 1994, Mr. Lustman is retiring as Executive Vice President
and Chief Operating Officer. He will remain a Director of the Company and there
are no plans to replace him at present. Also, effective March 31, 1994, Messrs.
Green, Bolanos, Gravener, Petti, Preiss, and Ms. Prunkl have elected to retire.
Mr. Gagliano will retire effective April 30, 1994. Mr. Guy will become a Senior
Vice President and will assume responsibility for manufacturing operations.
Certain of these positions will be eliminated as part of the Company's
workforce reduction and others may be assumed by employees who will not be
named as executive officers. Mr. David Fisher, previously a Senior Vice
President of the Company and who is serving as Special Counsel to the Board of
Directors, is retiring from that position effective March 31, 1994 but will
remain a consultant to the Company.
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<PAGE> 48
STOCKHOLDER INFORMATION
<TABLE>
<S> <C>
MARIANNE SCIPIONE, VICE PRESIDENT EXCHANGE LISTINGS
CORPORATE COMMUNICATIONS Common Stock (Ticker Symbol: USS)
United States Surgical Corporation New York Stock Exchange
150 Glover Avenue, Norwalk, CT 06856 Options
American Stock Exchange
Stockholders desiring general or financial
information or a copy of the Company's TRANSFER AGENT AND REGISTRAR
Annual Report ot the Securities and Exchange For information on dividends or certificates,
Commission on Form 10-K should contact Ms. should contact First Chicago Trust Company of
Scipione New York
P.O. Box 2500, Jersey City, NJ 07303-25
(201) 324-0498
</TABLE>
AUDITORS
Deloitte & Touche
New York, NY 10019
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<PAGE> 49
UNITED STATES SURGICAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR ANNUAL MEETING MAY 18, 1994
PROXY
The undersigned hereby constitutes and appoints John A. Bogardus Jr., Leon C.
Hirsch and William F. May, and each of them, his true and lawful agents and
proxies with full power of substitution in each, to represent the undersigned
at the Annual Meeting of Stockholders of UNITED STATES SURGICAL CORPORATION to
be held at the Equitable building, 787 Seventh Avenue, New York, N.Y. 10019, on
Wednesday, May 18, 1994, at 3:00 P.M. (local time), and at any adjournments
thereof, as directed on this card upon the matter set forth on the reverse side
hereof, as described in the proxy statement, and in their discretion upon any
other business which may properly come before said meeting. The undersigned
hereby revokes all proxies heretofore given with respect to such meeting.
Election of Directors - Nominees:
John A. Bogardus, Jr., Thomas R. Bremer, Leon C. Hirsch,
Turi Josefsen, Douglas L. King, Zanvyl Krieger,
Bruce S. Lustman, William F. May, Marianne Scipione,
Douglas T. Tansill.
You are encouraged to specify your choice by marking the appropriate box (SEE
REVERSE SIDE). IF YOU DO NOT MARK ANY BOX THE SHARES WILL BE VOTED IN
ACCORDANCE WITH THE BOARD OF THE DIRECTORS' RECOMMENDATION. The named proxies
cannot vote your shares unless you sign and return this card.
SEE REVERSE
SIDE
[ X ] PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF ALL
DIRECTORS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF ALL DIRECTORS.
FOR WITHHELD
Election of
Directors [ ] [ ]
(see reverse)
For, except vote withheld from the following nominee(s):
- --------------------------------------
NOTE: Please sign exactly as name appears hereon, Joint
owners should each sign. When signing as an attorney,
executor, administrator, trustee or guardian, please
give full title as such.
--------------------------------------
--------------------------------------
SIGNATURE(S) DATE
