<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
---- THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
---- THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ------------------- TO--------------------
COMMISSION FILE NO. 1-9776
UNITED STATES SURGICAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-2518270
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 GLOVER AVENUE, NORWALK, CONNECTICUT 06856
(Address of principal executive offices) (Zip Code)
(203) 845-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Number of shares of Common Stock,
par value $.10 per share,
outstanding at March 31, 1994 56,389,298
----------
<PAGE> 2
Form 10-Q
March 31, 1994
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I--FINANCIAL INFORMATION Page
----
<S> <C>
Financial Statements:
Consolidated Balance Sheets at March 31, 1994 (Unaudited) and December 31, 1993 3
Consolidated Statements of Operations (Unaudited) for the Three Months
Ended March 31, 1994 and 1993 4
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the
Three Months Ended March 31, 1994 and 1993 5
Consolidated Statements of Cash Flows (Unaudited) for the Three Months
Ended March 31, 1994 and 1993 6
Notes to Consolidated Financial Statements (Unaudited) 7
Review by Independent Accountants 8
Independent Accountants' Report 9
Management's Discussion and Analysis of Interim Financial Condition and Results
of Operations 10
PART II--OTHER INFORMATION
Legal Proceedings 14
Exhibits and Reports on Form 8-K 15
Signature 15
Exhibit 11 - Statement Regarding Computation of Per Share Earnings
</TABLE>
-2-
<PAGE> 3
Form 10-Q
March 31, 1994
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
In thousands, except share data 1994 1993
- - ----------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 235,600 $ 900
Receivables, less allowance
($6,000 - March 31, 1994; $5,000 - December 31, 1993) 210,100 197,900
Inventories:
Finished goods 111,300 113,000
Work in process 36,200 36,900
Raw materials 47,900 62,300
---------- ----------
195,400 212,200
Other current assets 43,700 53,800
---------- ----------
Total Current Assets 684,800 464,800
---------- ----------
Property, Plant, and Equipment at cost: 762,800 752,100
Less: Allowance for depreciation and amortization (170,200) (159,900)
---------- ----------
592,600 592,200
Other assets (net) 124,700 113,500
---------- ----------
Total Assets $1,402,100 $1,170,500
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 56,300 $ 50,200
Accrued expenses 128,800 137,500
Income taxes payable 33,200 28,800
---------- ----------
Total Current Liabilities 218,300 216,500
Long-Term Debt 541,200 505,300
Deferred Income Taxes 11,800 4,800
Stockholders' Equity:
Preferred Stock $5.00 par value, authorized 2,000,000 shares;
9.76% Series A cumulative convertible, 177,400 shares
issued and outstanding (liquidation value -- $200 million) 900
Additional paid-in capital-preferred stock 191,000
Common stock $.10 par value, authorized 250,000,000 shares;
issued, 64,529,522 at March 31, 1994 and 64,402,144 at
December 31, 1993 6,500 6,400
Additional paid-in capital -- common stock 373,800 371,700
Retained earnings 169,100 178,300
Treasury stock at cost; 8,140,224 shares at March 31, 1994
and 8,144,386 shares at December 31, 1993 (86,700) (86,700)
Other (23,800) (25,800)
---------- ----------
630,800 443,900
---------- ----------
Total Liabilities and Stockholders' Equity $1,402,100 $1,170,500
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE> 4
Form 10-Q
March 31, 1994
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
In thousands, except per share data 1994 1993
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $226,000 $326,300
------- -------
Costs and expenses:
Cost of products sold 117,600 138,800
Research and development 10,800 14,900
Selling, administrative and general 96,500 119,800
Interest 6,500 3,500
-------- --------
231,400 277,000
-------- --------
Income (loss) before income taxes (5,400) 49,300
Income taxes 2,500 13,300
-------- --------
Net income (loss) $ (7,900) $ 36,000
Preferred stock dividends (200)
-------- --------
Net income (loss) applicable to common shares $ (8,100) 36,000
======== ========
Average number of common shares and common
share equivalents outstanding 56,300 59,100
======== ========
Net income (loss) per common share and common
share equivalent (primary and fully diluted) $(.14) $.61
==== ===
Dividends declared per common share $ .02 $.075
==== ====
</TABLE>
See Notes to Consolidated Financial Statements.
-4-
<PAGE> 5
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES Form 10-Q
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' March 31, 1994
EQUITY (Unaudited)
For the three months ended March 31, 1994 and 1993
<TABLE>
<CAPTION>
Additional Additional
Paid-in Paid-in Accumulated
Dollars in thousands, Preferred Capital- Common Capital- Retained Translation
except share data Stock Preferred Stock Common Earnings Adjustments
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993 . . . . . . . . . . . . . . $6,400 $345,200 $330,700 $ 400
Common stock issued to
employees-net (149,002 shares) . . . . . . . . . . . 4,400
Income tax benefit from stock
options exercised, recognized upon
adoption of FAS 109 . . . . . . . . . . . . . . 2,000
Aggregate adjustment resulting
from the translation of foreign
financial statements . . . . . . . . . . . . . . (8,700)
Common stock dividends declared ($.075 per share) . . . (4,100)
Net income . . . . . . . . . . . . . . 36,000
------ -------- -------- --------
BALANCE AT MARCH 31, 1993 . . . . . . . . . . . . . . . $6,400 $351,600 $362,600 $ (8,300)
====== ======== ======== ========
BALANCE AT JANUARY 1, 1994 . . . . . . . . . . . . . . $6,400 $371,700 $178,300 $(20,400)
Issuance of preferred stock (177,400 shares) . . . . . $900 $191,000
Common stock issued to
employees-net (131,150 shares) . . . . . . . . . . . 100 2,100
Aggregate adjustment resulting
from the translation of foreign
financial statements . . . . . . . . . . . . . . 2,000
Preferred stock dividends . . . . . . . . . . . . . . . (200)
Common stock dividends declared ($.02 per share) . . . (1,100)
Net loss . . . . . . . . . . . . . . (7,900)
---- -------- ------ -------- -------- --------
BALANCE AT MARCH 31, 1994 . . . . . . . . . . . . . . . $900 $191,000 $6,500 $373,800 $169,100 $(18,400)
==== ======== ====== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Installment
Receivables
Dollars in thousands, from Sale of Treasury
except share data Common Stock Stock Total
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1993 . . . . . . . . . . . . . . $(6,000) $(86,700) $590,000
Common stock issued to
employees-net (149,002 shares) . . . . . . . . . . . 4,400
Income tax benefit from stock
options exercised, recognized upon
adoption of FAS 109 . . . . . . . . . . . . . . 2,000
Aggregate adjustment resulting
from the translation of foreign
financial statements . . . . . . . . . . . . . . (8,700)
Common stock dividends declared ($.075 per share) . . . (4,100)
Net income . . . . . . . . . . . . . . 36,000
------- -------- --------
BALANCE AT MARCH 31, 1993 . . . . . . . . . . . . . . . $(6,000) $(86,700) $619,600
======= ======== ========
BALANCE AT JANUARY 1, 1994 . . . . . . . . . . . . . . $(5,400) $(86,700) $443,900
Issuance of preferred stock (177,400 shares) . . . . . 191,900
Common stock issued to
employees-net (131,150 shares) . . . . . . . . . . . 2,200
Aggregate adjustment resulting
from the translation of foreign
financial statements . . . . . . . . . . . . . . 2,000
Preferred stock dividends . . . . . . . . . . . . . . . (200)
Common stock dividends declared ($.02 per share) . . . (1,100)
Net loss . . . . . . . . . . . . . . (7,900)
------- -------- --------
BALANCE AT MARCH 31, 1994 . . . . . . . . . . . . . . . $(5,400) $(86,700) $630,800
======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE> 6
Form 10-Q
March 31, 1994
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
In thousands 1994 1993
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 215,200 $ 288,100
Cash paid to vendors, suppliers and employees (177,500) (243,900)
Interest paid (7,400) (3,500)
Income taxes paid (1,500) (2,500)
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 28,800 38,200
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (17,100) (71,200)
Other assets (4,400) (6,300)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (21,500) (77,500)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings 1,066,600 642,000
Long-term debt repayments (1,032,900) (599,900)
Issuance of preferred stock (net) 191,900
Common stock issued from stock plans 2,200 4,400
Dividends paid (4,100)
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 227,800 42,400
----------- ----------
Effect of exchange rate changes (400) (3,200)
----------- ----------
NET INCREASE (DECREASE) 234,700 (100)
Cash and cash equivalents, beginning of period 900 2,500
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 235,600 $ 2,400
=========== ==========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (7,900) $ 36,000
----------- ----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 20,900 17,000
Adjustment of property, plant, and equipment reserves 2,800 4,000
Receivables -- (increase) (9,800) (37,600)
Inventories -- decrease (increase) 8,900 (15,800)
Adjustment of inventory reserves 8,200 7,500
Accounts payable/accrued expenses -- (decrease) increase (5,300) 17,100
Income taxes payable and deferred -- increase 600 8,500
Other adjustments -- net 10,400 1,500
----------- ----------
Total adjustments 36,700 2,200
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 28,800 $ 38,200
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-6-
<PAGE> 7
Form 10-Q
March 31, 1994
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. GENERAL
The accompanying unaudited consolidated financial statements for the
three-month periods ended March 31, 1994 and 1993 have been prepared in
accordance with the instructions to Form 10-Q. All adjustments which, in
the opinion of management, are necessary for a fair presentation of the
consolidated financial statements for the three-month periods ended March
31, 1994 and 1993 have been reflected. All such adjustments are of a
normal recurring nature. It is suggested that the March 31, 1994
consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1993.
2. ISSUANCE OF PREFERRED STOCK
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 or a minimum of approximately 8.5 million
shares of the Company's Common Stock), par value $5 per share, in an
offering exempt from the registration requirements of 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 50 shares of 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. The
Preferred Stock was sold and will trade principally as depositary
receipts, each representing a one-fiftieth interest in a share of
Preferred Stock. 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 revolving
credit and term loan agreements with various banks.
3. INCOME TAXES
The 1994 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 1993 effective income tax rate of 27%
reflects the projected tax benefits from manufacturing operations in Puerto
Rico.
-7-
<PAGE> 8
Form 10-Q
March 31, 1994
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
REVIEW BY INDEPENDENT ACCOUNTANTS
The March 31, 1994 and 1993 consolidated financial statements included in this
Quarterly Report on Form 10-Q have been reviewed by Deloitte & Touche, in
accordance with established professional standards and procedures for such a
review. In addition, the December 31, 1993 consolidated balance sheet was
audited by Deloitte & Touche in accordance with generally accepted auditing
standards.
-8-
<PAGE> 9
Form 10-Q
March 31, 1994
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
UNITED STATES SURGICAL CORPORATION
We have reviewed the accompanying consolidated balance sheet of United States
Surgical Corporation and subsidiaries as of March 31, 1994, and the related
consolidated statements of operations for the three-month periods ended March
31, 1994 and 1993 and the consolidated statements of changes in stockholders'
equity and of cash flows for the three-month periods ended March 31, 1994 and
1993. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of United States Surgical Corporation
and subsidiaries as of December 31, 1993, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the year then ended (not presented herein); and in our report dated February 1,
1994 (except for Notes H, K and L, as to which the date was March 28, 1994), we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1993 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
DELOITTE & TOUCHE
NEW YORK, NEW YORK
APRIL 22, 1994
-9-
<PAGE> 10
Form 10-Q
March 31, 1994
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In the first quarter of 1994 the Company attained sales of $226 million
compared with sales of $326 million in the first quarter of 1993. Sales
decreased 31% in the first quarter of 1994 in comparison to the corresponding
period in 1993.
Net loss and net loss per share in the first quarter of 1994 were $8 million
and $.14 per share, respectively, as compared to 1993 first quarter net income
and net income per share of $36 million and $.61 per share, respectively. The
effects of changes in foreign currency exchange rates on net loss in the first
quarter of 1994 in comparison to the corresponding period in 1993 were
immaterial.
The Company's restructuring plans and other cost saving measures are expected
to reduce its operating and fixed manufacturing costs by approximately $150
million on an annualized basis. The cost cutting programs adopted for 1994
included the reduction of the Company's workforce by approximately 20% or 1600
employees and a consolidation and divestiture of certain leased and owned
worldwide real estate. Cost savings associated with the restructuring plans
started to be realized in the first quarter of 1994 (salary expense was
approximately $7 million lower and rent and depreciation expenses were
approximately $2 million lower as a result of the restructuring) with the major
effect expected to begin in the second quarter of 1994.
The reduction in sales in the first quarter of 1994 to $226 million compared to
the corresponding period in 1993 is primarily attributed to an initial
distributor stocking program in 1993, which was not repeated in 1994. These
distributor inventory purchases were made in connection with the implementation
of the Company's Just-In-Time (JIT) hospital distribution program during the
first quarter of 1993. The initial stocking of JIT distributors precipitated
an inventory reduction period during which the hospitals formerly supplied
directly by the Company worked their inventories down to minimal levels. The
Company believes that inventories at JIT distributors at the end of the 1994
first quarter are down significantly, with distributor sales to hospitals
during the preceding six months significantly in excess of distributor
purchases from the Company. Once distributor inventories reach an optimum
level, the Company believes that its sales to distributors will approximate
distributor sales to hospitals.
The uncertainty created by the government's announced intention to implement a
sweeping program of healthcare reform continues to have a negative impact on
the Company's business. Hospitals embarked on an all-out campaign to reduce
costs and inventories, delaying the evaluation and purchase of new technology
and new laparoscopic techniques until a more definitive direction in healthcare
reform emerges. This uncertainty has created a new strategy of choosing low
cost over product efficacy which benefitted the Company's principal competitor.
To combat competition, the Company has selectively reduced prices and has
developed a customized total cost containment program for its customers.
Company representatives are demonstrating to customers how the Company's
products can help total cost containment, and they are offering their expertise
on reimbursement matters and helping hospitals to market themselves to managed
care organizations.
-10-
<PAGE> 11
Form 10-Q
March 31, 1994
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The following table analyzes the decrease in sales in the first quarter of 1994
compared with the corresponding period in 1993:
<TABLE>
<CAPTION>
Three Months Ended
In thousands March 31, 1994
------------ --------------------------
<S> <C>
Composition of Sales Decrease:
Sales volume decrease $ 91,500
Net price changes 2,600
Effects of changes in foreign
currency exchange rates 6,200
-------
Sales Decrease $100,300
=======
</TABLE>
The net price change component of the sales decrease reflects the net effect of
selling price discounts granted to hospitals and just-in-time distributors,
partially offset by price list increases effective January 1, 1994. Sales
volume decreases in the first quarter of 1994 accounted for 91% of the total
sales decrease from the corresponding period in 1993. The effects of changes
in foreign currency exchange rates in the first quarter of 1994 compared to the
corresponding period in 1993 contributed to 6% of the total sales decrease.
Cost of products sold expressed as a percentage of sales increased in the first
quarter of 1994 to 52% compared to 43% in the corresponding period of 1993,
primarily as a result of higher per unit indirect production costs due to lower
production volumes. Gross margin from operations (sales less cost of products
sold divided by sales) was 48% in the first quarter of 1994 in comparison to
57% in the corresponding period in 1993. Although the Company implemented its
restructuring plans in the first quarter of 1994, the full benefits of the cost
reduction measures adopted by the Company are expected to start being realized
in the second quarter of 1994 which should result in improved gross margins for
succeeding quarters of 1994. Changes in foreign currency exchange rates from
those existing in 1993 did not have a material effect on the cost of products
sold in the first quarter of 1994.
The Company's expenditures for research and development decreased to $11
million in the first quarter of 1994 from $15 million in the corresponding
period in 1993, reflecting the impact of the across the board cost reduction
program initiated in the second half of 1993. The Company is continuing its
commitment to develop unique new products for use in new surgical procedures
and specialty areas. The Company presently plans to maintain its investment in
research and development activities at levels approximating 4% - 5% of annual
sales in the future.
-11-
<PAGE> 12
Form 10-Q
March 31, 1994
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Selling, administrative and general expenses expressed as a percentage of sales
increased to 43% in the first quarter of 1994, compared with 37% in the
comparable 1993 period, primarily as a result of lower 1994 sales volumes. The
Company expects the cost saving benefits from its restructuring program will be
reflected in reduced selling, administrative and general expenses as a
percentage of sales commencing in the second quarter of 1994. Changes in
foreign currency exchange rates from those existing in the first quarter of
1993 had an immaterial effect on reported selling, administrative and general
expenses in the 1994 first quarter.
The tax provision for the first quarter of 1994 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
rate in the first quarter of 1993 was 27% 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.
FINANCIAL CONDITION
The Company's current cash and cash equivalent balances, existing borrowing
capacity and projected operating cash flows are currently well in excess of its
foreseeable cash flow requirements. It is the Company's intention to
renegotiate its current revolving credit and term loan agreements with various
banks, with the objective of significantly reducing the amount of outstanding
bank indebtedness, extending the present maturities and reducing the size of
the bank credit facility from its current $675 million to a level below $500
million. The Company is in full compliance with all of the financial covenants
associated with its bank and lease agreements.
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 and cash basis methods totaled $17 million in the first quarter of
1994, compared with $64 million on the accrual basis ($71 million on a cash
basis) in the corresponding quarter in 1993, and consist primarily of additions
to machinery and equipment ($11 million), molds and dies ($2 million) and land
and buildings ($4 million).
The increase in cash and cash equivalents at March 31, 1994 in comparison to
the prior year-end is primarily attributable to the receipt of the net proceeds
from the sale of the Company's preferred stock ($192 million) and additional
debt financing during the quarter ($36 million). The increase in accounts
receivable ($12 million) since December 31, 1993 is primarily attributable to a
slight slowing of collections of international distributor and subsidiary
receivables. The reduction in total inventories ($17 million) from the prior
year-end levels resulted primarily from improved utilization and management of
raw materials in the Company's production process.
-12-
<PAGE> 13
Form 10-Q
March 31, 1994
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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 March 31, 1994 the Company had
approximately $18 million of such contracts outstanding that will mature at
various dates through May 31, 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.
-13-
<PAGE> 14
Form 10-Q
March 31, 1994
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A. In the Company's action against Johnson & Johnson, Inc. and its
subsidiary, Ethicon, Inc. ("Ethicon"), alleging infringement of the patent
covering the Company's endoscopic multiple clip applier (see Item 3 of part I
of the Company's Annual Report on Form 10-K for the year ended December 31,
1993), a jury trial of the action began January 12, 1994. On February 16,
1994, the jury returned a verdict in favor of the defendants, holding that
certain of the Company's patent claims were invalid. The Company is appealing
the verdict to the United States Court of Appeals for the Federal Circuit.
B. In the pending actions brought as derivative actions (see Item 3
of Part I of the Company's Annual Report on Form 10-K for the year ended
December 31, 1993), on January 12, 1994, notwithstanding defenses believed to
be meritorious, the defendants agreed to settle the claims asserted in these
actions, subject to Court approval. Under the settlement, the defendants deny
the allegations but have agreed to adjustments to the vesting and exercise
terms of stock option grants for certain executives within three years of the
court's approval of the settlement. A hearing on the settlement was held on
March 9, 1994 and the settlement is before the Court for approval.
C. In February 1994, Ethicon Endo-Surgery, a partnership between
Ethicon, Inc. and Ortho Diagnostic Systems, Inc., filed suit against the
Company in the United States District Court for the Southern District of Ohio,
alleging infringement by the Company's MULTIFIRE GIA and ENDO GIA instruments
of a single patent for a safety lockout mechanism on a linear cutter/stapler.
The plaintiffs filed a motion for a preliminary injunction against the Company,
final argument as to which was heard on April 4, 1994. No decision has been
issued. The Company has asserted counterclaims under two patents owned by the
Company. In the opinion of management, based upon the advice of counsel, the
Company has meritorious defenses against the claims asserted in the complaint
and valid counterclaims against the plaintiffs.
D. The Company is engaged in other litigation, primarily as the
defendant, in cases involving product liability claims. The Company believes
it is adequately insured in all material respects against the product liability
claims. The Company is also involved in various other cases. In the opinion
of management, based on advice of counsel, the Company has meritorious defenses
and valid cross-claims in these actions.
* * *
In the opinion of management, based on the advice of counsel, the ultimate
outcome of all of the aforementioned lawsuits should not have a materially
adverse effect on the Company's consolidated financial statements.
-14-
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - Exhibit 11, Statement Regarding Computation of Per
Share Earnings.
b. Reports on Form 8-K - The Company did not file any reports on
Form 8-K during the three-month period ended March 31, 1994.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATES SURGICAL CORPORATION
----------------------------------
Registrant
By: /S/ HOWARD M. ROSENKRANTZ
-------------------------------
Howard M. Rosenkrantz
Senior Vice President, Finance and
Chief Financial Officer
Dated: April 26, 1994
-15-
<PAGE> 16
Exhibit Index
Exhibit 11 - Statement Regarding Computation of Per Share Earnings.
<PAGE> 1
Exhibit 11
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
AND COMMON SHARE EQUIVALENT (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
In thousands, except per share data 1994 1993
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $ (7,900) $36,000
Preferred stock dividend (200)
-------- -------
Net income (loss) available for common stock $ (8,100) $36,000
======== =======
Average number of common shares and
common share equivalents outstanding:
Average number of common shares
outstanding 56,300 55,700
Add common share equivalents - Options
to purchase common shares - net 3,400
-------- -------
Average number of common shares and
common share equivalents outstanding 56,300 59,100
======== =======
Net income (loss) per common share and common
share equivalent (primary and fully diluted) $ (0.14) $ .61
======== =======
</TABLE>
For the period ended March 31, 1994, loss per share was computed solely on the
weighted average number of common shares outstanding during the period, since
the inclusion of equivalents would be antidilutive.
