<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 JUNE 30, 1995
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 June 30, 1995 56,971,722 Shares
<PAGE> 2
Form 10-Q
June 30, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I--FINANCIAL INFORMATION
Financial Statements:
Consolidated Balance Sheets at June 30, 1995 (Unaudited) and
December 31, 1994...................................................................................... 3
Consolidated Statements of Operations (Unaudited) for the Six Months and
Three Months Ended June 30, 1995 and 1994.............................................................. 4
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the
Six Months Ended June 30, 1995 and 1994................................................................ 5
Consolidated Statements of Cash Flows (Unaudited) for the Six Months
Ended June 30, 1995 and 1994........................................................................... 6
Notes to Consolidated Financial Statements (Unaudited)................................................. 7
Review by Independent Accountants...................................................................... 8
Independent Accountants' Report and Letter............................................................. 9
Management's Discussion and Analysis of Interim Financial Condition and Results
of Operations.......................................................................................... 10
PART II--OTHER INFORMATION
Legal Proceedings...................................................................................... 14
Submission of Matters to a Vote of Security Holders.................................................... 15
Exhibits and Reports on Form 8-K....................................................................... 15
Signature.............................................................................................. 15
</TABLE>
-2-
<PAGE> 3
Form 10-Q
June 30, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
In thousands, except share data 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 10,000 $ 11,300
Receivables, less allowance
($7,500 - June 30, 1995 and $7,300 - December 31, 1994) 235,600 211,500
Inventories:
Finished goods 97,200 95,500
Work in process 25,500 27,100
Raw materials 36,700 44,600
---------- ----------
159,400 167,200
Other current assets 61,500 49,500
---------- ----------
Total Current Assets 466,500 439,500
---------- ----------
Property, Plant, and Equipment at cost: 755,100 751,100
Less: Allowance for depreciation and amortization (236,800) (211,100)
---------- ----------
518,300 540,000
Other Assets (net) 129,200 124,000
---------- ----------
Total Assets $1,114,000 $1,103,500
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 32,900 $ 29,500
Accrued liabilities 131,500 125,200
Income taxes payable 43,100 29,400
---------- ----------
Total Current Liabilities 207,500 184,100
Long-Term Debt 199,500 248,500
Deferred Income Taxes 8,500 8,900
Stockholders' Equity:
Preferred Stock $5.00 par value, authorized 2 million shares;
9.76% Series A cumulative convertible, 177,400 shares
issued and outstanding (liquidation value - $200 million) 900 900
Additional paid-in capital - preferred stock 190,600 190,600
Common stock $.10 par value, authorized 250 million shares;
issued, 65,100,824 at June 30, 1995 and 64,973,192 at
December 31, 1994 6,500 6,500
Additional paid-in capital - common stock 382,900 380,700
Retained earnings 199,600 178,100
Treasury stock at cost; 8,129,102 shares at June 30, 1995
and 8,137,053 shares at December 31, 1994 (86,700) (86,700)
Accumulated translation adjustments 4,700 (8,100)
---------- ----------
698,500 662,000
---------- ----------
Total Liabilities and Stockholders' Equity $1,114,000 $1,103,500
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE> 4
Form 10-Q
June 30, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------- ----------------------
In thousands, except per share data 1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $504,200 $458,000 $263,600 $232,000
-------- -------- -------- --------
Costs and expenses:
Cost of products sold 230,700 234,800 117,800 117,200
Research and development 19,600 20,000 9,500 9,200
Selling, general and administrative 199,700 186,500 105,700 90,000
Interest 10,700 10,300 5,800 3,800
-------- -------- -------- --------
460,700 451,600 238,800 220,200
-------- -------- -------- --------
Income before income taxes 43,500 6,400 24,800 11,800
Income taxes 10,000 6,300 5,700 3,800
-------- -------- -------- --------
Net income 33,500 100 19,100 8,000
Preferred stock dividends 9,800 5,100 4,900 4,900
-------- -------- -------- --------
Net income (loss) applicable to common shares $ 23,700 $ (5,000) $ 14,200 $ 3,100
======== ========= ======== ========
Average number of common shares outstanding 56,900 56,400 56,900 56,500
======== ======== ======== ========
Net income (loss) per common share
(primary and fully diluted) $.42 $(.09) $.25 $.05
==== ===== ==== ====
Dividends declared per common share $.04 $.04 $.02 $.02
==== ==== ==== ====
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<PAGE> 5
Form 10-Q
June 30, 1995
United States Surgical Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
For the six months ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
Additional Additional
Paid-in Paid-in
Dollars in thousands, Preferred Capital - Common Capital - Retained
except share data Stock Preferred Stock Common Earnings
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994, $6,400 $371,700 $178,300
Issuance of preferred stock (177,400 shares) $900 $190,900
Common stock issued to employees -
net (337,617 shares) 100 4,600
Aggregate adjustment resulting from the
translation of foreign financial statements
Preferred stock dividends declared (5,100)
Common stock dividends declared ($.04 per share) (2,200)
Net income 100
---- -------- ------ -------- --------
BALANCE AT JUNE 30, 1994 $900 $190,900 $6,500 $376,300 $171,100
==== ======== ====== ======== ========
BALANCE AT JANUARY 1, 1995, $900 $190,600 $6,500 $380,700 $178,100
Common stock issued to employees -
net (135,583 shares) 2,200
Aggregate adjustment resulting from the
translation of foreign financial statements
Preferred stock dividends declared (9,800)
Common stock dividends declared ($.04 per share) (2,200)
Net income 33,500
---- -------- ------ -------- --------
BALANCE AT JUNE 30, 1995 $900 $190,600 $6,500 $382,900 $199,600
==== ======== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Installment
Accumulated Receivables
Dollars in thousands, Translation from Sale of Treasury
except share data Adjustments Common Stock Stock Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994, $(20,400) $(5,400) $(86,700) $443,900
Issuance of preferred stock (177,400 shares) 191,800
Common stock issued to employees -
net (337,617 shares) 4,700
Aggregate adjustment resulting from the
translation of foreign financial statements 8,300 8,300
Preferred stock dividends declared (5,100)
Common stock dividends declared ($.04 per share) (2,200)
Net income 100
-------- ------- -------- --------
BALANCE AT JUNE 30, 1994 $(12,100) $(5,400) $(86,700) $641,500
======== ======= ======== ========
BALANCE AT JANUARY 1, 1995, $ (8,100) $ - $(86,700) $662,000
Common stock issued to employees -
net (135,583 shares) 2,200
Aggregate adjustment resulting from the
translation of foreign financial statements 12,800 12,800
Preferred stock dividends declared (9,800)
Common stock dividends declared ($.04 per share) (2,200)
Net income 33,500
-------- ------- -------- --------
BALANCE AT JUNE 30, 1995 $ 4,700 $ - $(86,700) $698,500
======== ======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
-5-
<PAGE> 6
Form 10 -Q
June 30, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------------
In thousands 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 488,700 $ 463,100
Cash paid to vendors, suppliers and employees (389,200) (379,200)
Interest paid (8,900) (14,200)
Income taxes paid (4,200) (5,900)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 86,400 63,800
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (17,100) (29,700)
Deposit relative to acquisition of a distributor's assets (11,700)
Other assets 3,600 11,800
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (25,200) (17,900)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings 1,007,100 2,694,100
Long-term debt repayments (1,063,700) (2,924,300)
Issuance of preferred stock (net) 191,800
Common stock issued from stock plans 2,200 4,700
Dividends paid (12,000) (2,200)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (66,400) (35,900)
----------- -----------
Effect of exchange rate changes 3,900 500
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,300) 10,500
Cash and cash equivalents, beginning of period 11,300 900
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,000 $ 11,400
=========== ===========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
NET INCOME $ 33,500 $ 100
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 45,800 43,100
Adjustment of property, plant and
equipment reserves 6,000 8,500
Receivables -- (increase)decrease (17,300) 5,900
Inventories -- (increase)decrease (4,600) 6,800
Adjustment of inventory reserves 13,600 22,300
Accounts payable/accrued liabilities --
increase (decrease) 6,500 (26,200)
Income taxes payable and deferred-
increase(decrease) 9,900 (1,300)
Other adjustments -- net (7,000) 4,600
----------- -----------
Total adjustments 52,900 63,700
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 86,400 $ 63,800
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-6-
<PAGE> 7
Form 10-Q
June 30, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. GENERAL
The accompanying unaudited consolidated financial statements for the
six-month and three-month periods ended June 30, 1995 and 1994 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 six-month
and three-month periods ended June 30, 1995 and 1994 have been reflected.
All such adjustments are of a normal recurring nature. It is suggested
that the June 30, 1995 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, 1994.
2. INCOME TAXES
The 1995 effective tax rate of 23% reflects the utilization of certain
fully reserved tax credit and net operating loss carryforwards and the
availability of a tax credit under Section 936 of the Internal Revenue
Code related to operations in Puerto Rico. The 1994 tax provision for
the six months ended June 30, 1994 relates primarily to foreign taxes
including taxes in Puerto Rico, and was 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.
3. ADOPTION OF FAS 116
In 1995, the Company adopted "Statement of Financial Accounting Standards
No. 116 Accounting for Contributions Received and Contributions Made"
(FAS 116). The effect of the adoption of FAS 116 was not material.
-7-
<PAGE> 8
Form 10-Q
June 30, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
REVIEW BY INDEPENDENT ACCOUNTANTS
The June 30, 1995 and 1994 consolidated financial statements included in this
Quarterly Report on Form 10-Q have been reviewed by Deloitte & Touche LLP, in
accordance with established professional standards and procedures for such a
review. In addition, the December 31, 1994 consolidated balance sheet was
audited by Deloitte & Touche LLP in accordance with generally accepted
auditing standards.
-8-
<PAGE> 9
Form 10-Q
June 30, 1995
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 June 30, 1995, and the related
consolidated statements of operations for the six month and three month periods
ended June 30, 1995 and 1994 and the consolidated statements of changes in
stockholders' equity and cash flows for the six-month periods ended June 30,
1995 and 1994. 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, 1994, 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 January 24,
1995, except for Note C, as to which the date was February 1, 1995, 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, 1994 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
DELOITTE & TOUCHE LLP
STAMFORD, CONNECTICUT
JULY 21, 1995
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
United States Surgical Corporation
150 Glover Avenue
Norwalk, CT 06856
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim
consolidated financial information of United States Surgical Corporation and
subsidiaries for the periods ended June 30, 1995 and 1994, as indicated in our
report dated July 21, 1995; because we did not perform an audit, we expressed
no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 is
incorporated by reference in Registration Statement No. 33-59729 on From S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
STAMFORD, CONNECTICUT
JULY 21, 1995
-9-
<PAGE> 10
Form 10-Q
June 30, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In the second quarter of 1995 the Company attained sales of $264 million
compared with sales of $232 million in the second quarter of 1994. In the
first half of 1995, the Company achieved sales of $504 million compared with
sales of $458 million in the first half of 1994. Sales increased 14% in the
second quarter and increased 10% in the first half of 1995 in comparison to the
corresponding periods in 1994.
In the second quarter of 1995, the Company reported net income of $19 million
and $.25 per common share (after preferred dividends of $5 million) compared
with net income of $8 million and $.05 per common share (after preferred
dividends of $5 million) in the second quarter of 1994. The effect of changes
in foreign currency exchange rates on results of operations was to increase
net income by $6 million in the second quarter of 1995 in comparison to the
corresponding period in 1994.
In the first half of 1995, the Company reported net income of $34 million and
$.42 per common share (after preferred dividends of $10 million) compared with
net income of $0.1 million and a net loss of $.09 per common share (after
preferred dividends of $5 million) in the first half of 1994. The effect of
changes in foreign currency exchange rates on results of operations was to
increase net income by $9 million in the first half of 1995 in comparison to the
corresponding period in 1994.
The following table analyzes the increase in sales in the second quarter and
first half of 1995 compared with the corresponding periods in 1994:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
In thousands June 30, 1995 June 30, 1995
------------ ------------------ ----------------
<S> <C> <C>
Composition of Sales Increase:
Sales volume increases $17,300 $30,300
Net price changes 3,400 (1,600)
Effects of changes in foreign
currency exchange rates 10,900 17,500
------- -------
Sales Increase $31,600 $46,200
======= =======
</TABLE>
Approximately $13 million of the sales increase, accounted for in net price
changes above, is the result of the initiation on April 1, 1995 of the agency
agreement with the Company's distributor in Japan (see the fourth paragraph
under Financial Condition below).
-10-
<PAGE> 11
Form 10-Q
June 30, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company continues to be affected by intense competition, and by ongoing
changes in the health care industry which impact hospital purchasing decisions.
The rate of acceptance of additional procedures utilizing the Company's
products also continues to be affected by uncertainty surrounding health care
reform and by the increased educational requirements for more complex
procedures.
Cost of products sold expressed as a percentage of sales decreased to 45% in
the second quarter and 46% in the first half of 1995, compared with 51% for the
corresponding periods in 1994, primarily as a result of cost savings realized
from the 1993 restructuring plans. Gross margin from operations (sales less
cost of products sold divided by sales) was 55% in the second quarter and 54%
in the first half of 1995 in comparison to 49% in the corresponding periods in
1994. Although the Company implemented its restructuring plans in the first
quarter of 1994, the benefits of the cost reduction measures adopted by the
Company started being realized in the second quarter of 1994 resulting in
improved gross margins for succeeding quarters of 1994 and 1995. Changes in
foreign currency exchange rates had the effect of increasing cost of products
sold by immaterial amounts in the second quarter and first half of 1995,
respectively.
The Company's expenditures for research and development in the second quarter
and first half of 1995 were $10 million and $20 million, respectively, compared
to $9 million and $20 million for the corresponding periods in 1994. 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 3% - 5% of annual sales in the future.
Selling, general and administrative expenses expressed as a percentage of sales
were 40% in the second quarter, and first half of 1995, compared with 39% and
41%, respectively, in the comparable 1994 periods. The increase in selling,
general and administrative expenses in the second quarter and first half of
1995 is primarily due to the effects of the agency agreement entered into with
the Company's Japanese distributor which was effective as of April 1, 1995.
The Company started to realize the cost saving benefits from its restructuring
program which are reflected in reduced selling, general and administrative
expenses as a percentage of sales in the second quarter of 1995. Changes in
foreign currency exchange rates from those existing in 1994 had the effect of
increasing reported selling, general and administrative expenses by $5 million
and $8 million in the second quarter and first half of 1995, respectively.
The 1995 effective tax rate of 23% reflects the utilization of certain fully
reserved tax credit and net operating loss carryforwards and the availability
of a tax credit under Section 936 of the Internal Revenue Code. The tax
provision for the second quarter and first half of 1994 relates primarily to
foreign taxes including taxes in Puerto Rico, and was a result of the Company
incurring net operating losses in certain tax jurisdictions for which it was
not able to recognize the corresponding tax benefits.
-11-
<PAGE> 12
Form 10-Q
June 30, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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. Following the issuance of $200 million of
convertible preferred stock in March 1994, the proceeds from which were used to
reduce bank debt, the Company entered into a new $400 million syndicated credit
agreement in June 1994, later reduced to $350 million in the first quarter of
1995 as a result of the strong cash flows currently being generated by the
Company. Outstanding domestic bank borrowings decreased $66 million during the
first half of 1995 to $96 million at June 30, 1995. In the second quarter of
1995, the Company entered into a credit agreement with a Japanese bank for
approximately 1 billion Japanese Yen (approximately $12 million) in addition to
its existing domestic credit agreements. The outstanding debt as of June 30,
1995 under the Japanese credit agreement was 820 million Japanese Yen
(approximately $10 million) making total bank debt $105 million at June 30,
1995. The credit agreement and the Company's lease agreement for its North
Haven, Connecticut manufacturing complex provide for certain restrictions
concerning sales and purchases of assets, dividends and subsidiary debt and
require the maintenance of certain minimum levels of tangible net worth, fixed
charge coverage ratio and a maximum ratio of total debt to total
capitalization, as defined. The Company is in full compliance with all of the
covenants associated with its bank and lease agreements.
Additions to property, plant, and equipment totaled $17 million in the first
half of 1995 compared with $30 million in the corresponding period in 1994, and
consist primarily of additions to machinery and equipment ($10 million) and
molds and dies ($5 million).
The increase in accounts receivable ($24 million) since December 31, 1994 is
primarily attributable to the agency agreement entered into April 1, 1995 with
the Company's Japanese distributor. Accounts receivable at June 30, 1995 from
the Japanese distributor related to the agency agreement increased by $15
million in the second quarter and such receivables have been paid in July 1995.
The reduction in total inventories ($8 million) from the prior year-end levels
resulted primarily from improved utilization and management of raw materials in
the Company's production process.
The increase in other current assets is primarily attributable to the deposit
of approximately $12 million relative to the purchase of certain assets from
the Company's distributor in Japan. The Company has received the required
governmental approval for the purchase of assets to close, but USSC and the
distributor have voluntarily postponed the official closing of the transaction
until Japan's Ministry of Health and Welfare has completed its investigation
into the distributor's operations unrelated to the business being acquired by
the Company. The investigation has been completed and the Company anticipates
the closing to occur by September 30, 1995. The Company and the distributor
are agreed that all of the conditions to closing the purchase have either
-12-
<PAGE> 13
Form 10-Q
June 30, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
been met or could be met and, accordingly, by entering the agency agreement
effective April 1, 1995, the Company has assumed the risks and rewards of
selling its products to third parties in Japan and is recognizing the
distributor's revenues and selling expenses in the Company's consolidated
financial statements relative to the sale of the Company's products in Japan.
The effect on second quarter 1995 operations under the agency agreement was to
slightly more than double sales revenues recognized by the Company in the
Japanese marketplace to $23 million and, correspondingly, increase selling,
general and administrative expenses by $10 million in the second quarter of
1995 in comparison to the corresponding period in 1994.
In 1995 the Company adopted "Statement of Financial Accounting Standards No.
116 - Accounting for Contributions Received and Contributions Made" (FAS 116).
The effect of the adoption was not material.
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 June 30, 1995 the Company had
approximately $9 million of such contracts outstanding that will mature no
later than September 1995. Realized and unrealized foreign currency gains and
losses are recognized when incurred.
-13-
<PAGE> 14
Form 10-Q
June 30, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
PART. II. OTHER INFORMATION
ITEM 1. Legal Proceedings
A. In the pending action by Ethicon, Inc. ("Ethicon") in the
United States District Court for the District of Connecticut, alleging
infringement by the Company of a single United States patent relating to
trocars (see Item 3 of Part I of the Company's Annual Report on Form 10-K for
the year ended December 31, 1994), the Court has held a hearing as to the
Company's motion concerning ownership and enforceability of the patent asserted
by Ethicon. Additional submissions and arguments on the motion are scheduled
to be concluded by September 1995.
B. In the pending consolidated action brought as class actions
(see Item 3 of Part I of the Company's Annual Report on Form 10-K for the year
ended December 31, 1994), on May 30, 1995, an order was entered, based on a
stipulation of the parties, conditionally certifying a class of purchasers of
the Company's Common Stock for the period April 14, 1992 through April 7, 1993.
The class period corresponds to the remaining claims asserted by the plaintiffs
following dismissal by the Court of all claims other than those relating to the
timeliness of disclosure of the Company's just in time distribution program. A
notice by the plaintiffs' counsel to members of the class as to their
participation in the lawsuit is expected in the near future.
C. In the pending action by Ethicon Endo-Surgery, a division of
Ethicon, against the Company in the United States District Court for the
Southern District of Ohio, alleging infringement by the Company's instruments
of a single patent for a safety lockout mechanism on a linear cutter/stapler
(see Item 3 of Part I of the Company's Annual Report on Form 10-K for the year
ended December 31, 1994), a hearing on the construction of the parties' patent
claims, to be held in lieu of the parties' motions for summary judgment, is
scheduled to begin during August, 1995.
D. In the Company's action against Johnson & Johnson, Inc. and
its subsidiary 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, 1994), the
Company has filed a petition for a writ of certiorari with the United States
Supreme Court seeking to overturn the decision of the United States Court of
Appeals for the Federal Circuit denying the Company's appeal of the verdict
holding that certain of the Company's patent claims were invalid.
E. 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, as the case may be, 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 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders held on May 3, 1995 the
following members were elected to the Board of Directors:
<TABLE>
<CAPTION>
Votes For Votes Withheld
---------- --------------
<S> <C> <C>
Julie K. Blake 60,227,511 1,137,829
John A. Bogardus, Jr. 60,238,448 1,126,892
Thomas R. Bremer 60,194,933 1,170,407
Leon C. Hirsch 59,914,724 1,450,616
Turi Josefsen 60,056,295 1,309,045
Douglas L. King 60,295,580 1,069,760
William F. May 60,151,103 1,214,237
Howard M. Rosenkrantz 60,207,252 1,158,088
Marianne Scipione 60,168,982 1,196,358
John R. Silber 60,242,420 1,122,920
</TABLE>
There were no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - Exhibit 27 - Financial Data Schedule.
b. Reports on Form 8-K - The Company did not file any reports on
Form 8-K during the three-month period ended June 30, 1995. A Form 8-K
relative to the pending acquisition of certain assets and the business of our
Japanese distributor was filed on July 10, 1995.
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
/s/ Howard M. Rosenkrantz
By:_______________________________
Howard M. Rosenkrantz
Senior Vice President, Finance and
Chief Financial Officer
Dated: July 25, 1995
-15-
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
Ex-27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 10,000
<SECURITIES> 0
<RECEIVABLES> 243,100
<ALLOWANCES> 7,500
<INVENTORY> 159,400
<CURRENT-ASSETS> 466,500
<PP&E> 755,100
<DEPRECIATION> 236,800
<TOTAL-ASSETS> 1,114,000
<CURRENT-LIABILITIES> 207,500
<BONDS> 0
<COMMON> 6,500
0
900
<OTHER-SE> 691,100
<TOTAL-LIABILITY-AND-EQUITY> 1,114,000
<SALES> 504,200
<TOTAL-REVENUES> 504,200
<CGS> 230,700
<TOTAL-COSTS> 230,700
<OTHER-EXPENSES> 219,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,700
<INCOME-PRETAX> 43,500
<INCOME-TAX> 10,000
<INCOME-CONTINUING> 33,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,500
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
