<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, 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
----- -----
<TABLE>
<S> <C>
Number of shares of Common Stock,
par value $.10 per share,
outstanding at March 31, 1995 56,900,891 Shares
</TABLE>
<PAGE> 2
Form 10-Q
March 31, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I--FINANCIAL INFORMATION Page
----
<S> <C>
Financial Statements:
Consolidated Balance Sheets at March 31, 1995 (Unaudited) and
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations (Unaudited) for the Three Months
Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the
Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows (Unaudited) for the Three Months
Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
-2-
<PAGE> 3
Form 10-Q
March 31, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31,
In thousands, except share data 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 10,700 $ 11,300
Receivables, less allowance
($7,300 - March 31, 1995 and December 31, 1994) 204,900 211,500
Inventories:
Finished goods 91,400 95,500
Work in process 27,500 27,100
Raw materials 37,500 44,600
---------- ----------
156,400 167,200
Other current assets 61,500 49,500
---------- ----------
Total Current Assets 433,500 439,500
---------- ----------
Property, Plant, and Equipment at cost: 756,500 751,100
Less: Allowance for depreciation and amortization (224,900) (211,100)
---------- ----------
531,600 540,000
Other Assets (net) 123,900 124,000
---------- ----------
Total Assets $1,089,000 $1,103,500
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 28,700 $ 29,500
Accrued liabilities 115,100 125,200
Income taxes payable 38,400 29,400
---------- ----------
Total Current Liabilities 182,200 184,100
Long-Term Debt 223,100 248,500
Deferred Income Taxes 6,300 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, 65,030,919 at March 31, 1995 and 64,973,192 at
December 31, 1994 6,500 6,500
Additional paid-in capital - common stock 381,800 380,700
Retained earnings 186,500 178,100
Treasury stock at cost; 8,130,028 shares at March 31, 1995
and 8,137,053 shares at December 31, 1994 (86,700) (86,700)
Accumulated translation adjustments (2,200) (8,100)
---------- ----------
677,400 662,000
---------- ----------
Total Liabilities and Stockholders' Equity $1,089,000 $1,103,500
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE> 4
Form 10-Q
March 31, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
In thousands, except per share data 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $240,600 $226,000
-------- --------
Costs and expenses:
Cost of products sold 112,900 117,600
Research and development 10,100 10,800
Selling, general and administrative 94,000 96,500
Interest 4,900 6,500
-------- --------
221,900 231,400
-------- --------
Income (loss) before income taxes 18,700 (5,400)
Income taxes 4,300 2,500
-------- --------
Net income (loss) 14,400 (7,900)
Preferred stock dividends 4,900 200
-------- --------
Net income (loss) applicable to common shares $ 9,500 $ (8,100)
======== ========
Average number of common shares outstanding 56,900 56,300
======== ========
Net income (loss) per common share
(primary and fully diluted) $.17 $(.14)
==== =====
Dividend declared per common share $.02 $.02
==== ====
</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, 1995
Equity (Unaudited)
For the three months ended March 31, 1995 and 1994
<TABLE>
<CAPTION>
Additional Additional Installment
Paid-in Paid-in Accumulated Receivables
Dollars in thousands, Preferred Capital - Common Capital - Retained Translation from Sale of
except share data Stock Preferred Stock Common Earnings Adjustments Common Stock
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994, $6,400 $371,700 $178,300 $(20,400) $(5,400)
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) $(5,400)
==== ======== ====== ======== ======== ======== =======
BALANCE AT JANUARY 1, 1995, $900 $190,600 $6,500 $380,700 $178,100 $ (8,100) $ -
Common stock issued to employees -
net (64,752 shares) 1,100
Aggregate adjustment resulting from the
translation of foreign financial statements 5,900
Preferred stock dividends (4,900)
Common stock dividends declared ($.02
per share) (1,100)
Net income 14,400
---- -------- ------ -------- -------- -------- -------
BALANCE AT MARCH 31, 1995 $900 $190,600 $6,500 $381,800 $186,500 $ (2,200) $ -
==== ======== ====== ======== ======== ======== =======
<CAPTION>
Dollars in thousands, Treasury
except share data Stock Total
- --------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT JANUARY 1, 1994, $(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 $(86,700) $630,800
======== ========
BALANCE AT JANUARY 1, 1995, $(86,700) $662,000
Common stock issued to employees -
net (64,752 shares) 1,100
Aggregate adjustment resulting from the
translation of foreign financial statements 5,900
Preferred stock dividends (4,900)
Common stock dividends declared ($.02
per share) (1,100)
Net income 14,400
-------- --------
BALANCE AT MARCH 31, 1995 $(86,700) $677,400
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
-5-
<PAGE> 6
Form 10-Q
March 31, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
In thousands 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 250,100 $ 215,200
Cash paid to vendors, suppliers and employees (199,200) (177,500)
Interest paid (5,100) (7,400)
Income taxes paid (2,800) (1,500)
--------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 43,000 28,800
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (9,400) (17,100)
Deposit relative to acquisition of a distributor (6,700)
Other assets 6,200 (4,400)
--------- -----------
NET CASH USED IN INVESTING ACTIVITIES (9,900) (21,500)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings 532,900 1,066,600
Long-term debt repayments (562,800) (1,032,900)
Issuance of preferred stock (net) 191,900
Common stock issued from stock plans 1,100 2,200
Dividends paid (6,000)
--------- -----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (34,800) 227,800
--------- -----------
Effect of exchange rate changes 1,100 (400)
--------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(600) 234,700
Cash and cash equivalents, beginning of period 11,300 900
--------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,700 $ 235,600
========= ===========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 14,400 $ (7,900)
--------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 22,800 20,900
Adjustment of property, plant and
equipment reserves 900 2,800
Receivables -- decrease (increase) 9,500 (9,800)
Inventories -- decrease 5,400 8,900
Adjustment of inventory reserves 6,200 8,200
Accounts payable/accrued liabilities -- (decrease) (12,500) (5,300)
Other adjustments -- net (3,700) 11,000
--------- -----------
Total adjustments 28,600 36,700
--------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 43,000 $ 28,800
========= ===========
</TABLE>
See Notes to Consolidated Financial Statements
-6-
<PAGE> 7
Form 10-Q
March 31, 1995
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, 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 three-month periods ended March
31, 1995 and 1994 have been reflected. All such adjustments are of a
normal recurring nature. It is suggested that the March 31, 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
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.
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
March 31, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
REVIEW BY INDEPENDENT ACCOUNTANTS
The March 31, 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
March 31, 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 March 31, 1995, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the three-month periods ended March 31, 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
NEW YORK, NEW YORK
APRIL 21, 1995
-9-
<PAGE> 10
Form 10-Q
March 31, 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 first quarter of 1995 the Company attained sales of $241 million
compared with sales of $226 million in the first quarter of 1994. Sales
increased 6% in the first quarter of 1995 in comparison to the corresponding
period in 1994.
Net income and net income per share in the first quarter of 1995 were $14
million and $.17 per common share (after preferred dividends of $5 million),
respectively, as compared to 1994 first quarter net loss and net loss per
common share of $8 million and $.14 per share, respectively. The effects of
changes in foreign currency exchange rates on the net income in the first
quarter of 1995 in comparison to the corresponding period in 1994 were
immaterial.
The following table analyzes the increase in sales in the first quarter of 1995
compared with the corresponding period in 1994:
<TABLE>
<CAPTION>
Three Months Ended
In thousands March 31, 1995
- ------------ ------------------
<S> <C>
Composition of Sales increase:
Sales volume increase $13,000
Net price changes (5,000)
Effects of changes in foreign currency
exchange rates 6,600
-------
Sales Increase $14,600
=======
</TABLE>
Sales volume increases and the effects of changes in foreign currency exchange
rates in the first quarter of 1995 in comparison to the corresponding period in
1994 were partially offset by net price changes. The net price change
component of the sales increase 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, 1995.
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.
-10-
<PAGE> 11
Form 10-Q
March 31, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Cost of products sold expressed as a percentage of sales decreased in the first
quarter of 1995 to 47% compared to 52% in the corresponding period of 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 53% in the first quarter of 1995 in comparison to 48% in the
corresponding period in 1994. 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 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 from those existing
in 1994 did not have a material effect on the cost of products sold in the
first quarter of 1995.
The Company's expenditures for research and development decreased to $10
million in the first quarter of 1995 from $11 million in the corresponding
period in 1994, principally because of efficiencies in its pilot manufacturing
operation. 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
decreased to 39% in the first quarter of 1995, compared with 43% in the
corresponding 1994 period. The Company started to realize the cost saving
benefits from its restructuring program reflected in reduced selling, general
and administrative expenses as a percentage of sales in the second quarter of
1994. Changes in foreign currency exchange rates from those existing in the
first quarter of 1994 had an immaterial effect on reported selling, general and
administrative expenses in the 1995 first quarter.
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 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.
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 bank borrowings decreased $30 million during the first
quarter of 1995 to $131 million at March 31, 1995. The credit agreement and
the Company's lease agreement for its North
-11-
<PAGE> 12
Form 10-Q
March 31, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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 and
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
financial covenants associated with its bank and lease agreements.
Additions to property, plant, and equipment totaled $9 million in the first
quarter of 1995 compared with $17 million in the corresponding quarter in 1994,
and consist primarily of additions to machinery and equipment ($6 million) and
molds and dies ($3 million).
The decrease in accounts receivable ($7 million) since December 31, 1994 is
primarily attributable to improved collections of domestic receivables. The
reduction in total inventories ($11 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 $7 million paid on March
31, 1995 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 to close, but USSC and the former 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 Company and the distributor are agreed that all of the conditions
to closing the purchase have either been met or could be met and, accordingly,
with effect from April 1, 1995, the Company has assumed the risks and rewards
of selling its products to third parties in Japan and it will be 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.
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 March 31, 1995 the Company had
approximately $14 million of such contracts outstanding that will mature at
various dates through May 31, 1995. 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.
-12-
<PAGE> 13
Form 10-Q
March 31, 1995
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
PART. II. OTHER INFORMATION
ITEM 1. Legal Proceedings
A. In the pending action by Ethicon in the United States District
Court for the District of Connecticut, alleging infringement 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), a hearing is
currently scheduled to begin in late June, 1995, as to the Company's motion
concerning ownership and enforceability of Ethicon's patent.
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 April 12, 1995, the United States District Court
for the District of Connecticut dismissed a majority of the claims which had
been brought under the federal securities laws by purchasers of the Company's
common stock. The Company intends to vigorously defend against the remaining
claims which relate only to timeliness of the Company's disclosure of its
implementation of a Just in Time distribution program.
C. In the pending actions by Ethicon Endo-Surgery 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),
the parties have each filed motions for summary judgment. These motions remain
under the Court's advisement. The Court has indicated its intention to hold a
hearing on the construction of the parties' patent claims but no date for such
hearing has been set.
D. On April 26, 1995, the Delaware Chancery Court entered an
order approving final settlement of 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, 1994). The settlement adjusts the terms of certain
stock options for senior management and requires the Company to pay plaintiff's
counsel's fees. The Court had previously found that the settlement was
reasonable as to claims of excessive compensation but had withheld final
approval pending further investigation, which was recently completed, as to
insider trading claims regarding timeliness of the Company's disclosure of its
Just in Time distribution program.
E. Referring to the Company's action against Origin Medsystems,
Inc. ("Origin"), a subsidiary of Eli Lilly & Co. (see Item 3 of Part I of the
Company's Annual Report on Form 10-K for the year ended December 31, 1994), the
United States Patent Office, which at Origin's request and independent of such
action is reexamining one of the Company's patents on its PREMIUM SURGIPORT
retracting tip trocar, has upheld the validity of certain of the Company's
patent claims and is continuing its reexamination of other patent claims as to
such patent.
F. 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,
1994), the United States Court of Appeals for the Federal Circuit has denied
the Company's appeal of the verdict holding that certain of the Company's
patent claims were invalid. The Company plans to file a petition for a writ of
certiorari with the United States Supreme Court.
G. 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.
***
-13-
<PAGE> 14
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.
Item 6. Exhibits and Reports on Form 8-K
a. 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 March 31, 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
By: /s/ Howard M. Rosenkrantz
-----------------------------------
Howard M. Rosenkrantz
Senior Vice President, Finance and
Chief Financial Officer
Dated: April 25, 1995
-14-
<PAGE> 15
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- ------------
Ex-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 10,700
<SECURITIES> 0
<RECEIVABLES> 212,200
<ALLOWANCES> 7,300
<INVENTORY> 156,400
<CURRENT-ASSETS> 433,500
<PP&E> 756,500
<DEPRECIATION> 224,900
<TOTAL-ASSETS> 1,089,000
<CURRENT-LIABILITIES> 182,200
<BONDS> 0
<COMMON> 6,500
0
900
<OTHER-SE> 670,000
<TOTAL-LIABILITY-AND-EQUITY> 1,089,000
<SALES> 240,600
<TOTAL-REVENUES> 240,600
<CGS> 112,900
<TOTAL-COSTS> 112,900
<OTHER-EXPENSES> 104,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,900
<INCOME-PRETAX> 18,700
<INCOME-TAX> 4,300
<INCOME-CONTINUING> 14,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,400
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
