(LOGO--USSC)
UNITED STATES SURGICAL CORPORATION
150 Glover Avenue
Norwalk, Connecticut 06856
Notice of 1995 Annual Meeting
Proxy Statement and
Annual Report to Stockholders
Date of Meeting:
May 3, 1995
<PAGE>
(Logo--USSC)
To Our Stockholders:
Again this year, we will combine our annual report with the proxy statement
and will not be providing a separate annual report. This format will
significantly reduce the costs of printing and mailing the proxy material.
The annual report, which includes the Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, begins following the proxy statement portion of this document.
As 1994 came to a close, a cloud of uncertainty was lifted from the hospital
and medical device industries by the rejection of the Clinton
Administration's health care reform proposals. While Congress was debating
the future of health care reform, USSC was in the process of rebuilding
itself into a leaner, more efficient organization. Today, as free enterprise
and market forces tackle health care cost reduction, we are ready to face the
new hospital environment.
After USSC's restructuring efforts in 1993, our first priority in 1994 was to
put the company back on a sound financial footing and rebuild credibility
with the financial community. The implementation of a stringent cost
reduction program that eliminated close to $150 million in annual operating
costs and the redesign of manufacturing processes were highly successful.
* During 1994, the company generated positive cash flow from operations of
$88 million.
* Capital spending was cut to $47 million for the full year, down from $216
million in 1993.
* Bank debt at year end fell to $161 million--a reduction of $275 million
year-to-year--and is less than $150 million today.
* The debt-to-equity ratio was decreased from 114% to 38%.
* Year-end inventory was $167 million, representing a year-to-year reduction
of $45 million and an 18-month reduction of $82 million.
* Selling, General and Administrative (SG&A) expenses, as a percentage of
sales, were down sequentially in each quarter. Fourth-quarter SG&A was 37%,
excluding a sales charge related to the acquisition of USSC's Japanese
distributor.
* Manufacturing cost reduction programs enabled the company to increase gross
margins from 43% in the fourth quarter of 1993 to better than 50% in the
second half of 1994.
* Sales increased sequentially in each quarter of 1994, excluding the
fourth-quarter acquisition-related charge. These increases occurred despite
$25 million in sales that the company's distributors made to our hospital
customers without replenishing their inventory from us.
Financial health is essential to stability and future growth; however, it
does not ensure success in the marketplace.
During the past two years, we have seen the hospital market change
dramatically. Traditionally, surgeons have been the moving force in the
purchase of surgical instrumentation, and USSC's technical sales force has
spent most of its time servicing their needs. Today, however, surgical
purchasing is a partnership closely coordinated between the surgeon,
materials and operating room management.
In 1994, USSC's marketing approach changed dramatically to address the needs
of this changing environment and the market we see evolving in the future.
These changes are very profound and involve every facet of the company.
USSC's thirty years of experience in developing products for use in the
operating room have enabled the company to design innovative cost cutting
programs for its customers. To implement these programs, we have
significantly expanded our relationship with administrative and financial
personnel in the hospital.
<PAGE>
USSC's technical sales representatives have become cost containment
specialists in addition to providing surgical support for the operating room.
They are expert in demonstrating how the most efficient use of the company's
products can translate directly into economic benefits for the hospital.
Going further, they can now provide expertise on reimbursement, hospital
marketing and managed care. Today, we offer a total package of products and
services designed to help make the hospital financially successful in the new
health care environment.
USSC is taking its new marketing programs to hospitals worldwide. We are also
inviting our customers to visit with us and share their ideas. During 1994,
nearly 500 materials managers, purchasing directors, nursing administrators
and surgeons toured our facilities. They came to see first-hand how USSC's
hospital cost reduction programs work and to better understand how the
company's research labs and production lines have been geared to address
their needs. These visits provide customers with a personal understanding of
the company's new corporate philosophy and a first-hand sense of what we are
all about. We, in turn, learn in detail what they expect from us.
USSC has achieved market leadership through innovation. We have made a
commitment to our customers to maintain our position as the industry's
innovative leader. In today's market, and, we believe, even more so in
tomorrow's market, innovation must provide both improved efficacy and cost
reduction potential.
We clearly demonstrated market leadership in 1994 with the launch of several
important new products. Each of these products represents a quantum leap in
technology, not just a minor improvement.
Since the inception of laparoscopy, manual suturing has been very
time-consuming, mastered by only a very small portion of the surgical
community. To understand just part of the surgeon's difficulty with
laparoscopic suturing and knot tying, try to sew a button on a shirt while
looking in the mirror. USSC's new ENDO STITCH instrument has solved this
problem. The device, which is the only one of its kind on the market,
automates the suturing and knot-tying process and dramatically shortens
operative time. Easily and quickly mastered, the ENDO STITCH has received an
enthusiastic response from surgeons.
The VERSAPORT trocar is another groundbreaking product introduced in 1994.
Trocars create small puncture incisions and are tube-like devices that serve
as entry ports for laparoscopic instruments. Before the VERSAPORT trocar, it
was necessary for a hospital to stock a multitude of trocars and adapters to
accommodate the varying diameters of laparoscopic instruments. The VERSAPORT
trocar allows surgeons to use any diameter instrument within the same trocar,
eliminating cumbersome adapters and greatly streamlining the hospital's
inventory requirements. VERSAPORT trocars provide three important benefits.
They are cost effective, user-friendly and reduce operating time.
There is a renewed sense of excitement in the surgical community regarding
laparoscopy. Several new, minimally invasive procedures show great promise.
Among these is a laparoscopic treatment for chronic heartburn or reflux
disease. Prior to laparoscopy, surgical treatment of these diseases required
a highly invasive procedure. Full recovery took weeks and sometimes months.
Understandably, only a small percentage of heartburn sufferers elected to
have surgery performed, preferring the limited, temporary relief offered by
medication.
Now patients have a choice. They can undergo a laparoscopic procedure called
a Nissen fundoplication, which utilizes USSC's instruments. These patients
can return home a few days after surgery and resume normal activities within
a week or two. In most instances, their heartburn and reflux problems are
gone forever. The procedure can eliminate the necessity of a lifetime of
medication and is, therefore, extremely cost effective.
Female incontinence, which affects millions of women worldwide, can be
treated surgically; but this operation was rarely performed because of its
severity. When surgery for female incontinence is done laparoscopically,
hospital stay and post-operative discomfort are reduced dramatically;
complete recovery usually occurs in a matter of a few weeks rather than
months; and the need for incontinence protective wear is eliminated.
Following a brief plateau, the laparoscopic market began to show signs of
renewed growth during the latter part of 1994. A good barometer of future
growth is the number of surgeons who enroll in training programs for new
techniques and new instrumentation. In 1993 and early 1994, these enrollments
had dropped off due to the uncertainty created by health care reform
proposals. Today, enrollments are increasing.
The Society of Laparo Endoscopic Surgeons predicts that, by the year 2000,
nearly 50% of general surgical procedures, 70% of gynecologic procedures and
35-40% of urologic procedures will be performed laparoscopically, based on a
recent survey of its members. The reasons cited most frequently by surgeons
for adopting laparoscopic techniques were: rapid recovery, patient comfort,
fewer complications and economic concerns. Reflecting on the
<PAGE>
data, the president of the society, Paul Wetter, MD, anticipates tremendous
growth ahead in this field. "Many of us feel that the operating room of a few
years from now will be a laparoscopic suite in 99% of the cases," Dr. Wetter
said. I believe that USSC is ideally positioned to benefit from these
developments.
One of the big unanswered questions in evaluating the future growth of the
laparoscopic market is whether minimally invasive bowel surgery will become
routine. During 1994, there were very positive findings by one of the leading
colo-rectal centers in the United States. This center has been conducting a
study over the past three years on laparoscopic techniques for both benign
and malignant bowel surgery. They have concluded their animal and cadaver
studies and a clinical series of 140 patients. The principal investigator
reports that he is now convinced that colon surgery can be performed
laparoscopically with significant benefits for the patient when compared to
open techniques.
Managed care, as represented by health maintenance organizations (HMOs) and
other integrated health-care systems, is free enterprise's answer to
controlling heath care costs. In a managed care environment, driven by
competitive market conditions, minimally invasive surgery provides a powerful
tool to reduce overall hospital costs while improving patient care. As
managed care organizations play an increasingly prominent role in health care
reimbursement, the use of new, cost effective technology should grow.
Sutures, USSC's newest product line, have shown impressive growth during the
last few years. In 1994, the company's suture business was up almost 50% over
the prior year, exceeding $55 million in sales. Suture growth is being fueled
by increasing customer acceptance, new and improved products and further
penetration of the international market.
As a result of the company's new marketing philosophies, products and
programs, USSC secured two important purchasing contracts in December 1994. A
three-year agreement with Kaiser Permanente designated USSC as the primary
source of laparoscopic and surgical stapling products for their 66 hospitals
and surgi-centers, representing 6.6 million members. During the same month,
National Medical Enterprises (NME), one of the largest hospital groups in the
United States, signed a four-year, sole source contract with USSC for all of
its surgical stapling and laparoscopic products. The contract includes all
NME owned hospitals and members of its buying group.
Due to increased sales in both our laparoscopic and suture product lines, the
company was able to rehire, in January 1995, 100 manufacturing employees who
were laid off as part of our restructuring program. An additional 100
manufacturing employees were hired in February. All 200 of these employees
are direct labor; therefore, they will have no effect on overhead or general
and administrative expenses.
On February 1, 1995, USSC signed an agreement to purchase its Japanese
distributor's AUTO SUTURE business from Century Medical, a subsidiary of the
trading company, Itochu Corporation. USSC will acquire Century Medical's
fully trained sales organization of 135 people, other key personnel,
inventory and a state-of- the-art laparoscopic training center near Tokyo,
the only training center of its kind in the Far East. Century Medical's sales
for the last 12 months were approximately $100 million. Our equivalent sales
to Century Medical as a distributor during this time period were
approximately $50 million. The purchase price is approximately $61 million,
with a cash down payment of approximately $10 million, and the balance,
payable in cash over seven years, interest- free. The acquisition will be
completed following Japanese regulatory approvals and, after closing, is
expected to enhance operating results for the company.
The company's financial position was strengthened significantly during 1994
and its marketing programs redesigned to anticipate and address our
customers' needs in today's era. I am confident that our new strategies are
winning strategies and that USSC will return to growth and improved
profitability in 1995.
Sincerely,
(Signature of Leon C. Hirsch)
Leon C. Hirsch, Chairman
February 7, 1995
<PAGE>
(Logo--USSC)
UNITED STATES SURGICAL CORPORATION
150 Glover Avenue
Norwalk, Connecticut 06856
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 3, 1995
To the Stockholders of
United States Surgical Corporation:
Notice is Hereby Given that the Annual Meeting of Stockholders of UNITED
STATES SURGICAL CORPORATION (the "Company") will be held at The Equitable
building, 787 Seventh Avenue, New York, New York 10019, on May 3, 1995 at
2:00 P.M. (local time), for the following purposes:
1. To elect a board of ten directors to serve until the next Annual Meeting
of Stockholders or until their successors are elected and qualified; and
2. To transact such other business as may properly be brought before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on March 6, 1995, as
the record date for determination of the stockholders entitled to notice of
and to vote at the Annual Meeting, and only holders of record of the
Company's Common Stock and the Company's Series A Convertible Preferred Stock
(or depositary shares representing interests therein) on said date will be
entitled to receive notice of and to vote at the meeting.
Stockholders are cordially invited to attend the meeting. Whether or not you
plan to attend the meeting, please mark, sign, date and return the enclosed
Proxy. The giving of your Proxy will not affect your right to vote in person
in the event you find it convenient to attend the meeting. You may revoke the
Proxy at any time before the closing of the polls at the meeting.
ATTENDANCE AT THE ANNUAL MEETING WILL BE LIMITED TO STOCKHOLDERS AND INVITED
GUESTS OF THE COMPANY. ADMITTANCE TICKETS WILL BE REQUIRED.
If you are a stockholder and plan to attend, you must request an admittance
ticket by writing to the Office of the Secretary at the address shown above.
If your shares are not registered in your own name, evidence of your stock
ownership, which you can obtain from your bank, stockbroker, etc., must
accompany your letter. An admittance ticket will be sent to you.
By Order of the Board of Directors
PAMELA KOMENDA
Corporate Secretary
March 10, 1995
PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.
<PAGE>
UNITED STATES SURGICAL CORPORATION
150 Glover Avenue
Norwalk, Connecticut 06856
PROXY STATEMENT
For
ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 3, 1995
March 10, 1995
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of United States Surgical Corporation, a Delaware
corporation (the "Company"), of proxies to be voted at the Annual Meeting of
Stockholders of the Company to be held at The Equitable building, 787 Seventh
Avenue, New York, New York 10019, on May 3, 1995, at 2:00 P.M. (local time),
and at any adjournments thereof, for the purposes set forth in the attached
Notice of Annual Meeting of Stockholders.
When proxies in the enclosed form are returned properly executed, the shares
represented thereby will be voted at the meeting and, where instructions have
been given by the stockholder, will be voted in accordance therewith. If the
stockholder does not otherwise specify, the stockholder's shares will be
voted for the election of the nominees set forth in this Proxy Statement as
directors of the Company. If any other matter is properly presented for
action at the meeting, the persons named in the enclosed form of proxy will
vote on such matter in their discretion. Any proxy may be revoked by the
stockholder, either by attending the meeting and voting in person or by
submitting a revocation in writing to the Company (including a subsequent
signed proxy) at any time prior to the closing of the polls at the meeting.
Stockholder Vote Required
To be elected a director, a nominee must receive the affirmative vote of a
plurality of shares present in person or represented by proxy at the meeting
and entitled to vote in the election of directors. Withheld votes will not
affect the outcome of the election of directors. Under the rules of The New
York Stock Exchange, Inc., the uncontested election of directors is
considered a routine item on which brokerage firms may vote in their
discretion on behalf of clients whose shares are held by the brokerage firm,
if such clients have not furnished voting instructions within ten days of the
stockholders' meeting.
The Company's auditors are Deloitte & Touche LLP, 333 Ludlow Street,
Stamford, Connecticut 06904. A representative of Deloitte & Touche LLP will
be present at the meeting, will have an opportunity to make a statement if
the representative desires to do so, and will be available to respond to
appropriate questions.
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1994 will be
provided, without charge, to any stockholder upon written request. Requests
should be directed to Investor Relations, United States Surgical Corporation,
150 Glover Avenue, Norwalk, CT 06856.
OUTSTANDING SHARES, VOTING RIGHTS AND PRINCIPAL STOCKHOLDERS
Holders of record of outstanding shares of the Company's Common Stock, $.10
par value ("Common Stock"), and of the Company's Series A Convertible
Preferred Stock, $5.00 par value ("Series A Preferred Stock"), represented by
1/50 interest Depositary Shares ("Depositary Shares"), at the close of
business on March 6, 1995, will be entitled to notice of and to vote at the
meeting. Voting rights are vested exclusively in the holders of the Common
Stock and the Series A Preferred Stock. Each share of Common Stock
outstanding on the record date will be entitled to one vote. Each share of
Series A Preferred Stock outstanding on the record date will be entitled to
47.50 votes, equivalent to .95 of a vote for each Depositary Share held.
Shares held as treasury shares by the Company are not entitled to be voted.
At the close of business on December 31, 1994, 56,836,139 shares of Common
Stock (not
<PAGE>
including 8,137,053 shares held as treasury shares) and 8,870,000 Depositary
Shares, representing 177,400 shares of Series A Convertible Preferred Stock,
were outstanding.
The following table sets forth the only persons known to the Company to be a
beneficial owner as of December 31, 1994, of more than five percent of the
Company's Common Stock or Series A Preferred Stock.
<TABLE>
<CAPTION>
Voting Securities
Number of
Shares Percent
Name and Address Title of Beneficially of
of Stockholder Class Owned Class
<S> <C> <C> <C>
Leon C. Hirsch Common 4,780,438(1) 7.98%(2)
150 Glover Avenue
Norwalk, Connecticut 06856
FMR Corp. (3) Common 3,659,690 6.44%
82 Devonshire Street
Boston, Massachusetts 02109
Series A 4,528,300 51.05%
Preferred
(Depositary Shares)
Common, assuming 7,975,160 12.2 %
conversion of
Depositary Shares
</TABLE>
(1) Mr. Hirsch has sole voting and investment powers with respect to the
shares listed as beneficially owned by him. Includes 3,052,834 shares subject
to options which are exercisable on or become exercisable within 60 days
following December 31, 1994, and 5,825 shares held by a private foundation of
which Mr. Hirsch is the trustee. Excludes shares beneficially owned, and
options to purchase shares held by, his wife, an officer and director of the
Company, as to which shares Mr. Hirsch disclaims beneficial ownership.
(2) Percent of class is based on 56,836,139 shares of Common Stock
outstanding on December 31, 1994, plus 3,052,834 shares subject to options
held by Mr. Hirsch which are exercisable on or become exercisable within 60
days following such date.
(3) As reported in a Schedule 13G filed with the Securities and Exchange
Commission and based on additional information provided by FMR Corp. Percent
of class is based on 56,836,139 shares of Common Stock outstanding on
December 31, 1994, plus 8,453,110 shares based on the assumed conversion of
8,870,000 Depositary Shares (.953 shares of Common Stock for each Depositary
Share). This number includes 7,583,450 shares beneficially owned by Fidelity
Management & Research Company, a subsidiary of FMR Corp., as a result of its
serving as investment adviser to various investment companies registered
under Section 8 of the Investment Company Act of 1940 and as investment
adviser to certain other funds which are generally offered to limited groups
of investors; 287,810 shares beneficially owned by Fidelity Management Trust
Company, a subsidiary of FMR Corp., as a result of its serving as trustee or
managing agent for various private investment accounts (primarily employee
benefit plans) and also serving as investment adviser to certain other funds
which are generally offered to limited groups of investors; 103,900 shares
beneficially owned by Fidelity International Limited, as a result of its
serving as investment advisor to various non-U.S. investment companies.
The number of shares of United States Surgical Corporation beneficially owned
by Fidelity Management & Research Company on December 31, 1994 included
4,336,646 shares of Common Stock resulting from the assumed conversion of
4,435,100 Depositary Shares (.953 shares of Common Stock for each Depositary
Share).
The number of shares of United States Surgical Corporation beneficially owned
by Fidelity Management Trust Company on December 31, 1994 included 88,815
shares of Common Stock resulting from the assumed conversion of 93,200
Depositary Shares (.953 shares of Common Stock for each Depositary Share).
FMR Corp. has sole voting power with respect to 246,367 shares and sole
dispositive power with respect to 7,871,251 shares. Fidelity International
Limited has sole voting and dispositive power with respect to all the shares
it beneficially owns.
2
<PAGE>
SHARE OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the shares of
the Company's Common Stock beneficially owned as of December 31, 1994, except
with respect to Ms. Blake (who was elected to the board in 1995), by all
directors, nominees, executive officers identified in the Summary
Compensation Table below, and all executive officers and directors as a
group. No director or officer owns any Series A Preferred Stock. Except as
noted, each person listed has sole voting and investment powers as to shares
beneficially owned by such person.
<TABLE>
<CAPTION>
Number of Shares Percent
of Common Stock of
Name Beneficially Owned Class (1)
<S> <C> <C>
Julie K. Blake+ 500 *
John A. Bogardus, Jr. 22,000 (2) *
Thomas R. Bremer 129,398 (2) *
Thomas D. Guy 110,506 (2) *
Leon C. Hirsch 4,780,438 (3) 7.98%
Turi Josefsen 1,059,075 (2) 1.83%
Douglas L. King 13,000 (2) *
Robert A. Knarr 162,108 (2) *
Zanvyl Krieger++ 2,296,415 (4) 4.04%
Bruce S. Lustman++ 943,343 (2) 1.63%
William F. May 14,100 (2) *
Howard M. Rosenkrantz 74,518 (2) *
Marianne Scipione 101,280 (2) *
John R. Silber+++ 10,200 *
Douglas T. Tansill++ 24,000 (2) *
All executive officers and directors as a group
(28 persons) 10,331,133 (5) 16.44%
</TABLE>
+ Elected a director on January 18, 1995.
++ Not standing for re-election as directors at the Annual Meeting.
+++ Elected a director on July 7, 1994.
(1) Percent of class for each person and all executive officers and directors
as a group is based on shares of Common Stock outstanding on December 31,
1994, plus shares subject to options held by the individual or the group, as
applicable, which are exercisable on or become exercisable within 60 days
following such date. Ownership of less than one percent is indicated by an
asterisk.
(2) Includes the following shares which may be acquired on or within 60 days
following December 31, 1994, through the exercise of stock options under
Company sponsored plans: Mr. Bogardus, 18,000; Mr. Bremer, 114,000; Mr. Guy,
84,000; Ms. Josefsen, 933,333; Mr. King, 11,000; Mr. Knarr, 148,308; Mr.
Lustman, 933,333; Mr. May, 8,000; Mr. Rosenkrantz, 74,000; Ms. Scipione,
84,000, and Mr. Tansill, 12,000. No voting or investment power exists with
respect to such shares prior to acquisition.
(3) See Note 1 under "Outstanding Shares, Voting Rights and Principal
Stockholders".
(4) Consists of 493,096 shares held by Mr. Krieger as trustee for his
children, 1,771,111 shares in a revocable trust of which Mr. Krieger is
trustee and beneficiary, and 32,208 shares held in trust by a nephew of Mr.
Krieger for the benefit of Mr. Krieger's daughters.
(5) Includes options to purchase 5,987,150 shares exercisable on or within 60
days following December 31, 1994.
ELECTION OF DIRECTORS
Nominees
The persons named in the accompanying form of proxy intend, except as
otherwise directed, to vote for the election as directors of the ten nominees
listed below, each for a term expiring at the next Annual Meeting or until
his or her successor is duly elected and qualified. All nominees except Mr.
Rosenkrantz are now serving as directors of the Com
3
<PAGE>
pany, and all have informed management that they are willing to serve as
directors of the Company. If any of the nominees should decline or be unable
to act as a director, the persons named as proxies in the form of proxy will
vote in accordance with their best judgment and shall have discretionary
authority to vote for a substitute nominee. The Board of Directors has fixed
its present size at, and for the purposes of this meeting authorized the
election of, ten directors.
The following table sets forth certain information as to the nominees for
directors of the Company.
<TABLE>
<CAPTION>
Serving as
Business Experience During Last Director
Name Age Five Year and Other Directorships Since
<S> <C> <C> <C>
Julie K. Blake(A)(E) 1992-1994, Executive Vice President and Chief Operating
Officer, Flavin, Blake & Co., Inc.; Vice President, J.P.
47 Morgan & Co. Incorporated, 1970-1992. 1995
John A. Bogardus, Jr.(A)(B)(C)(D) Director, Alexander & Alexander Services Inc., insurance
brokerage and financial services firm, New York, N.Y.,
since 1988; prior thereto, its Chairman of the Board and
Director since 1987; prior thereto, its Chairman of the
67 Board, Chief Executive Officer and Director. 1981
Thomas R. Bremer Senior Vice President and General Counsel since January
1, 1994; Vice President and General Counsel since 1989;
41 prior thereto, General Counsel since 1988. 1993
Leon C. Hirsch(B)(D)(E) Chairman of the Board, President and Chief Executive
Officer since 1987; prior thereto, President and Chief
67 Executive Officer. 1964
Turi Josefsen(B) Executive Vice President and, since July, 1994 President,
International Operations; prior thereto, Executive Vice
58 President and President, Auto Suture Companies. 1977
Douglas L. King(A)(C)(D) President and Director, Smyth, Sanford & Gerard Insurance
Intermediaries, Inc., insurance and reinsurance brokers.
Director, Healthplex, Inc., a dental administration
53 service company, New York, N.Y. 1984
William F. May(A)(B)(C)(D) Chairman of the Board and Chief Executive Officer, Statue
of Liberty--Ellis Island Foundation, Inc., New York,
N.Y.; Director, Salomon Inc., New York, N.Y.; Trustee,
University of Rochester; Trustee, American Museum of
Natural History; Director, Lincoln Center; Trustee,
79 Columbia Presbyterian Hospital. 1984
Howard M. Rosenkrantz Senior Vice President, Finance and Chief Financial
Officer since 1992; prior thereto, Vice President,
51 Finance.
Marianne Scipione Vice President, Corporate Communications since 1981;
Member, Board of Trustees, Norwalk Hospital Association;
Director, The Norwalk Community- Technical College
48 Foundation, Inc. 1992
John R. Silber(C)(E) President, Boston University; Director, Northeast Federal
68 Corp. and Seragen, Inc. 1994
</TABLE>
(A) Member of Audit Committee. Mr. May is Chairman.
(B) Member of Executive Committee. Mr. Hirsch is Chairman.
4
<PAGE>
(C) Member of Compensation/Option Committee. Mr. King is Chairman.
(D) Member of Nominating Committee. Mr. Bogardus is Chairman.
(E) Member of Transaction and Finance Committee. Ms. Blake is Chairman.
Dr. Silber and Ms. Blake were appointed to committees in February and March,
1995. The terms of all current directors expire at the Annual Meeting.
Mr. Bremer, Ms. Josefsen, and Mr. Rosenkrantz are also either officers or
directors or both of one or more of the Company's subsidiaries.
Leon C. Hirsch and Turi Josefsen are husband and wife. No other family
relationship exists between any of the directors or between any director and
any officer of the Company. With respect to certain relationships between the
Company and certain of the business entities listed in the above table, see
"Executive Compensation and Transactions--Certain Transactions," below.
Other
During April, 1992, a complaint in a shareholder's derivative action was
filed in the Delaware Chancery Court, naming the Company and each member of
the Board of Directors as defendants. The complaint, as amended, alleges the
payment of excessive compensation in certain years to five individuals who
are or previously were executive officers of the Company, namely, Leon C.
Hirsch, Turi Josefsen, Bruce S. Lustman, David Fisher and Herbert W.
Korthoff, primarily as the result of their acquisitions of Company stock by
the exercise of options granted under Company sponsored stock option plans,
and alleges payment of excessive compensation to the non-employee directors
and misappropriation of inside information as to stock trades by the
individual officers named above, with the exception of Mr. Fisher. The
plaintiff seeks an award to the Company of such damages, if any, that the
Company has sustained as the result of the alleged excessive compensation,
the establishment of alternative compensation arrangements and the award to
the plaintiff of the costs and disbursements of the action, including
attorneys', accountants', and experts' fees. During April, 1993, a second
purported derivative claim was filed against the Company making allegations
comparable to those in the first suit. In January 1994 the Company and the
individual defendants entered a settlement with the plaintiff, subject to
court approval, of the claims asserted in the first suit, in order to avoid
the expense and distraction of extended litigation. Under the settlement, the
defendants deny the allegations but the Company and Mr. Hirsch, as Chief
Executive Officer, Ms. Josefsen, as an Executive Vice President, and Mr.
Lustman (who retired as an Executive Vice President in 1994) have agreed to
certain adjustments to the vesting and exercise terms of those individuals'
stock option grants. The Company will pay to Plaintiff's counsel the sum of
up to $550,000 as attorney's fees. The individual defendants are not required
by the settlement terms to contribute to this payment or to otherwise pay any
money to the Company. Settlement of the first suit would have the effect of
resolving the claims in the second case. On June 1, 1994, the Court issued an
opinion withholding approval of the proposed settlement of the claims
asserted in the action pending further development of the record through
additional discovery. The Court decided that it was satisfied that the claims
of excessive compensation were adequately investigated and that the
settlement of such claims was reasonable, but that it was unable to conclude
evaluation of the proposed settlement pending further investigation by the
plaintiff in connection with its assertion as to insider trading. The
plaintiff has since completed such additional discovery and the proposed
settlement is in the process of being resubmitted to the Court for final
approval.
Meetings and Committees
In 1994, the Board of Directors held twelve meetings and committees of the
Board held the following number of meetings: Audit Committee, seven;
Compensation/Option Committee, nine; Nominating Committee, four, and the
Executive Committee, one. The Transaction Committee (as of February 2, 1995,
the Transaction and Finance Committee) did not meet in 1994.
The Audit Committee's function is to assist the Board in fulfilling its
duties in connection with the internal control, accounting and reporting
practices of the Company and to maintain communication between the Board and
the Company's auditors, including review of the Company's financial
statements, press releases and independent auditors' reports. Its authority
includes power to resolve certain disputes, if any, concerning accounting
policies, practices and changes and internal controls and to retain
attorneys, investigators and others as it deems appropriate to assist it in
carrying out its functions. The Compensation/Option Committee's function is
to approve officers' and key employees' bonus objectives, compensation and
bonuses, and to administer Company sponsored stock and other benefit plans.
The function of the Nominating Committee is to nominate directors and
committee members, subject to Board approval. The Nominating Committee must
act unanimously and will not consider nominees
5
<PAGE>
recommended by stockholders. The Executive Committee's function is to act on
important matters occurring during time periods between scheduled meetings of
the Board of Directors. The Transaction and Finance Committee reviews and
makes recommendations to the Board as to acquisitions, other transactions,
and financial plans.
EXECUTIVE COMPENSATION AND TRANSACTIONS
Executive Officers' Compensation
The following table shows compensation paid by the Company and its
subsidiaries for services in all capacities during 1992, 1993 and 1994 to
each of the Chief Executive Officer and the other four most highly
compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
Restricted Securities
Stock Underlying LTIP All Other
Salary Bonus Awards Options/SARs Payouts Compensation
Name and Principal Position Year ($) ($) ($)(1) (#)(2) ($)(3) ($)(4)
<S> <C> <C> <C> <C> <C> <C> <C>
Leon C. Hirsch 1994 $ 824,485 $322,450 0 0 0 $1,021,596
Chairman and CEO 1993 $1,026,016 $352,680 0 0 $209,218 $1,169,839
1992 $ 987,260 $707,297 0 0 $542,900 $1,231,647
Turi Josefsen 1994 $ 573,408 $194,267 0 0 0 $ 30,622
Executive Vice President, and 1993 $ 635,080 $215,852 0 0 $ 90,185 $ 2,129
President, International
Operations 1992 $ 611,360 $352,835 0 0 $241,400 $ 66,213
Howard M. Rosenkrantz 1994 $ 274,560 $ 64,050 0 50,000 0 $ 21,893
Senior Vice President, Finance 1993 $ 303,027 $ 85,400 0 0 0 $ 2,307
Chief Financial Officer 1992 $ 257,924 $123,262 0 0 0 0
Robert A. Knarr 1994 $ 287,460 $ 44,850 0 50,000 0 $ 15,698
Senior Vice President and
General 1993 $ 317,360 $ 44,850 0 0 $ 27,604 $ 971
Manager, U.S. and Canada 1992 $ 298,900 $ 76,475 0 0 $ 68,750 0
Thomas D. Guy 1994 $ 235,291 $ 55,973 0 50,000 0 $ 19,788
Senior Vice President,
Operations 1993 $ 260,168 $ 74,630 0 0 0 $ 2,086
1992 $ 250,600 $119,600 0 0 0 0
</TABLE>
(1) At December 31, 1994 no shares of restricted stock were held by any of
the named executive officers.
(2) Although Company sponsored stock plans permit the granting of SARs, no
SARs have been granted.
(3) Mr. Rosenkrantz and Mr. Guy were not eligible for LTIP awards for the
performance periods ended in 1992, 1993 or 1994.
(4) Represents for Mr. Hirsch and for Ms. Josefsen (1992) accrued bonuses
payable pursuant to the terms of installment option purchase agreements and
for all of the named executives (1994 and 1993) the value of the benefit of
premiums on life insurance paid by the Company (for Mr. Hirsch, $ 32,190,
1994; $ 2,171, 1993). The methodology for computing the value of such
premiums was revised in 1994; benefits were not increased. The computation
reflects the present value to the named executives of the premium payments
rather than the present value of the anticipated cash benefit to the
executive, resulting in a greater portion of benefits allocated earlier in
the policy term. Mr. Hirsch's installment option purchase agreement, the
principal balance of which was repaid by Mr. Hirsch in 1994, is described on
page 14 "Certain Transactions". Ms. Josefsen's agreement was satisfied in
1992 and was substantially similar to the agreement with Mr. Hirsch.
Perquisites and other personal benefits, securities or property did not
exceed the lesser of either $50,000 or 10% of the total of annual salary and
bonus reported for the named executive officers.
OPTIONS
Stock Options and Stock Appreciation Rights
Under the Company's stock incentive program, the Compensation/Option
Committee may grant stock options and related stock appreciation rights
("SARs") to executive officers, to purchase shares of the Company's common
6
<PAGE>
stock at prices not less than the fair market value of the stock on the date
of grant. SARs entitle an option holder to surrender unexercised stock
options for cash on stock equal to the excess of the fair market value of the
surrendered shares over the option price of such shares. No SARs have been
granted. See Report of Compensation/ Option Committee, beginning on page 8
below.
The following table contains information concerning the grant of stock
options to three named executive officers of the Company.
OPTION/SAR GRANTS IN 1994
<TABLE>
<CAPTION>
Number of
Securities % of Total
Underlying Options/SARs
Options/SARs Granted to Exercise or
Granted Employees Base Price Expiration Grant Date
Name (#) in Fiscal Year ($/SH) Date Present Value (1)
<S> <C> <C> <C> <C> <C>
Howard M. Rosenkrantz 50,000 2.2% $22.55 3/21/04 $470,815
Robert A. Knarr 50,000 2.2% 22.55 3/21/04 470,815
Thomas D. Guy 50,000 2.2% 22.55 3/21/04 470,815
</TABLE>
(1) The estimated fair value of stock options is measured at the date of
grant under the Black-Scholes option pricing model based on four assumptions:
expected volatility of .44 based on the average of the high and low of the
Company's Common Stock for the last five years; expected term to exercise of
six years; interest rates equal to the U.S. Treasury Note rates in effect at
the date of the grant 6.24% for the expected term of the option; and a
dividend yield of .4% based on the current annual yield. The actual value, if
any, an executive may realize will depend on the excess of the stock price
over the exercise price on the date the option is exercised. Consequently,
there is no assurance the value realized by an executive will be at or near
the value estimated above.
The table below sets forth certain information about the exercise of stock
options during 1994 by each of the named executive officers and the value of
unexercised in-the-money options held by such officers at December 31, 1994.
Aggregated Option/SAR Exercises in Last Year and December 31, 1994 Option/SAR
Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options/SARs at Year-End(1) at Year-End(1)(2)
Shares
Acquired on Value
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Leon C. Hirsch 0 0 2,427,834 750,000 653,534 0
Turi Josefsen 0 0 706,666 293,334 0 0
Howard M. Rosenkrantz 0 0 54,000 120,000 0 0
Robert A. Knarr 0 0 128,308 170,000 434,079 0
Thomas D. Guy 0 0 64,000 120,000 0 0
</TABLE>
(1) Although the Company's option plans permit the granting of SARs, no SARs
have been granted.
(2) Value is calculated by determining the difference between the fair
market value of the securities underlying the options at year-end and the
exercise price of the options.
Long Term Incentive Awards
Under the Company's Long Term Incentive Plan, described more fully in the
Compensation/Option Committee's Report beginning on page 8 below, senior
executives have the opportunity to earn a cash payment at the end of a
performance cycle (currently three years) based on achievement of sales and
earnings per share growth. The table below sets forth certain information
regarding each award made to the named executive officers during 1994 under
the Company's Long Term Incentive Plan.
7
<PAGE>
Long-Term Incentive Plan Awards in Last Fiscal Year
<TABLE>
<CAPTION>
Estimated Future Payouts
Under Non-Stock Price-Based Options
Performance
Number of or Other
Shares, Units Period Until
or Other Maturation Threshold Target Maximum
Name Rights (#) or Payout ($) ($) ($)
<S> <C> <C> <C> <C> <C>
Leon C. Hirsch 149 Units 3 Years $167,523 $335,046 $670,091
Turi Josefsen 73 Units 3 Years 75,806 151,611 303,221
Howard M. Rosenkrantz 21 Units 3 Years 24,343 48,685 97,370
Robert A. Knarr 22 Units 3 Years 22,052 44,103 88,205
Thomas R. Guy 18 Units 3 Years 20,921 41,842 83,684
</TABLE>
Set forth below is a graph comparing the cumulative total shareholder return
on the Company's Common Stock with the cumulative total return of the S & P
500 Index and the S & P Medical Products & Supplies Index. Cumulative total
shareholder return assumes reinvestment of dividends.
The comparison is based upon the assumption that $100 was invested on
December 31, 1989 in United States Surgical Corporation's Common Stock, the S
& P 500 Index and the S & P Medical Products & Supplies Index.
The following depiction of shareholder return shall not be deemed
incorporated by reference into any filings by the Company under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended.
Performance Graph
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994
USSC 100 264 823 512 169 143
S & P 500 100 97 126 136 150 152
S & P Medical Products 100 117 192 164 125 149
</TABLE>
The following report shall not be deemed incorporated by reference into any
filings by the Company under the Securities Act of 1933, as amended, or under
the Securities Exchange Act of 1934, as amended.
Report of Compensation/Option Committee
The compensation of the Company's executive officers is reviewed and approved
at least on an annual basis by the Compensation/Option Committee (the
"Committee") of the Board of Directors, which consists exclusively of
independent, non-employee Directors.
8
<PAGE>
General Policy
The Company's compensation policy, which is endorsed by the Committee, is to
attract and retain the best management talent available, and to pay that
talent based on Company and individual performance. To this end, a
substantial portion of an executive officer's compensation opportunity is "at
risk" and is realized only for achievement of specific goals. For 1994, the
Company's overriding goal was the return to financial health and stability.
Consequently, the Committee set achievement of specific objectives for growth
in earnings, cash flow and sales as the base for 1994 incentive compensation.
Generally, the Committee thinks that performance goals should emphasize
specific corporate financial results but also thinks that individual
performance goals are an appropriate component of incentive compensation. In
1994, the portion of the annual and long term cash compensation opportunities
of the named executive officers which was "at risk" (subject to attainment of
performance goals) ranged from 32% to 63%, with 63% of such compensation
opportunities of the Chief Executive Officer "at risk". Stock programs,
including primarily stock options, are also an important part of the
Company's compensation program, particularly since the Company does not
provide pension benefits.
In setting compensation, the Committee periodically reviews, with the
assistance of independent compensation consultants, available information as
to salaries and incentive opportunities for similar positions or levels at
comparable companies. The companies generally include a diverse sample of
manufacturing companies with sales within and above the range of those of the
Company. Medical device manufacturers are included in the sample but the
comparison has not been limited to such companies, or to companies included
in the index for the stock price performance graph on page 8. The Committee
uses this information as a benchmark for compensation opportunities offered
by competitors for talented executives, both in the industry, in a broader
manufacturing sector, and in the geographical area in which the Company's
headquarters is located. In some cases, private industry association surveys
are also considered when they provide useful information for certain
positions. Market based compensation was last set for 1992 compensation
packages; more recently, compensation packages have been adjusted from that
base, as discussed below. Historically, the Company has set annual salaries
and incentive compensation opportunities at the higher end of the range of
the companies used for comparison because the Company demands superior
performance from its executives and typically assigns most executive officers
of the Company broader, more complex responsibilities than corresponding
positions in comparative companies. However, because of recent adverse
business conditions, and the resulting failure to meet performance goals,
compensation has been reduced in actual dollars and on a relative basis.
Including reductions of 1994 salaries and bonus opportunities, annual and
long term compensation for the Company's executives has fallen below the
median for the named executives and to the median for the Chief Executive
Officer, as compared to other companies reviewed by the Committee. The
Company will continue to hire executives whose talent and performance place
them within the high end of the pool of available executives, and the
Committee intends to set compensation packages which are adequate to meet
this need while furthering Company objectives.
The total compensation program is designed to balance incentives between
short and long term performance, and consists of annual compensation, which
includes base salary and the opportunity to earn an annual bonus, and a long
term incentive program, which includes stock awards (primarily stock options)
and the opportunity to earn cash awards over a longer term performance
period.
Each element of the compensation program, including a specific discussion as
to the Chief Executive Officer's compensation, is set out below.
Annual Compensation.
Generally, annual compensation of executive officers under the Executive
Compensation Program for 1994 consisted of salary and bonus components.
1. Salary
Under the Company's compensation program, executive officers are paid a base
salary based upon their level of responsibility and their contribution to the
Company, including informal assessments as to their compliance with the
Company's overall corporate policies. The 1994 salaries of executive
officers, including the Chief Executive Officer, were reviewed and approved
by the Compensation/Option Committee in October, 1993. At the request of Mr.
Hirsch and the Company's other executives, the Committee reduced Mr. Hirsch's
base salary by 20%, and other officers by 10%, for 1994 from 1993 levels, as
part of a cost reduction effort by the Company in a difficult business
environment. 1993 base salaries were raised only by 4 per cent from 1992
levels, as a cost of living increase.
9
<PAGE>
2. Bonus
A significant portion of 1994 executive officer annual compensation was based
on corporate performance. Annual bonuses under the Company's executive
compensation program were based on the Earnings Per Share ("EPS") bonus
component, the cash flow bonus component and, for officers with marketing
responsibilities, sales objectives.
Annual bonuses are based solely on performance. For 1994, the bonus
opportunities were weighted equally for most executives between the EPS
component and cash flow components and, for executives with marketing
responsibilities, equally between EPS, cash flow, and sales objectives, as
discussed below. Each bonus performance element was evaluated independently.
Bonus opportunity levels are set as a percentage of base salary. For 1994,
bonus opportunities were reduced by 20% for the Chief Executive Officer and
by 10% for the other named executives, commensurate with the salary
decreases. Consistent with the emphasis on restoring the Company's financial
stability, individual management performance objectives were not a component
of 1994 compensation.
Performance goals are established by the Committee. Following year-end, the
Committee reviews the extent to which the goals have been achieved with the
assistance of the Company's independent auditors and determines the amount of
the bonus to be paid to the executive officers, if any.
The EPS Bonus Component: The 1994 EPS bonus opportunity ranged from 40% to
16.7% of the salary levels of the executives named in the Summary
Compensation Table, with 40% for the Chief Executive Officer. A percentage of
the bonus may be earned based on a particular year's EPS above a minimum
base, up to a maximum determined by the Committee. The EPS goals were not met
for 1994 and no amounts were paid for the EPS Bonus Component to the Chief
Executive Officer or to any other officers of the Company.
The Cash Flow Bonus Component: The 1994 Cash Flow bonus opportunity ranged
from 40% to 16.7% of the salary levels of the executives named in the Summary
Compensation Table, with 40% for the Chief Executive Officer. A percentage of
the bonus may be earned based on the year's cash flow above a minimum base,
up to a maximum determined by the Committee. The cash flow goals were
substantially exceeded for 1994 and the maximum amount was paid for the Cash
Flow Bonus Component to the Chief Executive Officer and to the named (and
other) executive officers of the Company.
The Sales Objective Bonus Component: The 1994 Sales Bonus component,
applicable to one named executive (and other sales executives), was 16.7% of
that executive's salary level. A percentage of the bonus may be earned based
on a particular year's sales above a minimum base, up to a maximum determined
by the Committee. The sales objectives were not met for 1994 and no amounts
were paid for the Sales Objective Bonus Component.
Long Term Incentive Program
The Company's long term incentive program, developed with the advice of
outside compensation consultants, consists of stock incentives, which
directly link the interests of management with those of the stockholders, and
cash incentives based on financial performance over a three year performance
period.
1. Restricted Stock Awards.
The restricted stock program is designed to encourage long-term focus and
retention because restricted stock may not be sold, transferred or assigned
prior to vesting, which has in the past occurred after a period of between
three and seven years. No awards of restricted stock were made in 1994 to any
executive officers.
2. Stock Options
The Company seeks to have its executives think of themselves as having a
personal stake in the Company by awarding stock options which give such
officers the opportunity to participate in the growth in the value of the
Company's stock. This approach aligns the interest of the executive officers
with those of the stockholders because the value of the executive officers'
stock options will depend exclusively on how the Company's stock performs.
Stock options only have value to the recipient when the price of the
Company's Common Stock exceeds the exercise price of the option, which is at
least the fair market value at date of grant. Thus, options provide a
powerful incentive for employees to maximize the Company's sales and profits,
and build the value of the business, all of which should be reflected over
the long term in the price of the Company's Common Stock. In prior years,
executives of the Company realized substantial profits from the exercise of
stock options, in some cases placing them among the more highly compensated
executives in the nation. The Committee believes that shareholders benefited
proportionately and that the use of options facilitated the Company's
substantial growth during the period from 1989 through 1992. During 1994, an
option grant was made to three of the named executive officers, and to other
executive officers, as a retention incentive for the core management
10
<PAGE>
group which is key to the turnaround of the Company in a difficult
restructuring and transition period. The exercise price was set at
approximately 10% above the market price on the date of grant. No grants were
made to Company executives in 1992 or 1993. The Committee took into account
that outstanding option grants preceded the downturn in the health care
industry, were out of the money, and were not adequate to further the purpose
of the stock grant program. The number of options granted was not based on
comparative studies but on the Committee's judgment as to an appropriate
incentive opportunity. The stock option grants are also intended to provide
participants with a potential source of retirement income since the Company
does not offer a pension plan. No grants were made to Mr. Hirsch or Ms.
Josefsen in 1992, 1993, or 1994.
3. Long Term Incentive Plan.
Under the Executive Long Term Incentive Plan ("LTIP") cash payouts may be
earned by a limited number of senior executives based on achievement of a
weighted combination of sales growth (34%) and EPS ( 66%) during a three-year
performance cycle. The long term cash incentive opportunity encourages
executives to take steps which build the business for the future, avoiding a
possible disincentive for prudent long term steps out of concern as to the
possible impact on short term results. Levels of performance are graded on
three tiers--minimum, target and maximum (corresponding to the threshold,
target, and maximum columns under the table describing Long Term Incentive
Awards on page 8 with no compensation payable if the performance is below the
minimum tier and no additional compensation if the performance is above the
maximum tier. The amount of the payout is based on a percentage of the
recipient's average annual base salary during the cycle, ranging from 7.5% to
17.5% for achievement in the minimum tier, 15% to 35% for achievement in the
target tier and 30% to 70% for achievement in the maximum tier, the exact
percentage depending on the executive's tier. For the Chief Executive
Officer, the percentages for these tiers was 17.5%, 35% and 70%.
The Company did not achieve the minimum tiers for sales growth or EPS
components for the three year performance cycle ended in 1994. As a result,
the Chief Executive Officer, Ms. Josefsen, and Mr. Knarr received no payout
under the LTIP for that period. Mr. Rosenkrantz and Mr. Guy were not eligible
for payouts under the LTIP for performance periods ended in 1992, 1993, or
1994.
All Other Compensation
Included with respect to the Chief Executive Officer in 1994 as "all other
compensation" reported in the Summary Compensation Table was interest accrued
and forgiven pursuant to the terms of an Installment Option Purchase
Agreement which was entered into in 1984 by the Chief Executive Officer and
the Company. The Installment Option Purchase Plan ("IOPA") was originally
entered to encourage Mr. Hirsch, and other executives, to exercise options in
the Company's stock. At the Committee's request, Mr. Hirsch repaid the
outstanding principal option price of $5,370,000 in full to the Company in
cash. To keep Mr. Hirsch in substantially the same position on interest, the
Committee agreed to continue to pay the accrued interest as a bonus, as it
becomes due and to repay Mr. Hirsch's expenses and interest of a personal
loan by Mr. Hirsch to obtain the funds to pay the option price. In effect,
the transaction substituted a third party for the Company as the lender under
the installment option purchase arrangement. The Company obtained a
significant net cash benefit and additional equity, and Mr. Hirsch received
no advantage.
Tax Considerations
Beginning in 1994, a new federal tax law limits deductions for each of the
five executives named in the summary compensation table to $1 million.
Certain compensation, including compensation based on performance, is not
subject to this limit if certain conditions are met, primarily, that the
compensation is based on objective performance criteria approved by the
stockholders. The Company's stock option plan under which options may be
granted to executive officers has been approved by the stockholders and
qualifies for the exclusion from the deduction limits for grants through
1996. Grants under the LTIP which, depending on performance, may result in
payouts for performance periods through 1995 predated the new law, are not
subject to the limit and can be claimed as a deduction. The Company's LTIP is
based on objective performance criteria but has not been presented for
stockholder approval. Base salary and, because of the need for flexibility in
setting performance goals, annual bonuses do not qualify for the exclusion
from the $1 million limit. Compensation amounts near term which do not
qualify for the deduction (base salary and annual bonus) are not expected to
exceed the deduction limits significantly. The Committee intends to take
steps in the future, including stockholder approval, to maintain deductions
for its incentive compensation plans to the greatest extent practical while
maintaining flexibility to take actions which it deems in the best interests
of the Company and its stockholders but which may result in certain
compensation not qualifying for tax deductions.
COMPENSATION/OPTION COMMITTEE:
Douglas L. King, Chairman
John A. Bogardus, Jr.
William F. May
11
<PAGE>
Compensation Committee Interlocks and Insider Participation
Mr. King, a member of the Committee, is President and a director of Smyth,
Sanford & Gerard Reinsurance Intermediaries, Inc., which provided certain
insurance brokerage services to the Company. Smyth, Sanford and Gerard
Reinsurance Intermediaries Inc. received compensation of approximately
$215,000 from such services during 1994. Mr. King may have benefited
indirectly from these transactions as an officer and employee of that firm.
Directors' Compensation
Directors who are also officers (currently, Messrs. Hirsch and Bremer and
Mmes. Josefsen and Scipione) serve as such without additional compensation.
During 1994, outside directors were each paid the following fees in each of
the capacities served: directors (including Chairman Emeritus), $28,100 plus
$2,250 for each Board meeting attended; Chairman of a Committee, $3,950;
other members of a Committee, $2,800 per Committee; all Committee members
received $1,125 for each Committee meeting attended on a non-Board meeting
day. As a part of the cost saving measures discussed above, each element of
director compensation reflects a reduction by 10% for 1994 from 1993
compensation. In addition, Mr. Lustman continued to receive as part of a
retirement package an amount equal to one year's salary and standard bonus
award beginning in April, 1994.
Certain Eligible Directors (defined as directors who are not, and have not
been for the preceding l2 months, employees of the Company or its
subsidiaries, and who are not the beneficial owner of five percent or more of
the outstanding Common Stock) have received stock award and option grants
under the Outside Directors Stock Plan (the "Outside Directors Plan"). The
Outside Directors Plan provides for stock awards and option grants of up to
an aggregate maximum of 160,000 shares of Common Stock, of which 48,000
shares remained available for grant as of December 31, 1994. Upon the
forfeiture of shares prior to vesting, and upon expiration of an option, the
forfeited shares and any shares subject to the option which remain
unexercised generally become available again under the Outside Directors
Plan. The Outside Directors Plan is administered by the Compensation/Option
Committee of the Board of Directors. The selection and eligibility of
grantees and the dates and amounts of option grants are defined in the
Outside Directors Plan and are not subject to the discretion of any person.
Option grants of 4,000 shares are automatically made under the Outside
Directors Plan to Eligible Directors each year upon his or her reelection to
the Board by the stockholders. The option price is the fair market value of
the Common Stock on the date of grant. Each option becomes exercisable as to
one-half of the shares covered by it commencing one year after the date of
grant and as to the remaining one-half commencing two years after the date of
grant, provided the optionee has been in continuous service on the Board at
all times since the date of grant. However, each option becomes fully
exercisable in the event of the grantee's death or permanent disability, and
may be exercised to the extent otherwise exercisable if the grantee retires
with the consent of the Board or his or her service on the Board is
terminated after a Change in Control, as defined. The Eligible Directors each
received an option for 4,000 shares in 1994, with an option exercise price of
$22.55. Assuming an Eligible Director is reelected, such director will
receive an option for 4,000 shares effective May 3, 1995. No stock awards
were made in 1994.
Certain Transactions
(a) In connection with the exercise of certain options granted under the 1981
Employee Stock Option Plan, the Company entered an installment option
purchase agreement (the "Agreement") with Leon C. Hirsch in 1984 where the
Agreement, as amended, permitted Mr. Hirsch to pay the option price in three
equal installments, with the last installment payable in 1999. Mr. Hirsch
agreed, at the request of the Company, to repay the outstanding principal
option price of $5,370,000 during 1994. In exchange, the Company agreed to
continue to award Mr. Hirsch a bonus equal to scheduled installments of
interest payments on the original option price and for the interest costs on
a personal loan taken to repay the option price. The annual interest rates on
installments under the Agreement are 4.8% for the first two installments and
6.33% for the remaining installment. The largest aggregate principal amount
outstanding under Mr. Hirsch's Agreements at any time in 1994 was $5,370,000;
as of December 31, 1994, the principal amount had been repaid.
Bonuses related to interest accruals in 1994 under the Agreement aggregated
$989,406. Total accrued interest under the Agreement at December 31, 1994 was
$8,216,881. Under the Agreement, an amount equal to 100% of the interest for
the term of the Agreement is to be paid as a bonus to Mr. Hirsch while he
remains an employee of the Company as and when such interest is due. See
footnote (4) to the Summary Compensation Table above.
12
<PAGE>
(b) In 1994, Smyth Sanford & Gerard Reinsurance Intermediaries, Inc., of
which Mr. King, also a director of the Company, is President and a director,
performed certain insurance brokerage services for the Company for which it
received compensation of approximately $215,000. Mr. King may have benefited
indirectly from these transactions as an officer and employee of that firm.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and any persons who own more than ten
percent of the Company's Common Stock to file with the Securities and
Exchange Commission and the New York Stock Exchange various reports as to
ownership of such Common Stock. Such persons are required by Securities and
Exchange Commission regulation to furnish the Company with copies of all
Section 16(a) forms they file. To the Company's knowledge, based solely on
its review of the copies of such reports furnished to the Company and written
representations to the Company that no other reports were required, all the
aforesaid Section 16(a) filing requirements were met on a timely basis during
1994.
STOCKHOLDERS' PROPOSALS
Proposals of stockholders intended to be presented at the 1996 Annual Meeting
must be received at the Company's principal executive offices, 150 Glover
Avenue, Norwalk, Connecticut 06856, Attention: Corporate Secretary, for
inclusion in the Company's Proxy Statement and form of proxy relating to that
Annual Meeting, no later than November 13, 1995.
EXPENSES OF SOLICITATION
The solicitation of proxies in the form enclosed is made on behalf of the
Board of Directors of the Company. The expenses of the solicitation of
proxies, including preparing, handling, printing and mailing the proxy
soliciting material, will be borne by the Company. Solicitation will be made
by use of the mails and, if necessary, by advertising, electronic
telecommunications and personal interview. The Company has retained the
services of Kissel- Blake Inc. to assist in connection with the soliciting of
proxies by such methods for a fee estimated at $12,000 plus out-of-pocket
expenses. Management may use the services of its directors, officers and
employees in soliciting proxies, who will receive no compensation therefor in
addition to their regular compensation, but who will be reimbursed for their
out-of-pocket expenses incurred. The Company will reimburse banks, brokers,
nominees, custodians and fiduciaries for their expenses in forwarding copies
of the proxy soliciting material to the beneficial owners of the stock held
by such persons and in requesting authority for the execution of proxies.
OTHER MATTERS
The persons named in the enclosed form of proxy have no present intention of
bringing before the meeting for action any matters other than those
specifically referred to above, nor has management or the Board of Directors
any such intention, and none of such persons, management or the Board of
Directors is aware of any matters which may be presented by others. If any
such business should properly come before the meeting, the persons named in
the form of proxy intend to vote thereon in accordance with their best
judgment.
By Order of the Board of Directors
PAMELA KOMENDA
Corporate Secretary
Dated: March 10, 1995
13
<PAGE>
TABLE OF CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS
United States Surgical Corporation and Subsidiaries
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Statements of Operations 15
Consolidated Balance Sheets 16
Consolidated Statements of Changes in Stockholders' Equity 17
Consolidated Statements of Cash Flow 18
Notes to Consolidated Financial Statements 19
Management Report on Responsibility for Financial Reporting 30
Independent Auditors' Report 31
Quarterly Results of Operations (Unaudited) 32
Common Stock Prices and Dividends 33
Description of the Company's Business 33
Five Year Selected Financial Data 34
Management's Discussion and Analysis of Financial Condition and
Results of Operations 35
</TABLE>
14
<PAGE>
United States Surgical Corporation and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
In thousands, except per share data
<S> <C> <C> <C>
Net sales $918,700 $1,037,200 $1,197,200
Costs and expenses:
Cost of products sold 463,600 518,400 483,100
Research and development 37,500 50,800 43,800
Selling, administrative and general 366,700 449,300 462,700
Interest 18,200 18,500 14,700
Restructuring charges 137,600
Total costs and expenses 886,000 1,174,600 1,004,300
Income (loss) before income taxes 32,700 (137,400) 192,900
Income taxes 13,500 1,300 54,000
Net income (loss) 19,200 (138,700) 138,900
Preferred stock dividends 14,900
Net income (loss) applicable to common stock $ 4,300 $ (138,700) $ 138,900
Average number of common shares and common share equivalents
outstanding 56,600 56,000 59,900
Net income (loss) per common share and common share
equivalents (primary and fully diluted) $ .08 $ (2.48) $ 2.32
Dividends paid per common share $ .08 $ .245 $ .30
</TABLE>
15
<PAGE>
United States Surgical Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
1994 1993
In thousands except share data
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,300 $ 900
Receivables, less allowance of $7,300 (1994); $5,000 (1993) 211,500 197,900
Inventories:
Finished goods 95,500 113,000
Work in process 27,100 36,900
Raw materials 44,600 62,300
167,200 212,200
Other current assets 49,500 53,800
Total Current Assets 439,500 464,800
Property, plant, and equipment (net) 540,000 592,200
Other assets (net) 124,000 113,500
Total Assets $1,103,500 $1,170,500
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,500 $ 50,200
Accrued liabilities 125,200 137,500
Income taxes payable 29,400 28,800
Total Current Liabilities 184,100 216,500
Long-term debt 248,500 505,300
Deferred income taxes 8,900 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 190,600
Common stock $.10 par value, authorized 250,000,000 shares; issued,
64,973,192 at December 31, 1994 and 64,402,144 at December 31, 1993 6,500 6,400
Additional paid-in capital--common stock 380,700 371,700
Retained earnings 178,100 178,300
Installment receivables from sale of common stock (5,400)
Treasury stock at cost; 8,137,053 shares at December 31, 1994 and 8,144,386
shares at December 31, 1993 (86,700) (86,700)
Accumulated translation adjustments (8,100) (20,400)
Total Stockholders' Equity 662,000 443,900
Commitments and contingencies
Total Liabilities and Stockholders' Equity $1,103,500 $1,170,500
</TABLE>
16
<PAGE>
United States Surgical Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Additional
Paid-in Paid-in
Preferred Capital- Common Capital- Retained
Years ended December 31, 1994, 1993 and 1992 Stock Preferred Stock Common Earnings
Dollars in thousands except share data
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1992 $6,100 $192,800 $ 208,200
Common stock issued to employees-net
(3,110,529 shares) 300 48,000
Amortization and adjustment of deferred
compensation (1,500)
Income tax benefit from stock options exercised 50,000
Acquisition of common stock for treasury
(269,204 shares)
Reissuance of common stock from treasury for
acquisition (580,020 shares) 55,900
Aggregate adjustment resulting from the
translation of foreign financial statements
Dividends paid ($.30 per share) (16,400)
Net income 138,900
Balance at December 31, 1992 6,400 345,200 330,700
Common stock issued to employees-net
(626,079 shares) 12,100
Income tax benefit from stock options exercised
recognized upon adoption of FAS 109 14,400
Payment received from officer on installment
receivables
Aggregate adjustment resulting from the
translation of foreign financial statements
Dividends paid ($.245 per share) (13,700)
Net loss (138,700)
Balance at December 31, 1993 6,400 371,700 178,300
Issuance of preferred stock (177,400 shares) $900 $190,600
Common stock issued to employees-net
(577,991 shares) 100 7,900
Income tax benefit from stock options exercised 1,100
Payment received from officer on installment
receivables
Aggregate adjustment resulting from the
translation of foreign financial statements
Preferred stock dividends (14,900)
Common stock dividends paid
($.08 per share) (4,500)
Net income 19,200
Balance at December 31, 1994 $900 $190,600 $6,500 $380,700 $ 178,100
</TABLE>
See Notes to Consolidated Financial Statements.
17
<PAGE>
United States Surgical Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Installment
DeferredReceivables
Compensation from
Arising Sale
Accumulated from of
Translation Restricted Common Treasury
Years ended December 31, 1994, 1993 and 1992 Adjustments Stock Stock Stock Total
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1992 $ 6,200 $(4,200) $(8,100) $(71,100) $ 329,900
Common stock issued to employees-net
(3,110,529 shares) 48,300
Amortization and adjustment of deferred
compensation 4,200 2,700
Income tax benefit from stock options exercised 50,000
Acquisition of common stock for treasury
(269,204 shares) 2,100 (18,200) (16,100)
Reissuance of common stock from treasury for
acquisition (580,020 shares) 2,600 58,500
Aggregate adjustment resulting from the
translation of foreign financial statements (5,800) (5,800)
Dividends paid ($.30 per share) (16,400)
Net income 138,900
Balance at December 31, 1992 400 0 (6,000) (86,700) 590,000
Common stock issued to employees-net
(626,079 shares) 12,100
Income tax benefit from stock options exercised
recognized upon adoption of FAS 109 14,400
Payment received from officer on installment
receivables 600 600
Aggregate adjustment resulting from the
translation of foreign financial statements (20,800) (20,800)
Dividends paid ($.245 per share) (13,700)
Net loss (138,700)
Balance at December 31, 1993 (20,400) 0 (5,400) (86,700) 443,900
Issuance of preferred stock (177,400 shares) 191,500
Common stock issued to employees-net
(577,991 shares) 8,000
Income tax benefit from stock options exercised 1,100
Payment received from officer on installment
receivables 5,400 5,400
Aggregate adjustment resulting from the
translation of foreign financial statements 12,300 12,300
Preferred stock dividends (14,900)
Common stock dividends paid
($.08 per share) (4,500)
Net income 19,200
Balance at December 31, 1994 $ (8,100) $ 0 $ 0 $(86,700) $ 662,000
</TABLE>
See Notes to Consolidated Financial Statements.
17
<PAGE>
United States Surgical Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
In thousands
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 913,100 $ 1,103,300 $ 1,087,700
Cash paid to vendors, suppliers, and employees (749,300) (941,200) (905,900)
Interest paid (24,800) (18,300) (15,600)
Income taxes paid (14,900) (12,800) (18,400)
Net cash provided by operating activities 124,100 131,000 147,800
Cash flows from investing activities:
Additions to property, plant, and equipment (47,000) (216,400) (270,700)
Other assets 10,600 (31,100) (31,100)
Net cash used in investing activities (36,400) (247,500) (301,800)
Cash flows from financing activities:
Long-term debt borrowings under credit agreements 3,483,900 2,614,400 1,840,800
Long-term debt repayments under credit agreements (3,753,800) (2,495,900) (1,696,000)
Issuance of preferred stock, net 191,500
Common stock issued from stock plans 13,400 12,100 48,000
Dividends paid (14,500) (13,700) (16,400)
Acquisition of common stock for treasury (16,100)
Net cash (used in) provided by financing activities (79,500) 116,900 160,300
Effect of exchange rate changes 2,200 (2,000) (6,400)
Net increase (decrease) in cash and cash equivalents 10,400 (1,600) (100)
Cash and cash equivalents, beginning of year 900 2,500 2,600
Cash and cash equivalents, end of year $ 11,300 $ 900 $ 2,500
Reconciliation of net income (loss) to net cash provided by operating
activities:
Net income (loss) $ 19,200 $ (138,700) $ 138,900
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 89,400 83,200 59,400
Amortization of deferred compensation 4,200
Asset writedowns--restructuring 73,800
Adjustment of property, plant, and equipment reserves 22,300 17,400 3,900
Receivables--(increase) decrease (3,300) 67,800 (108,200)
Inventories--decrease (increase) 7,400 (48,400) (75,800)
Adjustment of inventory reserves 39,200 44,200 29,900
Accounts payable and accrued liabilities--(decrease) increase (42,500) 34,300 51,400
Income taxes payable and deferred--(decrease) (2,900) (24,300) (14,100)
Income tax benefit from stock options exercised 1,100 14,400 50,000
Other assets--net (5,800) 7,300 8,200
Total adjustments 104,900 269,700 8,900
Net cash provided by operating activities $ 124,100 $ 131,000 $ 147,800
</TABLE>
18
<PAGE>
United States Surgical Corporation and Subsidiaries
Notes to Consolidated Financial Statements
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)Note A -- Summary of
Significant Accounting Policies
Consolidation. The consolidated financial statements include the accounts and
transactions of United States Surgical Corporation and Subsidiaries (the
"Company"), excluding intercompany accounts and transactions. Certain
subsidiaries (including branches), primarily operating outside the United
States, are included in the consolidated financial statements on a
fiscal-year basis ending November 30.
Property, Plant, and Equipment. Depreciation and amortization is provided
using the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
Years
<S> <C>
Buildings 40
Molds and dies 5 to 7
Machinery and equipment 3 to 10
Leasehold improvements 5 to 30
</TABLE>
The Company capitalizes interest incurred on funds used to construct
property, plant, and equipment. Interest capitalized during 1994, 1993 and
1992 was immaterial.
Inventories. Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Other Assets. The Company capitalizes and includes in Other Assets the costs
of acquiring patents on its products, the costs of computer software
developed and used in its information processing systems, goodwill arising
from the excess of cost over the fair value of net assets of purchased
businesses and deferred start-up costs incurred prior to 1991 relating to the
Company's entrance in 1991 into the suture portion of the wound management
market. These costs are amortized on the straight-line basis over the
following estimated useful lives:
<TABLE>
<CAPTION>
Years
<S> <C>
Patents 10
Computer software costs 3 to 4
Deferred start-up costs 5
Goodwill 10 to 40
</TABLE>
Revenue Recognition. Revenues from sales are recognized when products are
sold directly by the Company to ultimate consumers, primarily hospitals, or
to authorized distributors.
Foreign Currency Translation. For translation of the financial statements of
its international operations the Company has determined that the local
currencies of its international subsidiaries are the functional currencies.
Assets and liabilities of foreign operations are translated at year end
exchange rates, and income statement accounts are translated at average
exchange rates for the year. The resulting translation adjustments are made
directly to the Accumulated Translation Adjustments component of
Stockholders' Equity. Foreign currency transactions are recorded at the
exchange rate prevailing at the transaction date.
Net Income (Loss) per Common Share and Common Share Equivalent. Net income
(loss) per common share and common share equivalent is based on the weighted
average number of common shares and, where material, common share equivalents
(stock options) outstanding. Common share equivalents are not included in the
computation of net income (loss) per share in 1994 and 1993 since the effect
of their inclusion would be antidilutive.
Note B -- Restructuring Charges
In the second half of 1993 the Company adopted a restructuring plan designed
to reduce its cost structure and improve its competitive position through
property divestitures and consolidations and a reduction in its management,
administrative and direct labor work force. During 1993 the Company recorded
restructuring charges of $138 million ($130 million after taxes). These
charges consisted primarily of write downs of certain real estate to esti
19
<PAGE>
mated net realizable value ($79 million), provisions for lease buyout
expenses ($24 million), severance costs ($30 million) and write down of other
assets ($5 million).
The majority of the restructuring charges were non-cash in nature. Accrued
Liabilities at December 31, 1993 included $56 million related primarily to
severance costs and accrued lease obligations, the majority of which was paid
in 1994. Included in restructuring charges was a $58 million charge related
to the Company's new European building complex and distribution center at
Elancourt, France. The Company decided to sublease unutilized space rather
than occupy the entire Elancourt facility when it became apparent that
projected worldwide sales growth and the pace of reduction in trade barriers
and related considerations among European countries did not meet Company
expectations. The estimated net realizable value of these facilities was
based upon the present value of rental income expected to be received,
assuming the facilities were subleased after one year.
The Company has several companies interested in subleasing the unutilized
space in its building complex and distribution center in Elancourt, France
and is hopeful that a subleasing arrangement will be consummated in 1995 at a
lease rental which approximates the written down carrying value of the
facility. The Company has either terminated or bought out the leases on the
majority of those other leased properties which were part of the 1993
restructuring charges. All of the employees whose severance was included in
the 1993 restructuring charges have been terminated and the vast majority of
the Company's severance obligations have been paid as of December 31, 1994.
Approximately $38 million of the restructuring charges resulted in cash
outflows related to severance and accrued lease obligations, the majority of
which was funded through operating cash flows and credit facilities in 1994.
Accrued restructuring charges at December 31, 1994 are approximately $18
million and relate primarily to accrued lease buyout expenses ($15 million)
and unpaid severance costs ($3 million). The majority of accrued
restructuring charges are expected to be liquidated by December 31, 1995.
Note C -- Acquisitions
In November 1994 the Company signed a letter of intent to purchase the assets
of its independent distributor in Japan, which consist of real property with
a book value of approximately $10 million, inventories of products purchased
by the distributor from the Company at the distributor's cost of
approximately $17 million and intangible assets (primarily goodwill). The
Company substantially completed its due diligence investigations in December
1994 and it signed the Asset Purchase Agreement on February 1, 1995 for a
purchase price of approximately $61 million payable over seven years at no
interest (present value of the purchase price approximately $46 million).
Before the closing of the transaction can occur the transaction must receive
the approval of two governmental authorities in Japan, which the Company
expects to receive in March 1995. In anticipation of the reacquisition of the
distributor's inventory of products previously purchased by the distributor
from the Company, the Company reduced 1994 sales revenue and gross profit by
approximately $17 million and $8 million ($.14 per common share),
respectively, based upon the inventory quantities on-hand at the
distributor's warehouse as of December 31, 1994.
In July 1992, the Company purchased all of the outstanding common stock of
EndoTherapeutics for approximately $60 million of the Company's common stock
(approximately 580,000 shares). Under the purchase agreement the Company
acquired EndoTherapeutics' laparoscopic surgical technology, including the
trocar and pneumoperitoneum needle patents which the Company previously
licensed from EndoTherapeutics, technical know-how and other assets. The
acquisition has been accounted for by the purchase method. The purchase price
has been primarily allocated to the acquired patents which are included in
Other Assets.
20
<PAGE>
Note D -- Property, Plant, and Equipment
At December 31, 1994 and 1993, Property, plant, and equipment (at cost) were
comprised of the following items:
<TABLE>
<CAPTION>
1994 1993
In thousands
<S> <C> <C>
Land $ 23,800 $ 20,700
Buildings 149,600 163,400
Molds and dies 100,500 114,300
Machinery and equipment 321,700 306,600
Leasehold improvements 155,500 147,100
751,100 752,100
Less allowance for depreciation and
amortization (211,100) (159,900)
$ 540,000 $ 592,200
</TABLE>
Property, plant, and equipment at December 31, 1994 includes land and
building in Elancourt, France with a net book value of $70 million. During
1994 the Company removed from its Balance Sheet Property, plant and equipment
which was fully depreciated with a cost of $19 million.
Note E -- Other Assets
At December 31, 1994 and 1993 Other Assets (net of accumulated amortization
of $57 million and $61 million in 1994 and 1993, respectively) were comprised
of the following items:
<TABLE>
<CAPTION>
1994 1993
In thousands
<S> <C> <C>
Patents $ 57,200 $ 59,200
Computer software costs 8,300 12,500
Deferred start-up costs 4,200 8,300
Goodwill 5,200 5,600
Prepaid rent 19,700 10,400
Other 29,400 17,500
$124,000 $113,500
</TABLE>
During 1994 the Company removed from its Balance Sheet fully amortized Other
Assets with a cost of $23 million.
Note F -- Income Taxes
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109-- "Accounting for Income Taxes" (FAS 109) in
February 1992, and the Company was required to adopt FAS 109 by January 1,
1993. This statement requires that deferred income taxes reflect the tax
consequences on future years of differences between the tax return bases of
assets and liabilities and their financial statement amounts.
Prior to 1993, provisions were made by the Company for deferred income taxes
where differences existed between the time that transactions affected taxable
income and the time that these transactions entered into the determination of
income for financial reporting purposes. The effect of the adoption of FAS
109 on a prospective basis from January 1, 1993 was not material.
21
<PAGE>
A summary of the source of income (loss) before income taxes follows:
<TABLE>
<CAPTION>
1994 1993 1992
In thousands
<S> <C> <C> <C>
Domestic (a) $35,600 $ (61,800) $171,800
Foreign (2,900) (75,600) 21,100
$32,700 $(137,400) $192,900
</TABLE>
(a) Includes Puerto Rico and U.S. branches in foreign locations.
A summary of the provision for income taxes follows:
<TABLE>
<CAPTION>
1994 1993 1992
In thousands
<S> <C> <C> <C>
Current:
Federal $ 1,700
Foreign 1,000 $ 4,800 $13,900
State and local (a) 6,500 4,700 4,000
Deferred:
Federal (900) 23,400
Foreign 500 (8,800) (300)
State and local (a) 4,700 600 13,000
$13,500 $ 1,300 $54,000
</TABLE>
(a) Includes Puerto Rico.
A reconciliation between income taxes based on the application of the
statutory federal income tax rate (1994 and 1993--35%; 1992--34%) to income
before income taxes and the provision for income taxes as set forth in the
Consolidated Statements of Operations follows:
<TABLE>
<CAPTION>
1994 1993 1992
In thousands
<S> <C> <C> <C>
Provision (benefit) for taxes at statutory rates $11,400 $(48,100) $ 65,600
Benefit of operating loss not recognized for U.S. federal or foreign
taxes 6,500 65,700
State and local income taxes, net of federal income tax benefit 900 800 5,000
Foreign income taxed at rates different than U.S. statutory rate 1,600 1,600 6,400
Tax savings from operations in Puerto Rico (7,500) (18,700) (25,000)
Other 600 2,000
$13,500 $ 1,300 $ 54,000
</TABLE>
22
<PAGE>
The Company has provided for taxes on the income of its manufacturing
subsidiary's operations in Puerto Rico at an effective rate that is lower
than the U.S. federal income tax statutory rate. This rate reflects the fact
that approximately 90% of income is exempt from local taxes in Puerto Rico as
well as the availability of a tax credit under Section 936 of the Internal
Revenue Code. Withholding taxes at a negotiated rate of 7% (6% in 1993 and 5%
in 1992) have been provided on the expected repatriation of the income of
this subsidiary.
At December 31, 1994 deferred tax liabilities and assets under FAS 109 were
comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Patent amortization $ 21,700
Depreciation 30,900
Operating leases 8,500
Other 10,900
Gross deferred tax liabilities 72,000
Restructuring reserves 28,700
Inventory reserves 32,800
Fixed asset reserves 25,300
Accrued expenses 9,500
Other 15,700
Tax net operating loss carryforwards 142,800
Tax credit carryforwards 29,500
Gross deferred tax assets 284,300
Less: Valuation allowance (204,600)
79,700
Net deferred tax assets $ 7,700
</TABLE>
Deferred taxes resulted from temporary differences in the recognition of
revenue and expense for tax and financial statement purposes. The source of
the temporary differences, none of which are individually material, are: the
use of accelerated methods of computing depreciation for income tax purposes
and the straight-line method for financial reporting purposes; expensing
certain patent costs as incurred for income tax purposes and capitalizing and
amortizing them over their estimated useful lives for financial reporting
purposes; accruals and provisions not currently deductible for tax purposes;
expensing certain deferred start-up costs incurred for income tax purposes
and deferring and amortizing such costs over a five year period for financial
reporting purposes; and other temporary differences applicable to current
assets and liabilities.
At December 31, 1994 current deferred tax assets of $6 million and
non-current deferred tax assets of $12 million were included in the
Consolidated Balance Sheet captions Other Current Assets and Other Assets,
respectively. Current deferred tax liabilities of $1 million and non-current
deferred tax liabilities of $9 million were included in the Consolidated
Balance Sheet captions Income Taxes Payable and Deferred Income Taxes,
respectively.
The Company's loss carryforwards prior to 1993 are primarily attributable to
compensation expense deductions on its income tax return which were not
recognized for financial accounting purposes. A valuation allowance in the
amount of $205 million has been recorded as of December 31, 1994 ($198
million at December 31, 1993) because of the uncertainty over the future
utilization of the tax benefit of its gross deferred tax assets.
At December 31, 1994 the Company's consolidated subsidiaries have unremitted
earnings of $110 million on which the Company has not accrued a provision for
U.S. federal income taxes since these earnings are considered to be
permanently invested. The amount of the unrecognized deferred tax liability
relating to unremitted earnings was approximately $28 million at December 31,
1994.
23
<PAGE>
The Internal Revenue Service completed its examination of the Company's tax
returns through December 31, 1983 resulting in no material impact on the
Company's consolidated financial statements. The Internal Revenue Service has
examined the Company's tax returns for the period 1984 through 1990 and it
has proposed adjustments to increase the Company's tax liability for certain
of these years. Based upon the advice of tax counsel, the Company believes
that it has substantial support for its filing positions and does not believe
that the results of the tax audit will have a material effect on the
consolidated financial statements of the Company but may reduce the
availability of fully reserved net operating loss and tax credit
carryforwards.
The Company has available for U.S. Federal income tax return purposes the
following net operating loss and tax credit carryforwards:
<TABLE>
<CAPTION>
Net Investment Research and
Operating Losses Tax Credits Other Credits
In thousands
<S> <C> <C> <C>
Year Scheduled to Expire:
1995 $ 800
1996 1,400
1997 1,400
1998 1,300 $ 200
1999 900 100
2000 $ 7,200 900 300
2001 500 500
2002 700
2003 800
2004 500
2005 23,500(a) 1,800
2006 52,400(a) 3,000
2007 133,600(a) 6,500
2008 39,800(a) 2,800
2009 300(a)
$ 256,800 $7,200 $17,200
</TABLE>
In addition, the Company has available for state and foreign income tax
return purposes net operating loss carryforwards of $141 million and $93
million, respectively, and tax credits of $5 million which expire at various
dates.
(a) The exercise of stock options which have been granted under the Company's
various stock option plans and the vesting of restricted stock give rise to
compensation which is includable in the taxable income of the applicable
employees and deductible by the Company for federal and state income tax
purposes. Such compensation results from increases in the fair market value
of the Company's Common Stock subsequent to the date of grant of the
applicable exercised stock options and restricted stock and, accordingly, in
accordance with Accounting Principles Board Opinion No. 25, such compensation
is not recognized as an expense for financial accounting purposes and the
related tax benefits are taken directly to Additional Paid-in Capital--Common
Stock. In the years ended December 31, 1990 - 1992 such deductions resulted
in significant federal and state deductions which may be carried forward.
Utilization of such deductions will increase Additional Paid-in Capital. The
compensation deductions arising from the exercise of stock options were not
material in 1993 and 1994.
24
<PAGE>
Note G -- Accrued Liabilities
Included in Accrued Liabilities at December 31, 1994 are accrued
restructuring charges $18 million (1993-- $56 million), accrued inventory
repurchase $17 million (1993--$0), accrued payroll, property and sales taxes
$15 million (1993--$15 million) and accrued commissions $12 million
(1993--$14 million).
Note H -- Long-Term Debt
At December 31, 1994 the Company had $161 million in bank borrowings and $88
million in financing lease obligations outstanding relating to its European
headquarters office building and distribution center complex in Elancourt,
France.
During 1994, the Company entered into a new $400 million syndicated credit
agreement which replaced its previous $675 million revolving credit and term
loan agreement with various banks and which matures in January 1997. The
syndicated credit facility provides the Company with a choice of borrowings
with interest rates based upon the banks' CD rate, the Euro-dollar rate or
the London Interbank Offered Rate (LIBOR). The actual interest charges paid
by the Company are determined by a pricing schedule which considers the ratio
of consolidated debt at each calendar quarter end to consolidated earnings
before interest, taxes, depreciation and amortization for the trailing twelve
months. The effective interest rate on long-term bank debt outstanding as of
December 31, 1994 and 1993 was 7.7% and 5.3%, respectively.
The new credit agreement and the Company's operating lease for its primary
domestic manufacturing, distribution and warehousing complex in North Haven,
Connecticut, provide for certain restrictions including sales of assets,
capital expenditures, dividends and subsidiary debt. The most restrictive
covenants of the Company's financing agreements require the maintenance of
certain minimum levels of tangible net worth ($476 million), fixed charges
coverage and a maximum ratio of total debt to total capitalization (60%), as
defined. The Company is prohibited from declaring dividends on its common
stock in excess of $1.25 million per quarter, subject to changes in the
number of common shares outstanding, until it achieves investment grade
status, as defined. The Company is in full compliance with all of the
covenants associated with its various financing agreements.
At December 31, 1994, the scheduled principal repayments under loan
agreements and future minimum payments under a financing lease were as
follows:
<TABLE>
<CAPTION>
Bank
Credit Financing
Facility Lease Total
In thousands
<S> <C> <C> <C>
1995 $ 8,700 $ 8,700
1996 8,700 8,700
1997 $161,000 8,700 169,700
1998 8,800 8,800
1999 10,100 10,100
After 1999 121,600 121,600
161,000 166,600 327,600
Current portion long-term debt (1,300) (1,300)
Amount representing interest (77,800) (77,800)
Long-term debt $161,000 $ 87,500 $248,500
</TABLE>
Note I -- Stockholders' Equity
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
25
<PAGE>
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
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 trades principally as depositary receipts, each representing
a one-fiftieth interest in a share of Preferred Stock. The proceeds from the
sale of Preferred Stock were used to reduce bank indebtedness.
The Company had 56,836,139 and 56,257,758 shares of its $.10 par value Common
Stock outstanding as of December 31, 1994 and 1993, respectively. In the
past, the Company announced programs to repurchase up to a total of 9,200,000
shares of its outstanding Common Stock. As of December 31, 1994, a total of
8,712,537 shares (0 in 1994 and 1,010 in 1993) had been acquired at a total
cost of $89.3 million. Acquired shares are being held as treasury shares, the
majority of which are reserved for issuance upon conversion of the Company's
Preferred Stock.
Shares of Common Stock reserved for future issuance in connection with
restricted stock awards, stock option plans and employee stock purchase
plans, etc. amounted to 17,631,774 and 16,057,440 at December 31, 1994 and
1993, respectively. The Compensation/Option Committee (the "Committee") of
the Board of Directors is responsible for administering the Company's stock
compensation plans.
The Restricted Stock Incentive Plan (the "Incentive Plan") provides for
grants to key employees of the Company's Common Stock in the maximum
aggregate amount of 5,000,000 shares. As of December 31, 1994, 3,839,740
shares were issued and vested under the Incentive Plan and 142,160 shares
were cancelled. There were no restricted stock grants during the three- year
period ended December 31, 1994.
The 1990 Employee Stock Option Plan (the "1990 Option Plan") provides for
grants to key employees and certain key consultants of options and stock
appreciation rights for up to 11,000,000 shares of the Company's Common Stock
at the per share market price at the date of grant unless the Committee
determines otherwise. As of December 31, 1994, no stock appreciation rights
have been granted. Subject to a maximum exercise period of fifteen years, the
exercise period of awards under the 1990 Option Plan will be as determined by
the Committee.
The 1993 Employee Stock Option Plan (the "1993 Option Plan") provides for
grants to key employees (excluding executive officers) of options and stock
appreciation rights for up to 3,500,000 shares of the Company's Common Stock
at the per share market price at the date of grant unless the Committee deems
otherwise. As of December 31, 1994 no stock appreciation rights have been
granted. Subject to a maximum exercise period of fifteen years, the exercise
period of awards under the 1993 Option Plan will be as determined by the
Committee.
The Service-Based Stock Option Plan (the "Service Option Plan") provides for
grants of options for up to 1,144,132 shares of the Company's Common Stock at
the per share market price at the date of grant to individuals employed by
the Company who are within an eligible category. Options under the Service
Option Plan are awarded for a fixed number of shares of Common Stock based
solely upon the eligible recipient's years of service within the eligible
category, and are exercisable for a period of up to ten years.
The Outside Directors Stock Plan provides for an aggregate maximum of up to
160,000 shares of Common Stock to be issued under restricted stock awards and
option grants to certain non-employee members of the Board of Directors. At
December 31, 1994 and 1993, restricted stock awards and option grants for
112,000 shares and 96,000 shares, respectively, had been granted under the
Outside Directors Stock Plan. As of December 31, 1994 and 1993, 48,000 and
64,000 shares, respectively, are reserved for future issuance under the
Outside Directors Stock Plan.
26
<PAGE>
A summary of stock option transactions under the employee Option Plans and
the Outside Directors Stock Plan for each of the three years in the period
ended December 31, 1994 follows:
<TABLE>
<CAPTION>
Number Option
of Shares Price Range
<S> <C> <C>
Outstanding January 1, 1992 13,747,429 $ 3.28 - 98.69
Granted 601,358 56.25 - 114.13
Exercised (2,913,827) 3.28 - 103.69
Canceled or lapsed (581,354) 19.75 - 103.69
Outstanding December 31, 1992 10,853,606 3.28 - 114.13
Granted 1,977,081 23.06 - 69.75
Exercised (245,055) 3.28 - 58.19
Canceled or lapsed (1,080,079) 19.75 - 114.13
Outstanding December 31, 1993 11,505,553 3.58 - 114.13
Granted 2,287,869 20.50 - 22.55
Exercised (347,487) 3.58 - 22.69
Canceled or lapsed (713,319) 7.50 - 114.13
Outstanding December 31, 1994 12,732,616 4.97 - 111.94
At December 31, 1994:
Exercisable 7,328,162 4.97 - 111.94
</TABLE>
Under the USSC Employees 1979 Stock Purchase Plan (the "1979 Purchase Plan")
and the 1994 Employees Stock Purchase Plan (the "1994 Purchase Plan"), all
eligible employees may authorize payroll deductions of up to 10% of their
base earnings, as defined, to purchase shares of the Company's Common Stock
at 85% of the market price when such deductions are made. There are no
charges or credits to income in connection with the Purchase Plan. The plans
will continue in effect as long as shares authorized under the Purchase Plan
remain available for issuance thereunder. The Company has reserved 2,400,000
shares of its Common Stock for issuance under the 1979 Purchase Plan, of
which 140,375 shares are available for future issuance, and it has reserved
650,000 shares of its Common Stock for issuance under the 1994 Purchase Plan,
of which 546,391 are available for future issuance, at December 31, 1994.
27
<PAGE>
Note J -- Segment and Geographic Area Information
The Company develops, manufactures and markets wound management products
which constitute a single business segment. The following information sets
forth geographic information with respect to the Company's net sales,
operating profits and identifiable assets.
<TABLE>
<CAPTION>
1994 1993 1992
In thousands
<S> <C> <C> <C>
Net Sales:
United States $ 775,000 $ 895,500 $1,058,500
International(1)(2) 342,100 341,000 341,200
Inter-area transfers eliminated (198,400) (199,300) (202,500)
$ 918,700 $1,037,200 $1,197,200
Operating Profit (Loss):
United States $ 71,200 $ 30,500 $ 259,900
International(1) 70,800 (65,600) 43,600
Profit on inter-area transfers eliminated (91,100) (83,800) (95,900)
$ 50,900 $ (118,900) $ 207,600
Identifiable Assets at December 31:
United States $ 807,500 $ 877,100 $ 889,200
International(1) 308,600 304,900 291,600
Inter-area assets eliminated (12,600) (11,500) (12,700)
$1,103,500 $1,170,500 $1,168,100
</TABLE>
(1) Principally Europe.
(2) Does not include sales made primarily to international distributors
(1994--$84,800, 1993--$69,600 and 1992--$54,500) from a location in the
United States. The combination of sales to international distributors and
international sales above approximate 46% in 1994, 40% in 1993 and 33% in
1992 of consolidated sales, respectively.
Note K -- Commitments and Contingencies
The Company is engaged in litigation as a defendant in cases involving
alleged patent infringement, product liability claims and shareholders'
derivative and class action suits. In the opinion of management, based upon
advice of counsel, the ultimate outcome of these lawsuits should not have a
material adverse effect on the Company's consolidated financial statements.
As part of the ongoing expansion of its Puerto Rico operations, the Company
is committed to certain undertakings, including the maintenance of specified
levels of employment and capitalization for the Puerto Rican subsidiary.
The future minimum rental commitments for building space, leasehold
improvements, data processing and automotive equipment for all operating
leases as of December 31, 1994, were as follows: 1995--$27 million; 1996--$54
million; 1997--$68 million; 1998--$86 million; 1999--$66 million; after
1999--$251 million. Rent expense was $31 million, $34 million and $24 million
in 1994, 1993 and 1992, respectively. The Company's North Haven lease
agreement includes contingent rent provisions based on formulas utilizing the
consumer price index. The amount of the contingent rent over the life of the
lease is estimated to be $18 million.
28
<PAGE>
Note L -- Financial Instruments and Off Balance Sheet Risk
Derivatives
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to
manage well-defined interest rate and foreign exchange rate risks.
The Company enters into contracts to reduce its exposure to and risk from
foreign currency exchange rate changes and interest rate fluctuations in the
regular course of the Company's global business. As of December 31, 1994, the
Company had approximately $16 million of foreign currency exchange contracts
outstanding that will mature at various dates through February 1995. Realized
and unrealized foreign currency gains and losses with respect to such
contracts are recognized when incurred and amounted to losses of $4 million,
$1 million and $4 million in 1994, 1993 and 1992, respectively.
The Company has swapped with certain banks its exposure to floating interest
rates on $50 million of its variable rate U.S. dollar debt and $37 million
(200 million French francs) of variable rate French franc debt. These swap
agreements expire in August 1996 and December 1997 for the U.S. dollar debt
and French franc debt, respectively. The Company makes fixed interest
payments at rates of approximately 7.8% for the U.S. dollar swap and 8.1% for
the French franc swap and receives payments based on the floating six-month
LIBOR and three-month LIBOR, respectively. The net gain or loss from the
exchange of interest rate payments, which is immaterial, is included in
interest expense. Based upon the fair value of the Company's interest rate
swap agreements at December 31, 1994, termination of such agreements would
require a payment by the Company of approximately five hundred thousand
dollars. The Company does not currently intend to terminate its interest rate
swap agreements prior to their expiration dates.
Concentration of Credit Risk
The Company invests its excess cash in both deposits with major banks
throughout the world and other high quality short-term liquid money market
instruments (commercial paper, government and government agency notes and
bills, etc.). The Company has a policy of making investments only with
institutions that have at least an "A" (or equivalent) credit rating from a
national rating agency. The investments generally mature within six months
but certain investments in bank CDs mature within five years. The Company has
not incurred losses related to these investments.
The Company sells products in the surgical wound management field in most
countries of the world. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the
Company's customer base. Ongoing credit evaluations of customers' financial
condition are performed and, generally, no collateral is required. In certain
European countries the Company's receivables are not paid until the customers
receive governmental reimbursement for their purchases. The Company has not
encountered difficulty in ultimately collecting accounts receivable in these
countries. The Company maintains reserves for potential credit losses and
such losses, in the aggregate, have not significantly exceeded management's
estimates.
Disclosures about Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents approximates fair value due
to the short-term maturities of these instruments. The fair value of
certificates of deposit, long-term debt and foreign interest rate swap
agreements were estimated based on quotes obtained from brokers for those or
similar instruments. The fair value of interest rate swap contracts were
estimated based on quoted market prices at year-end.
The estimated fair value of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
(In thousands)
<S> <C> <C> <C> <C>
Cash, cash equivalents and certificates of deposit $ 20,600 $ 20,400 $ 2,700 $ 2,700
Long-term debt and related interest rate swap payable 249,900 250,400 506,700 511,450
Interest rate swap receivable 1,000 1,000 600 600
</TABLE>
29
<PAGE>
MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of United States Surgical Corporation and its subsidiaries
(the "Company") has the responsibility for preparing the accompanying
consolidated financial statements and related notes. The consolidated
financial statements were prepared in accordance with generally accepted
accounting principles and necessarily include amounts based upon judgments
and estimates by management. Management also prepared the other information
in the annual report and is responsible for its accuracy and consistency with
the consolidated financial statements.
Management of the Company has established and maintains a system of internal
controls that provide reasonable assurance that the accounting records may be
relied upon for the preparation of the consolidated financial statements.
Management continually monitors the system of internal controls for
compliance. Also, the Company maintains an internal auditing function that
independently assesses the effectiveness of the internal controls and
recommends possible improvements thereto. The Company's consolidated
financial statements have been audited by Deloitte & Touche LLP, independent
auditors. Management has made available to Deloitte & Touche LLP all the
Company's financial records and related data. In addition, in order to
express an opinion on the Company's consolidated financial statements,
Deloitte & Touche LLP considered the internal accounting control structure in
order to determine the extent of their auditing procedures for the purpose of
expressing such opinion but not to provide assurance on the internal control
structure. Management believes that the Company's system of internal controls
is adequate to accomplish the objectives discussed herein.
The Board of Directors monitors the internal control system through its Audit
Committee which consists solely of outside directors. The Audit Committee
meets periodically with the independent auditors, internal auditors and
senior financial management to determine that they are properly discharging
their responsibilities.
Leon C. Hirsch
Chief Executive Officer Howard M. Rosenkrantz
Chief Financial Officer Chief Financial Officer
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
United States Surgical Corporation
We have audited the accompanying consolidated balance sheets of United States
Surgical Corporation and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of United States Surgical
Corporation and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Stamford, Connecticut
January 24, 1995,
except for Note C, as to
which the date is February 1, 1995
31
<PAGE>
Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1994 and 1993.
<TABLE>
<CAPTION>
Fourth
First Second Third Quarter
Quarter Quarter(1) Quarter(2) (1)(2)(3) Year(2)
<S> <C> <C> <C> <C> <C>
1994
Net sales $226,000 $232,000 $234,200 $ 226,500 $ 918,700
Cost of products sold 117,600 117,200 115,200 113,600 463,600
Income (loss) before income taxes (5,400) 11,800 17,400 8,900 32,700
Net income (loss) (7,900) 8,000 13,200 5,900 19,200
Net income (loss) per common share
(primary and fully diluted) $ (.14) $ .05 $ .15 $ .02 $ .08
1993
Net sales $326,300 $228,800 $237,700 $ 244,400 $1,037,200
Cost of products sold 138,800 119,800 120,900 138,900 518,400
Income (loss) before income taxes 49,300 (30,100) (13,200) (143,400) (137,400)
Net income (loss) 36,000 (22,000) (14,300) (138,400) (138,700)
Net income (loss) per common share and
common share equivalent (primary and
fully diluted) $ .61 $ (.39) $ (.26) $ (2.46) $ (2.48)
</TABLE>
(1) In the second quarter of 1993 in anticipation of the pending purchase by
the Company of an international distributor, the Company accrued for the
reacquisition of inventory from this distributor and reduced Net sales by $10
million and Cost of products sold by $4 million. In the fourth quarter of
1993 the negotiations for the purchase of the distributor were suspended and
the Company reversed the second quarter entries and increased Net sales by $9
million and Cost of products sold by $3 million. In the fourth quarter of
1994 the Company reached an agreement to purchase the assets of this
distributor and accrued for the reacquisition of inventory from this
distributor and reduced Net sales by $17 million and Net income by $8 million
($.14 per common share).
(2) Income (loss) before income taxes for 1993 includes restructuring charges
of $138 million (third quarter--$8 million; fourth quarter--$130 million).
Net income (loss) for 1993 includes restructuring charges of $130 million or
$2.31 per share (third quarter--$ 6 million or $.11 per share; fourth
quarter--$124 million or $2.20 per share).
(3) Cost of products sold in the fourth quarter includes $16 million of
inventory and fixed asset reserves ($19 million in the corresponding period
in 1993) resulting from the continued introduction of new products and the
consequent obsolescence of production tooling and inventories.
32
<PAGE>
Common Stock Prices and Dividends
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol USS. The following table sets forth for the periods indicated the high
and low of the daily sales prices, which represent actual transactions, as
reported by the New York Stock Exchange. In addition, the table sets forth
the amounts of quarterly cash dividends per share that were declared and paid
by the Company.
<TABLE>
<CAPTION>
Daily Sales Prices
Cash
Dividends
Paid High Low
<S> <C> <C> <C>
1994
1st Quarter $.020 $32.50 $15.88
2nd Quarter .020 24.63 16.00
3rd Quarter .020 28.38 21.25
4th Quarter .020 27.50 18.25
1993
1st Quarter $.075 $79.13 $51.38
2nd Quarter .075 58.75 26.13
3rd Quarter .075 28.75 20.25
4th Quarter .020 26.50 19.88
</TABLE>
At December 31, 1994, the number of record holders of the Company's Common
Stock was 12,715. See discussion below in Management's Discussion and
Analysis of Financial Condition and Results of Operations as to restrictions
imposed by a credit agreement on registrant's level of dividend payments.
Description of the Company's Business
United States Surgical Corporation (the "Company") is a Delaware corporation
primarily engaged in developing, manufacturing and marketing a proprietary
line of technologically advanced surgical wound management products to
hospitals throughout the world. The Company currently operates domestically
and internationally through divisions, subsidiaries and distributors.
The market that the Company services has been negatively impacted by
uncertainties as to health care reform, by an environment of cost
containment, and by aggressive competition, including price competition. The
Company believes, however, that in any managed care scenario evolving in the
health care system, its products and services offer a significant opportunity
for reducing costs for the total health care system while providing
considerable advantages for the patient. The Company continues to develop new
products that provide better patient care and facilitate hospital cost
containment efforts.
In the current competitive environment, pricing remains a significant factor.
The Company markets on the basis of the quality of its products and on its
programs for assisting hospitals in developing cost efficient surgical
practices.
33
<PAGE>
Five Year Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
In thousands, except per share data 1994(1) 1993(2) 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net sales $ 918,700 $1,037,200 $1,197,200 $843,600 $514,100
Income (loss) before income taxes $ 32,700 $ (137,400) $ 192,900 $130,300 $ 66,200
Net income (loss) $ 19,200 $ (138,700) $ 138,900 $ 91,200 $ 46,000
Net income (loss) per common share and
common share equivalent (primary and
fully diluted) $ .08 $ (2.48) $ 2.32 $ 1.58 $ .89
Average number of common shares and
common share equivalents outstanding 56,600 56,000 59,900 57,800 51,900
Dividends declared per common share $ .08 $ .245 $ .30 $ .2875 $ .2375
At December 31,
Total assets $1,103,500 $1,170,500 $1,168,100 $741,600 $460,900
Long-term debt $ 248,500 $ 505,300 $ 394,500 $251,600 $131,000
Stockholders' equity $ 662,000 $ 443,900 $ 590,000 $329,900 $225,000
</TABLE>
(1) In the fourth quarter of 1994 the Company signed a letter of intent to
purchase the assets of its independent distributor in Japan, which includes
inventory of the Company's products purchased by the independent distributor
but not yet sold to third parties at December 31, 1994. Sales and Net income
were reduced by $17 million and $8 million ($.14 per common share),
respectively, in anticipation of the pending reacquisition of these products
and valuing these products at the Company's production cost.
(2) Income (loss) before income taxes and net income (loss) for 1993 include
restructuring charges of $137.6 million and $129.6 million ($2.31 per share),
respectively.
34
<PAGE>
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
Results of Operations
In 1994, the Company attained sales of $919 million compared with sales of
$1.04 billion in 1993 and sales of $1.2 billion in 1992. Sales decreased by
$119 million or 11% in 1994, and decreased by $160 million or 13% in 1993 and
increased by $354 million or 42% in 1992. In 1994, the Company reported net
income of $19 million or $.08 per common share (after preferred stock
dividends of $15 million), compared with a net loss of $139 million or $2.48
per common share in 1993 and net income of $139 million or $2.32 per common
share in 1992. Net income and net income per common share increased $158
million and $2.56, respectively, in 1994 compared to 1993 and decreased $278
million and $4.80, respectively, in 1993 compared to 1992 and increased $48
million and $.74, respectively, in 1992 over 1991. The effects of foreign
currency exchange rate changes on net income in 1994, 1993 and 1992 were
immaterial.
In the second half of 1993 the Company adopted restructuring plans designed
to reduce its cost structure and improve its competitive position through
property divestitures and consolidations and a reduction in its management,
administrative and direct labor work force. These plans were adopted when it
became apparent that projected worldwide sales growth and the pace of
reduction in trade barriers and other related considerations among European
countries did not meet Company expectations. Increased price competition in
the Company's domestic markets also prompted the Company to reduce its cost
structure. At the end of the 1993 third quarter the Company announced a
layoff of approximately 700 administrative staff personnel, closure of its
manufacturing plants for thirteen days in the fourth quarter of 1993 and the
adoption of a four day work week for certain manufacturing employees during
the early part of 1994. In the fourth quarter of 1993 the Company expanded
its restructuring plan to include real estate divestitures and consolidations
and employee voluntary and involuntary severance programs. The monthly
payments under such severance programs will be substantially completed by
March 31, 1995.
In 1993 the Company recorded restructuring charges of $138 million ($130
million or $2.31 per share net of taxes). These charges consisted primarily
of write downs of certain real estate to estimated net realizable value ($79
million, of which $58 million related to the Company's new European office
building complex and distribution center in Elancourt, France), provisions
for lease buyout expenses ($24 million), accruals for severance costs ($30
million) and write down of other assets ($5 million). Approximately $38
million of the restructuring charges resulted in cash outflows related to
severance and accrued lease obligations, the majority of which was funded
through operating cash flows and credit facilities in 1994. The Company has
several companies interested in subleasing the unutilized space in its office
building complex and distribution center in Elancourt, France and is hopeful
that a subleasing arrangement will be consummated in 1995 at a lease rental
which approximates the written down carrying value of the facility. The
Company has either terminated or bought out the leases on the majority of
those leased properties which were part of the 1993 restructuring charges.
All of the employees whose severance was included in the 1993 restructuring
charges have been terminated and the vast majority of the Company's severance
obligations have been paid as of December 31, 1994. Accrued restructuring
charges at December 31, 1994 are approximately $18 million and relate
primarily to accrued lease buyout expenses ($15 million) and unpaid severance
costs ($3 million). The majority of accrued restructuring charges are
expected to be liquidated by December 31, 1995.
Other cost savings measures taken by the Company in 1994 included the
reduction of salaries of all corporate officers by 10% and the salary of the
Chief Executive Officer by 20%, freezing the salaries of substantially all
other employees worldwide, and requiring higher co-payments and deductibles
in connection with employee health benefits programs. The Company estimates
that the future annual operating cost savings associated with the
restructuring plans will approximate $110 million of which more than $80
million represents cash flow savings from reduced salaries expense and the
remainder of which represents reduced rent and depreciation expense. Cost
saving measures beyond such restructuring plans should result in additional
annual operating cost savings of approximately $40 million. As a result of
the restructuring plans and other cost saving measures, 1994 compensation
expenses were approximately $67 million lower than 1993 compensation
expenses.
The reduction in sales in 1994 to $919 million compared to 1993 was
significantly affected by initial distributor stocking programs in early
1993, which were not repeated in 1994 and by competition and pricing
pressures due to proposed health care reform. Distributor inventory purchases
were made in connection with the implementation of the Company's Just-In-Time
(JIT) domestic 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 and distributors adjusted their own
inventories.
35
<PAGE>
The Company believes that inventories at JIT distributors at the end of 1994
are down significantly, because distributor sales to hospitals during the
year significantly exceeded distributor purchases from the Company. The
Company believes that distributor inventories are reaching optimum levels and
that its sales to distributors for hospitals currently in a JIT program will
approximate distributor sales to hospitals during 1995.
Sales in the fourth quarter of 1994 were reduced by $17 million and net
income was reduced by $8 million ($.14 per common share) in anticipation of
the Company's acquisition of the assets of its independent distributor in
Japan, which includes inventory of the Company's products purchased by the
independent distributor but not yet sold to third parties at December 31,
1994 (see Note C in Notes to Consolidated Financial Statements). Sales and
gross profit were reduced in anticipation of the pending reacquisition of
these products and valuing the reacquired products at the Company's
production cost.
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 newer 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.
The following table analyzes the change in sales in 1994, 1993 and 1992
compared with the prior years.
<TABLE>
<CAPTION>
1994 1993 1992
(In millions)
<S> <C> <C> <C>
Composition of Sales Increase (Decrease):
Unit increases (decreases) $ (96) $(114) $307
Net price changes (21) (6) 37
Effects of changes in foreign currency exchange rates (2) (40) 10
Sales increase (decrease) $(119) $(160) $354
</TABLE>
Sales unit decreases and the effects of foreign currency exchange rate
fluctuations accounted for 80% and 2%, respectively, of the total 1994 sales
decrease compared with 1993 and 71% and 25%, respectively, of the total 1993
sales decrease compared with 1992. The net price change component of the 1994
and 1993 sales decreases, accounting for 18% and 4% of the total sales
decreases in these years, respectively, reflect the net effect of selling
price discounts granted to hospitals and JIT distributors, partially offset
by price list increases. Increased sales of the Company's minimally invasive
surgery products was the primary factor in the strong sales gains in 1992,
when sales unit increases accounted for 87% of the total sales increases.
Sales in 1994 were reduced by approximately $6 million representing the
effect of establishing a sales reserve in connection with a new returned
goods policy which was effective July 1, 1994. Under the previous policy, the
Company did not grant credits for product returns. The new policy grants full
credit to direct hospital customers for certain products returned up to one
year after initial shipment and a partial credit for certain products
returned up to four years after initial shipment. The initial establishment
of this reserve reduced second quarter sales by approximately $8 million,
partially offset by a $4 million adjustment of other sales reserves in the
second quarter of 1994. The returned goods reserve was reduced from $8
million to $6 million in the third quarter of 1994 based upon lower than
estimated product returns, and other sales reserves in the fourth quarter of
1994 were also reduced by $2 million.
Gross margin from operations (sales less cost of products sold divided by
sales) was 50% in 1994, 50% in 1993 and 60% in 1992. Although the Company
implemented the majority of its restructuring plans during the last quarter
of 1993 and the first quarter of 1994, the major benefits of the cost
reduction measures adopted by the Company did not start being realized until
the last nine months of 1994, which resulted in improved quarterly gross
margins the last three quarters in 1994 compared to the corresponding periods
in 1993. Gross margins in 1993 compared to 1992 were negatively impacted by
higher costs associated with the increase in productive capacity, the
introduction of new products and increases in related inventory and fixed
asset reserves from the consequent obsolescence of production tooling and
inventories and additional selling price discounts granted to JIT
distributors with the implementation of the JIT distribution program. The
reserve for obsolescence of production tooling and inventories, which are an
ongoing cost of business, amounted to $61 million, $62 million and $34
million, respectively, in the years ended December 31, 1994, 1993 and 1992.
Changes in foreign currency exchange rates from those existing in 1992 had
the effect of reducing cost of products sold by $18 million in 1993. The
effects of foreign currency exchange rate changes on cost of products sold in
1994 and 1992 were immaterial.
36
<PAGE>
The Company's investment in research and development during the past three
years (1994--$38 million; 1993--$51 million; 1992--$44 million) has yielded
numerous product improvements as well as the development of numerous new
products. The decrease in research and development expense in 1994 compared
to 1993 reflects the impact of a program initiated in the second half of 1993
to increase efficiency and reduce the cost connected with the pilot
development of new products which are classified as research and development.
In 1993 and 1992 the primary focus of the Company's research and development
program had been directed at minimally invasive surgery products. 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
continue its investment in research and development at levels approximating
3% - 5% of annual sales in the future.
Selling, administrative and general expenses expressed as a percentage of
sales were 40% in 1994, 43% in 1993, and 39% in 1992. The Company began to
realize the major cost saving benefits from its restructuring program in the
form of reduced selling, administrative and general expenses as a percentage
of sales in the second quarter of 1994. The percentage increase in 1993
resulted primarily from higher depreciation and amortization charges related
to the Company's facilities expansion. Expressed in total dollars, the
reduction in these expenses in 1993 compared to 1992 reflects lower
salespersons commission and related expenses which were influenced by
decreased sales. In 1992 these expenses increased primarily as a result of
the continued expansion of the Company's domestic and international sales
organizations, growth in sales expenses relating to the Company's increased
sales and an increase in expenses relating to training of surgeons in the use
of the Company's products. Changes in foreign currency exchange rates in 1993
from those existing in 1992 had the effect of reducing selling,
administrative and general expenses by $21 million in 1993. The effects of
foreign currency exchange rate changes on selling, administrative and general
expenses in 1994 and 1992 were immaterial.
The tax provisions for 1994 and 1993 relate primarily to foreign taxes
including taxes in Puerto Rico. The 1993 tax provision 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 tax
provisions in 1994 reflect 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 and the tax benefit of certain net operating
loss carryforwards which were not previously usable. The Internal Revenue
Service has examined the Company's income tax returns for the period 1984 to
1990 and it has proposed adjustments to increase the Company's tax liability
for certain of these years. Based upon advice of tax counsel, the Company
believes that it has substantial support for its filing positions and does
not believe that the results of the tax audit will have a material adverse
effect on the consolidated financial statements of the Company but may reduce
the availability of fully reserved net operating loss and tax credit
carryforwards.
Financial Condition
The Company's current cash and cash equivalents, existing borrowing capacity
and projected operating cash flows are currently well in excess of its
foreseeable requirements. Following the successful issuance of $200 million
of convertible preferred stock in March 1994, the proceeds from which were
utilized to reduce bank debt, the Company entered into a new syndicated
credit agreement in June 1994 which replaced its revolving credit and term
loan agreements and reduced the size of the credit facility from $675 million
to $400 million. The new credit agreement matures in January 1997 and
provides for certain restrictions including sales of assets, capital
expenditures, dividends and subsidiary debt and requires the maintenance of
certain minimum levels of tangible net worth and fixed charge coverage ratios
and its debt to total capitalization ratio may not exceed a certain
stipulated level. The Company is in full compliance with all of the covenants
associated with its various bank and leasing agreements.
The Company's building programs have been essentially completed, which
enabled the Company to reduce its capital spending by more than 78% in 1994
compared to 1993 levels. Additions to property, plant, and equipment on the
accrual method totaled $49 million ($47 million on a cash basis) in 1994,
compared with $187 million in 1993, and $272 million in 1992, and consist of
additions to machinery and equipment ($32 million), leasehold improvements
($2 million), molds and dies ($13 million) and land and buildings ($2
million). During 1994 the Company removed from its Balance Sheet property,
plant, and equipment which was fully depreciated and out of service with a
cost of $19 million.
The increase in cash and cash equivalents and the reduction of long-term debt
at December 31, 1994 in comparison to the prior year-end is primarily
attributable to the receipt of the net proceeds ($191 million ) from the
issuance of the Company's preferred stock (liquidation value $200 million)
and the generation of positive cash flow from operations. The reduction in
inventories ($45 million) from the prior year-end level resulted primarily
from
37
<PAGE>
improved utilization and management of raw materials in the Company's
production process. The reduction in accrued liabilities ($12 million) from
the prior year-end level was primarily attributable to 1994 payments of
accrued severance obligations which were expensed in 1993 as a component of
the restructuring charges partially offset by an accrual ($17 million) for
the pending acquisition of the assets of its independent distributor in
Japan, which includes inventory of the Company's products purchased by the
independent distributor but not yet sold to third parties at December 31,
1994 (see Note C in Notes to Consolidated Financial Statements). Severance
payments are generally being made over a period of up to twelve months.
The Company routinely enters into foreign currency exchange contracts to
reduce its exposure to foreign currency exchange rate changes on the results
of operations of its foreign subsidiaries. As of December 31, 1994 the
Company had approximately $16 million of such contracts outstanding that will
mature at various dates through February 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. The weakening of
the dollar relative to most foreign currencies caused the $12 million
movement in the Company's Accumulated Translation Adjustments component of
Stockholders' Equity at December 31, 1994 compared to the prior year end.
38
<PAGE>
Directors (as of March 10, 1995)
JOHN A. BOGARDUS, JR.
Retired Chairman of the Board
and Chief Executive Officer
Alexander & Alexander Services Inc.
JULIE K. BLAKE+
Formerly Vice President,
J.P. Morgan & Co. Incorporated
THOMAS R. BREMER
Senior Vice President
and General Counsel
United States Surgical Corporation
LEON C. HIRSCH
Chairman, President and
Chief Executive Officer
United States Surgical Corporation
TURI JOSEFSEN
Executive Vice President, and
President, International Operations
United States Surgical Corporation
DOUGLAS L. KING
President
Smyth, Sanford & Gerard, Inc.
New York, NY ZANVYL KREIGER*
Chairman Emeritus
United States Surgical Corporation
Counsel, Weinberg and Green
Baltimore, MD
BRUCE S. LUSTMAN*
Retired Executive Vice President
and Chief Operating Officer
United States Surgical Corporation
WILLIAM F. MAY
Chairman of the Board
Chief Executive Officer
Statue of Liberty-Ellis Island
Foundation, Inc.
MARIANNE SCIPIONE
Vice President,
Corporate Communications
United States Surgical Corporation
JOHN R. SILBER#
President
Boston University
Boston, MA
DOUGLAS T. TANSILL*
Managing Director
Paine Webber Incorporated
New York, NY
Committees
AUDIT COMMITTEE
William F. May, Chairman
Julie K. Blake+
John A. Bogardus, Jr.
Douglas L. King
Douglas T. Tansill*
EXECUTIVE COMMITTEE
Leon C. Hirsch, Chairman
John A. Bogardus, Jr.
Turi Josefsen
Bruce S. Lustman*
William F. May
NOMINATING COMMITTEE
John A. Bogardus, Jr., Chairman
Leon C. Hirsch
Douglas L. King
William F. May
COMPENSATION/OPTION COMMITTEE
Douglas L. King, Chairman
John A. Bogardus, Jr.
William F. May
John R. Silber+
TRANSACTION and FINANCE COMMITTEE
Julie K. Blake, Chairman++
Leon C. Hirsch
John R. Silber++
+ Elected a director January 18, 1995
* Not standing for reelection
# Elected a director July 7, 1994
+ As of March 1, 1995
++ As of February 2, 1995
39
<PAGE>
Officers (as of March 10, 1995)
Leon C. Hirsch
Chairman, President
and Chief Executive Officer
Turi Josefsen
Executive Vice President, and
President, International Operations
Thomas R. Bremer
Senior Vice President and
General Counsel
Thomas D. Guy
Senior Vice President, Operations
Robert A. Knarr
Senior Vice President, and General
Manager, U.S. and Canada
Howard M. Rosenkrantz
Senior Vice President, Finance and
Chief Financial Officer
Peter Burtscher
Group Vice President
Richard A. Douville
Vice President and Treasurer
Richard N. Granger
Vice President, Research
and Development
Charles E. Johnson
Vice President, Education
Louis J. Mazzarese
Vice President, Quality
and Regulatory Affairs
Pier Paolo Partiseti
Group Vice President
Joseph C. Scherpf
Vice President and Controller
Marianne Scipione
Vice President,
Corporate Communications
D. Verne Sharma
Vice President, Marketing and
Strategic Planning
Wilson F. Smith, Jr.
Group Vice President
Judith M. Stant
Vice President, USSC and
General Manager,
Auto Suture Company, Australia
Pamela Komenda
Corporate Secretary
Stockholder Information
MARIANNE SCIPIONE, VICE PRESIDENT
CORPORATE COMMUNICATIONS
United States Surgical Corporation
150 Glover Avenue, Norwalk, CT 06856
Stockholders who wish to receive financial information about the Company by
fax should call (800) 758-5804 and input USSC's identification #901293.
Requests for a copy of the Company's Annual Report to the Securities and
Exchange Commission on Form 10-K or other financial literature may be made by
calling USSC's Investor Relations Department at (203) 845-1333.
AUDITORS
Deloitte & Touche LLP
Stamford, CT 06904
EXCHANGE LISTINGS
Common Stock (Ticker Symbol: USS)
Preferred Stock (Ticker Symbol: USSPrA)
New York Stock Exchange
Options
American Stock Exchange
TRANSFER AGENT AND REGISTRAR
For information on dividends or certificates,
contact First Chicago Trust Company of New York
P.O. Box 2500, Jersey City, NJ 07303-2500
(201) 324-0498
Trademarks of United States Surgical Corporation are in italicized capital
letters.
40
X
Please mark your
vote as in this
example. (check box0 (check box)
2548
This proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR election of all
directors.
SERIES A CONVERTIBLE
PREFERRED STOCK
The Board of Directors recommends a vote FOR Election of all Directors.
Election of
Directors
(see reverse)
FOR WITHHELD
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
NOTE: Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
- -------------------------------------------------------------------
- -------------------------------------------------------------------
SIGNATURE(S) DATE
SERIES A CONVERTIBLE
PREFERRED STOCK
UNITED STATES SURGICAL CORPORATION
Proxy Solicited on Behalf of the Board of Directors
of the Company for Annual Meeting May 3, 1995
PROXY
The undersigned hereby constitutes and appoints John A. Bogardus, Jr., Leon
C. Hirsch and William F. May, and each of them, his true and lawful agents
and proxies with full power of substitution in each, to represent and vote
all the Series A Convertible Preferred Shares (each share being entitled to
47.50 votes, equivalent to .95 of a vote for each 1/50 Interest Depositary
Share) held by the undersigned at the Annual Meetingof Stockholders of UNITED
STATES SURGICAL CORPORATION to be held at The Equitable building, 787 Seventh
Avenue, New York, N.Y. 10019, on Wednesday, May 3, 1995, at 2:00 P.M. (local
time), and at any adjournments thereof, as directed on this card upon the
matter set forth on the reverse side hereof,as described in the proxy
statement, and in their discretion upon any other business which may
properly come before said meeting. The undersigned hereby revokes all proxies
heretofore given with respect to such meeting.
Election of Directors -- Nominees:
Julie K. Blake, John A. Bogardus, Jr., Thomas R. Bremer,
Leon C. Hirsch, Turi Josefsen, Douglas L. King, William F. May,
Howard M. Rosenkrantz, Marianne Scipione, John R. Silber.
You are encouraged to specify your choice by marking the appropriate box (SEE
REVERSE SIDE). IF YOU DONOT MARK ANY BOX THE SHARES WILL BE VOTED IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATION. The named proxies
cannot vote your shares unless you sign and return this card.
SEE REVERSE SIDE
<PAGE>
X
Please mark your vote as in this example.
1406
This proxy when properly executed will be voted in the manner directedherein.
If no direction is made, this proxy will be voted FOR election of all
directors.
COMMON STOCK
The Board of Directors recommends a vote FOR Election of all Directors.
Election ofDirectors(see reverse)
FOR WITHHELD
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
NOTE: Please sign exactly as name appears hereon. Jointowners should each
sign. When signing as attorney, executor,administrator, trustee or guardian,
please give full title as such.
SIGNATURE(S) DATE
COMMON STOCK
UNITED STATES SURGICAL CORPORATIONProxy Solicited on Behalf of the Board of
Directorsof the Company for Annual Meeting May 3, 1995
PROXY
The undersigned hereby constitutes and appoints John A. Bogardus, Jr., Leon
C. Hirsch and William F. May, and each of them, his true and lawful agents and
proxies with full power of substitution in each, to representand vote all the
Common Shares held by the undersigned at the Annual Meeting of Stockholders
of UNITED STATES SURGICAL CORPORATION to be held at The Equitable building,
787 Seventh Avenue, New York,N.Y. 10019, on Wednesday, May 3, 1995, at 2:00
P.M. (local time), and at any adjournments thereof, as directed on this card
upon the matter set forth on the reverse side hereof, as described in the
proxy statement, and in their discretion upon any other business which may
properly come before said meeting. The undersigned hereby revokes all proxies
heretofore given with respect to such meeting.
Election of Directors -- Nominees:
Julie K. Blake, John A. Bogardus, Jr., Thomas R. Bremer, Leon C. Hirsch, Turi
Josefsen, Douglas L. King, William F. May, Howard M. Rosenkrantz, Marianne
Scipione, John R. Silber.
You are encouraged to specify your choice by marking the appropriate box (SEE
REVERSE SIDE). IF YOU DONOT MARK ANY BOX THE SHARES WILL BE VOTED IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATION. The named proxies
cannot vote your shares unless you sign and return this card.
SEE REVERSE SIDE
