<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
---
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
---
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---------- ----------
COMMISSION FILE NO. 1-9776
UNITED STATES SURGICAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-2518270
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 GLOVER AVENUE, NORWALK, CONNECTICUT 06856
(Address of principal executive offices) (Zip Code)
(203) 845-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Number of shares of Common Stock,
par value $.10 per share,
outstanding at March 31, 1996 57,416,561 Shares
<PAGE> 2
Form 10-Q
March 31, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I--FINANCIAL INFORMATION Page
----
<S> <C>
Financial Statements:
Consolidated Balance Sheets at March 31, 1996 (Unaudited) and
December 31, 1995 ................................................................. 3
Consolidated Statements of Operations (Unaudited) for the Three Months
Ended March 31, 1996 and 1995 ..................................................... 4
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the
Three Months Ended March 31, 1996 and 1995 ........................................ 5
Consolidated Statements of Cash Flows (Unaudited) for the Three Months
Ended March 31, 1996 and 1995 ..................................................... 6
Notes to Consolidated Financial Statements (Unaudited) ............................ 7
Review by Independent Accountants ................................................. 8
Independent Accountants' Report and Letter ........................................ 9
Management's Discussion and Analysis of Interim Financial Condition and Results
of Operations ..................................................................... 10 - 12
PART II--OTHER INFORMATION
Legal Proceedings ................................................................. 13
Exhibits and Reports on Form 8-K .................................................. 14
Signature ......................................................................... 14
</TABLE>
-2-
<PAGE> 3
Form 10-Q
March 31, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
In thousands, except share data 1996 1995
- ---------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................. $ 11,700 $ 10,500
Receivables, less allowance ($8,900 March 31, 1996 and
$8,200 December 31, 1995) ................................................ 262,700 247,300
Inventories:
Finished goods ........................................................... 91,600 92,700
Work in process .......................................................... 37,300 28,800
Raw materials ............................................................ 36,900 39,700
---------- ----------
165,800 161,200
Other current assets ....................................................... 89,100 87,900
---------- ----------
Total Current Assets ................................................. 529,300 506,900
---------- ----------
Property, plant, and equipment at cost: ....................................... 750,700 753,100
Less: Allowance for depreciation and amortization ............................ (257,000) (248,200)
---------- ----------
493,700 504,900
Other assets (net) ............................................................ 253,500 253,700
---------- ----------
Total Assets ......................................................... $1,276,500 $1,265,500
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 35,000 $ 28,600
Accrued liabilities ........................................................ 127,700 148,900
Income taxes payable ....................................................... 75,500 78,600
Current portion of long-term debt .......................................... 3,900 4,200
---------- ----------
Total Current Liabilities ............................................ 242,100 260,300
---------- ----------
Long-term debt ................................................................ 260,300 256,500
Deferred income taxes ......................................................... 10,500 7,600
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) ................ 900 900
Additional paid-in capital - preferred stock ............................... 190,600 190,600
Common stock $.10 par value, authorized 250,000,000 shares; issued,
65,501,390 at March 31, 1996 and 65,293,157 at
December 31, 1995 ........................................................ 6,600 6,500
Additional paid-in capital - common stock .................................. 401,100 394,200
Retained earnings .......................................................... 248,100 233,200
Treasury stock at cost; 8,084,829 shares at March 31, 1996
and 8,127,219 shares at December 31, 1995 ................................ (86,400) (86,600)
Accumulated translation adjustments ........................................ 2,700 2,300
---------- ----------
Total Stockholders' Equity ........................................... 763,600 741,100
---------- ----------
Total Liabilities and Stockholders' Equity ........................... $1,276,500 $1,265,500
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE> 4
Form 10-Q
March 31, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
In thousands, except per share data 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales ........................................ $266,000 $240,600
-------- --------
Costs and expenses:
Cost of products sold ......................... 112,200 112,900
Research and development ...................... 12,400 10,100
Selling, general and administrative ........... 110,300 94,000
Interest ...................................... 4,000 4,900
-------- --------
238,900 221,900
-------- --------
Income before income taxes ....................... 27,100 18,700
Income taxes ..................................... 6,200 4,300
-------- --------
Net income ....................................... 20,900 14,400
Preferred stock dividends ........................ 4,900 4,900
-------- --------
Net income applicable to common shares ........... $ 16,000 $ 9,500
======== ========
Average number of common shares outstanding ...... 57,300 56,900
======== ========
Net income per common share
(primary and fully diluted) ................... $ .28 $ .17
======== ========
Dividends declared per common share .............. $ .02 $ .02
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<PAGE> 5
United States Surgical Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
For the three months ended March 31, 1996 and 1995
Form 10-Q
March 31, 1996
<TABLE>
<CAPTION>
Additional Additional
Paid-in Paid-in
Dollars in thousands, Preferred Capital - Common Capital -
except share data Stock Preferred Stock Common
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 .................... $900 $190,600 $6,500 $380,700
Common stock issued to employees-
net (64,752 shares) ......................... 1,100
Aggregate adjustment resulting from the
translation of foreign financial statements .
Preferred stock dividends .....................
Common stock dividends declared
($.02 per share) ............................
Net income ....................................
---- -------- ------ --------
BALANCE AT MARCH 31, 1995 ..................... $900 $190,600 $6,500 $381,800
==== ======== ====== ========
BALANCE AT JANUARY 1, 1996 .................... $900 $190,600 $6,500 $394,200
Common stock issued to employees -
net (210,298 shares) ........................ 100 4,300
Income tax benefit from stock options exercised 2,600
Aggregate adjustment resulting from the
translation of foreign financial statements .
Preferred stock dividends .....................
Common stock dividends declared
($ .02 per share) ...........................
Net income ....................................
---- -------- ------ --------
BALANCE AT MARCH 31, 1996 ..................... $900 $190,600 $6,600 $401,100
==== ======== ====== ========
<CAPTION>
Accumulated
Dollars in thousands, Retained Translation Treasury
except share data Earnings Adjustments Stock Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 .................... $ 178,100 $(8,100) $(86,700) $ 662,000
Common stock issued to employees-
net (64,752 shares) ......................... 1,100
Aggregate adjustment resulting from the
translation of foreign financial statements . 5,900 5,900
Preferred stock dividends ..................... (4,900) (4,900)
Common stock dividends declared
($.02 per share) ............................ (1,100) (1,100)
Net income .................................... 14,400 14,400
--------- ------- -------- ---------
BALANCE AT MARCH 31, 1995 ..................... $ 186,500 $(2,200) $(86,700) $ 677,400
========= ======= ======== =========
BALANCE AT JANUARY 1, 1996 .................... $ 233,200 $ 2,300 $(86,600) 741,100
Common stock issued to employees -
net (210,298 shares) ........................ 200 4,600
Income tax benefit from stock options exercised 2,600
Aggregate adjustment resulting from the
translation of foreign financial statements . 400 400
Preferred stock dividends ..................... (4,900) (4,900)
Common stock dividends declared
($ .02 per share) ........................... (1,100) (1,100)
Net income .................................... 20,900 20,900
--------- ------- -------- ---------
BALANCE AT MARCH 31, 1996 ..................... $ 248,100 $ 2,700 $(86,400) $ 763,600
========= ======= ======== =========
</TABLE>
See Notes to Consolidated Financial Statements
-5-
<PAGE> 6
Form 10-Q
March 31, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
In thousands 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers .......................................... $ 249,600 $ 250,100
Cash paid to vendors, suppliers and employees ......................... (229,900) (199,200)
Interest paid ......................................................... (3,800) (5,100)
Income taxes paid ..................................................... (2,700) (2,800)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ......................... 13,200 43,000
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment ........................... (12,700) (9,400)
Acquisitions .......................................................... (1,700) (6,700)
Other assets .......................................................... (3,400) 6,200
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ............................. (17,800) (9,900)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings ............................................. 686,900 532,900
Long-term debt repayments ............................................. (680,900) (562,800)
Common stock issued from stock plans .................................. 4,600 1,100
Dividends paid ........................................................ (6,000) (6,000)
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES ............................................ 4,600 (34,800)
--------- ---------
Effect of exchange rate changes .......................................... 1,200 1,100
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ...................................................... 1,200 (600)
Cash and cash equivalents, beginning of period ........................... 10,500 11,300
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................. $ 11,700 $ 10,700
========= =========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
NET INCOME ............................................................... $ 20,900 $ 14,400
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ........................................................ 16,500 17,600
Amortization ........................................................ 5,200 5,200
Adjustment of property, plant, and equipment reserves ............... 4,100 900
Receivables -- (increase) decrease ................................. (15,700) 9,500
Inventories -- (increase) decrease ................................. (8,800) 5,400
Adjustment of inventory reserves .................................... 3,900 6,200
Other current assets (increase) ..................................... (800) (3,700)
Accounts payable/accrued liabilities-- (decrease) ................... (14,900) (12,500)
Income taxes payable and deferred - increase ........................ 200 0
Income tax benefit from stock options exercised ..................... 2,600 0
--------- ---------
Total adjustments ............................................... (7,700) 28,600
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................ $ 13,200 $ 43,000
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
-6-
<PAGE> 7
Form 10-Q
March 31, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. GENERAL
The accompanying unaudited consolidated financial statements for the
three-month periods ended March 31, 1996 and 1995 have been prepared in
accordance with the instructions to Form 10-Q. All adjustments which, in
the opinion of management, are necessary for a fair presentation of the
consolidated financial statements for the three-month periods ended March
31, 1996 and 1995 have been reflected. All such adjustments are of a
normal recurring nature. It is suggested that the March 31, 1996
consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1995.
2. INCOME TAXES
The 1995 and 1996 effective tax rates of 23% reflect the recognition of
certain fully reserved net operating loss carryforwards and/or tax credit
carryforwards and the availability of tax credits under Section 936 of
the Internal Revenue Code related to operations in Puerto Rico.
3. ADOPTION OF FAS 123
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123 "Accounting for Stock Based Compensation" (FAS 123). The Company
continues to apply APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its fixed stock
option plans and its stock purchase plan during the first quarter of
1996.
-7-
<PAGE> 8
Form 10-Q
March 31, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
REVIEW BY INDEPENDENT ACCOUNTANTS
The March 31, 1996 and 1995 consolidated financial statements included in this
Quarterly Report on Form 10-Q have been reviewed by Deloitte & Touche LLP, in
accordance with established professional standards and procedures for such a
review. In addition, the December 31, 1995 consolidated balance sheet was
audited by Deloitte & Touche LLP in accordance with generally accepted auditing
standards.
-8-
<PAGE> 9
Form 10-Q
March 31, 1996
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
UNITED STATES SURGICAL CORPORATION
We have reviewed the accompanying consolidated balance sheet of United States
Surgical Corporation and subsidiaries as of March 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the three-month periods ended March 31, 1996 and 1995. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of United States Surgical Corporation
and subsidiaries as of December 31, 1995, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the year then ended (not presented herein); and in our report dated January 22,
1996 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1995 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
Deloitte & Touche LLP
Stamford, Connecticut
April 19, 1996
********************************************************************
United States Surgical Corporation
150 Glover Avenue
Norwalk, CT 06856
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim
consolidated financial information of United States Surgical Corporation and
subsidiaries for the period ended March 31, 1996, as indicated in our report
dated April 19, 1996; because we did not perform an audit, we expressed no
opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 is
incorporated by reference in Registration Statement No. 33-59729 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
Deloitte & Touche LLP
Stamford, Connecticut
April 19, 1996
-9-
<PAGE> 10
Form 10-Q
March 31, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In the first quarter of 1996 the Company attained sales of $266 million compared
with sales of $241 million in the first quarter of 1995. Sales increased 11% in
the first quarter of 1996 in comparison to the corresponding period in 1995.
Net income and net income per common share in the first quarter of 1996 were $21
million and $.28 per common share (after preferred dividends of $5 million),
respectively, as compared to 1995 first quarter net income and net income per
common share of $14 million and $.17 per common share, (after preferred
dividends of $5 million) respectively. The effects of changes in foreign
currency exchange rates on Results of Operations was to increase net income by
$3 million in the first quarter of 1996 in comparison to the corresponding
period in 1995.
The following table analyzes the increase in sales in the first quarter of 1996
compared with the corresponding period in 1995:
<TABLE>
<CAPTION>
Three Months Ended
In thousands March 31, 1996
----------------------
<S> <C>
Composition of Sales increase:
Sales volume increase $16,200
Net price changes* 5,200
Effects of changes in foreign currency
exchange rates 4,000
-------
Sales Increase $25,400
=======
</TABLE>
* Approximately $13 million of the sales increase in the first quarter of
1996 accounted for in net price changes above is the result of the
Company's acquisition of its former Japanese distributor subsequent to
the first quarter of 1995.
Changes in the health care industry continue to significantly affect the
Company's marketplace. Industry consolidations, intense competition, and pricing
pressures due to ongoing reform of the health care system continue in 1996.
-10-
<PAGE> 11
Form 10-Q
March 31, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Cost of products sold expressed as a percentage of sales decreased in the first
quarter of 1996 to 42% compared to 47% in the corresponding period of 1995. The
reduction in cost of products sold and improved gross margin over the comparable
period in 1995 is primarily attributable to lower costs of producing the
Company's products which have resulted from ongoing cost reduction initiatives
and the inclusion of higher margin sales resulting from the acquisition of the
Company's former Japanese distributor subsequent to the first quarter of 1995 .
Gross margin from operations (sales less cost of products sold divided by sales)
was 58% in the first quarter of 1996 in comparison to 53% in the corresponding
period in 1995. Changes in foreign currency exchange rates from those existing
in 1995 did not have a material effect on the cost of products sold in the first
quarter of 1996.
The Company's expenditures for research and development increased to $12 million
in the first quarter of 1996 from $10 million in the corresponding period in
1995. The Company is continuing its commitment to develop and acquire unique new
products for use in new surgical procedures and specialty areas.
Selling, general and administrative expenses expressed as a percentage of sales
increased to 41% in the first quarter of 1996, compared with 39% in the
corresponding 1995 period. The increase in selling, general and administrative
expenses in the first quarter of 1996 over the comparable period in 1995 results
from operations and acquisition related expenditures and is primarily
attributable to the acquisitions, subsequent to the first quarter of 1995, of
the Company's former Japanese distributor ($10.2 million) and Surgical Dynamics,
Inc. ($2.5 million). Changes in foreign currency exchange rates from those
existing in the first quarter of 1995 had the effect of increasing selling,
general, and administrative expenses by $1.7 million from the corresponding
period in 1995.
The 1995 and 1996 effective tax rates of 23% reflect the recognition of certain
fully reserved net operating loss carryforwards and/or tax credit carryforwards
and the availability of tax credits under Section 936 of the Internal Revenue
Code related to operations in Puerto Rico.
FINANCIAL CONDITION
The Company's current cash and cash equivalent balances, existing borrowing
capacity and projected operating cash flows are currently in excess of its
foreseeable operating cash flow requirements. During December 1995, the Company
entered into a new five-year, $325 million syndicated credit facility agreement
which replaced its previous $350 million revolving credit facility which was
scheduled to mature in January 1997. Additionally, during 1995, the Company
entered into uncommitted facilities for 3 billion Japanese Yen (approximately
$30 million) with two Japanese banks and $50 million with three other domestic
banks. The uncommitted credit agreements are short term in nature but are
categorized as long-term debt since they will be refinanced under the Company's
five-year bank credit agreement.
-11-
<PAGE> 12
Form 10-Q
March 31, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Outstanding bank borrowings increased $6 million during the first quarter of
1996 to $129 million at March 31, 1996. The increase in bank borrowings during
the first quarter of 1996 is primarily attributable to additional working
capital requirements resulting from an increase in accounts receivable (see
following paragraph) and an increase in inventory relative to new products. 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, fixed charges coverage and a maximum ratio of
total debt to total capitalization, as defined. The Company is generally limited
to declaring dividends on its common stock up to 20% of net income, subject to
changes in the number of common shares outstanding, until it meets certain
financial objectives, as defined. The Company is in full compliance with all of
the covenants associated with its various financing agreements.
The increase in accounts receivable ($15 million) since December 31, 1995 is
primarily attributable to the acquisition of certain assets from the Company's
former Japanese distributor on September 29, 1995. The December 31, 1995
consolidated balance sheet reflected Japanese receivables resulting from two
months of operations (international subsidiaries have a November 30 year-end)
whereas the March 31, 1996 consolidated balance sheet reflects receivables
resulting from five months of operations as the Japanese subsidiary grants
credit terms of up to 120 days.
Additions to property, plant, and equipment totaled $13 million in the first
quarter of 1996 compared with $9 million in the corresponding quarter in 1995,
and consist primarily of additions to machinery and equipment ($8 million) and
molds and dies ($4 million).
The decrease in accrued liabilities of $21 million resulted primarily from the
semi-annual payment due in January 1996 of $12 million on the Company's North
Haven lease (accrued liability of $7 million at March 31, 1996) and the effect
($6 million) of payment of year-end bonuses and related payroll taxes in the
first quarter of 1996. There were no material changes in accrued restructuring
charges in the first quarter of 1996.
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 international subsidiaries. As of March 31, 1996 the Company
had approximately $27 million of such contracts outstanding that will mature at
various dates through May 1996. 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 during the first quarter of 1996.
-12-
<PAGE> 13
Form 10-Q
March 31, 1996
UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A. In the action by Ethicon Endo-Surgery against the Company in the
United States District Court for the Southern District of Ohio, alleging
infringement by the Company's instruments of a single patent for a safety
lockout mechanism on a linear cutter/stapler (see Item 3 of Part I of the
Company's Annual Report on Form 10-K for the year ended December 31, 1995), oral
argument is expected to be heard in May, 1996, before the Court of Appeals for
the Federal Circuit, on Ethicon's appeal from the lower Court's decision
dismissing Ethicon's claims against the Company.
B. Referring to the Company's action against Origin Medsystems, Inc.
("Origin"), the preliminary injunction issued by the United States District
Court for the Northern District of California in 1993 (see Item 3 of Part I of
the Company's Annual Report on Form 10-K for the year ended December 31, 1995),
which removed Origin's infringing safety trocar from the market, was made
permanent on March 1, 1996 pursuant to a stipulated settlement agreement between
all parties to the case.
C. In the pending action by Surgical Dynamics, Inc. ("Surgical
Dynamics"), a subsidiary of the Company, before the United States District Court
for the Central District of California, seeking a declaratory judgment that its
spinal fusion cage (known as the Ray FTC device) does not infringe a patent
owned by Karlin, Inc. and licensed to Sofomar Danek Group, Inc. and that such
patent is invalid (see Item 3 of Part I of the Company's Annual Report on Form
10-K for the year ended December 31, 1995), discovery is continuing. No trial
date has been set.
D. The Company is engaged in other litigation, primarily as the
defendant, in cases involving product liability claims. The Company is also
involved in various other cases.
***
The Company believes it is adequately insured in all material respects
against the product liability claims referred to above. In the opinion of
management, based on the advice of counsel, the ultimate outcome of all of the
aforementioned lawsuits should not have a materially adverse effect on the
Company's consolidated financial statements.
-13-
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - Exhibit 27 - Financial Data Schedule.
b. Reports on Form 8-K - The Company did not file any reports on
Form 8-K during the three-month period ended March 31, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATES SURGICAL CORPORATION
----------------------------------
Registrant
By: /s/ Howard M. Rosenkrantz
--------------------------------------
Howard M. Rosenkrantz
Senior Vice President, Finance and
Chief Financial Officer
Dated: April 23, 1996
-14-
<PAGE> 15
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
EX-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 11700
<SECURITIES> 0
<RECEIVABLES> 271600
<ALLOWANCES> 8900
<INVENTORY> 165800
<CURRENT-ASSETS> 529300
<PP&E> 750700
<DEPRECIATION> 257000
<TOTAL-ASSETS> 1276500
<CURRENT-LIABILITIES> 242100
<BONDS> 0
0
900
<COMMON> 6600
<OTHER-SE> 756100
<TOTAL-LIABILITY-AND-EQUITY> 1276500
<SALES> 266000
<TOTAL-REVENUES> 266000
<CGS> 112200
<TOTAL-COSTS> 112200
<OTHER-EXPENSES> 122000
<LOSS-PROVISION> 700
<INTEREST-EXPENSE> 4000
<INCOME-PRETAX> 27100
<INCOME-TAX> 6200
<INCOME-CONTINUING> 20900
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<CHANGES> 0
<NET-INCOME> 20900
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
