-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Ovdaa+aSqacb0/wFZqt6wZsiAfY2eVAn78TCDiQ0DabQBLL0BQeC7lrj57UEX+nz 8O1aFLeQUnSUHzOY9ELNUQ== 0000950123-94-001706.txt : 19941117 0000950123-94-001706.hdr.sgml : 19941117 ACCESSION NUMBER: 0000950123-94-001706 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941025 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED STATES SURGICAL CORP CENTRAL INDEX KEY: 0000101788 STANDARD INDUSTRIAL CLASSIFICATION: 3841 IRS NUMBER: 132518270 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09776 FILM NUMBER: 94554952 BUSINESS ADDRESS: STREET 1: 150 GLOVER AVE CITY: NORWALK STATE: CT ZIP: 06856 BUSINESS PHONE: 2038451000 MAIL ADDRESS: STREET 1: 150 GLOVER AVENUE CITY: NORWALK STATE: CT ZIP: 06856 FORMER COMPANY: FORMER CONFORMED NAME: AUTO SUTURE SURGICAL CORP DATE OF NAME CHANGE: 19700507 10-Q 1 U. S. SURGICAL CORPORATION -- FORM 10-Q 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 SEPTEMBER 30, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO -------------- --------------- COMMISSION FILE NO. 1-9776 UNITED STATES SURGICAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-2518270 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 150 GLOVER AVENUE, NORWALK, CONNECTICUT 06856 (Address of principal executive offices) (Zip Code) (203) 845-1000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---- ---- Number of shares of Common Stock, par value $.10 per share, outstanding at September 30, 1994 56,769,623 Shares 2 Form 10-Q September 30, 1994 UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES INDEX
PART I--FINANCIAL INFORMATION Page ---- Financial Statements: Consolidated Balance Sheets at September 30, 1994 (Unaudited) and December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Operations (Unaudited) for the Nine Months and Three Months Ended September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the Nine Months Ended September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 5 Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 6 Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . 7 Review by Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Independent Accountants' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Management's Discussion and Analysis of Interim Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 PART II--OTHER INFORMATION Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-2- 3 Form 10-Q September 30, 1994 UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, December 31, In thousands, except share data 1994 1993 - - - ------------------------------------------------------------------------------------------------------------ ASSETS (Unaudited) Current Assets: Cash and cash equivalents $ 10,500 $ 900 Receivables, less allowance ($6,400 -September 30, 1994; $5,000-December 31, 1993) 204,200 197,900 Inventories: Finished goods 102,200 113,000 Work in process 30,800 36,900 Raw materials 43,500 62,300 --------- --------- 176,500 212,200 Other current assets 49,900 53,800 --------- --------- Total Current Assets 441,100 464,800 --------- --------- Property, Plant, and Equipment at cost: 757,200 752,100 Less: Allowance for depreciation and amortization (198,300) (159,900) --------- --------- 558,900 592,200 --------- --------- Other assets (net) 121,500 113,500 --------- --------- Total Assets $1,121,500 $1,170,500 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 36,200 $ 50,200 Accrued liabilities 117,500 137,500 Income taxes payable 34,200 28,800 --------- --------- Total Current Liabilities 187,900 216,500 Long-Term Debt 260,900 505,300 Deferred Income Taxes 11,000 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 190,700 Common stock $.10 par value, authorized 250,000,000 shares; issued, 64,906,676 at September 30, 1994 and 64,402,144 at December 31, 1993 6,500 6,400 Additional paid-in capital - common stock 378,600 371,700 Retained earnings 178,200 178,300 Treasury stock at cost; 8,137,053 shares at September 30, 1994 and 8,144,386 shares at December 31, 1993 (86,700) (86,700) Other (6,500) (25,800) --------- --------- 661,700 443,900 --------- --------- Total Liabilities and Stockholders' Equity $1,121,500 $1,170,500 ========= =========
See Notes to Consolidated Financial Statements. -3- 4 Form 10-Q September 30, 1994 UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Nine Months Ended Three Months Ended September 30, September 30, --------------------------- ------------------- In thousands, except per share data 1994 1993 1994 1993 - - - ----------------------------------------------------------------------------------------------------------- Net sales $692,200 $792,800 $234,200 $237,700 ------- ------- ------- ------- Costs and expenses: Cost of products sold 350,000 379,500 115,200 120,900 Research and development 28,000 41,900 8,000 12,900 Selling, administrative and general 275,800 344,900 89,300 104,300 Interest 14,600 12,500 4,300 4,800 Restructuring charges 8,000 8,000 ------- ------- ------- ------- Total costs and expenses 668,400 786,800 216,800 250,900 ------- ------- ------- ------- Income (loss) before income taxes 23,800 6,000 17,400 (13,200) Income taxes 10,500 6,300 4,200 1,100 ------- ------- ------- ------- Net income (loss) 13,300 (300) 13,200 (14,300) Preferred stock dividends 10,000 4,900 ------- ------- ------- ------- Net income (loss) applicable to common stock $ 3,300 $ (300) $ 8,300 $(14,300) ======= ======= ======= ======= Average number of common shares outstanding 56,500 55,900 56,700 56,000 ======= ======= ======= ======= Net income (loss) per common share (primary and fully diluted) $.06 $(.01) $.15 $(.26) === ==== === ==== Dividends declared per common share $.06 $.225 $.02 $.075 === ==== === ====
See Notes to Consolidated Financial Statements. -4- 5 United States Surgical Corporation and Subsidiaries Form 10-Q Consolidated Statements of Changes in (September 30, 1994 Stockholders' Equity (Unaudited) For the nine months ended September 30, 1994 and 1993
Additional Additional Paid-in Paid-in Dollars in thousands, Preferred Capital - Common Capital - Retained except share data Stock Preferred Stock Common Earnings - - - ------------------------------------------------------------------------------------------------------------------------ BALANCE AT JANUARY 1, 1993 . . . . . . . . . . . . $6,400 $345,200 $330,700 Common stock issued to employees-net (502,433 shares) . . . . . . . . . 10,000 Income tax benefit from stock options exercised, recognized upon adoption of FAS 109 . . . . . . . . . . . . . . . 14,400 Payment received on installment receivables . . . . Aggregate adjustment resulting from the translation of foreign financial statements . . . . . . . . . . . . . . Common stock dividends declared ($.225 per share) . (12,600) Net loss . . . . . . . . . . . . . . . . . . . . . (300) ----- ------- ------- BALANCE AT SEPTEMBER 30, 1993 . . . . . . . . . . . $6,400 $369,600 $317,800 ===== ======= ======= BALANCE AT JANUARY 1, 1994 . . . . . . . . . . . . $6,400 $371,700 $178,300 Issuance of preferred stock (177,400 shares) . . . $900 $190,700 Common stock issued to employees-net (511,475 shares) . . . . . . . . . 100 6,900 Payment received on installment receivables . . . . Aggregate adjustment resulting from the translation of foreign financial statements . . . . . . . . . . . . . . Preferred stock dividends . . . . . . . . . . . . . (10,000) Common stock dividends declared ($.06 per share) . (3,400) Net income . . . . . . . . . . . . . . . . . . . . 13,300 --- ------- ----- ------- ------- BALANCE AT SEPTEMBER 30, 1994 . . . . . . . . . . $900 $190,700 $6,500 $378,600 $178,200 === ======= ===== ======= =======
Installment Accumulated Receivables Dollars in thousands, Translation from Sale of Treasury except share data Adjustments Common Stock Stock Total - - - -------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 1, 1993 . . . . . . . . . . . . $ 400 $(6,000) $(86,700) $590,000 Common stock issued to employees-net (502,433 shares) . . . . . . . . . 10,000 Income tax benefit from stock options exercised, recognized upon adoption of FAS 109 . . . . . . . . . . . . . . . 14,400 Payment received on installment receivables . . . . 600 600 Aggregate adjustment resulting from the translation of foreign financial statements . . . . . . . . . . . . . . (18,000) (18,000) Common stock dividends declared ($.225 per share) (12,600) Net loss . . . . . . . . . . . . . . . . . . . . . (300) ------- ------ ------- ------- BALANCE AT SEPTEMBER 30, 1993 . . . . . . . . . . . $(17,600) $(5,400) $(86,700) $584,100 ======= ====== ======= ======= BALANCE AT JANUARY 1, 1994 . . . . . . . . . . . . $(20,400) $(5,400) $(86,700) $443,900 Issuance of preferred stock (177,400 shares) . . . 191,600 Common stock issued to employees-net (511,475 shares) . . . . . . . . . 7,000 Payment received on installment receivables . . . . 5,400 5,400 Aggregate adjustment resulting from the translation of foreign financial statements . . . . . . . . . . . . . . 13,900 13,900 Preferred stock dividends . . . . . . . . . . . . . (10,000) Common stock dividends declared ($.06 per share) (3,400) Net income . . . . . . . . . . . . . . . . . . . . 13,300 ------- ------- ------- ------- BALANCE AT SEPTEMBER 30, 1994 . . . . . . . . . . $ (6,500) $ $(86,700) $661,700 ======= ======= ======= ========
See Notes to Consolidated Financial Statements. -5- 6 Form 10-Q September 30, 1994 UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, ------------------------------ In thousands 1994 1993 - - - --------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 694,900 $ 872,200 Cash paid to vendors, suppliers and employees (571,500) (727,800) Interest paid (20,100) (12,400) Income taxes paid (10,300) (10,400) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 93,000 121,600 ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant, and equipment (40,800) (183,700) Other assets 15,100 (20,000) ----------- ---------- NET CASH USED IN INVESTING ACTIVITIES (25,700) (203,700) ------------ ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term debt borrowings 3,030,700 1,909,500 Long-term debt repayments (3,286,200) (1,820,700) Issuance of preferred stock, net 191,600 Common stock issued from stock plans 12,400 10,600 Dividends paid (8,500) (12,600) ----------- ---------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (60,000) 86,800 ----------- ---------- Effect of exchange rate changes 2,300 (2,100) ----------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 9,600 2,600 Cash and cash equivalents, beginning of period 900 2,500 ----------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,500 $ 5,100 =========== ========== RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES: NET INCOME (LOSS) $ 13,300 $ (300) ----------- ---------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 66,900 57,500 Adjustment of property, plant, and equipment reserves 15,200 16,000 Receivables -- decrease 4,100 80,500 Inventories -- decrease/(increase) 6,400 (65,600) Adjustment of inventory reserves 30,800 26,100 Accounts payable and accrued liabilities--(decrease)/increase (43,100) 13,600 Income taxes payable and deferred -- (decrease) (2,000) (18,400) Income tax benefit from stock options exercised 14,400 Other adjustments -- net 1,400 (2,200) ----------- ---------- Total adjustments 79,700 121,900 ----------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 93,000 $ 121,600 =========== ==========
See Notes to Consolidated Financial Statements. -6- 7 Form 10-Q September 30, 1994 UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. GENERAL The accompanying unaudited consolidated financial statements for the nine-month and three-month periods ended September 30, 1994 and 1993 have been prepared in accordance with the instructions to Form 10-Q. All adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements for the nine-month and three-month periods ended September 30, 1994 and 1993 have been reflected. All such adjustments are of a normal recurring nature except for amounts identified as "Restructuring Charges". It is suggested that the September 30, 1994 consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 2. INCOME TAXES The 1994 and 1993 tax provisions relate primarily to foreign taxes including taxes related to the Company's operations in Puerto Rico. The 1993 tax provisions were a result of the Company incurring net operating losses in certain tax jurisdictions for which it was not able to recognize corresponding tax benefits. The 1994 tax provisions reflect the tax benefit of operations in Puerto Rico and the utilization of the tax benefit of certain net operating loss carryforwards which were not previously usable. The Internal Revenue Service is presently examining 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 financial statements of the Company but may reduce the availability of fully reserved carryforward tax losses and tax credits. -7- 8 Form 10-Q September 30, 1994 UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES REVIEW BY INDEPENDENT ACCOUNTANTS The September 30, 1994 and 1993 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, 1993 consolidated balance sheet was audited by Deloitte & Touche LLP in accordance with generally accepted auditing standards. -8- 9 Form 10-Q September 30, 1994 INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholders UNITED STATES SURGICAL CORPORATION We have reviewed the accompanying consolidated balance sheet of United States Surgical Corporation and subsidiaries as of September 30, 1994, and the related consolidated statements of operations for the nine-month and three-month periods ended September 30, 1994 and 1993 and the consolidated statements of changes in stockholders' equity and of cash flows for the nine-month periods ended September 30, 1994 and 1993. These financial statements are the responsibility of the Company's management. We conducted our reviews 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 reviews, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of United States Surgical Corporation and subsidiaries as of December 31, 1993, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 1, 1994 (except for Notes H, K and L as to which the date was March 28, 1994), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1993 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP STAMFORD, CONNECTICUT OCTOBER 25, 1994 -9- 10 Form 10-Q September 30, 1994 UNITED STATES SURGICAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS In the third quarter of 1994, the Company attained sales of $234 million compared with sales of $238 million in the third quarter of 1993. In the first nine months of 1994, the Company achieved sales of $692 million compared with sales of $793 million in the first nine months of 1993. Sales decreased 1% in the third quarter and 13% in the first nine months of 1994 in comparison to the corresponding 1993 periods. In the third quarter of 1994, the Company reported net income of $13 million or $.15 per common share (after preferred stock dividends of $5 million) compared with a net loss of $14 million or $.26 per common share in the third quarter of 1993. In the first nine months of 1994, the Company reported net income of $13 million or $.06 per common share (after preferred stock dividends of $10 million) compared with a net loss of $.3 million or $.01 per common share in the first nine months of 1993. The effects of changes in foreign currency exchange rates on net income were immaterial to the results of operations of the three and nine month periods in 1994 compared with the corresponding periods in 1993. The Company's restructuring plans and other cost saving measures are expected to reduce its operating and fixed manufacturing costs by approximately $150 million on an annualized basis. The cost cutting programs implemented in 1993 and 1994 included the reduction of the Company's workforce by approximately 2,400 employees or 29% since September 1993 and a consolidation and an anticipated divestiture of certain owned and leased real estate. As a result of the restructuring and cost savings measures adopted, compensation related expenses were approximately $17 million and $51 million lower in the three and nine month periods ended September 30, 1994, respectively, in comparison to the corresponding periods in 1993. The reduction in sales in the first nine months of 1994 to $692 million compared to the corresponding period in 1993 was significantly affected by initial distributor stocking programs in early 1993, which were not repeated in 1994. These 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. The Company believes that inventories at JIT distributors at the end of the 1994 third quarter are down significantly, because distributor sales to hospitals during the preceding nine months significantly exceeded distributor purchases from the Company. The Company believes that distributor inventories will reach optimum levels during the fourth quarter of 1994, and its sales to distributors for hospitals currently in a JIT program will approximate distributor sales to hospitals during 1995. Company sales were also affected by competition during the period and by uncertainties related to health care reform and other trends toward cost containment in the health care industry. 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. -10- 11 Form 10-Q September 30, 1994 UNITED STATES SURGICAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Sales in the first nine months of 1994 were reduced by approximately $6 million representing the effect of adopting a new returned goods policy which was effective July 1, 1994. Previously, the Company did not grant credits for product returns; the new policy grants full credit to direct 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. The adjustment of the other sales reserves in the first and third quarters of 1994 was immaterial. The following table analyzes the decrease in sales in the third quarter and first nine months of 1994 compared with the corresponding periods in 1993:
Three Months Ended Nine Months Ended In thousands September 30, 1994 September 30, 1994 ------------ ---------------------- -------------------------- Composition of Sales Decrease: Sales volume increases (decreases) $ 4,200 $(73,600) Net price changes (10,900) (18,900) Effects of changes in foreign currency exchange rates 3,200 (8,100) -------- -------- Sales Decrease $ (3,500) $(100,600) ======== =======
Sales volume decreases in the first nine months of 1994 accounted for 73% of the total sales decrease compared with the corresponding period in 1993. The net price change component of the sales decrease, which accounted for approximately 19% of the total sales decrease for the nine months of 1994 in comparison to the corresponding 1993 period, reflects the net effect of selling price discounts granted to hospitals and just-in-time distributors, partially offset by price list increases effective January 1, 1994. The effects of changes in foreign currency exchange rates during the first nine months of 1994 contributed to 8% of the total sales decrease compared with the corresponding period in 1993. Gross margin from operations (sales less cost of products sold divided by sales) was 51% in the third quarter and 49% in the first nine months of 1994, compared with 49% and 52% in the corresponding periods in 1993. Although the Company implemented the majority of its restructuring plans during the fourth quarter of 1993 and in the first quarter of 1994, the major benefits of the cost reduction measures adopted by the Company did not start being realized until the second quarter of 1994, which resulted in improved gross margins in the second and third quarters of 1994. Changes in foreign currency exchange rates from those existing in 1993 did not have a material effect on the cost of products sold in 1994. -11- 12 Form 10-Q September 30, 1994 UNITED STATES SURGICAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The Company's expenditures for research and development in the third quarter and first nine months of 1994 decreased by 38% and 33%, respectively, compared to the corresponding periods in 1993, reflecting the impact of a program initiated in the second half of 1993 to increase efficiency and reduce the costs connected with pilot development of new products which are classified as research and development. The Company is continuing its commitment to develop unique new products for use in new surgical procedures and specialty areas. The Company presently plans to maintain its investment in research and development activities at levels approximating 3% - 5% of annual sales. Selling, administrative and general expenses expressed as a percentage of sales decreased to 38% in the third quarter and 40% in the first nine months of 1994, compared with 44% in the corresponding 1993 periods. 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. Changes in foreign currency exchange rates from those existing in 1993 did not have a material effect on reported selling, administrative and general expenses in 1994. The tax provisions for the third quarter and first nine months of 1994 and 1993 relate primarily to foreign taxes including taxes in Puerto Rico. The 1993 tax provisions are 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 is presently examining 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 financial statements of the Company but may reduce the availability of fully reserved carryforward tax losses and tax credits. FINANCIAL CONDITION The Company's current cash and cash equivalent balances, existing borrowing capacity and projected operating cash flows are currently well in excess of its foreseeable 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 with various banks 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 ratio and a maximum ratio of total debt to total capitalization, as defined. Under the most restrictive covenants, the Company must maintain certain 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 financing agreements. -12- 13 Form 10-Q September 30, 1994 UNITED STATES SURGICAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The Company's building programs have been essentially completed, which should enable the Company to reduce its capital spending by more than 75% in 1994 compared to 1993 levels. Additions to property, plant, and equipment on the accrual basis totaled $53 million ($41 million on a cash basis) in the first nine months of 1994, compared with $161 million on the accrual basis ($184 million on a cash basis) in the corresponding period in 1993, and consist primarily of additions to machinery and equipment ($31 million), molds and dies ($11 million), land and buildings ($9 million) and leasehold improvements ($2 million). The increase in cash and cash equivalents and the reduction of long-term debt at September 30, 1994 in comparison to the prior year- end is primarily attributable to the receipt of the net proceeds ($192 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 ($36 million) from the prior year-end level resulted primarily from improved utilization and management of raw materials in the Company's production process. The reduction in accrued liabilities ($20 million) from the prior year-end level was primarily attributable to 1994 severance payments accrued for in 1993 as a component of the restructuring charges. Such payments are 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 September 30, 1994 the Company had approximately $36 million of such contracts outstanding that will mature at various dates through November 30, 1994. Realized and unrealized foreign currency gains and losses are recognized when incurred. As a result of the Company's economic hedging program the changes in foreign currency exchange rates had an immaterial effect on its results of operations. -13- 14 Form 10-Q September 30, 1994 UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES Part II. OTHER INFORMATION Item 1. Legal Proceedings A. Referring to the Company's action against Origin Medsystems, Inc. ("Origin") (see Item 1 of Part II of the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1994), the United States Patent Office, upon Origin's request, agreed to reexamine one of the Company's patents on its PREMIUM SURGIPORT* retracting tip trocar. The reexamination will not apply to other patents held by the Company on the PREMIUM SURGIPORT* trocar, or to patents on other trocars sold by the Company, including the SURGIPORT* trocar and the newer VISIPORT* trocar. The preliminary injunction issued by the United States District Court for the Northern District of California in favor of the Company, removing Origin's trocars from the market was based on patent infringement and on interference with the Company's business relationships, and remains in effect and no trial date has been set. In the opinion of management, based upon the advice of counsel, the Company has valid claims against the defendants. B. The Company is engaged in other litigation, primarily as the defendant, in cases involving product liability claims. The Company believes it is adequately insured in all material respects against the product liability claims. The Company is also involved in various other cases. In the opinion of management, based on advice of counsel, the Company has meritorious defenses and valid cross-claims in these actions. * * * In the opinion of management, based on the advice of counsel, the ultimate outcomes of all of the aforementioned lawsuits should not have a materially adverse effect on the Company's consolidated financial statements. -14- 15 Form 10-Q September 30, 1994 Item 6. Exhibits and Reports on Form 8-K a. Exhibit (11) Statement Regarding Computation of Per Share Earnings. b. Reports on Form 8-K - The Company did not file any reports on Form 8-K during the three-month period ended September 30, 1994. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNITED STATES SURGICAL CORPORATION ---------------------------------- Registrant By: ----------------------------------- Howard M. Rosenkrantz Senior Vice President, Finance and Chief Financial Officer Dated: October 25, 1994 -15- 16 EXHIBIT INDEX Exhibit No. Description - - - ----------- ------------ 11 Statement Regarding Computation of Per Share Earnings. 27 Financial Data Schedule EX-11 2 STATEMENT REGARDING COMPUT. OF PER SHARE EARNINGS 1 Form 10-Q September 30, 1994 EXHIBIT 11 UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE (Unaudited)
Nine Months Ended Three Months Ended September 30, September 30, --------------------- -------------------------- In thousands, except per share data 1994 1993 1994 1993 - - - ------------------------------------------------------------------------------------------------------------------------------ Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . $ 13,300 $ (300) $13,200 $(14,300) Preferred stock dividends . . . . . . . . . . . . . . . . . . . 10,000 4,900 -------- --------- ------- -------- Net income (loss) applicable to common stock . . . . . . . . . $ 3,300 $ (300) $ 8,300 $(14,300) ======== ========= ======= ======== Average number of common shares and common share equivalents outstanding: Average number of common shares outstanding . . . . . . . . . . . . . . . . . . . . . 56,500 55,900 56,700 56,000 Add common share equivalents - options to purchase common shares - net . . . . . . . . . . . -------- --------- ------- -------- Average number of common shares and common share equivalents outstanding . . . . . . . . . . . . 56,500 55,900 56,700 56,000 ======== ========= ======= ======== Net income (loss) per common share and common share equivalent (primary and fully diluted) . . . . . . . . . . . . . . . . . . . . . . . $.06 $(.01) $.15 $(.26) ======== ========= ======= ========
The computation does not assume conversion of the Company's preferred stock into common stock since the result would be antidilutive. In 1994 and 1993, common stock equivalents were excluded from the computation since the result would be antidilutive. -16- EX-27 3 FINANCIAL DATA SCHEDULE
5 UNITED STATES SURGICAL CORPORATION Financial Data Schedule Article 5 of Regulation S-X 1,000 9-MOS DEC-31-1994 SEP-30-1994 10,500 0 210,600 6,400 176,500 441,100 757,200 198,300 1,121,500 187,900 0 6,500 0 900 654,300 1,121,500 692,200 692,200 350,000 350,000 302,400 1,400 14,600 23,800 10,500 13,300 0 0 0 13,300 .06 .06
-----END PRIVACY-ENHANCED MESSAGE-----