-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PBrkmU7X0Jx7beizjRuufLilAIU5jb6BKepvVAbwJYXL45DNM4wOa/tdqFwhZfj7 JMRGs12lQ5Plf17E2ICS+A== 0000950123-96-001819.txt : 19960424 0000950123-96-001819.hdr.sgml : 19960424 ACCESSION NUMBER: 0000950123-96-001819 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960423 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED STATES SURGICAL CORP CENTRAL INDEX KEY: 0000101788 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [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: 96549761 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 FORM 10-Q QUARTERLY REPORT 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 2 Form 10-Q March 31, 1996 UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES INDEX
PART I--FINANCIAL INFORMATION Page ---- 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
-2- 3 Form 10-Q March 31, 1996 UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, In thousands, except share data 1996 1995 - --------------------------------------------------------------------------------------------------------------- ASSETS (Unaudited) 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 ========== ==========
See Notes to Consolidated Financial Statements -3- 4 Form 10-Q March 31, 1996 UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31, ------------------ In thousands, except per share data 1996 1995 - -------------------------------------------------------------------------------- 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 ======== ========
See Notes to Consolidated Financial Statements -4- 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
Additional Additional Paid-in Paid-in Dollars in thousands, Preferred Capital - Common Capital - except share data Stock Preferred Stock Common - ------------------------------------------------------------------------------------------------------------------ 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 ==== ======== ====== ======== Accumulated Dollars in thousands, Retained Translation Treasury except share data Earnings Adjustments Stock Total - --------------------------------------------------------------------------------------------------------------------------- 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 ========= ======= ======== =========
See Notes to Consolidated Financial Statements -5- 6 Form 10-Q March 31, 1996 UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, ----------------------------- In thousands 1996 1995 - ----------------------------------------------------------------------------------------------------------------- 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 ========= =========
See Notes to Consolidated Financial Statements -6- 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- 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- 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- 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:
Three Months Ended In thousands March 31, 1996 ---------------------- 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 =======
* 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- 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- 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- 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- 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- 15 EXHIBIT INDEX Exhibit No. Description - ---------- ----------- EX-27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 1000 3-MOS DEC-31-1996 MAR-31-1996 11700 0 271600 8900 165800 529300 750700 257000 1276500 242100 0 0 900 6600 756100 1276500 266000 266000 112200 112200 122000 700 4000 27100 6200 20900 0 0 0 20900 .28 .28
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