-----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, VWtd/oa8Hqzm/zA4Wh8mC7rq9jMKsQFAsy1NpA5YLgBXVHFdjmFJdCN7Lb85rwAc HMSSEFhJzhybhJSSMa3+Dg== 0000950146-95-000381.txt : 199507110000950146-95-000381.hdr.sgml : 19950711 ACCESSION NUMBER: 0000950146-95-000381 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19941104 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950710 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09776 FILM NUMBER: 95553060 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 8-K 1 UNITED STATES SURGICAL CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of The Securities Act of 1934 Date of Report (Date of earliest event reported): February 1, 1995 United States Surgical Corporation (Exact name of registrant as specified in its charter) Delaware 1-9776 13-2518270 (State or other jurisdiction (Commission File (I.R.S. Employer of incorporation) Number) Identification Number) 150 Glover Avenue, Norwalk, CT 06856 (Address of principal executive offices) (203) 845-1000 (Registrant's telephone number, including area code) Item 5. Other Events In November 1994 the Company signed a letter of intent to purchase certain assets of Century Medical, Inc. (a wholly-owned subsidiary of Itochu Corporation and its independent distributor in Japan). The Company signed an Asset Purchase Agreement on February 1, 1995 pursuant to which it would acquire certain assets for a net price of approximately 6.1 billion yen payable over seven years at no interest (present value of the purchase price as of June 30, 1995 is estimated to be approximately 4.5 billion yen). The Company has received the required governmental approvals for the purchase transaction to close, but the parties to the transaction agreed to voluntarily postpone the official closing of the transaction as a result of an investigation by the Japanese Ministry of Health and Welfare of the distributor's operations unrelated to the assets to be acquired. The transaction is expected by the Company to officially close before the end of 1995. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial Statements of Business Acquired. The Company will acquire from Century Medical, Inc. ("CMI") certain assets related to CMI's distribution network for the Company's products in Japan. It is not possible to develop an audited balance sheet that relates solely to the USSC products distribution network of CMI. Since there are no other assets and liabilities being acquired by the Company, no audited balance sheet will be prepared and filed. However, an audited income statement related to the sales of the Company's products by CMI for CMI's fiscal year ended March 31, 1995 is being filed herewith. Page (1) Income statement for the year ended March 31, 1995 3 and independent Auditors' Report (b) Pro Forma Financial Information 11 (1) Description of Unaudited Pro Forma 11 Consolidated Condensed Financial Statements (2) Unaudited Pro Forma Consolidated Condensed 12 Statement of Income for the year ended December 31, 1994 (3) Unaudited Pro Forma Consolidated Condensed 13 Statement of Income for the quarter ended March 31, 1995 (4) Unaudited Pro Forma Consolidated Condensed 14 Balance Sheet as of March 31, 1995 Century Medical, Inc. Surgical Division Income Statement for the Year Ended March 31, 1995, and Independent Auditors' Report Deloitte Touche Tohmatsu MS Shibaura Building Telephone: (03)3457-7321 13-23, Shibaura 4-chome Facsimile: (03)3769-8508 Minato-ku, Tokyo 108 INDEPENDENT AUDITORS' REPORT To the Board of Directors of United States Surgical Corporation: We have audited the accompanying income statement of the Surgical Division ("SDV") of Century Medical, Inc. (the "Company"), a wholly-owned subsidiary of ITOCHU Corporation, for the year ended March 31, 1995. The income statement of SDV is the responsibility of the Company's and United States Surgical Corporation's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the income statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the income statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall income statement presentation. We believe that our audit of the income statement provides a reasonable basis for our opinion. In our opinion, such income statement presents fairly, in all material respects, the results of operations of SDV of the Company for the year ended March 31, 1995 in conformity with accounting principles generally accepted in the United States of America. The accompanying income statement has been prepared from the separate records maintained by SDV and may not necessarily be indicative of the conditions that would have existed or the results of operations if SDV had been operated as an unaffiliated company. Portions of certain expenses represented allocations made from head-office items applicable to the Company as a whole as disclosed in Note 5 of Notes to Income Statement. The provision for income taxes of SDV was calculated based on the normal effective statutory tax rate in Japan and the effect of non-tax-deductible items as disclosed in Note 3 of Notes to Income Statement. Deloitte Touche Tohmatsu May 25, 1995 Century Medical, Inc. Surgical Division Income Statement Year Ended March 31, 1995
Thousands of U.S. Dollars Millions of Yen (Note 2) NET SALES Yen10,552 $106,588 COST OF SALES, including commission expense to ITOCHU of Yen527 million ($5,324 thousand) 5,323 53,773 -------- -------- Gross profit 5,229 52,815 SELLING, GENERAL and ADMINISTRATIVE EXPENSES 3,487 35,220 -------- -------- Operating income 1,742 17,595 -------- -------- OTHER EXPENSES: Interest expense 144 1,451 Other - net 10 102 -------- ------- Other expenses 154 1,553 -------- ------- INCOME BEFORE INCOME TAXES 1,588 16,042 PROVISION FOR INCOME TAXES 840 8,482 -------- ------- NET INCOME Yen748 $ 7,560 ======== ========
See notes to income statement. Century Medical, Inc. Surgical Division Notes to Income Statement Year Ended March 31, 1995 1. SALE OF SURGICAL DIVISION ("SDV") On February l, 1995, United States Surgical Corporation ("USSC") and Century Medical, Inc. (the "Company") signed an asset purchase agreement which provided for the sale of the assets and operations of SDV to USSC. The parties to the transaction have voluntarily agreed to postpone the closing of the transaction until Japan's Ministry of Health and Welfare has completed its investigation into the Company's operations unrelated to SDV. 2. BASIS OF PRESENTING INCOME STATEMENT The accompanying income statement is stated in Japanese yen and U.S. dollars translated from Japanese yen at the approximate average exchange rate of Yen99 for the year ended March 31, 1995. The accompanying income statement has been prepared on the basis of accounting principles generally accepted in the United States of America ("U.S. GAAP"). In certain respects, effect has been given in the income statement to adjustments that have not been entered in the Company's general books of account, which are maintained in accordance with accounting practices prevailing in Japan. The major adjustments include those relating to accounting for leases, pension costs and severance indemnities and income taxes. The income statement of SDV prior to the U.S. GAAP adjustments is the responsibility of the Company. The aforementioned U.S. GAAP adjustments are the responsibility of USSC. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies applied by the Company. This statement has been prepared from the separate records maintained by SDV. The recording of expenses in each division was partly based on allocation methods established by the Company as described in Note 5. a. Revenue Recognition - Revenues from sales were recognized when products were shipped to consumers, primarily hospitals, or to authorized distributors. b. Inventories - Inventories were stated at the lower of cost, determined on the monthly moving-average method, or market. c. Property and Equipment - Property and equipment were stated at cost. Significant renewals and additions were capitalized at cost, while minor improvements or additions (less than Yen200 thousand) were directly charged to operations. Depreciation was computed by the declining-balance method at rates based on the estimated useful lives of the individual assets. Capital leases were amortized over lease terms. Depreciation and amortization expenses in SDV amounted to approximately Yen196 million ($1,981 thousand) for the year ended March 31, 1995. The useful lives of property and equipment were as follows: Buildings 45 - 60 years Leasehold improvement 3 - 15 years Vehicles 4 years Furniture and fixtures 3 - 20 years Equipment 5 or 8 years d. Retirement and Pension Plans - The Company follows Statement of Financial Accounting Standards No. 87 for determining the expense for the employees retirement plan. Retirement benefits to directors and statutory auditors were provided at the amount which would be required if they retired at the income statement date. e. Income Taxes - The provision for income taxes of SDV was calculated based on the normal effective statutory tax rate of 51% in Japan and the effect of non-tax-deductible items. 4. ORGANIZATION, PRINCIPAL BUSINESS AND TRANSACTIONS WITH PARENT COMPANY The Company was incorporated in 1974, under the laws of Japan and is wholly owned by ITOCHU Corporation ("ITOCHU"), a Japanese corporation. The principal business in SDV is to import surgical products from USSC (a U.S. corporation) under a distributorship agreement, and to act as the sole agency in Japan for the sale of the surgical products. The Company has a commission agreement with ITOCHU, under which the Company pays 5% of sales price of imported products and 1% of sales price of domestic products as commissions to ITOCHU. Transactions of SDV with ITOCHU for the year ended March 31, 1995 were as follows: Thousands of Millions of Yen U.S. Dollars Sales Yen 27 $277 The sales of Yen27 million ($277 thousand) represent sales made by SDV to Itochu during the twelve months ended March 31, 1995. Commission expense Yen 527 $5,324 The commission expense of Yen527 million ($5,324 thousand) relates to SDV's commission to Itochu on total sales of SDV of Yen10,552 million ($106,588 thousand) for the year ended March 31, 1995. 5. ALLOCATION METHOD OF MAJOR EXPENSES Personnel Expenses The actual payroll and provision for bonuses for each sales division were accumulated and directly charged to the corresponding sales division. The actual payroll and provision for bonuses for the administrative departments (personnel, general affairs, accounting and finance, etc.), the employer's portion of social insurances, fringe benefits and expense portion of endowment insurance (Yoro Hoken) were allocated to sales divisions in proportion to the ratio of personnel expenses recorded in each sales division against the total personnel expenses of all sales divisions. Office Rent Expenses The yearly total office rent expense was allocated based on the usage of each sales division compared to the usage of all sales divisions. Rent expenses for the administrative departments were allocated to sales divisions through the use of the Head Office Allocation Account, as discussed later in this note. Office Equipment and Certain Communication Expenses The yearly amount was allocated to each sales division based on a formula whereby the Company weights each employee based on individual responsibility. Depreciation of Demonstration Equipment Demonstration equipment was classified by each sales division and equipment was amortized over five years. Warehouse Expenses Warehouse rent was allocated based on the use of warehouse space by each division. Warehouse overhead expenses were allocated based on the Head Office Allocation Ratios. Head Office Allocation Account Overhead expenses of the administrative departments were allocated based on the Head Office Allocation Ratios, which were determined by among other things, the number of employees, quantity of office work, sales volume, etc. The percentage of such expenses allocated to SDV was 59% for the year ended March 31, 1995. Interest Expenses Interest expense for each sales division was charged based on the deemed funding required for each division. The deemed funding was calculated based on the following formula: [(Receivable balance + Inventory balance + Demonstration equipment balance) - (Payable balance + Ordinary profit)] x Internal interest rate Interest expense for the training center of SDV was calculated and was charged based on the internal interest rate times the cost of the property and equipment controlled by the training center. 6. RETIREMENT AND PENSION PLANS Under most circumstances, terminating employees are entitled to severance payments based on their pay at the time of termination, years of service and certain other factors. If the termination is involuntary, caused by retirement at the mandatory retirement age or in certain other cases, the employee is entitled to greater payment than in the case of voluntary termination. The majority of the expense is funded through a pension fund. The following table sets forth components of the funded plan's estimated net periodic charges to operations In SDV for the year ended March 31, 1995. Thousands of Millions of Yen U.S. Dollars Service cost Yen29 $288 Interest cost 7 75 Actual return on plan assets (5) (49) Net amortization of unrecognized obligation 1 7 ---------------- --------- Total Yen32 $321 ========= ====== Severance and pension cost for the year ended March 31, 1995 was determined using the following assumptions: Discount rate 5.5% Expected long-term rate of return on plan assets 4.16% Rate of increase in future compensation levels 4.78% 7. RENT EXPENSES Rent expenses under operating leases in SDV amounted to approximately Yen231 million ($2,329 thousand) for the year ended March 31, 1995. The future minimum lease payments under noncancellable leases are Yen58 million ($587 thousand) in 1996, Yen44 million ($445 thousand) in 1997, Yen37 million ($369 thousand) in 1998, Yen37 million ($369 thousand) in 1999 and Yen8 million ($80 thousand) in 2000. 8. INCOME TAXES The effective rate of income taxes reflected in the income statement was 53% and differed from a normal effective statutory rate of 51% due to the non-tax-deductible expenses of Yen58 million ($590 thousand) which was incurred by SDV. Description of Unaudited Pro Forma Consolidated Condensed Financial Information The following Unaudited Pro Forma Consolidated Condensed Balance Sheet as of March 31, 1995, and the Unaudited Pro Forma Consolidated Condensed Statements of Income for the year ended December 31, 1994 and the quarter ended March 31, 1995 give effect to the acquisition accounted for under the purchase method of accounting. The Unaudited Pro Forma Consolidated Condensed Financial Information is based upon the historical Consolidated Financial Statements of United States Surgical Corporation and Subsidiaries and the Century Medical, Inc. Surgical Division under the assumptions and adjustments set forth in the accompanying financial information. The Company is filing a pro forma balance sheet for the Company which consists of the historical assets and liabilities of the Company as of March 31, 1995 combined with the assets expected to be acquired at closing, a pro forma income statement for the Company for the year ended December 31, 1994 and the quarter ended March 31, 1995 which combines the income statements of the Company for the applicable periods with the income statements of the acquired business for the year and quarter ended March 31, 1995. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable. The allocations of the purchase price assigned to the assets acquired, including their related depreciation and amortization, are based upon preliminary estimates and will be revised when the final fair value allocations are determined, as will the related income tax effects of the pro forma adjustments. For purposes of developing the Unaudited Pro Forma Consolidated Condensed Balance Sheet, the value allocated to the training center was based upon a real estate appraisal and the value allocated to inventory was based upon inventory expected to be on hand at the closing date as indicated in the Asset Purchase Agreement. Should the actual value of inventories at the closing date be more or less than 1.6 billion yen (at transfer price to CMI), an adjustment will be made where the Company will make an additional payment or receive cash from CMI as appropriate. The Pro Forma Consolidated Condensed Income Statements exclude any nonrecurring costs associated with the acquisition, the amounts of which cannot be determined until the transaction has closed. However, such amounts are expected by management to be minor. The Pro Forma Consolidated Condensed Financial Information may not be indicative of the results that actually would have occurred if the transactions had been in effect on the dates indicated or that may be obtained in the future, due to the hypothetical nature of the pro forma information. UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) ($000's, except per share data)
Operations To Be Pro Forma Registrant Acquired Adjustments' Year Ended Year Ended debit(credit) Pro Forma 12/31/94 12/31/94 ---------------------------------------------------------- Net Sales $918,700 $106,600 $49,900 (1) $992,500 ------- ------- ------- (17,100)(2) ------- Costs and Expenses Cost of products sold 463,600 53,800 (47,300)(1) 473,900 9,100 (2) (5,300)(3) Research and development 37,500 37,500 SG&A expenses 366,700 35,300 1,100(4) 403,100 Interest 18,200 1,500 3,400(5) 23,100 -------- ------- ------ -------- Total costs and expenses 886,000 90,600 (39,000) 937,600 ------- ------ -------- ------- Income before income taxes 32,700 16,000 (6,200) 54,900 Income taxes 13,500 8,500 400(6) 22,400 -------- ------- ------ -------- Net income 19,200 7,500 (5,800) 32,500 Preferred stock dividends 14,900 14,900 -------- ----------- ----------- ------- Net income applicable to common stock $ 4,300 $ 7,500 $ (5,800) $ 17,600 ========= ======= ======= ======== Average number of common shares outstanding 56,600 56,600 ======== ======== Net income per common share $0.08 $0.31 ==== ====
Pro Forma Adjustments 1. To eliminate intercompany sales of products and fair value adjustments for inventory acquired. 2. To reverse reserve for product returns related to inventory reacquired which had a negative impact of $8,000 on the Registrant's 1994 income before income taxes as reported. 3. To eliminate commissions paid by Century Medical to Itochu Corporation based on sales/purchases of USSC products. 4. To recognize amortization expense over a 10-30 year life related to approximately $26 million of intangible assets. 5. To recognize imputed interest expense related to 5.1 billion yen note payable to Century Medical, Inc., discounted at 8%. 6. Income tax provision related to additional income in Japan. UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) ($000's, except per share data)
Operations Registrant To Be Acquired Pro Forma Pro Forma Quarter Ended Quarter Ended Adjustments' Quarter Ended 3/31/95 3/31/95 debit(credit) 3/31/95 ------------------------------------------------------------------ Net Sales $240,600 $30,200 $11,700(1) $259,100 ------- ------ ------- ------- Costs and Expenses Cost of products sold 112,900 16,200 (11,700)(1) 115,900 (1,500)(2) Research and development 10,100 10,100 SG&A expenses 94,000 9,900 300(3) 104,200 Interest 4,900 800(4) 5,700 --------- ----------- -------- --------- Total costs and expenses 221,900 26,100 (12,100) 235,900 ------- ------ ------- ------- Income before income taxes 18,700 4,100 (400) 23,200 Income taxes 4,300 2,200 200(5) 6,700 --------- ------- -------- --------- Net income 14,400 1,900 (200) 16,500 Preferred stock dividends 4,900 4,900 --------- ----------- ----------- -------- Net income applicable to common stock $ 9,500 $ 1,900 $ (200) $ 11,600 ========= ======= ===== ======== Average number of common shares outstanding 56,900 56,900 ======== ======== Net income per common share $0.17 $0.20 ==== ====
Pro Forma Adjustments 1. To eliminate intercompany sales of products. 2. To eliminate commissions paid by Century Medical to Itochu Corporation based on sales/purchases of USSC products. 3. To recognize amortization expense over a 10 - 30 year life related to approximately $26 million of intangible assets. 4. To recognize imputed interest expense related to 5.1 billion yen note payable to Century Medical, Inc., discounted at 8%. 5. Income tax provision related to additional income in Japan. UNITED STATES SURGICAL CORPORATION AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) ($000's)
Estimated USSC Assets Period Ended Acquired Pro Forma Pro Forma 3/31/95 Liab. Assumed Adjustments Balance Sheet ----------------------------------------------------------------- Current Assets: Accounts receivable $ 204,900 $ 204,900 Inventories 156,400 $13,200 $ (4,000)(1) 165,600 Other 72,200 (6,700)(2) 65,500 ----------- -------- -------- ----------- 433,500 13,200 (10,700) 436,000 ---------- -------- ------- ---------- Property, plant and equipment (net) 531,600 12,900 544,500 Other assets (net) 123,900 26,300 (3,400)(1) 146,800 ---------- -------- ------- ---------- Total Assets $1,089,000 $ 52,400 $(14,100) $1,127,300 ========= ======== ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accrued liabilities $ 115,100 $115,100 Other 67,100 $ 12,100 $ (7,400)(1) 65,100 (6,700)(2) ---------- -------- -------- -------- 182,200 12,100 (14,100) 180,200 ---------- -------- -------- -------- Long-term debt 223,100 40,300 263,400 Deferred income taxes 6,300 6,300 Common stock 388,300 388,300 Preferred stock 191,500 191,500 Retained earnings 186,500 186,500 Treasury stock (86,700) (86,700) Other (2,200) (2,200) ----------- -------- 677,400 677,400 ---------- ---------- --------- Total Liabilities and Stockholders' Equity $1,089,000 $ 52,400 $(14,100) $1,127,300 ========= ======== ======== ==========
Pro Forma Adjustments 1. To reverse reserve for product returns related to inventory reacquired. 2. To reverse downpayment of purchase price accounted for as a deposit in Other Current Assets. SIGNATURES 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 hereunto duly authorized. UNITED STATES SURGICAL CORPORATION Date: July 10, 1995 By: /s/ Howard M. Rosenkrantz Howard M. Rosenkrantz Senior Vice President, Finance and Chief Financial Officer (Principal Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----