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 December 31, 1993
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
_____
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
_______ _______
Commission file number 1-483
IMCERA GROUP INC.
(Exact name of registrant as specified in its charter)
New York 36-1263901
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2315 Sanders Road
Northbrook, Illinois 60062-6198
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 708-564-8600
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 .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes . No .
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date. 76,832,854 shares excluding 10,283,435 treasury shares as of
January 31, 1994.
PART I. FINANCIAL INFORMATION
_______________________________
ITEM 1. FINANCIAL STATEMENTS.
The accompanying interim condensed consolidated financial statements of
IMCERA Group Inc. (the Company or IMCERA) do not include all disclosures
normally provided in annual financial statements. These financial statements,
which should be read in conjunction with the consolidated financial statements
contained in IMCERA's 1993 Annual Report to Shareholders, are unaudited but
include all adjustments which IMCERA's management considers necessary for a fair
presentation. These adjustments consist of normal recurring accruals except as
discussed in Notes 2 and 3 of Notes to Condensed Consolidated Financial
Statements. Interim results are not necessarily indicative of the results for
the year. All references to years are to fiscal years ended June 30 unless
otherwise stated.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(In millions except per share amounts)(Note 1)
Quarter Ended Six Months Ended
December 31 December 31
1993 1992 1993 1992
______________________________________________________________________________
Net sales $466.3 $441.2 $911.2 $858.0
Operating costs and expenses
Cost of goods sold 251.0 237.9 493.5 463.9
Selling, administrative,
and general expenses (Note 2) 126.0 129.4 247.6 249.7
Research and development expenses 23.2 22.7 44.3 44.3
Other operating (income) expense, net .2 (1.9) (1.0) (3.1)
-------- -------- -------- --------
400.4 388.1 784.4 754.8
-------- -------- -------- --------
Operating earnings 65.9 53.1 126.8 103.2
Equity in pretax earnings
of joint venture 3.2 .9 7.0 2.8
Interest and other nonoperating
income (expense), net .5 .2 (.1) .5
Interest charges (9.4) (9.4) (18.0) (18.3)
-------- -------- -------- --------
Earnings from continuing
operations before income taxes 60.2 44.8 115.7 88.2
Income taxes (Note 3) 23.5 16.8 43.7 32.6
-------- -------- -------- --------
Earnings from continuing operations 36.7 28.0 72.0 55.6
Discontinued operations (.7) (1.5) (1.5) (2.0)
-------- -------- -------- --------
Earnings before cumulative
effects of accounting changes 36.0 26.5 70.5 53.6
Cumulative effects of
accounting changes (80.6)
-------- -------- -------- --------
Net earnings (loss) 36.0 26.5 70.5 (27.0)
Preferred stock dividends (.1) (.1) (.2) (.2)
-------- -------- -------- --------
Amount available for common shareholders $35.9 $26.4 $70.3 $(27.2)
======== ======== ======== ========
Earnings (loss) per common share (Note 4)
Continuing operations $.47 $.36 $.93 $.72
Discontinued operations (.01) (.02) (.02) (.03)
Accounting changes (1.04)
-------- -------- -------- --------
Net earnings (loss) $.46 $.34 $.91 $(.35)
======== ======== ======== ========
(See Notes to Condensed Consolidated Financial Statements on page 5)
1
CONDENSED CONSOLIDATED BALANCE SHEET
December 31 June 30
(In millions except per share amounts) 1993 1993
______________________________________________________________________________
ASSETS
Current assets
Cash and cash equivalents $104.6 $51.3
Short-term investments 1.6
Trade receivables, less allowances of $18.8
at December 31 and $13.4 at June 30 312.8 319.4
IFL dividend receivable 51.9
Inventories 362.2 353.4
Deferred income taxes 33.3 21.3
Other current assets 40.0 39.2
---------- ----------
854.5 836.5
---------- ----------
Investments and long-term receivables,
less allowances of $10.0 at
December 31 and $12.5 at June 30 139.9 132.6
Property, plant and equipment 1,268.4 1,192.9
Accumulated depreciation (520.8) (494.0)
---------- ----------
Net property, plant and equipment 747.6 698.9
Intangible assets 485.4 466.9
Deferred income taxes 20.3 42.7
---------- ----------
$2,247.7 $2,177.6
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $120.5 $189.4
Accounts payable 100.5 117.6
Accrued liabilities 288.2 311.9
Income taxes 24.3 11.4
Deferred income taxes .4 2.5
---------- ----------
533.9 632.8
---------- ----------
Long-term debt, less current maturities 548.7 427.6
Deferred income taxes 25.4 25.5
Accrued retiree health care costs 119.7 121.0
Other noncurrent liabilities and deferred credits 60.3 60.2
Shareholders' equity (Notes 5 and 6)
Preferred stock 11.0 11.0
Common stock, par value $1, authorized
300,000,000 shares; issued 87,116,289
shares as of December 31 and June 30 87.1 87.1
Capital in excess of par value 265.1 262.4
Reinvested earnings 832.6 780.3
Marketable securities valuation allowance (.2) (2.2)
Foreign currency translation (69.2) (56.4)
Treasury stock (166.7) (171.7)
---------- ----------
959.7 910.5
---------- ----------
$2,247.7 $2,177.6
========== ==========
(See Notes to Condensed Consolidated Financial Statements on page 5)
2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions) Six months ended December 31 1993 1992
______________________________________________________________________________
CASH PROVIDED (USED) BY OPERATIONS
Net earnings (loss) $70.5 $(27.0)
Adjustments to reconcile net earnings (loss)
to net cash provided by operations
Cumulative effects of accounting changes 80.6
Depreciation and amortization 46.9 44.9
Deferred income taxes 6.4 1.7
Other, net (6.2) (12.7)
-------- --------
117.6 87.5
Changes in working capital
Receivables 16.1 20.1
Inventories (6.1) (23.7)
Accounts payable, accrued
liabilities, and income taxes (42.8) (41.9)
Other, net (.1)
-------- --------
84.8 41.9
CASH PROVIDED (USED) BY INVESTING ACTIVITIES
Capital expenditures (79.1) (91.4)
Acquisition spending (31.9) (103.9)
Short-term investments (1.6) (3.4)
IFL water claim dividend 51.9
Proceeds from asset disposals 1.8 2.6
Other, net .9 (10.2)
-------- --------
(58.0) (206.3)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES
Increase (decrease) in short-term debt (69.1) 68.1
Proceeds from long-term debt 201.9 101.6
Payments on long-term debt (91.8) (.4)
Issuance of IMCERA common stock 3.7 9.9
Purchase of IMCERA common stock (.9)
Dividends paid (18.2) (16.2)
-------- --------
26.5 162.1
-------- --------
Increase (decrease) in cash and cash equivalents 53.3 (2.3)
Cash and cash equivalents at beginning of year 51.3 68.1
-------- --------
Cash and cash equivalents at December 31 $104.6 $65.8
======== ========
(See Notes to Condensed Consolidated Financial Statements on page 5)
3
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In millions, except per share amounts)
Six months ended December 31 1993 1992
______________________________________________________________________________
4% cumulative preferred stock
Balance at June 30 and December 31 $11.0 $11.0
Common stock
Balance at June 30 and December 31 87.1 87.1
Capital in excess of par value
Balance at June 30 262.4 253.1
Stock options exercised .9 2.1
Restricted stock awards 1.8 2.2
---------- ----------
Balance at December 31 265.1 257.4
Reinvested earnings
Balance at June 30 780.3 1,013.9
Net earnings 70.5 (27.0)
Dividends
Preferred stock
4 Percent Cumulative ($2.00 per share) (.2) (.2)
Common stock ($.235 per share in 1993
and $.21 per share in 1992) (18.0) (16.0)
---------- ----------
Balance at December 31 832.6 970.7
Marketable securities valuation allowance
Balance at June 30 (2.2) (1.8)
Valuation adjustment 2.0 (.4)
---------- ----------
Balance at December 31 (.2) (2.2)
Foreign currency translation
Balance at June 30 (56.4) 39.1
Translation adjustment (12.8) (52.9)
---------- ----------
Balance at December 31 (69.2) (13.8)
Treasury stock
Balance at June 30 (171.7) (178.2)
Purchase of common stock (.9)
Stock options exercised 2.8 7.8
Restricted stock awards 2.2 2.2
---------- ----------
Balance at December 31 (166.7) (169.1)
---------- ----------
Total shareholders' equity $959.7 $1,141.1
========== ==========
(See Notes to Condensed Consolidated Financial Statements on page 5)
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the fourth quarter of 1993, IMCERA adopted Statements of Financial
Accounting Standards (FAS) No. 106, "Employer's Accounting for
Postretirement Benefits Other Than Pensions"; No. 109, "Accounting for
Income Taxes"; and No. 112, "Employer's Accounting for Postemployment
Benefits," all retroactive to July 1, 1992. Results for 1993 have been
restated to reflect the effects of adoption of these standards.
2. Corporate expense for the second quarter of 1993 included $5.5 million,
$3.4 million after taxes, or $.04 a share, from executive resignations
resulting from the performance of Pitman-Moore.
3. Provisions for income taxes were based on the estimated annual effective
tax rate for each year. The income tax provision for the first six months
of 1994 included a nonrecurring favorable adjustment of $1.4 million, or
$.02 a share, from recently enacted tax law changes. Excluding that
favorable adjustment, the effective tax rate would have been 39.0 percent
compared to 37.0 percent last year.
4. Earnings per common and common equivalent share were based on the weighted
average number of common and common equivalent shares (77,532,321 and
77,436,846 for the six months ended December 31, 1993 and 1992, and
77,697,005 and 77,476,263 for the quarters ended December 31, 1993 and
1992, respectively).
5. As of December 31, 1993, the Company has authorized and issued 100,000
shares, par value $100, 4 Percent Cumulative Preferred stock of which
98,330 shares are outstanding. IMCERA also has authorized 1,400,000
shares, par value $1, of Series preferred stock, none of which is
outstanding.
Shares included in treasury stock were:
December 31 June 30
(In millions) 1993 1993
_________________________________________________________________________
Common stock 10,362,122 10,671,514
4 percent Preferred stock 1,670 1,670
6. At December 31, 1993, common shares reserved were:
Exercise of common stock purchase rights 87,338,416
Exercise of stock options and granting of stock awards 10,584,249
-----------
Total 97,922,665
===========
5
7. Supplemental cash flow information for the six months ended December 31
included:
(In millions) 1993 1992
_________________________________________________________________________
Interest paid $13.9 $13.3
Income taxes paid $18.1 $24.2
Noncash investing and financing activities:
Issuance of IMCERA shares for restricted stock awards $4.0 $4.4
Assumption of liabilities related to acquisitions $12.6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
General
________
Earnings from continuing operations for the second quarter ended December 31
were $36.7 million, or 47 cents per share, a 31 percent increase in per-share
earnings compared with $28.0 million, or 36 cents per share, a year ago.
Excluding a nonrecurring corporate expense charge of $3.4 million after taxes,
or 4 cents per share from the prior year second quarter, per-share earnings
improved 18 percent. Operating earnings increased 24 percent, while sales were
up 6 percent.
For the six months, earnings from continuing operations were $72.0 million, or
93 cents per share, a 29 percent improvement in per-share earnings compared with
$55.6 million, or 72 cents per share, last year. Per-share earnings increased
20 percent excluding a nonrecurring favorable adjustment in this year's first
quarter of $1.4 million, or 2 cents per share, from recently enacted tax law
changes and last year's nonrecurring corporate expense charge discussed above.
Operating earnings increased 23 percent and sales improved 6 percent.
Net earnings for the six months were $70.5 million, or 91 cents per share,
compared with a net loss in last year's first half of $27.0 million, or 35 cents
per share. Last year's net loss included an after-tax charge of $80.6 million,
or $1.04 per share, from the adoption of certain accounting standards that
involved employee benefit plans and income taxes.
6
A comparison of sales and operating earnings follows:
Quarter Ended Six Months Ended
December 31 December 31
(In millions) 1993 1992 1993 1992
______________________________________________________________________________
Sales
Mallinckrodt Medical $225.5 $193.2 $426.4 $368.7
Mallinckrodt Specialty Chemicals 101.6 91.1 204.1 184.2
Pitman-Moore 139.4 156.9 281.5 305.2
Intersegment sales (.2) (.8) (.1)
-------- -------- -------- --------
$466.3 $441.2 $911.2 $858.0
======== ======== ======== ========
Operating earnings
Mallinckrodt Medical $47.5 $43.1 $94.2 $82.4
Mallinckrodt Specialty Chemicals 11.4 11.0 19.4 16.8
Pitman-Moore 13.0 10.8 26.7 22.2
Corporate (6.0) (11.8) (13.6) (18.2)
Eliminations .1
-------- -------- -------- --------
$65.9 $53.1 $126.8 $103.2
======== ======== ======== ========
Mallinckrodt Medical net sales were:
Quarter Ended Six Months Ended
December 31 December 31
(In millions) 1993 1992 1993 1992
______________________________________________________________________________
Radiology & Cardiology $107.1 $95.7 $203.2 $185.2
Nuclear Medicine 46.5 46.5 89.1 89.2
Anesthesiology & Critical Care 71.9 51.0 134.1 94.3
-------- -------- -------- --------
$225.5 $193.2 $426.4 $368.7
======== ======== ======== ========
Medical's sales improved 17 percent and 16 percent for the second quarter and
the first six months, respectively. Operating earnings increased 10 percent and
14 percent for the same periods. Unfavorable currency effects impacted this
year's results for both periods. Excluding these effects, earnings increased
at about the same rate as sales. Radiology and cardiology sales for the quarter
and six months increased 12 percent and 10 percent, respectively. For both
periods, higher sales volume of the x-ray contrast medium Optiray in the U.S.
and overseas more than offset the effects of price competition. Nuclear
medicine sales were flat compared to both periods a year ago, as higher thallium
sales in the U.S. and Europe associated with double injection procedures and
pharmacological stress tests were offset by unfavorable foreign exchange rates.
Anesthesiology and critical care sales were up more than 40 percent for both
periods primarily from acquisitions.
7
Mallinckrodt Specialty Chemicals net sales were:
Quarter Ended Six Months Ended
December 31 December 31
(In millions) 1993 1992 1993 1992
______________________________________________________________________________
Pharmaceutical Specialties $52.9 $45.2 $110.7 $95.7
Catalyst, Performance & Lab Chemicals 48.7 45.9 93.4 88.5
-------- -------- -------- --------
$101.6 $91.1 $204.1 $184.2
======== ======== ======== ========
Specialty chemicals, including its equity-investment share of earnings from its
flavors joint venture, achieved earnings of $14.6 million for the second quarter
and $26.4 million for the six months ended December 31, 1993. This represented
increases of 23 percent and 35 percent, respectively, over the prior year.
Sales increased 12 percent and 11 percent compared to the corresponding prior
year quarter and six months. Pharmaceutical specialties sales increased 17
percent and 16 percent for the quarter and first half, respectively. Improved
plant operations during the second quarter and higher worldwide sales volume for
medicinal narcotics and acetaminophen during both periods contributed to the
increases. Catalysts, performance and lab chemicals sales improved 6 percent
for both periods compared to last year primarily from increased sales volume of
inorganic and lab chemicals. Results also benefited from the restructuring
program recorded at the end of 1993. The flavors joint venture earnings were
significantly above the prior year for both periods from strong worldwide
growth.
Pitman-Moore net sales were:
Quarter Ended Six Months Ended
December 31 December 31
(In millions) 1993 1992 1993 1992
______________________________________________________________________________
Pharmaceuticals $54.8 $64.8 $116.6 $129.0
Biologicals 21.1 25.4 42.6 49.5
Feed Ingredients 43.4 46.6 82.1 86.3
Veterinary Specialties & Other 20.1 20.1 40.2 40.4
-------- -------- -------- --------
$139.4 $156.9 $281.5 $305.2
======== ======== ======== ========
Pitman-Moore's operating earnings for the second quarter and six months
increased 20 percent for both periods, reflecting the restructuring program.
Sales declined 11 percent and 8 percent for the quarter and six months,
respectively, primarily due to timing of North American marketing and selling
programs in last year's second quarter and current global product
rationalization programs designed to eliminate low margin products.
Pharmaceuticals sales decreased 15 percent and 10 percent for the quarter and
six months, respectively, reflecting the prior year sales program and current
year restructuring. Biologicals sales for the quarter and six months declined
17 percent and 14 percent, respectively. Supply and production problems in
Europe and lower sales in North America were the primary factors for the
decrease. Feed ingredients sales were down 7 percent and 5 percent for the
quarter and six months, respectively, from lower sales volumes and price
competition. Veterinary specialties sales were flat for both periods as
improved sales in Brazil were offset by unfavorable foreign exchange rates.
8
Corporate Matters
_________________
IMCERA corporate expense decreased $5.8 million for the quarter and $4.6 million
for the six months compared to the previous year, primarily from pretax charges
of $5.5 million included last year from executive resignations resulting from
the performance of Pitman-Moore. The Company's effective tax rate was 39.0
percent, excluding the favorable adjustment discussed above, compared to 37.0
percent last year. This increase reflects the higher U.S. Federal statutory
rate. Also, the prior year rate included certain favorable tax reserve
adjustments and foreign tax credit effects.
FINANCIAL CONDITION
The Company's financial resources are expected to continue to be adequate to
support existing businesses and fund new opportunities. Since June 30, 1993,
cash and short-term investments increased $54.9 million. Operations provided
$84.8 million of cash, while acquisition (including acquisition accrual
spending) and capital spending totalled $111.0 million, $28.8 million of which
relates to the acquisition of DAR S.p.A. In July 1993, the Company received
$51.9 million in cash for its IMC Fertilizer Group, Inc. (IFL) dividend
receivable. The Company's current ratio at December 31, 1993, was 1.6. Debt
as a percentage of invested capital was 41.8 percent.
In August 1987 and October 1988, the Company's Board of Directors authorized
repurchase of a total of 42.0 million shares of its common stock. Since then
28.9 million shares have been purchased under this authorization, none during
1994.
On April 8, 1992, a shelf registration statement was filed with the SEC for $250
million of debt securities. In 1994, the Company offered $100.0 million of 6%
Notes due October 15, 2003 and $100.0 million of 7% Debentures due December 15,
2013, from this shelf registration. Net proceeds from these offerings totalled
$197.2 million, of which $90.0 million was used to replace short-term notes,
related to 1993 acquisitions. Such notes had been classified as long-term debt
at June 30, 1993.
The Company has a $350 million private-placement commercial paper program. This
program is backed by $450 million of U.S. lines of credit, of which $350 million
is available until August 1996 and $100 million is available until August 1994.
IMCERA also has two $50.0 million U.S. credit facilities which expire in
February and March of 1994. At December 31, 1993, commercial paper borrowings
and borrowings under the U.S. credit line amounted to $152.9 million and $10.0
million, respectively. At December 1993, non-U.S. lines of credit totaling
$216.6 million were also available and borrowings under these lines amounted to
$43.6 million. The non-U.S. lines are cancelable at any time. IMCERA also has
an agreement expiring in April 1994, which has not been utilized, under which
up to $50 million of subsidiary trade receivables could be sold without
recourse.
Estimated capital spending for the year ending June 30, 1994, is approximately
$230 million.
9
OTHER MATTERS
In the fourth quarter of 1993, IMCERA adopted Statements of Financial Accounting
Standards (FAS) No. 106, "Employer's Accounting for Postretirement Benefits
Other Than Pensions"; No. 109, "Accounting for Income Taxes"; and No. 112,
"Employer's Accounting for Postemployment Benefits," all retroactive to July 1,
1992. Results for 1993 have been restated to reflect the effects of adoption
of these standards.
PART II. OTHER INFORMATION
___________________________
ITEM 1. LEGAL PROCEEDINGS.
In the previously reported remand to the U.S. District Court in Concord, New
Hampshire, in which the United States of America, the State of New Hampshire,
the Town of Kingston, the Company, and numerous third parties sued by the
Company are involved, a Consent Decree providing for the settlement of all major
issues was entered into and approved by the Court on December 22, 1993. The
Decree will have no material effect upon the Company. Litigation by the Company
against several non-settling third parties is continuing; however, any recovery
by the Company will not be material. This matter will not be further reported.
In the previously reported class actions pending in the United States District
Court in New York, on January 21, 1994, the Court denied plaintiff's motion to
reopen the judgment and for leave to amend the Complaint. The Company continues
to believe that these suits are without merit and will have no material effect.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
See IMCERA's Form 10-Q for the three months ended September 30, 1993, for
information about the Annual Meeting of Shareholders on October 20, 1993.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
11.1 Primary earnings per share computation for the six months ended
December 31, 1993 and 1992.
11.2 Fully diluted earnings per share computation for the six months
ended December 31, 1993 and 1992.
11.3 Primary earnings per share computation for the quarters ended
December 31, 1993 and 1992.
11.4 Fully diluted earnings per share computation for the quarters
ended December 31, 1993 and 1992.
10
(b) Reports on Form 8-K.
During the quarter and through the date of this report, the following
reports on Form 8-K were filed.
Report dated October 21, 1993, under item 7 regarding Exhibit No. 12,
Computation of Ratio of Earnings to Fixed Charges, filed in
connection with the 424(b)(2) filing related to the offering of
$100,000,000 6% Notes due October 15, 2003.
Report dated December 10, 1993, under item 7 regarding Exhibit No.
12, Computation of Ratio of Earnings to Fixed Charges, filed in
connection with the 424(b)(5) filing related to the offering of
$100,000,000 7% Debentures due December 15, 2013.
Report dated January 12, 1994, under item 5 regarding the purchase,
by Mallinckrodt Specialty Chemicals, of Catalyst Resources, Inc.
* * * * * * * * * * * * * * * *
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 thereunto duly authorized.
IMCERA Group Inc.
WILLIAM B. STONE
_____________________________
William B. Stone
Vice President and Controller
Date: February 11, 1994
11