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 December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
-----
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-483
------------------------------
MALLINCKRODT 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.)
7733 Forsyth Boulevard
St. Louis, Missouri 63105-1820
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-854-5200
------------------------------
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 Issurers 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. 76,474,690 shares excluding
10,641,599 treasury shares as of January 31, 1995.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).
The accompanying interim condensed consolidated financial
statements of Mallinckrodt Group Inc. (the Company or Mallinckrodt) 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 Mallinckrodt's 1994 Annual Report to Shareholders, are unaudited
but include all adjustments which Mallinckrodt's management considers
necessary for a fair presentation. These adjustments consist of
normal recurring accruals except as discussed in Note 2 of the
Notes to Condensed Consolidated Financial Statements. Interim
results are not necessarily indicative of the results for the fiscal
year. All references to years are to fiscal years ended June 30 unless
otherwise stated.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions except per share amounts)
(CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
1994 1993 1994 1993
- ---------------------------------------------------------------------------------
Net sales $516.3 $466.3 $1,004.0 $911.2
Operating costs and expenses:
Cost of goods sold 279.6 251.0 554.3 493.5
Selling, administrative and
general expenses 140.3 126.0 270.1 247.6
Research and development expenses 24.6 23.2 47.8 44.3
Other operating (income) expense, net (1.8) .2 (4.0) (1.0)
------- ------- --------- -------
Total operating costs and expenses 442.7 400.4 868.2 784.4
------- ------- --------- -------
Operating earnings 73.6 65.9 135.8 126.8
Equity in pre-tax earnings of joint venture 4.1 3.2 10.2 7.0
Interest and other nonoperating income
(expense), net ( .4) .5 (.8) (.1)
Interest expense (11.9) (9.4) (23.8) (18.0)
------- ------- --------- -------
Earnings from continuing
operations before income taxes 65.4 60.2 121.4 115.7
Income tax provision 24.8 23.5 46.1 43.7
------- ------- --------- -------
Earnings from continuing operations 40.6 36.7 75.3 72.0
Loss from discontinued operations (.8) (.7) (1.6) (1.5)
------- ------- -------- -------
Net earnings 39.8 36.0 73.7 70.5
Preferred stock dividends (.1) (.1) (.2) (.2)
------- ------- -------- -------
Available for common shareholders $ 39.7 $ 35.9 $73.5 $ 70.3
======= ======= ======== =======
Earnings per common share
Continuing operations $.52 $.47 $.97 $.93
Discontinued operations (.01) (.01) (.02) (.02)
------- ------- ------- -------
Net earnings $.51 $.46 $.95 $.91
======= ======= ======= =======
(See Notes to Condensed Consolidated Financial Statements on page 5.)
1
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions except share and per share amounts)
December 31, June 30,
1994 1994
- ----------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 82.1 $ 87.9
Trade receivables, less allowances of $11.2
at December 31 and $11.1 at June 30 352.3 343.6
Inventories 405.6 376.9
Deferred income taxes 75.1 77.6
Other current assets 50.6 46.0
--------- ---------
Total current assets 965.7 932.0
Investments and long-term receivables,
less allowances of $13.0 at December 31
and $13.1 at June 30 152.1 147.0
Property, plant and equipment 1,471.3 1,396.0
Accumulated depreciation (567.7) (532.8)
--------- ---------
Net property, plant and equipment 903.6 863.2
Intangible assets 498.3 489.3
Deferred income taxes 3.0 2.0
--------- ---------
Total assets $2,522.7 $2,433.5
========= =========
LIABIITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 180.6 $ 147.8
Accounts payable 145.0 139.4
Accrued liabilities 350.8 356.0
Income taxes payable 35.1 25.4
Deferred income taxes 2.1 2.1
--------- ---------
Total current liabilities 713.6 670.7
Long-term debt, less current maturities 513.2 522.0
Deferred income taxes 44.2 36.6
Accrued postretirement benefits 130.4 124.7
Other noncurrent liabilities and deferred credits 64.2 63.6
--------- ---------
Total liabilities 1,465.6 1,417.6
Shareholders' equity:
4 Percent cumulative 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 268.5 268.2
Reinvested earnings 899.6 846.4
Marketable securities valuation allowance (1.5) (1.4)
Foreign currency translation (27.2) (32.8)
Treasury stock (180.4) (162.6)
--------- ---------
Total shareholders' equity 1,057.1 1,015.9
--------- ---------
Total liabilities and shareholders' equity $2,522.7 $2,433.5
========= =========
(See Notes to Condensed Consolidated Financial Statements on page 5.)
2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions) Six Months Ended December 31, 1994 1993
- ----------------------------------------------------------------------------------
CASH FLOW - OPERATING ACTIVITIES
Net earnings $73.7 $ 70.5
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 57.7 46.9
Postretirement benefits 5.7 3.2
Deferred income taxes 11.5 6.4
Gains on disposals of assets (1.3)
Other, net (22.1) (9.4)
------- -------
125.2 117.6
Changes in noncash operating working capital:
Accounts receivable (6.8) 16.1
Inventories (26.5) (6.1)
Accounts payable, accrued
liabilities and income taxes, net (17.6) (42.8)
Other, net (2.0)
------- -------
Net cash provided by operating activities 72.3 84.8
CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures (75.9) (79.1)
Acquisition spending (4.1) (31.9)
IFL dividend receivable 51.9
Equity in pre-tax earnings of joint venture, net 6.8 4.5
Proceeds from asset disposals 16.3 1.8
Short-term investments (1.6)
Other, net (8.6) (3.6)
------- -------
Net cash used by investing activities (65.5) (58.0)
CASH FLOWS - FINANCING ACTIVITIES
Increase (decrease) in short-term debt 22.3 (69.1)
Payments on long-term debt (3.5) (91.8)
Proceeds from long-term debt 2.4 201.9
Issuance of Mallinckrodt common stock 1.4 3.7
Acquisition of treasury stock (14.7)
Dividends paid (20.5) (18.2)
------- -------
Net cash provided (used) by financing activities (12.6) 26.5
------- -------
Increase (decrease) in cash and cash equivalents (5.8) 53.3
Cash and cash equivalents at beginning of period 87.9 51.3
------- -------
Cash and cash equivalents at end of period $82.1 $104.6
======= =======
(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, 1994 1993
- ----------------------------------------------------------------------------------
4 Percent 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 30 268.2 262.4
Stock options exercised .3 .9
Restricted stock awards 1.8
-------- -------
Balance at December 31 268.5 265.1
Reinvested earnings
Balance at June 30 846.4 780.3
Net earnings 73.7 70.5
Dividends
4 Percent cumulative preferred stock ($2.00 per share) (.2) (.2)
Common stock ($.265 per share in 1994
and $.235 per share in 1993) (20.3) (18.0)
-------- -------
Balance at December 31 899.6 832.6
Marketable securities valuation allowance
Balance at June 30 (1.4) (2.2)
Valuation adjustment (.1) 2.0
-------- -------
Balance at December 31 (1.5) (.2)
Foreign currency translation
Balance at June 30 (32.8) (56.4)
Translation adjustment 5.6 (12.8)
-------- -------
Balance at December 31 (27.2) (69.2)
Treasury stock
Balance at June 30 (162.6) (171.7)
Purchase of common stock (14.7)
Stock options exercised 1.1 2.8
Restricted stock awards (4.2) 2.2
-------- -------
Balance at December 31 (180.4) (166.7)
-------- -------
Total shareholders' equity $1,057.1 $959.7
======== =======
(See Notes to Condensed Consolidated Financial Statements on page 5.)
(/TABLE>
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Provisions for income taxes were based on estimated annual
effective tax rates for each fiscal year. The income tax
provision for the first six months of 1994 includes a
favorable adjustment of $1.4 million, or $.02 a share resulting from
tax law changes. The Company's effective tax rate for the first
six months was 38.0 percent, compared to last year's 39.0 percent
excluding the favorable adjustment discussed above. This
decrease reflects an earnings mix toward certain foreign
countries with lower statutory tax rates and utilization of
certain tax losses.
2. Earnings per common share were based on the weighted average
number of common and common equivalent shares outstanding
(77,403,148 and 77,532,321 for the six months ended December
31, 1994 and 1993, and 77,249,318 and 77,697,005 for the quarters
ended December 31, 1994 and 1993, respectively).
3. The components of inventory include the following as of
December 31, 1994:
(In millions)
Raw materials and supplies $115.7
Work in process 92.2
Finished goods 197.7
------
$405.6
======
4. As of December 31, 1994, the Company has authorized and
issued 100,000 shares, par value $100, 4 Percent cumulative
preferred stock of which 98,330 shares are outstanding. Mallinckrodt
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, June30,
1994 1994
- --------------------------------------------------------------------------------
Common stock 10,650,626 10,110,056
4 Percent cumulative preferred stock 1,670 1,670
5. At December 31, 1994, common shares reserved were:
Exercise of common stock purchase rights 87,731,484
Exercise of stock options and granting of stock awards 11,265,821
----------
Total 98,997,305
==========
6. Supplemental cash flow information for the six months ended
December 31 included:
(In millions) 1994 1993
- -------------------------------------------------------------------------------
Interest paid $21.4 $13.9
Income taxes paid $22.7 $18.1
Noncash investing and financing activities:
Assumption of liabilities related to acquisitions $12.6
Issuance of common stock for restricted
stock awards $ 4.0
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATION
General
- -------
Earnings from continuing operations for the second quarter ended
December 31, 1994 were $41 million, or 52 cents per share, an 11
percent improvement over corresponding prior year amounts of $37
million, or 47 cents per share. Net sales for the quarter were
up 11 percent to $516 million, compared to $466 million last year.
Net earnings for the second quarter were $40 million, or 51 cents
per share, compared with $36 million, or 46 cents per share, during
the same period a year ago.
For the six months, earnings from continuing operations were $75
million, or 97 cents per share. Excluding a two-cent per share
tax benefit in the first quarter of last year, this is a 7 percent
increase over the comparable 91 cents per share for the first six
months of 1994. Net sales for the six months were up 10 percent
to $1,004 million, compared to $911 million last year. Net earnings
for the first half were $74 million, or 95 cents per share, compared
with $71 million, or 91 cents per share, last year.
Effective October 1, 1994, the Company reclassified a small
chemical subsidiary from discontinued to continuing operations. The
effect of the reclassification is immaterial to the Company's current and
prior year's balance sheets and results of operations and will have no
impact on the Company's liquidity or capital resources.
A comparison of sales and operating earnings follows:
Quarter Ended Six Months Ended
December 31, December 31,
(In millions) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------
Sales
- -----
Mallinckrodt Chemical $122 $101 $ 233 $204
Mallinckrodt Medical 240 225 470 426
Mallinckrodt Veterinary 154 139 301 281
Intersegment sales 1
------- ------- ------- -------
$516 $466 $1,004 $911
======= ======= ======= =======
Operating earnings
- ------------------
Mallinckrodt Chemical $ 16 $ 11 $ 22 $ 19
Mallinckrodt Medical 51 48 102 94
Mallinckrodt Veterinary 14 13 25 27
Corporate (7) (6) (13) (13)
------- ------- ------- -------
$ 74 $ 66 $ 136 $127
======= ======= ======= =======
Business Segments
- -----------------
Registered trademarks are indicated by asterisk.
MALLINCKRODT CHEMICAL
Quarter Ended Six Months Ended
December 31, December 31,
(In millions) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------
Net Sales
Pharmaceutical Specialties $ 57 $ 53 $113 $111
Catalyst, Performance & Lab Chemicals 65 48 120 93
------- ------- ------- -----
$122 $101 $233 $204
======= ======= ======= =====
6
Mallinckrodt Chemical achieved earnings of $19.3 million for the
second quarter and $32.0 million for the six months ended
December 31, 1994, representing increases of 32 percent and 21 percent,
respectively, over the prior year. These results include the
equity-investment share of earnings from Tastemaker, the flavors
joint venture, of $4.1 million and $10.2 million for the quarter and
six months, respectively. Net sales increased 20 percent and 14
percent compared to the corresponding prior year quarter and six months,
respectively. Pharmaceutical specialties sales increased 8
percent for the quarter and 2 percent for the first half. Higher
worldwide sales volume for medicinal narcotics during the second quarter
was the main contributor to the increases. Catalysts, performance and
lab chemicals sales improved 33 percent and 28 percent for the
quarter and six months, respectively. Results benefited from the acquisition
of Catalyst Resources, Inc. in March 1994 and the 1995
reclassification of a small specialty chemical business to continuing
opertions.
MALLINCKRODT MEDICAL
Net Sales Quarter Ended Six Months Ended
December 31, December 31,
(In millions) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------
Imaging $116 $107 $230 $203
Anesthesiology & Critical Care 76 72 146 134
Nuclear Medicine 48 46 94 89
------- ------- ------- -------
$240 $225 $470 $426
======= ======= ======= =======
Mallinckrodt Medical's operating earnings increased from last
year by 8 percent for the quarter to $51.4 million and 9 percent for the
six months to $102.3, million principally as a result of improved
performance in the imaging businesses. Net sales improved 7
percent and 10 percent for the same periods. Imaging sales for the
quarter and first half increased 8 percent and 13 percent, respectively,
reflecting higher worldwide sales volume of the x-ray contrast
medium Optiray*, which more than offset the effects of price
competition. Anesthesiology and critical care sales were up 6 percent and 9
percent for the quarter and six months, respectively, boosted by
the September 1993 acquisition of DAR S.p.A., higher tracheostomy
tube sales volume in Europe and Japan and increased sales volume of
hemoglobin and glucose testing products in the U.S. and Europe.
Nuclear medicine sales increased from the prior year by 3 percent
for the quarter and 6 percent for the first half, reflecting improved
U.S. sales volume, partially offset by the effects of price
competition.
MALLINCKRODT VETERINARY
Net Sales Quarter Ended Six Months Ended
December 31, December 31,
(In millions) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------
Pharmaceuticals $ 63 $ 55 $127 $117
Biologicals 25 21 46 42
Feed Ingredients 45 43 84 82
Veterinary Specialties & Other 21 20 44 40
------- ------ ------ ------
$154 $139 $301 $281
====== ====== ====== ======
Mallinckrodt Veterinary's second quarter operating earnings
improved by 10 percent and net sales were higher by 11 percent, compared
to the same period last year. Operating earnings for the six months
were 6 percent below the prior year due to weak food animal markets and
higher manufacturing costs, while net sales were 7 percent
higher. Pharmaceuticals and biologicals sales benefited from second
quarter sales and marketing programs and favorable foreign currency
effects. Pharmaceutical sales increased 14 percent and 9 percent for the
second quarter and six months, respectively, compared to the same
periods a year ago. Biologicals sales improved 22 percent and 9 percent
for the same periods. Feed ingredients sales were up 3 percent and 2
percent for the quarter and six months, respectively, primarily from
increased export sales volume. Veterinary specialties sales improved 5
percent for the quarter and 11 percent for the six months from expanded
distribution rights in Latin America.
7
Corporate Matters
- -----------------
Mallinckrodt corporate expense increased $1.3 million for the
second quarter and was flat for the six months compared to last year.
The second quarter increase resulted primarily from timing of prior
year costs for the Company's captive insurance subsidiary. The
Company's effective tax rate for the first six months was 38.0 percent,
compared to last year's 39.0 percent excluding the favorable adjustment
previously discussed. This decrease reflects an earnings mix
toward certain foreign countries with lower statutory tax rates
and the utilization of certain tax losses.
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, 1994, cash and cash equivalents decreased $5.8
million. Operations provided $72.3 million of cash, while acquisition and
capital spending totaled $80.0 million. The Company's current
ratio at December 31, 1994, was 1.4. Debt as a percentage of invested
capital was 39.6 percent.
As of December 31, 1994, the Company had the authority to
repurchase approximately 13 million shares of its common stock
under an outstanding Board of Directors resolution.
The Company has a $450 million private-placement commercial paper
program. This program is backed by $550 million of U.S. lines of
credit available until November 1999. At December 31, 1994,
commercial paper borrowings amounted to $213.3 million. There
were no outstanding borrowings under the the U.S. lines of credit at
December 31, 1994. At December 31, 1994, non-U.S. lines of credit
totaling $245.8 million were also available and borrowings under these
lines amounted to $41.7 million. The non-U.S. lines are cancelable at
any time.
Estimated capital spending for the year ending June 30, 1995, is
approximately $200 million.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the previously reported class actions pending in the United States
District Court in New York, on February 1, 1995, the United States
Court of Appeals for the Second Circuit affirmed the judgment of the
district court granting the Company's motion to dismiss and denying
plaintiffs' motion to file an amended pleading. The Company believes
the appellate court's ruling terminates its involvement in the class
actions; accordingly, the Company does not anticipate making any further
reports on this matter.
Except as described above, there have not been any material
developments in the legal proceedings previously reported in the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994, as supplemented by the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1994.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
See Mallinckrodt's Form 10-Q for the three months ended September 30,
1994, for information about the Annual Meeting of Shareholders on
October 19, 1994.
8
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
[Asterisk (*) indicates Management Contract or compensatory plan
required to be filed pursuant to Item 601.]
10.1 Employment Agreement wih Michael A. Rocca dated April 4,
1994.(*)
10.2 Agreement with Michael A. Rocca dated April 5, 1994.(*)
10.3 Gross-Up Agreement with Michael A. Rocca dated May 9,
1994.(*)
10.4 Agreement with Paul D. Cottone dated October 1, 1994.(*)
10.5 Employment Agreement with Paul D. Cottone dated October 1,
1994.(*)
10.6 Gross-Up Agreement with Paul D. Cottone dated October 1,
1994.(*)
10.7 Consulting Agreement with Herve M. Pinet for the period
December 1, 1994 to November 30, 1995.(*)
10.8 Credit Agreement dated November 30, 1994 between
Mallinckrodt and Morgan Guaranty Trust Company of New
York, as Administrative Agent and Co-Agent and The Chase
Manhattan Bank, N.A., as Co-Agent ($550 million facility).
10.9 Amendment dated January 7, 1994 to Consulting Agreement
with Ronald G. Evens, M.D., extending Agreement through
December 31, 1994.(*)
10.10 Amendment dated February 1, 1995 to Consulting Agreement
with Ronald G. Evens, M.D., extending Agreement through
December 31, 1995.(*)
11.1 Primary earnings per share computation for the six months
ended December 31, 1994 and 1993.
11.2 Fully diluted earnings per share computation for the six
months ended December 31, 1994 and 1993.
11.3 Primary earnings per share computation for the quarters
ended December 31, 1994 and 1993.
11.4 Fully diluted earnings per share computation for the
quarters ended December 31, 1994 and 1993.
27 Financial Data Schedule.
(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 19, 1994, under Item 5 regarding the
election of the President of Mallinckrodt Veterinary, Inc.
- Report dated October 28, 1994, under Item 5 regarding the
first quarter fiscal 1995 forecasted earnings.
- Report dated November 3, 1994, under Item 5 regarding the
election of the Chairman of the Board of Directors.
- Report dated January 4, 1995, under Item 5 regarding the
purchase by Mallinckrodt Chemical of J. T. Baker.
* * * * * * * * * * * * * * * *
9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Mallinckrodt Group Inc.
-----------------------------
Registrant
By: MICHAEL A. ROCCA By: WILLIAM B. STONE
----------------------------- ---------------------------
Michael A. Rocca William B. Stone
Senior Vice President and Vice President and
Chief Financial Officer Controller
Date: February 13, 1995