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, 1995
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 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. 76,633,149 shares excluding
10,483,140 treasury shares as of April 28, 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 1 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)
Quarter Ended Nine Months Ended
March 31,
March 31
1995 1994
1995 1994
- --------------------------------------------------------------------------------
Net sales $ 569.1 $ 486.7 $1,573.1 $1,397.9
Operating costs and expenses:
Cost of goods sold 313.2 257.2 867.5 750.7
Selling, administrative and
general expenses 144.2 132.6 414.3 380.2
Research and development expenses 23.5 24.0 71.3 68.3
Other operating (income) expense, net .7 .4 (3.3) (.6)
-------- -------- --------- ---------
Total operating costs and expenses 481.6 414.2 1,349.8 1,198.6
-------- -------- --------- ---------
Operating earnings 87.5 72.5 223.3 199.3
Equity in pre-tax earnings of joint
venture 6.3 4.8 16.5 11.8
Interest and other nonoperating income
(expense), net (.2) .7 (1.0) .6
Interest expense (17.6) (10.3) (41.4) (28.3)
-------- -------- --------- ---------
Earnings from continuing
operations before income taxes 76.0 67.7 197.4 183.4
Income tax provision 27.9 24.8 74.0 68.5
-------- -------- --------- ---------
Earnings from continuing operations 48.1 42.9 123.4 114.9
Loss from discontinued operations (1.1) (.6) (2.7) (2.1)
-------- -------- --------- ---------
Net earnings 47.0 42.3 120.7 112.8
Preferred stock dividends (.1) (.1) (.3) (.3)
-------- -------- --------- ---------
Available for common shareholders $ 46.9 $ 42.2 $ 120.4 $ 112.5
======== ======== ========= =========
Earnings per common share
Continuing operations $.62 $.55 $1.59 $1.48
Discontinued operations (.01) (.01) (.03) (.03)
------- -------- ------- -------
Net earnings $.61 $.54 $1.56 $1.45
======= ======== ======= =======
(See Notes to Condensed Consolidated Financial Statements on page 5.)
1
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions except share and per share amounts)
March 31, June 30,
1995 1994
- ----------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 87.4 $ 87.9
Trade receivables, less allowances of $13.4
at March 31 and $11.1 at June 30 410.0 343.6
Inventories 448.3 376.9
Deferred income taxes 75.7 77.6
Other current assets 56.4 46.0
--------- ---------
Total current assets 1,077.8 932.0
Investments and long-term receivables,
less allowances of $13.6 at March 31
and $13.1 at June 30 158.7 147.0
Property, plant and equipment 1,555.6 1,396.0
Accumulated depreciation (570.7) (532.8)
--------- ---------
Net property, plant and equipment 984.9 863.2
Intangible assets 523.7 489.3
Deferred income taxes 2.5 2.0
--------- ---------
Total assets $2,747.6 $2,433.5
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 225.3 $ 147.8
Accounts payable 160.4 139.4
Accrued liabilities 349.4 356.0
Income taxes payable 31.5 25.4
Deferred income taxes 2.1 2.1
--------- ---------
Total current liabilities 768.7 670.7
Long-term debt, less current maturities 591.5 522.0
Deferred income taxes 54.5 36.6
Accrued postretirement benefits 140.1 124.7
Other noncurrent liabilities and deferred credits 80.3 63.6
--------- ---------
Total liabilities 1,635.1 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 March 31 and June 30 87.1 87.1
Capital in excess of par value 269.0 268.2
Reinvested earnings 935.8 846.4
Marketable securities valuation allowance (2.2) (1.4)
Foreign currency translation (10.0) (32.8)
Treasury stock (178.2) (162.6)
--------- ---------
Total shareholders' equity 1,112.5 1,015.9
--------- ---------
Total liabilities and shareholders' equity $2,747.6 $2,433.5
========= =========
(See Notes to Condensed Consolidated Financial Statements on page 5.)
2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions) Nine months ended March 31, 1995 1994
- --------------------------------------------------------------------------------
CASH FLOW - OPERATING ACTIVITIES
Net earnings $ 120.7 $112.8
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 89.4 73.0
Postretirement benefits 8.7 5.3
Undistributed equity in earnings of
joint venture (11.9) (9.0)
Deferred income taxes 19.5 7.3
Gains on disposals of assets (.8)
Other, net (20.1) (9.0)
-------- -------
205.5 180.4
Changes in noncash operating working capital:
Accounts receivable (41.3) (12.3)
Inventories (33.1) (18.2)
Accounts payable, accrued
liabilities and income taxes, net (18.6) (37.5)
Other, net (4.3) 3.3
-------- -------
Net cash provided by operating activities 108.2 115.7
CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures (112.4) (122.0)
Acquisition spending (99.2) (94.6)
IFL dividend receivable 51.9
Proceeds from asset disposals 17.6 5.3
Short-term investments (1.7)
Other, net (5.5) 4.7
-------- -------
Net cash used by investing activities (199.5) (156.4)
CASH FLOWS - FINANCING ACTIVITIES
Increase (decrease) in short-term debt 55.0 (7.4)
Proceeds from long-term debt 93.0 198.2
Payments on long-term debt (15.3) (100.7)
Issuance of Mallinckrodt common stock 4.1 8.5
Acquisition of treasury stock (14.7)
Dividends paid (31.3) (28.0)
-------- -------
Net cash provided by financing activities 90.8 70.6
-------- -------
Increase (decrease) in cash and cash equivalents (.5) 29.9
Cash and cash equivalents at beginning of period 87.9 51.3
-------- -------
Cash and cash equivalents at end of period $ 87.4 $81.2
======== =======
(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)
1995 1994
--------- ---------
4 Percent cumulative preferred stock
Balance at June 30 and March 31 $ 11.0 $ 11.0
Common stock
Balance at June 30 and March 31 87.1 87.1
Capital in excess of par value
Balance at June 30 268.2 262.4
Stock options exercised .8 2.2
Restricted stock awards 1.7
--------- ---------
Balance at March 31 269.0 266.3
Reinvested earnings
Balance at June 30 846.4 780.3
Net earnings 120.7 112.8
Dividends
4 Percent cumulative preferred stock
($3.00 per share) (.3) (.3)
Common stock ($.405 per share in 1995
and $.36 per share in 1994) (31.0) (27.7)
--------- ---------
Balance at March 31 935.8 865.1
Marketable securities valuation allowance
Balance at June 30 (1.4) (2.2)
Valuation adjustment (.8) 2.2
--------- ---------
Balance at March 31 (2.2)
Foreign currency translation
Balance at June 30 (32.8) (56.4)
Translation adjustment 22.8 (2.7)
--------- ---------
Balance at March 31 (10.0) (59.1)
Treasury stock
Balance at June 30 (162.6) (171.7)
Purchase of common stock (14.7)
Stock options exercised 3.3 6.3
Restricted stock awards (4.2) 2.0
--------- ---------
Balance at March 31 (178.2) (163.4)
--------- ---------
Total shareholders' equity $1,112.5 $1,007.0
========= =========
(See Notes to Condensed Consolidated Financial Statements on page 5.)
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 nine months of 1994 included a favorable
adjustment of $3.0 million, or $.04 a share resulting from tax
law changes. The Company's effective tax rate for the first nine
months was 37.5 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
(77,389,344 and 77,614,829 for the nine months ended March 31,
1995 and 1994, and 77,276,374 and 77,890,468 for the quarters
ended March 31, 1995 and 1994, respectively).
3. The components of inventory include the following as of March 31,
1995:
(In millions)
Raw materials and supplies $113.4
Work in process 101.2
Finished goods 233.7
------
$448.3
======
4. As of March 31, 1995, 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:
March 31, June 30,
1995 1994
------------ ------------
Common stock 10,520,291 10,110,056
4 Percent cumulative preferred stock 1,670 1,670
5. At March 31, 1995, common shares reserved were:
Exercise of common stock purchase rights 87,730,876
Exercise of stock options and granting
of stock awards 11,134,878
------------
Total 98,865,754
============
6. Supplemental cash flow information for the nine months ended
March 31 included:
(In millions)
1995 1994
------ ------
Interest paid $34.7 $23.9
Income taxes paid $40.8 $29.0
Noncash investing and financing activities:
Assumption of liabilities related to acquisitions $ 1.8 $12.6
Issuance of common stock for restricted stock awards $ 3.7
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
General
- -------
Earnings from continuing operations for the third quarter ended March
31, 1995 were $48 million, or 62 cents per share. Excluding a
two-cent per share tax benefit in the third quarter of fiscal 1994,
this is a 17 percent increase over the comparable 53 cents per share
for the prior year. Net sales for the quarter were up 17 percent to
$569 million, compared to $487 million last year. Net earnings for
the third quarter were $47 million, or 61 cents per share, compared
with $42 million, or 54 cents per share, during the same period a year
ago.
For the nine months, earnings from continuing operations were $123
million, or $1.59 per share. Excluding tax benefits totaling 4 cents
per share from last year's first and third quarters, this is a 10
percent increase over the comparable $1.44 per share for the first
nine months of fiscal 1994. Net sales for the nine months were up 13
percent to $1.6 billion, compared to $1.4 billion last year. Net
earnings for the nine months were $121 million, or $1.56 per share,
compared with $113 million, or $1.45 per share, last year.
A comparison of sales and operating earnings follows:
(In millions)
Quarter Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
- ---------------------------------------------------------------------------
Sales
- -----
Mallinckrodt Chemical $159 $111 $ 392 $ 315
Mallinckrodt Medical 256 223 726 649
Mallinckrodt Veterinary 155 153 456 434
Intersegment sales (1) (1)
----- ----- ------- ------
$569 $487 $1,573 $1,398
===== ===== ======= ======
Operating earnings
- ------------------
Mallinckrodt Chemical $ 20 $ 18 $ 42 $ 37
Mallinckrodt Medical 58 47 160 141
Mallinckrodt Veterinary 16 15 41 42
Corporate (7) (8) (20) (21)
----- ----- ------- -------
$ 87 $ 72 $ 223 $ 199
===== ===== ======= =======
Business Segments
- -----------------
Registered trademarks are indicated by an asterisk.
MALLINCKRODT CHEMICAL
Net Sales
(In millions)
Quarter Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
- ---------------------------------------------------------------------------
Pharmaceutical Specialties $ 73 $ 59 $186 $170
Catalyst, Performance &
Lab Chemicals 86 52 206 145
---- ---- ---- ----
$159 $111 $392 $315
==== ==== ==== ====
Mallinckrodt Chemical achieved earnings of $26.6 million for the third
quarter and $58.6 million for the nine months ended March 31, 1995,
representing increases of 19 percent and 20 percent, respectively,
over the prior year. These results include the equity-investment
share of earnings from Tastemaker, the flavors joint venture, of $6.3
million and $16.5 million for the quarter and nine months,
respectively. Net sales increased 43 percent and 24 percent compared
to the corresponding prior year quarter and nine months, respectively.
Pharmaceutical specialties sales increased 22
6
percent for the quarter and 9 percent for the first nine months.
Continued strength in worldwide sales volume for medicinal narcotics
was the main contributor to the increases. Catalysts, performance and
lab chemicals sales improved 67 percent and 42 percent for the quarter
and nine months, respectively. Results benefited from the
acquisitions of J.T. Baker Inc. in 1995 and Catalyst Resources, Inc. in
1994, and the reclassification of a small specialty chemical business
to continuing operations.
MALLINCKRODT MEDICAL
Net Sales
(In millions)
Quarter Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
- --------------------------------------------------------------------------
Imaging $119 $105 $349 $308
Anesthesiology & Critical Care 82 72 228 206
Nuclear Medicine 55 46 149 135
---- ---- ---- ----
$256 $223 $726 $649
==== ==== ==== ====
Mallinckrodt Medical's operating earnings increased 22 percent for the
quarter, compared to last year, to $57.6 million and 13 percent for
the nine months to $159.9 million. Net sales improved 15 percent
and 12 percent for the same periods. Imaging sales for both the
quarter and nine months increased 13 percent, benefiting principally
from higher worldwide sales volume of the x-ray contrast medium
Optiray*. Anesthesiology and critical care sales were up 15 percent
and 11 percent for the quarter and nine months, respectively, boosted
by the 1994 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 17 percent for the quarter and 10 percent for the nine
months compared to last year. Higher U.S. sales reflected increased
TechneScan MAG3* volume and the introduction of OctreoScan*, while
Europe experienced broad based volume improvement.
MALLINCKRODT VETERINARY
Net Sales
(In millions)
Quarter Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
- ---------------------------------------------------------------------------
Pharmaceuticals $ 65 $ 62 $192 $179
Biologicals 28 27 74 69
Feed Ingredients 40 41 124 123
Veterinary Specialties & Other 22 23 66 63
---- ---- ---- ----
$155 $153 $456 $434
==== ==== ==== ====
Mallinckrodt Veterinary's third quarter operating earnings improved by
8 percent and net sales were up slightly compared to the same period
last year. Operating earnings for the nine months were flat, while
net sales were 5 percent higher. Currency favorably impacted
comparative results for both periods. Pharmaceutical sales increased
6 percent and 8 percent for the quarter and nine months, respectively,
compared to the same periods a year ago, from higher parasiticide and
antimicrobial sales volume. Biologicals sales improved 3 percent and
7 percent for the same periods, principally in Europe. Feed ingredients
sales decreased 3 percent for the quarter and were flat for the nine months.
Veterinary specialties sales decreased 4 percent for the quarter, but were 5
percent higher for the nine months. Results for the quarter were
adversely influenced by the exit of a non-strategic business.
7
Corporate Matters
- -----------------
Corporate expense decreased $.8 million and $.9 million
for the third quarter and nine months, respectively, compared to last
year. These favorable variances reflected last year's corporate
headquarters' reorganization. The Company's effective tax
rate for the first nine months was 37.5 percent, compared to last
year's 39.0 percent excluding the favorable adjustments 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 million.
Operations provided $108.2 million of cash, while acquisition and
capital spending totaled $211.6 million. The Company's current ratio
at March 31, 1995, was 1.4. Debt as a percentage of invested capital
was 42.3 percent.
As of March 31, 1995, 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 March 31, 1995, commercial
paper borrowings amounted to $257.7 million. There were no
outstanding borrowings under the the U.S. lines of credit at March 31,
1995. At March 31, 1995 non-U.S. lines of credit totaling $277.2
million were also available and borrowings under these lines amounted
to $49.8 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 matter involving a former drum recycling
facility in Auburn Hills, Michigan, the State of Michigan has made its
Remedial Investigation and Feasibility Study for the site available
for public comment. The remedy for the site will not become final
until the comment period ends. It remains impossible to estimate the
cleanup costs for this site.
The previously reported matter involving claims asserted by the
Whitehall Township Authority ("WTA") against Trimet Technical
Products, Inc., a subsidiary of the Company, has been settled. Trimet
has agreed to make total settlement payments to WTA of approximately
$676,500. Trimet also remains responsible for a groundwater
remediation project at the site. The Company does not believe that
future remediation costs will have a material adverse effect on its
financial condition or the results of the Company's operations. 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 Reports on Form
10-Q for the periods ended September 30, 1994 and December 31, 1994.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
8
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
4.1 Indenture dated as of March 15, 1985 as amended and restated
as of February 15, 1995 between Mallinckrodt and First Trust of
New York, National Association. Incorporated herein by reference to
Exhibit 4.1 to Form S-3 Registration Statement No. 33-57821.
10.1 Credit Agreement dated March 16, 1995 between Coopers Animal
Health Inc. with Mallinckrodt as Guarantor and Morgan Guaranty Trust
Company of New York, as Agent ($100 million facility).
11.1 Primary earnings per share computation for the nine months
ended March 31, 1995 and 1994.
11.2 Fully diluted earnings per share computation for the nine
months ended March 31, 1995 and 1994.
11.3 Primary earnings per share computation for the quarters
ended March 31, 1995 and 1994.
11.4 Fully diluted earnings per share computation for the
quarters ended March 31, 1995 and 1994.
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 January 4, 1995, under Item 5 regarding the
purchase by Mallinckrodt Chemical of J.T. Baker Inc.
- Report dated March 1, 1995, under Item 5 regarding the
completion of the purchase by Mallinckrodt Chemical of
J.T. Baker Inc.
* * * * * * * * * * * * * * * *
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 Controller
Chief Financial Officer
Date: May 11, 1995
10