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 September 30, 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.
76,529,742 shares excluding 10,586,547 treasury shares as of September
30, 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 1995 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)
Three Months Ended
September 30,
-------------------
1995 1994
------- -------
Net sales $492.1 $448.6
Operating costs and expenses:
Cost of goods sold 268.3 248.3
Selling, administrative and general expenses 138.9 123.7
Research and development expenses 24.1 23.2
Other operating income, net (3.2) (2.1)
------- -------
Total operating costs and expenses 428.1 393.1
------- -------
Operating earnings 64.0 55.5
Equity in pre-tax earnings of joint venture 7.3 6.1
Interest and other nonoperating expense, net (.4) (.3)
Interest expense (13.8) (12.0)
------- -------
Earnings from continuing operations before
income taxes 57.1 49.3
Income tax provision 21.4 18.8
------- -------
Earnings from continuing operations 35.7 30.5
Discontinued operations, net of income taxes
of $2.1 million in each year 3.5 3.4
------- -------
Net earnings 39.2 33.9
Preferred stock dividends (.1) (.1)
------- -------
Available for common shareholders $ 39.1 $ 33.8
======= =======
Earnings per common share
Continuing operations $.46 $.40
Discontinued operations .04 .04
----- -----
Net earnings $.50 $.44
===== =====
(See Notes to Condensed Consolidated Financial Statements on page 5.)
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions except share and per share amounts)
September 30, June 30,
1995 1995
------------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 88.2 $ 60.6
Trade receivables, less allowances
of $15.2 at September 30 and
$13.5 at June 30 368.2 398.3
Inventories 446.0 412.9
Net current assets of discontinued
operations 22.9 9.8
Deferred income taxes 53.6 53.1
Other current assets 59.3 56.7
--------- ---------
Total current assets 1,038.2 991.4
Investments and long-term receivables,
less allowances of $15.4 at
September 30 and $17.0 at June 30 179.0 165.5
Property, plant and equipment, net 987.7 978.2
Intangible assets 532.8 527.6
Net noncurrent assets of discontinued
operations 25.8 24.6
Deferred income taxes .8 .7
--------- ---------
Total assets $2,764.3 $2,688.0
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 273.8 $ 197.5
Accounts payable 146.2 181.8
Accrued liabilities 319.8 332.7
Income taxes payable 43.8 4.8
Deferred income taxes 1.9 2.7
--------- ---------
Total current liabilities 785.5 719.5
Long-term debt, less current maturities 498.5 501.5
Deferred income taxes 72.9 76.8
Postretirement benefits 144.9 142.7
Other noncurrent liabilities and
deferred credits 79.0 76.0
--------- ---------
Total liabilities 1,580.8 1,516.5
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 September 30 and June 30 87.1 87.1
Capital in excess of par value 276.9 274.1
Reinvested earnings 1,012.8 984.5
Foreign currency translation (13.7) (9.3)
Treasury stock, at cost (190.6) (175.9)
--------- ---------
Total shareholders' equity 1,183.5 1,171.5
--------- ---------
Total liabilities and
shareholders' equity $2,764.3 $2,688.0
========= =========
(See Notes to Condensed Consolidated Financial Statements on page 5.)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
Three Months Ended
September 30,
------------------
1995 1994
------ ------
CASH FLOW - OPERATING ACTIVITIES
Net earnings $ 39.2 $ 33.9
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 34.4 35.5
Postretirement benefits 2.2 2.8
Undistributed equity in earnings of
joint venture (5.6) (4.4)
Deferred income taxes (4.6) (.3)
Gains on disposals of assets (.4) (1.1)
Other, net (9.1) (10.6)
------- -------
56.1 55.8
Changes in noncash operating
working capital:
Accounts receivable 23.9 (3.8)
Inventories (38.3) .7
Accounts payable, accrued
liabilities and income taxes, net (5.2) (15.0)
Discontinued operations, net (13.1) .6
Other, net (.8) (3.0)
------- -------
Net cash provided by operating activities 22.6 35.3
CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures (36.8) (48.2)
Acquisition spending (2.1) (3.4)
Proceeds from asset disposals .6 5.6
Other, net (7.9) 4.1
------- -------
Net cash used by investing activities (46.2) (41.9)
CASH FLOWS - FINANCING ACTIVITIES
Increase (decrease) in short-term debt 76.7 6.8
Proceeds from long-term debt 98.8 .5
Payments on long-term debt (101.5) (2.8)
Issuance of Mallinckrodt common stock 8.1 .9
Acquisition of treasury stock (20.0)
Dividends paid (10.9) (9.7)
------- -------
Net cash used by financing activities 51.2 (4.3)
------- -------
Increase (decrease) in cash and cash
equivalents 27.6 (10.9)
Cash and cash equivalents at beginning
of period 60.6 86.2
------- -------
Cash and cash equivalents at end of
period $ 88.2 $ 75.3
======= =======
(See Notes to Condensed Consolidated Financial Statements on page 5.)
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 September 30 $ 11.0 $ 11.0
Common stock
Balance at June 30 and September 30 87.1 87.1
Capital in excess of par value
Balance at June 30 274.1 268.2
Stock options exercised 2.8 .3
--------- ---------
Balance at September 30 276.9 268.5
Reinvested earnings
Balance at June 30 984.5 846.4
Net earnings 39.2 33.9
Dividends
4 Percent cumulative preferred stock
($1.00 per share) (.1) (.1)
Common stock ($.14 per share in 1995
and $.125 per share in 1994) (10.8) (9.6)
--------- ---------
Balance at September 30 1,012.8 870.6
Foreign currency translation
Balance at June 30 (9.3) (34.2)
Translation adjustment (4.4) 15.3
--------- ---------
Balance at September 30 (13.7) (18.9)
Treasury stock
Balance at June 30 (175.9) (162.6)
Purchase of common stock (20.0)
Stock options exercised 5.3 .6
Restricted stock awards (4.1)
--------- ---------
Balance at September 30 (190.6) (166.1)
--------- ---------
Total shareholders' equity $1,183.5 $1,052.2
========= =========
(See Notes to Condensed Consolidated Financial Statements on page 5.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Effective October 16, 1995, the Company's Veterinary subsidiary
completed the sale of its animal feed ingredients business unit.
Gross proceeds from the sale were $110 million. Results for the
feed ingredients business have been accounted for as a
discontinued
operation and, accordingly, prior year results have been
restated. Feed ingredients net sales were $37.2 million and
$39.1 million and operating earnings were $7.0 million and $6.7
million for the quarters ended September 30, 1995 and 1994,
respectively. Net assets for the feed ingredients
business have been segregated into their current and noncurrent
components in the balance sheets presented. The Company
anticipates realizing a gain on this transaction, net of costs
associated with disposal, but cannot yet quantify the amount.
2. Provisions for income taxes were based on estimated annual
effective tax rates for each fiscal year.
3. Earnings per common share were based on the weighted average
number of common and common equivalent shares outstanding
(77,924,740 and 77,556,978 for the three months ended September
30, 1995 and 1994, respectively).
4. The components of inventory include the following as of September
30, 1995:
(In millions)
Raw materials and supplies $ 133.6
Work in process 106.5
Finished goods 205.9
-------
$ 446.0
=======
5. As of September 30, 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:
September 30, June 30,
1995 1995
------------- ----------
Common stock 10,586,547 10,365,203
4 Percent cumulative preferred stock 1,670 1,670
6. At September 30, 1995, common shares reserved were:
Exercise of common stock purchase rights 87,187,574
Exercise of stock options and granting
of stock awards 10,657,832
----------
Total 97,845,406
==========
7. Supplemental cash flow information for the three months ended
September 30 included:
(In millions)
1995 1994
------ ------
Interest paid $10.6 $11.5
Income taxes paid $ 4.9 $11.4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
General
- -------
Earnings from continuing operations for the first quarter ended
September 30, 1995 were $36 million, or 46 cents per share. This
represents a 15 percent increase in per-share earnings from continuing
operations compared with $31 million, or 40 cents per share, during
the same period a year ago. Net sales for the quarter were up 10
percent to $492 million, compared to $449 million a year earlier. Net
earnings for the first quarter were $39 million, or 50 cents per
share, compared with $34 million, or 44 cents per share, during the
same period a year ago. Both fiscal 1996 and fiscal 1995 first
quarter results reflect reporting of the animal feed ingredients
business as a discontinued operation, fiscal 1995 having been
restated.
A comparison of sales and operating earnings follows:
(In millions)
Three Months Ended
September 30,
------------------
1995 1994
------ ------
Sales
- -----
Mallinckrodt Chemical $ 153 $ 111
Mallinckrodt Medical 238 230
Mallinckrodt Veterinary 101 108
------ ------
$ 492 $ 449
====== ======
Operating earnings
- ------------------
Mallinckrodt Chemical $ 8 $ 7
Mallinckrodt Medical 58 51
Mallinckrodt Veterinary 5 4
Corporate (7) (6)
------ ------
$ 64 $ 56
====== ======
Business Segments
- -----------------
MALLINCKRODT CHEMICAL
Net Sales Three Months Ended
(In millions) September 30,
------------------
1995 1994
------ ------
Catalyst, Performance & Lab Chemicals $ 96 $ 55
Pharmaceutical Specialties 57 56
------ ------
$ 153 $ 111
====== ======
Mallinckrodt Chemical, including its $7.3 million equity-investment
share of earnings from the flavors joint venture, Tastemaker, achieved
earnings of $15.5 million for the first quarter, up 22 percent over
the prior year's $12.7 million. Net sales increased 38 percent
compared to the corresponding prior year quarter. Catalyst,
performance and lab chemicals sales increased 75 percent for the
quarter. Results benefited from the acquisition of J.T. Baker
Inc. and the reclassification of a small specialty chemical business
to continuing operations, both occurring in 1995. Pharmaceutical
specialties sales improved by 2 percent for the quarter. Continued
strength in worldwide sales volume for medicinal narcotics was the
main
contributor to the increase.
MALLINCKRODT MEDICAL
Net Sales Three Months Ended
(In millions) September 30,
------------------
1995 1994
------ ------
Imaging $ 161 $ 160
Anesthesiology & Critical Care 77 70
------ ------
$ 238 $ 230
====== ======
Mallinckrodt Medical's operating earnings for the quarter increased
to $57.8 million, up 14 percent compared to the first quarter,
of last year. Net sales for the first quarter improved 4 percent
over the prior year first quarter. Imaging sales for the quarter were
1 percent higher than the corresponding prior year quarter. Improved
nuclear medicine sales volumes were partially offset by lower growth
in X-ray contrast media sales, principally from timing of orders and
distributor inventory adjustments. Anesthesiology and critical care
sales were up 10 percent largely from improved sales volumes of
respiratory therapy products.
MALLINCKRODT VETERINARY
Net Sales Three Months Ended
(In millions) September 30,
------------------
1995 1994
------ ------
Animal Health $ 101 $ 108
====== ======
Mallinckrodt Veterinary's first quarter operating earnings were $5.0
million, up 19 percent compared to the same period last year,
excluding feed ingredients for both current and prior year. Net sales
on the same basis decreased 7 percent compared to the corresponding
prior year quarter. Lower first quarter sales resulted from the exit
of certain Latin American distributorships last fiscal year and lower
animal productivity sales attributable to weather conditions in North
America. Lower operating expenses contributed to the improvement in
operating earniangs.
Corporate Matters
- -----------------
Corporate expense increased $.7 million for the first quarter compared
to last year. The Company's effective tax rate for the first three
months was 37.5 percent, compared to last year's 38.0 percent. This
decrease reflects an earnings mix toward lower statutory tax rate
jurisdictions and the utilization of certain operating 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, 1995, cash and cash equivalents increased $28 million.
Operations provided $113 million of cash, while acquisition and
capital spending totaled $39 million. The Company's current ratio at
September 30, 1995, was 1.3:1. Debt as a percentage of invested
capital was 39 percent.
The Company's Board of Directors previously authorized repurchase of a
total of 42 million shares of its common stock. Thirty million shares
have been repurchased under this authorization, .5 million during the
quarter ended September 30, 1995.
On April 8, 1992, a shelf registration statement was filed with the
Securities and Exchange Commission (SEC) for $250 million of debt
securities. As of September 30, 1995, $50 million of securities under
the shelf remain unissued. On February 15, 1995, a shelf registration
statement was filed with the SEC for $250 million of debt securities.
On September 15, 1995, the Company issued $100 million of 6.75% notes
due September 15, 2005, from this shelf registration. As of September
30, 1995, $150 million of securities under the shelf remain unissued.
The Company has a $450 million private-placement commercial paper
program. This program is backed by $650 million of U.S. lines of
credit, $100 million available until March 1996 and $550 million
available until November 1999. At September 30, 1995, commercial
paper borrowings and borrowings under the U.S. credit lines amounted
to $216 million and $90 million, respectively. At September 30, 1995,
non-U.S. lines of credit totaling $280 million were also available and
borrowings under these lines amounted to $38 million. The non-
U.S. lines are cancelable at any time.
Estimated capital spending for the year ending June 30, 1996, is
approximately $200 million.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Pierce County, WA -- In 1995, Centrum Properties Corporation filed an
action against the Company and Olin Corporation concerning property
that was owned by Olin between 1935 and 1963 and by the Company
between 1963 and 1976. The suit alleges that the property's
groundwater is contaminated with carbon tetrachloride, and that this
contamination was caused by releases from the explosives manufacturing
facility operated on the property first by Olin and then by the
Company. Centrum is currently conducting a remedial investigation
and feasibility study of the contamination pursuant to an Agreed Order
with the Washington Department of Ecology. In the suit, Centrum seeks
to recover its past clean-up costs as well as all future costs
associated with remediating the carbon tetrachloride. Centrum, Olin
and Mallinckrodt are currently discussing possible ways of resolving
the dispute and allocating the clean-up costs. Given the
uncertainties associated with these discussions, as well as the fact
that the remedial investigation and feasibility study has not yet been
completed, it is not possible to estimate at this time the Company's
potential liability.
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, 1995.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSIION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Shareholders was held October 18, 1995 in
St. Louis, Missouri.
(b) The following directors were elected at the Annual Meeting of
Shareholders:
Term expiring in 1998..................William L. Davis, III
Term expiring in 1998..................Roberta S. Karmel
Term expiring in 1998..................Brian M. Rushton, Ph.D.
Term expiring in 1998..................Daniel R. Toll
Term expiring in 1997..................Anthony Viscusi
The following directors continue in office:
Raymond F. Bentele
Dr. Ronald G. Evens
Alec Flamm
C. Ray Holman
Claudine B. Malone
Morton Moskin
Herve M. Pinet
(c) Other matters voted upon at the Annual Meeting of Shareholders
were:
1. Approval of Appointment of Independent Auditors.
The appointment of Ernst & Young LLP, as independent
auditors of the Registrant for the fiscal year ending June
30, 1996, was ratified by the affirmative vote of an
aggregate of 65,932,668 shares of common and 4 percent
cumulative preferred stock. A total of 92,330 shares of
common and 4 percent cumulative preferred stock was voted
against the appointment. Holders of 77,545 shares of common
and 4 percent cumulative preferred stock abstained from
voting.
ITEM 5. OTHER INFORMTION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
11.1 Primary earnings per share computation for the three
months ended September 30, 1995 and 1994.
11.2 Fully diluted earnings per share computation for the three
months ended September 30, 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 September 8, 1995, under Item 5 regarding the
MD&A and Financial Statements for the year ended June 30,
1995.
- Report dated September 14, 1995, under Item 5 regarding
plans to repurchase up to $250 million of company stock
over the next five years.
- Report dated October 17, 1995, under Item 5 regarding the
completion of the sale of the feed ingredients business,
increased quarterly dividend and plans for increased share
repurchases.
* * * * * * * * * * * * * *
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 Vice President and
and Chief Financial Officer Controller
Date: November 3, 1995