_______________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______ to __________________
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
________________
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
--------------------- -----------------------
4% Cumulative Preferred Stock,
par value $100 per share New York Stock Exchange
Common Stock, par value $1 per share New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
9 7/8% Sinking Fund Debentures
due March 15, 2011 New York Stock Exchange
6% Notes due October 15, 2003 New York Stock Exchange
7% Debentures due December 15, 2013 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
________________
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 .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
________________
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: $2,485,655,461 as of August 31, 1994. Market value is based on
the August 31, 1994, closing prices of Registrant's Common Stock and 4%
Cumulative Preferred Stock.
APPLICABLE ONLY TO CORPORATE REGISTRANTS: Indicate the number of shares
outstanding of each of the registrant's classes of common stock: 76,896,603
shares as of August 31, 1994.
DOCUMENTS INCORPORATED BY REFERENCE: Information required by Items 10, 11, 12,
and 13 of Part III is incorporated by reference from pages 3 through 14, pages
21 through 35, pages 11 and 12, and pages 9 through 11 and pages 13 and 14,
respectively, of the Registrant's definitive proxy statement for the annual
meeting of stockholders to be held on October 19, 1994.
____________________________________________________________________
1994 FORM 10-K CONTENTS
Item Page
______________________________________________________________________________
Part I:
1. Business. 1
Introduction 1
General Factors Related To Business Segments 3
International Operations 3
Mallinckrodt Chemical 4
Mallinckrodt Medical 7
Mallinckrodt Veterinary 13
Other Activities 16
2. Properties. 19
3. Legal Proceedings. 20
4. Submission of Matters to a Vote of Security Holders. 22
Executive Officers of the Registrant 23
Part II:
5. Market for the Registrant's Common Stock and Related
Stockholder Matters. 25
6. Selected Financial Data. 26
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 27
8. Financial Statements and Supplementary Data. 33
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. 51
Part III:
10. Directors and Executive Officers of the Registrant. 51
11. Executive Compensation. 51
12. Security Ownership of Certain Beneficial Owners and Management. 51
13. Certain Relationships and Related Transactions. 51
Part IV:
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 52
Signatures 66
_______________________________________________________________________________
PART I.
ITEM 1. BUSINESS
INTRODUCTION
COMPANY PROFILE
Mallinckrodt Group Inc. (Mallinckrodt, the Company, or the Corporation) provides
human and animal health care products and specialty chemicals worldwide by means
of its three technology-based operating subsidiaries: Mallinckrodt Chemical,
Mallinckrodt Medical and Mallinckrodt Veterinary.
The Company was incorporated in New York in 1909 under the name International
Agricultural Corporation. The corporate headquarters is located at 7733
Forsyth Boulevard, St. Louis, Missouri 63105-1820, and the telephone number is
(314) 854-5200.
TRANSITION OF THE COMPANY
During the past several years, the Company has taken significant steps to
develop its current composition of businesses as follows:
- In February 1986, the Company, then called International Minerals &
Chemical Corporation, purchased Mallinckrodt, Inc. for $675 million
in cash.
- In October 1986, the Company sold its gas and oil segment and its
industrial products segment for $162 million.
- From March 1987 through July 1989, the Company expanded its animal
health business by acquiring Pitman-Moore, Inc., Coopers Animal
Health and the animal health business of Glaxo Holdings for an
aggregate $266 million in cash plus the assumption of certain
liabilities.
- In February 1988, IMC Fertilizer Group, Inc. (IFL), then a wholly
owned subsidiary, completed an initial public offering (IPO) of shares
of common stock. Until March of 1991, the Company owned 10 million
shares of IFL common stock, less than a majority voting interest in
IFL, and accounted for its investment in IFL by the equity method. In
September 1988, the Company's holdings of IFL's Preferred Stock,
Series A, were redeemed by IFL for $200 million.
- In June 1990, shareholders approved changing the Company's name from
International Minerals & Chemical Corporation to IMCERA Group Inc.
1
- In March 1991, the Company entered into a sale and option agreement
with IFL under which IFL purchased, in three stages, all 10 million
shares of IFL common stock which the Company owned for total net
proceeds of $385 million. As of July 1991, the Company no longer
owned any IFL shares.
- In January 1992, Mallinckrodt, Inc., a wholly owned subsidiary of
IMCERA Group, Inc., divided its principal operations to form two
separate subsidiaries, Mallinckrodt Medical, Inc. and Mallinckrodt
Specialty Chemicals Company.
- In June 1993, the Company announced the details of a restructuring
program which resulted in a charge of $242 million after taxes, most
of which was for actions taken at Mallinckrodt Veterinary (then
called Pitman-Moore). Further discussion is included in the
Mallinckrodt Chemical and Mallinckrodt Veterinary business segment
discussions and Note 1 of Notes to Consolidated Financial Statements
(Notes).
- On March 15, 1994, shareholders approved changing the Company's name
from IMCERA Group Inc. to Mallinckrodt Group Inc. Simultaneous with
the corporate name change, Mallinckrodt Specialty Chemicals changed
its name to Mallinckrodt Chemical, Inc. and Pitman-Moore changed its
name to Mallinckrodt Veterinary, Inc.
- In March 1994, the Company moved its headquarters from Northbrook,
Illinois to St. Louis, Missouri.
- In June 1994, the Company announced the details of a restructuring
program which resulted in a charge of $59 million after taxes, most of
which relates to Mallinckrodt Medical. Further discussion is included
in the Mallinckrodt Medical and Mallinckrodt Veterinary business
segment discussions and Note 1 of the Notes.
Other recent acquisitions, divestitures and continuing investments in each of
Mallinckrodt's businesses are described in the discussions of the business
segments, Management's Discussion and Analysis of Financial Condition and
Results of Operations in Item 7, and Note 1 of the Notes.
GENERAL POINTS
In this report:
Mallinckrodt Group Inc. and its subsidiaries, collectively, are called the
"Company," the "Corporation," or "Mallinckrodt," unless otherwise indicated by
the context. The Company has three business segments: Mallinckrodt Chemical,
Mallinckrodt Medical and Mallinckrodt Veterinary.
2
The term "operating earnings" of a business segment represents that business
segment's revenues, including sales to other Mallinckrodt business segments,
less all operating expenses. Operating expenses of a business segment do not
include interest expense, corporate income or expense, and taxes on income.
All references to years are to fiscal years ended June 30 unless otherwise
stated.
Registered trademarks are indicated by an asterisk(*).
GENERAL FACTORS RELATED TO BUSINESS SEGMENTS
For a number of months, there have been extended discussions regarding the
enactment of federal legislation directed towards what is commonly referred to
as "health care reform." Numerous health care reform proposals have been
introduced in the U.S. Congress, and various states have also introduced or
enacted such reform measures. Mallinckrodt is unable to predict what effect
any such legislation, if enacted, might have on its businesses.
None of Mallinckrodt's business segments is dependent upon any single customer
or supplier or group of related or affiliated customers or suppliers whose loss
would have a material effect on its sales and operating results.
In general, Mallinckrodt's business segments, including related working capital
requirements, are not materially affected by seasonal factors.
Mallinckrodt's business segments do not extend long-term credit to customers.
The Company believes this non-extension of credit as well as its working capital
requirements are not materially different from the credit policies and working
capital requirements of its competitors.
Competition with foreign and domestic manufacturers and suppliers in
Mallinckrodt's business segments involves price, service, quality and the
development of technology. Competition is strong in all markets served.
Financial information about industry segments is included in Note 17 of the
Notes. Financial information about foreign and domestic operations and export
sales is included in Note 16 of the Notes.
INTERNATIONAL OPERATIONS
Foreign operations and investments are subject to risks customarily encountered
in such operations and investments. Risks include fluctuations in currency
exchange rates and controls, expropriation, and other economic, political, and
regulatory policies of local governments, as well as laws and policies of the
United States affecting foreign trade and investment.
3
Mallinckrodt sales outside the U.S. represented about 35 percent of consolidated
net sales in 1994, 1993 and 1992. Products are manufactured and marketed
through a variety of subsidiaries, affiliates and joint ventures around the
world. See discussions of individual business segments included below; under
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations on pages 27-32; and in Note 17 of the Notes for additional
information.
MALLINCKRODT CHEMICAL
Mallinckrodt Chemical sales were:
(in millions) Years ended June 30, 1994 1993 1992(1)
- --------------------------------------------------------------------
Net sales
Ongoing operations
Pharmaceutical Specialties $ 225 $ 212 $ 183
Catalysts, Performance &
Lab Chemicals 212 183 185
----- ----- -----
437 395 368
Divested operations
and flavors business(2) 73
- ---------------------------------- ----- ----- -----
$ 437 $ 395 $ 441
----- ----- -----
----- ----- -----
<FN>
(1) Restated to reflect Chemical's reorganization effective July 1, 1992.
(2) Includes sales of the divested cosmetic and electronic chemicals businesses
and pre-joint venture sales of the flavors business.
Mallinckrodt Chemical, Inc. and its subsidiaries, collectively are called
"Chemical," unless otherwise indicated by the context.
Chemical's products are sold to a variety of markets. These products possess a
higher degree of technology and service than is characteristic of commodity
chemicals. Generally, Chemical's products are sold as chemical intermediates
which are used by customers worldwide as components, ingredients or reagents,
rather than as final consumer products. Many of Chemical's products are
processed in multi-purpose manufacturing facilities. These products are also
often subject to government regulation and industry standards, including
FDA-mandated "Good Manufacturing Practice."
Chemical's products include drug chemicals, peptides, high-purity performance
chemicals, catalysts and laboratory chemicals. Through its 50 percent interest
in the Tastemaker joint venture, Chemical also participates in the flavors
business.
4
PHARMACEUTICAL SPECIALTIES
Pharmaceutical specialties products include analgesics such as acetaminophen
(APAP) used to control pain and fever; codeine salts and other opium-based
narcotics and synthetic narcotics used to treat pain and cough; and peptides
which are used in many new pharmaceuticals. Other pharmaceutical specialties
products include narcotic/APAP combination products; Toleron* brand of ferrous
fumarate which stimulates the formation of red blood cells; various salts and
excipients; and Methodose* which is used for opiate addiction therapy and
analgesia.
Most pharmaceutical specialties products are sold to the pharmaceutical industry
for use in the manufacture of dosage-form drugs. Narcotic prescription
chemicals are also sold directly to drug wholesalers while opiate addiction
products are primarily sold to government clinics. All pharmaceutical
specialties are marketed by a direct sales force.
In 1992, Chemical began manufacturing peptides at its St. Louis facility, and
has performed appropriate facility construction and modification there in both
1994 and 1993. Peptides are also manufactured in Torrance, California.
In 1992, a $16 million project was begun to expand APAP manufacturing and
waste-treatment capacity at the Raleigh, North Carolina, facility. When
complete early in 1995, APAP capacity is expected to increase 25 percent
while lowering unit cost. The Derbyshire, England para-aminophenol (PAP,
a precursor of APAP) manufacturing plant is running at double its former
capacity following an expansion there in 1992. In 1993, Chemical acquired
Contech Laboratories, a facility located in Greenville, Illinois which had
performed certain processing steps relating to the manufacture of Compap*
and other products. Chemical has expanded these facilities to manufacture
and process additional products and forms. In 1992, work also began on an
approximately $9 million project to expand and upgrade the narcotics facility
in St. Louis, Missouri, which is expected to be completed early in 1995.
CATALYSTS, PERFORMANCE & LAB CHEMICALS
Catalysts, produced in Erie, Pennsylvania, are sold to the petrochemical and
food industries. They include such products as platinum and palladium on carbon
or alumina substrates; copper chromite; tableted, flaked and droplet shapes of
nickel catalysts; and a variety of custom catalysts. Such catalysts are used to
manufacture plasticizers, detergents, rubber products, insecticides, synthetic
motor oil and edible fats and oils. Catalysts are marketed directly by
Chemical under the registered trademark Calsicat.
In 1994, Chemical acquired Catalyst Resources, Inc., a manufacturer of
polymerization catalysts based in Pasadena, Texas. Catalyst Resources produces
custom and proprietary catalysts for manufacturers of
5
polypropylene and polyethylene. Catalyst Resource products are marketed by a
direct sales force, with a large percentage of sales to international customers.
High-purity performance chemicals sold to industrial consumers include such
products as calcium stearates and other metal soaps for use as internal
lubricants to facilitate the manufacture of molded and extruded plastics;
high performance monomers and several plastic additives and customized additive
blends for use as processing aids in the production of polymers; and potassium
chloride for use as a "salt substitute" in low-sodium diets. Chemical sells
these products through distributors and its sales force.
Laboratory chemical products include high-purity reagent chemicals used in
research and development and analytical laboratories. These high-purity
products consist of hundreds of reagent chemicals sold through distributors and
a direct sales force to medical, industrial, educational and governmental
laboratories. Laboratory chemicals are manufactured in Paris, Kentucky.
JOINT VENTURE
In February 1992, a 50/50 joint venture partnership was formed with Hercules
Incorporated to manufacture and market flavor products. The venture, named
Tastemaker, was created by combining Chemical's Fries & Fries flavors
business with Hercules' PFW Flavors and Citrus Specialties businesses.
Tastemaker is headquartered in Cincinnati, Ohio, and has a major presence in the
world's three largest flavors markets -- Europe, North America and Asia/Pacific.
It manufactures products for use in convenience foods and beverages; dry and
liquid beverage mixes; cordials, cocktails and wines; ice cream, cheese and
other dairy products; cake and cookie mixes, snacks and other bakery products;
main meals and entrees; and pharmaceutical products. Production and distribution
of these products are subject to regulation by various country agencies.
Tastemaker manufacturing facilities are located in Barneveld, Netherlands;
Cincinnati, Ohio; Mexico City, Mexico; Milton Keynes, United Kingdom; Sydney,
Australia; and Lakeland, Florida. Distribution is primarily through direct
sales forces and distributors.
OTHER
During the last three years, Chemical has made several major changes in its
business in addition to the changes discussed above. It combined its science
products and performance chemicals businesses and consolidated its European
operations under its Catalysts, Performance and Lab Chemicals Group as part of
a 1992 reorganization. In 1992, Chemical divested its cosmetic and electronic
chemicals businesses and
6
exited a general-line chemical business. In 1993, the European operations were
realigned between the Pharmaceutical Specialties and Catalysts, Performance and
Lab Chemicals Groups along product lines.
The restructuring program begun in 1993 is producing anticipated results with
the exit of the aromatic flourial intermediates business substantially competed
in 1994 and the exit of the photochemicals business expected to be substantially
completed in 1995. In the interim, the company continues to operate its
Dieburg, Germany photochemical manufacturing facility.
MALLINCKRODT MEDICAL
Mallinckrodt Medical sales were:
(in millions) Years ended June 30, 1994 1993 1992
- ------------------------------------------------------------------------
Net sales
Radiology & Cardiology $ 436 $ 382 $ 294
Nuclear Medicine 186 182 160
Anesthesiology & Critical Care 290 219 166
- -------------------------------- ----- ----- -----
$ 912 $ 783 $ 620
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Mallinckrodt Medical, Inc. and its subsidiaries, collectively are called
"Medical," unless otherwise indicated by the context.
Medical products are instrumental in the delivery of health care services and
are sold to hospitals, clinical laboratories and other customers on a worldwide
basis. They are related by a high degree of innovation and technology, by
regulation from agencies such as the U.S. Food and Drug Administration (FDA)
and by markets served. They are significantly affected by conditions within
the health care industry, including continuing legislative initiatives and
public and private health care insurance and reimbursement programs. An aging
population and demand for technologically superior products to improve the
quality of life and lower the cost of care are two major factors fueling
growth within the industry.
Medical provides advanced, innovative products for radiology, cardiology,
nuclear medicine, anesthesiology and critical care. Principal products of this
industry segment are contrast media for various imaging modalities,
radiopharmaceuticals for medical diagnostic procedures, and disposable medical
devices and instruments and systems for use in surgical procedures, critical
care and alternate site facilities.
During 1994, Medical conducted studies to develop strategies to effectively
respond to customer needs and compete in a market that is
7
changing rapidly as the result of health care reform. As a result of these
efforts, in the fourth quarter Medical announced a pre-tax charge of $74
million related to the reengineering process.
The key components of the charge include the reorganization of the current
medical specialty oriented U.S. sales structure into a unified sales
organization divided into geographical districts; reorganization to reduce,
centralize and standardize certain non-sales related functions and management
processes; relocation of the Argyle, New York tracheal tube manufacturing
operations to existing plants in Athlone, Ireland and Irvine, California, and a
new facility to be built in Juarez, Mexico; and severance costs related to an
associated work-force reduction.
The process of restructuring the U.S. sales force addresses new alliances being
created on a market-by-market basis and the changing dynamics of existing
customers' decision-making processes. Medical has begun the process of
consolidating its five divisional sales units into one team that reports through
a senior vice president to the chief executive officer, thereby increasing
responsiveness by reducing levels of authority. The consolidation also creates
12 geographic regions to improve planning and strategy development on a local
basis. And while it will continue to emphasize contact with the clinical
community within its customer base, the new sales structure will create a single
point of contact with each purchasing entity, providing quicker, more efficient
and effective customer service.
Pre-tax cash expenditures for this restructuring should approximate $65 million,
consisting of $28 million for severance costs for about 500 people at various
locations around the world, $15 million for consulting, $13 million for
manufacturing rationalization and $9 million for other items. Approximately $50
million of the expenditures will occur in 1995. The non-cash pre-tax portion of
the charge should approximate $9 million, primarily relating to manufacturing
rationalization. An additional $34 million of capital spending will be incurred
relating to information systems and manufacturing rationalization. The majority
of actions under this program are expected to be completed in one year. Annual
pre-tax savings from the restructuring will be approximately $40 million, with
partial benefit in 1995 and most of the savings achieved in 1996.
The restructuring should allow Medical to remain flexible to address future
change, reduce costs, remain competitive and sustain a strong market presence.
8
RADIOLOGY & CARDIOLOGY
Radiology products include iodinated contrast media (ionic and nonionic) and
catheters for use in studies of the brain, abdominal organs, renal system,
peripheral vascular system and other areas of the body to aid in diagnosis and
therapy. In 1994, these products were marketed principally by a divisional
direct sales force, which will be consolidated within the geographically
organized sales force pursuant to Medical's restructuring. Since its
introduction in the U.S. five years ago, Optiray*, a low osmolar, nonionic
medium, has been widely accepted in both radiology and cardiology indications.
Optiray* began to be introduced outside the U.S. in 1991. To source growing
Optiray* volumes in the international market, the company opened a new
production facility in Dublin, Ireland during the year, for the manufacture of
Optiray* in its bulk drug form. In addition, a capacity expansion at
Medical's existing plant in St. Louis, Missouri has been completed. In June
1990, Medical introduced Ultraject*, a patented innovation in
contrast media agent administration. This prefilled syringe provides
radiologists a more efficient, convenient and safer method of delivering
contrast agents. Ultraject* continues to fuel the growth of Optiray* in the
imaging market as it provides a significant market edge over traditional glass
syringes because it reduces the potential for both dosage error and handling
hazards.
The cardiology business is directed toward meeting the needs of both invasive
and non-invasive cardiologists in diagnosing and treating diseases of the heart
and the cardiovascular system. The business currently offers both ionic and
nonionic contrast agents, and interventional catheters and related supplies.
These products are sold directly to hospitals, primarily by a dedicated sales
force which will be consolidated within Medical's new geographically
organized sales force. During 1989, Medical acquired an equity
position (since unchanged) of less than two percent of the then currently
outstanding common shares of Molecular Biosystems, Inc. of San Diego,
California, and obtained exclusive marketing rights in the Western
Hemisphere for Albunex*, a new ultrasound contrast agent. Albunex*
was unanimously recommended for approval by the Radiology Device Advisory
Panel of the FDA in July 1992. Molecular Biosystems received an approvable
letter for Albunex* from the FDA in April 1994. Final approval was received
early in August 1994 with Medical's launch of the product anticipated in the
second quarter of 1995.
During 1993, Medical reached an agreement with Peripheral Systems Group
("PSG"), a division of Eli Lilly and Company, to obtain exclusive, worldwide
distribution rights for a broad line of interventional radiology and cardiology
products manufactured by PSG. Medical started North American distribution
in 1993 and began full distribution in Europe, Japan and Latin America in the
third quarter of 1994.
9
Medical's largest developmental effort in this area is directed toward
contrast agents for magnetic resonance imaging, primarily in neurology, oncology
and cardiovascular applications.
At June 30, 1994, radiology and cardiology manufacturing facilities were located
in Angleton, Texas; Raleigh, North Carolina; St. Louis, Missouri; Quebec,
Canada; Mulhuddart, Ireland; and Mexico City, Mexico.
NUCLEAR MEDICINE
The nuclear medicine business consists of radiopharmaceuticals used to provide
images of numerous body organs' anatomy and function, and to diagnose and treat
diseases. Nuclear medicine products are sold to hospitals and clinics in the
U.S. by both a direct sales force, which will be consolidated within
Medical's geographically organized sales force, and through a nationwide network
of nuclear pharmacies. Internationally, marketing will continue through direct
sales forces and distributors. Health physics consulting services are also
provided to hospitals.
In June 1994, the FDA authorized U.S. marketing of OctreoScan*. This unique
radiopharmaceutical will assist physicians in diagnosing and determining the
extent of spread in certain types of cancers, using a non-invasive procedure
instead of surgical biopsy. OctreoScan* will be manufactured at facilities
in St. Louis, Missouri and Petten, Netherlands. Introduction of the product
began in June 1994 through key hospitals specializing in cancer treatment.
Marketing of the product has been expanded upon FDA approval of promotional
material.
In 1990, Medical introduced TechneScan* MAG3* for improved imaging
of the kidneys and the renal system. Unlike a standard x-ray based imaging
procedure, a nuclear medicine scan utilizing MAG3* can accurately assess renal
tubular function in addition to providing anatomical information. In 1991, the
company introduced the highly successful UltraTag* RBC blood pool imaging kit
which is used for gated blood pool, "first pass" cardiac studies, and for the
detection of hemangiomas and gastrointestinal bleeding sites. In order to meet
growing worldwide demand for cyclotron-produced products, Medical is
currently expanding cyclotron capacity at its radiopharmaceutical production
facility in Maryland Heights, Missouri. Medical also brought a new
cyclotron on-line at Petten, Netherlands, in 1993. Medical is also
expanding the Maryland Heights, Missouri manufacturing facility to
introduce an improved generator product.
Additionally, during 1992, Medical signed an agreement with the Netherlands
Energy Research Foundation to construct a plant in Petten
10
dedicated to the manufacture of molybdenum-99 (Mo99), a key raw material used in
the production of the nuclear medicine imaging product technetium-99m. Full
production is expected to begin by the end of 1995.
Current research efforts in this area are directed to development of compounds
to alleviate cancer-related bone pain, detect several types of cancer, and
evaluate heart disease.
At June 30, 1994, nuclear medicine manufacturing facilities were located in
Maryland Heights, Missouri and Petten, Netherlands. Medical owns these
facilities. The company also operates 33 nuclear pharmacies located in
population centers throughout the U.S.
ANESTHESIOLOGY & CRITICAL CARE
Anesthesiology products include continuous core temperature monitoring systems;
convective warm air temperature management systems; tracheal tubes, tracheostomy
tubes, breathing systems, and other disposables; and airway management products.
Continuous core temperature monitoring and temperature management systems are
utilized both in surgical procedures and postoperatively. In 1993, Medical
expanded its airway management product line by acquiring the tracheostomy
products business of Sorin Biomedical in Irvine, California. The airway
management product line consists of basic and specialty tracheal tubes used in
hospitals for maintaining a secure airway during anesthesia and intensive care
and tracheostomy tubes which are used in hospitals and alternate site facilities
for maintaining airways during respiratory care. Anesthesiology products are
marketed directly and through distributors in the U.S. The direct sales force
will be consolidated within Medical's new geographically organized sales
force. Internationally, airway and temperature systems are marketed directly
and through distributors.
In 1994, Medical acquired DAR S.p.A. of Mirandola, Italy to complement its
tracheal and tracheostomy tube business and expand the core airway management
business into related anesthesia and respiratory disposables. DAR products
include disposable filters, heat/moisture exchanges, masks and breathing
circuits used in operating rooms and intensive care units to provide respiratory
support to critically ill patients. Current distribution channels will be
changing to support DAR products worldwide market potential. In 1994, Juarez,
Mexico became the new production base for the temperature monitoring systems
products used in emergency and critical care settings. Medical is
capitalizing on the rapid conversion to disposable tracheal tubes in Europe by
expanding its anesthesiology products plant in Athlone, Ireland. Also, as
previously discussed, a portion of the Argyle, New York tracheal tube
manufacturing operations will be relocated to a new facility to be built in
Juarez, Mexico.
In critical care, Medical provides instruments and systems to
analyze blood gases and electrolytes, and systems for blood hemoglobin and
11
glucose analysis. GEM*-STAT is designed for use in low-volume intensive care
units, while GEM*-6 provides testing in the operating room, primarily for
cardiovascular surgery. The GEM* Premier is a user friendly product which has a
high capacity and is more cost-effective than competing whole-blood analyzers.
The GEM* Premier is utilized in intensive care units as well as in hospital stat
and central laboratories. These products are sold directly to hospitals in the
U.S. and through direct sales forces and distributors in international markets.
During 1993, Medical acquired the HemoCue businesses, HemoCue A.B. of
Angelholm, Sweden and HemoCue Inc. of Mission Viejo, California, to complement
the GEM system's point of care blood analysis product line. HemoCue products
include blood hemoglobin and glucose analysis systems for use in hospitals and
alternate site markets. These products are distributed directly and through
distributors in the U.S. and internationally. The U.S. direct sales force will
be consolidated within Medical's new geographically organized sales force.
At June 30, 1994, anesthesiology and critical care manufacturing facilities
were located in Carlsbad, California; Santa Ana, California; Argyle, New York;
Irvine, California; Ann Arbor, Michigan; Vitrolles, France; Athlone, Ireland;
Mirandola, Italy; Juarez, Mexico; and Angelholm, Sweden. Medical owns the
Argyle, Athlone and Mirandola facilities. The remainder are leased.
At June 30, 1994, the company had distribution locations in Mission Viejo,
California; Victoria, Australia; Vienna, Austria; Bruxelles, Belgium;
Quebec, Canada; Evry Cedex, France; Gemenos, France; Hennef, Germany; Tokyo,
Japan; Mexico City, Mexico; Petten, Netherlands; Athlone, Ireland; Catano,
Puerto Rico; Madrid, Spain; Zurich, Switzerland; Northampton, United Kingdom;
Milan, Italy; and Singapore. Medical owns the facilities in Athlone,
Quebec, Mexico City and Petten. The remainder are leased.
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MALLINCKRODT VETERINARY
Veterinary sales were:
(in millions) Years ended June 30, 1994 1993 1992
- -----------------------------------------------------------------
Net sales
Pharmaceuticals $ 249 $ 258 $ 285
Biologicals 95 105 104
Feed Ingredients 162 169 172
Veterinary Specialties & Other 86 86 81
- -------------------------------- ----- ----- -----
$ 592 $ 618 $ 642
----- ----- -----
----- ----- -----
Mallinckrodt Veterinary, Inc. and its subsidiaries, collectively are called
"Veterinary," unless otherwise indicated by the context.
Veterinary initiated the restructure of its global operations
during 1993 to improve operating earnings and growth potential by strengthening
its global distribution and marketing capabilities and consolidating
manufacturing facilities to improve worldwide product sourcing and increase
plant utilization.
To date, approximately 1,000 positions have been eliminated, nearly 500 of which
were eliminated during 1994; 10 manufacturing facilities have been closed; more
than 200 low margin products have been dropped from the lines offered by the
company; commercial and administrative functions have been streamlined,
including the consolidation of most of the research and development operations
to one global facility located near the corporate headquarters; and Veterinary
has exited non-core businesses and high risk development projects that have
diminished in potential, including a project for the development of a porcine
somatotropin (PST) product under the name Grolene*.
Veterinary ranks in the top five companies in the animal health
industry worldwide in terms of sales, and continues to have direct presence in
the top 25 animal health markets of the world, with more than half its net sales
originating outside the U.S. Veterinary focuses on four strategic segments, or
two-thirds, of the $12 billion market for animal health products;
pharmaceuticals, biologicals, veterinary specialties and feed ingredients.
Veterinary's operations support a product line approaching 1,000 products. Its
strategy calls for selective additions of new products and for geographic
expansion into new markets. Specifically, it intends to focus on improving its
leading positions in North America, the United Kingdom, Australia, New Zealand
and Brazil, and to increase market share in Germany, France, Japan, Mexico and
Spain. Veterinary also sees growth potential in less developed nations such as
China.
Veterinary continues to focus its efforts on product areas
13
that offer the greatest opportunities. Consequently, Veterinary
expects to continue to derive most of its sales and profit from the food animal
sector, while selectively developing product lines in the companion animal
market, and through specialty distribution. In the worldwide animal health
industry, products for food animals comprise nearly 80 percent of the market.
Approximately 85 percent of Veterinary's revenues are from products used for
food animals.
Cross registration, or filing for approval of products already marketed in other
countries, is a key component of Veterinary's geographic expansion
efforts. Approximately 350 product approvals have resulted from cross-
registration through 1994, with additional approvals expected over the next
three to five years.
Operations are currently located in more than 30 countries, with distribution
networks in more than 100 nations. Veterinary's organizational structure
(three geographic regions and the Feed Ingredient business) is aligned for
increased market focus and customer responsiveness and enables it to
sell directly to the consumer, veterinarian, distributor, dealer or agent,
depending on the maximum market opportunity.
PHARMACEUTICALS
The pharmaceutical business segment includes productivity enhancers,
ectoparasiticides, and antimicrobials.
The worldwide market for productivity enhancers is $200 million. Veterinary's
strategy is to strengthen its position through product line extensions.
Ralgro*, Veterinary's long-established and consistent performer, is
the leading growth promotant for cattle on grass in the U.S. The product is
also marketed in a number of Latin American and other countries. Ralgro
received U.S. Food and Drug Administration approval in 1994 for use in heifer
calves intended for reproduction. This expanded applicability is expected to
help simplify the implant process for beef producers.
The world market for parasiticides is $2 billion. Veterinary is one of the
leading companies in this market, and offers a wide range of food animal
products such as pour-ons, sprays and eartags.
Defend* EXspot*, a topical flea control product for dogs that also protects
against deer ticks (carriers of organisms that cause Lyme disease), is marketed
in the U.S. and many countries throughout the world with recent approvals and
launches in France and Norway.
14
Veterinary participates extensively in the $1.9 billion global
antimicrobial market, which includes antibacterial and antifungals. Its
strategy calls for investment to maintain and selectively expand its presence.
A broad-spectrum antibacterial sold under the brand names Zaquilan* and
Diprinovet* was introduced in 1993, primarily in the United Kingdom, Ireland
and Scandinavia for food and companion animals. It continues to gain customer
acceptance while awaiting regulatory approvals in the remainder of Europe.
Other products include Cepravin*, an intramammary antibiotic for dairy cattle;
Butalex*, a unique treatment for theilerosis in cattle; and Clinafarm*, an
antifungal for poultry hatcheries.
At June 30, 1994, pharmaceutical manufacturing facilities were located in Baton
Rouge, Louisiana; Terre Haute, Indiana; Bray, Ireland; Friesoythe, Germany;
Cali, Columbia; Kuala Lumpur, Malaysia; and Manila, Philippines.
BIOLOGICALS
Veterinary's strategic plan has identified biologicals as the
primary focus of its development efforts, and it already has a leading
position in this market. Biologicals, which include primarily vaccines,
represents a current world market of $1.8 billion that is growing at an annual
rate of about five to eight percent, making it the fastest growing segment of
the animal health industry.
In 1994, Veterinary committed to a biological production facility
to be built in Raleigh, North Carolina. The $31 million, 63,000 square-foot
plant is expected to begin commercial production in 1997 and will produce
livestock and companion animal vaccines for distribution around the world.
Veterinary has two other global biological production facilities, in Upper Hutt,
New Zealand, and Burgwedel, Germany, which were completed in 1992 at a total
cost of $37 million. These three plants are expected to allow Veterinary to
maintain a competitive position in this industry segment as well as aid in the
development of new global vaccines and innovative delivery systems.
Veterinary entered into a global technology and product exchange
agreement with Boehringer Ingelheim Animal Health, Inc., St. Joseph, Missouri,
in August, 1994. The agreement provides for Veterinary to immediately begin
marketing and distributing certain Boehringer Ingelheim cattle respiratory
vaccines in the United States under the Strategy* brand name. The agreement
also provides Veterinary with respiratory vaccine antigens and
technology which are expected to enable it to develop second-generation
vaccines with enhanced duration, effectiveness and safety.
Among Veterinary's vaccines are Coopervax*, a vaccine for the prevention of
foot and mouth disease in cattle and sheep; Coccivac* and Paracox*, leading
vaccines that prevent poultry coccidiosis by stimulating the immune
15
system; Cattlevax*, a combined leptospirosis/clostridial vaccine for cattle; and
Footvax*-M vaccine for control of foot rot in sheep. Paracox* is marketed
primarily in Europe, and Coccivac* primarily in the Americas and Asia. Both
vaccines are pending approval in other countries.
Other biological manufacturing facilities at June 30, 1994 were locatd in
Compton, United Kingdom; Sao Paulo, Brazil; Linque, Paraguay; and Millsboro,
Delaware.
VETERINARY SPECIALTIES AND OTHER
In the $1.1 billion worldwide veterinary specialties market,
Veterinary is a leading supplier of prostaglandins, anesthetics and surgical
products.
Extensive use of Veterinary's product distribution capabilities by
companies such as Johnson & Johnson and Zeneca strengthens Veterinary's
position in this market.
Veterinary also participates in the $535 million anticoccidial
market with the product Clinacox*, an anticoccidial for chickens and turkeys.
Clinacox* is marketed in Canada and Latin America and is awaiting regulatory
approval in the U.S.
FEED INGREDIENTS
Participating in a $1 billion worldwide market, Feed Ingredients contributes
more than 25 percent of Veterinary's total sales. Veterinary has
a strong brand position in this market with feed supplements such as Monofos*,
Biofos*, Dynafos*, Multifos*, Dyna-K* and Dynamate*.
Veterinary owns a feed phosphate plant adjacent to the phosphate
chemical complex of IMC Fertilizer Group, Inc. (IFL) in New Wales, Florida.
Under an agreement which expires in 1997, IFL operates the Veterinary plant.
Veterinary also contracts with IFL for key raw materials including phosphoric
acid and phosphate rock. IFL also supplies Veterinary's requirements of
animal feed-grade potassium products. Veterinary believes there are adequate
sources of supply from other producers in the event these supply agreements are
not renewed.
OTHER ACTIVITIES
RESEARCH AND DEVELOPMENT
The Company performs applied research directed at development of new products,
development of new uses for existing products, and improvement of existing
products and processes. Research and development programs
16
include laboratory research as well as product development and application.
Mallinckrodt Chemical research and development efforts are organized within its
operating divisions to focus technical resources on the development of new and
improved products meeting defined market and customer needs. Technical
personnel for process support are located at each manufacturing location.
Internal research effort is supplemented with third-party and university
technical agreements.
Mallinckrodt Medical research and development efforts are coordinated on a
worldwide basis by a senior scientist. Research and development of imaging and
therapeutic products are carried on by a centralized organization. Research and
development for anesthesia and critical care are performed within these
businesses. Mallinckrodt Medical's various development activities are focused
on market-place needs. Internal research effort is supplemented with third-
party and university technical agreements.
Mallinckrodt Veterinary currently has many products under development that
address the needs of world and regional markets. The company consolidated its
primary research and development capabilities at a single site in the Chicago,
Illinois area in 1993, in conjunction with the restructuring of its businesses.
Products in development include vaccines, growth enhancers and parasiticides for
livestock, poultry and companion animals. To supplement its own research,
Mallinckrodt Veterinary has technical agreements with various pharmaceutical and
biotechnology companies and universities.
PATENTS, TRADEMARKS, AND LICENSES
Mallinckrodt owns a number of patents and trademarks, has a substantial number
of patent applications pending, and is licensed under patents owned by others.
No single patent is considered to be essential to the businesses as a whole, but
in the aggregate, the patents are of material importance to the Company's
business.
ENVIRONMENTAL AND OTHER REGULATORY MATTERS
The Company is subject to various environmental protection and occupational
safety and health laws and regulations in the United States and foreign
countries in which it operates. In addition, in its operations, currently and
over the years, the Company has handled, and will continue to deal in or
otherwise handle, materials and wastes classified as hazardous or toxic by one
or more regulatory agencies. The Company is also subject to the Federal Food,
Drug, and Cosmetic Act, other federal statutes and
17
regulations, various state statutes and regulations, and laws and regulations of
foreign governments, affecting and involving testing, approval, production,
labeling, distribution, post-market surveillance and advertising of most of the
Company's existing, new, and prospective products.
Significant capital expenditures, as well as operating costs, have been incurred
on account of the laws and regulations governing the protection of the
environment, occupational safety and health, and the handling of hazardous
materials. There are inherent and unquantifiable risks in mishandling, or
potential accidents involving, hazardous or toxic materials and wastes. On the
basis of its best information and belief, the Company does not believe the
expenditures and risks occasioned by these circumstances have as yet become
materially adverse to its operations or financial condition taken as a whole;
however, no assurance can be given that this will continue to be true.
Similarly, the interpretation and enforcement of the laws and regulations
pertaining to the Company's products or facilities by government agencies, such
as the U.S. Food and Drug Administration and the U.S. Environmental Protection
Agency, and state and foreign counterparts, at any particular production site or
in connection with any particular product or any proposed new or modified
product, may be more strict than anticipated, and could result in production
interruption and product holds or recalls.
The Company endeavors to comply with all of these laws and regulations, as well
as with all other applicable laws and regulations, but there can be no assurance
compliance will always be achieved. Instances of non-compliance have occurred
in the past and although they have not had a material adverse impact on the
Company, such instances could occur in the future and possibly have a material
adverse impact.
In particular, the Company is unable to predict the extent to which it may be
adversely affected by future regulatory developments such as new or changed laws
or regulations.
Most of the Company's environmental related capital expenditures are in response
to provisions of the Federal Clean Air Act, Water Pollution Control Act,
Resource Conservation and Recovery Act, Comprehensive Environmental Response,
Compensation, and Liability Act, land use, air, and water protection regulations
of the various localities and states, and their foreign counterparts. Capital
expenditures worldwide relating to air emission control, wastewater
purification, land reclamation and solid waste disposal totaled approximately
$15 million in 1994 and $20 million in 1993. The Company currently estimates
that environmental capital expenditures
18
over the next two years will average about $25 million per year.
Environmental clean up costs are often incurred over extended periods of time.
Nevertheless, to the extent these costs can be reasonably estimated, and the
Company's responsibility is probable, accruals are established although the
costs are not yet payable, and are reflected in the Company's consolidated
financial statements.
See also Item 3., Legal Proceedings, and Note 19 of the Notes for additional
information.
EMPLOYEES
Mallinckrodt had 10,200 employees at June 30, 1994, consisting of 6,100 U.S.
based employees and 4,100 employees outside the U.S. Employees by business
segment are: Mallinckrodt Chemical, 2,435; Mallinckrodt Medical, 5,200; and
Mallinckrodt Veterinary, 2,500. Sixty-five employees are engaged in corporate
activities.
LABOR RELATIONS
In the U.S., the Company has eight collective bargaining agreements with eight
U.S. international unions or their affiliated locals covering 650 employees.
Five agreements covering 495 employees were negotiated during 1994, all with no
work stoppages. No agreements will expire in 1994. Eleven Mallinckrodt Medical
and Mallinckrodt Chemical operating locations outside the U.S. have collective
bargaining agreements and/or work counsel agreements covering approximately
1,055 employees. Mallinckrodt Veterinary operating locations outside the U.S.
have eight collective bargaining agreements and/or work counsel agreements
covering approximately 313 employees. Recent wage and benefit increases were
consistent with competitive industry and community patterns.
ITEM 2. PROPERTIES
Information regarding the principal plant and properties of Mallinckrodt is
included in the respective business segment discussions in Item 1., Business.
Additionally, at June 30, 1994 Mallinckrodt Medical and Mallinckrodt Veterinary
occupy office and laboratory space owned by those companies in St. Louis,
Missouri and Mundelein, Illinois, respectively. Mallinckrodt Chemical and
Mallinckrodt Group lease office space in St. Louis, Missouri.
19
The Company believes its manufacturing and distribution facilities at June 30,
1994 are adequate, suitable and of sufficient capacity to support its current
operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a number of legal proceedings in which liabilities
are sought to be imposed on it. The Company believes that the currently pending
matters, which are largely related to federal, state, and local environmental
and pollution control statutes, and which in most cases relate to discontinued
operations of the Company, will not have a material adverse effect on its
financial condition or the results of the Company's operations. Those matters
required by Securities and Exchange Commission rules to be reported here or that
could be regarded as potentially material are as follows:
ENVIRONMENTAL MATTERS
Auburn Hills, Michigan -- As first reported in 1986, the Company was named
as a defendant in two cases brought by the State of Michigan in the United
States District Court in Detroit, Michigan in 1986, involving a drum recycling
facility in Auburn Hills, Michigan. The City of Pontiac has also intervened as
an additional plaintiff. The Company has filed a third-party complaint against
approximately 110 parties that sent drums to the recycling facility, seeking
contribution for damages that might be assessed against the Company. The court
has not held any hearings concerning this case since Spring 1987 and has stayed
all third-party proceedings. A settlement in principle reached in 1991 by the
Company with the State was not finalized. The State has entered into a
Consent Order with some 40 de minimis Potentially Responsible Parties (PRP's),
resolving their liability for the site. The State has completed its Remedial
Investigation and Feasibility Study for the site and after the study is made
available for public comment, the State will indicate its remedy for the site.
Until the State selects its preferred remedy, it is not possible to estimate
the cleanup costs for the site.
Ashtabula County, Ohio -- As first reported in 1985, this matter involves a
claim by the United States Environmental Protection Agency ("EPA") against the
Company and other companies concerning the alleged pollution of a stream near
Ashtabula, Ohio, designated as "Fields Brook," where the Company once operated
a plant. The Company and several other companies have settled the litigation
brought by EPA and all of the companies have agreed to nonbinding arbitration of
the allocation of payment for a Remedial Design/Remedial Action study ordered by
EPA. This arbitration and proceedings to add third parties as defendants are in
process and the arbitrator's decision is expected in October 1994. Although the
Company's allocable share of cleanup costs cannot be determined at this time,
the Company continues to believe this proceeding will not have a material
adverse effect on its financial position or results of operations.
20
Orrington, Maine -- As first reported in 1989, Hanlin Group, Inc. filed a
complaint in the United States District Court for the District of Maine against
the Company in April 1989 relating to a chemical manufacturing facility located
in Orrington, Maine that was purchased from the Company. Hanlin alleged that
the Company operated the facility in violation of state and federal
environmental laws and that the Company illegally caused carbon tetrachloride
and chloroform contamination at the facility. As previously reported, the
Company and Hanlin settled the claims relating to the Orrington plant in 1991.
The facility has since been sold to Holtrachem Manufacturing Company, L.L.C.,
with the settlement agreement assigned to them as part of the sale. Pursuant to
the terms of the settlement, the Company is to pay specified costs of a study
ordered by the EPA. Following the completion of all required studies, the
parties will attempt to reach an agreement concerning the sharing of costs or
remediation; if they cannot reach agreement, the matter will be referred to
binding arbitration. The Company is not able to estimate its exposure for all
study and cleanup costs at this time.
Allentown, Pennsylvania -- In September 1993, the Whitehall Township Authority
("WTA") asserted claims against Trimet Technical Products, Inc., a subsidiary of
the Company, alleging that Trimet's facility in Allentown, Pennsylvania had
contaminated one of the WTA water supply wells. WTA has purchased water from a
neighboring system to replace water from the contaminated well, which has been
closed since November 1990. From November 1990 through December 1992, Trimet
reimbursed WTA for the cost of purchasing alternative water supplies based on
the average pumping rate for the contaminated well in the year before it was
closed. From January 1993 through present, Trimet has reimbursed WTA for its
actual water purchases. Trimet is also conducting remediation efforts to remove
the contamination from the aquifer. WTA claims that Trimet should reimburse it
for: the construction costs of a new well (approximately $250,000); $650,000 in
water supply replacement costs over and above reimbursements already made; and
approximately $250,000 for professional services. Based upon information
available at this time, it is not possible to determine Trimet's potential
liability for these claims.
OTHER MATTERS
The Corporation, Mr. Kennedy, Mr. Bentele, and two former officers no longer
with the Corporation are named as defendants in two purported class actions
brought in February 1992 by two alleged stockholders. These actions, which have
been consolidated and are now pending in the United States District Court for
the Southern District of New York, allege violations of federal securities laws
and related state laws. The plaintiffs base their allegations principally on
the Corporation's February 18, 1992, press release about an FDA inspection of
Mallinckrodt Veterinary's Kansas City plant that also cautioned that estimates
of
21
security analysts regarding fiscal 1992 earnings from continuing operations in
excess of $1.65 per share "were probably too optimistic." The estimates had
been marginally higher, $1.67 per share. The thrust of the allegations is that
disclosure of manufacturing deficiencies was not made on a timely basis. On
October 4, 1993, the district court granted defendants' motion to dismiss the
complaint without leave to replead. Plaintiffs thereafter moved to reopen the
judgment and for leave to file an amended pleading, which motion was denied.
Plaintiffs have appealed both decisions and the appeal has been briefed and is
awaiting argument.
In September 1992, a stockholder's derivative suit was filed in the United
States District Court for the Southern District of New York, purportedly on
behalf of the Corporation, against all of the then directors of the Corporation
asserting claims for alleged violation of the federal proxy rules, for alleged
breach of fiduciary duty, and in Mr. Kennedy's case for alleged misappropriation
of confidential business information. The case was assigned to the same judge
as the above class actions and was consolidated with them for pre-trial
purposes. This case, like the class actions, arose as a consequence of the FDA
inspection and the February 18, 1992 press release referred to above in the
class actions. On October 4, 1993, the district court granted defendants'
motion to dismiss the complaint for, among other things, failure to make a
demand on the Board before commencing suit. Plaintiff did not appeal this
decision. Rather, plaintiff's counsel served a purported demand letter on the
Board requesting that appropriate action be taken to redress the alleged
misconduct that was the subject of plaintiff's prior complaint. By letter dated
December 7, 1993, the Corporation requested further information from plaintiff
regarding the allegations in the demand letter, but to date has not received any
response to this request.
The Corporation believes the aforementioned suits are without merit and will
have no material adverse effect on its financial position or results of
operations.
Other previously reported legal proceedings have been settled or the issues
sufficiently resolved so as to not merit further reporting.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the three months ended
June 30, 1994.
22
EXECUTIVE OFFICERS OF THE REGISTRANT
The ages and five-year employment histories of Mallinckrodt's executive officers
at June 30, 1994, were as follows:
C. R. (RAY) HOLMAN
Age 51. President and Chief Executive Officer since December 1992; Vice
President from October 1990 to December 1992; President and Chief Executive
Officer, Mallinckrodt Medical, Inc., from January 1989 until December 1992;
Group Vice President of the Medical Products Group, Mallinckrodt Inc., from
September 1985 to January 1989.
WILLIAM J. MERCER
Age 46. Senior Vice President since October 1993; Vice President from December
1992 to October 1993; President and Chief Executive Officer of Mallinckrodt
Veterinary, Inc. since December 1992; Senior Vice President and Group Executive
of Mallinckrodt Medical, Inc. from March 1992 to December 1992; Group Vice
President, Medical Imaging, from November 1988 to March 1992. (Mr. Mercer
resigned his positions as Senior Vice President of Mallinckrodt and President
and Chief Executive Officer of Mallinckrodt Veterinary, Inc. effective July 20,
1994).
ROBERT G. MOUSSA
Age 47. Senior Vice President since October 1993; Vice President from December
1992 to October 1993; President and Chief Executive Officer of Mallinckrodt
Medical, Inc., since December 1992; Senior Vice President and Group Executive,
Mallinckrodt Medical, Inc., from September 1992 to December 1992; Group Vice
President, International, Mallinckrodt Medical, Inc., from January 1989 to
September 1992.
MACK G. NICHOLS
Age 56. Senior Vice President since October 1993; Vice President from October
1990 to October 1993; President and Chief Executive Officer of Mallinckrodt
Chemical, Inc. since January 1989.
MICHAEL A. ROCCA
Age 49. Senior Vice President, Chief Financial Officer, and Treasurer since
April 1994; Corporate Vice President and Treasurer of Honeywell Inc. from March
1992 to April 1994; Vice President, Finance, for Honeywell Europe from 1990 to
1992; Vice President and Controller of Honeywell Inc. International Group from
1987 to 1990.
23
BARBARA A. ABBETT
Age 54. Vice President, Communications since April 1994; Vice President and
Senior Partner with Fleishman-Hillard, Inc., from 1979 to April 1994.
ASHOK CHAWLA
Age 45. Vice President, Strategic Management since July 1991; Vice President
Strategic Planning and Business Development of Mallinckrodt Veterinary, Inc.,
from August 1990 to July 1991; Division Director, Finance and Administration for
Mallinckrodt, Inc. - Europe from August 1988 to August 1990.
BEVERLEY L. HAYES
Age 55. Vice President, Organization and Human Resources since November 1990;
Senior Vice President, Human Resources of Mallinckrodt Veterinary, Inc., from
September 1990 to November 1990; Vice President Human Resources of Mallinckrodt
Veterinary, Inc., from July 1989 to September 1990.
ROGER A. KELLER
Age 49. Vice President, Secretary, and General Counsel since July 1993; Senior
Vice President and General Counsel, Mallinckrodt Medical, Inc., from March 1992
to July 1993; Vice President and General Counsel of Mallinckrodt Medical, Inc.,
from September 1989 to March 1992; Vice President and Secretary, Mallinckrodt,
Inc., since August 1986.
DOUGLAS K. LARSEN
Age 55. Vice President, Environment and Safety since October 1991; Corporate
Staff Vice President, Environment and Safety from September 1988 to October
1991. (Mr. Larsen's employment by the Company ended June 30, 1994).
WILLIAM B. STONE
Age 51. Vice President and Controller since November 1990; Assistant Controller
and Corporate Staff Vice President from October 1989 to November 1990; Vice
President of Mallinckrodt, Inc., since April 1983.
MISCELLANEOUS
All of the Company's officers are elected annually, with the terms of the
officers listed above to expire in October 1994, except as otherwise noted. No
"family relationships," as that term is defined, exist among any of the listed
officers.
24
George D. Kennedy, Chairman of the Board, is technically an officer of the
Company, but as a retired employee and consultant, has no full-time obligations
and hence is not regarded as or believed to be an Executive Officer. As a
director, his business experience and directorships are described in the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders to
be held October 19, 1994.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
COMMON STOCK PRICES AND DIVIDENDS
Quarter First Second Third Fourth
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Fiscal 1994
Dividends per common share $.11 $.125 $.125 $.125
Common stock prices
High 33.38 36.63 38.50 34.50
Low 28.13 32.25 30.13 28.50
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Fiscal 1993
Dividends per common share $.10 $.11 $.11 $.11
Common stock prices
High 37.75 40.25 40.25 31.63
Low 31.25 31.25 23.00 23.38
- ----------------------------------------------------------------------------
The principal market on which Mallinckrodt's common stock is traded is the New
York Stock Exchange. Common stock prices are from the composite tape for New
York Stock Exchange issues as reported in THE WALL STREET JOURNAL.
As of August 31, 1994, the number of registered holders of common stock, as
reported by the Company's registrar, was 10,091.
25
ITEM 6.
SELECTED FINANCIAL DATA
(Dollars in millions except per share amounts) Years ended June 30, 1994(1) 1993(1) 1992(1) 1991(2) 1990(3) 1989(4)
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Net sales $1,940.1 $1,796.3 $1,702.9 $1,633.9 $1,424.6 $ 982.9
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Earnings (loss) from continuing operations $ 107.4 $ (113.8) $ 128.8 $ 97.2 $ 55.3 $ 53.4
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Earnings (loss) from discontinued operations (5) (3.6) (6.0) (1.3) (9.0) 1.2 63.6
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Cumulative effects of accounting changes (80.6)
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Net earnings (loss) 103.8 (200.4) 127.5 88.2 56.5 117.0
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Preferred stock dividends (.4) (.4) (.4) (.4) (4.2) (14.4)
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Available for common shareholders $ 103.4 $ (200.8) $ 127.1 $ 87.8 $ 52.3 $ 102.6
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Per Common Share Data (6)
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Earnings (loss) from continuing operations $ 1.38 $ (1.48) $ 1.65 $ 1.37 $ .79 $.57
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Net earnings (loss) 1.33 (2.60) 1.63 1.24 .81 1.50
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Dividends declared .49 .43 .38 .33 .33 .33
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Book value 13.05 11.77 16.02 14.42 11.97 11.23
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Average common shares (in millions) 77.6 77.4 77.8 70.6 65.0 68.4
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OTHER DATA
(Dollars in millions)
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Total assets $2,433.5 $2,177.6 $2,050.8 $2,250.2 $2,130.9 $1,971.6
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Working capital 261.3 203.7 351.6 409.0 311.1 594.6
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Current ratio 1.4:1 1.3:1 1.8:1 1.6:1 1.8:1 3.3:1
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Total debt $ 669.8 $ 617.0 $ 373.7 $ 643.4 $ 837.4 $ 773.7
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Net deferred income tax (assets) liabilities (40.9) (36.0) 41.7 48.0 52.9 42.8
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Shareholders' equity 1,015.9 910.5 1,224.2 1,084.2 824.8 888.2
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Invested capital 1,644.8 1,491.5 1,639.6 1,775.6 1,715.1 1,704.7
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Total debt/invested capital 41% 41% 23% 36% 49% 45%
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Capital expenditures $ 172.3 $ 188.3 $ 150.4 $ 123.4 $ 85.7 $ 82.2
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Total dividends declared 37.7 33.2 29.5 23.7 25.8 36.9
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Common shares outstanding (in millions) 77.0 76.4 75.7 75.2 68.1 60.7
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Number of employees 10,200 10,000 9,500 9,800 9,600 6,900
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<FN>
(1)See "Mallinckrodt Management's Discussion and Analysis" for a
description of nonrecurring items.
(2)Results for 1991 included an after-tax gain of $2.0 million, or $.08
per share, from the sale of intangibles at Mallinckrodt Veterinary.
(3)Results for 1990 included favorable adjustments from the conclusion
of income tax audits that amounted to $14.8 million, $11.9 million
after taxes, or $.18 per share, from lower income taxes and higher
interest income. That benefit was partially offset by restructuring
charges of $4.9 million, $3.0 million after taxes, or $.05 per share,
and charges for compensation plans tied to the price of the Company's
common stock that amounted to $3.9 million, $2.4 million after taxes,
or $.04 per share.
(4)Results for 1989 included favorable adjustments from the conclusion
of income tax audits that amounted to $20.8 million, $16.6 million
after taxes, or $.24 per share, from lower income taxes and related
interest charges. Such earnings also included a gain of $3.9 million,
$2.4 million after taxes, or $.03 per share, from the sale of a
business.
(5)See Note 1 of Notes to Consolidated Financial Statements for
information on discontinued operations in 1994, 1993 and 1992. The
results for 1991 included nonrecurring after-tax charges of $2.8
million, or $.04 per share, from net effects related to the IFL stock
sales. The results for 1990 and 1989 included nonrecurring after-tax
gains of $5.2 million, or $.08 per share, and $21.5 million, or $.30
per share, from the sale of the fragrance business and the IFL public
offering, respectively. Results for discontinued operations for 1991,
1990 and 1989 also included after-tax charges of $6.2 million, or
$.09 per share; $7.6 million, or $.12 per share; and $1.7 million, or
$.02 per share, respectively, for environmental and litigation costs
related to operations previously sold.
(6)Presented on a primary per common share basis adjusted for the 3-for-
1 stock split in November 1991.
26
ITEM 7. MALLINCKRODT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESUILTS OF OPERATIONS.
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OVERVIEW
ALL REFERENCES TO YEARS ARE TO FISCAL YEARS ENDED JUNE 30 UNLESS OTHERWISE
STATED.
1994 VS. 1993
Before restructuring charges Mallinckrodt's earnings from continuing operations
were $166 million, or $2.14 per share. Comparable prior year earnings from
continuing operations were $128 million, or $1.65 per share. Excluding favorable
current year tax adjustments totaling $3 million, or $.04 per share, from
recently enacted tax law changes and a 1993 non-recurring corporate expense
charge of $3 million after taxes, or $.04 per share, 1994 results were 24
percent higher than a year ago.
Net earnings for 1994 were $104 million, or $1.33 per share, compared with a
net loss of $200 million, or $2.60 per share, in 1993. Included in these results
were after-tax restructuring charges totaling $59 million, or $.76 per share,
and $242 million, or $3.13 per share, for 1994 and 1993, respectively. The loss
in 1993 also included a non-cash cumulative charge of $81 million, or $1.04 per
share, for adoption of new standards of accounting for income taxes and certain
postretirement/postemployment benefits.
Net sales for 1994 were $1,940 million, compared with $1,796 million a year
earlier. This 8 percent increase was achieved despite unfavorable currency
translation effects, slower volume growth and pricing pressures. Each of
Mallinckrodt's three businesses reported improved operating results for the
year. Operating earnings before the restructuring charges were $287 million in
1994, compared with $225 million in the previous year. Excluding the 1993 non-
recurring corporate expense charge, operating earnings were up 24 percent.
Restructuring charges are discussed in the business sections which follow,
and in Note 1 of Notes to Consolidated Financial Statements (Notes). Charges
for discontinued operations are discussed in Note 1 of the Notes.
1993 VS. 1992
Mallinckrodt's 1993 results from continuing operations, before restructuring
charges, were $128 million, or $1.65 per share, which included a net, non-cash
charge of $4 million after taxes, or $.05 per share, associated with adoption of
new accounting standards. These results compared with 1992 earnings from
continuing operations of $129 million, also $1.65 per share.
The net loss for 1993 was $200 million, or $2.60 per share. Included in this
loss were after-tax restructuring charges totaling $242 million, or $3.13 per
share; a non-cash cumulative charge of $81 million, or $1.04 per share, for
adoption of new standards of accounting for income taxes and certain
postretirement and postemployment benefits, retroactive to July 1, 1992; and
after-tax charges related to discontinued operations of $6 million, or $.08 per
share.
27
Net sales increased 5 percent while operating earnings, excluding
restructuring charges, were about flat with 1992 after absorbing incremental
pre-tax charges of $8 million for adoption of new accounting standards for
employee benefits. Mallinckrodt Medical's 26 percent increase in sales and 36
percent rise in operating earnings were offset by decreases in Mallinckrodt
Chemical and Mallinckrodt Veterinary.
Restructuring charges are discussed in the Mallinckrodt Chemical and
Mallinckrodt Veterinary sections which follow, and in Note 1 of the Notes. Notes
1, 8 and 13 of the Notes contain further discussion of accounting changes.
Charges for discontinued operations are discussed in Note 1 of the Notes.
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- -----------------------------------------------------------------------------------
MALLINCKRODT CHEMICAL
(In millions) Years Ended June 30, 1994 1993 1992(1)
- -----------------------------------------------------------------------------------
Net sales:
- -----------------------------------------------------------------------------------
Ongoing operations:
- -----------------------------------------------------------------------------------
Pharmaceutical Specialties $225 $212 $183
- -----------------------------------------------------------------------------------
Catalysts, Performance &
Lab Chemicals 212 183 185
- -----------------------------------------------------------------------------------
437 395 368
- -----------------------------------------------------------------------------------
Divested operations and
flavors business(2) 73
- -----------------------------------------------------------------------------------
$437 $395 $441
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- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Operating earnings (loss):
Ongoing operations $ 62 $ 46 $ 47
- -----------------------------------------------------------------------------------
Restructuring charge (51)
- -----------------------------------------------------------------------------------
Divested operations and
flavors business(2) 13
- -----------------------------------------------------------------------------------
62 (5) 60
- -----------------------------------------------------------------------------------
Pre-tax equity in joint venture 18 10 1
- -----------------------------------------------------------------------------------
Earnings $ 80 $ 5 $ 61
- -----------------------------------------------------------------------------------
Ongoing operating earnings as
a percent of ongoing sales 14.1% 11.6% 12.6%
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
<FN>
(1)Restated to reflect the company's reorganization effective July 1, 1992.
(2)Includes the divestiture of the cosmetic and electronic chemicals businesses
and pre-joint venture operating results of the flavors business.
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1994 VS. 1993
Mallinckrodt Chemical's operating earnings of $62 million and an $18 million
pre-tax equity-investment share of earnings from its Tastemaker flavors joint
venture totaled $80 million. Excluding the 1993 restructuring charge, this
represented a 42 percent earnings improvement over last year. Net sales
increased 11 percent to $437 million. The 1993 restructuring program is
producing anticipated results with the exit of the aromatic flourine
intermediates business substantially completed in 1994 and the exit of the
photochemicals business expected to be substantially completed in 1995.
Catalysts, performance and lab chemicals sales increased 15 percent,
principally from higher sales volume in catalysts and performance chemicals.
Improved plant operations in performance chemicals and favorable comparisons in
restructured businesses also contributed to higher operating earnings in 1994.
Management expects the 1994 acquisition of Catalyst Resources, Inc., a
manufacturer of polymerization catalysts, to contribute to future results.
28
Pharmaceutical specialties sales increased 6 percent. Contributing
significantly to improved operating results were higher worldwide medicinal
narcotics sales primarily due to increased sales volume and improved medicinal
narcotics plant operations. Results for 1994 were negatively affected by a
scheduled Raleigh, North Carolina, plant maintenance shutdown in the first
quarter, additional investment in the peptides business and flat acetaminophen
(APAP) worldwide sales compared with 1993.
The Tastemaker flavors joint venture made a significant contribution to the
1994 results with a 75 percent increase in earnings due to strong worldwide
growth and efficiencies from manufacturing consolidation programs completed in
1993.
1993 VS. 1992
Mallinckrodt Chemical's operating loss of $5 million included a pre-tax
restructuring charge of $51 million, primarily to exit the company's aromatic
fluorine intermediates (AFI) and photochemicals businesses.
Excluding the restructuring charge, Mallinckrodt Chemical's operating
earnings, plus its equity in the flavors joint venture, decreased $5 million
from 1992. Year-to-year performance comparisons were negatively influenced by
additional 1993 expenses of $3 million from accounting changes for employee
benefits, and, in 1992's second half, the formation of a flavors joint venture
and the divestiture of non-strategic businesses. After adjusting for these
events, 1993 ongoing operating earnings improved 5 percent on a corresponding
net sales increase of 7 percent.
Catalysts, performance and lab chemicals ongoing sales were one percent below
1992 principally because of lower AFI sales volumes and recessionary conditions
that plagued the business throughout most of 1993. Higher sales from the new lab
chemical product disposal service favorably impacted results. The AFI and
photochemicals businesses, which are to be exited, detracted from 1993 earnings.
Pharmaceutical specialties ongoing sales improved 16 percent. Higher sales
volumes for APAP and medicinal narcotics, and to a much lesser extent January
price increases, contributed significantly to the improved ongoing results. The
company's continued investment in its recently started peptides business reduced
overall 1993 performance.
The Tastemaker flavors joint venture earnings continued significant positive
momentum. Sales for the venture were nearly $200 million in its first year ended
December 31, 1992. Additional costs relating to rationalization of its major
production facilities in the U.S. negatively affected earnings in the first half
of 1993. Tastemaker's performance improved in the last six months of the fiscal
year to exceed expectations for 1993.
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MALLINCKRODT MEDICAL
(In millions) Years Ended June 30, 1994 1993 1992(1)
- -----------------------------------------------------------------------------------
Net sales:
- -----------------------------------------------------------------------------------
Radiology & Cardiology $436 $382 $294
- -----------------------------------------------------------------------------------
Nuclear Medicine 186 182 160
- -----------------------------------------------------------------------------------
Anesthesiology &
Critical Care 290 219 166
- -----------------------------------------------------------------------------------
$912 $783 $620
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Operating earnings:
- -----------------------------------------------------------------------------------
Ongoing operations $203 $174 $128
- -----------------------------------------------------------------------------------
Restructuring charge (74)
- -----------------------------------------------------------------------------------
$129 $174 $128
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Ongoing operating earnings as
a percent of sales 22.2% 22.3% 20.6%
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29
1994 VS. 1993
Mallinckrodt Medical's net sales were $912 million and operating earnings before
a restructuring charge were $203 million, both up 16 percent from 1993.
The 1994 pre-tax restructuring charge of $74 million resulted from fourth
quarter decisions made pursuant to efforts conducted during the year to develop
strategies to effectively respond to customer needs and compete in a market that
is changing rapidly as the result of health care reform. The key components of
the charge were reorganization of the current medical specialty oriented U.S.
sales structure into a unified sales organization divided into geographical
districts; reorganization to reduce, centralize and standardize certain non-
sales related functions and management processes; relocation of the Argyle, New
York, tracheostomy tube manufacturing operations to existing plants in Athlone,
Ireland, and Irvine, California, and a new facility to be built in Juarez,
Mexico; and severance costs related to an associated work-force reduction of
approximately 500 employees at various locations around the world. Restructuring
actions related to the program are in process and are expected to be
substantially complete in one year. Pre-tax cash expenditures should approximate
$65 million of which about $50 million will occur in 1995. After-tax cash costs
of the program will be about $74 million, consisting of the above cash costs and
an additional $34 million of capital spending that will be incurred relating to
information systems and manufacturing rationalization. Annual pre-tax savings
from the restructuring will be approximately $40 million, with partial benefit
in fiscal 1995 and most of the savings achieved in 1996.
Radiology and cardiology sales increased 14 percent. Higher Optiray sales
volume in the U.S., Japan and Europe and increased catheter sales volume were
the primary contributors to the improvement. The earnings effect of the higher
sales was partially offset by higher standard product costs associated with the
new Ireland Ioversol production facility and pricing pressures related to
Optiray. The Optiray production capacity expansions underway last year were
essentially complete by year end. Management received approval of Albunex, its
ultrasound contrast agent in August 1994, with product launch anticipated soon.
Nuclear medicine sales showed an increase of 2 percent. Higher sales volume
in the U.S. and Europe associated with thallium and TechneScan MAG3 were
partially offset by unfavorable foreign exchange rates and price pressures. In
June 1994, OctreoScan, a radiopharmaceutical used to aid diagnosis of certain
cancer tumors, received FDA approval. This and other new products are expected
to help improve sales growth.
Strong results for the anesthesiology and critical care business were a
significant factor in the overall year-to-year comparison. Sales increased 32
percent. Newly acquired businesses and improved U.S. sales associated with
HemoCue as a result of hemoglobin products receiving waiver status contributed
to the improvement. Operating earnings increases were partially offset by
unfavorable year-to-year foreign currency effects and amortization of
intangibles related to acquisitions.
1993 VS. 1992
Mallinckrodt Medical's strong performance continued through 1993. Net sales
increased 26 percent and operating earnings rose 36 percent, after absorbing $4
million in additional pre-tax charges related to changes in accounting for
employee benefits. Results were balanced as all segments of the business, led by
radiology, contributed to the improvement.
The excellent performance of the radiology and cardiology business continued
as sales were up 30 percent. Strong sales volume for the x-ray contrast medium
Optiray in North America and Europe, and product introduction in Japan, which
was begun in late 1992, were the main contributors.
Nuclear medicine sales increased 14 percent. Higher sales of thallium in the
U.S. and Europe associated with double injection procedures and pharmacological
stress tests favorably impacted results. The rate of increase over 1992 for
thallium sales moderated in the second half of 1993. Higher TechneScan MAG3 and
UltraTag RBC agent kit sales and continued growth of OctreoScan sales in Europe
contributed to the improved results.
Anesthesiology and critical care sales improved 32 percent. Higher airway
management product sales, the full year impact of the WarmTouch product line
sales, higher sales associated with the GEM family of blood gas and electrolyte
analyzers, and acquired businesses were all factors in increased results.
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
MALLINCKRODT VETERINARY
(In millions) Years Ended June 30, 1994 1993 1992
- -----------------------------------------------------------------------------------
Net sales:
- -----------------------------------------------------------------------------------
Pharmaceuticals $249 $258 $285
- -----------------------------------------------------------------------------------
Biologicals 95 105 104
- -----------------------------------------------------------------------------------
Feed Ingredients 162 169 172
- -----------------------------------------------------------------------------------
Veterinary Specialties & Other 86 86 81
- -----------------------------------------------------------------------------------
$592 $618 $642
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Operating earnings (loss):
- -----------------------------------------------------------------------------------
Ongoing operations $ 53 $ 40 $ 69
- -----------------------------------------------------------------------------------
Restructuring charges (20) (283)
- -----------------------------------------------------------------------------------
$ 33 $(243) $ 69
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- -----------------------------------------------------------------------------------
Ongoing operating earnings
as a percent of sales 8.9% 6.5% 10.8%
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
30
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1994 VS. 1993
Mallinckrodt Veterinary's operating earnings of $33 million included a pre-tax
restructuring charge of $20 million to adjust a prior year provision associated
with the decision to discontinue development of porcine somatotropin (PST) in
May 1993. This adjustment effectively removes all remaining PST valuation risk.
Excluding restructuring charges in both years, Mallinckrodt Veterinary's
operating earnings increased 31 percent compared to the previous year on a sales
decline of 4 percent. Improved operating earnings resulted from actions related
to the restructuring program begun last year, which included various cost
control measures, plant closures and a workforce reduction of approximately
1,000 employees resulting in severance costs of $25 million. Lower sales
resulted primarily from global product rationalization programs designed to
eliminate low margin products and from unfavorable currency translation effects.
Pharmaceutical sales for the year decreased 3 percent primarily from product
rationalization programs in Australia and New Zealand and unfavorable currency
translation. Strong sales of parasiticides in Europe, higher sales volumes in
Brazil resulting from expanded distribution rights, and increased sales of
growth promotants in North America partially offset the sales decrease.
Biological sales were down 10 percent for the year, principally from supply
and production problems, unfavorable currency translation effects, product
rationalization programs and lower volumes of companion animal vaccine sales in
North America, partially offset by higher foot and mouth disease vaccine sales
in Brazil.
Feed ingredients sales declined 4 percent from the previous year due to
continuing price deterioration on lower U.S. sales volume.
Veterinary specialities sales were up slightly compared to last year,
primarily from increased sales volumes in Latin America. Lower sales volumes of
a divested business in North America and unfavorable currency translation
negatively impacted 1994 sales.
1993 VS. 1992
Mallinckrodt Veterinary's operating loss of $243 million included a pre-tax
restructuring charge of $283 million related to actions taken as a result of its
unsatisfactory performance. The major components of the charge were the decision
to discontinue development of Mallinckrodt Veterinary's Grolene brand of porcine
somatotropin, including manufacturing and support facilities; closure and
consolidation of manufacturing plants and other distribution and support
facilities; redefinition and reorganization of research and development,
commercial and administrative functions; exit from certain animal health
businesses; and severance costs related to a substantial work-force reduction.
Excluding the restructuring charge, Mallinckrodt Veterinary's operating
earnings declined to $40 million on a net sales decrease of 4 percent, mainly
due to higher manufacturing costs, delayed restart of certain plant operations,
lower North American sales volumes and European recessionary conditions.
Continuing price pressures and lower volumes in feed ingredients and $2 million
in expenses from accounting changes for employee benefits were also negatives.
Sales of pharmaceutical products decreased by 9 percent principally because
of lower animal productivity, antimicrobial and parasiticide volumes. Timing of
prior year marketing and sales programs and shutdown of pharmaceutical
manufacturing in Kansas City, Kansas, were key contributors to the lower sales.
Biological sales were up slightly due to favorable pricing in Brazil which
was almost offset by competitive pricing pressures in North America.
Veterinary specialties sales improved 6 percent from increases across a broad
range of these products.
31
CORPORATE MATTERS
Corporate expense decreased $5 million to $30 million in 1994, after increasing
$5 million in 1993. These changes related primarily to the 1993 pre-tax charges
of $6 million for executive resignations resulting from the performance of
Mallinckrodt Veterinary.
Interest and other nonoperating income (expense), net declined $3 million in
1994 from 1993. This decrease related primarily to the write-down of an
investment, higher bank charges and lower interest income.
Interest expense increased $2 million in 1994 from higher borrowings and
increased interest rates.
Mallinckrodt's reported effective tax rate for continuing operations was 37.3
percent in 1994. Excluding the impact of restructuring charges and statutory
rate changes, that rate was 38.5 percent, compared with 36.8 percent in 1993.
See Note 8 of the Notes for further discussion of income taxes.
FINANCIAL CONDITION
Mallinckrodt's financial resources are expected to continue to be adequate to
support existing businesses, fund the remaining cash expenditures of
approximately $130 million for the Company's restructuring programs and fund new
opportunities. Since June 30, 1993, cash and cash equivalents increased $37
million. Operations provided $227 million of cash, while acquisition and capital
spending totaled $268 million, $61 million of which related to the acquisition
of Catalyst Resources, Inc. and $28 million related to the acquisition of DAR
S.p.A. In July 1993, the Company received $52 million in cash for its dividend
receivable from IMC Fertilizer Group, Inc. The Company's current ratio at June
30, 1994, was 1.4:1. Total debt as a percentage of invested capital was 41
percent.
In August 1987 and October 1988, the Company's Board of Directors authorized
repurchase of a total of 42 million shares of its common stock. Since then 29
million shares have been purchased under this authorization, of which none were
purchased during the year ended June 30, 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 million of 6%
Notes due October 15, 2003, and $100 million of 7% Debentures due December 15,
2013, from this shelf registration. Net proceeds from these offerings totaled
$198 million, of which $90 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 up for renewal in
August 1994. At June 30, 1994, commercial paper borrowings and borrowings under
the U.S. credit line amounted to $172 million and $10 million, respectively. At
June 30, 1994, non-U.S. lines of credit totaling $218 million were also
available and borrowings under these lines amounted to $45 million. The non-U.S.
lines are cancellable at any time.
Estimated capital spending for the fiscal year ending June 30, 1995, is
approximately $260 million.
OTHER MATTERS
The Company does not consider the present rate of inflation to have a
significant impact on the businesses in which it operates except for the
hyperinflationary effects on the Latin American businesses of Mallinckrodt
Veterinary which are discussed in Note 16 of the Notes.
See Note 19 of the Notes for a discussion of environmental matters.
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32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 34
Information by Business Segment. . . . . . . . . . . . . . . . . . . . . . 35
Consolidated Statement of Operations . . . . . . . . . . . . . . . . . . . 36
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . 37
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . 38
Consolidated Statement of Changes in Shareholders' Equity. . . . . . . . . 39
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 40
Quarterly Results (Unaudited). . . . . . . . . . . . . . . . . . . . . . . 50
33
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of Mallinckrodt Group Inc.
We have audited the accompanying consolidated balance sheet of Mallinckrodt
Group Inc. as of June 30, 1994 and 1993, and the related consolidated statements
of operations, changes in shareholders' equity and cash flows for each of the
three years in the period ended June 30, 1994, appearing on pages 35 through 50.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mallinckrodt Group
Inc. at June 30, 1994 and 1993, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended June 30,
1994, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in Notes 8 and 13 to the consolidated financial statements, in
1993 the Company changed its method of accounting for income taxes and employee
benefits.
/s/ Ernst & Young LLP
Ernst & Young LLP
St. Louis, Missouri
August 9, 1994
34
- - INFORMATION BY BUSINESS SEGMENT
NET SALES
(In millions) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
Mallinckrodt Chemical $ 436.9 $ 395.3 $ 440.9
- ------------------------------------------------------------------------------------------------------------------------
Mallinckrodt Medical 912.3 783.1 620.3
- ------------------------------------------------------------------------------------------------------------------------
Mallinckrodt Veterinary 591.7 618.1 641.8
- ------------------------------------------------------------------------------------------------------------------------
Intersegment sales (.8) (.2) (.1)
- ------------------------------------------------------------------------------------------------------------------------
Consolidated $1,940.1 $1,796.3 $1,702.9
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
EARNINGS AND ASSETS
Earnings (Loss) from Continuing
Operations Before Income Taxes Identifiable Assets
----------------------------------- ----------------------------------
(In millions) 1994 1993 1992 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
Mallinckrodt Chemical $ 61.7 $ (5.4) $ 59.7 $ 574.9 $ 460.8 $ 486.8
- ------------------------------------------------------------------------------------------------------------------------
Mallinckrodt Medical 128.9 174.4 127.8 1,102.5 888.6 634.0
- ------------------------------------------------------------------------------------------------------------------------
Mallinckrodt Veterinary 32.6 (242.5) 69.0 660.0 698.0 778.9
- ------------------------------------------------------------------------------------------------------------------------
Corporate (30.2) (35.5) (30.5) 96.9 132.8 151.8
- ------------------------------------------------------------------------------------------------------------------------
Eliminations .1 (.5) (.8) (2.6) (.7)
- ------------------------------------------------------------------------------------------------------------------------
Operating earnings (loss) 193.1 (109.0) 225.5
- ------------------------------------------------------------------------------------------------------------------------
Equity in pre-tax earnings
of joint venture 18.5 10.6 1.6
- ------------------------------------------------------------------------------------------------------------------------
Interest and other
nonoperating income (expense), net (.4) 2.6 15.3
- ------------------------------------------------------------------------------------------------------------------------
Interest expense (39.8) (37.3) (39.6)
- ------------------------------------------------------------------------------------------------------------------------
Consolidated $171.4 $(133.1) $202.8 $2,433.5 $2,177.6 $2,050.8
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Capital Expenditures Depreciation and Amortization
---------------------------------- ----------------------------------
(In millions) 1994 1993 1992 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
Mallinckrodt Chemical $ 41.6 $ 46.2 $ 35.9 $ 26.4 $ 28.0 $ 29.2
- ------------------------------------------------------------------------------------------------------------------------
Mallinckrodt Medical 99.4 95.0 44.4 47.8 37.1 27.2
- ------------------------------------------------------------------------------------------------------------------------
Mallinckrodt Veterinary 28.1 45.9 54.1 27.9 28.8 30.5
- ------------------------------------------------------------------------------------------------------------------------
Corporate 3.2 1.2 16.0 2.5 2.2 2.4
- ------------------------------------------------------------------------------------------------------------------------
Consolidated $172.3 $ 188.3 $150.4 $ 104.6 $ 96.1 $ 89.3
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
(See Note 17 of the Notes to Consolidated Financial Statements)
35
- - CONSOLIDATED STATEMENT OF OPERATIONS
(In millions except per share amounts) Years ended June 30, 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
Net sales $1,940.1 $1,796.3 $1,702.9
- ------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
- ------------------------------------------------------------------------------------------------------------------------
Cost of goods sold 1,037.3 970.6 915.6
- ------------------------------------------------------------------------------------------------------------------------
Selling, administrative and general expenses 522.0 511.2 480.3
- ------------------------------------------------------------------------------------------------------------------------
Research and development expenses 95.3 95.3 90.5
- ------------------------------------------------------------------------------------------------------------------------
Restructuring charge 93.9 334.1
- ------------------------------------------------------------------------------------------------------------------------
Other operating income, net (1.5) (5.9) (9.0)
- ------------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 1,747.0 1,905.3 1,477.4
- ------------------------------------------------------------------------------------------------------------------------
Operating earnings (loss) 193.1 (109.0) 225.5
- ------------------------------------------------------------------------------------------------------------------------
Equity in pre-tax earnings of joint venture 18.5 10.6 1.6
- ------------------------------------------------------------------------------------------------------------------------
Interest and other nonoperating income (expense), net (.4) 2.6 15.3
- ------------------------------------------------------------------------------------------------------------------------
Interest expense (39.8) (37.3) (39.6)
- ------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations before income taxes 171.4 (133.1) 202.8
Income tax provision (benefit) 64.0 (19.3) 74.0
- ------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations 107.4 (113.8) 128.8
- ------------------------------------------------------------------------------------------------------------------------
Loss from discontinued operations (3.6) (6.0) (1.3)
- ------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before cumulative effect of accounting changes 103.8 (119.8) 127.5
- ------------------------------------------------------------------------------------------------------------------------
Cumulative effect of accounting changes (80.6)
- ------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) 103.8 (200.4) 127.5
- ------------------------------------------------------------------------------------------------------------------------
Preferred stock dividends (.4) (.4) (.4)
- ------------------------------------------------------------------------------------------------------------------------
Available for common shareholders $ 103.4 $ (200.8) $ 127.1
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER COMMON SHARE
Continuing operations $ 1.38 $ (1.48) $ 1.65
- ------------------------------------------------------------------------------------------------------------------------
Discontinued operations (.05) (.08) (.02)
- ------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before cumulative effect of accounting changes 1.33 (1.56) 1.63
- ------------------------------------------------------------------------------------------------------------------------
Cumulative effect of accounting changes (1.04)
- ------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1.33 $ (2.60) $ 1.63
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
(The accompanying Notes are an integral part of the Consolidated Financial
Statements.)
36
- - CONSOLIDATED BALANCE SHEET
ASSETS
(In millions) At June 30, 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
Current assets:
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 87.9 $ 51.3
- ------------------------------------------------------------------------------------------------------------------------
Trade receivables, less allowances of $11.1 in 1994 and $13.4 in 1993 343.6 319.4
- ------------------------------------------------------------------------------------------------------------------------
IFL dividend receivable 51.9
- ------------------------------------------------------------------------------------------------------------------------
Inventories 376.9 353.4
- ------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 77.6 21.3
- ------------------------------------------------------------------------------------------------------------------------
Other current assets 46.0 39.2
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 932.0 836.5
- ------------------------------------------------------------------------------------------------------------------------
Investments and long-term receivables, less allowances of
$13.1 in 1994 and $12.5 in 1993 147.0 132.6
- ------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 1,396.0 1,192.9
- ------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation (532.8) (494.0)
- ------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 863.2 698.9
- ------------------------------------------------------------------------------------------------------------------------
Intangible assets 489.3 466.9
- ------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 2.0 42.7
- ------------------------------------------------------------------------------------------------------------------------
Total assets $2,433.5 $2,177.6
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
(In millions except share and per share amounts)
- ------------------------------------------------------------------------------------------------------------------------
Current liabilities:
- ------------------------------------------------------------------------------------------------------------------------
Short-term debt $ 147.8 $ 189.4
- ------------------------------------------------------------------------------------------------------------------------
Accounts payable 139.4 117.6
- ------------------------------------------------------------------------------------------------------------------------
Accrued liabilities 356.0 311.9
- ------------------------------------------------------------------------------------------------------------------------
Income taxes payable 25.4 11.4
- ------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 2.1 2.5
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 670.7 632.8
- ------------------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities 522.0 427.6
- ------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 36.6 25.5
- ------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefits 124.7 121.0
- ------------------------------------------------------------------------------------------------------------------------
Other noncurrent liabilities and deferred credits 63.6 60.2
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,417.6 1,267.1
- ------------------------------------------------------------------------------------------------------------------------
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 in 1994 and 1993 87.1 87.1
- ------------------------------------------------------------------------------------------------------------------------
Capital in excess of par value 268.2 262.4
- ------------------------------------------------------------------------------------------------------------------------
Reinvested earnings 846.4 780.3
- ------------------------------------------------------------------------------------------------------------------------
Marketable securities valuation allowance (1.4) (2.2)
- ------------------------------------------------------------------------------------------------------------------------
Foreign currency translation (32.8) (56.4)
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock, at cost (162.6) (171.7)
- ------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,015.9 910.5
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,433.5 $2,177.6
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
(The accompanying Notes are an integral part of the Consolidated Financial
Statements.)
37
- - CONSOLIDATED STATEMENT OF CASH FLOWS
CASH FLOWS -- OPERATING ACTIVITIES
(In millions) Years ended June 30, 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $103.8 $(200.4) $127.5
- ------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
- ------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 104.6 96.1 89.3
- ------------------------------------------------------------------------------------------------------------------------
Restructuring charge 93.0 312.6
- ------------------------------------------------------------------------------------------------------------------------
Cumulative effect of accounting changes 80.6
- ------------------------------------------------------------------------------------------------------------------------
Postretirement benefits 8.3 7.1
- ------------------------------------------------------------------------------------------------------------------------
Deferred income taxes (5.2) (60.6) 19.6
- ------------------------------------------------------------------------------------------------------------------------
Gains on disposals of assets (.6) (2.4) (14.3)
- ------------------------------------------------------------------------------------------------------------------------
Discontinued operations (9.7)
- ------------------------------------------------------------------------------------------------------------------------
Other, net (21.4) (58.4) (42.1)
- ------------------------------------------------------------------------------------------------------------------------
282.5 174.6 170.3
- ------------------------------------------------------------------------------------------------------------------------
Changes in noncash operating working capital:
- ------------------------------------------------------------------------------------------------------------------------
Accounts receivable (12.6) 9.7 (39.1)
- ------------------------------------------------------------------------------------------------------------------------
Inventories (11.4) (11.1) (45.4)
- ------------------------------------------------------------------------------------------------------------------------
Accounts payable, accrued liabilities and income taxes, net (32.1) (37.6) (61.3)
- ------------------------------------------------------------------------------------------------------------------------
Other, net .9 1.0 .1
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 227.3 136.6 24.6
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS -- INVESTING ACTIVITIES
Capital expenditures (172.3) (188.3) (150.4)
- ------------------------------------------------------------------------------------------------------------------------
Acquisition spending (95.5) (201.2) (35.6)
- ------------------------------------------------------------------------------------------------------------------------
IFL dividend receivable 51.9
- ------------------------------------------------------------------------------------------------------------------------
Equity in pre-tax earnings of joint venture, net 14.4 7.7
- ------------------------------------------------------------------------------------------------------------------------
Proceeds from asset disposals 8.6 19.9 44.5
- ------------------------------------------------------------------------------------------------------------------------
Short-term investments 147.8
- ------------------------------------------------------------------------------------------------------------------------
IFL stock sales 139.3
- ------------------------------------------------------------------------------------------------------------------------
Other, net (7.2) (23.3) (4.7)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (200.1) (385.2) 140.9
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS -- FINANCING ACTIVITIES
Increase (decrease) in short-term debt (58.6) 71.4 (225.0)
- ------------------------------------------------------------------------------------------------------------------------
Payments on long-term debt (101.6) (11.1) (64.4)
- ------------------------------------------------------------------------------------------------------------------------
Proceeds from long-term debt 196.4 193.3 7.6
- ------------------------------------------------------------------------------------------------------------------------
Issuance of Mallinckrodt common stock 10.9 17.9 33.9
- ------------------------------------------------------------------------------------------------------------------------
Acquisition of treasury stock (6.5) (33.8)
- ------------------------------------------------------------------------------------------------------------------------
Dividends paid (37.7) (33.2) (29.5)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 9.4 231.8 (311.2)
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 36.6 (16.8) (145.7)
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 51.3 68.1 213.8
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 87.9 $ 51.3 $ 68.1
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
(The accompanying Notes are an integral part of the Consolidated Financial
Statements.)
38
- - CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Preferred Common Capital in Reinvested Other Treasury
Stock Stock Excess of Earnings Stock
(In millions except per share amounts) Par Value
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1991 $10.0 $ 145.2 $179.1 $ 915.9 $ .4 $(166.4)
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings 127.5
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends
- ----------------------------------------------------------------------------------------------------------------------------------
4 Percent cumulative preferred stock
($4.00 a share) (.4)
- ----------------------------------------------------------------------------------------------------------------------------------
Common stock ($.3833 a share) (29.1)
- ----------------------------------------------------------------------------------------------------------------------------------
Change in par value (116.2) 116.2
- ----------------------------------------------------------------------------------------------------------------------------------
Common stock split 58.1 (58.4)
- ----------------------------------------------------------------------------------------------------------------------------------
Stock option exercises 14.4 19.8
- ----------------------------------------------------------------------------------------------------------------------------------
Acquisition of treasury stock (33.8)
- ----------------------------------------------------------------------------------------------------------------------------------
Marketable securities valuation adjustment (.7)
- ----------------------------------------------------------------------------------------------------------------------------------
Translation adjustment 37.6
- ----------------------------------------------------------------------------------------------------------------------------------
Other 1.0 1.8 2.2
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1992 11.0 87.1 253.1 1,013.9 37.3 (178.2)
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss (200.4)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends
- ----------------------------------------------------------------------------------------------------------------------------------
4 Percent cumulative preferred stock
($4.00 a share) (.4)
- ----------------------------------------------------------------------------------------------------------------------------------
Common stock ($.43 a share) (32.8)
- ----------------------------------------------------------------------------------------------------------------------------------
Stock option exercises 7.1 10.8
- ----------------------------------------------------------------------------------------------------------------------------------
Acquisition of treasury stock (6.5)
- ----------------------------------------------------------------------------------------------------------------------------------
Marketable securities valuation adjustment (.4)
- ----------------------------------------------------------------------------------------------------------------------------------
Translation adjustment (95.5)
- ----------------------------------------------------------------------------------------------------------------------------------
Other 2.2 2.2
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1993 11.0 87.1 262.4 780.3 (58.6) (171.7)
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings 103.8
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends
- ----------------------------------------------------------------------------------------------------------------------------------
4 Percent cumulative preferred stock
($4.00 a share) (.4)
- ----------------------------------------------------------------------------------------------------------------------------------
Common stock ($.485 a share) (37.3)
- ----------------------------------------------------------------------------------------------------------------------------------
Stock option exercises 4.0 6.9
- ----------------------------------------------------------------------------------------------------------------------------------
Marketable securities valuation adjustment .8
- ----------------------------------------------------------------------------------------------------------------------------------
Translation adjustment 23.6
- ----------------------------------------------------------------------------------------------------------------------------------
Other 1.8 2.2
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1994 $11.0 $ 87.1 $268.2 $ 846.4 $(34.2) $(162.6)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
(The accompanying Notes are an integral part of the Consolidated Financial
Statements.)
39
- - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions except per share amounts)
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Financial statements of all majority owned subsidiaries are consolidated.
Investments in 20 to 50 percent owned affiliates are reported on the equity
method.
ACCOUNTING CHANGES
In the fourth quarter of 1993 Mallinckrodt adopted Statements of Financial
Accounting Standards (FAS) No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions," FAS No. 109 "Accounting for Income Taxes" and FAS
No. 112 "Employers' Accounting for Postemployment Benefits," all retroactive to
July 1, 1992. See also Notes 8 and 13.
FOREIGN CURRENCY TRANSLATION
The financial statements of most of the Company's international affiliates are
translated into U.S. dollars using current exchange rates. Unrealized
translation adjustments are included in shareholders' equity in the Consolidated
Balance Sheet.
The financial statements of international affiliates that operate in
hyperinflationary economies, principally Brazil and Argentina, are translated at
either current or historical exchange rates, as appropriate. Unrealized
translation adjustments are included in operating results for these affiliates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of certificates of deposit, time
deposits and other short-term securities with maturities of three months or less
from the date of purchase.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost for inventories is
determined on either an average or first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is based upon
estimated useful lives of 15 to 45 years for buildings and 4 to 15 years for
machinery and equipment, using principally the straight-line method.
When property or equipment is disposed, the related cost and accumulated
depreciation are eliminated from the respective accounts. Any gain or loss on
disposition is reflected in current period income or expense.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to the current
year presentation.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 1
CHANGES IN BUSINESS
NAME CHANGE AND HEADQUARTERS RELOCATION
On March 15, 1994, shareholders approved changing the Company's name from IMCERA
Group Inc. to Mallinckrodt Group Inc. Simultaneous with the corporate name
change, Mallinckrodt Specialty Chemicals changed its name to Mallinckrodt
Chemical, Inc. and Pitman-Moore changed its name to Mallinckrodt Veterinary,
Inc.
In March 1994, the Company moved its corporate headquarters from Northbrook,
Illinois, to St. Louis, Missouri.
RESTRUCTURING PROGRAMS
In the fourth quarter of 1994 the Company recorded a restructuring charge of
$93.9 million, $58.8 million after taxes, or $.76 per share, relating to
Mallinckrodt Medical and Mallinckrodt Veterinary. Restructuring actions related
to the program are in process and are expected to be substantially complete in
one year. The Mallinckrodt Medical pre-tax restructuring charge of $73.9 million
included the reorganization of the current medical specialty oriented U.S. sales
structure into a unified organization divided into geographical districts;
reorganization to reduce, centralize and standardize certain non-sales related
functions and management processes; rationalization of manufacturing operations
for substantial worldwide cost and sourcing improvements; and severance costs
related to an associated work-force reduction. Pre-tax cash expenditures for
this restructuring should approximate $65 million, consisting of $28 million for
severance costs for about 500 people at various locations around the world, $15
million for consulting, $13 million for manufacturing rationalization and $9
million for other items. The non-cash pre-tax portion of the charge should
approximate $9 million, primarily relating to manufacturing rationalization.
Also included in the restructuring is an additional $20 million pre-tax charge
to adjust a prior year provision associated with Mallinckrodt Veterinary's
decision to discontinue development of porcine somatotropin (PST) in May 1993.
In the fourth quarter of 1993 the Company recorded a restructuring charge of
$334.1 million, $242.2 million after taxes, or $3.13 per share relating to
Mallinckrodt Veterinary and Mallinckrodt Chemical. Restructuring actions related
to the program are substantially complete at June 30, 1994 and the remainder
will be complete in approximately one year. Pre-tax cash expenditures for
restructuring charges are expected to approximate the original estimate of $173
million and are primarily related to severance costs of $54 million, lease costs
related to a closed facility of $55 million, consulting costs of $15 million,
and manufacturing rationalization and other costs of $49 million. As of June 30,
1994, $79 million has been spent relating to the restructuring. The $161 million
non-cash portion of the charges primarily related to the write-off of plant
facilities.
40
The Mallinckrodt Veterinary 1993 pre-tax restructuring charge of $282.8
million included the discontinuance of the development of the Grolene brand of
porcine somatotropin, including manufacturing and support facilities; closure
and consolidation of manufacturing and other distribution and support
facilities; redefinition and reorganization of research and development,
commercial and administrative functions; exit of certain animal health
businesses; and severance costs related to a work-force reduction of
approximately 1,000 employees.
As part of the 1993 program, Mallinckrodt Chemical also recorded a pre-tax
charge of $51.3 million, primarily to exit its aromatic fluorine intermediates
and photochemical businesses and close or sell the related facilities. The
restructuring charge included approximately $40 million for write-down of
carrying value of plant facilities and $11 million of cash expenditures.
ACQUISITIONS
In 1994, Mallinckrodt Chemical acquired Catalyst Resources, Inc., a manufacturer
of polymerization and chemical catalysts for $61.2 million, and Mallinckrodt
Medical acquired DAR S.p.A., a manufacturer of anesthesiology and respiratory
care products for $28.0 million. These acquisitions were accounted for as
purchases.
In 1993, Mallinckrodt Medical acquired the businesses of HemoCue
Intressenter, A.B., a manufacturer of point-of-care blood chemistry systems, and
the tracheostomy products business of Sorin Biomedical, Inc. The acquisitions
were accounted for as purchases. The cost of these acquisitions, including
acquisition accruals, totaled $198.0 million.
The results of operations of the above acquisitions were included in the
consolidated financial statements from their respective acquisition dates.
Results of operations for periods prior to acquisition were not material to
Mallinckrodt.
TASTEMAKER JOINT VENTURE
Effective February 1, 1992, the Fries & Fries, Inc. unit of Mallinckrodt
Chemical and Hercules Incorporated's flavors businesses were combined to form a
50/50 joint-venture partnership. Results subsequent to the formation of the
joint venture were recorded on a pre-tax equity basis. The 1992 results included
charges totaling $3.8 million, $2.4 million after taxes, or $.03 per share, for
combining the two businesses. Related income taxes were included in the
Company's consolidated income tax provision.
DIVESTITURES
In 1992, Mallinckrodt Chemical disposed of its electronic and cosmetic chemical
businesses. Results of operations and the effect of the disposition of these
businesses were not material to Mallinckrodt.
DISCONTINUED OPERATIONS
The discontinued operations charges for 1994, 1993 and 1992 primarily included
environmental and related litigation costs and postretirement benefits costs
related to operations previously disposed.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 2
EARNINGS PER COMMON SHARE
Earnings per common share amounts were computed on the basis of the weighted
average number of common and common equivalent shares outstanding. Such weighted
average shares used in the computations were 77,607,416 in 1994; 77,408,668 in
1993 and 77,801,473 in 1992.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 3
SUPPLEMENTAL CASH FLOW INFORMATION
- --------------------------------------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------
Interest paid $33.0 $35.8 $34.1
- --------------------------------------------------------------------------------
Income taxes paid 37.8 35.1 63.3
- --------------------------------------------------------------------------------
Non-cash investing and
financing activities:
- --------------------------------------------------------------------------------
Assumption of liabilities
related to acquisitions 12.2
- --------------------------------------------------------------------------------
Issuance of common stock for
restricted stock awards 4.0 4.4 5.0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 4
INVENTORIES
- --------------------------------------------------------------------------------
At June 30, 1994 1993
- --------------------------------------------------------------------------------
Mallinckrodt Chemical $106.8 $ 94.1
- --------------------------------------------------------------------------------
Mallinckrodt Medical 141.5 128.5
- --------------------------------------------------------------------------------
Mallinckrodt Veterinary 129.3 131.6
- --------------------------------------------------------------------------------
Intersegment eliminations (.7) (.8)
- --------------------------------------------------------------------------------
$376.9 $353.4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
41
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 5
INVESTMENTS AND LONG-TERM RECEIVABLES
- -------------------------------------------------------------------------------
At June 30, 1994 1993
- -------------------------------------------------------------------------------
Tastemaker joint venture $ 74.9 $ 62.0
- -------------------------------------------------------------------------------
Other investments 21.4 19.1
- -------------------------------------------------------------------------------
Other long-term receivables, net 50.7 51.5
- -------------------------------------------------------------------------------
$147.0 $132.6
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 6
PROPERTY, PLANT AND EQUIPMENT
- -------------------------------------------------------------------------------
At June 30, 1994 1993
- -------------------------------------------------------------------------------
Land $ 69.3 $ 67.5
- -------------------------------------------------------------------------------
Buildings and
leasehold improvements 352.9 270.1
- -------------------------------------------------------------------------------
Machinery and equipment 872.4 695.5
- -------------------------------------------------------------------------------
Construction in progress 101.4 159.8
- -------------------------------------------------------------------------------
1,396.0 1,192.9
- -------------------------------------------------------------------------------
Accumulated depreciation (532.8) (494.0)
- -------------------------------------------------------------------------------
$ 863.2 $ 698.9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Capitalized interest costs were $3.7 million in 1994, $6.3 million in 1993 and
$1.8 million in 1992.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 7
INTANGIBLE ASSETS
- -------------------------------------------------------------------------------
At June 30, 1994 1993
- -------------------------------------------------------------------------------
Goodwill and other intangibles $518.9 $529.0
- -------------------------------------------------------------------------------
Patents and technology 63.7 55.5
- -------------------------------------------------------------------------------
Contracts 18.8
- -------------------------------------------------------------------------------
582.6 603.3
- -------------------------------------------------------------------------------
Accumulated amortization (111.0) (150.2)
- -------------------------------------------------------------------------------
471.6 453.1
- -------------------------------------------------------------------------------
Deferred charges 17.7 13.8
- -------------------------------------------------------------------------------
$489.3 $466.9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Identifiable intangible assets are amortized over estimated useful lives of up
to 5 years for contracts and 8 to 25 years for patents and technology. Goodwill
and other intangibles are amortized primarily on a straight-line basis over 10
to 40 years.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 8
INCOME TAXES
In the first quarter of 1994, the Revenue Reconciliation Act of 1993 was signed.
This Act increased the Federal statutory income tax rate 1 percent, to 35
percent, retroactive to January 1, 1993. Additionally, in the third quarter
certain foreign (primarily German and Swedish) tax rates decreased. The net
impact of these rate changes resulted in a non-recurring tax benefit of $3.0
million related to the revaluation of deferred taxes in accordance with FAS 109,
"Accounting for Income Taxes."
In the fourth quarter of 1993, the Company adopted the
provisions of FAS 109, retroactive to July 1, 1992. The adoption of this
standard changed the Company's method of accounting for income taxes from the
deferred method to the liability method. The cumulative effect of this change at
July 1, 1992 pertaining to years prior to 1993, amounted to a charge of $16.5
million, or $.21 per share. Apart from the cumulative effect charge, the impact
of this change on 1993 continuing operations was favorable by $1.6 million, or
$.02 per share. Financial statements for 1992 were not restated. Results shown
below for 1992 were determined using the deferred method. Included in the FAS
109 adoption at July 1, 1992, were valuation allowances of $15.7 million.
Income taxes included in the Consolidated Statement of Operations were:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
Continuing operations $64.0 $(19.3) $74.0
- -------------------------------------------------------------------------------
Discontinued operations (2.0) (3.1) 7.3
- -------------------------------------------------------------------------------
Cumulative effect of
accounting changes 19.4
- -------------------------------------------------------------------------------
$62.0 $ (3.0) $81.3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The geographical sources of earnings (loss) from continuing operations before
income taxes were:
- -------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
United States $ 87.1 $(126.2) $122.4
- -------------------------------------------------------------------------------
Outside United States 84.3 (6.9) 80.4
- -------------------------------------------------------------------------------
$171.4 $(133.1) $202.8
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
42
The components of the income tax provision (benefit) charged (credited) to
continuing operations follow. The deferred tax provision results from
differences in the recognition of income and expense for tax and financial
reporting purposes; primarily depreciation, restructuring charges and benefit
costs.
- -------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
Current:
- -------------------------------------------------------------------------------
U.S. Federal $ 38.0 $ 15.0 $ 12.7
- -------------------------------------------------------------------------------
U.S. State and local 6.5 6.5 5.2
- -------------------------------------------------------------------------------
Outside United States 25.0 19.8 16.3
- -------------------------------------------------------------------------------
69.5 41.3 34.2
- -------------------------------------------------------------------------------
Deferred:
- -------------------------------------------------------------------------------
U.S. Federal (13.0) (57.3) 26.2
- -------------------------------------------------------------------------------
U.S. State and local .8 (2.9) 1.8
- -------------------------------------------------------------------------------
Outside United States 6.7 (.4) 11.8
- -------------------------------------------------------------------------------
(5.5) (60.6) 39.8
- -------------------------------------------------------------------------------
$ 64.0 $(19.3) $74.0
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Factors causing the effective tax rate for continuing operations
to differ from the U.S. Federal statutory rate were:
- -------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
Computed tax at the U.S.
Federal statutory rate $60.0 $(45.3) $69.0
- -------------------------------------------------------------------------------
Statutory rate changes (3.0)
- -------------------------------------------------------------------------------
Adjustments to income
tax accruals (5.0) (5.0)
- -------------------------------------------------------------------------------
State income taxes,
net of Federal benefit 4.7 5.8 4.6
- -------------------------------------------------------------------------------
Nondeductible goodwill 2.7 3.0 3.0
- -------------------------------------------------------------------------------
Restructuring 21.7
- -------------------------------------------------------------------------------
Other items (none in
excess of 5% of
computed tax) (.4) .5 2.4
- -------------------------------------------------------------------------------
Income tax provision
(benefit) $64.0 $(19.3) $74.0
- -------------------------------------------------------------------------------
Effective tax rate 37.3% 14.5% 36.5%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Company's effective tax rate for 1994 before the net tax benefit from the
restructuring charge and the previously discussed statutory rate changes was
38.5 percent. The 1993 effective rate before the net benefit for restructuring
and FAS 109 adoption was 36.8 percent. The favorable adjustments to income tax
accruals included in the preceding table resulted from the conclusion of income
tax audits that spanned a number of years.
The Company had the following deferred tax balances at
June 30, 1994 and 1993:
- -------------------------------------------------------------------------------
1994 1993
- -------------------------------------------------------------------------------
Deferred tax assets:
Restructuring accruals $ 97.9 $ 84.1
- -------------------------------------------------------------------------------
Employee benefits 57.6 51.6
- -------------------------------------------------------------------------------
Net operating losses 45.5 45.3
- -------------------------------------------------------------------------------
Alternative minimum tax credit 12.9 18.9
- -------------------------------------------------------------------------------
Environmental accruals 5.4 4.1
- -------------------------------------------------------------------------------
Other, net 2.4
- -------------------------------------------------------------------------------
Gross deferred tax assets 221.7 204.0
- -------------------------------------------------------------------------------
Valuation allowance (49.8) (49.9)
- -------------------------------------------------------------------------------
Total deferred tax assets 171.9 154.1
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment 86.7 64.5
- -------------------------------------------------------------------------------
Receivables 24.1 26.7
- -------------------------------------------------------------------------------
Intangible assets 20.2 26.7
- -------------------------------------------------------------------------------
Other, net .2
- -------------------------------------------------------------------------------
Total deferred tax liabilities 131.0 118.1
- -------------------------------------------------------------------------------
Net deferred tax assets $ 40.9 $ 36.0
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
43
The alternative minimum tax credit of $12.9 million is available to reduce
future Federal taxes payable and has an unlimited carryforward period.
The tax benefit of the Company's net operating loss carryforwards of $45.5
million relate to its non-U.S. operations, primarily in Germany ($25.5 million
with no expiration date).
Undistributed earnings of certain subsidiaries outside the United States are
considered to be permanently invested. Accordingly, no provision for income
taxes was made for undistributed earnings of such subsidiaries which aggregated
$155.7 million at June 30, 1994.
The income tax provisions for discontinued operations reflects charges for
book and tax basis differences relative to the Company's investment in IMC
Fertilizer Group, Inc. (IFL) stock that amounted to $9.7 million in 1992.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 9
ACCRUED LIABILITIES
- -------------------------------------------------------------------------------
At June 30, 1994 1993
- -------------------------------------------------------------------------------
Restructuring accruals $176.1 $147.0
- -------------------------------------------------------------------------------
Salaries, wages and bonuses 29.5 22.6
- -------------------------------------------------------------------------------
Former operations 17.3 19.1
- -------------------------------------------------------------------------------
Taxes other than income taxes 15.6 14.3
- -------------------------------------------------------------------------------
Sales promotions and incentives 9.1 16.6
- -------------------------------------------------------------------------------
Interest 8.3 7.6
- -------------------------------------------------------------------------------
Pension 7.7 9.7
- -------------------------------------------------------------------------------
Other 92.4 75.0
- -------------------------------------------------------------------------------
$356.0 $311.9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 10
DEBT
The components of short-term debt were:
- -------------------------------------------------------------------------------
At June 30, 1994 1993
- -------------------------------------------------------------------------------
Commercial paper $ 72.5 $ 90.5
- -------------------------------------------------------------------------------
Notes payable 55.0 84.2
- -------------------------------------------------------------------------------
Current maturities of long-term debt 20.3 14.7
- -------------------------------------------------------------------------------
$147.8 $189.4
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The components of long-term debt were:
- -------------------------------------------------------------------------------
At June 30, 1994 1993
- -------------------------------------------------------------------------------
Commercial paper $100.0 $190.0
- -------------------------------------------------------------------------------
9.875% debentures due in annual
installments of $15.0 million,
beginning in 2002, with final
payment of $12.8 million in 2011 134.6 134.6
- -------------------------------------------------------------------------------
8.75% promissory note due in annual
installments of $10.3 million, with
final payment of $.5 million
in 1998 31.3 51.8
- -------------------------------------------------------------------------------
7% debentures due 2013 98.5
- -------------------------------------------------------------------------------
6% notes due 2003 99.2
- -------------------------------------------------------------------------------
Other 78.7 65.9
- -------------------------------------------------------------------------------
542.3 442.3
- -------------------------------------------------------------------------------
Less current maturities 20.3 14.7
- -------------------------------------------------------------------------------
$522.0 $427.6
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
At June 30, 1994 and 1993, commercial paper totaling $100.0 million and $190.0
million respectively, has been classified as long-term debt as it is backed by
long-term lines of credit.
The 9.875% debentures are redeemable at the option of Mallinckrodt at 100
percent in 2001 and thereafter. The 7% debentures and 6% notes are not
redeemable prior to maturity.
Maturities of long-term debt for the next five years are:
1995-$20.3 million; 1996-$18.3 million; 1997-$128.7 million (includes $100.0
million of commercial paper); 1998-$19.4 million; and 1999-$1.7 million.
Financial instruments included in the Consolidated Balance Sheet were at
amounts approximating fair value at June 30, 1994. The fair value of the long-
term debt was estimated based on the current interest rates available to the
Company for debt with similar maturities and characteristics.
44
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 11
LINES OF CREDIT
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 up for renewal in August
1994. Under the terms of these agreements, interest rates are determined at the
time of borrowing and are based on London Interbank Offered Rates plus .40
percent, or other alternative rates.
Commercial paper and borrowings under the U.S. credit lines of $172.5 million
and $10.0 million, respectively, were outstanding at June 30, 1994. Non-U.S.
lines of credit totaling $218.3 million are also available and borrowings under
these lines were $45.0 million at June 30, 1994. These non-U.S. lines are
cancellable at any time.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 12
PENSION PLANS
The Company has pension plans covering substantially all its employees that
provide for retirement benefits based on years of service and the level of
compensation for the highest three to five years occurring generally within a
period of up to 10 years prior to retirement. Contributions to the U.S. plans
meet ERISA minimum funding requirements.
Pension expense for continuing operations follows:
- -------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
Service cost $ 19.2 $ 17.1 $ 15.2
- -------------------------------------------------------------------------------
Interest cost on projected
benefit obligation 30.8 29.9 27.8
- -------------------------------------------------------------------------------
Earnings on plan assets (21.2) (35.0) (39.1)
- -------------------------------------------------------------------------------
Net amortization of initial
unrecognized asset and
deferral of subsequent
unrecognized net gains
and losses (7.5) 9.3 13.5
- -------------------------------------------------------------------------------
$ 21.3 $ 21.3 $ 17.4
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. pension expense in 1994, 1993 and 1992 was $18.1 million, $15.7 million
and $12.4 million, respectively.
Assumptions used in determining the actuarial present value of benefit
obligations follow:
- -------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
Discount rate 8.0% 8.5% 9.0%
- -------------------------------------------------------------------------------
Long-term rate of
return on plan assets 10.0% 10.0% 10.0%
- -------------------------------------------------------------------------------
Compensation increase rate 5.5% 6.0% 6.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The plans' assets mostly relate to U.S. plans and consist primarily of
corporate equities, U.S. government debt securities and units of participation
in a collective short-term investment fund.
The funded status of Mallinckrodt's U.S. and non-U.S. pension plans and amounts
recognized in the balance sheet follow:
1994 1993
----------------------------------------- ------------------------------------------
Plans With Assets Plans With Plans With Assets Plans With
In Excess of Accumulated Benefits In Excess of Accumulated Benefits
Accumulated Benefits In Excess of Assets Accumulated Benefits In Excess of Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Assets at fair value $292.0 $ 41.2 $304.8 $ 29.3
- ----------------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
- ----------------------------------------------------------------------------------------------------------------------------------
Vested benefits 242.8 56.7 218.5 49.0
- ----------------------------------------------------------------------------------------------------------------------------------
Nonvested benefits 5.5 6.5 6.3 4.0
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 248.3 63.2 224.8 53.0
- ----------------------------------------------------------------------------------------------------------------------------------
Projected future salary increases 67.6 23.4 84.6 14.7
- ----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation 315.9 86.6 309.4 67.7
- ----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets (23.9) (45.4) (4.6) (38.4)
- ----------------------------------------------------------------------------------------------------------------------------------
Items not yet recognized in earnings:
- ----------------------------------------------------------------------------------------------------------------------------------
Unrecognized net loss 28.2 7.9 7.3 4.3
- ----------------------------------------------------------------------------------------------------------------------------------
Unamortized transition (asset) liability (2.4) 12.7 (2.0) 14.3
- ----------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension liability $ 1.9 $(24.8) $ .7 $(19.8)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
45
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 13
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Mallinckrodt provides certain health care benefits for U.S. salaried and hourly
retired employees. Employees may become eligible for health care benefits if
they retire after attaining specified age and service requirements while they
worked for the Company. Health care benefits are paid directly by Mallinckrodt.
In the fourth quarter of 1993, the Company adopted FAS 106 "Employers"
Accounting for Postretirement Benefits Other Than Pensions' retroactive to July
1, 1992. This statement requires that the cost of these benefits be accrued
during the employees' working careers. The Company elected to immediately
recognize the cumulative effect of adoption rather than amortize it over future
periods. The cumulative effect of the change as of July 1, 1992, was a charge of
$63.0 million, or $.81 per share, after a deferred tax benefit of $35.3 million.
The 1993 incremental effect of FAS 106 was a charge of $7.1 million, $4.5
million after taxes, or $.06 a share. The cost of providing these benefits was
previously recognized in the period in which the benefits were paid.
Net periodic postretirement benefits expense for 1994 and 1993 consisted of
the following:
- -------------------------------------------------------------------------------
1994 1993
- -------------------------------------------------------------------------------
Service cost for benefits earned
during the year $ 3.6 $ 3.8
- -------------------------------------------------------------------------------
Interest cost on benefit obligation 10.4 10.7
- -------------------------------------------------------------------------------
$ 14.0 $ 14.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The following table presents the plan's funded status reconciled with amounts
recognized in the Company's statement of financial postition:
- -------------------------------------------------------------------------------
1994 1993
- -------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation (APBO):
- -------------------------------------------------------------------------------
Retirees $ 94.7 $ 75.9
- -------------------------------------------------------------------------------
Active employees 56.5 46.0
- -------------------------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets 151.2 121.9
- -------------------------------------------------------------------------------
Unrecognized net loss (26.5)
- -------------------------------------------------------------------------------
Accrued postretirement benefit cost $124.7 $121.9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The discount rate used in determining the APBO at June 30, 1994 and 1993, was
8.0 percent and 8.5 percent, respectively.
The assumed health care cost trend rate used in measuring the APBO at June 30,
1994 was 10.5 percent, gradually declining to 5.5 percent in 2005 and
thereafter. At June 30, 1993 a rate of 11.0 percent was used, gradually
declining to 5.5 percent in 2004 and thereafter. A one percentage point increase
in the health care cost trend rate would increase the APBO as of June 30, 1994,
by $20.6 million and the aggregate service and interest cost by $2.8 million.
The 1992 cost for these postretirement benefits on a pay-as-you-go basis was
$4.4 million, all of which was included in continuing operations.
Also in the fourth quarter of 1993, the Company adopted FAS 112 "Employers'
Accounting for Postemployment Benefits." This statement requires the accrual
method of recognizing the cost of postemployment benefits such as disability-
related benefits. The cumulative effect of adopting FAS 112 retroactively to
July 1, 1992, was a charge of $1.1 million after taxes, or $.02 per share. The
incremental effect of this change on 1993 operations was a charge of $1.4
million, $.9 million after taxes, or $.01 per share.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 14
CAPITAL STOCK
The Company has authorized and issued 100,000 shares,
98,330 outstanding at June 30, 1994, par value $100, 4 Percent Cumulative
preferred stock. This stock, with voting rights, is redeemable at the Company's
option at $110 a share. During the three years ended June 30, 1994, the number
of issued and outstanding shares did not change.
At June 30, 1994, the Company has authorized 1,400,000 shares, par value $1,
of series preferred stock, none of which is outstanding.
Each outstanding common share includes a non-voting common stock purchase
right. If a person or group acquires or has the right to acquire 20 percent or
more of the common stock or commences a tender offer for 30
percent or more of the common stock, the rights become exercisable by the holder
who may then purchase $167 worth of common stock for $83 unless, in lieu
thereof, the Board of Directors causes the exchange of each outstanding right
for one share of common stock (in either case exclusive of the rights held by
the acquiring person or group which are voided). In the event of a merger or
sale of 50 percent or more of the Company's assets, the rights may in certain
circumstances entitle the holder to purchase $167 worth of stock in the
surviving entity for $83. The rights may be redeemed by the Board at a price of
$.017 per right at any time before they become exercisable, and unless they
become exercisable, they will expire March 31, 1996.
The Board of Directors has approved a three year incentive award program for
executive officers effective July 1, 1994 which expires June 30, 1997. There are
1,000,000 common shares reserved for issuance under this plan.
46
Common shares reserved at June 30, 1994, consisted of the following:
- -------------------------------------------------------------------------------
Exercise of common stock purchase rights 88,408,928
- -------------------------------------------------------------------------------
Exercise of stock options and granting of
stock awards 11,402,695
- -------------------------------------------------------------------------------
99,811,623
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Changes in the number of shares of common stock issued and in treasury were as
follows:
- -------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
Common stock issued 87,116,289 87,116,289 87,116,289
- -------------------------------------------------------------------------------
Treasury common stock:
Balance, beginning
of year 10,671,514 11,371,742 11,903,220
- -------------------------------------------------------------------------------
Stock options
exercised (429,645) (833,560) (1,404,262)
- -------------------------------------------------------------------------------
Purchased 19 274,267 1,029,123
- -------------------------------------------------------------------------------
(Awards) cancellations
of restricted shares (131,832) (140,935) (156,339)
- -------------------------------------------------------------------------------
Balance, end of year 10,110,056 10,671,514 11,371,742
- -------------------------------------------------------------------------------
Common stock out-
standing, end of year 77,006,233 76,444,775 75,744,547
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 15
STOCK PLANS
Three non-qualified stock option plans adopted in 1973, 1981 and 1990, as
amended, provide for granting options to purchase up to 21,817,650 shares of
common stock at prices not less than 100 percent of market price (as defined) at
the date of grant. Options under these plans are exercisable over nine years
beginning one year after the date of grant and are limited to 50 percent during
the first year of eligibility. A total of 16,901,318 shares was granted under
these plans through June 30, 1994.
Information on stock option activity follows:
- -------------------------------------------------------------------------------
Number of Options Price Range 1994 1993
- -------------------------------------------------------------------------------
Outstanding, beginning
of year $10-40 4,883,358 4,645,812
- -------------------------------------------------------------------------------
Granted 25-38 1,363,680 1,325,749
- -------------------------------------------------------------------------------
Cancelled 10-40 (465,661) (254,643)
- -------------------------------------------------------------------------------
Exercised 10-37 (429,645) (833,560)
- -------------------------------------------------------------------------------
Outstanding, end of year 10-40 5,351,732 4,883,358
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
At June 30,
- -------------------------------------------------------------------------------
Exercisable 3,478,030 3,061,389
- -------------------------------------------------------------------------------
Reserved for future option grants 4,980,448 6,010,299
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The average exercise price of outstanding stock options at
June 30, 1994, was $30.00 a share, based on an aggregate exercise price of about
$161 million. Outstanding stock options will expire over a period ending no
later than June 13, 2004.
The 1973 non-qualified stock option and award plan also provides for the award
of restricted shares of Mallinckrodt's common stock to executive officers. Under
provisions of the plan, the grantee makes no cash payment for the award and the
shares are held in escrow until vested, with the grantee being unable to dispose
of the restricted shares until vested. Upon forfeiture of any share of
restricted stock in accordance with the stock option and award plan, or the
terms and conditions of the award, the shares would automatically be transferred
to and reacquired by the Company at no cost. In 1994 and 1993, the Company
issued from its treasury stock 131,832 and 140,935 restricted shares,
respectively. A total of 424,106 shares of restricted stock previously awarded
to executive officers vested on June 30, 1994. An additional award of 5,000
shares of restricted stock will vest on April 3, 1996.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 16
INTERNATIONAL OPERATIONS
Sales from continuing operations in the United States to
unaffiliated customers in other geographic areas were as follows:
- -------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
Asia/Pacific $30.3 $17.4 $15.8
- -------------------------------------------------------------------------------
Latin America 24.6 21.1 20.7
- -------------------------------------------------------------------------------
Europe 13.5 12.4 8.4
- -------------------------------------------------------------------------------
Other 5.6 4.3 4.1
- -------------------------------------------------------------------------------
$74.0 $55.2 $49.0
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
47
Net sales, earnings from continuing operations before income taxes, and
identifiable assets by geographic areas follow:
Net Sales to
Unaffiliated Customers 1994 1993 1992
- -------------------------------------------------------------------------------
United States $ 1,223.3 $ 1,121.2 $1,106.3
- -------------------------------------------------------------------------------
Europe 384.8 353.2 317.6
- -------------------------------------------------------------------------------
Asia/Pacific 160.4 161.4 123.5
- -------------------------------------------------------------------------------
Latin America 117.1 112.3 97.0
- -------------------------------------------------------------------------------
Canada 54.5 48.2 58.5
- -------------------------------------------------------------------------------
Consolidated $ 1,940.1 $ 1,796.3 $1,702.9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Earnings
- -------------------------------------------------------------------------------
United States $ 220.0 $ 181.9 $ 179.3
- -------------------------------------------------------------------------------
Europe 67.3 56.5 50.9
- -------------------------------------------------------------------------------
Asia/Pacific 14.6 16.4 15.9
- -------------------------------------------------------------------------------
Latin America 17.8 16.0 12.7
- -------------------------------------------------------------------------------
Canada 4.0 (.4) 2.1
- -------------------------------------------------------------------------------
Restructuring charge (93.9) (334.1)
- -------------------------------------------------------------------------------
Corporate (30.2) (35.5) (30.5)
- -------------------------------------------------------------------------------
Eliminations (6.5) (9.8) (4.9)
- -------------------------------------------------------------------------------
Operating earnings 193.1 (109.0) 225.5
- -------------------------------------------------------------------------------
Equity in pre-tax earnings
of joint venture 18.5 10.6 1.6
- -------------------------------------------------------------------------------
Interest expense, net (40.2) (34.7) (24.3)
- -------------------------------------------------------------------------------
Consolidated $ 171.4 $ (133.1) $ 202.8
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Assets
- -------------------------------------------------------------------------------
United States $1,323.2 $1,192.7 $1,152.0
- -------------------------------------------------------------------------------
Europe 740.0 605.6 504.9
- -------------------------------------------------------------------------------
Asia/Pacific 171.8 155.7 148.8
- -------------------------------------------------------------------------------
Latin America 80.6 78.6 69.1
- -------------------------------------------------------------------------------
Canada 33.3 26.1 33.5
- -------------------------------------------------------------------------------
Corporate 96.9 132.8 151.8
- -------------------------------------------------------------------------------
Eliminations (12.3) (13.9) (9.3)
- -------------------------------------------------------------------------------
Consolidated $2,433.5 $2,177.6 $2,050.8
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Restructuring charges by region were:
- -------------------------------------------------------------------------------
United States $ 93.9 $ 257.9
- -------------------------------------------------------------------------------
Europe 35.4
- -------------------------------------------------------------------------------
Asia/Pacific 33.0
- -------------------------------------------------------------------------------
Latin America 7.8
- -------------------------------------------------------------------------------
$ 93.9 $ 334.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Transfers of product between geographic areas are at prices approximating
those charged to unaffiliated customers.
Net foreign exchange translation losses from businesses
in hyperinflationary economies aggregated $4.2 million, $5.8 million and $5.5
million in 1994, 1993 and 1992, respectively, and have been included in "Other
operating (income) expense, net" in the Consolidated Statement of Operations.
These translation effects were primarily from Mallinckrodt Veterinary
operations in Latin America. Translation effects for all of Mallinckrodt's
businesses were not material in the periods presented.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 17
BUSINESS SEGMENTS
The tables on page 35 show Mallinckrodt's continuing worldwide operations, which
are organized in three industry segments as follows:
MALLINCKRODT CHEMICAL
Production and sale of analgesics and medicinal narcotics used by pharmaceutical
companies; catalysts, specialty inorganics, stearates and laboratory chemicals
used by industry and research organizations. Through the Tastemaker joint
venture, the company also participates in the flavors business.
MALLINCKRODT MEDICAL
Production and sale of products used primarily in hospitals, including x-ray
contrast media, interventional products, diagnostic and therapeutic
radiopharmaceuticals, airway management products, temperature monitoring
products, and blood gas and vital sign monitoring systems.
MALLINCKRODT VETERINARY
Production and sale of pharmaceuticals, biologicals, veterinary specialties,
mineral feed supplements and other health-related products for food and
companion animals.
NONRECURRING CHARGES
Restructuring charges recorded in 1994 and 1993 are discussed in Note 1. The
impact of adopting new accounting standards in 1993 is discussed in Notes 8 and
13.
In 1992, costs associated with nonrecurring deficiencies in technical
manufacturing controls at Mallinckrodt Veterinary's Kansas City, Kansas,
manufacturing facility negatively impacted results by $4.8 million, $3.0 million
after taxes, or $.04 per share.
48
Additionally, in the fourth quarter of 1992 Mallinckrodt Veterinary incurred
$12.8 million of restructuring costs. In that same quarter, adjustments were
made to certain excess accruals that were established in 1990 at the time
Mallinckrodt Veterinary acquired Coopers Animal Health. The provision for
restructuring costs was essentially offset by the accrual adjustments.
In 1993, corporate expense included charges of $5.5 million, $3.4 million
after taxes, or $.04 per share, from executive resignations resulting from the
performance of Mallinckrodt Veterinary which were reported in the Consolidated
Statement of Operations under "Selling, administrative and general expenses."
IMPACT OF ACCOUNTING CHANGES
In addition to the cumulative effect impacts, FAS 106, and to a much lesser
extent FAS 112, reduced the 1993 operating earnings of each business group and
increased corporate expense by the following amounts:
Mallinckrodt Chemical $3.0
- -------------------------------------------------------------------------------
Mallinckrodt Medical 3.5
- -------------------------------------------------------------------------------
Mallinckrodt Veterinary 1.6
- -------------------------------------------------------------------------------
Corporate .4
- -------------------------------------------------------------------------------
$8.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 18
COMMITMENTS
The Company leases office space, data processing equipment, buildings, and
machinery and equipment. Rent expense for continuing operations in 1994, 1993
and 1992 related to operating leases was $32.1 million, $29.6 million and $26.1
million, respectively.
Minimum rent commitments for continuing operations at June 30, 1994, under
operating leases with a remaining non-cancellable period exceeding one year
follow:
- -------------------------------------------------------------------------------
Years ending June 30,
- -------------------------------------------------------------------------------
1995 $132.5
- -------------------------------------------------------------------------------
1996 23.9
- -------------------------------------------------------------------------------
1997 17.8
- -------------------------------------------------------------------------------
1998 15.4
- -------------------------------------------------------------------------------
1999 14.1
- -------------------------------------------------------------------------------
Later years 42.8
- -------------------------------------------------------------------------------
$146.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Company periodically uses forward contracts and swaps to hedge foreign
currency inventory purchase commitments, debt denominated in a foreign currency
and interest rate exposures. Gains and losses on hedge contracts are reported as
a component of the related transaction. At June 30, 1994, forward exchange
contracts with an aggregate contract value of $232.5 million were outstanding.
The difference between the recorded value of the contracts and their
June 30, 1994, market value was not material.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 19
CONTINGENCIES
The Company is subject to various investigations, claims and legal proceedings
covering a wide range of matters that arise in the ordinary course of its
business activities. In addition, in connection with laws and regulations
pertaining to the protection of the environment, the Company is a party to
several environmental remediation investigations and clean-ups and, along with
other companies, has been named a "potentially responsible party" for certain
waste disposal sites. Each of these matters is subject to various uncertainties,
and it is possible that some of these matters will be decided unfavorably
against the Company. The Company has established accruals for matters that are
in its view probable and reasonably estimable. Based on information presently
available, management believes that existing accruals are sufficient to satisfy
any known environmental liabilities. Further, any additional liability that may
ultimately result from the resolution of these matters is not expected to have a
material effect on Mallinckrodt's business or financial condition taken as a
whole.
49
- - QUARTERLY RESULTS (Unaudited)
FISCAL 1994
(In millions except per share amounts) Quarter First Second Third Fourth Year
- -----------------------------------------------------------------------------------------------------------------------------
Net sales $444.9 $466.3 $486.7 $542.2 $1,940.1
- -----------------------------------------------------------------------------------------------------------------------------
Gross margins 202.4 215.3 229.5 255.6 902.8
- -----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations 35.3 36.7 42.9 (7.5) 107.4
- -----------------------------------------------------------------------------------------------------------------------------
Discontinued operations (.8) (.7) (.6) (1.5) (3.6)
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) 34.5 36.0 42.3 (9.0) 103.8
- -----------------------------------------------------------------------------------------------------------------------------
Preferred stock dividends (.1) (.1) (.1) (.1) (.4)
- -----------------------------------------------------------------------------------------------------------------------------
Available for common shareholders $ 34.4 $ 35.9 $ 42.2 $ (9.1) $ 103.4
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:
Continuing operations $ .45 $ .47 $ .55 $ (.10) $ 1.38
- -----------------------------------------------------------------------------------------------------------------------------
Discontinued operations (.01) (.01) (.01) (.02) (.05)
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ .44 $ .46 $ .54 $ (.12) $ 1.33
- -----------------------------------------------------------------------------------------------------------------------------
FISCAL 1993
(In millions except per share amounts) Quarter First Second Third Fourth Year
- -----------------------------------------------------------------------------------------------------------------------------
Net sales $416.8 $441.2 $439.9 $498.4 $1,796.3
- -----------------------------------------------------------------------------------------------------------------------------
Gross margins 190.8 203.3 196.5 235.1 825.7
- -----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations 27.6 28.0 30.5 (199.9) (113.8)
- -----------------------------------------------------------------------------------------------------------------------------
Discontinued operations (.5) (1.5) (.9) (3.1) (6.0)
- -----------------------------------------------------------------------------------------------------------------------------
Cumulative effects of accounting changes (80.6) (80.6)
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) (53.5) 26.5 29.6 (203.0) (200.4)
- -----------------------------------------------------------------------------------------------------------------------------
Preferred stock dividends (.1) (.1) (.1) (.1) (.4)
- -----------------------------------------------------------------------------------------------------------------------------
Available for common shareholders $ (53.6) $ 26.4 $ 29.5 $(203.1) $ (200.8)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:
Continuing operations $ .36 $ .36 $ .39 $ (2.59) $ (1.48)
- -----------------------------------------------------------------------------------------------------------------------------
Discontinued operations (.01) (.02) (.01) (.04) (.08)
- -----------------------------------------------------------------------------------------------------------------------------
Accounting changes (1.04) (1.04)
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (.69) $ .34 $ .38 $ (2.63) $ (2.60)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
FISCAL 1994
Earnings from continuing operations included favorable tax adjustments of $1.4
million, or $.02 per share and $1.6 million, or $.02 per share, in the first and
third quarters, respectively, from recently enacted U.S. and foreign tax law
changes.
Fourth quarter earnings from continuing operations included after-tax
restructuring charges of $58.8 million, or $.76 per share.
Earnings from continuing operations without restructuring charges and
favorable tax adjustments were:
- --------------------------------------------------------------------------------------------------------------
Quarter First Second Third Fourth Year
- --------------------------------------------------------------------------------------------------------------
Net of taxes $33.9 $36.7 $41.3 $51.3 $163.2
- --------------------------------------------------------------------------------------------------------------
Per share $.43 $.47 $.53 $.66 $2.10
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Earnings per share for the four quarters of 1994 are less than full year per
share results by $.01 from an increase in common shares outstanding.
FISCAL 1993
Second quarter earnings from continuing operations included an after-tax charge
of $3.4 million, or $.04 per share, from executive resignations resulting from
the performance of Mallinckrodt Veterinary.
Fourth quarter continuing operations included after-tax charges of $242.2
million, or $3.13 per share.
The net after-tax charges for FAS 106,FAS 109 and FAS 112 on continuing
operations were:
- --------------------------------------------------------------------------------------------------------------
Quarter First Second Third Fourth Year
- --------------------------------------------------------------------------------------------------------------
Net of taxes $1.0 $1.1 $0.5 $1.2 $3.8
- --------------------------------------------------------------------------------------------------------------
Per share $.01 $.01 $.01 $.02 $.05
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning directors of the Registrant, see pages 3 through 14,
incorporated herein by reference, of Mallinckrodt's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on October 19, 1994.
Information concerning executive officers of the Registrant is included in Part
I of this report.
ITEM 11. EXECUTIVE COMPENSATION
For information concerning management remuneration, see pages 21 through 35,
incorporated herein by reference, of Mallinckrodt's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on October 19, 1994.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning security ownership of certain beneficial owners and
management, see pages 11 and 12, incorporated herein by reference, of
Mallinckrodt's definitive Proxy Statement for the Annual Meeting of Stockholders
to be held on October 19, 1994.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning certain relationships and related transactions
(including section 16(a) filings certain of which were not made on a timely
basis), see pages 9 through 11 and pages 13 and 14, incorporated herein by
reference, of Mallinckrodt's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on October 19, 1994.
51
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
(1) (2) See index on page 65 for a listing of financial
statements and financial statement schedules filed with
this report.
(3) Exhibits filed with this report.
Incorporated Filed with
Exhibit Herein by Electronic
Number Description Reference to Submission
- --------------------------------------------------------------------------------
3.1 Restated Certificate of X
Incorporation of Mallinckrodt,
dated June 22, 1994.
3.2 By-Laws of Mallinckrodt as amended Exhibit 3.3
through April 18, 1990. to 1990 10-K.
4.1 Form 8-A Registration Exhibit 4.6
Statement under Section 12 to 1989 10-K.
of the Securities Exchange
Act of 1934, dated April 10,
1987 defining the rights of
holders of Mallinckrodt's 4%
Cumulative Preferred Stock
and Common Stock.
4.2 Amended and restated common Exhibit 4(b) to
stock purchase rights agreement Form 8-K dated
dated March 10, 1989. March 10, 1989.
52
Incorporated Filed with
Exhibit Herein by Electronic
Number Description Reference to Submission
- --------------------------------------------------------------------------------
4.3 Second amendment to the common Exhibit 6 to
stock purchase rights agreement Form 8 dated
dated April 17, 1991. April 18, 1991.
4.4(a) Indenture dated as of March 15, Exhibit 4
1985, between Mallinckrodt and to Form S-3
Morgan Guaranty Trust Company Registration
of New York pursuant to which Statement
$150 million 9-7/8% Sinking No. 2-96566.
Fund Debentures due March 15,
2011 were issued.
4.4(b) First Supplemental Indenture dated Exhibit 4.2
as of April 1, 1992 between to Form S-3
Mallinckrodt and Morgan Guaranty Registration
Trust Company of New York pursuant Statement No.
to which $100 million 6% Notes due 33-47081
October 15, 2003, and $100 million
7% Debentures due December 15, 2013
were issued.
4.5 Form 8-A Registration Statement X
under Section 12 of the Securities
Exchange Act of 1934, dated May 6,
1994 regarding $100 million 6%
Notes due October 15, 2003, and
$100 million 7% Debentures due
December 15, 2013.
10.1(a) Contingent Employment Agreement Exhibit 10.1(c)
with C. Ray Holman dated to 1991 10-K.
April 1, 1987.(1)
10.1(b) Contingent Employment Agreement Exhibit 10.1(b)
with William J. Mercer dated to 1993 10-K.
March 9, 1990.(1)
10.1(c) Contingent Employment Agreement Exhibit 10.1(c)
with Robert G. Moussa dated to 1993 10-K.
April 19, 1990.(1)
53
Incorporated Filed with
Exhibit Herein by Electronic
Number Description Reference to Submission
- --------------------------------------------------------------------------------
10.1(d) Contingent Employment Agreement Exhibit 10.1(f)
with Mack G. Nichols dated to 1991 10-K.
April 1,1987.(1)
10.1(e) Contingent Employment Agreement X
with Beverley L. Hayes
dated March 7, 1990.(1)
10.2 Mallinckrodt Executive Life Exhibit 10.2
Insurance Program adopted to 1989 10-K.
May 20, 1987.(1)
10.3 Restated Mallinckrodt Executive Exhibit 10.3
Long-Term Disability Plan to 1989 10-K.
effective January 1, 1987.(1)
10.4(a) Agreement with Exhibit 10.4(a)
George D. Kennedy dated to 1991 10-K.
December 17, 1990.(1)
10.4(b) Amendment dated June 16, 1993 Exhibit 10.4(b)
to Agreement with George to 1993 10-K.
D. Kennedy dated December
17, 1990 described in
Exhibit 10.4(a).(1)
10.5(a) Supplemental Benefit Plan for Exhibit 10.6(a)
Participants in the Mallinckrodt to 1989 10-K.
Retirement Plan as amended
and restated effective
January 1, 1980.(1)
54
Incorporated Filed with
Exhibit Herein by Electronic
Number Description Reference to Submission
- --------------------------------------------------------------------------------
10.5(b) Amendment No. 1 dated June 20, Exhibit 10.6(b)
1989 to Supplemental Benefit to 1989 10-K.
Plan for Participants in the
Retirement Plan for Salaried
Employees of Mallinckrodt.(1)
10.5(c) Amendment No. 2 dated April 20, Exhibit 10.6(c)
1990 to Supplemental Benefit to 1990 10-K.
Plan for Participants in the
Mallinckrodt Retirement Plan.(1)
10.6(a) Mallinckrodt Supplemental Executive Exhibit 10.7(a)
Retirement Plan restated to 1989 10-K.
effective April 19, 1988.(1)
10.6(b) Amendment No. 1 effective Exhibit 10.7(c)
December 6, 1989, to to 1990 10-K.
Supplemental Executive
Retirement Plan.(1)
10.7(a)(i) Gross-Up Agreement with Exhibit 10.7(a)
C. Ray Holman dated to 1993 10-K.
July 1, 1992 and Amendment
dated April 30, 1993.(1)
10.7(a)(ii) Amendment No. 2 to Gross-Up X
Agreement with C. Ray Holman
dated September 1, 1993.(1)
55
Incorporated Filed with
Exhibit Herein by Electronic
Number Description Reference to Submission
- --------------------------------------------------------------------------------
10.7(b)(i) Gross-Up Agreement with Exhibit 10.7(b)
William J. Mercer dated to 1993 10-K.
July 1, 1992 and Amendment
dated April 30, 1993.(1)
10.7(b)(ii) Amendment No. 2 to Gross-Up X
Agreement with William J. Mercer
dated September 1, 1993.(1)
10.7(c)(i) Gross-Up Agreement with Exhibit 10.7(c)
Robert G. Moussa dated to 1993 10-K.
April 22, 1993.(1)
10.7(c)(ii) Amendment No. 2 to Gross-Up X
Agreement with Robert G. Moussa
dated September 1,1993.(1)
10.7(d)(i) Gross-Up Agreement with Exhibit 10.7(d)
Mack G. Nichols dated to 1993 10-K.
July 1, 1992.(1)
10.7(d)(ii) Amendment No. 2 to Gross-Up X
Agreement with Mack G. Nichols
dated September 1, 1993.(1)
56
Incorporated Filed with
Exhibit Herein by Electronic
Number Description Reference to Submission
- --------------------------------------------------------------------------------
10.7(e) Gross-Up Agreement with X
Beverley L. Hayes
dated July 1, 1992 and
Amendment dated September 1, 1993.(1)
10.8 Mallinckrodt Management Incentive Exhibit 10.9(b)
Compensation Program as to 1991 10-K.
amended and restated
effective July 1, 1991.(1)
10.9(a) Mallinckrodt 1973 Stock Option Post-Effective
and Award Plan as amended Amendment
effective February 21, 1990.(1) No. 1 to
Form S-8
Registration
Statement
No. 33-32109.
10.9(b) Amendment No. 1 to the Mallinckrodt Form S-8
1973 Stock Option and Award Registration
Plan dated June 19, 1991.(1) Statement No.
33-43925
10.10 Mallinckrodt Directors Retirement Exhibit 10.10
Services Plan as amended and to 1993 10-K.
restated effective April 21,
1993.(1)
10.11(a) Mallinckrodt 1981 Stock Option Post-Effective
Plan as amended through Amendment No. 3
April 19, 1988.(1) to Form S-8
Registration
Statement
No. 2-80553.
57
Incorporated Filed with
Exhibit Herein by Electronic
Number Description Reference to Submission
- --------------------------------------------------------------------------------
10.11(b) Amendment to the 1981 Exhibit 10.12(b)
Stock Option Plan effective to 1989 10-K.
February 15, 1989.(1)
10.11(c) Amendment to the 1981 Exhibit 10.12(c)
Stock Option Plan effective to 1991 10-K.
June 19, 1991.(1)
10.12(a) Intercorporate Agreement dated Exhibit 10.1 to
as of July 1, 1987 by and IMC Fertilizer
between Mallinckrodt and IMC Group, Inc.'s
Fertilizer Group, Inc. with Form S-1
Exhibits, including the Registration
Restated Certificate of Statement
Incorporation of IMC Fertilizer No. 33-17091.
Group, Inc., as amended; By-Laws
of IMC Fertilizer Group, Inc.;
Preliminary Agreement for K-2
Advances; Registration Rights
Agreement; Services Agreement;
Management Services Agreement;
Agreement regarding Pollution
Control and Industrial Revenue
Bonds; License Agreement;
office lease and sublease;
management agreements; supply
agreements; and transportation
service agreements.
10.13(a) Note Agreement with The Exhibit 10.13(a)
Prudential Insurance Company to 1992 10-K.
of America dated as of
February 1, 1980.
58
Incorporated Filed with
Exhibit Herein by Electronic
Number Description Reference to Submission
- --------------------------------------------------------------------------------
10.13(b) Agreement dated June 3, 1981, Exhibit 10.14(b)
consolidating obligation in to 1990 10-K.
Loan Agreement dated April 18,
1973, under Note Agreement
dated as of February 1, 1980.
10.13(c) Amendment dated June 15, Exhibit 10.14(d)
1989, to Note Agreement to 1989 10-K.
with Prudential Insurance
Company of America dated
as of February 1, 1980.
10.13(d) Amendment dated April 18, 1991 Exhibit 10.14(e)
to Note Agreement with to 1991 10-K.
Prudential Insurance Company
of America dated as of
February 1, 1980 as amended.
10.13(e) Amendment dated June 2, 1992 Exhibit 10.13(c)
to Note Agreement with to 1992 10-K.
Prudential Insurance Company
of America dated as of
February 1, 1980 as amended.
10.13(f) Amendment dated July 20, 1993 Exhibit 10.13(f)
to Note Agreement with to 1993 10-K.
Prudential Insurance Company
of America dated as of
February 1, 1980 as amended.
10.14 Management Compensation and Exhibit 10.30
Benefit Assurance Program.(1) to 1988 10-K.
59
Incorporated Filed with
Exhibit Herein by Electronic
Number Description Reference to Submission
- --------------------------------------------------------------------------------
10.15 Form of Trust Agreement dated Exhibit 10.31
June 7, 1988, between Mallinckrodt to 1988 10-K.
and Wachovia Bank & Trust of
North Carolina, N.A., incident
to the program in Exhibit
10.15, for Mallinckrodt's 1973 Stock
Option and Award Plan, 1981
Stock Option Plan, Long-Term
Performance Incentive Plan,
Supplemental Executive
Retirement Plan, Contingent
Employment Agreements,
Gross-Up of Excise Tax
Agreement, and Management
Incentive Compensation Plan.(1)
10.16(a) Letter of Credit Agreement Exhibit 10.32
dated May 31, 1988, between to 1988 10-K.
Mallinckrodt and a group of banks
providing the means of
funding the trusts described
in Exhibit 10.15.(1)
10.16(b) Amendment and Assumption Exhibit 10.17(c)
Agreements to the Letter of to 1991 10-K.
Credit Agreement described
in Exhibit 10.16(a) dated
June 22, 1991.(1)
10.17(a) Corporate Staff Employee Exhibit 10.33
Severance and Benefit to 1988 10-K.
Assurance Policy.(1)
60
Incorporated Filed with
Exhibit Herein by Electronic
Number Description Reference to Submission
- --------------------------------------------------------------------------------
10.17(b) Form of letter sent to Exhibit 10.18(b)
participants in Mallinckrodt's to 1989 10-K.
Corporate Staff Employee
Severance and Benefit
Assurance Program.(1)
10.18 Supplemental Life Plan Exhibit 10.20
of Mallinckrodt, Inc. to 1989 10-K.
effective July 15, 1984.(1)
10.19(a) Employment Agreement dated Exhibit 10.19(a)
February 17, 1993 to 1993 10-K.
with C. Ray Holman.(1)
10.19(b) Employment Agreement dated Exhibit 10.19(b)
February 17, 1993 to 1993 10-K.
with William J. Mercer.(1)
10.19(c) Employment Agreement dated Exhibit 10.19(c)
February 17, 1993 with to 1993 10-K.
Robert G. Moussa.(1)
10.19(d) Employment Agreement dated Exhibit 10.19(d)
February 17, 1993 with to 1993 10-K.
Mack G. Nichols.(1)
10.21 Mallinckrodt Directors' Stock Exhibit 4(a)
Option Plan effective to Form S-8
October 17, 1990.(1) Registration
Statement
No. 33-40246.
61
Incorporated Filed with
Exhibit Herein by Electronic
Number Description Reference to Submission
- --------------------------------------------------------------------------------
10.22 Mallinckrodt Long-Term Incentive Exhibit 10.24
Plan for Senior Management to 1991 10-K.
effective July 1, 1991.(1)
10.23 Mallinckrodt Long-Term Incentive Exhibit 10.25
Plan for Key Middle Managers to 1991 10-K.
effective June 18, 1991.(1)
10.24 Consultancy Agreement X
with Herve M. Pinet for
the period December 1, 1993, to
November 30, 1994.
10.25(a) Consulting Agreement with Exhibit 10.27
Ronald G. Evens, M.D., for to Amendment
the period from January 1, 1987, No. 1 to
through December 31, 1989; 1992 10-K.
extended for the calendar
years 1990, 1991 and 1992.(1)
62
Incorporated Filed with
Exhibit Herein by Electronic
Number Description Reference to Submission
- --------------------------------------------------------------------------------
10.25(b) Amendment dated December 17, 1992 Exhibit 10.26(b)
to Consulting Agreement with to 1993 10-K.
Ronald G. Evens, M.D., described
in Exhibit 10.26(a).(1)
10.26 Credit Agreement dated Exhibit 10.27
August 13, 1993, between to 1993 10-K.
Mallinckrodt and
The Chase Manhattan Bank,
individually and as an
agent for the banks,
($350 million facility).
10.27 Credit Agreement dated Exhibit 10.28
August 13, 1993 between to 1993 10-K.
Mallinckrodt and The Chase
Manhattan Bank, individually and
as an agent for the banks,
($100 million facility).
10.28 Offering Memorandum by Exhibit 10.29
J.P. Morgan for sale of to 1993 10-K.
the commercial paper (CP)
notes of Mallinckrodt.
The CP program is backed
by credit agreements
included at 10.27 and 10.28.
10.29 Deferral Election Plan for X
Non-Employee Directors, effective
June 30, 1994.(1)
10.30 Long-Term Incentive Compensation X
Plan, effective July 1, 1994.(1)
63
Incorporated Filed with
Exhibit Herein by Electronic
Number Description Reference to Submission
- --------------------------------------------------------------------------------
11.1 Primary earnings per share X
computation for the three
years ended June 30, 1994.
11.2 Fully diluted earnings X
per share computation for the
three years ended June 30, 1994.
21 Subsidiaries of the Registrant. X
23.1 Consent of Ernst & Young LLP. X
27 Financial data schedule for the X
year ended June 30, 1994.
(1) Management contract or compensatory plan required to be filed
pursuant to Item 601 of Regulation S-K.
(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 June 15, 1994, under Item 5 regarding
restructuring program.
- Report dated July 21, 1994, under Item 5 regarding the
resignation of the President of Mallinckrodt Veterinary,
Inc.
- Report dated August 25, 1994, under Item 5 regarding
repurchase of Company stock.
- Report dated September 7, 1994, under Item 5 regarding
Mallinckrodt Medical's decision to relocate tracheal tube
manufacturing operations.
64
INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTARY DATA,
AND FINANCIAL STATEMENT SCHEDULES
Page References
---------------
Consolidated Balance Sheet at June 30, 1994 and 1993 . . . . . . . . . . . 37
For the years ended June 30, 1994, 1993 and 1992:
Information by Business Segment . . . . . . . . . . . . . . . . . . . . . 35
Consolidated Statement of Operations. . . . . . . . . . . . . . . . . . . 36
Consolidated Statement of Cash Flows. . . . . . . . . . . . . . . . . . . 38
Consolidated Statement of Changes in Shareholders' Equity . . . . . . . . 39
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 40-49
Quarterly Results (Unaudited). . . . . . . . . . . . . . . . . . . . . . . 50
Consolidated financial statement schedules for years ended
June 30, 1994, 1993 and 1992:
II - Amounts receivable from related parties and
underwriters, promoters and employees other
than related parties . . . . . . . . . . . . . . . . . . . . . . . 69
V - Property, plant and equipment. . . . . . . . . . . . . . . . . . . 70-72
VI - Accumulated depreciation and amortization
of property, plant and equipment . . . . . . . . . . . . . . . . . 73
IX - Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . 74
X - Supplementary income statement information . . . . . . . . . . . . 75
___________________
All other schedules are omitted as the required information is not present in
sufficient amounts or the required information is included in the consolidated
financial statements or notes thereto.
Financial statements and schedules and summarized financial information of 50
percent or less owned persons are omitted, as none of such persons are
individually or in the aggregate significant under the tests specified in
Regulation S-X under Article 3.09 of general instructions to the financial
statements.
65
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: September 23, 1994
66
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signature Title Date
- --------------------- ------------------- ----------------------
C. RAY HOLMAN
- ---------------------
C. Ray Holman President, Chief September 23, 1994
Executive Officer
and Director
MICHAEL A. ROCCA
- ---------------------
Michael A. Rocca Senior Vice President September 23, 1994
and Chief Financial
Officer
WILLIAM B. STONE
- ---------------------
William B. Stone Vice President and September 23, 1994
Controller (Chief
Accounting Officer)
RAYMOND F. BENTELE
- ---------------------
Raymond F. Bentele Director September 23, 1994
RONALD G. EVENS
- ---------------------
Ronald G. Evens Director September 23, 1994
LOUIS FERNANDEZ
- ---------------------
Louis Fernandez Director September 23, 1994
67
Signature Title Date
- ---------------------- ----------------- ----------------------
ALEC FLAMM
- ----------------------
Alec Flamm Director September 23, 1994
ROBERTA S. KARMEL
- ----------------------
Roberta S. Karmel Director September 23, 1994
GEORGE D. KENNEDY
- ----------------------
George D. Kennedy Director September 23, 1994
CLAUDINE B. MALONE
- ----------------------
Claudine B. Malone Director September 23, 1994
MORTON MOSKIN
- ----------------------
Morton Moskin Director September 23, 1994
HERVE M. PINET
- ----------------------
Herve M. Pinet Director September 23, 1994
BRIAN M. RUSHTON
- ----------------------
Brian M. Rushton Director September 23, 1994
DANIEL R. TOLL
- ----------------------
Daniel R. Toll Director September 23, 1994
68
Schedule II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
Years Ended June 30, 1992, 1993 and 1994
($ in thousands)
Balance at End
Deductions of Period
Balance at ---------- -------------------
Beginning Amounts Non
Name of Debtor of Period Additions Collected Current Current
- ---------------------------------------------------------------------------------------------------
1992
U.S. Employee relocation loans (A) $1,252 $412 $911 $408 $345
Number of loans 31 18 30 18 1
U.K. employee relocation loans (A) 1,231 156 823 564
Number of loans 9 7 3 13
- ---------------------------------------------------------------------------------------------------
1993
U.S. Employee relocation loans (A) $753 $960 $416 $757 $540
Number of loans 19 17 20 14 2
U.K. employee relocation loans (A) 564 18 402 180
Number of loans 13 1 3 11
- ---------------------------------------------------------------------------------------------------
1994
U.S. Employee relocation loans (A) $1,297 $1,806 $798 $2,055 $250
Number of loans 16 27 18 23 2
U.K. employee relocation loans (A) 180 63 72 171
Number of loans 11 2 3 10
- ---------------------------------------------------------------------------------------------------
<FN>
(A) Generally non-interest bearing and repayable upon the sale of the employee's
former residence.
69
Schedule V
(Page 1 of 3)
PROPERTY, PLANT AND EQUIPMENT
Years Ended June 30, 1992, 1993 and 1994
($ in millions)
Balance Other Balance
at Beginning of Additions Changes at End of
Period at Cost Retirements Add (Deduct) Period
- -------------------------------------------------------------------------------------------------------
1992
Land $64.1 $1.0 $.6 $(1.8) (A)
1.1 (C)
(.8) (E) $63.0
Building and leasehold
improvements 229.8 13.8 4.5 6.6 (A)
.1 (B)
6.3 (C)
(13.1) (E) 239.0
Machinery and equipment 591.0 76.8 22.3 5.9 (A)
1.0 (B)
8.8 (C)
(17.9) (E) 643.3
Construction in progress 59.6 58.8 (10.6) (A)
.1 (B)
4.2 (C)
(2.8) (E) 109.3
- -------------------------------------------------------------------------------------------------------
$944.5 $150.4 $27.4 $(12.9) $1,054.6
- -------------------------------------------------------------------------------------------------------
See explanation of notes on page 3 of 3.
70
Schedule V
(Page 2 of 3)
PROPERTY, PLANT AND EQUIPMENT
Years Ended June 30, 1992, 1993 and 1994
($ in millions)
Balance Other Balance
at Beginning of Additions Changes at End of
Period at Cost Retirements Add (Deduct) Period
- -------------------------------------------------------------------------------------------------------
1993
Land $63.0 $4.1 $.2 $3.1 (A)
.1 (B)
(2.6) (C) $67.5
Building and leasehold
improvements 239.0 31.1 2.3 11.1 (A)
2.2 (B)
(11.0) (C) 270.1
Machinery and equipment 643.3 76.0 39.3 17.1 (A)
13.6 (B)
(15.1) (C)
(.1) (F) 695.5
Construction in progress 109.3 77.1 (19.2) (A)
1.2 (B)
(7.3) (C)
(1.3) (F) 159.8
- -------------------------------------------------------------------------------------------------------
$1,054.6 $188.3 $41.8 $(8.2) $1,192.9
- -------------------------------------------------------------------------------------------------------
See explanation of notes on page 3 of 3
71
Schedule V
(Page 3 of 3)
PROPERTY, PLANT AND EQUIPMENT
Years Ended June 30, 1992, 1993 and 1994
($ in millions)
Balance Other Balance
at Beginning of Additions Changes at End of
Period at Cost Retirements Add (Deduct) Period
- ----------------------------------------------------------------------------------------------------------------
1994
Land $67.5 $4.6 $.1 $(3.2) (A)
1.1 (B)
.6 (C)
(1.2) (G) $69.3
Building and leasehold 270.1 49.7 2.7 30.4 (A)
improvements 5.7 (B)
(.3) (C) 352.9
Machinery & Equipment 695.5 117.4 23.1 22.2 (A)
51.2 (B)
9.2 (C) 872.4
Construction in progress 159.8 .6 (51.4) (A)
1.2 (B)
2.2 (C)
(11.0) (G) 101.4
- -------------------------------------------------------------------------------------------------------
$1,192.9 $172.3 $25.9 $56.7 $1,396.0
- -------------------------------------------------------------------------------------------------------
<FN>
Notes for Schedule V
(A) Transfers between accounts and reclassifications from other balance sheet
accounts.
(B) Purchases of businesses.
(C) Foreign currency adjustment.
(E) Reclassification for Tastemaker joint venture.
(F) Write-offs related to 1993 restructuring charges.
(G) Reclassification among accounts.
72
Schedule VI
ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
Years Ended June 30, 1992, 1993 and 1994
($ in millions)
Additions
Balance Charged to Other Balance
at Beginning of Cost and Changes at End of
Period Expenses Retirements Add(Deduct) Period
- -------------------------------------------------------------------------------------------------------
1992
Building and leasehold
improvements $55.8 $11.6 $2.6 $.9 (B)
(2.4) (C)
.9 (E) $64.2
Machinery and equipment 258.5 58.8 15.7 3.5 (B)
(7.0) (C)
.2 (E) 298.3
- -------------------------------------------------------------------------------------------------------
$314.3 $70.4 $18.3 $(3.9) $362.5
- -------------------------------------------------------------------------------------------------------
1993
Building and leasehold
improvements $64.2 $12.8 $1.9 $(1.5) (B)
26.6 (D)
4.9 (E) $105.1
Machinery and equipment 298.3 61.9 23.9 (5.7) (B)
58.2 (D)
.1 (E) 388.9
- -------------------------------------------------------------------------------------------------------
$362.5 $74.7 $25.8 $82.6 $494.0
- -------------------------------------------------------------------------------------------------------
1994
Building and leasehold
improvements $105.1 $15.1 $1.5 $(1.2) (A)
1.7 (B)
(1.2) (E) $118.0
Machinery and equipment 388.9 64.3 22.4 (8.5) (A)
3.5 (B)
(11.0) (E) 414.8
- -------------------------------------------------------------------------------------------------------
$494.0 $79.4 $23.9 $(16.7) $532.8
- -------------------------------------------------------------------------------------------------------
<FN>
Notes
(A) Transfers between accounts and reclassifications from other balance sheet
accounts.
(B) Foreign currency adjustment.
(C) Reclassification for Tastemaker joint venture.
(D) Write-off related to 1993 restructuring charges.
(E) Reclassification among accounts.
73
Schedule IX
SHORT-TERM BORROWINGS
Years Ended June 30, 1994, 1993 and 1992
($ in millions)
Maximum Average Weighted
Amount Amount Average
Out- Out- Interest
Balance Weighted standing standing Rate
at End Average During During During
of Interest the the the
Period Rate Period Period Period
- ------------------------------------------------------------------------------------------------------
Notes payable to banks (A)
1994 $ 55.0 6.5% $ 89.0 $ 68.7 6.7%
1993 $ 84.2 6.3% $145.8 $106.4 5.1%
1992 $ 96.2 8.3% $ 96.2 $ 76.5 10.5%
Commercial paper (B)
1994 $172.5 3.9% $308.3 $211.6 3.9%
1993 $280.5 3.4% $331.6 $161.7 3.4%
<FN>
The average amount outstanding for each period was computed by averaging the
daily balances during the year.
The weighted average interest rate for each period was computed by dividing
interest on short-term borrowings by the average amount outstanding during the
year.
(A) Primarily foreign banks.
(B) No commercial paper was issued in 1992. Amounts for 1994 and 1993 include
commercial paper borrowings aggregating $100.0 million and $190.0,
respectively, which have been classified as long-term debt as it is backed
by long-term lines of credit.
74
Schedule X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years Ended June 30, 1994, 1993, and 1992
($ in millions)
Charged to Costs and Expenses
-----------------------------
1994 1993 1992
- ----------------------------------------------------------------------------------------
Maintenance and repairs $56.6 $44.6 $41.2
------ ------ ------
------ ------ ------
Amortization of intangible assets $25.1 $21.4 $18.9
------ ------ ------
------ ------ ------
Taxes, other than payroll and income taxes $26.3 $24.3 $24.4
------ ------ ------
------ ------ ------
Advertising $35.1 $41.7 $42.2
------ ------ ------
------ ------ ------
Royalties $20.4 $13.9 $11.2
------ ------ ------
------ ------ ------
75