<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
---
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
---
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-483
------------------------
MALLINCKRODT GROUP INC.
(Exact name of registrant as specified in its charter)
New York 36-1263901
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7733 Forsyth Boulevard
St. Louis, Missouri 63105-1820
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-854-5200
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X. No .
Applicable Only To Issuers Involved In Bankruptcy
Proceedings During The Preceding Five Years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes . No .
Applicable Only To Corporate Issuers:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. 74,184,899 shares excluding
12,931,390 treasury shares as of January 31, 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).
The accompanying interim condensed consolidated financial statements of
Mallinckrodt Group Inc. (the Company or Mallinckrodt) do not include all
disclosures normally provided in annual financial statements. These financial
statements, which should be read in conjunction with the consolidated financial
statements contained in Mallinckrodt's 1995 Annual Report to Shareholders, are
unaudited but include all adjustments which Mallinckrodt's management considers
necessary for a fair presentation. These adjustments consist of normal
recurring accruals except as discussed in Notes 1 and 2 of the Notes to
Condensed Consolidated Financial Statements. Interim results are not
necessarily indicative of the results for the fiscal year. All references to
years are to fiscal years ended June 30 unless otherwise stated.
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions except per share amounts)
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
------------------ ------------------
1995 1994 1995 1994
------- ------- --------- -------
<S> <C> <C> <C> <C>
Net sales $528.2 $471.5 $1,020.3 $920.1
Operating costs and expenses:
Cost of goods sold 289.1 250.0 557.4 498.3
Selling, administrative and
general expenses 141.0 133.8 279.9 257.5
Research and development expenses 31.5 24.5 55.6 47.7
Other operating income, net (4.2) (1.8) (7.4) (3.9)
------- ------- --------- -------
Total operating costs and expenses 457.4 406.5 885.5 799.6
------- ------- --------- -------
Operating earnings 70.8 65.0 134.8 120.5
Equity in pre-tax earnings of joint
venture 5.9 4.1 13.2 10.2
Interest and other nonoperating
expense, net (.5) (.5) (.9) (.8)
Interest expense (14.9) (11.8) (28.7) (23.8)
------- ------- --------- -------
Earnings from continuing
operations before income taxes 61.3 56.8 118.4 106.1
Income tax provision 23.0 21.5 44.4 40.3
------- ------- --------- -------
Earnings from continuing operations 38.3 35.3 74.0 65.8
Discontinued operations 19.0 4.5 22.5 7.9
------- ------- --------- -------
Net earnings 57.3 39.8 96.5 73.7
Preferred stock dividends (.1) (.1) (.2) (.2)
------- ------- --------- -------
Available for common shareholders $ 57.2 $ 39.7 $ 96.3 $ 73.5
======= ======= ========= =======
Earnings per common share:
Continuing operations $.50 $.45 $ .96 $.85
Discontinued operations .25 .06 .29 .10
---- ---- ----- ----
Net earnings $.75 $.51 $1.25 $.95
==== ==== ===== ====
</TABLE>
(See Notes to Condensed Consolidated Financial Statements on page 5.)
1
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions except share and per share amounts)
<CAPTION>
December 31, June 30,
1995 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 76.3 $ 60.9
Trade receivables, less allowances of $12.7
at December 31 and $13.5 at June 30 376.6 392.5
Inventories 459.7 415.5
Net current assets of discontinued operations 15.8
Deferred income taxes 53.4 53.1
Other current assets 98.6 56.9
--------- ---------
Total current assets 1,064.6 994.7
Investments and long-term receivables,
less allowances of $13.1 at December 31
and $17.0 at June 30 148.4 165.5
Property, plant and equipment, net 1,001.6 978.0
Intangible assets 596.3 527.6
Net noncurrent assets of discontinued operations 26.6
Deferred income taxes .8 .7
--------- ---------
Total assets $2,811.7 $2,693.1
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 140.2 $ 197.5
Accounts payable 157.7 182.8
Accrued liabilities 365.4 332.1
Income taxes payable 46.3 7.7
Deferred income taxes 2.0 2.7
--------- ---------
Total current liabilities 711.6 722.8
Long-term debt, less current maturities 595.4 501.5
Deferred income taxes 82.8 76.9
Postretirement benefits 148.7 142.7
Other noncurrent liabilities and deferred credits 120.3 77.7
--------- ---------
Total liabilities 1,658.8 1,521.6
Shareholders' equity:
4 Percent cumulative preferred stock 11.0 11.0
Common stock, par value $1, authorized
300,000,000 shares; issued 87,116,289
shares as of December 31 and June 30 87.1 87.1
Capital in excess of par value 277.1 274.1
Reinvested earnings 1,058.4 984.5
Foreign currency translation (20.2) (9.3)
Treasury stock, at cost (260.5) (175.9)
--------- ---------
Total shareholders' equity 1,152.9 1,171.5
--------- ---------
Total liabilities and shareholders' equity $2,811.7 $2,693.1
========= =========
</TABLE>
(See Notes to Condensed Consolidated Financial Statements on page 5.)
2
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<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
<CAPTION>
Six Months Ended
December 31,
1995 1994
------- -------
<S> <C> <C>
CASH FLOW - OPERATING ACTIVITIES
Net earnings $ 96.5 $ 73.7
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 68.2 56.9
Postretirement benefits 6.0 5.7
Undistributed equity in earnings of joint venture (9.5) (6.8)
Deferred income taxes 5.1 12.3
Gains on disposals of assets (53.7) (1.3)
Other, net 32.6 (15.4)
------- -------
145.2 125.1
Changes in non-cash operating working capital:
Accounts receivable (36.7) (1.8)
Inventories (49.2) (30.5)
Accounts payable, accrued
liabilities and income taxes, net 33.8 (19.3)
Other, net 1.9 (1.7)
------- -------
Net cash provided by operating activities 95.0 71.8
CASH FLOW - INVESTING ACTIVITIES
Capital expenditures (77.6) (75.6)
Acquisition spending (81.0) (4.1)
Proceeds from asset disposals 118.8 16.3
Other, net 27.6 (1.8)
------- -------
Net cash used by investing activities (12.2) (65.2)
CASH FLOW - FINANCING ACTIVITIES
Increase (decrease) in short-term debt (56.4) 24.1
Proceeds from long-term debt 196.5 2.4
Payments on long-term debt (103.3) (3.5)
Issuance of Mallinckrodt common stock 9.3 1.4
Acquisition of treasury stock (90.9) (14.7)
Dividends paid (22.6) (20.5)
------- -------
Net cash used by financing activities (67.4) (10.8)
------- -------
Increase (decrease) in cash and cash equivalents 15.4 (4.2)
Cash and cash equivalents at beginning of period 60.9 86.2
------- -------
Cash and cash equivalents at end of period $ 76.3 $ 82.0
======= =======
</TABLE>
(See Notes to Condensed Consolidated Financial Statements on page 5.)
3
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<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In millions except per share amounts)
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
4 Percent cumulative preferred stock:
Balance at June 30 and December 31 $ 11.0 $ 11.0
Common stock:
Balance at June 30 and December 31 87.1 87.1
Capital in excess of par value:
Balance at June 30 274.1 268.2
Stock options exercised 3.0 .3
-------- ---------
Balance at December 31 277.1 268.5
Reinvested earnings:
Balance at June 30 984.5 846.4
Net earnings 96.5 73.7
Dividends:
4 Percent cumulative preferred stock ($2.00 per share) (.2) (.2)
Common stock ($.295 per share in 1995
and $.265 per share in 1994) (22.4) (20.3)
--------- ---------
Balance at December 31 1,058.4 899.6
Foreign currency translation:
Balance at June 30 (9.3) (34.2)
Translation adjustment (10.9) 5.5
--------- ---------
Balance at December 31 (20.2) (28.7)
Treasury stock:
Balance at June 30 (175.9) (162.6)
Purchase of common stock (90.9) (14.7)
Stock options exercised 6.3 1.1
Restricted stock awards (4.2)
--------- ---------
Balance at December 31 (260.5) (180.4)
--------- ---------
Total shareholders' equity $1,152.9 $1,057.1
======== ========
</TABLE>
(See Notes to Condensed Consolidated Financial Statements on page 5.)
4
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Results for the quarter and six months ended December 31, 1995
included a non-cash charge for write-off of purchased research and
development of $3.7 million, $2.3 million after taxes, or 3 cents
per share, relating to Mallinckrodt Veterinary's acquisition of
Syntro Corporation. The charge was recorded as research and
development expenses.
2. Included in discontinued operations are earnings, net of taxes,
from the divested feed ingredients business of $1.0 million and
$5.5 million for the quarter and through October 16, 1995, the date
of sale, respectively. Corresponding amounts were $5.4 million and
$9.5 million for the quarter and six months ended December 31,
1994, respectively. Fiscal 1996 feed ingredients net sales were
$5.8 million and $43.0 million for the quarter and through
October 16, 1995, respectively. Sales for the quarter and six
months ended December 31, 1994 were $44.7 million and $83.8 million,
respectively. Other principal factors affecting discontinued
operations were an after tax gain of $34.4 million on the sale of
the feed ingredients business and an after tax provision for additional
environmental costs of $15.6 million.
3. Provisions for income taxes were based on estimated annual
effective tax rates for each fiscal year. The Company's effective
tax rate for the first six months was 37.5 percent, compared to
last year's 38.0 percent. This decrease reflects an earnings mix
toward lower statutory tax rate jurisdictions and the utilization
of certain operating losses.
4. 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 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 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 as a whole.
5. Earnings per common share were based on the weighted average number
of common and common equivalent shares (77,161,246 and 77,403,148
for the six months ended December 31, 1995 and 1994, and 76,397,750
and 77,249,318 for the quarters ended December 31, 1995 and 1994,
respectively).
6. The components of inventory include the following as of December 31, 1995:
(In millions)
Raw materials and supplies $146.6
Work in process 102.2
Finished goods 210.9
------
$459.7
======
7. As of December 31, 1995, the Company has authorized and issued
100,000 shares, par value $100, 4 Percent cumulative preferred stock of
which 98,330 shares are outstanding. Mallinckrodt also has authorized
1,400,000 shares, par value $1, of Series preferred stock, none of which
is outstanding.
Shares included in treasury stock were:
December 31, June 30,
1995 1995
------------ ----------
Common stock 12,539,789 10,365,203
4 Percent cumulative preferred stock 1,670 1,670
5
<PAGE>
8. At December 31, 1995 common shares reserved were:
Exercise of common stock purchase rights 85,177,351
Exercise of stock options and granting of stock awards 10,600,851
----------
Total 95,778,202
==========
9. Supplemental cash flow information for the six months ended December 31
included:
(In millions)
1995 1994
----- -----
Interest paid $21.4 $21.4
Income taxes paid $30.2 $22.7
Non-cash investing and financing activities:
Assumption of liabilities related to acquisitions $6.2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
General
- -------
Although the strategic change initiative announced in December, 1995 is
affecting the structure of Mallinckrodt Group, results for the quarter
ended December 31, 1995 continue to be reported in the previous format.
Earnings from continuing operations for the second quarter ended December 31,
1995 were $38 million, or 50 cents per share. This represents an 11 percent
increase in per-share earnings from continuing operations compared with $35
million, or 45 cents per share, during the same period a year ago. These
results reflect a non-cash charge of $3.7 million, $2.3 million after taxes,
or 3 cents per share, associated with the acquisition of Syntro Corporation.
Excluding this charge, earnings from continuing operations would have been 53
cents per share, an 18 percent increase over the prior year. Net sales for
the quarter were up 12 percent to $528 million, compared to $471 million a
year ago. Net earnings for the second quarter were $57 million, or 75
cents per share, compared with $40 million, or 51 cents per share, during the
same period a year ago. Net earnings include the gain resulting from the
sale of the feed ingredients business in the second quarter of fiscal 1996,
partially offset by a second quarter adjustment of provisions for
environmental costs related to discontinued operations.
For the six months, earnings from continuing operations were $74 million, or
96 cents per share. Excluding the charge related to the Syntro acquisition,
per-share earnings increased 16 percent over the comparable $66 million, or
85 cents per share in the prior year. Net sales for the first half were up
11 percent to $1.0 billion, compared to $920 million last year. Net earnings
for the six months were $97 million, or $1.25 per share, compared with $74
million, or 95 cents per share last year.
<TABLE>
A comparison of sales and operating earnings follows:
(In millions)
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
------------- -----------------
1995 1994 1995 1994
---- ---- ------ -----
<S> <C> <C> <C> <C>
Sales
- -----
Mallinckrodt Chemical $166 $121 $ 319 $232
Mallinckrodt Medical 246 240 484 470
Mallinckrodt Veterinary 116 110 217 218
----- ----- ------- -----
$528 $471 $1,020 $920
===== ===== ======= =====
6
<PAGE>
Operating earnings
- ------------------
Mallinckrodt Chemical $ 16 $ 15 $ 24 $ 22
Mallinckrodt Medical 59 51 117 102
Mallinckrodt Veterinary 4 6 9 10
Corporate (8) (7) (15) (13)
----- ----- ----- -----
$ 71 $ 65 $135 $121
===== ===== ===== =====
</TABLE>
Business Segments
- -----------------
<TABLE>
MALLINCKRODT CHEMICAL
<CAPTION>
Net Sales Quarter Ended Six Months Ended
(In millions) December 31, December 31,
------------- ----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Catalyst, Performance & Lab Chemicals $102 $ 64 $198 $119
Pharmaceutical Specialties 64 57 121 113
---- ---- ---- ----
$166 $121 $319 $232
==== ==== ==== ====
</TABLE>
Mallinckrodt Chemical's earnings were $21.4 million and $36.9 million for the
second quarter and six months, respectively, representing increases of 11
percent and 15 percent over the same prior year periods. These results
include the equity in the earnings of Tastemaker, the flavors joint venture,
of $5.9 million and $13.2 million for the quarter and six months,
respectively. Net sales increased 37 percent and 38 percent compared
to the corresponding prior year quarter and six months, respectively.
Catalyst, performance and lab chemicals sales increased 58 percent for the
quarter and 66 percent for the first half, primarily from the acquisition of
J.T. Baker completed in the third quarter of fiscal 1995. Pharmaceutical
specialties sales increased by 13 percent and 7 percent for the quarter and
six months, respectively. Second quarter improvement in acetaminophen (APAP)
volumes outside the U.S. and continued strength in sales of medicinal narcotics
were the main contributors to the increases.
<TABLE>
MALLINCKRODT MEDICAL
<CAPTION>
Net Sales Quarter Ended Six Months Ended
(In millions) December 31, December 31,
------------- ----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Imaging $167 $164 $328 $324
Anesthesiology & Critical Care 79 76 156 146
---- ---- ---- ----
$246 $240 $484 $470
==== ==== ==== ====
</TABLE>
Mallinckrodt Medical's operating earnings increased 14 percent for both the
quarter and six months, to $58.8 million and $116.6 million, respectively.
Net sales improved 2 percent for the quarter and 3 percent for the six months
compared to the same periods last year. Imaging sales for both periods were
1 percent higher than the corresponding prior year quarter and six months.
Higher nuclear medicine sales volume was the primary factor for the
increases, as improved X-ray contrast media sales volume was offset by
competitive pricing. Anesthesiology and critical care sales for the quarter
and first half increased 4 percent and 7 percent, respectively, largely from
improved sales volumes of respiratory therapy products. Improved plant
operations and spending controls also benefitted earnings growth.
<TABLE>
Mallinckrodt Veterinary
<CAPTION>
Net Sales Quarter Ended Six Months Ended
(In million December 31, December 31,
------------- ----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Animal Health $116 $110 $217 $218
==== ==== ==== ====
</TABLE>
7
<PAGE>
Mallinckrodt Veterinary's operating earnings decreased 28 percent for the
quarter and 8 percent for the six months, to $4.2 million and $9.2 million,
respectively. These results reflect a non-cash pre-tax charge of $3.7
million for write-off of purchased research and development associated with
the acquisition of Syntro Corporation. Excluding this charge, operating
earnings improved 36 percent and 29 percent for the quarter and first half,
respectively. Net sales increased 6 percent for the second quarter and were
flat for the six months compared to the corresponding prior year periods. The
improvements in second quarter sales occurred primarily in Europe due to new
product launches and in North America. Sales for both comparative periods
also reflect the exit of certain Latin American distributorships last fiscal
year. An improved sales mix toward higher margin products and lower expenses
as a percentage of sales augmented the improved earnings performance.
Corporate Matters
- -----------------
Corporate expense increased $.1 million for the quarter and $.8 million for
the six months compared to last year. The effective tax rate for the six
months was 37.5 percent, compared to last year's 38.0 percent. This decrease
reflects an earnings mix toward lower statutory tax rate jurisdictions and
the utilization of certain operating losses.
FINANCIAL CONDITION
The Company's financial resources are expected to continue to be adequate to
support existing businesses and fund new opportunities. Since June 30, 1995,
cash and cash equivalents increased $15 million. Operations provided $95
million of cash, while acquisition and capital spending totaled $159 million.
The Company's current ratio at December 31, 1995, was 1.5:1. Debt as a
percentage of invested capital was 39 percent.
The Company's Board of Directors previously authorized repurchase of a total
of 42 million shares of its common stock. Thirty-two million shares have
been repurchased under this authorization, 2.5 million during the six months
ended December 31, 1995.
In September 1995 and November 1995, the Company issued $100 million of 6.75%
notes due September 15, 2005, and $100 million of 6.5% notes due November 15,
2007, respectively, from the $250 million shelf registration statement filed
in February of 1995. As of December 31, 1995, $50 million of securities
under this shelf and $50 million of securities under a shelf registration
statement filed with the SEC in 1992 remain unissued.
The Company has a $450 million private-placement commercial paper program.
This program is backed by $650 million of U.S. lines of credit, $100 million
available until March 1996 and $550 million available until November 1999.
At December 31, 1995, commercial paper borrowings amounted to $80 million.
There were no outstanding borrowings under the U.S. lines of credit at
December 31, 1995. At December 31, 1995, non-U.S. lines of credit totaling
$233 million were also available and borrowings under these lines amounted to
$40 million. The non-U.S. lines are cancelable at any time.
Estimated capital spending for the year ending June 30, 1996, is
approximately $200 million.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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
8
<PAGE>
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.
Previously Disclosed Matters
- ----------------------------
The following is a brief discussion of material developments in proceedings
disclosed in the Company's Form 10-K for its fiscal year ended June 30,
1995, as amended by the Company's report on Form 10-Q for its fiscal
quarter ended September 30, 1995:
Auburn Hills, Michigan -- In this previously reported matter involving a drum
recycling facility in Auburn Hills, Michigan, the State announced on November
7, 1995 that its proposed remedial action plan for the site would not be
adopted in its present form and that additional site evaluation would be
conducted. The litigation regarding this site, which is pending in the U.S.
District Court for the Eastern District of Michigan, remains dormant.
Ashtabula County, Ohio -- This previously reported matter involves claims
pending in the U.S. District Court for the Northern District of Ohio
regarding the contamination of a stream near Ashtabula, Ohio, where the
Company had operated a chloralkalai plant for approximately eight years
until 1982. The Fields Brook Remedial Action Group, a group of
potentially responsible parties (PRPs) that has been negotiating with
the U.S. Environmental Protection Agency (USEPA), has offered the
Company a buy-out settlement for $1,271,967. Approximately $385,000
of this amount has already been paid by the Company for its share of
Phase I costs and Phase II assessments. The Company has accepted the
buy-out offer and expects to execute settlement papers and obtain court
approval of the settlement by March 31, 1996. The settlement extends to
certain defined "Covered Matters," including all Phase I study and
investigation costs, Phase II remedial costs for the sediment and certain
floodplains, and government oversight costs. It does not include the
Company's possible liability for natural resource damages, remediation of the
Ashtabula River, and remediation of certain upper-brook floodplain areas.
While USEPA is not a party to the settlement, the PRPs do not
expect USEPA will object to the settlement.
Pierce County, Washington -- This previously reported matter, which is
pending in the U. S. District Court for the Western District of Washington,
concerns groundwater contamination allegedly caused by the operation of an
explosives manufacturing facility operated by Olin Corporation between 1935
and 1963 and by the Company between 1963 and 1976. In December 1995, the
Company filed a third-party complaint against the Boeing Company, the current
site owner, seeking contribution. The plaintiff (Centrum Properties, Inc.),
Boeing, Olin, and the Company are currently discussing possible ways of
resolving the dispute and allocating the clean-up costs. The court has set
the case for final pretrial in December 1996.
Additional Proceedings
- ----------------------
Springville, Utah -- The Company currently is negotiating an interim
settlement agreement with Ensign-Bickford Industries, Inc. ("EBI") to share
certain costs of remediating groundwater that allegedly has been impacted by
nitrates and explosives compounds emanating from EBI's Springville, Utah
explosives plant. The plant, under a series of owners, has been
manufacturing explosives at the mouth of the Spanish Fork Canyon in Utah
since the 1940s. Corporate predecessors of the Company acquired the plant in
1967, and the Company sold the plant and related assets to the Trojan
Corporation in 1982. EBI acquired the Trojan Corporation in 1986 and has
operated the plant since that time. Pursuant to a 1991 stipulation and
consent order with the State of Utah, EBI is preparing a feasibility study of
alternatives for remediating impacted off-site groundwater. EBI also is
conducting a corrective action study under a 1995 consent order with Utah.
EBI and the Company are investigating whether additional parties should share
in possible remediation costs. EBI has notified the Company that some
residents near the plant have threatened to sue EBI for bodily injuries and
property damage, which they claim to have suffered as a result of
contamination of their drinking water by chemicals emanating from the
plant. The State also has advised EBI that it is investigating a natural
resource damages claim. The Company's insurers have been notified of the
potential claims.
9
<PAGE>
Avon Settlement -- In December 1995, the Company entered into an
agreement with Avon Products, Inc. to settle litigation the Company filed in
1988 to enforce indemnity claims included in Avon's agreement to sell
Mallinckrodt Inc. to the Company in 1986. The settlement covers all
outstanding indemnity issues related to Avon's sale of Mallinckrodt,
including environmental clean-up claims and the 1988 settlement of a DuPont
patent claim. The Company used a portion of the settlement proceeds to fund
reserves for probable costs and related liabilities for claims which the
Company is, as a result of the settlement, responsible. The following is
a brief discussion of certain claims assumed by the Company as a result
of the settlement which the Company believes, based on currently
available information, are the more significant:
St. Louis, Missouri/FUSRAP. The Company owns a manufacturing facility
in St. Louis, Missouri. This site has been used for chemical
manufacturing since the late 1800s. During the late 1940s through
the early 1960s, the Company processed uranium under contract with the
U.S. government. When the processing ceased, the site was
decommissioned to remove radioactive residue to appropriate standards,
however since then, the clean-up standards have become more stringent.
Therefore, the radioactive residues remaining on site must be
remediated to current standards. The U.S. government established a
program to remediate sites formerly used for uranium manufacturing.
This program is called the Formerly Utilized Sites Remedial Action
Program (FUSRAP). The Department of Energy (DOE) is required to
implement and fund the remedial activities under FUSRAP. DOE is
working with the Company to remediate certain areas. The DOE is
responsible for remediating these residues, not the Company.
St. Louis, Missouri/CT Decommissioning. The Company also processed
certain ores, columbium and tantalum, under license with the Nuclear
Regulatory Commission (NRC) in the 1960s through 1986. The Company
is required to complete decommissioning of the processing areas,
buildings and soil on the site where manufacturing occurred pursuant
to NRC regulations. The Company submitted a Phase I Characterization
Plan to NRC and has implemented the characterization plan. The
Company will submit a Phase II Characterization plan based upon the
results of the first plan.
Raleigh, North Carolina. The Company owns a bulk pharmaceutical
facility which has been operating since the mid-1960s. The facility
has a Resource Conservation Recovery Act (RCRA) Part B permit which
requires the facility to undergo corrective action. There are
several phases to the corrective action process. The Company has
worked with Federal and State agencies to complete the Remedial
Feasibility Investigation ("RFI") and identified certain Solid
Waste Management Units (SWMUs). The Company received its permit
and recently submitted a Remedial Investigation Work Plan to the
North Carolina Department of Environmental Protection proposing the
work plan to investigate the SWMUs. The Company has not received a
response to this Remedial Investigation.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
See Mallinckrodt's Form 10-Q for the three months ended September 30, 1995,
for information about the Annual Meeting of Shareholders on October 18, 1995.
ITEM 5. OTHER INFORMATION.
Not applicable.
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Consulting Agreement with Herve M. Pinet for the period
December 1, 1995 to November 30, 1996.*
10.2 Amendment dated January 10, 1996 to Consulting Agreement with
Ronald G. Evens, M.D. extending agreement through
December 31, 1996.*
11.1 Primary earnings per share computation for the six months ended
December 31, 1995 and 1994.
11.2 Fully diluted earnings per share computation for the six months
ended December 31, 1995 and 1994.
11.3 Primary earnings per share computation for the quarters ended
December 31, 1995 and 1994.
11.4 Fully diluted earnings per share computation for the quarters
ended December 31, 1995 and 1994.
27 Financial Data Schedule.
_____________
* Management Contract or compensatory plan required to be filed
pursuant to Item 601.
(b) Reports on Form 8-K.
During the quarter and through the date of this report, the following
reports on Form 8-K were filed.
- Report dated October 17, 1995, under Item 5 regarding the completion
of the sale of the feed ingredients business, increased quarterly
dividend and plans for increased share repurchases.
- Report dated November 22, 1995, under Item 5 regarding fiscal 1995
and 1994 income statements as restated for the sale of the feed
ingredients business.
- Report dated December 18, 1995, under Item 5 regarding the
appointment of Mack G. Nichols to Chief Operating Officer and the
appointment of two other officers.
***************
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: February 12, 1996
11
<PAGE>
Exhibit 10.1
CONSULTING AGREEMENT
---------------------
THIS AGREEMENT is entered into as of December 1, 1995, by and between
Mallinckrodt Group Inc., a New York corporation (the "Company") and HERVE M.
PINET ("Pinet").
WITNESSETH:
WHEREAS, Pinet has special knowledge and ability with respect to
international markets and financial transactions; and
WHEREAS, the Company has determined that it would be beneficial to use
the consulting services of Pinet to develop international business
relationships and provide expertise in other international business matters;
and
WHEREAS, the Company wishes to clarify the capacity in which Pinet will
provide such services to the Company;
NOW, THEREFORE, it is mutually agreed as follows:
1. Consultancy.
------------
Pinet will be retained as a consultant of the Company for the
period December 1, 1995 through November 30, 1996.
2. Consulting Services.
--------------------
As a consultant, Pinet will (i) assist the Company in forming
strategic business relationships in Asia and Europe, (ii) advise the Company
with respect to global economic trends with a particular focus on
international banking transactions and, (iii) provide such other assistance
with international matters and the Company's search for new directors as may
be directed from time to time by the Chairman, President and Chief Executive
Officer, C. Ray Holman.
3. Consulting Fee.
---------------
The Company will pay Pinet for his consulting services and covenant
not to compete, a monthly fee of Ten Thousand Dollars ($10,000.00) payable on
the last day of each month. No other fees or commissions will be paid to
Pinet arising out of his consulting services under this Agreement. This
Agreement, however, will not preclude the payment of fees for services
rendered by Pinet as a member of the Company's Board of Directors.
4. Confidentiality of Company Information.
---------------------------------------
Pinet agrees to maintain in strict confidence any nonpublic
information concerning the Company and its subsidiaries that he knows or
acquires in the course of rendering consulting services under this Agreement,
or any prior Agreements between the Company and Pinet under which Pinet has
provided consulting services.
<PAGE>
AGREEMENT/Pinet
Page 2
5. Non-Compete.
------------
In consideration of the fee provided in paragraph 3 above, Pinet
agrees that he will not, during the term of this Agreement and for a period
of one year thereafter, be employed by or otherwise render any services for
any person or concern which is or which he knows has the intention of
becoming a direct competitor of any primary or developing product lines
within the primary or developing market areas of any business of the Company
or any wholly-owned subsidiary as it now exists or may exist at the
expiration of this Agreement (and any extensions thereof) without the prior
written consent of the Company, which consent will not be unreasonably
withheld.
6. Expenses.
---------
The Company will pay or reimburse Pinet, as the case may be, for
all expenses reasonably incurred by Pinet in rendering consulting services
which have been approved by C. Ray Holman, the Chairman, President and Chief
Executive Officer of the Company, and for which a statement of itemized
expenses with substantiating documentation has been provided.
7. Termination.
------------
The Company's obligations to Pinet and Pinet's obligations to the
Company as a consultant hereunder will terminate prior to November 30, 1996,
only in the event of Pinet's death or disability, or if the Company
determines that Pinet is in material default of his obligations under this
Agreement, or is guilty of wilful misconduct or gross negligence in the
performance thereof. For purposes of this paragraph, disability means a
physical or mental disability which the Company's Chief Executive Officer has
determined, acting with the advice of a competent medical doctor, renders or
has rendered Pinet unable to perform consulting services hereunder for a
consecutive period of one (1) month or more. No such determination will be
made without at least ten (10) day's prior written notice to Pinet, or his
spouse, or his personal representative, and such determination will not
become effective to terminate the Company's obligations to Pinet as
consultant hereunder until the last day of the month in which such notice
is given.
8. Independent Contractor Status.
------------------------------
Pinet will be regarded as an independent contractor in all matters
pertaining to services performed hereunder, and Pinet will not have the
authority to assume, create, or incur any liability or any obligation of any
kind, either express or implied, against or on behalf of the Company.
9. Severability.
-------------
This Agreement is divisible and separable so that if any provisions
are held to be invalid, such holding will not impair the remaining provisions
hereof. If any provision is held to be too broad to be enforced, such
provision will be construed to create only an obligation to the full extent
allowable by law.
10. Counterparts.
-------------
This Agreement may be executed in two or more counterparts, each of
which need not contain the signatures of more than one party, but such
counterparts taken together will constitute one and the same Agreement.
<PAGE>
AGREEMENT/Pinet
Page 3
11. Miscellaneous.
--------------
The foregoing constitutes the entire Agreement between the parties
and can be amended only by written agreement signed by both parties.
Further, this Agreement will not be assignable or transferable, in whole or
in part. Any payment required to be made by the Company pursuant to this
Agreement to a person who is under a legal disability may be made by the
Company to or for the benefit of such person in such of the following ways as
the Company may determine: (a) directly to such person, (b) to the legal
representative of such person, (c) to some near relative of such person, to
be used for the latter's benefit, or (d) directly in payment of expenses in
support, maintenance or education of such person. The Company will not be
required to see to the application by any third party of any payments made
pursuant hereto. All questions in respect of this Agreement, including those
pertaining to its validity, interpretation and performance, shall be
determined by the laws of the State of Missouri.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by a duly authorized officer and Pinet has set his
hand and seal as of the date first above-written.
Mallinckrodt Group Inc.
By C. RAY HOLMAN
---------------------------------------------------
C. Ray Holman
Its Chairman, President and Chief Executive Officer
ACCEPTED:
By HERVE PINET
- -------------------------------
Herve Pinet
Date December 1, 1995
<PAGE>
Exhibit 10.2
January 10, 1996
Ronald G. Evens, M.D.
The Edward Mallinckrodt Institute of Radiology
516 South Kingshighway
St. Louis, MO 63110
Dear Dr. Evens:
A letter of agreement dated December 22 1986, and renewal letters dated
November 29, 1989, February 19,1991, January 16, 1992, December 17, 1992,
January 7, 1994 and February 1, 1995, between you and Mallinckrodt Medical,
Inc., set forth the general terms and conditions under which you agree to
serve Mallinckrodt Medical, Inc., in a consulting capacity for the period
beginning January 1, 1987, and ending December 31, 1995.
Mallinckrodt Medical, Inc., desires to retain your consulting services
through the period beginning January 1, 1996, and ending December 31, 1996,
under the same terms and conditions as set forth in said letter agreement
dated December 22, 1986, and renewal letters dated November 29, 1989, and
February 19, 1991.
If the foregoing meets with your understanding and approval, please execute
this letter in duplicate at the place indicated below and return one of the
signed duplicates to us thereby indicating your agreement to continue to
serve Mallinckrodt Medical, Inc., as a consultant for the above-state period.
Very truly yours, ACCEPTED & AGREED TO:
MALLINCKRODT MEDICAL, INC. RONALD G. EVENS, M.D.
By: ROBERT G. MOUSSA ROBERT G. EVENS, M.D.
-------------------------- ----------------------------
Robert G. Moussa Robert G. Evens, M.D.
Title: President Date: January 12, 1996
----------------------- ----------------------------
<PAGE>
<TABLE>
Exhibit 11.1
EARNINGS PER SHARE
PRIMARY COMPUTATION
($ in millions except share and per share amounts)
<CAPTION>
Six Months Ended
December 31,
1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Basis for computation of earnings per
common and common equivalent shares:
Earnings from continuing operations $ 74.0 $ 65.8
Deduct dividends on 4 Percent
cumulative preferred stock (.2) (.2)
-------- --------
Earnings from continuing operations
available to common shareholders 73.8 65.6
Discontinued operations 22.5 7.9
-------- --------
Available for common shareholders $ 96.3 $ 73.5
======== ========
Number of shares:
Weighted average shares outstanding 76,098,488 76,757,943
Shares issuable upon exercise of
stock options, net of shares assumed
to be repurchased 1,062,758 645,205
---------- ----------
77,161,246 77,403,148
========== ==========
Earnings per common share:
Continuing operations $ .96 $.85
Discontinued operations .29 .10
----- -----
Net earnings $1.25 $.95
====== ======
</TABLE>
<PAGE>
<TABLE>
Exhibit 11.2
EARNINGS PER SHARE
FULLY DILUTED COMPUTATION
($ in millions except share and per share amounts)
<CAPTION>
Six Months Ended
December 31,
1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Basis for computation of earnings per
common and common equivalent shares:
Earnings from continuing operations $ 74.0 $ 65.8
Deduct dividends on 4 Percent
cumulative preferred stock (.2) (.2)
-------- --------
Earnings from continuing operations
available to common shareholders 73.8 65.6
Discontinued operations 22.5 7.9
-------- --------
Available for common shareholders $ 96.3 $ 73.5
======== ========
Number of shares:
Weighted average shares outstanding 76,098,488 76,757,943
Shares issuable upon exercise of
stock options, net of shares assumed
to be repurchased 1,181,659 716,010
---------- ----------
77,280,147 77,473,953
========== ==========
Earnings per common share:
Continuing operations $ .96 $.85
Discontinued operations .29 .10
----- -----
Net earnings $1.25 $.95
===== =====
</TABLE>
<PAGE>
<TABLE>
Exhibit 11.3
EARNINGS PER SHARE
PRIMARY COMPUTATION
($ in millions except share and per share amounts)
<CAPTION>
Quarter Ended
December 31,
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Basis for computation of earnings per
common and common equivalent shares:
Earnings from continuing operations $ 38.3 $ 35.3
Deduct dividends on 4 Percent
cumulative preferred stock (.1) (.1)
------- -------
Earnings from continuing operations
available to common shareholders 38.2 35.2
Discontinued operations 19.0 4.5
------- -------
Available for common shareholders $ 57.2 $ 39.7
======= =======
Number of shares:
Weighted average shares outstanding 75,484,367 76,616,993
Shares issuable upon exercise of stock options,
net of shares assumed to be repurchased 913,383 632,325
---------- ----------
76,397,750 77,249,318
========== ==========
Earnings per common share:
Continuing operations $ .52 $ .45
Discontinued operations .25 .06
------- -------
Net earnings $ .75 $ .51
======= =======
</TABLE>
<PAGE>
<TABLE>
Exhibit 11.4
EARNINGS PER SHARE
FULLY DILUTED COMPUTATION
($ in millions except share and per share amounts)
<CAPTION>
Quarter Ended
December 31,
1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
Basis for computation of earnings per
common and common equivalent shares:
Earnings from continuing operations $ 38.3 $ 35.3
Deduct dividends on 4 Percent
cumulative preferred stock (.1) (.1)
------- -------
Earnings from continuing operations
available to common shareholders 38.2 35.2
Discontinued operations 19.0 4.5
------- -------
Available for common shareholders $ 57.2 $ 39.7
======= =======
Number of shares:
Weighted average shares outstanding 75,484,367 76,616,993
Shares issuable upon exercise of stock options,
net of shares assumed to be repurchased 1,181,659 716,011
---------- ----------
76,666,026 77,333,004
========== ==========
Earnings per common share:
Continuing operations $ .50 $ .45
Discontinued operations .25 .06
------- -------
Net earnings $ .75 $ .51
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial informatiaon extracted from the
balance sheet and income statement, and is qualified in its entirety by
reference to such financial schedules.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 76
<SECURITIES> 0
<RECEIVABLES> 389
<ALLOWANCES> 13
<INVENTORY> 460
<CURRENT-ASSETS> 1,065
<PP&E> 1,527
<DEPRECIATION> 526
<TOTAL-ASSETS> 2,812
<CURRENT-LIABILITIES> 712
<BONDS> 595
<COMMON> 87
0
11
<OTHER-SE> 1,055
<TOTAL-LIABILITY-AND-EQUITY> 2,812
<SALES> 1,020
<TOTAL-REVENUES> 1,020
<CGS> 557
<TOTAL-COSTS> 886
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 118
<INCOME-TAX> 44
<INCOME-CONTINUING> 74
<DISCONTINUED> 23
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97
<EPS-PRIMARY> .96
<EPS-DILUTED> .96
</TABLE>
