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, 1996
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-483
______________________________
MALLINCKRODT 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.
73,965,042 shares excluding 13,151,247 treasury shares as of December
31, 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
The accompanying interim condensed consolidated financial statements
of Mallinckrodt 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 1996
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, 2, 3 and 4 of the Notes to
Condensed Consolidated Financial Statements. Interim results are not
necessarily indicative of the results for the fiscal year. All
references to years are to fiscal years ended June 30 unless
otherwise stated.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
<TABLE>
<CAPTIONS>
Quarter Ended Six Months Ended
December 31, December 31,
---------------- -------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
------- ------- -------- ---------
Net sales $ 571.1 $ 528.2 $1,112.5 $1,020.3
Operating costs and expenses:
Cost of goods sold 307.9 289.1 604.2 557.4
Selling, administrative
and general expenses 151.4 141.0 297.8 279.9
Research and development
expenses 34.2 31.5 70.2 55.6
Other operating (income)
expense, net 1.0 (4.2) (2.5) (7.4)
-------- ------- -------- --------
Total operating costs and
expenses 494.5 457.4 969.7 885.5
-------- ------- -------- --------
Operating earnings 76.6 70.8 142.8 134.8
Interest income and other
nonoperating income
(expense), net 6.4 (.5) 10.9 (.9)
Interest expense (11.8) (14.7) (25.7) (28.6)
-------- ------- -------- -------
Earnings from continuing
operations before income
taxes 71.2 55.6 128.0 105.3
Income tax provision 26.0 20.9 47.0 39.5
-------- ------- -------- -------
Earnings from continuing
operations 45.2 34.7 81.0 65.8
Discontinued operations ( 1.7) 22.6 (2.1) 30.7
-------- ------- -------- -------
Net earnings 43.5 57.3 78.9 96.5
Preferred stock dividends (.1) (.1) (.2) (.2)
-------- ------- -------- -------
Available for common
shareholders $ 43.4 $ 57.2 $ 78.7 $ 96.3
======== ======= ======== =======
Earnings per common share:
Continuing operations $.59 $.45 $1.07 $.85
Discontinued operations (.02) .30 (.03) .40
-------- ------- -------- -------
Net earnings $.57 $.75 $1.04 $1.25
======== ======= ======== =======
(See Notes to Condensed Consolidated Financial Statements on pages 5 and 6.)
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except share and per share amounts)
<TABLE>
December 31, June 30,
1996 1996
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 551.0 $ 546.2
Trade receivables, less allowances
of $14.8 at December 31 and $12.8
at June 30 453.9 453.9
Inventories 473.3 470.2
Deferred income taxes 42.3 42.9
Other current assets 64.5 57.7
------------ ------------
Total current assets 1,585.0 1,570.9
Investments and long-term receivables,
less allowances of $8.2 at December 31
and $8.1 at June 30 41.5 39.3
Property, plant and equipment, net 1,042.5 1,036.4
Intangible assets 651.8 647.5
Net noncurrent assets of discontinued
operations 115.2 108.5
Deferred income taxes 1.4 1.1
------------ ------------
Total assets $3,437.4 $3,403.7
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $ 122.2 $ 112.2
Accounts payable 172.3 194.6
Accrued liabilities 310.1 312.3
Income taxes payable 49.8 38.5
Net current liabilities of discontinued
operations 551.3 550.9
Deferred income taxes 3.3 3.3
------------ ------------
Total current liabilities 1,209.0 1,211.8
Long-term debt, less current maturities 572.1 575.8
Deferred income taxes 95.8 97.9
Postretirement benefits 162.2 155.9
Other noncurrent liabilities and
deferred credits 117.1 130.1
------------ ------------
Total liabilities 2,156.2 2,171.5
------------ ------------
Shareholders' equity:
4 Percent cumulative preferred stock 11.0 11.0
Common stock, par value $1, authorized
300,000,000 shares; issued 87,116,289
shares as of December 31 and June 30 87.1 87.1
Capital in excess of par value 298.4 283.5
Reinvested earnings 1,205.8 1,150.7
Foreign currency translation 1.0 (15.3)
Treasury stock, at cost (322.1) (284.8)
------------ ------------
Total shareholders' equity 1,281.2 1,232.2
------------ ------------
Total liabilities and shareholders'
equity $3,437.4 $3,403.7
============ ============
(See Notes to Condensed Consolidated Financial Statements on pages 5 and 6.)
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
<TABLE>
<CAPTIONS>
Six Months Ended
December 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Cash Flows - Operating Activities
Net earnings $ 78.9 $ 96.5
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 77.8 68.2
Postretirement benefits 6.3 6.0
Undistributed equity in earnings of joint
venture (9.6) (9.5)
Deferred income taxes (2.6) 5.1
Gains on disposals of assets (.7) (53.7)
------- -------
150.1 112.6
Changes in operating assets and liabilities:
Trade receivables (4.2) (36.7)
Inventories (2.3) (49.2)
Other current assets (5.7) 1.9
Accounts payable, accrued liabilities
and income taxes payable, net (19.2) 13.6
Net current liabilities of discontinued
operations .3 20.2
Other noncurrent liabilities and deferred
credits (14.3) 40.4
Other, net (3.5) (7.8)
------- -------
Net cash provided by operating activities 101.2 95.0
------- -------
Cash Flows - Investing Activities
Capital expenditures (56.4) (77.6)
Acquisition spending (13.2) (81.0)
Proceeds from asset disposals 35.2 118.8
Other, net 5.6 27.6
------- -------
Net cash used by investing activities (28.8) (12.2)
------- -------
Cash Flows - Financing Activities
Increase (decrease) in short-term debt 7.4 (56.4)
Proceeds from long-term debt 196.5
Payments on long-term debt (6.8) (103.3)
Issuance of Mallinckrodt common stock 21.6 9.3
Acquisition of treasury stock (66.0) (90.9)
Dividends paid (23.8) (22.6)
------- ------
Net cash used by financing activities (67.6) (67.4)
------- -------
Increase in cash and cash equivalents 4.8 15.4
Cash and cash equivalents at beginning of period 546.2 60.9
------- -------
Cash and cash equivalents at end of period $551.0 $ 76.3
======= =======
(See Notes to Condensed Consolidated Financial Statements on pages 5 and 6.)
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In millions, except per share amounts)
<TABLE>
<CAPTIONS>
1996 1995
-------- ---------
<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 30 283.5 274.1
Issuance of stock related to an acquisition 10.0
Stock options exercised 4.9 3.0
-------- ----------
Balance at December 31 298.4 277.1
-------- ----------
Reinvested earnings:
Balance at June 30 1,150.7 984.5
Net earnings 78.9 96.5
Dividends:
4 Percent cumulative preferred
stock ($2.00 per share) (.2) (.2)
Common stock ($.32 per share in 1996
and $.295 per share in 1995) (23.6) (22.4)
-------- ---------
Balance at December 31 1,205.8 1,058.4
-------- ---------
Foreign currency translation:
Balance at June 30 (15.3) (9.3)
Translation adjustment 16.3 (10.9)
-------- ---------
Balance at December 31 1.0 (20.2)
-------- ---------
Treasury stock:
Balance at June 30 (284.8) (175.9)
Purchase of common stock (66.0) (90.9)
Stock options exercised 16.7 6.3
Issuance of stock related to an acquisition 12.0
-------- ---------
Balance at December 31 (322.1) (260.5)
-------- ---------
Total shareholders' equity $1,281.2 $1,152.9
======== =========
(See Notes to Condensed Consolidated Financial Statements on pages 5 and 6.)
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. On January 29, 1997, the Company's Board of Directors approved a
formal plan to divest Fries & Fries, Inc., a wholly owned
subsidiary which owns a fifty percent interest in Tastemaker,
which is the Company's flavors joint venture with Hercules
Incorporated. Accordingly, Fries & Fries, Inc.'s net after tax
losses of $1.1 million and $.8 million for the quarter and six
months ended December 31, 1996, respectively, and net after tax
earnings of $3.6 million and $8.2 million for the quarter and six
months ended December 31, 1995, respectively, have been
reclassified as discontinued operations. Fries & Fries, Inc.'s
$510 million of short-term debt which was outstanding as of
January 29, 1997, will be assumed as part of the divestiture.
Interest expense related to the debt recorded by Fries & Fries,
Inc. and to be assumed by the buyer is included in discontinued
operations and totals $4.7 million, net of tax and $9.5 million,
net of tax for the quarter and six months ended December 31,
1996, respectively. The Company anticipates realizing a
significant gain on this transaction, net of costs associated
with divestiture, but cannot yet quantify the amount.
2. Included in earnings from continuing operations for the six
months ended December 31, 1996, is a one-time research and
development expense of $6.0 million, $3.8 million after taxes or
5 cents per share, resulting from a strategic alliance to develop
new magnetic resonance imaging technology.
3. 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 the acquisition of Syntro
Corporation. The charge was recorded as research and development
expenses.
4. Included in discontinued operations for the quarter and six
months ended December 31, 1995, are earnings, net of taxes, from
the divested feed ingredients business of $1.0 million and $5.5
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.
5. 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 36.7 percent,
compared to last year's 37.5 percent. This decrease reflects an
earnings mix toward lower statutory tax rate jurisdictions and
the utilization of certain foreign net operating losses.
6. 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, financial condition
or results of operations.
7. Earnings per common share were based on the weighted average
number of common and common equivalent shares outstanding
(75,642,495 and 77,161,246 for the six months ended December 31,
1996 and 1995, and 75,795,411 and 76,397,750 for the quarters
ended December 31, 1996 and 1995, respectively).
8. The components of inventory included the following as of December
31, 1996:
(In millions)
Raw materials and supplies $139.5
Work in process 98.0
Finished goods 235.8
------
$473.3
======
9. As of December 31, 1996, 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,
1996 1996
------------ ------------
Common stock 13,151,247 12,835,721
4 Percent cumulative preferred stock 1,670 1,670
10. At December 31, 1996, common shares reserved were:
Exercise of common stock purchase rights 83,154,258
Exercise of stock options and granting of stock awards 9,189,216
----------
Total 92,343,474
==========
11. Supplemental cash flow information for the six months ended
December 31 included:
(In millions)
1996 1995
------ ------
Interest paid $38.0 $21.4
Income taxes paid $34.8 $30.2
Non-cash investing and financing
activities:
Issuance of stock related to an
acquisition $22.0
Assumption of liabilities related to
acquisitions $4.7 $6.2
12. The Company has guaranteed repayment under a $600 million
revolving credit facility established in January 1997 for its
Tastemaker joint venture. Borrowings under the facility and the
Company's guarantee are secured by investments purchased with the
loan proceeds. At January 30, 1997, $500 million was outstanding
under the revolving credit facility. The guarantee will be
released concurrent with the divestiture of Tastemaker.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. (1)
Results of Operations
General
- -------
Earnings from continuing operations for the second quarter ended
December 31, 1996 were $45.2 million, or 59 cents per share. This
represents a 31 percent increase in per-share earnings from
continuing operations compared with $34.7 million, or 45 cents per
share, during the same period a year ago. Prior year results
included 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 the prior year charge, earnings per share
from continuing operations increased 23 percent. Net sales for the
quarter were up 8 percent to $571.1 million, compared to $528.2
__________________________________
[1] The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward-looking statements, so long as those
statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from those discussed
in the forward-looking statements. Certain statements contained
herein are forward-looking, particularly the statements appearing
under Part I. Item 2, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Part II. Item 1,
"Legal Proceedings."
Factors that could cause actual results to differ materially from
those expressed or implied by the forward-looking statements include
but are not limited to the following: the effect of business and
economic conditions; constraints on supplies and/or changes in the
cost of raw materials used in the manufacturing of certain of the
Company's products; capacity limiting the production of certain
products; difficulties or delays in the development, production,
testing, and marketing of products; difficulties or delays in
receiving required governmental or regulatory approvals; market
acceptance issues, including the failure of products to generate
anticipated sales levels; the effects of, and changes in, trade,
monetary and fiscal policies, laws and regulations; risks associated
with investments and operations in foreign jurisdictions, including
those related to foreign regulatory requirements, exchange rate
fluctuations, and local political, social, and economic factors;
changes in governmental laws and regulations affecting environmental
compliance, taxes, and other matters impacting the Company; the costs
and effects of legal and administrative proceedings, including the
environmental proceedings involving the Company; the ability of the
Company to develop and execute effective marketing and sales
strategies for its products; the potential erosion of prices for
certain of the Company's products as a result of increased
competition in its markets; and the risk factors reported from time
to time in the Company's SEC reports.
<PAGE>
million a year earlier. Net earnings for the second quarter were
$43.5 million, or 57 cents per share, compared with $57.3 million, or
75 cents per share, during the same period a year ago. Results for
Fries & Fries, Inc., a wholly owned subsidiary of the Company, have
been accounted for as a discontinued operation and, accordingly,
prior year results have been restated. Fries & Fries, Inc. owns the
Company's fifty percent interest in the Tastemaker flavors joint
venture with Hercules Incorporated. Prior year net earnings also
included a $34.4 million discontinued operations after tax gain
resulting from the sale of the feed ingredients business in the
second quarter, partially offset by a second quarter $15.6 million
after tax adjustment of provisions for environmental costs related to
discontinued operations.
For the six months, earnings from continuing operations were $81.0
million, or $1.07 per share, compared to $65.8 million, or 85 cents
per share during the same period a year ago. Current year results
reflect a one-time research and development expense of $6.0 million,
$3.8 million after taxes, or 5 cents per share, resulting from a
strategic alliance to develop new magnetic resonance imaging
technology, while the prior year reflects the charge associated with
the Syntro Corporation acquisition discussed above. Net sales for
the first half were up 9 percent to $1.1 billion compared to $1.0
billion a year ago. Net earnings for the six months were $78.9
million or $1.04 per share, compared with $96.5 million or $1.25 per
share for the same prior year period.
A comparison of sales and operating earnings follows:
(In millions)
<TABLE>
<CAPTIONS>
Quarter Ended Six Months Ended
December 31, December 31,
---------------- -------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
------- ------- ------ ------
Sales
- -----
Human healthcare $ 372.4 $ 331.9 $ 734.1 $ 648.0
Specialty chemicals 80.6 80.3 161.1 155.4
Animal health 118.1 116.0 217.5 217.0
Intersegment sales (.2) (.1)
-------- -------- --------- ---------
$ 571.1 $ 528.2 $1,112.5 $1,020.3
======== ======== ========= =========
Operating Earnings
- ------------------
Human healthcare $ 68.4 $ 68.4 $ 135.8 $ 130.4
Specialty chemicals 6.0 5.5 11.5 10.1
Animal health 9.6 4.2 9.5 9.2
Corporate (7.4) (7.1) (14.0) (14.6)
Eliminations (.2) (.3)
-------- -------- --------- ---------
$ 76.6 $ 70.8 $ 142.8 $ 134.8
======== ======== ========= =========
Business Segments
- -----------------
Human Healthcare
Net Sales Quarter Ended Six Months Ended
(In millions) December 31, December 31,
---------------- -------------------
1996 1995 1996 1995
------- -------- --------- --------
Imaging agents $ 201.2 $ 166.4 $ 399.8 $ 327.6
Critical care products 79.5 79.2 156.8 156.1
Pharmaceutical specialties 91.7 86.3 177.5 164.3
------- -------- --------- --------
$ 372.4 $ 331.9 $ 734.1 $ 648.0
======= ======== ========= =========
</TABLE>
Human healthcare's operating earnings for the current quarter were
equal to the prior year's second quarter at $68.4 million. Operating
earnings for the six months were $135.8 million, or 4 percent greater
than the corresponding prior year results. Excluding a first quarter
one-time research and development expense of $6.0 million incurred in
conjunction with a strategic alliance to develop new magnetic
resonance imaging technology, operating earnings for the six months
increased 9 percent over the corresponding prior year results. Net
sales increased 12 percent and 13 percent compared to the
corresponding prior year quarter and six months, respectively.
Imaging agent sales increased 21 percent and 22 percent above the
quarter and first half of the prior year, respectively. Iodinated
contrast media market share increases in the U.S. and the acquisition
of Liebel-Flarsheim in January 1996 were the major sales growth
contributors. The increased sales volume was partially offset by
lower contrast media selling prices.
Critical care products experienced increased demand for respiratory
therapy products and HemoCue blood hemoglobin and glucose analysis
systems in both the three month and six month periods of the current
year as compared with the corresponding periods in the prior year.
These sales gains were nearly offset by the lower revenue associated
with the blood gas and electrolyte business which was sold as of
September 30, 1996.
Sales of pharmaceutical specialties grew 6 percent and 8 percent
compared to the three month and six month periods of the prior year,
respectively. The sales growth, which occurred in the narcotics and
peptides product lines, was principally the result of volume
increases.
In November 1996, the Company acquired D.M. Graham Laboratories,
Inc., a contract manufacturer of dosage pharmaceuticals licensed to
produce a variety of medicinal narcotics. This acquisition is a key
step in the continuing growth of the Company's pharmaceutical
specialties business. In December 1996, the Company acquired
expanded sales and marketing rights for Molecular Biosystems, Inc.'s
FS069 (second-generation ultrasound imaging agent). As a result of
this and earlier agreements, Mallinckrodt has marketing rights for
Albunex and FS069 throughout the world except Japan, South Korea and
Taiwan.
Specialty Chemicals
Net Sales Quarter Ended Six Months Ended
(In millions) December 31, December 31,
---------------- -------------------
1996 1995 1996 1995
------ ------ ------ ------
$ 80.6 $ 80.3 $161.1 $155.4
====== ====== ====== ======
Specialty chemicals' operating earnings were $6.0 million and $11.5
million for the second quarter and six months ended December 31,
1996, respectively, representing increases of 9 percent and 14
percent over the same prior year periods. Compared with
corresponding prior year periods, sales were relatively flat for the
second quarter, but up 4 percent for the first six months on the
strength of volume growth of plastic additives.
Animal Health
Net Sales Quarter Ended Six Months Ended
(In millions) December 31, December 31,
---------------- -------------------
1996 1995 1996 1995
------ ------ ------ ------
$118.1 $116.0 $217.5 $217.0
====== ====== ====== ======
Animal health's operating earnings were $9.6 million and $9.5 million
for the second quarter and six months, respectively. These results
represent a 129 percent and 3 percent increase over the same prior
year periods. Sales revenue for the second quarter and first six
months, when compared to the corresponding periods of the prior year,
benefited from increases in Asia as a result of a new distribution
agreement entered into in January 1996, but were negatively impacted
by lower sales volume and higher discounts in North America. Second
quarter and first half operating earnings when compared to prior year
results benefited from improved manufacturing performance and a
one-time prior year pre-tax charge of $3.7 million for purchased
research and development related to the October 1995 acquisition of
Syntro Corporation, offset by higher operating expenses.
Corporate Matters
- -----------------
Corporate expense is up 4 percent for the second quarter, but down 4
percent for the first half of the year compared to the respective
prior year periods. The Company's effective tax rate for the six
months is 36.7 percent, compared to last year's 37.5 percent. This
rate decrease reflects an earnings mix toward lower statutory rate
jurisdictions and the utilization of certain foreign net 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, 1996, cash and cash equivalents increased $4.8
million. Operations provided $101.2 million of cash, while
acquisition and capital spending totaled $69.6 million. The Company
received $35.2 million in proceeds from asset disposals, primarily
from the blood gas and electrolyte business. The Company's current
ratio at December 31, 1996, was 1.3:1. Debt as a percentage of
invested capital was 35 percent.
The Company's Board of Directors previously authorized repurchase of
a total of 42 million shares of its common stock. Thirty-four and a
half million shares have been repurchased under this authorization,
1.5 million during the six months ended December 31, 1996.
In September 1995 and November 1995, the Company issued $100 million
of 6.75 percent notes due September 15, 2005, and $100 million of 6.5
percent notes due November 15, 2007, respectively, from the $250
million shelf registration statement filed in February of 1995. As
of December 31, 1996, $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 $550 million private-placement commercial paper
program. This program is backed by $550 million of U.S. lines of
credit, available until May 2001. At December 31, 1996, no amounts
were outstanding under the commercial paper program or the credit
agreement. In addition, Fries & Fries, Inc., a wholly-owned
subsidiary, has a $600 million committed line of credit available
until May 1997, which is guaranteed by the Company. Borrowings under
the credit agreement were $600 million at December 31, 1996.
Non-U.S. lines of credit totaling $199.4 million were also available
and borrowings under these lines amounted to $25.0 million at December
31, 1996. The non-U.S. lines are cancelable at any time.
Estimated capital spending for the year ending June 30, 1997, is
approximately $140 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 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 the Company's
business, financial condition or results of operations.
There have not been any material developments in the legal
proceedings previously reported in the Company's Form 10-K for its
fiscal year ended June 30, 1996, as amended by the Company's report
on Form 10-Q for its fiscal quarter ended September 30, 1996.
Item 2. Changes in Securities.
On November 20, 1996, the Company acquired all of the issued and
outstanding voting capital stock of D.M. Graham Laboratories, Inc.
("Graham Laboratories"). In exchange, the Company issued a total of
503,001 shares of its Common Stock, par value $1.00 per share, to the
seven then current stockholders of Graham Laboratories. The Company
issued its shares in reliance on the exemption from federal
securities registration set forth in Section 4(2) of the Securities
Act of 1933, as amended.
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,
1996, for information about the Annual Meeting of Shareholders on
October 16, 1996.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.25 Executive Incentive Compensation Agreement with Paul D.
Cottone dated as of October 24, 1996.*
10.26 Severance and Separation Agreement with Paul D. Cottone
dated as of October 24, 1996.*
11.1 Primary earnings per share computation for the six
months ended December 31, 1996 and 1995.
11.2 Fully diluted earnings per share computation for the
six months ended December 31, 1996 and 1995.
11.3 Primary earnings per share computation for the quarters
ended December 31, 1996 and 1995.
11.4 Fully diluted earnings per share computation for the
quarters ended December 31, 1996 and 1995.
27 Financial Data Schedule.
___________________
* 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 October 16, 1996, under Item 5 regarding name
change from Mallinckrodt Group Inc. to Mallinckrodt Inc.
- Report dated October 17, 1996, under Item 5 regarding
increased quarterly dividend and the election of four
directors at the Company's Annual Shareholders Meeting.
- Report dated October 24, 1996, under Item 5 regarding
Molecular Biosystems, Inc. and Mallinckrodt Inc. joint
announcement to file for PMA for next generation
ultrasound imaging agent.
- Report dated December 9, 1996, under Item 5 regarding
approval to market GastroMARK in the U.S.
- Report dated December 16, 1996, under Item 5 regarding
expanded marketing rights for FS069, Molecular Biosystems,
Inc.'s second generation ultrasound imaging agent.
- Report dated February 6, 1997, under Item 5 regarding the
divestiture of Tastemaker, the Company's flavors joint
venture.
***************
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 Inc.
-------------------------
Registrant
By: MICHAEL A. ROCCA By: TERRY D. MEIER
------------------------- ---------------------
Michael A. Rocca Terry D. Meier
Senior Vice President and Vice President and
Chief Financial Officer Controller
Date: February 10, 1997
Exhibit 11.1
EARNINGS PER SHARE
PRIMARY COMPUTATION
($ in millions, except share and per share amounts)
Six Months Ended
Deceber 31,
---------------------
1996 1995
-------- -------
Basis for computation of earnings per
common and common equivalent shares:
Earnings from continuing operations $ 81.0 $ 65.8
Deduct dividends on 4 Percent
cumulative preferred stock (.2) (.2)
-------- -------
Earnings from continuing operations
available to common shareholders 80.8 65.6
Discontinued operations (2.1) 30.7
-------- -------
Available for common shareholders $ 78.7 $ 96.3
======== =======
Number of shares:
Weighted average shares outstanding 74,173,030 76,098,488
Shares issuable upon exercise of
stock options,net of shares assumed
to be repurchased 1,469,465 1,062,758
---------- ----------
75,642,495 77,161,246
========== ==========
Earnings per common share:
Continuing operations $ 1.07 $ .85
Discontinued operations (.03) .40
------- ------
Net earnings $ 1.04 $ 1.25
======= ======
Exhibit 11.2
EARNINGS PER SHARE
FULLY DILUTED COMPUTATION
($ in millions, except share and per share amounts)
Six Months Ended
December 31,
---------------------
1996 1995
------- ------
Basis for computation of earnings per
common and common equivalent shares:
Earnings from continuing operations $ 81.0 $ 65.8
Deduct dividends on 4 Percent
cumulative preferred stock (.2) (.2)
-------- -------
Earnings from continuing operations
available to common shareholders 80.8 65.6
Discontinued operations (2.1) 30.7
-------- -------
Available for common shareholders $ 78.7 $ 96.3
======== =======
Number of shares:
Weighted average shares outstanding 74,173,030 76,098,488
Shares issuable upon exercise of
stock options,net of shares assumed
to be repurchased 1,772,927 1,181,659
---------- ----------
75,945,957 77,280,147
========== ==========
Earnings per common share:
Continuing operations $ 1.07 $ .85
Discontinued operations (.03) .40
------- -----
Net earnings $ 1.04 $ 1.25
======= ======
Exhibit 11.3
EARNINGS PER SHARE
PRIMARY COMPUTATION
($ in millions, except share and per share amounts)
Quarter Ended
December 31,
---------------------
1996 1995
-------- -------
Basis for computation of earnings per
common and common equivalent shares:
Earnings from continuing operations $ 45.2 $ 34.7
Deduct dividends on 4 Percent
cumulative preferred stock (.1) (.1)
------- -------
Earnings from continuing operations
available to common shareholders 45.1 34.6
Discontinued operations (1.7) 22.6
------- -------
Available for common shareholders $ 43.4 $ 57.2
======= =======
Number of shares:
Weighted average shares outstanding 74,114,694 75,484,367
Shares issuable upon exercise of
stock options,net of shares assumed
to be repurchased 1,680,717 913,383
---------- ----------
75,795,411 76,397,750
========== ==========
Earnings per common share:
Continuing operations $ .59 $ .45
Discontinued operations (.02) .30
------ -----
Net earnings $ .57 $ .75
====== =====
Exhibit 11.4
EARNINGS PER SHARE
FULLY DILUTED COMPUTATION
($ in millions, except share and per share amounts)
Quarter Ended
December 31,
--------------------
1996 1995
------ ------
Basis for computation of earnings per
common and common equivalent shares:
Earnings from continuing operations $ 45.2 $ 34.7
Deduct dividends on 4 Percent
cumulative preferred stock (.1) (.1)
------- -------
Earnings from continuing operations
available to common shareholders 45.1 34.6
Discontinued operations (1.7) 22.6
------- -------
Available for common shareholders $ 43.4 $ 57.2
======= =======
Number of shares:
Weighted average shares outstanding 74,114,694 75,484,367
Shares issuable upon exercise of
stock options, net of shares assumed
to be repurchased 1,772,926 1,181,659
---------- ----------
75,887,620 76,666,026
========== ==========
Earnings per common share:
Continuing operations $ .59 $ .45
Discontinued operations (.02) .30
------ ------
Net earnings $ .57 $ .75
====== ======
Exhibit 10.25
EXECUTIVE INCENTIVE COMPENSATION AGREEMENT
This Executive Incentive Compensation Agreement ("Agreement") is made
effective as of this 24th day of October, 1996, between Mallinckrodt
Inc. (the "Company") and Paul D. Cottone (the "Executive").
WHEREAS, Executive is currently an executive employee of
the Company's veterinary and animal products operations known as
Mallinckrodt Veterinary, Inc., i.e. hereinafter the "Business", who
is employed as its President and Chief Executive Officer and has
significant management responsibilities in the operation of that
Business;
WHEREAS, the Company has determined to divest itself of the
Business by selling or otherwise disposing of it;
WHEREAS, the Company recognizes that Executive is a
valuable resource to the Business and has determined that it requires
the continued service of the Executive to maximize the proceeds to be
realized from Divestiture of the Business;
WHEREAS, Executive is willing to remain as an employee of
the Business and the Company, as the Company determines, in exchange
for enhanced compensation to be paid under certain circumstances;
NOW, THEREFORE, in exchange for the promises and covenants
described below and for other valid consideration, whose receipt and
sufficiency is acknowledged, the Company and the Executive agree as
follows:
1. Continued Employment.
(a) The Company agrees to continue to employ
Executive, and the Executive agrees to remain employed by the Company
for such period as the Company determines appropriate. Executive
shall continue to use his best efforts to perform his duties as
President and Chief Executive Officer of the Business and such other
duties as the Company directs him/her to perform. While employed by
the Company, Executive agrees to devote his/her full business time,
energy and attention exclusively to the affairs of the Company and
performance of duties allocated to him.
(b) Executive agrees to use his best efforts to
cooperate with the Company, and to perform such tasks as allocated to
him, to divest the Business, to maximize the value to be obtained by
the Company upon the Business' Divestiture, to facilitate the
Divestiture and to retain and motivate employees of the Business
during the Divestiture process.
2. Compensation While an Employee. While an employee
of the Business, Executive shall receive his annual base salary as it
exists on the date of this Agreement and as established from the
Company from time to time. Executive shall be eligible to continue
to participate on a reasonable basis:
(a) In any annual incentive, stock option,
long-term incentive performance and other compensation plans and
programs of the Company which are applicable to his position in such
manner as established by the Company;
(b) In all employee benefit plans and programs
in accordance with their terms (including, but not limited to,
medical, life and accident insurance, disability, retirement,
investment and vacation plans) and perquisites applicable to his
position and as may be established or maintained by the Company.
All compensation, incentives and employee benefits shall be provided
to Executive in accordance with the terms of those programs as
administered by the Company.
3. Divestiture Incentive Compensation. If the
Executive remains employed by the Company through the Closing Date,
the Executive will be paid the compensations described below:
(a) Retention Incentive Payment. The Company
will pay to Executive an amount equal to one (1) time his/her annual
base salary rate in effect on the Closing Date. This amount will be
paid in cash to the Executive within 30 days following the Closing
Date.
(b) Sale Incentive Bonus. Immediately after the
Closing Date, the Company will determine a Sale Incentive Bonus Pool
as described below based upon the Value of Proceeds received by the
Company, during the period commencing with the date of this Agreement
and ending on the Closing Date, for the Business upon its
Divestiture. The Company will then pay to Executive a Sale Incentive
Bonus as described below based upon the size of the Bonus Pool
established.
Value of Proceeds Received Sale Incentive Amount of Executive's
or Divestiture of the Bonus Pool Sale Incentive Bonus
Business
- -------------------------- -------------- ---------------------
(Dollars in Millions)
Up to $400 1/2% of value of 35% of Sale Incentive
proceeds Bonus Pool
$400-plus $2M + 4% of value
of proceeds received
over $400
The amount of the Executive's Sale Incentive Bonus will be
paid to Executive in cash within sixty (60) days of the Closing Date.
(c) Attainment of Fiscal Year 1997 Performance
Objectives. Executive agrees that a critical aspect of his duties
during the Divestiture process is management of the Business to
attain its performance objectives under the Company's Management
Incentive Compensation Plan ("MICP") for the fiscal year starting
July 1, 1996 ("FY 97"). Accordingly, if the Closing Date occurs
during FY97 and the Business meets its performance objectives or is
on target when the Business is sold, then Executive shall receive, in
lieu of the amounts that he would have otherwise been eligible to
receive: (i) Two Hundred Percent (200%) of the payment that he would
have otherwise been entitled to receive under the MICP for FY 97 and
(ii) payment of amounts due him under the provisions of the Company's
Long Term Incentive Plan for Senior Management without reduction or
proration by reason of Divestiture of the Business or termination of
the Executive's employment (unless terminated as described under
subparagraph 4(b)) during FY97.
(I) Entitlement to MICP and Long
Term Incentive Plan payments, and time and manner
of their payment, will otherwise be determined under
the MICP for FY 97 and Long Term Incentive Plan in
accordance with the MICP and Long Term Incentive Plan
terms.
(II) If the Business is divested prior
to June 30, 1997, determination of the level of MICP
entitlement will be evaluated based upon performance
against objectives as of the Closing Date. If the
Compensation Committee of the Board of Directors of
Mallinckrodt Inc. concludes, in its judgment, that the
Business would have attained 100% of its performance
objectives but for the shortened performance period,
the Business will be considered to have attained 100%
of its objectives.
(d) Definitions. For purposes of this Agreement,
the terms used herein shall have the following meaning unless
otherwise clearly provided.
(I) "Closing Date" means the date on
which the last of any and all transactions which
constitute the Divestiture of the Business is closed,
as such date is determined by the Company in its sole
and exclusive judgment. None of the incentives
described in paragraph 3 will be payable unless this
date and Divestiture occurs on or before June 30, 1997,
or if active negotiation with third parties for
divestiture of the Business is ongoing at June 30, 1997
such later date as the Company in its sole and exclusive
judgment may establish.
(II) "Divestiture" means all transactions
for the sale, disposition, exchange or other transfer of
all or substantially all of the ownership of (I) the
Business or (II) any entities owned directly or indirectly
by, or affiliated with,allinckrodt Inc. or Mallinckrodt
Veterinary, Inc. which own the Business, is transferred
to persons or entities other than the Company and its
affiliates.
(III) "Value of Proceeds" means the sum of
all amounts of cash received by the Company from all
Divestiture transactions as defined above including
the Fair Market Value of: (I) all real or personal,
tangible or intangible property or rights to property
of any type, negotiable or nonnegotiable securities of
any type, whether registered or not under any security
laws, and any rights to receive any other property and
(II) all indebtedness of any type issued by any
purchaser or entity which acquires all or part of the
Business which sums of indebtedness are received or
receivable by, paid or payable to the Company. Proceeds
received by the Company or Business for the sale or
deposition of assets of the Business in the ordinary
course of its operations shall not be included in the
Value of Proceeds.
(IV) Fair Market Value. Shall be the
value assigned by the Company to the Value of Proceeds
received by the Company as determined by the Company
in its sole and exclusive judgment.
(V) Use of male gender terms, e.g.
"he" or "him" shall be interpreted to also include
the female gender if appropriate.
(e) Treatment of Payments for Employee Benefit
Plan Purposes. Executive agrees that all amounts described in
paragraph 3, except for 50% of the amount of MICP payment, if any,
described in subparagraph 3(c)(i), shall not be considered to be
compensation, base compensation, earnings, annual incentive or bonus
payments for purposes of determining Executive's accrued benefit or
any other benefit entitlements under the Mallinckrodt Inc. Retirement
Plan, the Investment Plan for Employees of Mallinckrodt Inc. or any
other employee benefit or compensation plan or policy of the Company
and any of its affiliates.
4. Termination of Executive's Employment. The
following shall apply upon termination of Executive's employment with
the Company or any of its affiliates.
(a) Termination for Any Reason. If Executive's
employment with the Company or any of its affiliates terminates for
any reason and, unless otherwise provided pursuant to this or any
other agreement with the Executive specifically concerning payment of
compensation upon termination of employment, he shall only receive
the compensations and benefits due to him pursuant to the
compensation and employee benefit plans and policies of the Company
described in paragraph 2.
(b) Termination for Cause or Resignation. If
prior to the Closing Date or at any time prior to payment of sums due
under paragraph 3 (except for sums whose payment has been deferred),
Executive resigns his employment with the Company or any of its
affiliates for any reason or Executive's employment with the Company
or any of its affiliates is terminated for Cause, Executive shall
not be entitled to receive any amounts described in paragraph 3 which
have not yet been paid to him. Cause shall be defined as:
(I) The Executive's neglect of, or failure
to satisfactorily or substantially perform, any of the duties of his
position and any other duties assigned to him by the Company unless
such failure is due to physical or mental incapacity; or
(II) Any act or omission to act of the
Executive which is determined to be inconsistent with the best
interests of the Company or which has the effect of embarrassing or
injuring the Company, its business or business relationships.
For purposes of this Agreement, whether Executive has been terminated
for Cause shall be determined in the sole and exclusive judgment of
the Chairman of the Board of the Company and that determination shall
be binding and final on all parties. In the event Executive is
terminated for Cause, the Executive shall have an opportunity to meet
with the Chairman of the Board before a final determination is made.
(c) Termination Prior To The Closing Date For
Reasons Other Than Cause or Resignation. If prior to the Closing
Date Executive's employment with the Company or any of its affiliates
terminates for any reason other than Cause or resignation, (e.g.
because of death, disability, Divestiture of a part of the Business
by which Executive is employed), Executive shall receive payment of
the amounts described in paragraph 3, if any, determined as if he
remained employed through the Closing Date.
5. Deferral Provisions. Any amounts payable under
paragraph 3(c) with respect to the Company's MICP will be paid or
deferred pursuant to elections previously made by Executive under
that Plan, if any. Payment of any other amounts which become payable
to Executive under paragraph 3 may be deferred until a later date.
If Executive wishes to defer all such payments, Executive must elect,
simultaneously with the execution of this Agreement, to defer them in
the manner required by the Company. Any deferral election shall be
irrevocable. The provisions of the MICP applicable to payments
deferred thereunder will govern such deferrals. All sums deferred
shall be credited with interest at the prime rate, compounded
monthly, as established at the beginning of each month by Bankers
Trust Company of New York.
6. Release. As a condition precedent to the Company
having any obligation to pay the Executive or his Beneficiaries any
of the amounts described in paragraph 3, the Company may demand that
Executive first execute and shall not revoke an agreement wherein the
Executive releases and waives any and all claims which the Executive
may have against the Company and its affiliates and others as
specified in the waiver and release. The Company may propose any
form of release and waiver agreement which it deems appropriate and
Executive and/or his Beneficiaries shall be obligated to execute it
as a condition precedent to entitlement to any of the payments
described in paragraph 3.
7. Payments Upon Death. Upon the death of the
Executive, amounts due to Executive under paragraph 3 shall be
distributed to his designated Beneficiary upon becoming payable.
Executive may designate one or more Beneficiaries to whom benefits
will be paid prior to distribution of such amounts. Each designation
shall be in writing as prescribed by the Company and will become
effective only when filed with the Company during the Executive's
lifetime. Any designation may be changed by filing a new designation
and all prior designations shall become void. If the Executive has
made no effective designation or all designated Beneficiaries have
predeceased the Executive, payments shall be made to the Executive's
estate.
8. General Provisions.
(a) Source of Payments. This Agreement shall not
give the Executive or any person, any right to any specific property
or assets of the Company. The Company's obligation hereunder is an
unfunded, unsecured promise to pay money in the future and the
Executive's claim shall be that of a general, unsecured creditor.
(b) Nonalienation. Except for the Company's
right to offset or forfeit payments stated below, neither Executive
nor any other person, prior to the payment or distribution of amounts
hereunder, may pledge, sell, anticipate, assign or in any way create
a lien upon any amounts payable under this Agreement either by
voluntary or involuntary acts or by operation of law. No amounts
payable may be attached or subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by the
Executive or any other person. However, if the Executive is indebted
to the Company in any manner when payments are due, the Company may
offset such indebtedness against the payments and withhold it from
any sums due hereunder.
(c) No Contract of Employment. This Agreement is
not a contract of employment for any term and shall not be
interpreted as providing the Executive the right to continue to be
retained in the employ of the Company or any of its affiliates or,
upon the Executive's termination of employment, to have any right to
any amount or benefit except as granted herein. This document shall
not be interpreted to imply that the Executive, while employed by the
Company, is anything other than an employee at will whose employment
may be terminated at any time for any or no reason.
(d) Successors. This Agreement shall be binding
upon and inure to the benefit of the Company and its successors and
assigns, by operation of law or otherwise, including any entity or
person which shall succeed (whether directly or indirectly, by
purchase, merger, or otherwise) to all or substantially all of the
business and/or assets of the Company. This Agreement shall be
binding upon and inure to the benefit of Executive and his other
legal representatives, heirs, and assigns. The duties of the
Executive to perform services for the Company are personal and may
not be assigned.
(e) Amendment and Waiver. This Agreement may not
be amended except in a writing which is executed by Executive and a
duly authorized officer of the Company. No waiver by either party of
any breach or any provision of this Agreement shall be deemed a
waiver of a similar or dissimilar provision nor shall the failure of
or delay by either party in exercising any right or privilege or
operate as a waiver to preclude further exercise thereof or of any
other right.
(f) Withholding. All payments made by the
Company pursuant to this Agreement shall be subject to withholding of
such amounts of income and other taxes as the Company may reasonably
determine is appropriate.
(g) Entire and Exclusive Agreement. This
Agreement constitutes the entire agreement of the parties in respect
of the subject matter hereof and supersedes any and all negotiations,
representations and prior agreements by and between the parties with
respect to its subject matter. It specifically supersedes and
replaces any other agreements which the Executive may have with the
Company and its affiliates concerning payment of any compensation as
a result of any Divestiture of the Business.
(h) Severability. If any provision of this
Agreement is determined to be invalid or unenforceable for any
reason, the remaining provisions shall be unaffected and shall be
construed and enforced in accordance with the terms of this
Agreement.
(i) Governing Law. This Agreement shall be
governed by the law of the State of Missouri.
(j) Notices. Any notice to be given will be in
writing and delivered personally or sent by first class or certified
mail addressed to the party concerned at the address below or at such
other address as maybe subsequently provided:
If to the Company:
Mr. Roger Keller
Vice President, General Counsel
Mallinckrodt Inc.
7733 Forsyth Boulevard, Suite 2200
St. Louis, Missouri 63105
If to the Executive:
Paul D. Cottone
190 Lancaster Ct.
Lake Bluff, IL 60044
(k) Administration and Interpretation. The
Chairman of the Board of the Company shall have the power to
discharge all duties hereunder except that he may delegate them as he
sees fit. The Chairman shall be allocated complete discretion to
interpret this Agreement and to resolve any and all questions or
issues arising under it. The Chairman's determinations shall be
final, conclusive and binding on all parties and shall be accorded
the maximum possible deference by any reviewing court or agency.
(l) Payment to Guardian. If a distribution is
payable to a minor or person declared incompetent or to a person that
the Company concludes is incapable of handling the disposition of
property, the Company may direct payment to the guardian, legal
representative or person having the care and custody of such person.
The Company may require proof of incompetency, minority, incapacity
or guardianship as it may deem appropriate. Such distribution shall
completely discharge the Company from all liability with respect to
such benefit.
9. Breach. If it is determined by the Company, in its
sole determination, that Executive has breached any term of this
Agreement, all obligations which the Company may have to pay any
amounts under this Agreement will cease and the Company shall be
excused from performance of any and all other obligations contained
in this Agreement. The right to cease future payments shall not
preclude the Company from requesting any other remedies available,
either at law or equity.
10. Termination. This Agreement shall terminate upon
the earliest to occur of:
(a) the day following the last date for
incentives established in subparagraph 3(d)(I); however, if the
Divestiture of the Business has occurred prior to that date then
amounts which would be due pursuant to paragraph 3 may be paid or
deferred thereafter as provided herein;
(b) Payment to the Executive or his Beneficiary
of all amounts due and payable pursuant to paragraph 3; or
(c) Except as provided in subparagraph 4(c), upon
termination of the Executive from the employment of the Company if as
a result, or at the time, of that termination the Executive is not
then entitled to receive any amounts under paragraph 3.
However, the provisions of paragraphs 4, 5, 6, 8, and 9 shall survive
the termination of the Agreement if any amounts are paid under
paragraph 3.
IN WITNESS WHEREOF, the Executive has executed this
Agreement and, pursuant to authorization from its Board of Directors,
the Company has caused this Agreement to be executed on its behalf,
all as of the day and year first shown above.
MALLINCKRODT INC.
By: /s/ C. Ray Holman /s/ Paul D. Cottone
-------------------- --------------------
C. Ray Holman Executive
Chairman of the Board and CEO
ATTEST:
- ---------------------------------
Exhibit 10.26
SEVERANCE AND SEPARATION AGREEMENT
This Severance and Separation Agreement ("Agreement") is made
effective as of this 24th day of October, 1996 between Mallinckrodt
Inc.(the "Company") and Paul D. Cottone (the "Executive").
WHEREAS, Executive is currently an executive employee of the
Company's veterinary and animal products operations known as
Mallinckrodt Veterinary, Inc., i.e. hereinafter the "Business", who
is employed as its President and Chief Executive Officer and has
significant management responsibilities in the operation of that
Business;
WHEREAS, the Company has determined to divest itself of the
Business by selling or otherwise disposing of it;
WHEREAS, the Company recognizes that Executive is a valuable
resource, desires that he be able to devote his full energies and
undivided attention to his duties without the attendant distractions
which he may have concerning his financial well being in case of the
Executive's termination of employment as described below:
WHEREAS, the Company desires to assure that when Executive is
involved in deliberations in connection with Divestiture of the
Business, Executive would be in a secure position to participate in
such transactions in the best interests of the Company;
WHEREAS, Executive is willing to continue to serve the Company
but desires assurance that in the event of his separation from
employment with the Company or Successor as described below, he will
have fair and reasonable financial protections;
NOW, THEREFORE, in exchange for the promises and covenants
described below and for other valid consideration, whose receipt and
sufficiency is hereby acknowledged, the Company and the Executive
agree as follows:
1. Payment of Severance Compensation Upon Termination of
Employment Prior to Divestiture of the Business. If the employment
of Executive with the Company or any of its affiliates terminates for
any reason before the Closing Date, excluding termination resulting
from the circumstances described in paragraph 5, the Company shall
provide to the Executive those benefits and compensations described
in paragraph 4 below.
2. Payment of Severance Compensation Upon Termination of
Employment As a Result of or Subsequent to Divestiture of the
Business.
(a) If within 30 days following the Closing Date, or the
closing of any transaction which constitutes Divestiture of all or
part of the Business, Executive is not offered or retained in
Comparable Employment by (i) any Successor to the Business, or (ii)
the Company or any of its affiliates, unless he is not retained in or
offered employment for the reasons described in paragraph 5 below,
the Company shall provide to the Executive those benefits and
compensations described in paragraph 4 below.
(b) If following the Closing Date, Executive is retained
in Comparable Employment with Mallinckrodt Inc. or any of its
affiliates and his employment with them thereafter terminates for any
reason, Executive shall not receive the benefits and compensations
described in paragraph 4 but shall receive such payments and benefits
provided under the compensation and employee benefit plans, programs
and policies then maintained by Mallinckrodt Inc. and its affiliates
for which the Executive is then eligible.
(c) Under no circumstances shall Executive be entitled to
the compensations and benefits described in paragraph 4 if Executive,
within a 30 day period following any Divestiture transaction or the
Closing Date, is offered or retained in Comparable Employment by a
Successor or the Company or any of its affiliates except as described
in paragraph 3.
3. Payment of Severance Compensation Upon Termination
Following Divestiture of the Business. If within 30 days following
the Closing Date or the closing of any transaction which constitutes
Divestiture of all or part of the Business, Executive is retained in
Comparable Employment with any Successor and the Executive's
employment with such entity terminates for any reason, except for
those described in paragraph 5, within twelve (12) months after the
start of his/her employment with the Successor, the Company shall
provide to the Executive those benefits and compensations described
in subparagraphs 4(a) and (b) below.
4. Severance Compensation. Except as otherwise provided in
subparagraph 4(c), the Company will pay and provide the following as
specified to Executive should his employment be terminated under any
of the conditions described in paragraphs 1 through 3 which would
make him eligible to receive them:
(a) Base Severance Pay.
(i) If circumstances exist so that if paragraph 1 or
subparagraph 2(a) is applicable, Executive shall receive a cash
payment equal to one year of Executive's base salary in effect on the
date of this Agreement.
(ii) If circumstances exist so that paragraph 3 is
applicable, Executive shall receive a cash payment equal to the
greater of (a) two weeks of Executive's base salary in effect on the
date of this Agreement, per each full year and any fraction of year
of Executive's combined service with the Company and the Successor
subject to a minimum of twelve (12) weeks and a maximum of fifty-two
(52) weeks of base salary regardless of Executive's actual service or
(b) one year of Executive's base salary in effect on the date of this
Agreement multiplied by a fraction the numerator of which equals the
number of calendar days remaining from the date of Executive's
termination by the Successor to the first calendar year anniversary
of the Closing Date and the denominator equals 365 days.
(b) Benefit Continuation Payment. Executive shall receive
a cash payment equal to the cost which employee would be required to
pay to acquire continuation coverage, pursuant to the provisions of
the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"),
29 U.S.C. Sections 1161-1167, under the medical benefit plan which
covered Executive immediately prior to his termination of employment
for a period equal to the total number of weeks of base salary which
the Executive is entitled to receive under subparagraph 4(a).
(c) Retirement Benefit Improvements. If terminated under
any conditions described in paragraphs 1 and 2, Executive shall
receive the following improvements to the amount of his benefits
determined under the Company's Qualified Retirement Plan (the
"Plan"):
(i) If not already vested, he shall become fully
vested in pensions accrued under the Plan:
(ii) He shall have his pension calculated by adding an
additional two (2) years of Credited Service to his existing
Credited Service under the Plan;
(iii) If Executive is age 55 or older on the date on
which his employment terminates, he will be eligible to receive an
early retirement pension benefit under the Plan calculated without
any reduction in accrued pension because of commencement prior to age
62;
(iv) If Executive is at least age 54 but not age 55 on
the date on which his employment terminates, he will be eligible to
receive an early retirement pension benefit upon attaining age 55
determined as though he had terminated employment at age 55 and had
been on unpaid leave of absence from the date of his actual
termination of employment from the Company and its affiliates until
age 55.
If the value or the effect of any item described in subparagraphs
4(c)(i) through (iv) cannot be paid from or provided through the Plan
for any reason, as determined by the Plan Administrator in his
judgment, then the value of such item(s) will be provided in an
equivalent cash payment to the Executive. This payment shall equal
the actuarial equivalent of the particular value or effect determined
using the assumptions and methods then employed under the Plan to
determine the lump sum equivalent of pensions payable under the Plan.
Such calculations shall be made by the Plan Administrator and shall
be final and conclusive.
(d) Payment for Unvested Options. The Company shall pay
Executive for any unvested options of the Company's shares at the
rate of $6.84 per share for those shares covered by options awarded
before August 1996 and $3.42 per share for those shares covered by
options awarded during or after August 1996.
(e) Executive Out placement Assistance. The Company will make
available to Executive an Out placement assistance program (i.e. "Out
placement") which would be provided through a provider selected by
the Company in accordance with such terms as negotiated by the
Company which terms shall be reasonably consistent with Out placement
previously provided by the Company to former executive employees.
Outplacement shall be provided only if Executive notifies the Company
within thirty (30) days of his termination of employment that he
elects it.
(f) Treatment of Payments for Employee Benefit Plan Purposes.
Executive agrees that the payments described in this paragraph 4
shall not considered to be compensation, base compensation, annual
incentive or bonus payments for purposes of determining Executive's
accrued benefit or any other benefit entitlements under the
Mallinckrodt Inc. Retirement Plan, the Investment Plan for Employees
of Mallinckrodt Inc. or any other employee benefit or compensation
plan or policy of the Company and any of its affiliates.
Any amounts due to Executive under this paragraph 4 shall be paid to
him as soon as practical after his termination of employment. No
combination of circumstances described in paragraphs 1 through 3
shall result in multiple payment of any amount stated in paragraph 3.
5. No Entitlement to Severance Payments. If the employment of
the Executive with the Company or any of its affiliates or a
Successor terminates because of any reason described in (a) through
(d) below, Executive shall not be entitled to any of the payments
described in paragraph 4. In such case, the Executive shall only be
entitled to such compensation and benefits as are available under the
applicable employee benefit plans and other compensation programs of
the Company, if any, or a Successor, if his employment terminates
from a Successor, in accordance with the provisions of such plans and
programs.
(a) Death. The Executive's employment with the Company or
a Successor ends by reason of the Executive's death.
(b) Disability. The Executive becomes incapacitated by
reason of physical or mental disability and is unable to perform the
essential functions of his position, with or without accommodation,
and as a result, the Executive's employment with the Company or
Successor is terminated;
(c) Cause. The employment of the Executive with a
Successor or the Company is terminated for Cause. For purposes of
this Agreement, Cause shall mean:
(i) The Executive's neglect of, or failure to
satisfactorily or substantially perform, any of the duties of his
position and any other duties assigned to him unless such failure is
due to physical or mental incapacity; or
(ii) Any act or omission to act of the Executive which
is determined to be inconsistent with the best interests of the
Company or Successor or which has the effect of embarrassing or
injuring the Company or Successor, their business or business
relationships.
For purposes of this Agreement, whether Executive has been
terminated for Cause shall be determined in the sole and exclusive
judgment of the Chairman of the Board of Mallinckrodt Inc. and that
determination shall be binding and final on all parties. In the
event Executive is terminated for Cause, the Executive shall have an
opportunity to meet with the Chairman of the Board before a final
determination is made.
(d) Voluntary Resignation. The employment of the
Executive with a Successor or the Company is terminated by the
Executive upon his voluntary resignation for any reason. The
resignation of Executive shall be deemed "voluntary" unless it occurs
for any one of the reasons described in (i) or (ii) below in which
case it shall be deemed to be "involuntary" and the Executive shall
be entitled to the benefits described in paragraph 4:
(i) The Executive's resignation or retirement (other
than mandatory retirement pursuant to a written employment agreement
or Company or Successor policy) is requested by a Successor or the
Company other than for Cause; or
(ii) The Executive's resignation or retirement results
from the failure by a Successor or the Company to comply with any of
the provisions of any written employment contract with the Executive.
6. Definitions. For purposes of this Agreement, the terms
used herein shall have the following meaning unless otherwise clearly
provided.
(a) "Closing Date" means the date on which the last of any
and all transactions which constitute the Divestiture of the Business
is closed as such date is determined by the Company in its sole and
exclusive judgment. If such date has not occurred prior to June 30,
1997, or if active negotiation with third parties for divestiture of
the Business is ongoing at June 30, 1997, such later date as the
Company in its sole and exclusive judgment may establish, such date
shall not occur.
(b) "Divestiture" means all transactions for the sale,
disposition, exchange or other transfer of all or substantially all
of the ownership of (i) the Business, or (II) any entities owned
directly or indirectly by, or affiliated with, Mallinckrodt Inc. or
Mallinckrodt Veterinary, Inc. which own the Business, is transferred
to persons or entities other than the Company and its Affiliates.
(c) Comparable Employment means employment which would
compensate Executive with an annual base salary and annual bonus
which in total would be at least 90% of Executive's annual base
salary and normal annual MICP bonus payable to Executive on the date
of this Agreement.
For purposes of this Agreement, whether Executive has been offered
Comparable Employment shall be determined in the sole and exclusive
judgment of the Chairman of the Board of Mallinckrodt Inc. and that
determination shall be binding and final on all parties. In the event
a question arises whether the Executive has been offered Comparable
Employment, the Executive shall have an opportunity to meet with the
Chairman of the Board before a final determination is made.
(d) "Successor" means any person, entity or affiliate of
such person or entity which acquires, succeeds to and/or retains any
portion of the Business as a result of, following, or in connection
with any transaction constituting part of the Divestiture of the
Business.
(e) Use of male gender terms, e.g. "he" or "him" shall be
interpreted to also include the female gender if appropriate.
7. Release. As a condition precedent to the Company having any
obligation to pay the Executive or his Beneficiaries of any of the
amounts described in paragraph 4, the Company may demand that
Executive first execute and shall not revoke an agreement wherein the
Executive releases and waives any and all claims which the Executive
may have against the Company and its affiliates and others as
specified in the waiver and release. The Company may propose any
form of release and waiver agreement which it deems appropriate and
Executive and/or his Beneficiaries shall be obligated to execute it
as a condition precedent to entitlement to any of the payments
described in paragraph 4.
8. Payments Upon Death. Upon the death of the Executive,
amounts due to Executive under paragraph 4, if any, shall be
distributed to his designated Beneficiary upon becoming payable.
Executive may designate one or more Beneficiaries to whom benefits
will be paid prior to distribution of such amounts unless otherwise
payable under the terms of the Mallinckrodt Inc. Retirement Plan.
Each designation shall be in writing as prescribed by the Company and
will become effective only when filed with the Company during the
Executive's lifetime. Any Beneficiary designation may be changed by
filing a new designation and all prior designations shall become
void. If the Executive has made no effective Beneficiary designation
or all designated Beneficiaries have predeceased the Executive, then
payment shall be made to the Executive's estate.
9. Exclusivity of Provisions Regarding Payments Upon
Termination of Employment. The terms of this Agreement shall
specifically supersede, replace and render null and void (a) any
agreement or commitment, or portion thereof, which the Executive may
have with the Company or its affiliates and (b) any portion of any
employee benefit plan, program or other policy of the Company or its
affiliates which may pertain to the Executive, that provides for the
payment of any severance or separation compensation upon termination
of the Executive's employment with the Company, an Affiliate or a
Successor. However, the provisions of the Executive Incentive
Compensation Agreement between the Company and the Executive dated
October 24, 1996, and rights, if any, under any agreement relating to
a Change in Control of the Company shall remain in full force and
effect. Executive shall also be entitled to receive all compensation
and benefits due to him upon termination of employment which he
accumulates through that date pursuant to the Mallinckrodt Inc.
Retirement Plan, the Investment Plan for Employees of Mallinckrodt
Inc., the Mallinckrodt Inc. Management Incentive Compensation Plan
and Long Term Incentive Compensation Plan for Senior Management.
10. General Provisions.
(a) Source of Payments. This Agreement shall not give
Executive or any person, any right to any specific property or assets
of the Company. The Company's obligation hereunder is an unfunded,
unsecured promise to pay money in the future and the Executive's
claim, shall be that of a general, unsecured creditor.
(b) Nonalienation. Except for the Company's right to
offset or forfeit payments stated below, neither Executive nor any
other person, prior to the payment or distribution of amounts
hereunder, may pledge, sell, anticipate, assign or in any way create
a lien upon any amounts payable under this Agreement either by
voluntary or involuntary acts or by operation of law. No amounts
payable may be attached or subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by the
Executive or any other person. However, if the Executive is indebted
to the Company in any manner when payments are due, the Company may
offset the amount of any indebtedness against the payments and
withhold it from any sums due hereunder.
(c) No Contract of Employment. This Agreement is not a
contract of employment for any term and shall not be interpreted as
providing the Executive the right to continue to be retained in the
Company's employ or, upon the Executive's termination of employment,
to have any right to any amount or benefit except as expressly
granted herein. This document shall not be interpreted to imply that
the Executive, while employed by the Company, is anything other than
an employee at will whose employment may be terminated at any time
for any or no reason.
(d) Successors. This Agreement shall be binding upon and
inure to the benefit of the Company and its successors and assigns,
by operation of law or otherwise, including any entity or person
which shall succeed (whether directly or indirectly, by purchase,
merger or otherwise) to all or substantially all of the business
and/or assets of the Company. This Agreement shall be binding upon
and inure to the benefit of Executive and his other legal
representatives, heirs, and assigns.
(e) Amendment and Waiver. This Agreement may not be
amended except in a writing which is signed the by Executive and a
duly authorized officer of Mallinckrodt Inc. No waiver by either
party of any breach or any provision of this Agreement shall be
deemed a waiver of a similar or dissimilar provision nor shall the
failure of or delay by either party in exercising any right or
privilege operate as a waiver to preclude further exercise thereof or
of any other such right.
(f) Withholding. All payments made by the Company
pursuant to this Agreement, shall be subject to withholding of such
amounts of income and other taxes as the Company may reasonably
determine is appropriate.
(g) Entire and Exclusive Agreement. This Agreement
constitutes the entire agreement of the parties in respect of the
subject matter hereof, and supersedes any and all negotiations,
representations and prior agreements by and between the parties with
respect to its subject matter except as stated in paragraph 9 above.
(h) Severability. If any provision of this Agreement is
determined to be invalid or unenforceable for any reason, the
remaining provisions shall be unaffected and shall be construed and
enforced in accordance with the terms of this Agreement.
(i) Governing Law. This Agreement shall be governed by
the law of the State of Missouri.
(j) Notices. Any notice to be given will be in writing
and delivered personally or sent by first class or certified mail,
addressed to the party concerned at the address below or at such
other address as maybe subsequently provided:
If to the Company:
Mr. Roger Keller
Vice President, General Counsel
Mallinckrodt Inc.
7733 Forsyth Boulevard, Suite 2200
St. Louis, Missouri 63105
If to the Executive:
Paul D. Cottone
190 Lancaster Ct.
Lake Bluff, IL 60044
(k) Administration and Interpretation. The Chairman of
the Board of the Company shall have the power to discharge all duties
hereunder except that he may delegate them as he sees fit. The
Chairman shall be allocated complete discretion to interpret this
Agreement and to resolve any and all questions or issues arising
under it. The Chairman's determination shall be final, conclusive
and binding on all parties and shall be accorded the maximum possible
deference by any reviewing court or agency.
(l) Payment to Guardian. If a distribution is payable to
a minor or person declared incompetent or to a person that the
Company concludes is incapable of handling the disposition of
property, the Company may direct payment to the guardian, legal
representative or person having the care and custody of such person.
The Company may require proof of incompetency, minority, incapacity
or guardianship as it may deem appropriate. Such distribution shall
completely discharge the Company from all liability with respect to
such benefit.
11. Breach. If it is determined by the Company, in its sole
determination, that Executive has breached any term of this
Agreement, all amounts which are or may become payable by the Company
under this Agreement will cease, and the Company shall be excused
from performance of any and all other obligations contained in this
Agreement. The election to cease future payments shall not preclude
the Company from requesting all other remedies, either at law or
equity.
12. Termination. This Agreement shall terminate upon the
earliest to occur of:
(a) 30 days following the last date for incentives
established in subparagraph 3(d)(I) of the Executive Incentive
Compensation between the Company and Executive dated October 24,
1996; however, if the Divestiture of the Business has occurred prior
to that date then this expiration date shall be extended to twelve
months and one day after Executive is employed by a Successor, if he
is employed by a Successor within the time described in paragraph 3;
(b) Payment to the Executive or his Beneficiary of amounts
due and payable pursuant to paragraph 4; or
(c) Termination of the Executive from the employment of
the Company for any reason if as result, or at the time, of that
termination of employment, the Executive is not then entitled to
receive any benefits or amounts under paragraph 4.
However, the provisions of paragraphs 7, 8, 9, 10 and 11 shall
survive the termination of the Agreement.
IN WITNESS WHEREOF, the Executive has executed this Agreement
and, pursuant to authorization from its Board of Directors, the
Company has caused this Agreement to be executed on its behalf, all
as of the day and year first shown above.
MALLINCKRODT INC.
By:/s/ C. Ray Holman /s/ Paul D. Cottone
- --------------------- ----------------------
C. Ray Holman Executive
Chairman of the Board and CEO
ATTEST:
- -----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information 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-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 551
<SECURITIES> 0
<RECEIVABLES> 454
<ALLOWANCES> 15
<INVENTORY> 473
<CURRENT-ASSETS> 1585
<PP&E> 1633
<DEPRECIATION> 591
<TOTAL-ASSETS> 3437
<CURRENT-LIABILITIES> 1209
<BONDS> 572
0
11
<COMMON> 87
<OTHER-SE> 1183
<TOTAL-LIABILITY-AND-EQUITY> 3437
<SALES> 1113
<TOTAL-REVENUES> 1113
<CGS> 604
<TOTAL-COSTS> 970
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 128
<INCOME-TAX> 47
<INCOME-CONTINUING> 81
<DISCONTINUED> (2)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79
<EPS-PRIMARY> 1.04
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</TABLE>
