SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
March 23, 1998
Mallinckrodt Inc.
(Exact name of registrant as specified in its charter)
New York 1-483 36-1263901
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
675 McDonnell Boulevard, St. Louis, MO 63134
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, (314) 654-2000
including area code
<PAGE>
Item 5. Other Events
This document provides pro forma financial information for the six
months ended December 31, 1997 for the benefit of our investors.
Mallinckrodt Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
On August 28, 1997, Mallinckrodt Inc. (Mallinckrodt) acquired Nellcor
Puritan Bennett Incorporated (Nellcor) through an agreement to
purchase for cash all the outstanding shares of common stock of
Nellcor for $28.50 per share. The aggregate purchase price of the
Nellcor acquisition was approximately $1.9 billion.
The acquisition was accounted for using the purchase method of
accounting. Allocations of the purchase price have been determined
based upon preliminary estimates of fair value, and therefore, are
subject to change. Adjustments will be recorded during the
allocation period based upon the planned future use of assets
acquired in the combined Company and the adequacy of reserves for
environmental, warranty and product liability. The final assessments
are expected to be completed during fiscal 1998, but no later than
August 1998.
With the consummation of the acquisition of Nellcor completed in
August 1997, management of the combined Company began to formulate
plans regarding the activities of Nellcor to be exited. Some actions
are in the implementation stage while others will require additional
time to assess. However, the exit plan will be finalized within the
first year following the date of acquisition and will be carried out
as quickly as possible. The issues under discussion primarily
concern how and where the Company will perform key business
activities. The size and diversity of Nellcor make the development
and implementation of integration efforts complex.
Upon the approval of exit plans, the resulting costs, which will
include exiting certain activities of Nellcor, involuntary severance
as a result of work force reduction, personnel relocation, and the
elimination of contractual obligations of Nellcor which will have no
future economic benefit when the plan is complete, will be recognized
as a liability assumed as of the consummation date. As of December
31, 1997, $26.9 million has been accrued and included in the
acquisition cost allocation, and $1.6 million has been paid and
charged against this accrual. The primary component of this balance
relates to severance agreements in place prior to the acquisition
date which provide certain employees with specified benefits in the
event that their employment with Nellcor is terminated or there is an
adverse change, based upon the employee's judgment, in the employee's
status, title, position or responsibilities.
The integration plan will also identify exit activities related to
the operations of Mallinckrodt prior to the acquisition of Nellcor.
Costs of these exit activities, which are expected to be material but
are not yet estimable, will be charged to operating results. These
costs will include severance and relocation which will be recognized
as a liability at the time management commits to the plan. In
addition, integration costs of the combined Company, such as
transition bonuses and consulting costs, will generally be expensed
as incurred. During the first half of fiscal 1998, the actions taken
have resulted in a pre-tax charge to operations of $6.8 million,
consisting of $3.8 million for integration bonuses, $1.5 million for
involuntary severance, and $1.5 million for other integration costs.
As of December 31, 1997, payments made and charged against the above
accruals totaled $0.1 million for involuntary severance and $1.5
million for other integration costs. Anticipated cost savings and
related liabilities from the integration of the two companies have
not been reflected in this presentation.
The following Unaudited Pro Forma Condensed Consolidated Statement of
Operations is based upon the historical financial statements of
Mallinckrodt and Nellcor, and has been prepared under the assumptions
set forth in the accompanying Notes to Unaudited Pro Forma Condensed
Consolidated Statement of Operations. The Unaudited Pro Forma
Condensed Consolidated Statement of Operations for the six months
ended December 31, 1997 has been prepared as if the purchase
transaction and the related financing had occurred at the beginning
of fiscal 1997. The pro forma adjustments are based upon available
information and certain assumptions that management believes are
reasonable.
The Unaudited Condensed Consolidated Balance Sheet as of December 31,
1997 is presented in the Mallinckrodt Inc. Form 10-Q for the period
ended December 31, 1997 filed on February 12, 1998.
The Unaudited Pro Forma Condensed Consolidated Statement of
Operations does not purport to represent what Mallinckrodt's results
of operations would have been if consummation of the acquisition had
occurred at the beginning of fiscal 1997 or which may be achieved in
the future.
The Unaudited Pro Forma Condensed Consolidated Statement of
Operations should be read in conjunction with the historical
financial statements and accompanying notes for Mallinckrodt.
<PAGE>
Mallinckrodt Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Six Months Ended December 31, 1997
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Mallinckrodt(A) Nellcor(A) Adjustments Combined
--------------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Net sales................. $1,154.3 $101.1 $1,255.4
Operating costs and
expenses:
Cost of goods sold...... 664.4 61.0 $ (.3)(B) 725.1
Selling, administrative
and general expenses... 308.5 37.4 7.5 (B) 353.4
Research and development
expenses............... 67.7 9.3 77.0
Restructuring charges... 2.4 2.4
Other operating
income, net............ (18.4) (18.4)
--------- ------- ------ ---------
Total operating costs
and expenses............. 1,022.2 110.1 7.2 1,139.5
--------- ------- ------ ---------
Operating earnings
(loss)................... 132.1 (9.0) (7.2) 115.9
Interest income and other
nonoperating income
(expense), net........... 11.5 (6.9)(C) 4.6
Interest expense.......... (47.4) (.1) (11.5)(D) (59.0)
--------- ------- ------ ---------
Earnings (loss) before
income taxes............. 96.2 (9.1) (25.6) 61.5
Income tax provision
(benefit)................ 37.3 (2.9) (9.4)(E) 25.0
--------- ------- ------ ---------
Net earnings (loss)....... 58.9 (6.2) (16.2) 36.5
Preferred stock
dividends................ (.2) (.2)
--------- ------- ------- ---------
Available for common
shareholders............. $ 58.7 $ (6.2) $(16.2) $ 36.3
========= ======= ======= =========
Earnings per common share (F)
Basic.................... $ .81 $ .50
========= =========
Assuming dilution........ $ .80 $ .49
========= =========
The accompanying Notes are an integral part of the Unaudited Pro Forma
Condensed Consolidated Statement of Operations.
</TABLE>
<PAGE>
Mallinckrodt Inc.
Notes to Unaudited Pro Forma Condensed
Consolidated Statement of Operations
Six Months Ended December 31, 1997
(A) The acquisition of Nellcor occurred on August 28, 1997. The
Nellcor results represent July and August activity. The results
of Nellcor subsequent to acquisition are included with
Mallinckrodt. The Mallinckrodt results exclude the $75.4
million step-up of Nellcor's inventory to fair value at date of
acquisition and the $398.3 million purchased research and
development, which were charged to operations during the first
half of fiscal 1998, as well as the $28.7 million tax benefit
related to the write-off of the stepped-up inventory.
(B) Intangible and goodwill amortization expense related to the
acquisition, less amortization expense previously recorded by
Nellcor. Intangibles and goodwill are amortized on a straight-
line basis over 10 to 30 years (weighted average life of 22
years). The amortization expense is based on preliminary
allocation and further adjustments, which may be significant and
will include integration accruals, are expected during the
allocation period.
(C) Elimination of Mallinckrodt domestic interest income related to
cash on hand used to pay for a portion of the acquisition, plus
$0.1 million amortization of debt issuance cost.
(D) Interest at 6.0 percent on the borrowing of approximately $1.1
billion to complete the acquisition. The interest rate is based
on the London Interbank Offered Rate plus a margin dependent
upon the Company's senior debt ratings.
(E) Income taxes have been provided for the adjustments referred to
in (B), (C) and (D). The effective tax rate is adversely
impacted by goodwill amortization expense which is not tax
effected.
(F) The earnings per common share amounts have been restated to
conform with the Financial Accounting Standards Board Statement
No. 128, Earnings Per Share. Statement 128 replaced the
previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share.
Earnings per common share were based upon the weighted average
number of shares of common stock for basic (72,716,625 shares)
and common and common stock equivalents for diluted (73,446,360
shares) outstanding for the six-month period ended December 31,
1997.
********
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunder duly authorized.
Mallinckrodt Inc.
ROGER A. KELLER
Vice President, Secretary
and General Counsel
Date: March 23, 1998
