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, 1999
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.)
675 McDonnell Boulevard
St. Louis, Missouri 63134
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 314-654-2000
-------------------------------
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 Corporate Registrants: Indicate the number of
shares outstanding of each of the registrant's classes of common
stock: 68,566,071 shares as of January 31, 2000.
<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 Annual
Report on Form 10-K for the year ended June 30, 1999, are unaudited
but include all adjustments which Mallinckrodt's management considers
necessary for a fair presentation of the results of operations for the
interim periods presented. These adjustments are of a normal
recurring nature. 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. Certain amounts
in the prior year were reclassified to conform to the current year
presentation.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 681.8 $ 637.9 $1,295.9 $1,229.8
Operating costs and expenses:
Cost of goods sold 385.5 347.7 722.6 666.0
Selling, general and
administrative expenses 189.2 180.8 359.6 353.9
Research and development expenses 32.0 37.4 65.1 71.3
--------- --------- --------- ---------
Total operating costs and expenses 606.7 565.9 1,147.3 1,091.2
--------- --------- --------- ---------
Operating earnings 75.1 72.0 148.6 138.6
Nonoperating income, net 15.1 2.5 16.3 3.4
Interest expense (19.8) (22.5) (39.1) (43.1)
--------- --------- --------- ---------
Earnings from continuing operations
before income taxes 70.4 52.0 125.8 98.9
Income tax provision 23.6 16.9 41.3 32.1
--------- --------- --------- ---------
Earnings from continuing operations 46.8 35.1 84.5 66.8
Discontinued operations 22.6
--------- --------- --------- ---------
Net earnings 46.8 35.1 84.5 89.4
Preferred stock dividends (.1) (.1) (.2) (.2)
--------- --------- --------- ---------
Available for common shareholders $ 46.7 $ 35.0 $ 84.3 $ 89.2
========= ========= ========= =========
Basic earnings per common share:
Earnings from continuing
operations $ .67 $ .49 $ 1.21 $ .93
Discontinued operations .31
--------- --------- --------- ---------
Net earnings $ .67 $ .49 $ 1.21 $ 1.24
========= ========= ========= =========
Diluted earnings per common share:
Earnings from continuing
operations $ .67 $ .49 $ 1.20 $ .92
Discontinued operations .31
--------- --------- --------- ---------
Net earnings $ .67 $ .49 $ 1.20 $ 1.23
========= ========= ========= =========
Dividends declared and paid per
common share $ .165 $ .165 $ .33 $ .33
========= ========= ========= =========
(See Notes to Condensed Consolidated Financial Statements on pages 4 through 7.)
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share amounts)
December 31, June 30,
1999 1999
------------- ----------
Assets
Current assets:
Cash and cash equivalents $ 24.7 $ 32.7
Trade receivables, less allowances
of $20.0 at December 31 and $17.9
at June 30 473.9 490.9
Inventories 520.8 530.3
Deferred income taxes 76.3 54.7
Other current assets 63.5 61.3
--------- ---------
Total current assets 1,159.2 1,169.9
Investments and other noncurrent assets 82.2 67.2
Property, plant and equipment, net 843.1 870.7
Goodwill, net 899.7 942.3
Technology, net 304.4 336.4
Other intangible assets, net 243.9 266.6
Deferred income taxes 4.3 4.3
--------- ---------
Total assets $3,536.8 $3,657.4
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 287.9 $ 383.8
Accounts payable 196.5 221.2
Accrued liabilities 427.5 459.5
Income taxes payable 102.4 77.3
Deferred income taxes 1.0 1.2
--------- ---------
Total current liabilities 1,015.3 1,143.0
Long-term debt, less current maturities 742.5 742.5
Deferred income taxes 358.1 363.0
Postretirement benefits 167.3 166.5
Other noncurrent liabilities and
deferred credits 161.2 182.0
--------- ---------
Total liabilities 2,444.4 2,597.0
--------- ---------
Shareholders' equity:
4 Percent cumulative preferred stock 11.0 11.0
Common stock, par value $1, authorized
300,000,000 shares; issued 87,124,773
shares 87.1 87.1
Capital in excess of par value 314.9 314.7
Reinvested earnings 1,249.8 1,188.4
Accumulated other comprehensive loss (74.6) (105.1)
Treasury stock, at cost (495.8) (435.7)
--------- ---------
Total shareholders' equity 1,092.4 1,060.4
--------- ---------
Total liabilities and shareholders' equity $3,536.8 $3,657.4
========= =========
(See Notes to Condensed Consolidated Financial Statements on pages 4
through 7.)
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Six Months Ended
December 31,
---------------------
1999 1998
--------- ---------
CASH FLOWS - OPERATING ACTIVITIES
Net earnings $ 84.5 $ 89.4
Adjustments to reconcile net earnings
to net cash provided (used)
by operating activities:
Depreciation 63.0 58.9
Amortization 42.5 42.2
Postretirement benefits .7 3.6
Gains on asset disposals (29.8) (40.1)
Deferred income taxes (29.1) (3.1)
Write-down of investment in equity
security 10.5
-------- --------
142.3 150.9
Changes in operating assets and
liabilities:
Trade receivables 18.4 13.3
Inventories 7.2 (49.3)
Other current assets (2.3) 2.6
Accounts payable, accrued liabilities
and income taxes payable, net (39.3) (162.6)
Other noncurrent liabilities and
deferred credits 2.1 4.5
Other, net (14.6) (.9)
-------- --------
Net cash provided (used) by operating
activities 113.8 (41.5)
-------- --------
CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures (51.5) (56.2)
Proceeds from asset disposals 139.4 70.7
Acquisition spending (1.0)
Proceeds from redemption and sale of
investments 3.7
Purchase of investments and intangible
assets (19.2) (4.7)
-------- --------
Net cash provided by investing activities 67.7 13.5
-------- --------
CASH FLOWS - FINANCING ACTIVITIES
Increase (decrease) in notes payable (99.8) 107.5
Payments on long-term debt (.3) (7.8)
Issuance of common stock 3.0 .6
Acquisition of treasury stock (69.3) (46.8)
Dividends paid (23.1) (23.8)
-------- --------
Net cash provided (used) by financing
activities (189.5) 29.7
-------- --------
Increase (decrease) in cash and
cash equivalents (8.0) 1.7
Cash and cash equivalents at beginning
of period 32.7 55.5
-------- --------
Cash and cash equivalents at end of
period $ 24.7 $ 57.2
======== ========
(See Notes to Condensed Consolidated Financial Statements on pages 4
through 7.)
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Mallinckrodt Inc. and its subsidiaries, collectively, are called the
"Company" or "Mallinckrodt." All references to years are to fiscal
years ended June 30 unless otherwise stated. Certain amounts in the
prior year were reclassified to conform to the current year
presentation.
1. On December 16, 1999, the Company sold its blood analysis product
line, which was part of the Respiratory segment. The transaction
resulted in a $26.9 million pretax gain, $16.6 million net of
tax. The pretax gain is included in nonoperating income, net for
the quarter and six months ended December 31, 1999.
2. During the quarter ended December 31, 1999, the Company recorded
a pretax charge of $10.5 million, $6.6 million net of tax,
associated with the write-down of an investment in an equity
security due to a decline in fair value considered to be other
than temporary. The pretax charge is included in nonoperating
income, net.
3. Included in operating earnings for the quarter and six months
ended December 31, 1999 is a pretax charge of $8.2 million
primarily associated with the write-off of inventory as a result
of product line rationalizations within the Respiratory segment.
4. On July 31, 1998, the Company completed the sale of the remaining
chemical additives business of the catalyst and chemical
additives division, which was reclassified to discontinued
operations in June 1998. The transaction resulted in a $37.0
million gain on sale, $22.6 million net of taxes, which was
included in discontinued operations for the six months ended
December 31, 1998. Earnings from operations were zero for the
one month of operations in 1999.
5. The following table sets forth the computation of basic and
diluted earnings from continuing operations per common share (in
millions, except shares and per share amounts).
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Earnings from
continuing operations $ 46.8 $ 35.1 $ 84.5 $ 66.8
Preferred stock dividends (.1) (.1) (.2) (.2)
------- ------- ------- -------
Numerator for basic and
diluted earnings per
share--income available
to common shareholders $ 46.7 $ 35.0 $ 84.3 $ 66.6
======= ======= ======= =======
Denominator:
Denominator for
basic earnings per
share--weighted-average
shares 69,474,986 71,349,208 69,954,876 72,133,170
Potential dilutive
common shares--employee
stock options 374,181 229,031 409,623 157,899
---------- ---------- ---------- ----------
Denominator for diluted
earnings per share--
adjusted weighted-average
shares 69,849,167 71,578,239 70,364,499 72,291,069
========== ========== ========== ==========
Basic earnings from
continuing operations
per common share $ .67 $ .49 $ 1.21 $ .93
====== ====== ====== ======
Diluted earnings from
continuing operations
per common share $ .67 $ .49 $ 1.20 $ .92
====== ====== ====== ======
</TABLE>
6. Supplemental cash flow information for the six months ended
December 31 included:
(In millions)
1999 1998
------- ------
Interest paid $ 38.7 $ 42.8
Income taxes paid 43.1 106.0
Noncash investing and financing activities:
Assumption of liabilities related to an
acquisition .3 (1.2)
Issuance of stock for 401(k) employee
matching contribution 6.3 6.0
Fair value loss adjustment to securities (1.9) (5.4)
7. The components of inventory included the following as of
December 31, 1999:
(In millions)
Raw materials and supplies $ 204.8
Work in process 65.5
Finished goods 250.5
--------
$ 520.8
========
8. The Company has authorized and issued 100,000 shares, 98,330
outstanding at December 31, 1999, of par value $100, 4 percent
cumulative preferred stock. The Company has authorized 1,400,000
shares, par value $1, of series preferred stock, none of which
was outstanding during 2000 and 1999. Shares included in
treasury stock were:
December 31, June 30,
1999 1999
------------ ------------
Common stock 18,201,444 16,422,084
4 Percent cumulative preferred
stock 1,670 1,670
9. Total comprehensive income for the three months and six months
ended December 31 was as follows:
(In millions)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
------------------- -------------------
1999 1998 1999 1998
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net earnings $ 46.8 $ 35.1 $ 84.5 $ 89.4
Other comprehensive income
(expense):
Foreign currency translation
adjustment (21.9) (8.5) (10.7) 12.7
Foreign currency translation
adjustment included in net
earnings during the period 35.8 35.8
Unrealized loss on investment
securities arising during
the period (1.0) (1.7) (1.9) (5.4)
Loss on investment securities
included in net earnings
during the period 10.5 10.5
Tax benefit (provision)
related to items of other
comprehensive income (3.5) .6 (3.2) 2.0
------- ------- -------- -------
Other comprehensive income
(expense), net of tax 19.9 (9.6) 30.5 9.3
------- ------- -------- -------
Total comprehensive income $ 66.7 $ 25.5 $ 115.0 $ 98.7
======= ======= ======== =======
</TABLE>
During the three-month and six-month periods ended December 31,
1999, a foreign currency translation adjustment was included in
net earnings in conjunction with the sale of the blood analysis
product line (see Note 1), and a loss on equity investment
security was included in net earnings in conjunction with the
write-down of an investment security available for sale due to a
decline in fair value no longer considered temporary (see
Note 2).
The foreign currency translation adjustments relate to indefinite
investments in non-U.S. subsidiaries and, accordingly, are not
recorded net of tax. As of December 31, 1999, the cumulative
balances for foreign currency translation adjustment loss and the
net unrealized gain on investment securities were $74.7 million
and $.1 million, respectively. Investments as of December 31,
1999 and June 30, 1999 included a gross unrealized gain of $.1
million and a gross unrealized loss of $8.6 million,
respectively.
10. The Company's operations are principally managed on a product and
services basis and are comprised of three reportable segments -
Respiratory, Imaging and Pharmaceuticals. The Respiratory
products primarily help diagnose, monitor and treat respiratory
disorders. The Imaging products are used in radiology,
cardiology and nuclear medicine primarily to diagnose disease.
The Pharmaceuticals products are used primarily to control pain.
The Company evaluates performance and allocates resources based
upon operating earnings. Operating earnings of a business
segment represents revenues less all operating expenses and does
not include interest and corporate expense. The accounting
policies of the reportable segments are the same as those used to
determine consolidated results of operations.
Net sales and operating earnings by segment are as follows:
(In millions)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales
Respiratory $ 311.2 $ 290.4 $ 574.3 $ 546.6
Imaging 194.5 196.3 376.7 379.9
Pharmaceuticals 176.1 151.2 344.9 303.3
-------- -------- --------- ---------
$ 681.8 $ 637.9 $1,295.9 $1,229.8
======== ======== ========= =========
Operating earnings
Respiratory $ 36.1 $ 31.6 $ 68.2 $ 54.0
Imaging 23.4 28.8 46.4 59.5
Pharmaceuticals 22.3 17.1 46.5 37.6
-------- -------- --------- ---------
$ 81.8 $ 77.5 $ 161.1 $ 151.1
======== ======== ========= =========
</TABLE>
Reconciliations of operating earnings for reportable segments to
earnings from continuing operations before income taxes as
reported in the Condensed Consolidated Statements of Operations
follow (in millions):
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total operating earnings
for reportable segments $ 81.8 $ 77.5 $ 161.1 $ 151.1
Corporate expense (6.7) (5.5) (12.5) (12.5)
-------- -------- -------- --------
Consolidated operating
earnings 75.1 72.0 148.6 138.6
Nonoperating income, net 15.1 2.5 16.3 3.4
Interest expense (19.8) (22.5) (39.1) (43.1)
-------- -------- -------- --------
Earnings from continuing
operations before
income taxes $ 70.4 $ 52.0 $ 125.8 $ 98.9
======== ======== ======== ========
</TABLE>
Results from operations for Mallinckrodt's Respiratory and
Pharmaceuticals business segments are materially affected by
seasonal factors primarily related to the common cold and
influenza season. Normally, these seasonal factors tend to
favorably impact net sales and operating earnings in the third
and fourth quarters; however, an early cold and influenza season
in the current year favorably impacted Respiratory segment second
quarter operating earnings.
11. 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 one such
matter, German authorities seized certain records of two of the
Company's non-U.S. subsidiaries, Mallinckrodt Medical GmbH and
Mallinckrodt Radiopharma GmbH, in the fall of 1997. These
seizures were part of investigations of certain practices at
these subsidiaries that involved payments to physicians and other
German healthcare providers. The investigations, which are
ongoing, appear to focus on whether the payments in question were
for research or other services performed by the recipients, or
may have been sales incentives or discounts which could possibly
be contrary to German law.
The Company's subsidiary, Puritan-Bennett Corporation (Puritan-
Bennett), is a defendant in an action that was filed on
August 29, 1997 and is currently pending in the U.S. District
Court for the District of New Mexico. This case relates to a
1996 Asset Purchase Agreement (Agreement) whereby Puritan-Bennett
agreed to purchase certain assets of New Mexico Steel. The
purchase price of the assets was $1.2 million. Said purchase
price was to be adjusted upward or downward based upon post-
closing schedules of inventory, accounts receivable and office
equipment to be provided by Puritan-Bennett. Plaintiff alleges
that Puritan-Bennett breached the Agreement by failing to deliver
the post-closing schedules in a timely manner. On September 23,
1999, a jury returned a verdict against Puritan-Bennett and in
favor of New Mexico Steel in the amount of $.4 million in
compensatory and $5.0 million in punitive damages. On January 4,
2000, the trial court judge reduced the punitive damages to $2.5
million. With the advice of counsel, the Company believes that
the verdict is not supported by the law or the facts of the case
and is a product of passion and prejudice on the part of the
jury. Based upon all the facts available to management, the
Company believes that it is possible but not probable that the
jury verdict will be upheld on appeal. The Company intends to
vigorously challenge this verdict and to seek a further reduction
of the trial court's judgement on appeal.
The Company has recognized the costs and associated liabilities
only for those investigations, claims and legal proceedings for
which, in its view, it is probable that liabilities have been
incurred and the related amounts are estimable. Based upon
information currently available, management believes that
existing accrued liabilities are sufficient and that it is not
reasonably possible at this time that any additional liabilities
will result from the resolution of these matters that would have
a material adverse effect on the Company's consolidated results
of operations or financial position.
In connection with laws and regulations pertaining to the
protection of the environment, the Company is a party to several
environmental investigations or remediations and, along with
other companies, has been named a potentially responsible party
for certain waste disposal sites. The Company accrues for losses
associated with environmental remediation obligations when such
losses are probable and reasonably estimable. Accruals for
estimated losses from environmental remediation obligations
generally are recognized no later than completion of the remedial
feasibility study. Such accruals are adjusted as further
information develops or circumstances change. Accruals for
future expenditures for environmental remediation are not
discounted to their present value. Recoveries, of which none
exist at December 31, 1999 and June 30, 1999, of environmental
remediation costs from other parties are recognized as assets
when their receipt is deemed probable. The Company has
recognized the costs associated with the investigation and
remediation of Superfund sites, the litigation of potential
environmental claims, and the investigation and remedial
activities at the Company's current and former operating sites
for matters that meet the policy set forth above. Related
accruals at December 31, 1999 and June 30, 1999 of $125.1 million
and $128.8 million, respectively, are included in current accrued
liabilities and other noncurrent liabilities and deferred
credits.
See Part II, Item 1 "Legal Proceedings" for additional
information about legal proceedings involving the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. [1]
Mallinckrodt Inc. and its subsidiaries, collectively, are called the
"Company" or "Mallinckrodt." All references to years are to fiscal
years ended June 30 unless otherwise stated. Certain amounts in the
prior year were reclassified to conform to the current year
presentation. All earnings per share amounts are calculated on a
diluted basis unless otherwise stated.
RESULTS OF OPERATIONS
The Company recorded earnings from continuing operations and net
earnings of $46.8 million, or 67 cents per share for the quarter ended
December 31, 1999, representing increases of 33 percent and 37
percent, respectively, from the $35.1 million, or 49 cents per share
for the same period last year. Results for the current year period
included a gain on the sale of the blood analysis product line of the
Respiratory segment, and a charge associated with the write-down of an
investment in an equity security due to a decline in fair value
considered to be other than temporary. See Notes 1 and 2 of Notes to
Condensed Consolidated Financial Statements. Excluding these
transactions, which are included in nonoperating income, net, earnings
from continuing operations would have been $36.8 million.
Net sales for the quarter ended December 31, 1999 were $681.8 million,
or a 7 percent increase over the same quarter of last year. The
Company estimates that sales for the quarter benefitted from
accelerated purchases of approximately $10 million due to Year 2000
concerns by certain customers. This action may have an offsetting
impact on the Company's third quarter results of operations. The
Company's management also believes hospital ventilator orders were
delayed by certain customers during the quarter due to Year 2000
concerns, but this impact cannot be quantified. Sales to customers
outside the United States were $233 million, or 34 percent of sales
for the second quarter of 2000.
For the six months ended December 31, 1999, the Company recorded
earnings from continuing operations and net earnings of $84.5 million,
or $1.20 per share. Earnings from continuing operations for the same
period last year were $66.8 million, or 92 cents per share. Net
earnings for the six-month period of last year were $89.4 million, or
$1.23 per share and included a gain of $22.6 million, or 31 cents per
share on the sale of a chemical additives business in July 1998 which
related to a division reclassified to discontinued operations in 1998.
Net sales for the first half of 2000 were $1.3 billion, which
represents a 5 percent increase over the same period in 1999. Sales
to customers outside the United States were $429 million, or 33
percent of sales for the first half of 2000.
- -------------------------------------
[1] CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995: Our discussion and analysis in this quarterly
report contain some forward-looking statements. Forward-looking
statements do not relate strictly to historical or current facts, but
rather give our current expectations or forecasts of future events.
Forward-looking statements may be identified by their use of words
such as "plans," "expects," "will," "anticipates," "believes," and
other words of similar meaning. Such statements may address, among
other things, the Company's strategy for growth, product development,
regulatory approvals, the outcome of contingencies such as legal
proceedings, market position, expenditures, and financial results.
Forward-looking statements are based on current expectations of future
events. Such statements involve risks and uncertainties and actual
results could differ materially from those discussed. Among the
factors that could cause actual results to differ materially from
those projected in any such forward-looking statements are as follows:
the effect of business and economic conditions; the impact of
competitive products and continued pressure on prices realized by the
Company for its products; constraints on supplies of raw materials
used in manufacturing certain of the Company's products; capacity
constraints 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; difficulties in
rationalizing acquired businesses and in realizing related cost
savings and other benefits; the effects of and changes in trade,
monetary, and fiscal policies, laws, and regulations; foreign exchange
rates and fluctuations in those rates; the costs and effects of legal
and administrative proceedings, including environmental proceedings
and patent disputes involving the Company; difficulties or delays in
addressing "Year 2000" problems (as discussed in Item 2, Management's
Discussion and Analysis of Financial Condition and Results of
Operations); and the risk factors reported from time to time in the
Company's SEC reports. The Company undertakes no obligation to update
any forward-looking statements as a result of future events or
developments.
<PAGE>
A comparison of sales and operating earnings follows:
(In millions)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
--------------------- ---------------------
1999 1998 1999 1998
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net sales
Respiratory $ 311.2 $ 290.4 $ 574.3 $ 546.6
Imaging 194.5 196.3 376.7 379.9
Pharmaceuticals 176.1 151.2 344.9 303.3
-------- -------- --------- ---------
$ 681.8 $ 637.9 $1,295.9 $1,229.8
======== ======== ========= =========
Operating earnings
Respiratory $ 36.1 $ 31.6 $ 68.2 $ 54.0
Imaging 23.4 28.8 46.4 59.5
Pharmaceuticals 22.3 17.1 46.5 37.6
-------- -------- --------- ---------
$ 81.8 $ 77.5 $ 161.1 $ 151.1
Corporate expense (6.7) (5.5) (12.5) (12.5)
-------- -------- --------- ---------
$ 75.1 $ 72.0 $ 148.6 $ 138.6
======== ======== ========= =========
</TABLE>
The Respiratory segment reported sales for the quarter ended
December 31, 1999 of $311.2 million or 7 percent greater than the
sales recorded for the same period last year. Excluding sales from
businesses divested, sales growth was 9 percent over the prior year
quarter. Components of the 9 percent sales increase were 12 percent
volume growth partially offset by a 1 percent price decline and 2
percent foreign currency impact as a result of the strength of the
U.S. dollar. The volume growth was led by pulse oximetry with a 22
percent increase, anesthesiology and respiratory disposables 12
percent and oxygen therapy 8 percent. Ventilator sales declined 5
percent as a result of reduced volume. Respiratory segment operating
earnings for the quarter ended December 31, 1999 were $36.1 million.
Excluding an $8.2 million second quarter charge that was primarily
associated with the write-off of inventory as a result of product line
rationalizations, Respiratory segment operating earnings were $44.3
million or 40 percent higher than the prior year results for the same
three-month period of $31.6 million. This improvement was primarily
attributable to the strong volume growth of pulse oximetry and other
higher margin products of this segment.
In the quarter ending March 31, 2000, management will finalize a
detailed plan to consolidate certain manufacturing operations, which
are associated with product line rationalizations within the
Respiratory segment, and will notify affected employees. These
actions will result in a third quarter charge, currently estimated at
$15 million, to operating earnings.
For the first six months of 2000, Respiratory segment sales were
$574.3 million or 5 percent greater than the same period last year.
Excluding sales from businesses divested, sales growth was 7 percent
over the first six months of the prior year. Components of the 7
percent sales increase were 8 percent volume growth offset by a 1
percent price decline. Pulse oximetry product sales grew almost $26
million and anesthesiology and respiratory disposables sales grew $10
million, which were partially offset by lower ventilator volume.
Operating earnings for the Respiratory segment were $68.2 million or
26 percent higher than the same period last year. The improvement was
primarily attributable to the strong volume growth of pulse oximetry
and other higher margin products of this segment.
The Imaging segment had sales for the quarter ended December 31, 1999
of $194.5 million or 1 percent below sales in the same three-month
period last year. Prices declined 1 percent overall. Pricing in
x-ray contrast media declined 4 percent while radiopharmaceutical
prices increased 5 percent. Volume growth was 1 percent overall.
Volume growth of 3 percent in both x-ray contrast media and
radiopharmaceuticals was partially offset by the impact of divested
businesses. Foreign currency changes reduced sales by 1 percent.
Operating earnings for the quarter ended December 31, 1999 declined 19
percent to $23.4 million compared to $28.8 million in the prior year
period primarily due to the continued impact of net price declines.
For the first half of 2000, Imaging segment sales were $376.7 million
or 1 percent below the same prior year period. The operating earnings
of this segment during the first six months were $46.4 million or 22
percent below prior year. The factors impacting the second quarter
results were the same for the six-month period. Price declines within
the x-ray contrast media business are expected to continue to be a
factor in future quarters.
The Pharmaceuticals segment's sales for the quarter ended December 31,
1999 were $176.1 million or 16 percent greater than in the same period
last year. The sales increase of $24.9 million was attributable to
volume increases in bulk and dosage narcotics. This increase was
primarily the result of increased demand and manufacturing capacity of
bulk narcotics, and the impact of new product introductions and
increased market share of dosage products. Operating earnings for the
quarter ended December 31, 1999 for this segment were $22.3 million,
which was 30 percent greater than the $17.1 million recorded in the
comparable period last year, primarily attributable to the increased
sales.
For the six months ended December 31, 1999, Pharmaceuticals segment
sales were $344.9 million or 14 percent greater than for the same
prior year period. The sales increase of $41.6 million was
attributable to volume increases in all product lines, but over 80
percent of the increase was attributable to bulk and dosage narcotics
and was the result of the same factors as discussed for the second
quarter. Operating earnings during the first six months of 2000 were
$46.5 million, or 24 percent higher than the same period last year
primarily due to the increased sales.
CORPORATE MATTERS
Corporate expense was up 22 percent for the second quarter but it was
unchanged for the first half of the year compared to the respective
prior year periods. The fluctuations by quarter were primarily the
result of timing of certain expenses.
Nonoperating income, net was $15.1 million and $16.3 million for the
quarter and six months ended December 31, 1999, respectively. During
the quarter, the Company recorded a pretax gain on the divestiture of
the blood analysis product line of $26.9 million and a pretax charge
of $10.5 million related to the write-down of an investment in an
equity security classified as available for sale due to a decline in
fair value considered other than temporary. The investment is
included in the balance sheet caption investments and other noncurrent
assets. See Notes 1 and 2 of Notes to Condensed Consolidated
Financial Statements for additional information regarding these
transactions.
The Company's effective tax rates were 33.5 percent and 32.8 percent
for the quarter and six months ended December 31, 1999, respectively.
Excluding the impact of the divestiture of the blood analysis product
line and write-down of the equity investment discussed in the
preceding paragraph, the effective tax rate was 31.9 percent for both
periods. For the same two periods of the prior year, the effective
tax rate was 32.5 percent.
FINANCIAL CONDITION
The Company's financial resources are expected to continue to be
adequate to support existing businesses. Since June 30, 1999, cash
and cash equivalents decreased $8.0 million. Operations provided
$113.8 million of cash, while capital spending totaled $51.5 million.
The Company received $139.4 million in proceeds from asset disposals.
Payments on debt were $100.1 million. The Company's current ratio at
December 31, 1999 was 1.1:1. Debt as a percentage of invested capital
was 48.5 percent at December 31, 1999.
At December 31, 1999, the Company had a $1.0 billion private placement
commercial paper program. The program is backed by a $1.0 billion
revolving credit facility expiring September 12, 2002. There were no
borrowings outstanding under the revolving credit facility at December
31, 1999. Commercial paper borrowings under this program were $54.8
million as of December 31, 1999. Non-U.S. lines of credit totaling
$144.7 million were also available, and borrowings under these lines
amounted to $24.0 million at December 31, 1999. The non-U.S. lines
are cancelable at any time.
In May 1999, a $500 million shelf debt registration was declared
effective by the Securities and Exchange Commission and at December
31, 1999, the entire amount remained available.
The Company had $200 million aggregate principal amount of 5.99
percent notes, which mature in 2010, and were redeemable at the
election of the holder, in whole but not in part, at 100 percent of
the principal amount on January 14, 2000. These notes have been
classified as short-term. On January 14, 2000, the notes were
redeemed at the request of the holders and refinanced with commercial
paper.
The Company's Board of Directors previously authorized repurchase of
47 million shares of common stock and additional repurchases not to
exceed cash outlays of $250 million. Share repurchases under these
authorizations have totaled 41.9 million shares, including 2.1 million
shares during the six months ended December 31, 1999.
Estimated capital spending for the year ending June 30, 2000 is
approximately $160 million.
Year 2000 Readiness Disclosure
- ------------------------------
The Year 2000 issue is the result of date-sensitive devices, systems
and computer programs that were deployed using two digits rather than
four to define the applicable year. Any such technologies may
recognize a year containing "00" as the year 1900 rather than the year
2000. If left unaddressed, this could result in a system failure or
miscalculations, under certain circumstances, causing disruptions of
operations including, among other things, a temporary inability to
process transactions or engage in similar normal business activities.
Mallinckrodt developed and implemented a comprehensive program to
address the Year 2000 issue. The program has four major focus areas:
information technology systems, non-information technology systems,
products, and key supplier and business partners.
The Company completed modifications, replacements or conversions where
deemed necessary and appropriate. In addition, the Company developed
operating contingency plans to address unanticipated interruptions
that could occur in its critical processes, systems and devices that
have been assessed, remediated and considered Year 2000 ready by
Mallinckrodt and its key suppliers and business partners.
The Company has experienced no significant problems associated with
the Year 2000 issues.
The program to address Year 2000 has been underway since February
1997. Both internal and external resources were used to assess and
modify or replace non-compliant technologies, and to appropriately
test Year 2000 modifications and replacements. The program is funded
through operating cash flows. Based upon management's best estimates,
the pretax costs incurred for this effort were approximately $10
million, $7 million and $1 million in 1999, 1998 and 1997,
respectively. In 2000, the Company anticipates an additional $2
million in pretax costs for program management and to complete
monitoring and evaluations of key suppliers and business partners,
program verification and contingency planning. Most of these costs
were incurred during the first six months of 2000.
European Monetary Union (EMU)
- -----------------------------
The euro was introduced on January 1, 1999, at which time the eleven
participating EMU member countries established fixed conversion rates
between their existing currencies (legacy currencies) and the euro.
The legacy currencies will continue to be valid as legal tender
through March 1, 2002; thereafter, the legacy currencies will be
canceled. Euro bills and coins will be used for cash transactions in
the participating countries effective January 1, 2002, allowing for a
two-month transition period to euro cash.
The Company's European sales offices and various manufacturing and
distribution facilities affected by the euro conversion have
established plans to address the systems issues raised by the euro
currency conversion. The Company is cognizant of the potential
business implications of converting to a common currency; however, it
is unable to determine, at this time, the ultimate financial impact of
the conversion on its operations, if any, given that the impact will
be dependent upon the competitive situations which exist in the
various regional markets in which the Company participates and the
potential actions which may or may not be taken by the Company's
competitors and suppliers.
Mallinckrodt believes converting to the euro will have no material
impact on the Company's currency exchange cost and/or risk exposure,
continuity of contracts or taxation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has determined that its market risk exposures, which arise
primarily from exposures to fluctuations in interest rates and foreign
currency rates, are not material to its future earnings, fair value
and cash flows.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Environmental Matters
- ---------------------
The Company is actively involved in the investigation or remediation
of, or is addressing potential claims of, alleged or acknowledged
contamination at approximately 24 currently or previously owned or
operated sites and at approximately 16 off-site locations where its
waste was taken for treatment or disposal. These actions are in
various stages of development and generally include demands for
reimbursement of previously incurred costs, or costs for future
investigation and/or for remedial actions. In many instances, the
dollar amount of the claim is not specified. For some sites, other
potentially responsible parties may be jointly and severally
responsible, along with the Company, to pay for any past remediation
and other related expenses. For other sites, the Company may be
solely responsible for remediation and related costs. The Company
anticipates that a portion of these costs will be covered by insurance
or third party indemnities. A number of the currently pending matters
relate to historic and formerly owned operations of the Company.
Once the Company becomes aware of its potential environmental
liability at a particular site, the measurement of the related
environmental liabilities to be recorded is based on an evaluation of
currently available facts such as the extent and types of hazardous
substances at a site, the range of technologies that can be used for
remediation, evolving standards of what constitutes acceptable
remediation, presently enacted laws and regulations, engineering and
environmental specialists' estimates of the range of expected clean-up
costs that may be incurred, prior experience in remediation of
contaminated sites, and the progress to date on remediation in
process. While the current law potentially imposes joint and several
liability upon each party at a Superfund site, the Company's
contribution to clean-up costs at these sites is expected to be
limited, given the number of other companies which have also been
named as potentially responsible parties and the volumes of waste
involved. A reasonable basis for apportionment of costs among
responsible parties is determined and the likelihood of contribution
by other parties is established. If it is considered probable that
the Company will only have to pay its expected share of the total
clean-up, the recorded liability reflects the Company's expected
share. In determining the probability of contribution, the
Company considers the solvency of the parties, whether responsibility
is disputed, existence of an allocation agreement, status of current
action, and experience to date regarding similar matters. Current
information and developments are regularly assessed by the Company,
and accruals are adjusted on a quarterly basis, as required, to
provide for the expected impact of these environmental matters.
The Company has recognized the costs and associated liabilities only
for those environmental matters for which, in its view, it is probable
that liabilities have been incurred and the related amounts are
estimable. Based upon information currently available, management
believes that existing accrued liabilities are sufficient and that it
is not reasonably possible at this time that any additional
liabilities will result from the resolution of these matters that
would have a material adverse effect on the Company's consolidated
results of operations or financial position.
During the quarter ended December 31, 1999, there were no material
developments in the environmental proceedings previously reported in
the Company's Annual Report on Form 10-K for the year ended June 30,
1999, as amended by the Company's quarterly report on Form 10-Q for
the quarter ended September 30, 1999, nor did the Company become aware
of any new environmental proceedings requiring disclosure in this
report.
General Litigation
- ------------------
The Company is a party to a number of other legal proceedings arising
in the ordinary course of business. The Company does not believe
these pending legal matters will have a material adverse effect on its
financial condition or the results of the Company's operations.
Previously Reported Matters
The following is a discussion of material developments in one matter
previously reported in the Company's report on Form 10-Q for the
quarter ended September 30, 1999.
New Mexico Steel v. Puritan-Bennett - On January 4, 2000, the trial
court judge ordered a remittitur of the punitive damages award from
$5.0 million to $2.5 million. The Company intends to vigorously
challenge the verdict in this case on appeal. See Note 11 of Notes to
Condensed Consolidated Financial Statements for additional
information.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following matters were voted upon at the Annual Meeting of
Shareholders held on October 20, 1999, and received the votes set
forth below:
1. All of the following nominees were elected to serve as directors
for 3-year terms and received the number of votes set
opposite their names:
Votes For Votes Withheld
------------ ---------------
Raymond F. Bentele 62,028,515 879,072
Ronald G. Evens 62,034,616 872,971
Peter B. Hamilton 62,041,918 865,669
2. A proposal to ratify the appointment of independent public
accountants received 62,592,912 votes FOR, 171,659 votes AGAINST,
with 143,016 abstentions.
3. A proposal to amend the Company's 1999 Equity Incentive Plan to
increase the number of shares reserved for issuance by five
million received 50,709,457 votes FOR, 6,987,233 votes AGAINST,
759,393 abstentions, and 4,451,504 broker non-votes.
4. A proposal to adopt the Mallinckrodt Inc. Employee Stock Purchase
Plan received 53,830,367 votes FOR, 4,281,259 votes AGAINST,
344,457 abstentions, and 4,451,504 broker non-votes.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
Number Description
- ------- ---------------------------------------------------------
10.23 Mallinckrodt Inc. Income Deferral Plan effective January 1,
2000 (1) (filed with this electronic submission)
27 Financial data schedule for the quarter ended December 31,
1999 (filed with this electronic submission)
- --------------------
(1) Management contract or compensatory plan required to be filed
pursuant to Item 601 of Regulation S-K.
(b) Reports on Form 8-K.
During the quarter and through the date of this report, the following
reports on Form 8-K were filed.
- - Report dated December 17, 1999 under Item 5 regarding EQT
acquisition of HemoCue from Mallinckrodt Inc.
* * * * * * * * * * * * * *
SIGNATURES
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 thereunto duly authorized.
Mallinckrodt Inc.
- ------------------------------
Registrant
By: /s/ MICHAEL A. ROCCA By: /s/ DOUGLAS A. MCKINNEY
--------------------------- -----------------------------
Michael A. Rocca Douglas A. McKinney
Senior Vice President and Vice President and Controller
Chief Financial Officer
Date: February 10, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the consolidated balance sheets and consolidated statements
of operations of the Company's Form 10-Q, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 25
<SECURITIES> 0
<RECEIVABLES> 494
<ALLOWANCES> 20
<INVENTORY> 521
<CURRENT-ASSETS> 1159
<PP&E> 1495
<DEPRECIATION> 652
<TOTAL-ASSETS> 3537
<CURRENT-LIABILITIES> 1015
<BONDS> 743
0
11
<COMMON> 87
<OTHER-SE> 994
<TOTAL-LIABILITY-AND-EQUITY> 3537
<SALES> 1296
<TOTAL-REVENUES> 1296
<CGS> 723
<TOTAL-COSTS> 1147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> 126
<INCOME-TAX> 41
<INCOME-CONTINUING> 85
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85
<EPS-BASIC> 1.21
<EPS-DILUTED> 1.20
</TABLE>
MALLINCKRODT INC.
MALLINCKRODT INCOME DEFERRAL PLAN
---------------------------------
PREAMBLE
--------
The purpose of this Mallinckrodt Income Deferral Plan (the
"Plan") is to provide opportunities for a select group of management
or highly compensated employees of Mallinckrodt Inc. (the "Company")
and its Affiliates to defer, on a nontaxable basis, the receipt of
income pursuant to Section 451 of the Internal Revenue Code. The Plan
will be effective as of January 1, 2000 as noted below.
The Company declares its intention is to create an unfunded Plan
primarily for the purpose of providing a select group of management or
highly compensated employees of the Company and of its affiliated
organizations with deferred compensation in accordance with their
individual elections. It is also the intention of the Company that
the Plan be an "employee pension benefit plan" as defined in Section
3(2) of Title I of the Employee Retirement Income Security Act of 1974
("ERISA") and that the Plan be the type of plan described in Sections
201(2), 301(3) and 401(a)(1) of Title I of ERISA. The Committee, as
defined herein, is the "named fiduciary" of the Plan for purposes of
Section 402(a)(2) of ERISA.
Accordingly, the following Plan is adopted with respect to each
such Compensation Deferral.
ARTICLE I
DEFINITIONS
-----------
1.1 "ACCOUNT" means the bookkeeping device established on the
books of account of the Company to be used to measure and determine
the amounts accumulated by and to be paid to Participants and Inactive
Participants under the Plan. Each Compensation Deferral elected and
investment return, income gain or loss credited to the Participant's
or Inactive Participant's Account thereon shall be credited to a
separate Subaccount within Participant's Account. Separate
Subaccounts shall be created in each Participant's Account based upon
the dates or events upon which Compensation Deferrals and investment
returns thereon will be paid. Amounts deferred to common payment
dates or events will be combined into a single Subaccount. All
investment return, income gain or loss associated with a Compensation
Deferral which is credited to a particular Subaccount shall likewise
be credited to such Subaccount.
1.2 "AFFILIATE" means: (a) A corporation that is a member of the
same controlled group of corporations (within the meaning of Section
414(b) of the Code) as the Company, (b) a trade or business (whether
or not incorporated) under common control (within the meaning of
Section 414(c) of the Code) with the Company, (c) any organization
(whether or not incorporated) that is a member of an affiliated
service group (within the meaning of Section 414(m) of the Code) that
includes the Company, a corporation described in clause (a) of this
subdivision or a trade or business described in clause (b) of this
subdivision, or (d) any other entity that is required to be aggregated
with the Company pursuant to Regulations promulgated under Section
414(o) of the Code.
1.3 "BENEFICIARY" means the person who under the Plan becomes
entitled to receive a Participant's or Inactive Participant's interest
in the Plan in the event of a Participant's or Inactive Participant's
death, or a successor Beneficiary (as designated in accordance with
the provisions of Article VIII) who becomes entitled to receive a
Participant's or Inactive Participant's interest in the event of a
Participant's or Inactive Participant's death.
1.4 "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
1.5 (Not Used).
1.6 "CODE" means the Internal Revenue Code of 1986 and the
regulations thereunder, as amended from time to time.
1.7 "COMMITTEE" means the Mallinckrodt Inc. Employee Benefits
Committee or such other group or committee which may be designated by
the Board of Directors pursuant to Section 10.1.
1.8 "COMMON STOCK" means the Common Stock of the Company and
any of its successors.
1.9 "COMPANY" means Mallinckrodt Inc. and its successors and
assigns unless otherwise herein provided, or any Affiliate that, with
the consent of the Company or its successors or assigns, assumes the
Company's obligations hereunder.
1.10 "COMPENSATION" means the present value in cash or Common
Stock of any awards actually made and payable to a Participant
pursuant to the Company's Management Incentive Compensation Plan,
Executive Incentive Compensation Plan and such other incentive
compensation plans as the Committee may designate from time to time.
Provided, however, only awards under such plans which are made and
payable in shares of Common Stock or which would be immediately
payable in cash pursuant to the above discussed plans may be deferred
hereunder.
1.11 "COMPENSATION DEFERRALS" means amounts of Compensation
whose receipt a Participant affirmatively elects to defer to a later
date in accordance with the terms of this Plan. Each annual award
under each incentive compensation plan described in Section 1.10 shall
be a separate Compensation Deferral and may be subject to a separate
deferral election under this Plan.
1.12 "EARLY RETIREMENT AGE" means the first day of the first
calendar month following the date on which a Participant or Inactive
Participant attains age 55.
1.13 "EFFECTIVE DATE" means the effective date of the Plan,
which shall be January 1, 2000 and this Plan shall be effective only
for deferrals of compensation awards made under the Plan as described
in Section 1.10 for plan years beginning on or after January 1, 2000.
1.14 "ELIGIBLE EMPLOYEE" means each Employee who is employed by
the Company or an Affiliate and who is determined by the Company to be
a member of a select group of management or highly compensated
employees. Eligibility to participate in this Plan, however, shall be
limited to Employees who are participants in the Company's Management
Incentive Compensation Plan, Executive Incentive Compensation Plan and
such other incentive compensation plans as the Committee may designate
and who receive awards of Compensation under those plans. The Company
or Plan Administrator shall notify all Employees who will be Eligible
Employees and provide all information necessary to permit Plan
participation.
1.15 "EMPLOYEE" means an individual whose relationship with the
Company or any of its Affiliates is, under common law, that of an
employee. Any individual who has been engaged by the Company or an
Affiliate to provide services as a NonEmployee Service Provider
[(e.g., as a consultant, independent contractor, director, leased
employee, (as defined in Code Section 414(2)), which status
determination shall be made conclusively pursuant to written agreement
or classification established by the Company or Affiliate], shall not
be considered to be an Employee.
1.16 "HYPOTHETICAL INVESTMENT FUND" or "INVESTMENT FUND" means
an investment allocation and investment return measurement device
created by the Committee to develop a hypothetical rate of investment
return, income, gain or loss. The hypothetical investment performance
of such fund will mirror the actual performance of an investment
alternative, measurement, index or other standard of investment
performance developed or selected by the Committee. To the extent
Participants direct the investment of their Compensation Deferrals and
Account balances into such Hypothetical Investment Fund, their
Accounts will be credited with deemed investment return, income, gain
or loss based upon the investment performance which the Committee
determines has been recognized under the Hypothetical Investment Fund.
These are hypothetical funds and do not represent actual investment of
Compensation Deferrals or Plan Account balances or investment return,
income, gain or loss which would result, or did result, from
investment of Plan Account balances.
1.17 "NORMAL RETIREMENT AGE" means the first day of the first
calendar month following the date on which a Participant or Inactive
Participant attains age 65.
1.18 "PARTICIPANT" means an Eligible Employee who has satisfied
the requirements set forth in Article II for participation in the Plan
and who is then eligible to make Compensation Deferrals hereunder.
Inactive Participant means any former Participant or Beneficiary who
has an Account balance under the Plan. An individual shall cease to
be a Participant and Inactive Participant upon complete distribution
of the balance of his or her Plan Account.
1.19 "PARTICIPANT ENROLLMENT AND/OR ELECTION FORM" means the
form on which a Participant elects to defer Compensation hereunder and
on which the Participant or an Inactive Participant makes certain
other designations as required by the Plan Administrator.
1.20 "PLAN" means this Mallinckrodt Income Deferral Plan as set
forth in this document as the same may be amended, administered or
interpreted from time to time.
1.21 "PLAN ADMINISTRATOR" means the Plan Administrator
appointed by the Committee pursuant to Section 10.2 or in the absence
of such designation, the Committee and its delegates.
1.22 "PLAN YEAR" means the twelve (12) month period ending on
the 30th day of June of each year during which the Plan is in effect.
The first Plan Year shall commence on the Effective Date and end on
the 30th of June immediately following.
1.23 "TRUST" means any trust fund which may be established
under this Plan to hold Plan assets, although none is required to be
established.
1.24 "TRUSTEE" means the trustee named in the agreement
establishing the Trust and such successor and/or additional trustees
as may be named pursuant to the terms of the agreement establishing
the Trust.
1.25 "VALUATION DATE" means the last day of each calendar
month.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
-----------------------------
2.1 Eligibility for Participation. Each Employee may
-----------------------------
participate in the Plan as soon as practicable after the date on which
the Employee meets the definition of Eligible Employee hereunder, is
notified of his eligibility for participation and becomes eligible to
defer receipt of Compensation under a plan described in Section 1.10.
2.2 Application. Participation in the Plan is voluntary. In
-----------
order to participate, an otherwise Eligible Employee must make written
application and must complete such application process, including a
Participant Enrollment and Election Form, as required by Section 3.1
and as prescribed by the Plan Administrator. The application process
shall require an Eligible Employee to: (a) specify a rate or amount
of Compensation Deferral, (b) authorize the Company to reduce and
defer the Employee's Compensation by the amount of the Deferral, (c)
specify the Employee's investment elections pursuant to Article V, (d)
evidence the Employee's acceptance of and agreement with all Plan
provisions, and (e) state the period for which Compensation Deferral
will be made or when payment of Compensation that has been deferred
will be made (as required by Article VI) and the manner of payment (as
required by Article VII).
2.3 Reemployment. If a Participant whose employment with the
------------
Company and its Affiliates is terminated is subsequently reemployed,
he or she shall become a Participant in accordance with the provisions
of this Article when he or she again becomes an Eligible Employee.
2.4 Change of Employment Category. During any period in which
-----------------------------
a Participant remains in the employ of the Company and its Affiliates,
but ceases to be an Eligible Employee, he or she shall not be eligible
to make further Compensation Deferrals hereunder, but shall become an
Inactive Participant.
ARTICLE III
CONTRIBUTIONS AND CREDITS
-------------------------
3.1 Participant Compensation Deferrals. In accordance with
----------------------------------
rules established by the Committee and Plan Administrator, a
Participant may elect to defer Compensation that is due to be earned
and that would otherwise be paid or payable to the Participant. The
Plan Administrator will establish, in its discretion, the increments
in which Compensation Deferrals may be made, along with applicable
minimum Compensation Deferral. The maximum amount of Compensation
which a Participant may defer under the Plan shall be one hundred
percent (100%) of any award(s) which a Participant receives under any
of the incentive compensation programs of the Company, described in
Section 1.10.
3.2 Election of Compensation Deferrals. (a) Participants
----------------------------------
shall be entitled to make a separate Compensation Deferral election
for each award of Compensation made for each year under each of the
incentive plans described in Section 1.10, unless otherwise provided
by such plan or the Committee. For each award of Compensation that a
Participant elects to defer under this Plan, he or she shall complete
a Participant Enrollment or Election Form electing the percentage or
dollar amount of such Compensation award which the Participant elects
to defer. All elections to defer Compensation must be made before
such dates as established by the Plan Administrator and all
Compensation Deferral elections must be completed prior to the date on
which such Compensation award is finally established, due and payable
under any plan described in Section 1.10 for which the Deferral
election is being made. Compensation Deferral elections made for any
award(s) under any such incentive plan shall not be effective for or
carry over to later Plan Years or other awards except as specified in
the actual election forms. Each Compensation Deferral election shall
also provide the date or event upon which payment of the Compensation
Deferral and accumulated investment return thereon will commence (as
required by Article VI) and will select the manner in which each such
Compensation Deferral and accumulated investment return thereon will
be paid (as required by Article VII). All Compensation Deferral
elections will be irrevocable once made, must be in writing and must
be prepared pursuant to such rules and procedures as established by
the Plan Administrator; however, Participants shall be permitted to
change the manner in which Compensation Deferrals, and investment
returns credited thereon to any Subaccount, are to be paid and may
select a different distribution election form as specified in Section
7.1 with respect to the entire amount credited to any Subaccount in
accordance with rules established by the Plan Administrator.
(b) Compensation Deferrals shall be deducted by the Company
from the Compensation of a deferring Participant and shall be credited
to the Plan Account of that Participant.
3.3 Merger of Prior Deferred Compensation Balances. Plan
----------------------------------------------
Participants and Inactive Participants who prior to the Effective Date
of this Plan had previously deferred receipt of compensation under
Company incentive compensation plans and who still have accumulated,
unpaid balances due and owing to them under those plans, shall be
permitted to elect to have such unpaid balances transferred to this
Plan. Elections to transfer balances to this Plan will be
irrevocable once made, must be in writing and will be permitted in
accordance with such rules and procedures as established by the Plan
Administrator. Any balances transferred to this Plan will be
governed, and may be managed by Participants and Inactive
Participants, in all respects according to the terms of this Plan. In
addition, Participants and Inactive Participants shall not be
permitted to make any changes in the timing and payment of transferred
balances except as provided in Section 7.1 regarding the manner of
payment and Article VIII concerning beneficiary designation.
ARTICLE IV
ALLOCATION OF FUNDS
-------------------
4.1 Compensation Deferral Accounts. The Company shall
------------------------------
establish and maintain on its books of account for each Participant in
the Plan a separate Plan Account. The balance to the credit of each
Participant in their Plan Account shall be his or her entire
entitlement and benefit under this Plan.
4.2 Vesting of Account Balances. Each Participant shall be
---------------------------
fully vested at all times in the entire balance to the Participant's
credit in his or her Account and such Account balance shall be
nonforfeitable and shall not be reduced except for distributions,
withdrawals and investment performance or to properly correct any
error or state any Plan transaction as determined appropriate by the
Plan Administrator.
4.3 Crediting of Account Balances. The Account and
-----------------------------
Subaccounts of each Participant shall be credited and debited at such
times and in such manner as determined appropriate by the Plan
Administrator and the Committee with amounts equal to: (a) the
Participant's Compensation Deferrals, (b) any deemed investment
return, income, gains or losses determined by the Administrator to be
allocable to the Participant's prior Compensation Deferrals and
Account balance, (c) distributions or withdrawals from the
Participant's Account and (d) any other adjustments determined to be
appropriate by the Administrator or the Committee.
4.4 Investment Subaccounts. Each Account shall, to the extent
----------------------
determined appropriate by the Plan Administrator, be comprised of one
or more investment subaccounts to which all Compensation Deferrals
under the Plan and deemed investment return income, gain or loss
allocated thereon will be credited according to each Participant's
deemed investment directions, or pursuant to any mandatory deemed
investment directions made by the Committee. Investment Subaccounts
shall be established based upon the dates and events on which
Compensation deferrals and investment returns thereon are to be paid
as described in Section 1.1. Deemed investment return income, gains
or losses from the Hypothetical Investment Funds for which each
investment subaccount is established will be credited or debited to
that investment subaccount as described in Section 1.1.
4.5 Investment Return and Subaccount Allocations. The
--------------------------------------------
Committee and Plan Administrator will have complete discretion to
allocate any deemed investment return, income, gains or losses among
Plan Accounts and subaccounts pursuant to such allocation rules or
methods as the Committee and Administrator deem to be appropriate.
4.6 Unless the context does not allow, all references to
Participants in this Article shall also refer to Inactive
Participants.
ARTICLE V
CREDITING OF DEEMED INVESTMENT RETURN ON COMPENSATION
DEFERRALS AND COMMON STOCK DEFERRALS
------------------------------------------------------
5.1 Investment Return. The Company is not obligated in any
-----------------
manner to actually invest Compensation Deferrals credited to
Participant Accounts in any actual or separate investment or fund of
any kind. To the extent Compensation Deferrals are invested in any
investment or fund, the investment return, income, gain or loss from
such investment shall be the property of the Company, or Trust if one
is established under this Plan to hold its assets. The Committee
shall determine in its discretion the amount, if any, of any
investment return, income, gain or loss to be credited or debited to
all Participant Accounts. The Committee may change, at any time, the
manner and method in which future investment return, income, gain or
loss, if any, may be credited to Participant Accounts.
5.2 Investment Funds. The Committee may, from time to time,
----------------
establish and maintain, or cause to be established and maintained,
Hypothetical Investment Funds. Each such Hypothetical Investment Fund
shall be deemed to carry a rate of investment return or produce
income, gains or losses, as determined by the Committee consistent
with Section 1.16.
5.3 Hypothetical Investment Fund Directions of Participants.
-------------------------------------------------------
To the extent the Committee creates Hypothetical Investment Funds,
Participants may direct the Company and Administrator as to how the
amounts credited to his or her Plan Account and Subaccounts shall be
deemed to be invested in and allocated among such Hypothetical
Investment Funds. Such directions shall be made at such times and
intervals and shall be subject to such operating rules and procedures
as may be established from time to time by the Committee or the Plan
Administrator. Such directions shall designate the percentage (in any
whole percent multiples) that the Participant requests of each of the
Participant's Subaccounts to be deemed invested in each such
Hypothetical Investment Fund as may then be available and shall,
unless otherwise provided by the Plan Administrator, be subject to the
following rules:
(a) A Participant may make a separate deemed investment
election among Hypothetical Investment Funds for each of the
Participant's Subaccounts.
(b) Any initial or subsequent Hypothetical Investment Fund
direction shall be provided on such form and in such manner as
directed by the Administrator and shall be effective on the first day
following the Valuation Date on or prior to which such directions are
provided, subject to such procedures and practices adopted by the
Administrator.
(c) All Compensation Deferrals and accumulated investment
return income, gain or loss thereon credited to a Participant's
Subaccount shall be deemed to be invested in accordance with the then
effective Hypothetical Investment Fund direction for that Subaccount.
An election concerning Hypothetical Investment Fund directions shall
continue indefinitely as provided in the Participant's most recent
Participant Enrollment and Election Form or other form specified by
the Administrator. As of the effective date of any new deemed
Investment Fund direction, all of the Participant's Compensation
Deferrals credited to the Participant's Account and particular
Subaccount after that date shall be allocated among the designated
Hypothetical Investment Funds according to the percentages specified
in the new deemed investment direction unless and until a subsequent
deemed investment direction shall be filed and become effective.
(d) In accordance with uniform rules and practices developed
by the Plan Administrator, Participants shall also be permitted to
reallocate their existing Account and Subaccount balances among other
Hypothetical Investment Funds to be deemed invested in those Funds in
such percentages and as of such Valuation Dates as specified by the
Plan Administrator.
(e) If the Administrator receives an initial or revised deemed
investment direction that it deems to be incomplete, unclear, or
improper, the Participant's investment direction then in effect shall
remain in effect (or, in the case of a deficiency in an initial deemed
investment direction, the Participant shall be deemed to have filed no
deemed investment direction) unless the Administrator provides for,
and permits the application of, corrective action prior thereto.
(f) If the Administrator possesses at any time directions as
to the deemed investment of less than all of a Participant's Account,
the Participant shall be deemed to have directed that the undesignated
portion of the Account be deemed to be invested in such Hypothetical
Investment Fund under the Plan as determined by the Administrator in
its discretion.
(g) Each Participant hereunder, as a condition to his or her
participation, agrees to indemnify and hold harmless the Company, the
Trustees, the Plan Administrator and its agents and representatives
from any losses or damages of any kind relating to the deemed
investment of the Participant's Account hereunder.
5.4 Common Stock Deferrals and Hypothetical Common Stock
----------------------------------------------------
Investment Fund. If a Participant makes a Compensation Deferral under
- ---------------
an incentive compensation plan, as described in Section 1.10, which
Compensation would otherwise have been paid in Common Stock, then the
Compensation Deferral will be credited in shares of Common Stock to a
Participant subaccount as described in Sections 1.1 and 5.3 and will
be invested in the Hypothetical Common Stock Investment Fund. In
addition, Participants may direct investment of Compensation
Deferrals, which would otherwise be paid in cash, to the Hypothetical
Common Stock Investment Fund, as well as any other portion of the
Participant's Account balance. Such Fund and Compensation Deferrals
deemed to be invested therein will be operated and accounted for in
accordance with the following and such other rules as may be developed
by the Plan Administrator:
(a) For record-keeping purposes only, Participant Compensation
Deferral subaccounts shall be maintained in numbers of hypothetical
shares of Common Stock for Compensation Deferrals, or other Account
balances, deemed invested in the Common Stock Investment Fund.
(b) In determining the number of hypothetical shares of Common
Stock to be credited to a Participant's Account for each Compensation
Deferral which would otherwise have been paid in cash, as well as
other Account balances directed to the Hypothetical Common Stock Fund,
the number of shares will be determined by dividing the cash amount of
the Compensation Deferral or value of other Account balances directed
to such Fund, by the average of the high and low prices of the
Company's Common Stock on the New York Stock Exchange on the award
date or, for transfers of all or a portion of an Account balance, on
the Valuation Date on which a transfer of existing Account Balance to
the Fund is deemed to have occurred. With respect to Participants who
make Compensation Deferrals of awards which would otherwise have been
paid in Common Stock, their Accounts will be credited with the number
of shares granted in the award.
(c) Any Compensation Deferrals made or Account balances deemed
invested in the Hypothetical Common Stock Investment Fund will earn a
credit on and as of the record date for payment of any dividends
equivalent to any dividend which would have been payable with respect
to the number of hypothetical shares of the Company's Common Stock
which, as of the record date for the dividend, had been credited to
the Participant as though such shares had actually been issued and
outstanding ("Dividend Equivalent"). All such Dividend Equivalents
will be credited to a Participant's Account in cash and will then be
deemed to have been reinvested in Common Stock at the average of the
high and low prices of the Company's Common Stock on the New York
Stock Exchange on the record date.
(d) If a stock dividend, stock split, recapitalization, or
other transaction results in a change in the number of outstanding
shares of Common Stock of the Company, the Committee shall make such
adjustment, if any, as may be equitable in the number of shares which
are credited to a Participant's Account. The determination of the
Committee on these matters shall be final and conclusive and binding
on the Company and all Participants and Inactive Participants.
(e) Account balances credited with shares of Common Stock
under the Hypothetical Common Stock Investment Fund will be
distributed in cash at the same time and in the same manner as would
apply to distribution of Accounts under Article VII.
5.5 Account Valuations. Participant Accounts will be valued
------------------
by the Administrator as of each Valuation Date and the Administrator
shall have the ability to designate interim valuation dates as it
determines appropriate.
5.6 Unless the context does not allow, all references to
Participants in this Article V shall also refer to Inactive
Participants.
ARTICLE VI
TIME FOR DISTRIBUTION OF ACCOUNT BALANCES
-----------------------------------------
6.1 Time for Distribution of Accounts. At the time a
---------------------------------
Participant elects to make a Compensation Deferral under the Plan and
in accordance with procedures prescribed by the Plan Administrator,
the Participant shall elect, with respect to each Compensation
Deferral and all investment return, income, gain or loss credited to
Participant's Account thereon, the date on which payment of such
Compensation Deferral and accumulated investment return thereon shall
commence as well as the manner and method of distribution of such
amounts. Each Participant must elect to have payment of each such
Compensation Deferral, and associated accumulated investment return,
income, gain or loss thereon, commence upon any one of the following
events: (a) the Participant's attaining Normal Retirement Age, (b) the
Participant's attaining an Early Retirement Age, (c) the Participant's
termination of employment with the Company and all of its Affiliates,
or (d) following expiration of a fixed term of years after the Plan
Year for which a Compensation Deferral is elected. Such elections
shall, once made, be irrevocable, and may not be altered; provided,
however, that Participants and Inactive Participants shall be
permitted to change the manner in which Compensation Deferrals and
investment return credited thereon to any Subaccount are to be paid
and may elect a different distribution election form as specified
below with respect to the entire amount credited to any Subaccount.
6.2 Death. If a Participant or Inactive Participant dies
-----
before payments from his or her Account commence, his or her
Beneficiary will receive benefits in the form of payment that the
Participant had elected, commencing as soon as practicable after the
Participant's death. If no election was made for an Account or
portions thereof, the Account will be distributed to the Participant's
Beneficiary in a lump sum. If a Participant or Inactive Participant
dies after payments for his Account have commenced, his Beneficiary
will receive the unpaid balance of the Account in the same manner in
which the Participant was receiving such amounts. A Participant or
Inactive Participant may designate a separate Beneficiary for each
separate Compensation Deferral made and associated investment return,
income, gain or loss thereon. Following a Participant's or Inactive
Participant's death, the Participant's Beneficiary may designate a
successor Beneficiary to receive any remaining payments in the event
of the Beneficiary's death before all payments are made.
6.3 Disability. Notwithstanding any distribution or deferral
----------
election otherwise made under this Plan, if the employment of a
Participant or Inactive Participant with the Company and its
Affiliates terminates because of disability (as defined in the
Company's long term disability plan applicable to its salaried
employees), the Participant's or Inactive Participant's Account
balance shall be paid as soon as practicable immediately thereafter in
a single sum.
ARTICLE VII
MANNER OF DISTRIBUTION OF ACCOUNT BALANCES
------------------------------------------
7.1 Methods of Distribution of Accounts. At the time a
-----------------------------------
Participant elects to make a Compensation Deferral under the Plan, the
Participant shall elect, in accordance with uniform rules developed by
the Plan Administrator, with respect to each Compensation Deferral and
all investment return, income, gain or loss credited to Participant's
Account thereon, the manner and method of distribution of such
amounts. Participants and Inactive Participants shall be permitted to
change the manner in which Compensation Deferrals and investment
return credited thereon to any Subaccount are to be paid and may
select a different distribution election form as specified below with
respect to the entire amount credited to any Subaccount. A
Participant must select one of the following forms for payment of each
Compensation Deferral made under this Plan and the investment return,
income, gain or loss credited thereon:
(a) A lump sum cash payment to be made not later than sixty
(60) days following the event or date giving rise to the right to
receive a distribution, or
(b) In a series of not less than five (5) nor more ten (10)
annual installments to be made commencing not later than sixty (60)
days following the event or date giving rise to the right to receive a
distribution.
7.2 Distribution in Cash. All amounts paid under this Plan
--------------------
with respect to all Account balances, regardless of the nature of the
Hypothetical Investment Fund in which such balances were deemed to be
invested, shall be payable in cash.
7.3 Valuation of Distributions. With respect to any Account
--------------------------
balance and distribution to be paid under this Plan, the value of such
distribution shall be determined as of the Valuation Date coinciding
with or next following the event or date giving rise to the right to
receive a distribution under the Plan has occurred and after all of
the following also have occurred: (a) the Participant or Inactive
Participant has provided the Plan Administrator such notice of the
distribution, if any, as may be required, (b) the Participant has
tendered such documents as prescribed by the Administrator, (c) the
Plan Administrator has properly processed and approved the
distribution and all necessary accounting and Account valuation
activities have been performed.
ARTICLE VIII
BENEFICIARY DESIGNATION
-----------------------
8.1 Beneficiary Designation. Each Participant shall have the
-----------------------
right, at any time, to designate one or more persons or an entity as
Beneficiary (both primary as well as secondary) to whom benefits under
the Plan shall be paid in the event of the Participant's death prior
to complete distribution of the Participant's Account. Each
Beneficiary designation shall be in a written form prescribed by the
Administrator and shall be effective only when filed with the Plan
Administrator during the Participant's lifetime. Participants may,
subject to Administrator consent, designate several Beneficiaries for
each Compensation Deferral Subaccount and associated investment
return, income, gain or loss credited thereto.
8.2 Changing Beneficiary. Any Beneficiary designation may be
--------------------
changed by filing a new designation with the Plan Administrator. The
filing of a new designation shall cancel all designations previously
filed.
8.3 Change in Marital Status. If the Participant's marital
------------------------
status changes after the Participant has designated a Beneficiary, the
prior designation shall be void if the former spouse was named as
Beneficiary; however, the prior designation shall remain valid if a
nonspouse beneficiary was named.
8.4 No Beneficiary Designation. If any Participant fails to
--------------------------
designate a Beneficiary in the manner provided above, or if the
designation is void, or if the Beneficiary designated by a deceased
Participant dies before the Participant, the Participant's Beneficiary
shall be the person in the first of the following classes in which
there is a survivor:
(a) the surviving spouse;
(b) the Participant's surviving children in equal shares; or
(c) the Participant's estate.
A Beneficiary who is receiving benefits after a Participant's
death may designate a successor Beneficiary to receive any remaining
payments in the event of the Beneficiary's death before all payments
are made. The provisions hereof relating to designation of a
Beneficiary by the Participant shall apply in like manner to the
designation of a successor Beneficiary by a Beneficiary.
8.5 Unless the context does not allow, all references to
Participant in this Article VIII shall also refer to Inactive
Participant unless otherwise noted.
ARTICLE IX
AMENDMENT AND TERMINATION OF THE PLAN
-------------------------------------
9.1 Amendment. The Company may amend the Plan in whole or in
---------
part at any time. The Company expressly reserves the right to amend
the Plan to provide lower rates of investment return, income, gain or
loss in the future than may be currently provided under the Plan. No
amendment of the Plan, however, may reduce the Account balance of a
Participant or Inactive Participant without the written consent of
that Participant. The Company, however, may amend the Plan at any
time to accelerate distribution of Account balances as it determines
appropriate. The Plan may only be amended (or terminated as provided
in Section 9.2 below) by written resolution of the Committee.
9.2 Company's Right to Terminate. The Company or Committee,
----------------------------
according to the process described above and below, may at any time
partially or completely terminate the Plan.
(a) Partial Termination. The Company may partially terminate
-------------------
the Plan by not accepting any additional or ongoing deferral
commitments. In the event of such a partial termination, the Plan
shall continue to operate on the same terms and conditions and, unless
the Company determines not to accept ongoing Compensation Deferral
commitments, shall be effective with regard to Compensation Deferral
commitments entered into prior to the effective date of such partial
termination.
(b) Complete Termination. The Committee may completely
--------------------
terminate the Plan by resolution. In the event of complete
termination, the Plan shall cease to operate, and the Company shall
pay out to each Participant or Inactive Participant his remaining
Accounts in one lump sum payment as soon as practicable.
ARTICLE X
ADMINISTRATION
--------------
10.1 The Committee. (a) The Board of Directors shall appoint a
-------------
Committee consisting of one or more members who shall be the Plan
Administrator within the meaning of such term as used in ERISA and
shall be responsible for the administration of the provisions of the
Plan. In the absence of a contrary designation, the Committee shall
be the Mallinckrodt Inc. Employee Benefits Committee. The Board of
Directors shall have the right at any time, with or without cause, to
remove any member of the Committee. A member of the Committee may
resign and his resignation shall be effective upon delivery of the
written resignation to the Board of Directors. Upon the resignation,
removal or failure or inability for any reason of any member of the
Committee to act hereunder, the Board of Directors shall appoint a
successor member. Any successor member of the Committee shall have
all the rights, privileges and duties of the predecessor, but shall
not be held accountable for the acts of the predecessor.
(b) Any member of the Committee may, but need not, be an
employee, director, officer or shareholder of the Company and such
status shall not disqualify him from taking any action hereunder or
render him accountable for any distribution or other material
advantage received by him under the Plan, provided that no member of
the Committee who is a Participant shall take part in any matter
involving solely his rights under the Plan.
(c) The Committee may act at a meeting, or by writing without
a meeting, by the vote or written consent of a majority of its members
or by a vote of the majority of its members in attendance at any
meeting. The Committee may only act in a meeting at which a quorum
(i.e., at least fifty percent (50%)) of its members are in attendance.
The Committee may select a chairman and shall keep the Company advised
of the identity of the member holding such office. The Committee
shall appoint one of its members to act as the Plan's agent of legal
process. The Committee shall select a secretary, who need not be a
member of the Committee, and shall keep the Company advised of the
identity of the person holding such office. The secretary shall keep
records of all meetings of the Committee and forward all necessary
communications to the Company.
(d) The Committee and its successors shall have the
discretion, duty and authority to interpret and construe the Plan in
all respects, including questions involving eligibility, the status
and rights of Participants, Inactive Participants, distributees and
other persons under the Plan, and the manner, time, and amount of
payment of any distribution under the Plan. The Company shall, from
time to time, upon request of the Committee, furnish to the Committee
such data and information as the Committee shall require in the
performance of its duties.
(e) The Committee shall direct the Company to make payments of
amounts to be distributed under the Plan.
(f) The members of the Committee may allocate their
responsibilities among themselves and may designate any person,
partnership or corporation to carry out any of their responsibilities
with respect to the administration of the Plan. Any such allocation
or designation may be reduced to writing and such writing shall be
kept with the records of the Plan.
(g) The Committee may adopt such rules and procedures as it
deems desirable for the conduct of its affairs and the administration
of the Plan, provided that any such rules and procedures shall be
consistent with the provisions of the Plan and applicable portions of
ERISA.
(h) The Company hereby indemnifies the members of the
Committee, the Plan Administrator, the Board of Directors and the
officers of the Company and each of them from the effects and
consequences of their acts, omissions and conduct in their official
capacity, except to the extent that such effects and consequences
result from their own willful misconduct.
(i) The Committee may employ such counsel (who may be of
counsel for the Company) and agents and may arrange for such clerical
and other services as it may require in carrying out the provisions of
the Plan.
(j) No member of the Committee shall receive any compensation
or fee for his services, unless otherwise agreed between such member
of the Committee and the Company, but the Company shall reimburse the
Committee members for any necessary expenditures incurred in the
discharge of their duties as Committee members.
10.2 Plan Administrator. (a) The Committee may appoint a Plan
------------------
Administrator who may but need not be a Participant, director,
officer, or shareholder of the Company, and such status shall not
disqualify him from taking any action hereunder or render him
accountable for any distribution or other material advantage received
by him under the Plan, provided that he shall not take any part in any
action or matter involving solely his rights under the Plan. In the
absence of a specific designation by the Committee of a Plan
Administrator, the Committee shall be the Plan Administrator.
(b) The Plan Administrator shall be responsible for the daily
operation of the Plan within the policies, interpretations and rules
made by the Committee and shall be delegated all of the Committee's
duties and authority, consistent with Committee direction. The Plan
Administrator shall also perform such ministerial and all other
functions with respect to the Plan as the Committee shall from time to
time designate. The Plan Administrator may employ such agents as it
may require in carrying out its duties or exercising its powers as
Plan Administrator and may delegate those duties to others as it
determines appropriate.
(c) The Plan Administrator shall be authorized to adopt such
rules and procedures, consistent with the policies interpretation and
rules made by the Committee, and to take all other actions necessary
to operate the Plan and to carry out all duties necessary to do so.
10.3 Claims Procedure. If any Participant, Inactive
----------------
Participant or other person believes he is entitled to benefits in an
amount greater than those which he is receiving or has received or has
any other dispute with respect to the Plan, he may file a claim with
the Plan Administrator. Such a claim shall be in writing and state
the nature of the claim, the facts supporting the claim, the amount
claimed, and the address of the claimant. The Plan Administrator
shall review the claim and, unless special circumstances require an
extension of time, within 60 days after receipt of the claim, give
written notice by mail to the claimant of his decision with respect to
the claim. If special circumstances require an extension of time, the
claimant shall be so advised in writing within the initial 60-day
period and in no event shall such an extension exceed 30 days. The
notice of the decision of the Plan Administrator with respect to the
claim shall be written in a manner calculated to be understood by the
claimant and, if the claim is wholly or partially denied, set forth
the specific reasons for the denial, specific references to the
pertinent Plan provisions on which the denial is based, a description
of any additional material or information necessary for the claimant
to perfect the claim and an explanation of why such material or
information is necessary, and an explanation of the claim review
procedure under the Plan. If all or any portion of the claimant's
claim has been denied by the Plan Administrator, the claimant may
request a review by the Committee of the denial by filing with the
Committee, within 60 days after notice of the denial has been received
by the claimant, a written request for such review. The claimant may
have reasonable access to pertinent documents and submit comments in
writing to the Committee within the same 60-day period. If a request
is so filed, review of the denial shall be made by the Committee
within, unless special circumstances require an extension of time, 60
days after receipt of such request, and the claimant shall be given
written notice of the Committee's final decision. If special
circumstances require an extension of time, the claimant shall be so
advised in writing within the initial 60-day period and in no event
shall such an extension exceed 60 days without agreement of claimant.
The notice of the Committee's final decision shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based. The Committee's decision
shall be final and binding on all parties. The claim and appeal
process outlined above shall be the exclusive process for resolution
of claims under the Plan. If a Participant, Inactive Participant or
claimant fails to use and exhaust such process as described, the
claimant, Inactive Participant or Participant shall be barred from
further contesting the matter and actions of the Plan Administrator.
10.4 Small Benefits. Notwithstanding any election made by a
--------------
Participant, the Committee, in its sole discretion, may pay any
Account balance whose value at the time payments are to commence is
Five Thousand Dollars ($5,000) or less in the form of a lump sum
payment to a Participant or Inactive Participant upon such terms and
conditions as the Committee may determine.
10.5 Unsecured General Creditor. (a) The Company shall be
--------------------------
responsible for payment of benefits under this Plan except as provided
in (b) below. Participants, Inactive Participants, and their
Beneficiaries, heirs, successors and assigns shall have no legal or
equitable rights, interests or claims in any property or assets of the
Company or its Affiliates, nor shall they be beneficiaries of, or have
any rights, claims or interests in any life insurance policies, or the
proceeds therefrom owned or which may be acquired by the Company or
its Affiliates ("Policies"). Such Policies or other assets of the
Company or its Affiliates shall not be required to be held under any
trust for the benefit of Participants, Inactive Participants, their
Beneficiaries, heirs, successors or assigns, or held in any way as
collateral security for the fulfilling of the obligations of the
Company under the Plan. Any and all of the Company's and its
Affiliates' assets and Policies shall be, and remain, the general,
unpledged, unrestricted assets of the Company. The Company's
obligation under the Plan shall be merely that of an unfunded and
unsecured promise of the Company to pay money in the future.
(b) Notwithstanding the foregoing and in its discretion, the
Company may establish one or more trusts, with such Trustees as the
Committee may approve, for the purpose of providing for the payment of
such benefits. Such trust or trusts may be irrevocable, but he assets
thereof ultimately shall be subject to the claims of the Company's
creditors. To the extent any benefits provided under the Plan are
actually paid from any such Trust, the Company and Plan shall have no
further obligation with respect thereto, but to the extent not so
paid, such benefits shall remain the obligation of, and shall be paid
by, the Company.
10.6 Nonassignability. Neither a Participant nor any other
----------------
person shall have any right to sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, transfer, hypothecate or
convey in advance of actual receipt the amounts, if any, payable
hereunder, or any part thereof, which are, and all rights to which
are, expressly declared to be unassignable and non-transferable. No
part of the amounts payable shall, prior to actual payment, be subject
to seizure or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by a Participant or Inactive
Participant or any other person, nor be transferable by operation of
law in the event of a Participant's or any other person's bankruptcy
or insolvency. Notwithstanding the foregoing, the balance to the
credit of any Participant or Inactive Participant in this Plan may be
attached by the Company to satisfy the debts of any Participant or
Inactive Participant owed to the Company or any of its Affiliates.
10.7 Not a Contract of Employment. The terms and conditions of
----------------------------
the Plan shall not be deemed to constitute a contract of employment
between the Company and any Participant or Inactive Participant, and
neither a Participant, Inactive Participant nor any Beneficiary shall
have any rights against the Company, Committee or the Plan
Administrator or Committee except as may be specifically provided in
the Plan. Moreover, nothing in the Plan shall be deemed to give a
Participant the right to be retained in the service of the Company or
to interfere with the right of the Company to discipline or discharge
the Participant at any time.
10.8 Protective Provisions. Participants and Inactive
---------------------
Participants shall cooperate with the Company by furnishing any and
all information requested by the Company or Plan Administrator in
order to facilitate the payment of benefits hereunder, and by taking
such physical examinations as the Company may deem necessary and
taking such other action as may be requested by the Company or Plan
Administrator.
10.9 Withholding of Taxes. To the extent required by the law
--------------------
in effect at the time payments are made or made available by the
Company, the Company shall withhold from the payments made hereunder
the minimum taxes required to be withheld by the federal or any state
or local government. The Company may also withhold from payments to
be made to any Beneficiary hereunder any amounts which the Company
determines are reasonably necessary to pay any generation-skipping
transfer tax which is or may become due.
10.10 Payment to Guardian. If a distribution is payable to a
-------------------
minor or a person declared incompetent or to a person incapable of
handling the disposition of property, the Plan Administrator may
direct payment to the guardian, legal representative or person having
the care and custody of such minor, incompetent or person. The Plan
Administrator may require proof of incompetency, minority, incapacity,
or guardianship as it may deem appropriate prior to distribution.
Such distribution shall completely discharge the Plan and Company from
all liability with respect to such benefit.
10.11 Ineligible Participant. Notwithstanding any other
----------------------
provisions of this Plan to the contrary, if any Participant or
Inactive Participant is determined by the Committee not to be a
"management or highly compensated employee" within the meaning of
ERISA or regulations thereunder, such Participant or Inactive
Participant will not be eligible to participate in this Plan and shall
receive an immediate lump sum payment equal to the vested portion of
the amounts standing credited to his Accounts. Upon such payment, no
survivor benefit or other benefit shall thereafter be payable under
this Plan either to the Participant or any Beneficiary of the
Participant.
10.12 Governing Law. The provisions of this Plan shall be
-------------
construed and interpreted according to the laws of the State of
Missouri, without reference to its conflict of laws principles, except
to the extent preempted by ERISA.
10.13 Recovery of Overpayments. If a Participant or Inactive
------------------------
Participant receives a benefit payment which is determined by the
Administrator to be erroneous or an overpayment, the Participant or
Inactive Participant receiving the payment will be obligated to return
the overpayment upon demand.
10.14 Notice. Any notice or filing required or permitted to be
------
given to the Committee under the Plan shall be sufficient if in
writing and hand delivered, or sent by mail, to the Secretary of the
Corporation. Such notice shall be deemed given as of the date of
delivery or, if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification.
10.15 Successors. The provisions of the Plan shall bind and
----------
inure to the benefit of the Company and its successors and assigns.
The term successors as used herein shall include any corporate or
other business entity which shall, whether by merger, consolidation,
purchase or otherwise, acquire all or substantially all of the
business and assets of the Company, and successors of any such
corporation or other business entity.
Executed this 8th day of December, 1999.
---- --------------
MALLINCKRODT INC
By:/s/ Bruce K. Crockett
---------------------
Its: Vice President,
Human Resources
