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 March 31, 2000
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: 67,210,713 shares as of April 30, 2000.
<PAGE>
(*) Indicates registered trademark
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 Nine Months Ended
March 31, March 31,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 659.0 $ 676.1 $1,954.9 $1,905.9
Operating costs and expenses:
Cost of goods sold 370.5 359.1 1,093.1 1,025.1
Selling, general and
administrative expenses 165.4 177.1 525.0 531.0
Research and development
expenses 40.3 38.1 105.4 109.4
--------- --------- --------- ---------
Total operating costs
and expenses 576.2 574.3 1,723.5 1,665.5
--------- --------- --------- ---------
Operating earnings 82.8 101.8 231.4 240.4
Nonoperating income
(expense), net 18.3 (.7) 34.6 2.7
Interest expense (15.9) (21.4) (55.0) (64.5)
--------- --------- --------- ---------
Earnings from continuing
operations before income taxes 85.2 79.7 211.0 178.6
Income tax provision 27.3 25.6 68.6 57.7
--------- --------- --------- ---------
Earnings from continuing
operations 57.9 54.1 142.4 120.9
Discontinued operations 22.6
--------- --------- --------- ---------
Net earnings 57.9 54.1 142.4 143.5
Preferred stock dividends (.1) (.1) (.3) (.3)
--------- --------- --------- ---------
Available for common
shareholders $ 57.8 $ 54.0 $ 142.1 $ 143.2
========= ========= ========= =========
Basic earnings per
common share:
Earnings from continuing
operations $ .85 $ .76 $ 2.05 $ 1.68
Discontinued operations .31
--------- --------- --------- ---------
Net earnings $ .85 $ .76 $ 2.05 $ 1.99
========= ========= ========= =========
Diluted earnings per
common share:
Earnings from continuing
operations $ .85 $ .75 $ 2.04 $ 1.68
Discontinued operations .31
--------- --------- --------- ---------
Net earnings $ .85 $ .75 $ 2.04 $ 1.99
========= ========= ========= =========
Dividends declared and
paid per common share $ .165 $ .115 $ .495 $ .445
========= ========= ========= =========
(See Notes to Condensed Consolidated Financial Statements on pages 4 through 8.)
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share amounts)
March 31, June 30,
2000 1999
------------- ----------
Assets
Current assets:
Cash and cash equivalents $ 33.2 $ 32.7
Trade receivables, less allowances
of $21.8 at March 31 and $17.9
at June 30 452.5 490.9
Inventories 484.7 530.3
Deferred income taxes 78.2 54.7
Other current assets 64.4 61.3
---------- ----------
Total current assets 1,113.0 1,169.9
Investments and other noncurrent assets 90.0 67.2
Property, plant and equipment, net 827.7 870.7
Goodwill, net 868.3 942.3
Technology, net 293.0 336.4
Other intangible assets, net 228.7 266.6
Deferred income taxes 4.1 4.3
---------- ----------
Total assets $ 3,424.8 $ 3,657.4
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 481.6 $ 383.8
Accounts payable 202.1 221.2
Accrued liabilities 376.1 459.5
Income taxes payable 80.5 77.3
Deferred income taxes .9 1.2
---------- ----------
Total current liabilities 1,141.2 1,143.0
Long-term debt, less current maturities 541.4 742.5
Deferred income taxes 340.2 363.0
Postretirement benefits 167.1 166.5
Other noncurrent liabilities and
deferred credits 157.6 182.0
---------- ----------
Total liabilities 2,347.5 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 314.0 314.7
Reinvested earnings 1,296.5 1,188.4
Accumulated other comprehensive loss (91.1) (105.1)
Treasury stock, at cost (540.2) (435.7)
---------- ----------
Total shareholders' equity 1,077.3 1,060.4
---------- ----------
Total liabilities and shareholders'
equity $ 3,424.8 $ 3,657.4
========== ==========
(See Notes to Condensed Consolidated Financial Statements on pages 4
through 8.)
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Nine Months Ended
March 31,
---------------------
2000 1999
--------- ---------
CASH FLOWS - OPERATING ACTIVITIES
Net earnings $ 142.4 $ 143.5
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 92.0 93.4
Amortization 61.9 63.5
Postretirement benefits .5 .1
Gains on asset disposals (47.2) (39.8)
Deferred income taxes (40.1) (3.1)
Write-down of investment in equity security 10.5
-------- --------
220.0 257.6
Changes in operating assets and liabilities:
Trade receivables 30.4 (7.3)
Inventories 35.6 (59.5)
Other current assets (4.2) 5.9
Accounts payable, accrued liabilities and
income taxes payable, net (103.3) (158.5)
Other noncurrent liabilities and deferred
credits (4.3) 5.2
Other, net (23.9) (9.0)
-------- --------
Net cash provided by operating activities 150.3 34.4
-------- --------
CASH FLOWS - INVESTING ACTIVITIES
Capital expenditures (90.0) (83.0)
Proceeds from asset disposals 215.4 72.9
Acquisition spending (1.0) (3.5)
Proceeds from redemption and sale of
investments 89.8
Purchase of investments and intangible assets (24.6) (8.3)
-------- --------
Net cash provided by investing activities 99.8 67.9
-------- --------
CASH FLOWS - FINANCING ACTIVITIES
Increase in notes payable 96.8 3.1
Payments on long-term debt (200.5) (8.0)
Issuance of common stock 5.5 2.5
Acquisition of treasury stock (117.1) (60.0)
Dividends paid (34.3) (32.1)
Redemption of common stock purchase rights (3.6)
-------- --------
Net cash used by financing activities (249.6) (98.1)
-------- --------
Increase in cash and cash equivalents .5 4.2
Cash and cash equivalents at beginning of
period 32.7 55.5
-------- --------
Cash and cash equivalents at end of period $ 33.2 $ 59.7
======== ========
(See Notes to Condensed Consolidated Financial Statements on pages 4
through 8.)
<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. During the quarter ended March 31, 2000, the Company recorded a
pretax charge to cost of goods sold of $6.6 million, $3.7 million
net of tax, for severance costs involving a previously announced
manufacturing consolidation plan within the Respiratory segment.
The charge relates to the termination of 260 employees primarily
associated with critical care ventilation production in the
United States. During the current quarter, no payments were made
to the affected employees; however, the Company expects the
accrued liability to be fully utilized by the end of 2001.
During the second quarter of 2000, the Company recorded a noncash
pretax charge to cost of goods sold of $8.2 million to write off
assets, primarily inventory, associated with the manufacturing
consolidation. Some products currently made and serviced are
being discontinued, but the revenue and operating earnings
associated with these products are not significant to the
Respiratory segment. The manufacturing consolidation will begin
to have a positive impact on earnings from continuing operations
in 2001.
2. On January 21, 2000, the Company sold its medical gas business,
which was part of the Respiratory segment. The transaction
resulted in a $17.4 million pretax gain included in nonoperating
income (expense), net, $5.3 million net of tax for the quarter
and nine months ended March 31, 2000.
3. 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
(expense), net for the nine months ended March 31, 2000.
4. During the quarter ended December 31, 1999, the Company recorded
a pretax charge of $10.5 million, $6.5 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 (expense), net for the nine months ended March 31, 2000.
5. The Company's effective tax rates were 32.0 percent and 32.5
percent for the quarter and nine months ended March 31, 2000,
respectively. Excluding the impact of the divestitures of the
medical gas business and the blood analysis product line, the
write-down of the equity investment, and the charge for the
manufacturing consolidation effort underway in the Respiratory
segment discussed in Notes 1 through 4 above, the effective tax
rates were 24.5 percent and 29.0 percent for the quarter and nine
months ended March 31, 2000, respectively. The 24.5 percent rate
in the third quarter includes a year-to-date adjustment of $3.4
million to arrive at the effective rate of 29.0 percent. The
effective tax rate reduction is attributable to a shift in the
Company's earnings mix toward low tax jurisdictions, a reduction
in nondeductible goodwill amortization related to divested
businesses, and the implementation of various ongoing tax
initiatives. For the three- and nine-month periods of the prior
year, the effective tax rates were 32.1 percent and 32.3 percent,
respectively.
6. On July 31, 1998, the Company completed the sale of the remaining
chemical additives business of the catalysts 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 nine months ended
March 31, 1999. Earnings from operations were zero for the one
month of operations in 1999.
7. The components of inventory included the following as of
March 31, 2000:
(In millions)
Raw materials and supplies $ 191.6
Work in process 68.4
Finished goods 224.7
--------
$ 484.7
8. The Company has $200 million aggregate principal amount of 6.3
percent notes, which mature in 2011 and are redeemable at the
election of the holder, in whole but not in part, at 100 percent
of the principal amount on March 15, 2001. As of March 31, 2000,
these notes have been classified as short-term.
9. 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 Nine Months Ended
March 31, March 31,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Earnings from
continuing operations $ 57.9 $ 54.1 $142.4 $120.9
Preferred stock dividends (.1) (.1) (.3) (.3)
------- ------- ------- -------
Numerator for basic and
diluted earnings per
share--income available
to common shareholders $ 57.8 $ 54.0 $142.1 $120.6
======= ======= ======= =======
Denominator:
Denominator for basic
earnings per share--
weighted average shares 68,197,469 71,301,412 69,369,074 71,858,140
Potential dilutive common
shares--employee stock
options 98,214 296,611 305,820 204,136
---------- ---------- ---------- ----------
Denominator for diluted
earnings per share--
adjusted weighted-
average shares 68,295,683 71,598,023 69,674,894 72,062,276
========== ========== ========== ==========
Basic earnings from
continuing operations
per common share $ .85 $ .76 $ 2.05 $ 1.68
====== ====== ====== ======
Diluted earnings from
continuing operations
per common share $ .85 $ .75 $ 2.04 $ 1.68
====== ====== ====== ======
</TABLE>
10. The Company has authorized and issued 100,000 shares, 98,330
outstanding at March 31, 2000, 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:
March 31, June 30,
2000 1999
---------- ----------
Common stock 19,904,556 16,422,084
4 Percent cumulative preferred stock 1,670 1,670
11. Total comprehensive income for the three months and nine months
ended March 31 was as follows:
(In millions)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
March 31, March 31,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings $ 57.9 $ 54.1 $142.4 $143.5
Other comprehensive income
(expense):
Foreign currency
translation adjustment (16.6) (28.0) (27.3) (15.3)
Foreign currency
translation adjustment
included in net earnings
during the period 35.8
Unrealized gain (loss)
on investment securities
arising during the period .3 (.5) (1.6) (5.9)
Loss on investment
securities included in net
earnings during the period 10.5
Tax benefit (provision)
related to items of other
comprehensive income (.2) .2 (3.4) 2.2
------- ------- ------- ------
Other comprehensive income
(expense), net of tax (16.5) (28.3) 14.0 (19.0)
------- ------- ------- ------
Total comprehensive income $ 41.4 $ 25.8 $156.4 $124.5
======= ======= ======= ======
</TABLE>
During the nine months ended March 31, 2000, a foreign currency
translation adjustment was included in net earnings in
conjunction with the sale of the blood analysis product line (see
Note 3), and a loss on an 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 4).
The foreign currency translation adjustments relate to indefinite
investments in non-U.S. subsidiaries and, accordingly, are not
recorded net of tax. As of March 31, 2000, the cumulative
balances for foreign currency translation adjustment loss and the
net unrealized gain on investment securities were $91.3 million
and $.2 million, respectively. Investments as of March 31, 2000
and June 30, 1999 included a gross unrealized gain of $.3 million
and a gross unrealized loss of $8.6 million, respectively.
12. Supplemental cash flow information for the nine months ended
March 31 included:
(In millions)
2000 1999
--------- ---------
Interest paid $ 65.4 $ 71.8
Income taxes paid 102.2 113.8
Noncash investing and financing
activities:
Assumption of liabilities related
to an acquisition .3 .5
Issuance of stock for 401(k)
employee matching contribution 6.3 6.0
Fair value loss adjustment to securities (1.6) (5.9)
13. 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 Nine Months Ended
March 31, March 31,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales
Respiratory $ 273.8 $ 302.7 $ 848.1 $ 849.3
Imaging 186.9 191.6 563.6 571.5
Pharmaceuticals 198.3 181.8 543.2 485.1
-------- -------- --------- ---------
$ 659.0 $ 676.1 $1,954.9 $1,905.9
======== ======== ========= =========
Operating earnings
Respiratory $ 30.6 $ 41.2 $ 98.8 $ 95.2
Imaging 22.9 31.1 69.3 90.6
Pharmaceuticals 34.6 35.5 81.1 73.1
-------- -------- --------- ---------
$ 88.1 $ 107.8 $ 249.2 $ 258.9
======== ======== ========= =========
</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 Nine Months Ended
March 31, March 31,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total operating earnings
for reportable segments $ 88.1 $ 107.8 $ 249.2 $ 258.9
Corporate expense (5.3) (6.0) (17.8) (18.5)
------- -------- -------- --------
Consolidated operating
earnings 82.8 101.8 231.4 240.4
Nonoperating income
(expense), net 18.3 (.7) 34.6 2.7
Interest expense (15.9) (21.4) (55.0) (64.5)
------- -------- -------- --------
Earnings from continuing
operations before income
taxes $ 85.2 $ 79.7 $ 211.0 $ 178.6
======= ======== ======== ========
</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, the cold and influenza season in
the current year was most significant in the second quarter.
14. 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. These activities
include the following matters.
In the Fall of 1997, the German authorities seized certain
records of two of the Company's non-U.S. subsidiaries,
Mallinckrodt Medical GmbH and Mallinckrodt Radiopharma GmbH.
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 understands that the German authorities are also
reviewing the conduct of physicians and healthcare providers that
were the recipients of these payments. This aspect of the
investigation appears to have adversely affected some of the
German subsidiaries' customer relationships. When compared to the
same period last year, sales of x-ray contrast media and
radiopharmaceutical products in Germany have declined during the
first nine months of the current year by 15 percent in local
currency, or approximately $8 million excluding the impact of
translation, which was in part the result of a decline in market
price.
The Company cannot anticipate the outcome of the pending German
investigations. At present, no charges have been filed against
the Company's subsidiaries or their employees. There have been
significant changes in the management of the German subsidiaries
since the time of the seizures, and the Company has undertaken a
review of its procedures governing payments to healthcare
providers, both in Germany and elsewhere in Europe. The Company
is also reviewing, with the advice of German counsel, whether the
payments in question may result in any liability to German health
insurers.
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. 10th Circuit
Court of Appeals. 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 U.S.
District Court for the District of New Mexico reduced the
punitive damages to $2.5 million. 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.
The Company intends to vigorously challenge this verdict and to
seek a further reduction of the trial court's judgment 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 March 31, 2000 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 March 31, 2000 and June 30, 1999 of $121.7 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.
15. Subsequent event - On May 8, 2000, the Company announced it had
entered into a settlement with Nycomed Amersham plc (Nycomed
Amersham) of patent litigation relating to OPTISON(*), the
ultrasound contrast agent currently marketed by Mallinckrodt for
diagnosis of cardiac wall abnormalities. The settlement also
involves Molecular Biosystems, Inc., Mallinckrodt's ultrasound
contrast product development partner, and Sonus Pharmaceuticals,
Inc. (Sonus).
Under terms of the settlement, Nycomed Amersham will receive from
Mallinckrodt and Molecular Biosystems, Inc. a $10 million payment
as well as royalties from Mallinckrodt on future ultrasound
contrast product sales. Nycomed Amersham will also receive
immediate joint access to OPTISON. Mallinckrodt and Nycomed
Amersham have also agreed to collaborate on further joint
development and commercialization of Mallinckrodt's OPTISON
and of Nycomed Amersham's SONAZOID. In return, Nycomed
Amersham grants Mallinckrodt a non-exclusive license under the
Nycomed Amersham and Sonus patents and Mallinckrodt and Molecular
Biosystems, Inc. grant Nycomed Amersham and Sonus the right to
practice under their ultrasound patents. The agreement covers
all markets around the world with the exception of the Pacific
Rim and resolves key intellectual property disputes between the
parties.
In connection with the settlement of the patent litigation with
Nycomed Amersham, the Company and Molecular Biosystems, Inc.
restructured their agreement concerning OPTISON. Under the terms
of the restructured agreement: (a) Mallinckrodt will assume full
control of the OPTISON business, including responsibility for
intellectual property disputes, clinical development and
manufacturing; (b) Mallinckrodt will pay Molecular Biosystems,
Inc. a reduced ongoing royalty of 5 percent on certain future
sales of ultrasound contrast agents; and (c) Molecular
Biosystems, Inc. will pay a total of $7 million of the
intellectual property settlement with Nycomed Amersham, $3
million of which will be paid immediately.
The terms of the settlement with Nycomed Amersham are not
expected to have a material impact on the Company's financial
position and results of operations.
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
Mallinckrodt had earnings from continuing operations and net earnings
of $57.9 million, or 85 cents per share for the quarter ended
March 31, 2000, representing increases of 7 percent and 13 percent,
respectively, from the $54.1 million, or 75 cents per share for the
same period last year. Results for the current year period included a
$5.3 million gain, net of tax, on the sale of the medical gas business
and a $4.1 million charge, net of tax, for manufacturing consolidation
related to the Respiratory segment. Excluding the impact of these two
actions, earnings from continuing operations were $56.7 million, or 83
cents per share for the current three-month period.
During the quarter ended March 31, 2000, the Company recorded a pretax
charge to cost of goods sold of $6.6 million, $3.7 million net of tax,
for severance costs involving a previously announced manufacturing
consolidation plan within the Respiratory segment. The charge relates
to the termination of 260 employees primarily associated with critical
care ventilation production in the United States. During the current
quarter, no payments were made to the affected employees; however, the
Company expects the accrued liability to be fully utilized by the end
of 2001. In addition, during the quarter ended March 31, 2000, the
Company recorded a pretax charge to cost of goods sold of $.7 million,
$.4 million net of tax, primarily associated with employee transition
bonuses and other items expensed as incurred to ensure an orderly
transfer of manufacturing activities to Galway, Ireland. Expenses of
this nature will continue to be incurred in future periods until the
manufacturing consolidation plan is completed. The Company expects
the fourth quarter pretax charge to be about $5 million.
During the second quarter of 2000, the Company recorded a noncash
pretax charge to cost of goods sold of $8.2 million to write off
assets, primarily inventory, associated with the manufacturing
consolidation within the Respiratory segment. Accordingly, current
year-to-date results include a pretax charge of $15.5 million related
to the Respiratory manufacturing consolidation. Some products
currently made and serviced are being discontinued, but the revenue
and operating earnings associated with these products are not
significant to the Respiratory segment. The manufacturing
consolidation will begin to have a positive impact on earnings from
continuing operations in 2001.
Net sales for the quarter ended March 31, 2000 were $659.0 million, or
a 3 percent decline when compared to the same quarter of last year.
Excluding sales of a divested business of $3.4 million in the
Respiratory segment during the third quarter of 2000 and sales of
divested businesses in the same quarter of last year in the
Respiratory segment and the Imaging segment of $27.7 million and $2.4
million, respectively, sales increased 1 percent. In addition to the
impact of divested businesses, the Company's sales for the quarter
ended March 31, 2000 were negatively impacted by the effects of an
early flu season and accelerated purchases due to Year 2000 concerns
by certain customers. 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, the cold and influenza season in the current year
was most significant in the second quarter. Sales to customers
outside the United States were $211 million, or 32 percent of sales
for the third quarter of 2000.
For the nine months ended March 31, 2000, the Company recorded
earnings from continuing operations and net earnings of $142.4
million, or $2.04 per share. Results for the current year include a
net pretax gain of $18.3 million, $5.6 million net of tax, associated
with gains on the sale of the medical gas business and blood analysis
product line, and charges associated with the manufacturing
consolidation within the Respiratory segment and the write-down of an
investment in an equity security. Excluding these transactions,
earnings from continuing operations and net earnings were $136.8
million, or $1.96 per share. See Notes 1, 2, 3 and 4 of the Notes to
Condensed Consolidated Financial Statements for additional
information. Earnings from continuing operations for the same period
last year were $120.9 million, or $1.68 per share. Net earnings for
the nine-month period of last year were $143.5 million, or $1.99 per
share and included a gain of $22.6 million net of tax, 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.
- -----------------------------------------
[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,
governmental investigations 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>
Net sales for the first nine months of 2000 were $1.95 billion, which
represents a 3 percent increase over the same period in 1999.
Excluding current year sales of divested businesses in the Respiratory
segment and the Imaging segment of $60.3 million and $.9 million,
respectively, and sales of divested businesses in the prior year nine-
month period in the Respiratory segment and the Imaging segment of
$91.7 million and $7.8 million, respectively, sales increased 5
percent over the same nine-month period last year. Sales to customers
outside the United States were $640 million, or 33 percent of sales
for the first nine months of 2000.
A comparison of sales and operating earnings follows:
(In millions)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
March 31, March 31,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales
Respiratory $ 273.8 $ 302.7 $ 848.1 $ 849.3
Imaging 186.9 191.6 563.6 571.5
Pharmaceuticals 198.3 181.8 543.2 485.1
-------- -------- --------- ---------
$ 659.0 $ 676.1 $1,954.9 $1,905.9
======== ======== ========= =========
Operating earnings
Respiratory $ 30.6 $ 41.2 $ 98.8 $ 95.2
Imaging 22.9 31.1 69.3 90.6
Pharmaceuticals 34.6 35.5 81.1 73.1
-------- -------- --------- ---------
88.1 107.8 249.2 258.9
Corporate expense (5.3) (6.0) (17.8) (18.5)
-------- -------- --------- ---------
$ 82.8 $ 101.8 $ 231.4 $ 240.4
======== ======== ========= =========
</TABLE>
The Respiratory segment reported sales for the quarter ended March 31,
2000 of $273.8 million or 10 percent below the sales recorded for the
same period last year. Excluding sales from businesses divested,
sales declined 2 percent from the prior year quarter. Components of
the 2 percent sales decline were 2 percent volume growth offset by a 2
percent price decline and 2 percent foreign currency impact as a
result of the strength of the U.S. dollar. Pulse oximetry had volume
growth of 7 percent, ventilation and oxygen therapy volumes were
comparable to the same period last year, and anesthesiology and
respiratory disposables volumes declined 3 percent. Respiratory
segment operating earnings for the quarter ended March 31, 2000 were
$30.6 million. The divested blood analysis and medical gas businesses
had a combined operating loss of $.9 million and operating earnings of
$5.4 million for the three-month periods ended March 31, 2000 and
1999, respectively. Excluding a $7.3 million charge in the third
quarter of the current year associated with the manufacturing
consolidation plan discussed above and the impact of divested
businesses, Respiratory operating earnings for the quarter were $38.8
million or 8 percent higher than the prior year results for the same
three-month period determined on a comparable basis. The improvement
in earnings is attributable to lower selling, general and
administrative expenses.
For the first nine months of 2000, Respiratory segment sales were
$848.1 million or about equal to the same period last year. Excluding
sales from businesses divested of $60.3 million and $91.7 million for
the nine-month periods of 2000 and 1999, respectively, sales were up
$30 million or 4 percent over the first nine months of the prior year.
Components of the 4 percent sales increase were 6 percent volume
growth offset by a 1 percent price decline and a 1 percent negative
foreign currency impact. Pulse oximetry sales grew $26 million over
the comparable period of last year with volume up 14 percent and
pricing down 3 percent. Operating earnings for the Respiratory
segment were $98.8 million or 4 percent higher than the same period
last year. Divested businesses in the Respiratory segment had
combined operating earnings of $15.2 million and $19.6 million for the
nine-month periods ended March 31, 2000 and 1999, respectively.
Excluding a $15.5 million charge in the current year associated with
the manufacturing consolidation plan and earnings related to divested
businesses, operating earnings were $99.1 million, which is $23.5
million or 31 percent higher than the prior year nine-month period
determined on a comparable basis. The improvement was primarily
attributable to the strong volume growth of pulse oximetry.
The Imaging segment had sales for the quarter ended March 31, 2000 of
$186.9 million or 2 percent below sales in the same three-month period
last year. Pricing in x-ray contrast media was unchanged from last
year, but volume declined 5 percent. Radiopharmaceutical volume and
price increased 12 percent and 2 percent, respectively, while foreign
currency had a 3 percent negative impact as a result of the strength
of the U.S. dollar. Imaging segment operating earnings for the
quarter ended March 31, 2000 declined 26 percent to $22.9 million
compared to $31.1 million in the prior year period primarily due to
lower sales and product mix.
For the first nine months of 2000, Imaging segment sales were $563.6
million or 1 percent below the same prior year period. The operating
earnings of this segment during the first nine months of 2000 were
$69.3 million or 24 percent below prior year. The factors impacting
the third quarter results were the same for the nine-month period,
with price declines in x-ray contrast media earlier in the year.
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 March 31,
2000 were $198.3 million or 9 percent greater than in the same period
last year. The sales increase of $16.5 million was primarily
attributable to volume increases in bulk and dosage narcotics. This
increase was the result of increased demand and manufacturing capacity
of bulk narcotics, the impact of new product introductions, and
increased market share of dosage products. Operating earnings for the
quarter ended March 31, 2000 for this segment were $34.6 million,
which was 3 percent less than the $35.5 million recorded in the
comparable period last year. The decrease in operating earnings was
attributable to product mix and higher operating expenses, partially
offset by the increased sales.
For the nine months ended March 31, 2000, Pharmaceuticals segment
sales were $543.2 million or 12 percent greater than for the same
prior year period. The sales increase of $58.1 million was
attributable to volume increases in all product lines, but 80 percent
of the increase was in bulk and dosage narcotics and was the result of
the same factors as discussed for the third quarter. The bulk and
dosage narcotic product lines sales increase of 28 percent was
attributable to combined volume growth of 30 percent offset by price
declines related to dosage narcotics. Operating earnings during the
first nine months of 2000 were $81.1 million or 11 percent higher than
the same period last year primarily due to increased sales.
CORPORATE MATTERS
Corporate expense declined 12 percent and 4 percent, respectively, for
the third quarter and nine-month periods of 2000 compared to the
corresponding prior year periods. The lower expenses were primarily
the result of timing of certain expenses.
Nonoperating income, net was $18.3 million and $34.6 million for the
quarter and nine months ended March 31, 2000, respectively. During
the quarter, the Company recorded a pretax gain on the divestiture of
the medical gas business of $17.4 million. In addition, during the
first half of the current year 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. See Notes
2, 3 and 4 of Notes to Condensed Consolidated Financial Statements
for additional information regarding these transactions.
The Company's effective tax rates were 32.0 percent and 32.5 percent
for the quarter and nine months ended March 31, 2000, respectively.
Excluding the impact of the divestitures of the medical gas business
and the blood analysis product line, the write-down of the equity
investment discussed in the preceding paragraph, and the charge for
the manufacturing consolidation effort underway in the Respiratory
segment discussed in Results of Operations, the effective tax rates
were 24.5 percent and 29.0 percent for the quarter and nine months
ended March 31, 2000, respectively. The 24.5 percent rate in the
third quarter includes a year-to-date adjustment of $3.4 million to
arrive at the effective rate of 29.0 percent. The effective tax rate
reduction is attributable to a shift in the Company's earnings mix
toward low tax jurisdictions, a reduction in nondeductible goodwill
amortization related to divested businesses, and the implementation of
various ongoing tax initiatives. For the three- and nine-month
periods of the prior year, the effective tax rates were 32.1 percent
and 32.3 percent, respectively.
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 increased $.5 million. Operations provided
$150.3 million of cash, while capital spending totaled $90.0 million.
The Company received $215.4 million in proceeds from asset disposals.
Payments on long-term debt were $200.5 million. The Company's current
ratio at March 31, 2000 was 1.0:1. Debt as a percentage of invested
capital was 48.7 percent at March 31, 2000.
At March 31, 2000, 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 March
31, 2000. Commercial paper borrowings under this program were $252.3
million as of March 31, 2000. Non-U.S. lines of credit totaling
$141.2 million were also available, and borrowings under these lines
amounted to $22.7 million at March 31, 2000. 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 March 31,
2000, 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 had 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 has $200 million aggregate principal amount of 6.3 percent
notes, which mature in 2011 and are redeemable at the election of the
holder, in whole but not in part, at 100 percent of the principal
amount on March 15, 2001. As of March 31, 2000, these notes have been
classified as short-term.
The Company's common stock share repurchases have totaled 3.9 million
shares during the nine months ended March 31, 2000. As of March 31,
2000, authorizations to repurchase an additional 6.1 million shares
remain under previously approved resolutions of the Company's Board of
Directors.
Estimated capital spending for the year ending June 30, 2000 is $140
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 incurred 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. As of March 31, 2000, the Year
2000 program is considered complete and no further actions or costs
are anticipated.
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, to
date, it has not had a material impact on the results of operations.
The ultimate financial impact of the conversion on the Company's
operations 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 the 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 March 31, 2000, 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 reports on Form 10-Q for
the quarters ended September 30, 1999 and December 31, 1999,
respectively, 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 certain
matters 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.
OPTISON Patent Litigation - On May 8, 2000, the Company announced it
had entered into a settlement with Nycomed Amersham plc (Nycomed
Amersham) of patent litigation relating to OPTISON, the ultrasound
contrast agent currently marketed by Mallinckrodt for diagnosis of
cardiac wall abnormalities. The settlement also involves Molecular
Biosystems, Inc., Mallinckrodt's ultrasound contrast product
development partner, and Sonus Pharmaceuticals, Inc. (Sonus).
Under terms of the settlement, Nycomed Amersham will receive from
Mallinckrodt and Molecular Biosystems, Inc. a $10 million payment as
well as royalties from Mallinckrodt on future ultrasound contrast
product sales. Nycomed Amersham will also receive immediate joint
access to OPTISON. Mallinckrodt and Nycomed Amersham have also agreed
to collaborate on further joint development and commercialization of
Mallinckrodt's OPTISON and of Nycomed Amersham's SONAZOID. In return,
Nycomed Amersham grants Mallinckrodt a non-exclusive license under the
Nycomed Amersham and Sonus patents and Mallinckrodt and Molecular
Biosystems, Inc. grant Nycomed Amersham and Sonus the right to
practice under their ultrasound patents. The agreement covers all
markets around the world with the exception of the Pacific Rim and
resolves key intellectual property disputes between the parties.
In connection with the settlement of the patent litigation with
Nycomed Amersham, the Company and Molecular Biosystems, Inc.
restructured their agreement concerning OPTISON. Under the terms of
the restructured agreement: (a) Mallinckrodt will assume full control
of the OPTISON business, including responsibility for intellectual
property disputes, clinical development and manufacturing; (b)
Mallinckrodt will pay Molecular Biosystems, Inc. a reduced ongoing
royalty of 5 percent on certain future sales of ultrasound contrast
agents; and (c) Molecular Biosystems, Inc. will pay a total of $7
million of the intellectual property settlement with Nycomed Amersham,
$3 million of which will be paid immediately.
The Company continues to defend the OPTISON patent litigation,
previously reported, brought by ImaRX Pharmaceutical Corp. and DuPont
Pharmaceuticals. There were not any material developments in this
litigation during the most recent quarter.
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.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
Number Description
- ------- -----------------------------------------------------------
10.24 Consulting Agreement with Ronald G. Evens, M.D., for the
period from January 1, 2000 through December 31, 2000 (1)
(filed with this electronic submission)
27 Financial data schedule for the quarter ended March 31,
2000 (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
Not applicable.
* * * * * * * * * * * * * *
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: May 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> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 33
<SECURITIES> 0
<RECEIVABLES> 474
<ALLOWANCES> 22
<INVENTORY> 485
<CURRENT-ASSETS> 1113
<PP&E> 1487
<DEPRECIATION> 659
<TOTAL-ASSETS> 3425
<CURRENT-LIABILITIES> 1141
<BONDS> 541
0
11
<COMMON> 87
<OTHER-SE> 979
<TOTAL-LIABILITY-AND-EQUITY> 3425
<SALES> 1955
<TOTAL-REVENUES> 1955
<CGS> 1093
<TOTAL-COSTS> 1724
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> 211
<INCOME-TAX> 69
<INCOME-CONTINUING> 142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142
<EPS-BASIC> 2.05
<EPS-DILUTED> 2.04
</TABLE>
Exhibit 10.24
November 15, 1999
Ronald G. Evens, M.D., President
Barnes-Jewish Hospital
One Barnes-Jewish Hospital Plaza
St. Louis, MO 63110
Dear Dr. Evens:
This letter agreement, which supersedes all other agreements and
renewals thereto on this subject is for the purpose of stating the
terms and conditions under which you agree to serve Mallinckrodt Inc.,
a Delaware corporation, (hereinafter MALLINCKRODT) in a consulting
capacity.
You agree to serve MALLINCKRODT in a consulting capacity during the
period commencing on January 1, 2000 and ending on December 31, 2000.
It is understood that you may terminate this Agreement at any time
upon thirty (30) days written notice to MALLINCKRODT and that
MALLINCKRODT may terminate this Agreement on ninety (90) days written
notice to you.
During the consulting period you shall serve as an advisor to
MALLINCKRODT and in that capacity you will review and evaluate the
research and development programs and plans of MALLINCKRODT and
provide such other advice and assistance in your general areas of
expertise as may be requested from time to time. It is understood and
agreed that during the consulting period you will devote two (2) four
(4) hour days each month and such additional hours as may be mutually
agreed upon to the services of MALLINCKRODT.
As consideration for your services hereunder, MALLINCKRODT agrees to
pay you as follows:
At an annual rate of Forty Thousand Eight Dollars ($40,008.00) in
twelve (12) monthly installments of Three Thousand Three Hundred
Thirty-Four Dollars ($3,334.00) each.
It is understood that MALLINCKRODT may designate places and locations
where you will provide your services in a consulting capacity and
where this requires you to travel away from St. Louis, Missouri,
MALLINCKRODT will reimburse you for the reasonable travel and living
expenses incurred by you upon submission by you and approval by
MALLINCKRODT of an itemized account of the expenses for which you seek
reimbursement.
You agree to maintain in confidence and not use except for purposes of
this consulting agreement any confidential information of a business
as well as of a technical nature, disclosed to you by MALLINCKRODT or
developed by you as a result of your services to MALLINCKRODT
hereunder. Upon termination of this Agreement or any extensions
thereof or at any other time that MALLINCKRODT so requests, you also
agree to transmit to MALLINCKRODT any written, printed or other
materials embodying such confidential information including any copies
or excerpts thereof given to you or prepared by you in connection with
your consulting services for MALLINCKRODT. It is understood and
agreed that this obligation of confidentiality and non-use shall
continue at all times beyond the consulting period and any extensions
thereof. This obligation of confidentiality and non-use shall not
apply to information which (1) is or later becomes publicly known
under circumstances involving no breach of this Agreement by you; (2)
was already known to you at the time of receipt of such information
from MALLINCKRODT; or (3) is legally made available to you by a third
party. Your obligations of confidentiality and non-use shall survive
the expiration or termination of this Agreement.
You agree that during the consulting period you will not enter into
any other consulting agreement in the radiopharmaceutical and contrast
media fields without the prior written consent of MALLINCKRODT which
consent shall not be unreasonably withheld.
It is understood and agreed that any and all inventions and
discoveries whether or not patentable which you conceive and/or make
within the consulting period and any extensions thereof and which
result from information received from MALLINCKRODT or are developed by
you pursuant to your services for MALLINCKRODT shall be the sole and
exclusive property of MALLINCKRODT and that you will upon request by
MALLINCKRODT promptly execute any and all applications, assignments or
other instruments which MALLINCKRODT shall deem necessary or useful in
order to apply for and obtain Letters Patent in the United States and
all other countries for said inventions and discoveries and in order
to assign and convey to MALLINCKRODT the sole and exclusive right,
title and interest in and to said inventions, discoveries, patent
applications and patents thereon. It is understood that MALLINCKRODT
will bear the cost of preparation of all such patent applications and
assignments and the cost of the prosecution of all such patent
applications in the United States Patent Office and the patent offices
of other countries.
If the foregoing meets with your understanding and approval, please so
indicate by executing this letter in duplicate at the place indicated
below and returning one of the signed duplicates to me.
Very truly yours, ACCEPTED & AGREED TO:
MALLINCKRODT INC. RONALD G. EVENS, M.D.
By: /s/ C. R. Holman /s/ Ronald G. Evens
-------------------------- --------------------------
C.R. Holman, Dated 11-18-99
Chief Executive Officer --------------------
