ST. LOUIS, Jan. 25 /PRNewswire/ -- Mallinckrodt Inc. (NYSE: MKG) today
reported second quarter fiscal 2000 earnings from continuing operations of
$47 million, or 67 cents per share on a diluted basis, compared with
$35 million, or 49 cents per share, last year. Excluding a net nonrecurring
gain, described below, earnings were $42 million, or 60 cents per share,
representing increases of 20 percent and 22 percent, respectively, over prior
year.
Sales for the quarter were $682 million, a 7 percent increase over last
year, reflecting 9 percent volume gains, offset by a 1 percent price decline
and a negative 1 percent foreign currency impact. Sales to customers outside
the United States accounted for $233 million, or 34 percent of sales.
"Strong double-digit sales growth of pulse oximetry coupled with growth
from new products in the alternate care business drove 7 percent top-line
growth for the Respiratory segment for the quarter. Sales of the
Pharmaceuticals segment grew 16 percent in the quarter due to continued strong
demand for bulk and dosage narcotics. We estimate both pulse oximetry and
narcotics sales included accelerated purchases of approximately $10 million
due to Y2K concerns by certain customers," commented Mallinckrodt's Chairman
and CEO C. Ray Holman. "This may impact our third quarter results by 2 to
3 cents per share."
Mallinckrodt has taken several strategic and operational actions to
enhance profitability and the growth prospects of the Respiratory segment.
These actions include divestitures and consolidations. As previously
announced, the company completed the sale of HemoCue, a blood-testing
equipment company, in December. In January, the company sold the medical gas
division. These businesses are no longer a strategic fit with Mallinckrodt.
Mallinckrodt today announced manufacturing consolidations that include the
transfer of critical care ventilator production from Carlsbad, California, to
Galway, Ireland, resulting in a net reduction of 250 positions and ongoing
cost and income tax savings. Production of certain oxygen therapy products
will concurrently be moved from Galway to Indianapolis, Indiana. In addition,
the company will discontinue service on selected older and previously
discontinued product platforms in the Respiratory segment.
Net nonrecurring gains, recorded in the second quarter (notes (a), (b) and
(c)) and expected in the third quarter (notes (b) and (d)), reflect the
Respiratory actions mentioned above and the write-down of an investment in an
equity security. The net pretax nonrecurring gain for the second quarter is
$8 million as summarized in note (e) to the financial results.
"All of these actions, as well as ongoing cost improvement programs, are
carefully designed to enhance long-term growth and profitability while
ensuring achievement of current operating results," Holman said. "Overall, we
are pleased with the results for the first half of fiscal 2000. For the full
year, taking into account the sale of two businesses with combined revenues of
$110 million and the Y2K accelerated purchasing in our higher margin
businesses in the second quarter, we are comfortable with our earlier fiscal
2000 earnings guidance of $2.60 per share, before net nonrecurring gains."
The company also reported that on Monday the Obstetrics and Gynecology
Devices Panel of the Food and Drug Administration (FDA) Medical Devices
Advisory Committee recommended FDA approval of OxiSure(TM), Mallinckrodt's new
fetal oxygen saturation monitoring system. The panel's vote recommending
approval of Mallinckrodt's premarketing application (PMA) followed public
testimony and presentations by company representatives, its clinical
investigators and the public.
Segment Results
Mallinckrodt's Respiratory segment reported second-quarter sales of
$311 million, a 7 percent increase over the $290 million in the second quarter
of fiscal 1999. Excluding divestitures, growth was 9 percent. Components of
the 9 percent sales growth were 12 percent volume growth, a 1 percentage point
decline in pricing, and a 2 percentage point decline from the impact of
foreign currency changes. Pulse oximetry sales grew 18 percent over the prior
year quarter. The alternate care business grew 6 percent over the prior year
quarter driven by several new product introductions. Respiratory operating
earnings, excluding the charge for the respiratory manufacturing consolidation
referenced in note (b), were $44 million, compared with $32 million in the
same quarter last year. Increased sales as well as continued strategic cost
management in manufacturing and purchasing contributed to the strong earnings
performance.
The Pharmaceuticals segment reported second-quarter sales of $176 million,
up 16 percent over the $151 million recorded in the second quarter of fiscal
1999. Sales volume was up 17 percent, led by dosage and bulk narcotics.
Pricing declined 1 percentage point. Operating earnings increased to
$22 million, up 30 percent from $17 million last year due to increased sales.
The Imaging segment reported second-quarter sales of $195 million, a
1 percent decline from the $196 million recorded in the second quarter last
year. Volume growth of 1 percent was offset by a 1 percentage point pricing
decline and 1 percentage point decline from the impact of foreign currency
changes. Imaging operating earnings declined to $23 million, from $29 million
last year due to product mix.
Six-Month Results
Net sales for the first six months of fiscal 2000 increased 5 percent to
$1.30 billion, compared with $1.23 billion a year earlier. Excluding sales of
businesses divested, net sales increased 7 percent. Sales volume increased
8 percent. Pricing declined 1 percentage point and currency exchange rates
had no impact.
Earnings from continuing operations for the first six months of fiscal
2000 were $85 million, or $1.20 per share on a diluted basis. Excluding the
nonrecurring items identified above, earnings from continuing operations for
the first six months of fiscal 2000 were $80 million, or $1.13 per share,
representing increases of 20 percent and 23 percent from last year's
$67 million, or 92 cents per share, from continuing operations.
"During the first six months of fiscal 2000, we repurchased 2.1 million
shares of stock at an average price of $32.94 per share," said Michael A.
Rocca, senior vice president and chief financial officer of Mallinckrodt.
"We have also reduced our debt-to-total capital ratio to 48.5 percent. We
will use the proceeds from the divestitures, in addition to our strong free
cash flow, to fund small complementary acquisitions, to repurchase our stock,
which we believe is undervalued, and to pay down debt." Cash earnings per
share, defined as earnings from continuing operations, excluding net
nonrecurring gains, plus amortization, were $1.74 per share for the first six
months of fiscal 2000.
Based in St. Louis, Mo., Mallinckrodt Inc. has three healthcare product
segments -- Respiratory, Pharmaceuticals and Imaging. The company operates in
more than 100 countries and had fiscal 1999 net sales of $2.6 billion. The
Mallinckrodt web site address is http://www.mallinckrodt.com .
This news release contains forward-looking statements that involve risks
and uncertainties. These statements are based on current expectations; actual
results may differ materially. Among the factors that could cause actual
results to differ materially from those projected are the following: 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 in the company's
operations, or the inability of a major supplier or customer to continue
operations due to such problems; 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.
MALLINCKRODT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share and per share amounts)
Quarter Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
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
Average common shares 69,474,986 71,349,208 69,954,876 72,133,170
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
Average common shares 69,849,167 71,578,239 70,364,499 72,291,069
Actual shares
outstanding at end of
period -- -- 68,923,329 71,337,346
(See accompanying notes to financial results.)
MALLINCKRODT INC.
CONSOLIDATED BALANCE SHEETS
(In millions)
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,
less allowance of $8.6 at June 30 82.2 67.2
Property, plant and equipment, net 843.1 870.7
Goodwill and other intangible assets, net 1,448.0 1,545.3
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
Total shareholders' equity 1,092.4 1,060.4
Total liabilities and shareholders' equity $3,536.8 $3,657.4
(See accompanying notes to financial results.)
MALLINCKRODT INC.
NOTES TO INTERIM FINANCIAL RESULTS
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.
(a) On December 16, 1999, the Company sold its blood analysis product
line, which is 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.
(b) Included in operating earnings for the quarter and six months ended
December 31, 1999 is a charge of $8.2 million primarily associated
with the write-off of inventory as a result of product line
rationalizations within the Respiratory segment. After management
has finalized the plan to consolidate certain manufacturing
operations within the Respiratory segment and the affected employees
have been notified, it is expected that a pretax charge of about
$15 million will be recorded in the quarter ending March 31, 2000.
(c) During the quarter ended December 31, 1999, the Company recorded a
pretax charge of $10.5 million, $6.4 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.
(d) On January 21, 2000, the Company sold its medical gas business, which
is part of the Respiratory segment. An estimated $17 million pretax
gain will be recorded in the quarter ending March 31, 2000.
(e) The nonrecurring items discussed above had the following impact on
results of operations for the quarter ended December 31, 1999 (in
millions).
Quarter
Ended
December 31,
1999
Operating earnings
Respiratory manufacturing consolidation $(8.2)
Nonoperating income, net
Sale of blood analysis product line 26.9
Write-down of investment in equity security (10.5)
Pretax impact $8.2
(f) The Company's subsidiary, Puritan-Bennett Corporation (Puritan-
Bennett), is a defendant in an action that was filed on August 29,
1997 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 judgment on appeal.
(g) 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.
MALLINCKRODT INC.
BUSINESS PROFILE
(Dollars in millions)
Quarter Ended Six Months Ended
December 31, December 31,
% %
1999 1998 Change 1999 1998 Change
Net sales
Respiratory $311.2 $290.4 7 $574.3 $546.6 5
Imaging 194.5 196.3 (1) 376.7 379.9 (1)
Pharmaceuticals 176.1 151.2 16 344.9 303.3 14
$681.8 $637.9 7 $1,295.9 $1,229.8 5
Operating earnings
Respiratory $36.1 $31.6 14 $68.2 $54.0 26
Imaging 23.4 28.8 (19) 46.4 59.5 (22)
Pharmaceuticals 22.3 17.1 30 46.5 37.6 24
81.8 77.5 6 161.1 151.1 7
Corporate expense (6.7) (5.5) (22) (12.5) (12.5)
$75.1 $72.0 4 $148.6 $138.6 7
Selected cash flow information
Depreciation -- -- -- $63.0 $58.9 --
Amortization -- -- -- 42.5 42.2 --
Capital
expenditures -- -- -- (51.5) (56.2) --
Issuance of
common stock -- -- -- 3.0 .6 --
Acquisition of
treasury stock -- -- -- (69.3) (46.8) --
Dividends paid -- -- -- (23.1) (23.8) --
SOURCE Mallinckrodt Inc.
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CONTACT:
Media, Barbara Abbett, 314-654-5230, or
barbara.abbett@mkg.com, or Investors, Barbara Gould,
314-654-3190, or Invest@mkg.com, both of Mallinckrodt Inc.
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