ST. LOUIS, Jan. 27 /PRNewswire/ -- Mallinckrodt Inc. (NYSE: MKG) today
reported second quarter fiscal year 1999 earnings from continuing operations
of $35.1 million, or 49 cents per share on a diluted basis. For the same
quarter last year, the company reported earnings from continuing operations of
$19.5 million, or 26 cents per share, before charges related to the
acquisition and integration of respiratory-products company Nellcor Puritan
Bennett (NPB). With those charges, the company recorded a loss from
continuing operations in the second quarter of fiscal 1998 of $19.4 million,
or 27 cents per share. The net loss for the second quarter last year was
$4.9 million, or 7 cents per share, which included income from discontinued
operations and the after-tax gain associated with the sale of two specialty
chemical product lines.
The company has concluded discussions with the Securities and Exchange
Commission (SEC) regarding the purchase price allocation associated with the
acquisition of NPB and, as a result, has agreed to recalculate and restate the
in-process research and development charge under a methodology currently
preferred by the SEC. The in-process research and development charge to
operations in the first quarter of fiscal 1998 of $398.3 million has been
reduced by $90 million to $308.3 million as of the date of the acquisition. A
corresponding $90 million increase in goodwill will be amortized over the
originally established 30-year amortization period. This change, net of
amortization of the increased goodwill, will improve fiscal 1998 previously
reported results by $87.5 million or $1.20 per share. The resulting impact on
future annual ongoing earnings is to increase amortization expense by
$3 million, or 4 cents per share diluted. For the second quarter of fiscal
1998 and 1999, the negative impact on each quarter's results of operations was
$750 thousand, or 1 cent per share. Cash flow is unchanged for all periods.
"We are very pleased that the SEC has concluded its review of our purchase
accounting with minimal impact to our ongoing earnings per share," said C. Ray
Holman, chairman and chief executive officer of Mallinckrodt.
Mallinckrodt's net sales in the second quarter of fiscal 1999 were
$636.7 million, which is a five percent increase over the $607.3 million
reported in the same quarter last year. The overall growth in sales was
negatively affected by a one percentage point decline in pricing. Sales to
customers outside the United States accounted for $213.7 million, or
34 percent of sales.
"All three business groups -- respiratory, imaging and pharmaceuticals --
continue to turn in solid performances," commented Holman. "We continue on
course to meet expectations for the year, adjusted for the purchase accounting
change we have announced today."
Business Analysis
Mallinckrodt's Respiratory Group reported second-quarter sales of
$290.3 million, an increase of five percent over the $275.7 million reported
in the second quarter of fiscal 1998.
Volume growth in respiratory products sales was six percent; pricing
declined one percentage point. Respiratory operating earnings were
$34.3 million, compared to $29.0 million in the same quarter last year,
excluding prior-year charges related to the acquisition and integration of
NPB. Strength in oximetry and ventilator sales contributed to improvement in
operating earnings but was partially offset by continued softness in the
alternate care businesses.
The Imaging Group reported second-quarter sales of $195.2 million, a three
percent increase over the $189.1 million in the second quarter last year.
Volume growth was six percent. Imaging operating earnings were $28.8 million,
up 11 percent over the $26.0 million reported in the comparable period last
year. The operating earnings improvement is due to solid sales growth in
nuclear medicine and increased manufacturing efficiencies.
The Pharmaceuticals Group reported second-quarter sales of $151.2 million,
up six percent over the $142.5 million recorded in the second quarter of
fiscal 1998. Sales volume and pricing each accounted for three percentage
points of the growth. Operating earnings for the group increased to
$17.1 million, up from $13.1 million in the comparable period last year. The
operating earnings improvement in this group is attributable to the increased
sales of bulk and dosage pharmaceuticals.
Six-Month Results
Net sales for the first six months of fiscal 1999 increased 16 percent to
$1.228 billion, compared with $1.062 billion a year earlier. The fiscal 1998
net sales included only four months of results from businesses acquired with
the purchase of NPB. On a pro forma basis, net sales increased six percent
over the $1.157 billion recorded for the prior year first six months. Sales
volume increased eight percent. Pricing declined one percentage point, and
the effect of currency exchange rates negatively impacted sales growth by one
percentage point.
Earnings from continuing operations for the first six months of fiscal
1999 were $66.8 million, or 92 cents per share on a diluted basis. For the
same period last year, earnings from continuing operations were $46.4 million,
or 62 cents per share, before charges related to the acquisition and
integration of NPB. With those charges, the company recorded a loss from
continuing operations in the first half of fiscal 1998 of $310.3 million, or
$4.28 per share. Net earnings for the first six months of fiscal 1999 were
$89.4 million, or $1.23 per share, which includes $22.6 million, or 31 cents
per share, from discontinued operations and the after-tax gain realized on the
sale of the industrial chemicals business. The net loss for the first half
last year was $304.2 million, or $4.19 per share.
Based in St. Louis, Mo., Mallinckrodt Inc. has three healthcare product
groups -- Respiratory, Imaging and Pharmaceuticals. The company operates in
more than 100 countries and had fiscal 1998 net sales of $2.4 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 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; unanticipated
difficulties or delays in ensuring that the company's products and systems are
Year 2000 compliant; and the risk factors reported from time to time in the
company's SEC reports.
MALLINCKRODT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share and per share amounts)
Quarter Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
Net sales $636.7 $607.3 $1,227.9 $1,061.9
Operating costs and expenses:
Cost of goods sold 347.7 395.8 666.0 671.6
Selling, administrative and
general expenses 182.2 177.1 354.6 296.1
Purchased research and
development 306.3
Research and development
expenses 37.4 36.7 71.3 64.4
Other operating income, net (5.3) (.8) (5.3) (2.3)
Total operating costs and
expenses 562.0 608.8 1,086.6 1,336.1
Operating earnings (loss) 74.7 (1.5) 141.3 (274.2)
Interest and other nonoperating
income (expense), net (.2) 2.3 .7 11.5
Interest expense (22.5) (29.0) (43.1) (47.3)
Earnings (loss) from continuing
operations before income taxes 52.0 (28.2) 98.9 (310.0)
Income tax provision (benefit) 16.9 (8.8) 32.1 .3
Earnings (loss) from continuing
operations 35.1 (19.4) 66.8 (310.3)
Discontinued operations 14.5 22.6 14.5
Earnings (loss) before cumulative
effect of accounting change 35.1 (4.9) 89.4 (295.8)
Cumulative effect of accounting
change (8.4)
Net earnings (loss) 35.1 (4.9) 89.4 (304.2)
Preferred stock dividends (.1) (.1) (.2) (.2)
Available for common
shareholders $35.0 $(5.0) $89.2 $(304.4)
Basic earnings per common share:
Earnings (loss) from continuing
operations $ .49 $(.27) $ .93 $(4.28)
Discontinued operations .20 .31 .20
Cumulative effect of accounting
change (.11)
Net earnings (loss) $ .49 $(.07) $1.24 $(4.19)
Average common shares 71,349,208 72,957,721 72,133,170 72,716,625
Diluted earnings per common share:
Earnings (loss) from continuing
operations $ .49 $(.27) $ .92 $(4.28)
Discontinued operations .20 .31 .20
Cumulative effect of accounting
change (.11)
Net earnings (loss) $ .49 $(.07) $1.23 $(4.19)
Average common shares 71,578,239 72,957,721 72,291,069 72,716,625
Actual shares outstanding at
end of period 71,337,346 72,991,064
(See accompanying notes to financial results.)
MALLINCKRODT INC.
CONSOLIDATED BALANCE SHEETS
(In millions)
December 31, June 30,
1998 1998
Assets
Current assets:
Cash and cash equivalents $57.2 $55.5
Trade receivables, less allowances of $19.4
at December 31 and $16.7 at June 30 482.9 486.3
Inventories 521.6 470.0
Deferred income taxes 110.4 95.2
Other current assets 65.9 61.5
Net current assets of discontinued operations 4.8
Total current assets 1,238.0 1,173.3
Investments and other noncurrent assets, less
allowances of $8.0 at December 31 and $5.8
at June 30 151.1 154.5
Property, plant and equipment, net 899.7 894.9
Goodwill and other intangible assets, net 1,587.7 1,633.4
Net noncurrent assets of discontinued operations 12.4
Deferred income taxes 4.8 4.6
Total assets $3,881.3 $3,873.1
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $415.8 $311.4
Accounts payable 190.8 215.0
Accrued liabilities 458.8 532.0
Income taxes payable 67.0 122.3
Deferred income taxes 3.6 1.4
Total current liabilities 1,136.0 1,182.1
Long-term debt, less current maturities 944.3 944.5
Deferred income taxes 405.8 396.2
Postretirement benefits 172.8 169.2
Other noncurrent liabilities and
deferred credits 181.7 175.2
Total liabilities 2,840.6 2,867.2
Total shareholders' equity 1,040.7 1,005.9
Total liabilities and shareholders' equity $3,881.3 $3,873.1
(See accompanying notes to financial results.)
MALLINCKRODT INC.
NOTES TO INTERIM FINANCIAL RESULTS
All references to years are to fiscal years ended June 30 unless otherwise
stated.
(a) On August 28, 1997, Mallinckrodt Inc. (the Company or Mallinckrodt)
acquired Nellcor Puritan Bennett Incorporated (Nellcor) through an
agreement to purchase for cash all the outstanding shares of common
stock of Nellcor. The aggregate purchase price of the Nellcor
acquisition was approximately $1.9 billion. The acquisition was
accounted for under the purchase method of accounting and,
accordingly, the results of operations of Nellcor have been included
in the Company's consolidated financial statements since September 1,
1997. The purchase price of the acquisition was allocated to the
assets acquired and liabilities assumed based upon generally accepted
accounting principles and estimated fair values at the date of
acquisition.
In connection with the Company's filing of a shelf registration
statement for debt securities, Mallinckrodt engaged in discussions
with the staff of the Securities and Exchange Commission (SEC)
regarding the purchase price allocation related to its acquisition of
Nellcor. As reported in fiscal 1998, included in earnings for the
quarter ended September 30, 1997 were one-time noncash
acquisition-related costs of $398.3 million for the write-off of
purchased research and development, which had no tax benefit. Of
this amount, $396.3 million related to ongoing operations and $2.0
million related to operations classified as discontinued operations.
As a result of discussions with the SEC, the Company has agreed to
recalculate and restate the in-process research and development
charge under a methodology currently preferred by the SEC. The
valuation of in-process research and development has been reduced by
$90 million. Accordingly, earnings for the quarter ended September
30, 1997 have been restated to include one-time noncash
acquisition-related costs of $308.3 million for the write-off of
purchased research and development, which had no tax benefit. Of
this amount, $306.3 million related to ongoing operations and $2.0
million related to operations classified as discontinued operations.
There is a corresponding increase in goodwill of $90 million, which
is amortized on a straight-line basis over the originally established
life of 30 years. Accordingly, earnings for the quarter ended
September 30, 1997, the quarter and six months ended December 31,
1997, and the quarter ended September 30, 1998 have been restated to
include additional goodwill amortization expense of $.2 million, $.8
million, $1.0 million and $.7 million, respectively.
The sale of Nellcor inventories which had been stepped up to fair
value in connection with the allocation of purchase price resulted in
charges of $56.6 million, $35.0 million net of taxes and $75.4
million, $46.7 million net of taxes for the quarter and six months
ended December 31, 1997, respectively. Of these pre-tax amounts,
$55.8 million and $74.4 million related to ongoing operations for the
quarter and six months ended December 31, 1997, respectively, and the
remainder related to operations classified as discontinued
operations. In addition, results for the quarter ended December 31,
1997 included Nellcor integration charges of $6.7 million, $4.3
million net of taxes.
(b) The Company sold certain chemical additive product lines in the
second quarter of 1998. In the fourth quarter of 1998, the Company
sold its catalyst business and Aero Systems division. In June 1998,
the Company committed to the sale of the remaining chemical additives
business of the catalysts and chemical additives division, and
closing of the sale occurred on July 31, 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 quarter ended
September 30, 1998. Earnings from operations were zero for the one
month of operations. Included in discontinued operations are the
after-tax earnings from operations of the catalysts and chemical
additives and Aero Systems divisions of $14.5 million for the quarter
and six months ended December 31, 1997. These results included
after-tax acquisition accounting charges of $.4 million and $2.6
million for the quarter and six months ended December 31, 1997,
respectively.
(c) The Company elected to early adopt the provisions of the American
Institute of Certified Public Accountants SOP 98-5, "Reporting on the
Costs of Start-Up Activities" (SOP 98-5), in its financial statements
for the year ended June 30, 1998. The effect of adoption of SOP 98-5
was to record a charge of $8.4 million, net of taxes, for the
cumulative effect of an accounting change to expense costs that had
previously been capitalized prior to July 1, 1997.
(d) The diluted share bases for the quarter and six months ended December
31, 1997 excluded incremental shares related to employee stock
options of 777,875 and 734,493, respectively, for each period. These
shares were excluded due to their antidilutive effect as a result of
the Company's loss from continuing operations during these periods.
MALLINCKRODT INC.
BUSINESS PROFILE AND SELECTED CASH FLOW INFORMATION
(Dollars in millions)
Quarter Ended Six Months Ended
December 31, December 31,
% %
1998 1997 Change 1998 1997 Change
Net sales
Respiratory $290.3 $275.7 5 $546.5 $417.6 31
Imaging 195.2 189.1 3 378.1 366.4 3
Pharmaceuticals 151.2 142.5 6 303.3 277.9 9
$636.7 $607.3 5 $1,227.9 $1,061.9 16
Operating earnings (loss)
Respiratory $34.3 $29.0 18 $56.7 $51.2 11
Imaging 28.8 26.0 11 59.5 49.1 21
Pharmaceuticals 17.1 13.1 31 37.6 25.5 47
80.2 68.1 18 153.8 125.8 22
Corporate expense (5.5) (7.1) 23 (12.5) (12.6) 1
74.7 61.0 22 141.3 113.2 25
Acquisition and
integration
charges (62.5) (387.4)
$74.7 $(1.5) $141.3 $(274.2)
Selected cash flow information
Depreciation $58.9 $58.8
Amortization 42.2 37.0
Capital expenditures (56.2) (70.0)
Issuance of Mallinckrodt common stock 0.6 13.1
Acquisition of treasury stock (46.8) (9.7)
Dividends paid (23.8) (24.2)
MALLINCKRODT INC.
PRO FORMA NET SALES AND OPERATING EARNINGS
(Dollars in millions)
Six Months Ended
December 31,
%
1998 1997 Change
Pro forma net sales
Respiratory $546.5 $512.9* 7
Imaging as reported 378.1 366.4 3
Pharmaceuticals as reported 303.3 277.9 9
$1,227.9 $1,157.2* 6
Pro forma operating earnings
Respiratory $56.7 $33.5* 69
Imaging as reported 59.5 49.1 21
Pharmaceuticals as reported 37.6 25.5 47
153.8 108.1* 42
Corporate expense as reported (12.5) (12.6) 1
$141.3 $95.5* 48
* Includes unaudited pro forma adjustments to present results of the
Respiratory Group as if the August 28, 1997 acquisition of Nellcor
Puritan Bennett Incorporated (Nellcor) had occurred as of the beginning
of 1997. Operating earnings include certain adjustments, such as
amortization of goodwill and intangible assets, and additional
depreciation expense. Operating earnings exclude integration-related
charges and the noncash acquisition-related costs for the write-off of
purchased research and development, and charges related to the sale of
Nellcor inventories, which were stepped up to fair value in connection
with the allocation of purchase price. The pro forma financial
information does not necessarily reflect the results of operations that
would have occurred had Mallinckrodt and Nellcor operated as a combined
entity during such periods.
CONTACT: Media, Barbara Abbett, 314-654-5230, e-mail,
Communications@mkg.com or Investors, Barbara Gould, 314-654-3190, e-mail,
Invest@mkg.com, both of Mallinckrodt.
SOURCE Mallinckrodt Inc.
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http://www.mallinckrodt.com
Company News On-Call:
http://www.prnewswire.com/comp/440950.html or fax,
800-758-5804, ext. 440950
CONTACT:
Media, Barbara Abbett, 314-654-5230, e-mail,
Communications@mkg.com or Investors, Barbara Gould, 314-654-3190,
e-mail, Invest@mkg.com, both of Mallinckrodt
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