ST. LOUIS, Mo., Oct. 20 /PRNewswire/ -- Mallinckrodt Inc. (NYSE: MKG)
today reported first-quarter earnings from continuing operations of
$32.4 million, or 44 cents per share on a diluted basis. This is a 19 percent
increase over the same quarter last year, when the company reported earnings
from continuing operations of $27.1 million, or 37 cents per share, before
noncash charges related to the acquisition of respiratory-products company
Nellcor Puritan Bennett (NPB). With those charges, the company posted a loss
from continuing operations in the first quarter last year of $380.7 million,
or $5.26 per share.
Net earnings for the first quarter were $55.0 million, or 75 cents per
share on a diluted basis, which includes $22.6 million, or 31 cents per share,
from discontinued operations and the after-tax gain realized on the sale of an
industrial chemical business. The net loss for the same quarter last year was
$389.1 million, or $5.37 per share.
Mallinckrodt's net sales in this year's first quarter were $591.2 million.
This is 30 percent higher than the $454.6 million reported in the same quarter
last year, which included only one month of results from businesses acquired
with the purchase of NPB. On a pro forma basis, net sales increased 8 percent
over $549.9 million for the prior-year first quarter, with sales volume
increasing 9 percent but offset 1 percent by the effects of currency exchange
rates. Sales to customers outside the United States accounted for
$181 million, or 31 percent of sales.
"Our first-quarter earnings exceed investor expectations, and we remain on
course to achieve our objectives for the year," said C. Ray Holman, chairman
and chief executive officer of Mallinckrodt. "We are now benefiting from the
savings and synergies of integrating NPB into our Respiratory Group, and our
Imaging and Pharmaceuticals groups had excellent quarters. Operating earnings
were up 28 percent because of strong volume growth and improved cost
management."
Mallinckrodt's Respiratory Group reported first-quarter sales of
$256.2 million. This is an increase of 81 percent over the $141.9 million
reported in the first quarter last year, which included only one month of
results from businesses acquired with the purchase of NPB. On a pro forma
basis, sales in the Respiratory Group increased 8 percent from $237.2 million
to $256.2 million. Respiratory operating earnings were $23.1 million,
compared to $22.4 million in the same quarter last year. Prior-year operating
earnings exclude noncash charges related to the acquisition of NPB. On a pro
forma basis, operating earnings in the Respiratory Group increased from
$5.2 million to $23.1 million. Operating margin improved to 9 percent
compared with a 2 percent margin pro forma in fiscal 1998. Volume growth in
respiratory was up 13 percent offset by 3 percentage points of negative
pricing and 2 percentage points from the effects of exchange rates. The new
740 and 840 ventilators have generated solid sales growth for the Respiratory
Group, which also continues to enjoy growth from pulse oximetry.
The Imaging Group reported first-quarter sales of $182.9 million, an
increase of 3 percent over the $177.3 million in the first quarter last year.
Volume growth was 5 percent, offset 1 percent by lower pricing and the impact
of exchange rates. Optiray pricing in the United States and worldwide
declined by 1 percent. Imaging operating earnings were $30.7 million, up 33
percent over the $23.1 million reported in the comparable period last year.
The operating earnings improvement is attributable to volume growth, lower
rebates, expense control and increased manufacturing efficiencies.
The Pharmaceuticals Group reported first-quarter sales of $152.1 million,
up 12 percent from the $135.4 million in the first quarter last year. Sales
volume increased 9 percent, led by dosage products, which experienced more
than 50 percent growth in the quarter. Pricing increased 3 percent.
Operating earnings for the group increased 65 percent to $20.5 million from
$12.4 million in the comparable period last year. The operating earnings
improvement in this group is primarily attributable to increased sales of
higher margin dosage pharmaceuticals and to improved operating rates at
manufacturing facilities.
As reported in the financial press, the Securities and Exchange Commission
(SEC) is currently reviewing acquisition purchase price allocations with a
number of companies. As previously disclosed by Mallinckrodt, in connection
with the company's filing of a shelf registration statement for debt
securities, Mallinckrodt is engaged in discussions with the staff of the
Securities and Exchange Commission regarding the purchase price allocation
related to its acquisition of Nellcor Puritan Bennett. The company and its
auditors, Ernst & Young LLP, believe that the allocation and related
amortization charges are in accordance with generally accepted accounting
principles. Nevertheless, if there are any significant changes as a result of
these discussions with the SEC to the amounts allocated to purchased research
and development or other intangible assets or changes in the lives over which
such amounts are amortized, these changes could have a material impact on the
related noncash charges reflected in the 1998 and 1999 results of operations
and could materially affect future results of operations as a result of
increased amortization expense.
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)
Three Months Ended
September 30,
1998 1997
Net sales $591.2 $454.6
Operating costs and expenses:
Cost of goods sold 318.3 275.8
Selling, administrative and general expenses 171.7 118.8
Purchased research and development -- 396.3
Research and development expenses 33.9 27.7
Other operating income, net -- (1.5)
Total operating costs and expenses 523.9 817.1
Operating earnings (loss) 67.3 (362.5)
Interest and other nonoperating income, net .9 9.2
Interest expense (20.6) (18.3)
Earnings (loss) from continuing
operations before income taxes 47.6 (371.6)
Income tax provision 15.2 9.1
Earnings (loss) from continuing operations 32.4 (380.7)
Discontinued operations 22.6 --
Earnings (loss) before cumulative effect
of accounting change 55.0 (380.7)
Cumulative effect of accounting change -- (8.4)
Net earnings (loss) 55.0 (389.1)
Preferred stock dividends (.1) (.1)
Available for common
shareholders $54.9 $(389.2)
Basic earnings per common share:
Earnings (loss) from continuing
operations $.44 $(5.26)
Discontinued operations .31 --
Cumulative effect of accounting change (.11)
Net earnings (loss) $.75 $(5.37)
Average common shares 72,917,133 72,475,530
Earnings per common share -
assuming dilution:
Earnings (loss) from continuing operations $.44 $(5.26)
Discontinued operations .31 --
Cumulative effect of accounting change -- (.11)
Net earnings (loss) $.75 $(5.37)
Average common shares 73,003,899 72,475,530
Actual shares outstanding
at end of period 71,519,074 72,879,626
(See accompanying notes to financial results.)
MALLINCKRODT INC.
CONSOLIDATED BALANCE SHEETS
(In millions)
September 30, June 30,
1998 1998
Assets
Current assets:
Cash and cash equivalents $58.1 $55.5
Trade receivables, less allowances of
$18.3 at September 30 and $16.7 at
June 30 452.1 486.3
Inventories 505.6 470.0
Deferred income taxes 108.9 95.2
Other current assets 69.3 61.5
Net current assets of discontinued
operations -- 4.8
Total current assets 1,194.0 1,173.3
Investments and other concurrent assets,
less allowances of $6.2 at September 30
and $5.8 at June 30 154.7 154.5
Property, plant and equipment, net 903.3 894.9
Goodwill and other intangible assets, net 1,529.1 1,545.9
Net noncurrent assets of discontinued
operations -- 12.4
Deferred income taxes 4.8 4.6
Total assets $3,785.9 $3,785.6
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $373.1 $311.4
Accounts payable 181.1 215.0
Accrued liabilities 468.9 532.0
Income taxes payable 114.5 122.3
Deferred income taxes 4.0 1.4
Total current liabilities 1,141.6 1,182.1
Long-term debt, less current maturities 944.4 944.5
Deferred income taxes 401.8 396.2
Postretirement benefits 170.8 169.2
Other noncurrent liabilities and
deferred credits 183.2 175.2
Total liabilities 2,841.8 2,867.2
Total shareholders' equity 944.1 918.4
Total liabilities and
shareholders' equity $3,785.9 $3,785.6
(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, the Company 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 estimated fair values at the date of acquisition.
In connection with the Company's filing of a shelf registration statement
for debt securities, Mallinckrodt is engaged in discussions with the staff of
the Securities and Exchange Commission (SEC) regarding the purchase price
allocation related to its acquisition of Nellcor. The Company and its
auditors, Ernst & Young LLP, believe that the allocation and related
amortization charges are in accordance with generally accepted accounting
principles. Ernst & Young LLP has expressed their opinion that the Company's
1998 consolidated financial statements are fairly presented, in all material
respects, in conformity with generally accepted accounting principles.
Nevertheless, if there are any significant changes as a result of these
discussions with the SEC to the amounts allocated to purchased research and
development or other intangible assets or changes in the lives over which such
amounts are amortized, these changes could have a material impact on the
related noncash charges reflected in the 1998 and 1999 results of operations
and could materially affect future results of operations as a result of
increased amortization expense.
Included in earnings for the quarter ended September 30, 1997 are one-time
noncash acquisition-related costs of $398.3 million for the write-off of
purchased research and development, an identifiable intangible asset of the
Nellcor acquisition, 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.
The sale of Nellcor inventories, which were stepped up to fair value in
connection with the allocation of purchase price, resulted in charges of
$18.8 million, $11.7 million net of taxes for the quarter ended September 30,
1997. Of this pre-tax amount, $18.6 million related to ongoing operations and
$.2 million related to operations classified as discontinued operations.
(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 prior year first quarter discontinued
operations are the earnings from operations of the catalysts and chemical
additives and Aero Systems divisions, which included $2.2 million of after-tax
earnings from operations and a $2.2 million after-tax acquisition accounting
charge.
(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 base for the quarter ended September 30, 1997
excluded incremental shares of 681,423 related to employee stock options.
These shares were excluded due to their antidilutive effect as a result of the
Company's loss from continuing operations during this period.
MALLINCKRODT INC.
BUSINESS PROFILE AND SELECTED CASH FLOW INFORMATION
(Dollars in millions)
Three Months Ended
September 30,
%
1998 1997 Change
Net sales
Respiratory $256.2 $141.9 81
Imaging 182.9 177.3 3
Pharmaceuticals 152.1 135.4 12
$591.2 $454.6 30
Operating earnings (loss)
Respiratory $23.1 $22.4 3
Imaging 30.7 23.1 33
Pharmaceuticals 20.5 12.4 65
74.3 57.9 28
Corporate expense (7.0) (5.5) (27)
67.3 52.4 28
Acquisition charges -- (414.9)
$67.3 $(362.5)
Selected cash flow information
Depreciation $28.8 $25.5
Amortization 20.2 13.3
Capital expenditures (27.3) (30.3)
Issuance of Mallinckrodt common stock 6.3 29.7
Acquisition of treasury stock (42.5) (9.7)
Dividends paid (12.0) (12.1)
MALLINCKRODT INC.
PRO FORMA NET SALES AND OPERATING EARNINGS
(Dollars in millions)
Three Months Ended
September 30,
%
1998 1997 Change
Pro forma net sales
Respiratory $256.2 $237.2* 8
Imaging as reported 182.9 177.3 3
Pharmaceuticals as reported 152.1 135.4 12
$591.2 $549.9* 8
Pro forma operating earnings
Respiratory $23.1 $5.2* 344
Imaging as reported 30.7 23.1 33
Pharmaceuticals as reported 20.5 12.4 65
74.3 40.7* 83
Corporate expense as reported (7.0) (5.5) (27)
$67.3 $35.2* 91
* Includes unaudited pro forma adjustments to present results of the
Respiratory Group as if the 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 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.
SOURCE Mallinckrodt Inc.
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http://www.prnewswire.com/comp/440950.html or fax,
800-758-5804, ext. 440950
CONTACT:
Peter Faur, Media, 314-654-5234, Barbara
Abbett, Media, 314-654-5230, e-mail, Communications@mkg.com, or
Barbara Gould, Investor, 314-654-3190, e-mail, Invest@mkg.com,
all of Mallinckrodt
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