Mallinckrodt plc Reports Fourth Quarter and Fiscal 2017 Results, Announces 2018 Guidance and Sets 2018 Strategic Priorities

Published: Feb 27, 2018

STAINES-UPON-THAMES, United Kingdom, Feb. 27, 2018 /PRNewswire/ -- Mallinckrodt Pharmaceuticals (NYSE: MNK), a leading global specialty pharmaceutical company, today reported results for the three months and fiscal year ended Dec. 29, 2017. Unless otherwise noted, the quarter comparisons are to the prior year comparable three-month period ended Dec. 30, 2016 and the fiscal year comparisons are to the prior fiscal year ended Sept. 30, 2016 as prescribed by GAAP.

Net sales were $792.3 million in the fourth quarter, down 4.5%, or 4.8% on a constant-currency basis.

GAAP gross profit was $421.0 million with gross profit as a percentage of net sales of 53.1%, compared with 53.7%, impacted by ongoing pricing pressures in the Specialty Generics segment, but partially offset by non-recurring supply chain benefits in the Specialty Brands segment. Adjusted gross profit was $592.8 million, compared with $623.9 million. Adjusted gross profit as a percentage of net sales was 74.8% versus 75.2%.

"In 2017 we made strong progress in strategically reshaping our business to become an innovation-focused specialty pharmaceutical company," said Mark Trudeau, President and Chief Executive Officer of Mallinckrodt, "further building out a portfolio that, over the long term, should produce sustainable growth of at least mid-single digits, with potential for higher growth longer term. We see a number of potential commercial and development catalysts for growth in the year ahead, with possible product launches, clinical trial milestones and data readouts. The occurrence of any one or more of these events may provide further benefit to shareholders."

"Looking ahead," Trudeau continued, "with the recent acquisitions of Sucampo and other transactions building out our roster of marketed brands as well as our branded pipeline, we are poised to begin fulfilling the promise of the innovative development portfolio we've built. In 2018 we will aggressively pursue key initiatives to support and accelerate progress as we solidify our transformation."

Mallinckrodt's 2018 strategic initiatives include:

  • Maximizing the productivity and contribution of both inline brands and the near-term development portfolio;
  • Further streamlining the organization - moving to discontinued operations and seeking to dispose of non-core assets; streamlining its operating model to increase efficiency and productivity, allowing greater investment into its Specialty Brands segment. With this the company seeks to reduce its annual selling, general and administrative (SG&A) spend by $100 million no later than the early 2020s while continuing to increase R&D spending.
  • Ensuring a highly disciplined capital allocation strategy with a focus on reducing debt and pursuing business development and share repurchases where they make sense;
  • Continuing to refine the senior management team to increase focus on performance and drive sustainable growth for the future, illustrated by the recent recruitment of Mark Casey as General Counsel;
  • Attracting additional innovative pharmaceutical expertise to the company's Board of Directors, similar to the third quarter 2017 appointment of David Norton.

Returning to fourth quarter results, GAAP SG&A expenses in the quarter were $175.0 million or 22.1% of net sales, benefited from the reduction of contingent consideration, as compared to $368.3 million, or 44.4% of net sales in the comparable quarter, which was impacted by significant legal and pension settlement charges. Adjusted SG&A expenses were $212.6 million or 26.8% of net sales, compared with $217.2 million or 26.2%.

Research and development expenses were $86.4 million or 10.9% of net sales in the fourth quarter, impacted by a $10.0 million up-front payment for the xenon gas licensing agreement.

Income tax benefit was $1.599 billion versus $121.7 million, for an effective tax rate of negative 18,590.7% and positive 40.8%, respectively. Income tax benefit in the fourth quarter includes a one-time tax benefit of $1.5 billion from tax reform and finalization of the previously announced legal entity reorganization, which primarily related to a reduction in the interest-bearing deferred tax liabilities. As a result of adjustments primarily related to the foregoing factors, the adjusted effective tax rate was 13.0% compared with 15.7%.

GAAP diluted earnings per share results from continuing operations was $17.40 in the fourth quarter compared with a loss per share from continuing operations of $1.67. Adjusted diluted earnings per share were $2.01 versus $1.91.

Fiscal Year 2017 Results

Net sales were $3.222 billion, down 4.7% compared with $3.381 billion; impacted by comparison with the extra selling week in 2016 and ongoing pressure in the Specialty Generics segment.

Diluted earnings per share from continuing operations were $18.09 compared with $4.39, reflecting the benefits from tax reform and finalization of the previously announced legal entity reorganization. Adjusted diluted earnings per share were $7.49, compared with $7.85.

BUSINESS SEGMENT RESULTS

Specialty Brands Segment

Net sales for the Specialty Brands segment were $582.2 million for the quarter, compared with $603.1 million, a decrease of 3.5%, or 3.7% on a constant-currency basis.

H.P. Acthar® Gel (repository corticotropin injection) net sales in the quarter were $295.2 million, a 9.3%2 decrease over $325.4 million impacted by the previously disclosed patient withdrawal issues. The company has taken a number of steps to address the issue, including engagement with payers, prescribers and patients, and we remain focused on returning H.P. Acthar Gel to growth.

INOMAX® (nitric oxide) gas, for inhalation, generated net sales of $125.6 million, up 6.2%, or 6.1% on a constant-currency basis, over $118.3 million. OFIRMEV® (acetaminophen) injection net sales were $78.0 million compared with $72.5 million, an increase of 7.6%2. Net sales of the Therakos® immunology platform were $57.2 million compared with $47.4 million, an increase of 20.7%, or 18.4% on a constant-currency basis, benefited from a favorable comparison to the prior year.

Specialty Generics Segment

Net sales in the fourth quarter decreased 8.0% to $195.8 million, compared with $212.9 million. On a constant-currency basis, segment net sales declined 8.5%.

LIQUIDITY

Mallinckrodt's cash provided by operating activities in the fourth quarter was $278.8 million with free cash flow of $244.0 million. For the year, Mallinckrodt's cash provided by operating activities was $727.3 million with free cash flow of $541.2 million.

During the fourth quarter, Mallinckrodt repurchased approximately 10% of the company, buying 9.4 million ordinary shares for $214.0 million.

Through its cash generation and borrowings under Mallinckrodt's existing revolving credit facility in preparation for the Sucampo acquisition, Mallinckrodt's cash balance at the end of the fourth quarter was $1.261 billion. Following this transaction, the company remains focused on reducing its debt throughout the 2018 fiscal year.

2018 MALLINCKRODT FINANCIAL GUIDANCE

Driven by its ongoing transformation, Mallinckrodt will prospectively classify the "Specialty Generics Disposal Group" as discontinued operations, which includes the Specialty Generics segment3, certain non-promoted branded products within the Specialty Brands segment, and the company's ongoing post-divestiture supply agreement. Beginning in the first quarter of fiscal 2018, the historical financial results attributable to the Specialty Generics Disposal Group will be reflected in our consolidated financial statements as discontinued operations. Mallinckrodt seeks to dispose of these products to further its strategic evolution to being a brands-focused innovation-driven specialty pharmaceutical growth company.

Mallinckrodt's guidance for 2018 is provided exclusive of the aforementioned businesses.

               Metric                       2018 Guidance

    (excluding foreign currency
               impact)
    ---------------------------

    Total net sales for
     continuing operations                     Increase 3% to 6%
    ----------------------                      ----------------

    Net interest expense            $370 million to $390 million
    --------------------            ----------------------------

    Adjusted effective tax rate                        9% to 11%
    ---------------------------                         --------

    Adjusted diluted EPS                          $6.00 to $6.50
    --------------------                          --------------

The company has provided historical net sales for the new continuing operations portions of the business for fiscal 2017, the transition period, and fiscal 2016 this morning. Further, the company expects to provide fully recast financial statements prior to the next earnings announcement in early May.

CONFERENCE CALL AND WEBCAST

Mallinckrodt will hold a conference call on Tuesday, Feb. 27, 2018, beginning at 8:30 a.m. U.S. Eastern Time. This call can be accessed in three ways:

  • At the Mallinckrodt website: http://www.mallinckrodt.com/investors.
  • By telephone: For both listen-only participants and those who wish to take part in the question-and-answer portion of the call, the telephone dial-in number in the U.S. is (877) 359-9508. For participants outside the U.S., the dial-in number is (224) 357-2393. Callers will need to provide the Conference ID of 2589547.
  • Through an audio replay: A replay of the call will be available beginning at 11:30 a.m. Eastern Time on Tuesday, Feb. 27, 2018, and ending at 11:59 p.m. Eastern Time on Tuesday, Mar. 13, 2018. Dial-in numbers for U.S.-based participants are (855) 859-2056 or (800) 585-8367. Participants outside the U.S. should use the replay dial-in number of (404) 537-3406. All callers will be required to provide the Conference ID of 2589547.

ABOUT MALLINCKRODT

Mallinckrodt is a global business that develops, manufactures, markets and distributes specialty pharmaceutical products and therapies. Areas of focus include autoimmune and rare diseases in specialty areas like neurology, rheumatology, nephrology, pulmonology and ophthalmology; immunotherapy and neonatal respiratory critical care therapies; analgesics and gastrointestinal products. The company's Specialty Brands segment includes branded medicines and its Specialty Generics segment includes specialty generic drugs, active pharmaceutical ingredients and external manufacturing. To learn more about Mallinckrodt, visit www.mallinckrodt.com.

Mallinckrodt uses its website as a channel of distribution of important company information, such as press releases, investor presentations and other financial information. It also uses its website to expedite public access to time-critical information regarding the company in advance of or in lieu of distributing a press release or a filing with the U.S. Securities and Exchange Commission (SEC) disclosing the same information. Therefore, investors should look to the Investor Relations page of the website for important and time-critical information. Visitors to the website can also register to receive automatic e-mail and other notifications alerting them when new information is made available on the Investor Relations page of the website.

NON-GAAP FINANCIAL MEASURES

This press release contains financial measures, including adjusted net income, adjusted diluted earnings per share, adjusted gross profit, adjusted SG&A, net sales growth on a constant-currency basis, adjusted effective tax rate, and free cash flow, which are considered "non-GAAP" financial measures under applicable SEC rules and regulations.

Adjusted net income, adjusted gross profit and adjusted SG&A represent amounts prepared in accordance with accounting principles generally accepted in the U.S. (GAAP) and adjusted for certain items that management believes are not reflective of the operational performance of the business. The adjustments for these items are on a pre-tax basis for adjusted gross profit and adjusted SG&A and on an after-tax basis for adjusted net income. Adjustments to GAAP amounts include, as applicable to each measure, restructuring and related charges, net; amortization and impairment charges; discontinued operations; acquisition-related expenses; changes in fair value of contingent consideration obligations; inventory step-up expenses; significant legal and environmental charges; pension settlement charges; recurrent cash tax payments to the IRS associated with internal installment sales transactions; and other items identified by the company. Adjusted diluted earnings per share represent adjusted net income divided by the number of diluted shares.

The adjusted effective tax rate is calculated as the income tax effects on continuing and discontinued operations plus the income tax impact included in Mallinckrodt's reconciliation of net income, divided by income from continuing and discontinued operations plus the pre-tax, non-income, tax-related adjustments included in its reconciliation of adjusted net income (excluding dilutive share impact). The income tax impact item included in its reconciliation of adjusted net income primarily represents the tax impact of adjustments between net income and adjusted net income as well as deferred tax benefits recognized upon pay down of intercompany installment notes created by internal sales of acquired intangible assets.

Net sales growth on a constant-currency basis measures the change in net sales between current- and prior-year periods using a constant currency, the exchange rate in effect during the applicable prior-year period.

Free cash flow for the fourth quarter represents net cash provided by operating activities of $278.8 million less capital expenditures of $34.8 million, each as prepared in accordance with GAAP. Free cash flow for the fiscal year represents net cash provided by operating activities of $727.3 million less capital expenditures of $186.1 million, each as prepared in accordance with GAAP.

The company has provided these adjusted financial measures because they are used by management, along with financial measures in accordance with GAAP, to evaluate the company's operating performance. In addition, the company believes that they will be used by certain investors to measure Mallinckrodt's operating results. Management believes that presenting these adjusted measures provides useful information about the company's performance across reporting periods on a consistent basis by excluding items that the company does not believe are indicative of its core operating performance.

These adjusted measures should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. The company's definition of these adjusted measures may differ from similarly titled measures used by others.

Because adjusted financial measures exclude the effect of items that will increase or decrease the company's reported results of operations, management strongly encourages investors to review the company's consolidated financial statements and publicly filed reports in their entirety. A reconciliation of certain of these historical adjusted financial measures to the most directly comparable GAAP financial measures is included in the tables accompanying this release.

Further information regarding non-GAAP financial measures can be found on the Investor Relations page of the company's website.

CAUTIONARY STATEMENTS RELATED TO FORWARD-LOOKING STATEMENTS

Statements in this document that are not strictly historical, including statements regarding future financial condition and operating results, economic, business, competitive and/or regulatory factors affecting Mallinckrodt's businesses and any other statements regarding events or developments the company believes or anticipates will or may occur in the future, may be "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995, and involve a number of risks and uncertainties.

There are a number of important factors that could cause actual events to differ materially from those suggested or indicated by such forward-looking statements and you should not place undue reliance on any such forward-looking statements. These factors include risks and uncertainties related to, among other things: general economic conditions and conditions affecting the industries in which Mallinckrodt operates; the commercial success of Mallinckrodt's products; Mallinckrodt's ability to realize anticipated growth, synergies and cost savings from acquisitions; conditions that could necessitate an evaluation of Mallinckrodt's goodwill and/or intangible assets for possible impairment; changes in laws and regulations; Mallinckrodt's ability to successfully integrate acquisitions of operations, technology, products and businesses generally and to realize anticipated growth, synergies and cost savings; Mallinckrodt's and Mallinckrodt's licensers' ability to successfully develop or commercialize new products; Mallinckrodt's and Mallinckrodt's licensers' ability to protect intellectual property rights; Mallinckrodt's ability to receive procurement and production quotas granted by the U.S. Drug Enforcement Administration; customer concentration; Mallinckrodt's reliance on certain individual products that are material to its financial performance; cost containment efforts of customers, purchasing groups, third-party payers and governmental organizations; the reimbursement practices of a small number of public or private insurers; pricing pressure on certain of Mallinckrodt's products due to legal changes or changes in insurers' reimbursement practices resulting from recent increased public scrutiny of healthcare and pharmaceutical costs; limited clinical trial data for H.P. Acthar Gel; complex reporting and payment obligations under healthcare rebate programs; Mallinckrodt's ability to navigate price fluctuations; future changes to U.S. and foreign tax laws; Mallinckrodt's ability to achieve expected benefits from restructuring activities; complex manufacturing processes; competition; product liability losses and other litigation liability; ongoing governmental investigations; material health, safety and environmental liabilities; retention of key personnel; conducting business internationally; the effectiveness of information technology infrastructure; and cybersecurity and data leakage risks.

These and other factors are identified and described in more detail in the "Risk Factors" section of Mallinckrodt's Annual Report on Form 10-K for the fiscal year ended December 29, 2017, which the company expects to file later today. The forward-looking statements made herein speak only as of the date hereof and Mallinckrodt does not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise, except as required by law.

1 Generally accepted accounting principles in the United States

2 The as-reported and constant currency growth percentages are identical for H.P. Acthar Gel and OFIRMEV.

3 Excludes external manufacturing operations which will remain a continuing operation

CONTACTS

Investor Relations
Coleman N. Lannum, CFA
Senior Vice President, Investor Strategy and IRO
314-654-6649
cole.lannum@mallinckrodt.com

Daniel J. Speciale, CPA
Director, Investor Relations
314-654-3638
daniel.speciale@mallinckrodt.com

Media
Rhonda Sciarra
Senior Communications Manager
908-238-6765
rhonda.sciarra@mallinckrodt.com

Meredith Fischer
Chief Public Affairs Officer
314-654-3318
meredith.fischer@mallinckrodt.com



                                                               MALLINCKRODT PLC

                                                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                                (unaudited, in millions, except per share data)


                                                               Three Months Ended

                                      December 29,   Percent of               December 30,   Percent of
                                              2017                                     2016    Net sales
                                                   Net sales
                                                                                                                        ---

    Net sales                                            $792.3                      100.0%                                   $829.9           100.0%

    Cost of sales                            371.3                      46.9                                 384.1                46.3
                                             -----                                                          -----

    Gross profit                             421.0                      53.1                                 445.8                53.7

    Selling, general and
     administrative
     expenses                                175.0                      22.1                                 368.3                44.4

    Research and
     development expenses                     86.4                      10.9                                  66.2                 8.0

    Restructuring charges,
     net                                     (0.9)                    (0.1)                                  3.8                 0.5

    Non-restructuring
     impairment charges                       63.7                       8.0                                 214.3                25.8

    Gains on divestiture
     and license                             (0.3)                                     -                               -                      -
                                              ----                                                                    ---

    Operating income
     (loss)                                   97.1                      12.3                               (206.8)             (24.9)

    Interest expense                        (90.1)                   (11.4)                               (91.3)             (11.0)

    Interest income                            1.8                       0.2                                   0.5                 0.1

    Other loss, net                          (0.2)                                     -                           (0.9)               (0.1)
                                              ----                                                                   ----

    Income (loss) from
     continuing operations
     before income taxes                       8.6                       1.1                               (298.5)             (36.0)

    Income tax benefit                   (1,598.8)                  (201.8)                              (121.7)             (14.7)
                                          --------                                                         ------

    Income (loss) from
     continuing operations                 1,607.4                     202.9                               (176.8)             (21.3)

    Income from
     discontinued
     operations, net of
     income taxes                              1.3                       0.2                                  23.6                 2.8
                                               ---                                                           ----

    Net income (loss)                                  $1,608.7                      203.0%                                 $(153.2)         (18.5)%
                                                       ========                                                              =======


    Basic earnings per share:

    Income (loss) from
     continuing operations                               $17.43                                                     $(1.67)

    Income from
     discontinued
     operations                               0.01                                                  0.22

    Net income (loss)                        17.45                                                (1.45)

    Diluted earnings per share:

    Income (loss) from
     continuing operations                               $17.40                                                     $(1.67)

    Income from
     discontinued
     operations                               0.01                                                  0.22

    Net income (loss)                        17.41                                                (1.45)

    Weighted-average number of shares
     outstanding:

    Basic                                     92.2                                                 105.7

    Diluted                                   92.4                                                 105.7


                                                                                                                          MALLINCKRODT PLC

                                                                                                                         NON-GAAP MEASURES

                                                                                                           (unaudited, in millions except per share data)


                                                                                 Three Months Ended

                                                    December 29, 2017                                                                 December 30, 2016

                               Gross    SG&A    Net                    Diluted           Gross      SG&A         Net                    Diluted
                              profit          income                                    profit                 (loss)
                                                                       net                                   income                 net (loss)
                                                                     income                                                           income
                                                                       per
                                                                      share                                                         per share
                                                                                                                                      ---------

    GAAP                               $421.0                             $175.0                    $1,608.7                                           $17.41                                $445.8              $368.3 $(153.2) $(1.45)

    Adjustments:

    Intangible asset
     amortization                169.8            (1.7)                    171.5                        1.86                                  174.0                 (1.7)             175.7                1.65

    Restructuring and related
     charges, net (1)              0.5            (1.1)                      0.7                        0.01                                    0.5                 (1.0)               5.3                0.05

    Inventory step-up expense      1.5                -                      1.5                        0.02                                    3.6                     -               3.6                0.03

    Income from discontinued
     operations                      -               -                    (1.3)                     (0.01)                                     -                    -            (23.6)             (0.22)

    Change in contingent
     consideration fair value        -            45.5                    (45.5)                     (0.49)                                     -                (1.3)               1.3                0.01

    Acquisition related
     expenses                        -           (5.1)                      5.1                        0.06                                      -                (0.1)               0.1                   -

    Non-restructuring
     impairment charges              -               -                     63.7                        0.69                                      -                    -             207.0                1.95

    Significant legal and
     environmental charges           -               -                        -                          -                                     -              (102.0)             102.0                0.96

    Pension settlement charge        -               -                        -                          -                                     -               (45.0)              45.0                0.42

    Reorganization of legal
     entity ownership (2)            -               -                (1,082.0)                     (11.71)                                     -                    -                 -                  -

    U.S. Tax Reform (3)              -               -                  (457.4)                     (4.95)                                     -                    -                 -                  -

    Income taxes (4)                 -               -                   (78.8)                     (0.85)                                     -                    -           (159.6)             (1.50)


    As adjusted                        $592.8                             $212.6                      $186.2                                            $2.01                                $623.9              $217.2   $203.6    $1.91
                                       ======                             ======                      ======                                                                                ======              ======   ======


    Percent of net sales         74.8%           26.8%                    23.5%                                               75.2%                  26.2%                24.5%


    (1)             Includes pre-tax accelerated
                    depreciation.


    (2)             Represents the incremental tax and
                    interest expense associated with
                    non-cash internal legal entity
                    reorganization. Of the total
                    adjustment, $8.9 million represents
                    a one-time charge to interest
                    expense related to the reduction in
                    the Company's interest-bearing
                    deferred tax liabilities.


    (3)             Represents the incremental tax and
                    interest expense associated with the
                    impact of the U.S. tax reform bill
                    being signed into law. Of the total
                    adjustment, $0.5 million represents
                    a one-time reduction to interest
                    expense related to the reduction in
                    the Company's interest-bearing
                    deferred tax liabilities.


    (4)             Includes tax effects of above
                    adjustments as well as the
                    elimination of deferred tax benefits
                    recognized upon pay down of
                    intercompany installment notes
                    created by internal sales of
                    acquired intangible assets.



                                                                   MALLINCKRODT PLC

                                                    SEGMENT NET SALES AND CONSTANT-CURRENCY GROWTH

                                                               (unaudited, in millions)


                      Three Months Ended

              December 29,             December 30,                 Percent              Currency   Constant-
                      2017                      2016                                       impact     currency
                                                                  change                            growth
                                                                                                      ------

    Specialty
     Brands                   $582.2                                             $603.1                  (3.5)%      0.2%       (3.7)%

    Specialty
     Generics        195.8                                 212.9                              (8.0)             0.5       (8.5)

                     778.0                                 816.0                              (4.7)             0.3       (5.0)

    Other(1)          14.3                                  13.9                                2.9                -        2.9

    Net sales                 $792.3                                             $829.9                  (4.5)%      0.3%       (4.8)%
                              ======                                             ======


    (1)             Represents net sales from an
                    ongoing, post-divestiture supply
                    agreement with the acquirer of the
                    contrast media and delivery systems
                    ("CMDS") business. Amounts for
                    periods prior to the divestiture
                    represent the reclassification of
                    intercompany sales to third-party
                    sales to conform with the expected
                    presentation of the ongoing supply
                    agreement.



                                                                                 MALLINCKRODT PLC

                                                                          SELECT PRODUCT LINE NET SALES

                                                                             (unaudited, in millions)


                                           Three Months Ended

                                   December 29,             December 30,              Percent             Currency    Constant-
                                           2017                      2016                                   impact      currency
                                                                                    change                           growth
                                                                                                                       ------

    Specialty Brands

    H.P. Acthar Gel                                $295.2                                          $325.4                  (9.3)%         - %          (9.3)%

    Inomax                                125.6                              118.3                               6.2               0.1             6.1

    Ofirmev                                78.0                               72.5                               7.6                 -            7.6

    Therakos                               57.2                               47.4                              20.7               2.3            18.4

    Hemostasis                             12.3                               13.4                             (8.2)                -          (8.2)

    Other                                  13.9                               26.1                            (46.7)              0.6          (47.3)

    Specialty Brands Total                         $582.2                                          $603.1                  (3.5)%      0.2%            (3.7)%
                                                   ======                                          ======


    Specialty Generics

    Hydrocodone (API) and
     hydrocodone-containing
     tablets                                        $22.0                                           $23.2                  (5.2)%         - %          (5.2)%

    Oxycodone (API) and oxycodone-
     containing tablets                    18.2                               24.3                            (25.1)                -         (25.1)

    Methylphenidate ER                     13.5                               22.0                            (38.6)                -         (38.6)

    Other controlled substances            90.6                              104.9                            (13.6)                -         (13.6)

    Other                                  51.5                               38.5                              33.8               2.8            31.0

    Specialty Generics Total                       $195.8                                          $212.9                  (8.0)%      0.5%            (8.5)%
                                                   ======                                          ======



                                                               MALLINCKRODT PLC

                                                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                                (unaudited, in millions, except per share data)


                                                                Fiscal Year Ended

                                      December 29,   Percent of               September 30,   Percent of
                                              2017                                      2016
                                                   Net sales                                Net sales
                                                                                                               ---  ---------

    Net sales                                          $3,221.6                       100.0%                                   $3,380.8        100.0%

    Cost of sales                          1,565.3                      48.6                                1,525.8                  45.1
                                           -------                                                         -------

    Gross profit                           1,656.3                      51.4                                1,855.0                  54.9

    Selling, general and
     administrative
     expenses                                920.9                      28.6                                  925.3                  27.4

    Research and
     development expenses                    277.3                       8.6                                  262.2                   7.8

    Restructuring charges,
     net                                      31.2                       1.0                                   33.3                   1.0

    Non-restructuring
     impairment charges                       63.7                       2.0                                   16.9                   0.5

    Gains on divestiture
     and license                            (56.9)                    (1.8)                                     -                         -
                                             -----                                                             ---

    Operating income                         420.1                      13.0                                  617.3                  18.3

    Interest expense                       (369.1)                   (11.5)                               (384.6)               (11.4)

    Interest income                            4.6                       0.1                                    1.3                          -

    Other income (loss),
     net                                       6.0                       0.2                                  (0.6)                         -
                                               ---                                                            ----

    Income from continuing
     operations before
     income taxes                             61.6                       1.9                                  233.4                   6.9

    Income tax benefit                   (1,709.6)                   (53.1)                               (255.6)                (7.6)
                                          --------                                                          ------

    Income from continuing
     operations                            1,771.2                      55.0                                  489.0                  14.5

    Income from
     discontinued
     operations, net of
     income taxes                            363.2                      11.3                                  154.7                   4.6
                                             -----                                                           -----

    Net income                                         $2,134.4                        66.3%                                     $643.7         19.0%
                                                       ========                                                                  ======


    Basic earnings per share:

    Income from continuing
     operations                                          $18.13                                                          $4.42

    Income from
     discontinued
     operations                               3.72                                                   1.40

    Net income                               21.85                                                   5.82

    Diluted earnings per share:

    Income from continuing
     operations                                          $18.09                                                          $4.39

    Income from
     discontinued
     operations                               3.71                                                   1.39

    Net income                               21.80                                                   5.77

    Weighted-average number of shares
     outstanding:

    Basic                                     97.7                                                  110.6

    Diluted                                   97.9                                                  111.5



                                                                                                                        MALLINCKRODT PLC

                                                                                                                       NON-GAAP MEASURES

                                                                                                         (unaudited, in millions except per share data)


                                                                                 Fiscal Year Ended

                                                   December 29, 2017                                                      September 30, 2016

                                Gross     SG&A     Net                 Diluted            Gross    SG&A         Net                    Diluted
                               profit            income                                  profit               income
                                                                       net                                                             net
                                                                     income                                                          income

                                                                       per                                                             per
                                                                      share                                                           share
                                                                                                                                        -----

    GAAP                                $1,656.3                          $920.9                   $2,134.4                                           $21.80                               $1,855.0              $925.3  $643.7 $5.77

    Adjustments:

    Intangible asset
     amortization                 685.8              (8.7)                 694.5                       7.09                                  692.8                (7.3)             700.1                  6.28

    Restructuring and related
     charges, net (1)               2.1              (3.2)                  36.4                       0.37                                    1.8                (3.1)              38.2                  0.34

    Inventory step-up expense      10.1                  -                  10.1                       0.10                                   24.3                    -              24.3                  0.22

    Income from discontinued
     operations                       -                 -               (363.2)                    (3.71)                                     -                   -           (154.7)               (1.39)

    Change in contingent
     consideration fair value         -              41.4                 (41.4)                    (0.42)                                     -               (4.4)               4.4                  0.04

    Acquisition related
     expenses                         -             (7.4)                   7.4                       0.08                                      -               (6.9)               6.9                  0.06

    Non-restructuring
     impairment charges               -                 -                  63.7                       0.65                                      -                   -              16.9                  0.15

    Debt refinancing                  -                 -                  10.0                       0.10                                      -                   -                 -                    -

    Pension settlement charges        -            (69.2)                  69.2                       0.71                                      -                   -                 -                    -

    Intrathecal divestiture           -                 -                (56.6)                    (0.58)                                     -                   -                 -                    -

    Significant legal and
     environmental charges            -                 -                     -                         -                                     -              (14.5)              14.5                  0.13

    Reorganization of legal
     entity ownership (2)             -                 -             (1,045.9)                    (10.68)                                     -                   -                 -                    -

    U.S. Tax Reform (3)               -                 -               (457.4)                    (4.67)                                     -                   -                 -                    -

    Income taxes (4)                  -                 -               (327.8)                    (3.35)                                     -                   -           (418.6)               (3.75)


    As adjusted                         $2,354.3                          $873.8                     $733.4                                            $7.49                               $2,573.9              $889.1  $875.7 $7.85
                                        ========                          ======                     ======                                                                               ========              ======  ======


    Percent of net sales          73.1%             27.1%                 22.8%                                              76.1%                  26.3%               25.9%


    (1)             Includes pre-tax accelerated
                    depreciation.

    (2)             Represents the incremental tax and
                    interest expense associated with
                    non-cash internal legal entity
                    reorganization. Of the total
                    adjustment, $8.9 million represents
                    a one-time charge to interest
                    expense related to the reduction in
                    the Company's interest-bearing
                    deferred tax liabilities.

    (3)             Represents the incremental tax and
                    interest expense associated with the
                    impact of the U.S. tax reform bill
                    being signed into law. Of the total
                    adjustment, $0.5 million represents
                    a one-time reduction to interest
                    expense related to the reduction in
                    the Company's interest-bearing
                    deferred tax liabilities.

    (4)             Includes tax effects of above
                    adjustments as well as the
                    elimination of deferred tax benefits
                    recognized upon pay down of
                    intercompany installment notes
                    created by internal sales of
                    acquired intangible assets.



                                                                      MALLINCKRODT PLC

                                                       SEGMENT NET SALES AND CONSTANT-CURRENCY GROWTH

                                                                  (unaudited, in millions)


                        Fiscal Year Ended

              December 29,               September 30,                 Percent                Currency    Constant-
                      2017                         2016                                         impact      currency
                                                                     change                              growth
                                                                                                           ------

    Specialty
     Brands                   $2,325.3                                              $2,300.6                     1.1%      (0.1)%            1.2%

    Specialty
     Generics        839.5                                  1,025.2                               (18.1)              0.2           (18.3)

                   3,164.8                                  3,325.8                                (4.8)                -           (4.8)

    Other(1)          56.8                                     55.0                                  3.3                 -             3.3

    Net sales                 $3,221.6                                              $3,380.8                   (4.7)%           - %        (4.7)%
                              ========                                              ========


    (1)             Represents net sales from an
                    ongoing, post-divestiture supply
                    agreement with the acquirer of the
                    CMDS business. Amounts for periods
                    prior to the divestiture represent
                    the reclassification of
                    intercompany sales to third-party
                    sales to conform with the expected
                    presentation of the ongoing supply
                    agreement.



                                                                                  MALLINCKRODT PLC

                                                                           SELECT PRODUCT LINE NET SALES

                                                                              (unaudited, in millions)


                                                Fiscal Year Ended

                                   December 29,             September 30,               Percent               Currency    Constant-
                                           2017                       2016                                      impact      currency
                                                                                      change                             growth
                                                                                                                           ------

    Specialty Brands

    H.P. Acthar Gel                              $1,195.1                                            $1,160.4                    3.0%            - %             3.0%

    Inomax                                505.2                                474.3                                 6.5                  -              6.5

    Ofirmev                               302.5                                284.3                                 6.4                  -              6.4

    Therakos                              214.9                                207.6                                 3.5              (1.7)              5.2

    Hemostasis                             55.1                                 42.5                                29.6                  -             29.6

    Other                                  52.5                                131.5                              (60.1)               0.1            (60.2)

    Specialty Brands Total                       $2,325.3                                            $2,300.6                    1.1%       (0.1)%               1.2%
                                                 ========                                            ========


    Specialty Generics

    Hydrocodone (API) and
     hydrocodone-containing
     tablets                                        $85.3                                              $146.5                 (41.8)%            - %          (41.8)%

    Oxycodone (API) and oxycodone-
     containing tablets                    78.8                                126.2                              (37.6)                 -           (37.6)

    Methylphenidate ER                     71.7                                103.5                              (30.7)                 -           (30.7)

    Other controlled substances           409.6                                468.1                              (12.5)                 -           (12.5)

    Other                                 194.1                                180.9                                 7.3                1.0               6.3

    Specialty Generics Total                       $839.5                                            $1,025.2                 (18.1)%         0.2%            (18.3)%
                                                   ======                                            ========



                                                   MALLINCKRODT PLC

                                         CONDENSED CONSOLIDATED BALANCE SHEETS

                                               (unaudited, in millions)


                                                December 29,                December 30,
                                                        2017                         2016
                                                        ----                         ----

    Assets

    Current Assets:

    Cash and cash equivalents                                    $1,260.9                             $342.0

    Accounts receivable, net                           445.8                                 431.0

    Inventories                                        340.4                                 350.7

    Prepaid expenses and other
     current assets                                     84.1                                 131.9

    Notes receivable                                   154.0                                     -

    Current assets held for
     sale                                                  -                                310.9

       Total current assets                          2,285.2                               1,566.5

    Property, plant and
     equipment, net                                    966.8                                 881.5

    Goodwill                                         3,482.7                               3,498.1

    Intangible assets, net                           8,375.0                               9,000.5

    Other assets                                       171.2                                 259.7

    Total Assets                                                $15,280.9                          $15,206.3
                                                                =========                          =========


    Liabilities and Shareholders' Equity

    Current Liabilities:

    Current maturities of long-
     term debt                                                     $313.7                             $271.2

    Accounts payable                                   113.3                                 112.1

    Accrued payroll and
     payroll-related costs                              98.5                                  76.1

    Accrued interest                                    57.0                                  68.7

    Income taxes payable                                15.8                                 101.7

    Accrued and other current
     liabilities                                       452.1                                 557.1

    Current liabilities held
     for sale                                              -                                120.3
                                                         ---                                -----

       Total current liabilities                     1,050.4                               1,307.2

    Long-term debt                                   6,420.9                               5,880.8

    Pension and postretirement
     benefits                                           67.1                                 136.4

    Environmental liabilities                           73.2                                  73.0

    Deferred income taxes                              689.0                               2,398.1

    Other income tax
     liabilities                                        94.1                                  70.4

    Other liabilities                                  364.2                                 356.1

    Total Liabilities                                8,758.9                              10,222.0

    Shareholders' Equity:

    Preferred shares                                       -                                    -

    Ordinary shares                                     18.4                                  23.6

    Ordinary shares held in
     treasury at cost                              (1,564.7)                              (919.8)

    Additional paid-in capital                       5,492.6                               5,424.0

    Retained earnings                                2,588.6                                 529.0

    Accumulated other
     comprehensive income                             (12.9)                               (72.5)
                                                       -----                                 -----

      Total Shareholders' Equity                     6,522.0                               4,984.3
                                                     -------                               -------

      Total Liabilities and
       Shareholders' Equity                                     $15,280.9                          $15,206.3
                                                                =========                          =========



                                                                      MALLINCKRODT PLC

                                                CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

                                                                  (unaudited, in millions)


                                           Fiscal Year Ended                Three Months                Fiscal Year
                                                                                Ended                       Ended
                                           -----------------               -------------               ------------

                                              December 29,                 December 30,                September 30,
                                                        2017                         2016                         2016
                                                        ----                         ----                         ----

    Cash Flows From Operating Activities:

    Net income (loss)                                           $2,134.4                                               $(153.2)             $643.7

    Adjustments to reconcile net cash from
     operating activities:

    Depreciation and
     amortization                                      808.3                                    203.2                                 834.5

    Share-based
     compensation                                       59.2                                     11.0                                  42.9

    Deferred income taxes                          (1,744.1)                                 (204.3)                              (432.9)

    Non-cash impairment
     charges                                            63.7                                    214.3                                  16.9

    Inventory provisions                                34.1                                      8.5                                  29.2

    Gain on disposal of
     discontinued
     operations                                      (418.1)                                       -                               (95.3)

    Other non-cash items                              (21.4)                                   (9.2)                                 29.6

    Changes in assets and liabilities, net
     of the effects of acquisitions:

    Accounts receivable,
     net                                              (16.2)                                    36.5                                  31.2

    Inventories                                       (23.6)                                  (26.3)                               (17.3)

    Accounts payable                                  (25.8)                                     5.4                                 (9.7)

    Income taxes                                      (34.2)                                     0.6                                  93.9

    Other                                             (89.0)                                   109.1                                  17.9
                                                       -----                                    -----                                  ----

     Net cash from
      operating activities                             727.3                                    195.6                               1,184.6
                                                       -----                                    -----                               -------

    Cash Flows From Investing Activities:

    Capital expenditures                             (186.1)                                  (65.2)                              (182.9)

    Acquisitions and
     intangibles, net of
     cash acquired                                    (76.3)                                   (1.8)                              (245.4)

    Proceeds from disposal
     of discontinued
     operations, net of
     cash                                              576.9                                        -                                266.7

    Other                                                3.9                                   (10.2)                                  6.0
                                                         ---                                    -----                                   ---

     Net cash from
      investing activities                             318.4                                   (77.2)                              (155.6)
                                                       -----                                    -----                                ------

    Cash Flows From Financing Activities:

    Issuance of external
     debt                                            1,465.0                                    190.0                                  98.3

    Repayment of external
     debt and capital
     leases                                          (917.2)                                  (86.7)                              (568.6)

    Debt financing costs                              (12.7)                                       -                                (0.1)

    Proceeds from exercise
     of share options                                    4.1                                      0.4                                  14.0

    Repurchase of shares                             (651.7)                                 (158.8)                              (652.9)

    Other                                             (17.7)                                     1.2                                (53.0)
                                                       -----                                      ---                                 -----

     Net cash from
      financing activities                           (130.2)                                  (53.9)                            (1,162.3)
                                                      ------                                    -----                              --------

    Effect of currency
     rate changes on cash                                2.5                                    (3.0)                                  0.3
                                                         ---                                     ----                                   ---

    Net change in cash,
     cash equivalents and
     restricted cash                                   918.0                                     61.5                               (133.0)

    Cash, cash equivalents
     and restricted cash
     at beginning of
     period                                            361.1                                    299.6                                 432.6

    Cash, cash equivalents
     and restricted cash
     at end of period                                           $1,279.1                                                 $361.1              $299.6
                                                                ========                                                 ======              ======


    Cash and cash
     equivalents at end of
     period                                                     $1,260.9                                                 $342.0              $280.5

    Restricted cash
     included in prepaid
     expenses and other
     assets at end of
     period                                                -                                     0.1                                   0.1

    Restricted cash
     included in other
     long-term assets at
     end of period                                      18.2                                     19.0                                  19.0

    Cash, cash equivalents
     and restricted cash
     at end of period                                           $1,279.1                                                 $361.1              $299.6
                                                                ========                                                 ======              ======

 

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SOURCE Mallinckrodt plc

 

Company Codes: NYSE:MNK
 

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