NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in millions, except per share data and where indicated)
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1.
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Background and Basis of Presentation
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Background
Mallinckrodt plc and its subsidiaries (collectively, "Mallinckrodt" or "the Company"), is a global business that develops, manufactures, markets and distributes branded and generic specialty pharmaceutical products and therapies. Therapeutic areas of focus include autoimmune and rare disease specialty areas (including neurology, rheumatology, nephrology, ophthalmology and pulmonology); immunotherapy and neonatal respiratory critical care therapies; analgesics and hemostasis products.
The Company operates in two reportable segments, which are further described below:
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•
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Specialty Brands
includes branded pharmaceutical products and therapies; and
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•
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Specialty Generics
includes specialty generic pharmaceuticals and active pharmaceutical ingredients ("API") consisting of biologics, medicinal opioids, synthetic controlled substances, acetaminophen and other active ingredients.
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The Company owns or has rights to use the trademarks and trade names that are used in conjunction with the operation of its business. One of the more important trademarks that the Company owns or has rights to use that appears in this Quarterly Report on Form 10-Q is "Mallinckrodt," which is a registered trademark or the subject of pending trademark applications in the United States ("U.S.") and other jurisdictions. Solely for convenience, the Company only uses the ™ or ® symbols the first time any trademark or trade name is mentioned in the following notes. Such references are not intended to indicate in any way that the Company will not assert, to the fullest extent permitted under applicable law, its rights to its trademarks and trade names. Each trademark or trade name of any other company appearing in the following discussion is, to the Company's knowledge, owned by such other company.
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in U.S. Dollars and in accordance with accounting principles generally accepted in the U.S. ("GAAP"). The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of net sales and expenses. Actual results may differ from those estimates. The unaudited condensed consolidated financial statements include the accounts of Mallinckrodt plc, its wholly-owned subsidiaries and entities in which they own or control more than fifty percent of the voting shares, or have the ability to control through similar rights. The results of entities disposed of are included in the unaudited condensed consolidated financial statements up to the date of disposal and, where appropriate, these operations have been reflected as discontinued operations. Divestitures of product lines and businesses that did not qualify as discontinued operations have been reflected in operating income. All intercompany balances and transactions have been eliminated in consolidation and, in the opinion of management, all normal recurring adjustments necessary for a fair presentation have been included in the interim results reported. The December 30, 2016 balance sheet data was derived from the unaudited condensed consolidated financial statements, but does not include all of the annual disclosures required by GAAP; accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited annual consolidated and combined financial statements included in its Annual Report on Form 10-K for the period ended September 30, 2016, filed with the U.S. Securities and Exchange Commission ("SEC") on November 29, 2016.
The Company completed the sale of its Nuclear Imaging business on January 27, 2017. As a result, prior year balances have been recast to present the financial results of this business as a discontinued operation.
Fiscal Year
The Company historically reported its results based on a "52-53 week" year ending on the last Friday of September. On May 17, 2016, the Board of Directors of the Company approved a change in the Company’s fiscal year end to the last Friday in December from the last Friday in September. The change in fiscal year became effective for the Company’s 2017 fiscal year, which began on December 31, 2016 and will end on December 29, 2017. As a result of the change in fiscal year end, the Company filed a Transition Report on Form 10-Q on February 7, 2017 covering the period from October 1, 2016 through December 30, 2016. Unless otherwise indicated, the three months ended
March 31, 2017
refers to the thirteen week period ended
March 31, 2017
and the three months ended
March 25, 2016
refers to the thirteen week period ended
March 25, 2016
.
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2.
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Recently Issued Accounting Standards
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Adopted
The Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2017-04, "Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment," in January 2017. This update eliminates step 2 from the goodwill impairment test, and requires the goodwill impairment test to be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Company early adopted this standard in fiscal 2017, which did not have a material impact. The Company will apply this standard to prospective goodwill impairment tests.
The FASB issued ASU 2016-16, "Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory," in October 2016. This update simplifies the practice of how income tax consequences of an intra-entity transfer of an asset other than inventory should be recognized. Upon adoption, the entity must recognize such income tax consequences when the intra-entity transfer occurs rather than waiting until such time as the asset has been sold to an outside party. The Company early adopted this standard in fiscal 2017, which resulted in a
$75.0 million
decrease to beginning retained earnings with an offsetting decrease of
$67.2 million
to other assets and a
$7.8 million
decrease to prepaid expenses on its unaudited condensed consolidated balance sheet. The prior periods were not restated.
The FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," in August 2016 and ASU 2016-18 "Statement of Cash Flows (Topic 230): Restricted Cash," in November 2016. These updates provide guidance for nine targeted clarifications with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The Company early adopted these standards in fiscal 2017 and revised the prior year statement of cash flow. The adoption of ASU 2016-18, regarding presentation of restricted cash, increased the net cash used in investing activities during the three months ended March 25, 2016 by
$21.2 million
. The adoption of ASU 2016-15, regarding the other targeted clarifications, did not result in any material changes.
The FASB issued ASU 2016-09, "Stock Compensation," in March 2016. This update simplifies several aspects of the accounting for share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification of certain tax effects within the statement of cash flows. The Company adopted this guidance in fiscal 2017, which resulted in a
$2.9 million
increase to beginning retained earnings to recognize net operating loss carryforwards, net of a valuation allowance, attributable to excess tax benefits on stock compensation that had not been previously recognized in additional paid-in capital.
The FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments," in September 2015. This update requires an acquirer to recognize adjustments to the provisional amounts that are identified during the measurement period in the reporting period in which the adjusting amounts are determined. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The Company adopted this standard in fiscal 2017, which did not have any impact on historical acquisitions.
The FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory," in July 2015. The issuance of ASU 2015-11 is part of the FASB's initiative to more closely align the measurement of inventory between GAAP and IFRS. Under the new guidance, inventory must be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This Company adopted this standard in fiscal 2017, which did not have a material impact.
Not Yet Adopted
The FASB issued ASU 2017-07, "Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post Retirement Benefit Cost," in March 2017. This update requires that the service cost component be disaggregated from the other components of net benefit cost. Service cost should be reported in the same line item or items as other compensation costs arising from services rendered by pertinent employees during the period. The other components of net benefit cost should be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. This guidance is effective for the Company in the first quarter of fiscal 2018. The Company expects the impact of this guidance to be immaterial upon adoption.
The FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business," in January 2017. This update provides a screen to determine whether or not a set of assets is a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of assets is not a business. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set of assets must include, at a minimum, an input and a substantive process that together significantly
contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. This guidance is effective for the Company in the first quarter of fiscal 2018. Early adoption is permitted for transactions not previously reported in the Company's consolidated financial statements. The Company is assessing the timing of adoption and impact of this guidance on future transactions.
The FASB issued ASU 2014-09, "Revenue from Contracts with Customers," in May 2014. The issuance of ASU 2014-09 and International Financial Reporting Standards ("IFRS") 15, "Revenue from Contracts with Customers," completes the joint effort by the FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and IFRS. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, applying the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance is effective for the Company in the first quarter of fiscal year 2018. The FASB subsequently issued additional ASUs to clarify the guidance of ASU 2014-09. The ASUs issued include ASU 2016-08, "Revenue from Contracts with Customers;" ASU 2016-10 "Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing;" and ASU 2016-12, "Narrow-Scope Improvements and Practical Expedients." The Company has preliminarily assessed certain customer arrangements based on the nature of its business; and as of this time, the Company does not anticipate a significant impact upon adoption. However, the assessment is ongoing and a more detailed analysis of contracts subject to the preliminary assessment or review of additional contracts may identify a more significant impact. The Company is also assessing transition approaches and currently expects, in part due to the limited anticipated impact, it will utilize the modified retrospective approach of adopting the ASU.
The Company's status of various ASUs are further described within the notes to the financial statements included within the Company's Annual Report filed on Form 10-K for the fiscal year ended September 30, 2016.
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3.
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Discontinued Operations and Divestitures
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Discontinued Operations
Nuclear Imaging:
On January 27, 2017, the Company completed the sale of its Nuclear Imaging business to IBA Molecular ("IBAM") for approximately
$690.0 million
before tax impacts, including up-front consideration of approximately
$574.0 million
, up to
$77.0 million
of contingent consideration and the assumption of certain liabilities. The Company recorded a pre-tax gain on the sale of the Nuclear Imaging business of
$369.3 million
during the three months ended March 31, 2017, which excluded any potential proceeds from the contingent consideration.
The following table summarizes the financial results of the Nuclear Imaging business presented in the unaudited condensed consolidated statements of income:
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Three Months Ended
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Major line items constituting income from discontinued operations
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March 31, 2017
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March 25, 2016
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Net sales
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$
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31.6
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$
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102.2
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Cost of sales
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15.6
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47.7
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Selling, general and administrative expenses
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7.8
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21.9
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Restructuring charges, net
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—
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0.3
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Other
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(0.2
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)
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0.3
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Income from discontinued operations
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8.4
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32.0
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Gain on divestiture of discontinued operations
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369.3
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—
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Income from discontinued operations, before income taxes
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377.7
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32.0
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Income tax expense
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5.4
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10.2
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Income from discontinued operations, net of income taxes
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$
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372.3
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$
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21.8
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During the three months ended March 31, 2017 there was income tax expense of
$1.1 million
associated with the
$369.3 million
gain recognized on divestiture and a
$4.3 million
income tax expense associated with the
$8.4 million
income from discontinued operations. The tax impact of the gain recognized on divestiture was favorably impacted by receiving a benefit from permanently deductible items.
The following table summarizes the assets and liabilities of the Nuclear Imaging business that are classified as held for sale on the unaudited condensed consolidated balance sheets:
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March 31, 2017
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December 30, 2016
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Carrying amounts of major classes of assets included as part of discontinued operations
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Accounts receivable
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$
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—
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$
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49.6
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Inventories
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—
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20.0
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Property, plant and equipment, net
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—
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188.7
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Other current and non-current assets
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—
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52.6
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Total assets classified as held for sale in the balance sheet
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$
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—
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$
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310.9
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Carrying amounts of major classes of liabilities included as part of discontinued operations
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Accounts payable
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$
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—
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$
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19.7
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Other current and non-current liabilities
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—
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100.6
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Total liabilities classified as held for sale in the balance sheet
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$
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—
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$
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120.3
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The following table summarizes significant cash and non-cash transactions of the Nuclear Imaging business that are included within the unaudited condensed consolidated statements of cash flows for the respective periods:
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Three Months Ended
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March 31, 2017
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March 25, 2016
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Depreciation
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$
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—
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$
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4.8
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Capital expenditures
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0.3
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2.6
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All other notes to the unaudited condensed consolidated financial statements that were impacted by this discontinued operation have been reclassified accordingly.
CMDS
On November 27, 2015, the Company completed the sale of its contrast media and delivery systems ("CMDS") business to Guerbet S.A. ("Guerbet") for cash consideration of approximately
$270.0 million
, subject to net working capital adjustments. During the three months ended
March 25, 2016
, the Company had
$1.1 million
of net sales, a
$0.2 million
income tax benefit and a
$1.7 million
loss, net of tax, included in discontinued operations for the CMDS business.
Divestitures
On January 30, 2017, the Company announced that it had entered into a definitive agreement to sell its Intrathecal Therapy business to Piramal Enterprises Limited's subsidiary in the U.K., Piramal Critical Care ("Piramal"), for approximately
$203.0 million
, including fixed consideration of
$171.0 million
and contingent consideration of up to
$32.0 million
. The
$171.0 million
of fixed consideration consisted of
$17.0 million
received at closing and a
$154.0 million
note receivable that is due one year from the transaction closing date. The transaction was completed on March 17, 2017. The Company recorded a pre-tax gain on the sale of the business of
$59.1 million
during the three months ended March 31, 2017, which excluded any proceeds from the contingent consideration. The financial results of the Intrathecal Therapy business are presented within continuing operations as this divestiture did not meet the criteria for discontinued operations classification.
As part of the divestiture and calculation of the gain, the Company wrote off intangible assets of
$48.7 million
and
$49.8 million
of goodwill, from the Specialty Brands segment, ascribed to the Intrathecal Therapy business. The Company is committed to reimburse up to
$7.3 million
of product development expenses incurred by Piramal. The remaining items included in the gain calculation are attributable to inventory transferred and transaction costs incurred by the Company.
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4.
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Acquisitions, License Agreements and Other Investments
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The Company did not close on any material acquisitions during the three months ended
March 31, 2017
. The Company closed acquisitions in prior periods that may affect the comparability of the unaudited condensed consolidated statements of income in this Quarterly Report on Form 10-Q. During the three months ended
March 31, 2017
and
March 25, 2016
, the Company recognized
$3.0 million
and
$2.1 million
, respectively, of expense primarily associated with fair value adjustments of acquired inventory. The amount of acquisition-related costs included within operating income for the three months ended
March 25, 2016
was
$1.9 million
.
The Company's acquisitions and license agreements are described further within the notes to the financial statements included within the Company's Annual Report filed on Form 10-K for the fiscal year ended September 30, 2016.
Hemostasis Products
On February 1, 2016, the Company acquired three commercial stage topical hemostasis drugs from The Medicines Company ("the Hemostasis Acquisition") - RECOTHROM® Thrombin topical (Recombinant) ("Recothrom"), PreveLeak
TM
Surgical Sealant ("PreveLeak"), and RAPLIXA
TM
(Fibrin Sealant (Human)) ("Raplixa") - for upfront consideration of
$173.5 million
, inclusive of existing inventory, and contingent sales-based milestone payments that could result in up to
$395.0 million
of additional consideration. The fair value of the contingent consideration and acquired contingent liabilities associated with the transaction were
$52.0 million
and
$10.6 million
, respectively, at February 1, 2016. The Hemostasis Acquisition was funded with cash on hand.
Licenses and Other Investments
In January 2017,
$21.5 million
of consideration was remitted to Mesoblast Limited ("Mesoblast") in exchange for equity shares and rights to a nine month exclusivity period related to any potential commercial and development agreements the Company may enter into for Mesoblast's therapy products used to treat acute graft versus host disease and chronic low back pain. As a result of this transaction the Company recorded an available for sale investment of
$19.7 million
included within prepaid and other current assets and an intangible asset of
$1.8 million
, which will be amortized over the nine month exclusivity period, in the unaudited condensed consolidated balance sheet.
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5.
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Restructuring and Related Charges
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In July 2016, the Company's Board of Directors approved a
$100.0 million
to
$125.0 million
restructuring program ("the 2016 Mallinckrodt Program") designed to further improve the Company's cost structure as it continues to transform the business. The 2016 Mallinckrodt Program is expected to include actions across both the Specialty Brands and Specialty Generics segments, as well as within corporate functions. There is no specified time period associated with the 2016 Mallinckrodt Program. In addition to the 2016 Mallinckrodt Program, the Company takes certain restructuring actions to generate synergies from its acquisitions.
Net restructuring and related charges within continuing operations by segment are as follows:
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Three Months Ended
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|
March 31,
2017
|
|
March 25,
2016
|
Specialty Brands
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$
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9.2
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|
|
$
|
8.0
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Specialty Generics
|
7.4
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|
|
0.6
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|
Corporate
|
2.1
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|
|
1.5
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|
Restructuring and related charges, net
|
18.7
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|
|
10.1
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|
Less: accelerated depreciation
|
(1.5
|
)
|
|
(1.7
|
)
|
Restructuring charges, net
|
$
|
17.2
|
|
|
$
|
8.4
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|
Net restructuring and related charges by program within continuing operations are comprised of the following:
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|
|
|
|
|
|
|
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Three Months Ended
|
|
March 31,
2017
|
|
March 25,
2016
|
2016 Mallinckrodt Program
|
$
|
18.7
|
|
|
$
|
—
|
|
2013 Mallinckrodt Program
|
—
|
|
|
8.1
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|
Acquisitions
|
—
|
|
|
2.0
|
|
Total
|
18.7
|
|
|
10.1
|
|
Less: non-cash charges, including accelerated share-based compensation expense
|
(1.5
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)
|
|
(1.7
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)
|
Total charges expected to be settled in cash
|
$
|
17.2
|
|
|
$
|
8.4
|
|
The following table summarizes cash activity for restructuring reserves, substantially all of which are related to employee severance and benefits:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Mallinckrodt Program
|
|
2013 Mallinckrodt Program
|
|
Acquisitions
|
|
Total
|
Balance at December 30, 2016
|
$
|
9.5
|
|
|
$
|
5.1
|
|
|
$
|
0.2
|
|
|
$
|
14.8
|
|
Charges
|
17.7
|
|
|
—
|
|
|
—
|
|
|
17.7
|
|
Changes in estimate
|
(0.5
|
)
|
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
Cash payments
|
(7.2
|
)
|
|
(3.2
|
)
|
|
(0.1
|
)
|
|
(10.5
|
)
|
Balance at March 31, 2017
|
$
|
19.5
|
|
|
$
|
1.9
|
|
|
$
|
0.1
|
|
|
$
|
21.5
|
|
Net restructuring and related charges, including associated asset impairments, incurred cumulative-to-date related to the 2016 Mallinckrodt Program was as follows:
|
|
|
|
|
|
2016 Mallinckrodt Program
|
Specialty Brands
|
$
|
16.4
|
|
Specialty Generics
|
8.7
|
|
Corporate
|
7.1
|
|
|
$
|
32.2
|
|
Substantially all of the restructuring reserves were included in accrued and other current liabilities on the Company's unaudited condensed consolidated balance sheets.
The Company recognized an income tax benefit of
$39.5 million
on a loss from continuing operations before income taxes of
$10.6 million
for the three months ended March 31, 2017 and an income tax benefit of
$63.8 million
on income from continuing operations before income taxes of
$34.7 million
for the three months ended March 25, 2016. This resulted in effective tax rates of
372.6%
and negative
183.9%
for the three months ended March 31, 2017 and March 25, 2016, respectively. The income tax benefit for the three months ended March 31, 2017 is comprised of
$35.9 million
of current tax expense and
$75.4 million
of deferred tax benefit. The net deferred tax benefit of
$75.4 million
includes
$102.6 million
of deferred tax benefit which is predominantly related to acquired intangible assets offset by
$27.2 million
of deferred tax expense related to utilization of tax attributes. The income tax benefit for the three months ended March 25, 2016 is comprised of
$46.2 million
of current tax expense and
$110.0 million
of deferred tax benefit which is predominantly related to acquired intangible assets.
The effective tax rate for the three months ended March 31, 2017, as compared with the three months ended March 25, 2016 increased by
556.5
percentage points. Included within this net increase was a
562.1
percentage point increase primarily attributable to diminutive loss from continuing operations before taxes for the three months ended March 31, 2017 as compared with the three months ended March 25, 2016. Also within this increase was a
17.2
percentage point increase related to the divestiture of the Intrathecal Therapy Business, which occurred during the three months ended March 31, 2017. The remaining
22.8
percentage point decrease was attributable to changes in operating income which resulted in more income in lower tax rate jurisdictions and less income in the higher tax rate U.S. jurisdiction.
During the three months ended March 31, 2017, the Company recognized an income tax expense of
$5.4 million
associated with the Nuclear Imaging business, as discussed in Note 3, in discontinued operations within the unaudited condensed consolidated statement of income.
The Company early adopted ASU 2016-16 in the first quarter of 2017 utilizing the modified retrospective basis adoption method, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period for
$75.0 million
with an offsetting decrease of
$67.2 million
to other assets and a
$7.8 million
decrease to prepaid expenses on its unaudited condensed consolidated balance sheets. The prior periods were not restated.
The Company adopted ASU 2016-09 in the first quarter of 2017 and recorded an adjustment to retained earnings of
$2.9 million
to recognize net operating loss carryforwards, net of a valuation allowance, attributable to excess tax benefits on stock compensation that had not been previously recognized to additional paid-in capital.
The Company has refined its acquisition accounting estimate associated with the measurement of its acquired Stratatech net deferred tax liabilities, resulting in a decrease to the acquired net deferred tax liabilities from
$24.3 million
to
$22.1 million
.
The divestiture of the Intrathecal Therapy Business was completed on March 17, 2017. This divestiture resulted in a net deferred tax liability increase of
$41.2 million
. Significant components of this increase include an increase of
$56.5 million
of deferred tax liability associated with future consideration, a decrease of
$5.2 million
of deferred tax asset associated with net operating losses, a decrease of
$17.9 million
of deferred tax liability associated with intangibles, and an increase of
$2.6 million
of deferred tax asset associated with committed product development.
The Company's unrecognized tax benefits, excluding interest, totaled
$120.1 million
at
March 31, 2017
and
$118.7 million
at
December 30, 2016
. The net increase of
$1.4 million
primarily resulted from a net increase to current year positions of
$2.5 million
, and net decreases from prior period tax positions of
$1.1 million
. If favorably settled,
$118.3 million
of unrecognized tax benefits at
March 31, 2017
would favorably impact the effective tax rate. The total amount of accrued interest related to these obligations was
$7.6 million
at
March 31, 2017
and
$7.1 million
at
December 30, 2016
.
It is reasonably possible that within the next twelve months, as a result of the resolution of various U.K. and non-U.K. examinations, appeals and litigation and the expiration of various statutes of limitation, that the unrecognized tax benefits will decrease by up to
$12.3 million
and the amount of related interest and penalties will decrease by up to
$5.1 million
.
Basic earnings per share is computed by dividing net income by the number of weighted-average shares outstanding during the period. Diluted earnings per share is computed using the weighted-average shares outstanding and, if dilutive, potential ordinary shares outstanding during the period. Potential ordinary shares represent the incremental ordinary shares issuable for restricted share units and share option exercises. The Company calculates the dilutive effect of outstanding restricted share units and share options on earnings per share by application of the treasury stock method.
The weighted-average number of shares outstanding used in the computations of basic and diluted earnings per share were as follows:
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|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2017
|
|
March 25, 2016
|
Basic
|
103.3
|
|
|
111.1
|
|
Dilutive impact of restricted share units and share options
|
0.3
|
|
|
0.9
|
|
Diluted
|
103.6
|
|
|
112.0
|
|
The computation of diluted weighted-average shares outstanding for the
three
months ended March 31, 2017 and March 25, 2016 excludes approximately
3.7 million
and
1.4 million
shares of equity awards, respectively, because the effect would have been anti-dilutive.
Inventories were comprised of the following at the end of each period:
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 30,
2016
|
Raw materials and supplies
|
$
|
78.7
|
|
|
$
|
72.6
|
|
Work in process
|
182.2
|
|
|
178.4
|
|
Finished goods
|
97.9
|
|
|
99.7
|
|
|
$
|
358.8
|
|
|
$
|
350.7
|
|
|
|
|
9.
|
Property, Plant and Equipment
|
The gross carrying amount and accumulated depreciation of property, plant and equipment at the end of each period was as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 30, 2016
|
Property, plant and equipment, gross
|
$
|
1,732.9
|
|
|
$
|
1,679.4
|
|
Less: accumulated depreciation
|
(821.5
|
)
|
|
(797.9
|
)
|
Property, plant and equipment, net
|
$
|
911.4
|
|
|
$
|
881.5
|
|
Depreciation expense for property, plant and equipment was
$28.8 million
and
$32.0 million
during the three months ended
March 31, 2017
and
March 25, 2016
, respectively.
|
|
|
10.
|
Goodwill and Intangible Assets
|
The gross carrying amount and accumulated impairment of goodwill by segment at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 30, 2016
|
|
Gross Carrying Amount
|
|
Accumulated Impairment
|
|
Gross Carrying Amount
|
|
Accumulated Impairment
|
Specialty Brands
|
$
|
3,446.2
|
|
|
$
|
—
|
|
|
3,498.1
|
|
|
$
|
—
|
|
Specialty Generics
|
207.0
|
|
|
(207.0
|
)
|
|
207.0
|
|
|
(207.0
|
)
|
Total
|
$
|
3,653.2
|
|
|
$
|
(207.0
|
)
|
|
$
|
3,705.1
|
|
|
$
|
(207.0
|
)
|
During the three months ended
March 31, 2017
, the gross carrying value of goodwill within the Specialty Brands segment decreased by
$51.9 million
. The decrease was primarily attributable to the sale of the Intrathecal Therapy business to Piramal. The Company ascribed
$49.8 million
of goodwill to that business and it was factored into the gain on sale of the business. The remainder of the decrease was related to a purchase accounting adjustment for the Stratatech acquisition primarily attributable to changes in deferred tax balances.
The gross carrying amount and accumulated amortization of intangible assets at the end of each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 30, 2016
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Amortizable:
|
|
|
|
|
|
|
|
Completed technology
|
$
|
9,955.6
|
|
|
$
|
1,762.6
|
|
|
$
|
10,028.7
|
|
|
$
|
1,617.1
|
|
Licenses
|
177.1
|
|
|
115.6
|
|
|
177.1
|
|
|
112.7
|
|
Customer relationships
|
28.1
|
|
|
9.4
|
|
|
27.6
|
|
|
8.4
|
|
Trademarks
|
81.9
|
|
|
11.6
|
|
|
82.1
|
|
|
10.9
|
|
Other
|
8.6
|
|
|
7.3
|
|
|
6.7
|
|
|
6.7
|
|
Total
|
$
|
10,251.3
|
|
|
$
|
1,906.5
|
|
|
$
|
10,322.2
|
|
|
$
|
1,755.8
|
|
Non-Amortizable:
|
|
|
|
|
|
|
|
Trademarks
|
$
|
35.0
|
|
|
|
|
$
|
35.0
|
|
|
|
In-process research and development
|
399.1
|
|
|
|
|
399.1
|
|
|
|
Total
|
$
|
434.1
|
|
|
|
|
$
|
434.1
|
|
|
|
Intangible asset amortization expense within continuing operations was
$175.1 million
and
$175.0 million
during the three months ended
March 31, 2017
and
March 25, 2016
, respectively. The estimated aggregate amortization expense on intangible assets owned by the Company is expected to be as follows:
|
|
|
|
|
Remainder of Fiscal 2017
|
$
|
519.4
|
|
Fiscal 2018
|
686.0
|
|
Fiscal 2019
|
685.7
|
|
Fiscal 2020
|
685.4
|
|
Fiscal 2021
|
685.2
|
|
Debt was comprised of the following at the end of each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 30, 2016
|
|
Principal
|
|
Unamortized Discount and Debt Issuance Costs
|
|
Principal
|
|
Unamortized Discount and Debt Issuance Costs
|
Current maturities of long-term debt:
|
|
|
|
|
|
|
|
Variable-rate receivable securitization
|
$
|
225.0
|
|
|
$
|
0.2
|
|
|
$
|
250.0
|
|
|
$
|
0.3
|
|
Term loan due March 2021
|
—
|
|
|
—
|
|
|
20.0
|
|
|
0.3
|
|
4.00% term loan due February 2022
|
1.0
|
|
|
—
|
|
|
1.0
|
|
|
—
|
|
Term loan due September 2024
|
18.7
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
Capital lease obligation and vendor financing agreements
|
0.7
|
|
|
—
|
|
|
0.8
|
|
|
—
|
|
Total current debt
|
245.4
|
|
|
0.5
|
|
|
271.8
|
|
|
0.6
|
|
Long-term debt:
|
|
|
|
|
|
|
|
3.50% notes due April 2018
|
300.0
|
|
|
0.7
|
|
|
300.0
|
|
|
0.9
|
|
4.875% notes due April 2020
|
700.0
|
|
|
7.6
|
|
|
700.0
|
|
|
8.2
|
|
Term loan due March 2021
|
—
|
|
|
—
|
|
|
1,928.5
|
|
|
33.4
|
|
4.00% term loan due February 2022
|
5.4
|
|
|
—
|
|
|
5.5
|
|
|
—
|
|
9.50% debentures due May 2022
|
10.4
|
|
|
—
|
|
|
10.4
|
|
|
—
|
|
5.75% notes due August 2022
|
884.0
|
|
|
11.0
|
|
|
884.0
|
|
|
11.6
|
|
8.00% debentures due March 2023
|
4.4
|
|
|
—
|
|
|
4.4
|
|
|
—
|
|
4.75% notes due April 2023
|
600.0
|
|
|
5.9
|
|
|
600.0
|
|
|
6.1
|
|
5.625% notes due October 2023
|
738.0
|
|
|
11.0
|
|
|
738.0
|
|
|
11.4
|
|
Term loan due September 2024
|
1,846.3
|
|
|
30.5
|
|
|
—
|
|
|
—
|
|
5.50% notes due April 2025
|
695.0
|
|
|
9.9
|
|
|
695.0
|
|
|
10.2
|
|
Revolving credit facility
|
—
|
|
|
7.0
|
|
|
100.0
|
|
|
3.2
|
|
Total long-term debt
|
5,783.5
|
|
|
83.6
|
|
|
5,965.8
|
|
|
85.0
|
|
Total debt
|
$
|
6,028.9
|
|
|
$
|
84.1
|
|
|
$
|
6,237.6
|
|
|
$
|
85.6
|
|
The Company's debt instruments are further described within the notes to the financial statements included within the Company's Annual Report filed on Form 10-K for the fiscal year ended September 30, 2016.
On February 28, 2017, Mallinckrodt International Finance, S.A. ("MIFSA") and Mallinckrodt CB LLC ("MCB") refinanced the March 2014 and August 2014 term loans, both of which were due in March 2021 ("the Existing Term Loans"). The refinanced term loans have an aggregate principal amount of
$1,865.0 million
are due in September 2024 and bear interest at LIBOR plus
2.75%
("the 2017 Term Loan"). The 2017 Term Loan requires quarterly principal amortization payments in an amount equal to
0.25%
of the original principal balance of the 2017 Term Loan payable on the last day of each calendar quarter, which will commence on June 30, 2017, with the remaining balance due on September 24, 2024. The Company accounted for the term loan financing as a debt modification.
In conjunction with the term loan refinancing, MIFSA and MCB replaced the existing revolving credit facility of
$500.0 million
due in March 2019 with a
$900.0 million
facility that matures on February 28, 2022 ("the 2017 Revolving Credit Facility"). The 2017 Revolving Credit Facility bears interest at LIBOR plus
2.25%
. The 2017 Revolving Credit Facility reduced the letter of credit provision from
$150.0 million
to
$50.0 million
. Unused commitments under the 2017 Revolving Credit Facility are subject to an annual commitment fee of
0.275%
. Fees applied to outstanding letters of credit is based on the interest rate applied to borrowings. The 2017 Revolving Credit Facility added certain wholly-owned subsidiaries of the Company as borrowers, in addition to Mallinckrodt plc, MIFSA and MCB.
The 2017 Term Loan and 2017 Revolving Credit Facility (collectively "the 2017 Facilities") are fully and unconditionally guaranteed by Mallinckrodt plc, certain of its direct or indirect wholly-owned U.S. subsidiaries and each of its direct or indirect wholly-owned subsidiaries that owns directly or indirectly any such wholly-owned U.S. subsidiaries and certain of its other subsidiaries (collectively, "the Guarantors"). The 2017 Facilities are secured by a security interest in certain assets of MIFSA, MCB and the Guarantors. The 2017 Facilities contain customary affirmative and negative covenants, which include, among other things, restrictions on the Company's ability to declare or pay dividends, create liens, incur additional indebtedness, enter into sale and lease-back transactions, make investments, dispose of assets and merge or consolidate with any other person.
As a result of the 2017 Facilities financing transaction and the write-off of certain deferred financing costs associated with an
$83.5 million
payment on the Existing Term Loans, the Company recorded a
$10.0 million
charge included within the other expense line in the unaudited condensed consolidated statement of income.
As of
March 31, 2017
, the applicable interest rate on outstanding borrowings under the Company's revolving credit facility was approximately
3.40%
, and there were
no
outstanding borrowings. As of
March 31, 2017
, the applicable interest rate on outstanding borrowings under the variable-rate receivable securitization was
1.78%
, and outstanding borrowings totaled
$225.0 million
. At
March 31, 2017
, the applicable interest rate for the term loan due September 2024 was
3.90%
, and outstanding borrowings totaled
$1,865.0 million
.
As of
March 31, 2017
, the Company continues to be in full compliance with the provisions and covenants associated with its debt agreements.
The net periodic benefit cost for the Company's defined benefit pension plans was as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
2017
|
|
March 25,
2016
|
Service cost
|
$
|
1.3
|
|
|
$
|
0.4
|
|
Interest cost
|
1.7
|
|
|
3.5
|
|
Expected return on plan assets
|
(1.3
|
)
|
|
(4.2
|
)
|
Amortization of net actuarial loss
|
2.2
|
|
|
2.6
|
|
Amortization of prior service cost
|
0.1
|
|
|
—
|
|
Plan settlements
|
69.2
|
|
|
3.7
|
|
Net periodic benefit cost
|
$
|
73.2
|
|
|
$
|
6.0
|
|
The net periodic benefit credit for the Company's postretirement benefit plans was approximately
zero
for the three months ended
March 31, 2017
and
$0.1 million
for the three months ended
March 25, 2016
.
Net periodic benefit cost for the Company's defined benefit pension plans and postretirement benefit plans was included within cost of sales; research and development; and selling, general and administrative ("SG&A") expenses on the unaudited condensed consolidated statements of income.
Pension Plan Termination
During the three months ended March 31, 2017, the Company completed the settlement of remaining obligations of six defined benefit pension plans that were terminated during fiscal 2016. In conjunction with this final settlement, the Company made a
$61.3 million
cash contribution to the terminated plans and recognized a
$69.2 million
charge, included within SG&A expenses.
|
|
|
13.
|
Accumulated Other Comprehensive Income
|
The following summarizes the change in accumulated other comprehensive income for the
three
months ended
March 31, 2017
and March 25, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Translation
|
|
Unrecognized Gain (Loss) on Derivatives
|
|
Unrecognized Gain (Loss) on Benefit Plans
|
|
Unrecognized Gain on Equity Securities
|
|
Accumulated Other Comprehensive Income (Loss)
|
Balance at December 30, 2016
|
$
|
(19.5
|
)
|
|
$
|
(5.7
|
)
|
|
$
|
(47.3
|
)
|
|
$
|
—
|
|
|
$
|
(72.5
|
)
|
Other comprehensive income before reclassifications
|
7.1
|
|
|
—
|
|
|
10.2
|
|
|
13.4
|
|
|
30.7
|
|
Amounts reclassified from accumulated other comprehensive income
|
(4.7
|
)
|
|
0.2
|
|
|
36.4
|
|
|
—
|
|
|
31.9
|
|
Net current period other comprehensive income
|
2.4
|
|
|
0.2
|
|
|
46.6
|
|
|
13.4
|
|
|
62.6
|
|
Balance at March 31, 2017
|
$
|
(17.1
|
)
|
|
$
|
(5.5
|
)
|
|
$
|
(0.7
|
)
|
|
$
|
13.4
|
|
|
$
|
(9.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Translation
|
|
Unrecognized Gain (Loss) on Derivatives
|
|
Unrecognized Gain (Loss) on Benefit Plans
|
|
Unrecognized Gain on Equity Securities
|
|
Accumulated Other Comprehensive Income (Loss)
|
Balance at December 25, 2015
|
$
|
(7.9
|
)
|
|
$
|
(6.3
|
)
|
|
$
|
(51.1
|
)
|
|
$
|
—
|
|
|
$
|
(65.3
|
)
|
Other comprehensive income (loss) before reclassifications
|
8.8
|
|
|
—
|
|
|
(12.4
|
)
|
|
—
|
|
|
(3.6
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
0.2
|
|
|
3.6
|
|
|
—
|
|
|
3.8
|
|
Net current period other comprehensive income (loss)
|
8.8
|
|
|
0.2
|
|
|
(8.8
|
)
|
|
—
|
|
|
0.2
|
|
Balance at March 25, 2016
|
$
|
0.9
|
|
|
$
|
(6.1
|
)
|
|
$
|
(59.9
|
)
|
|
$
|
—
|
|
|
$
|
(65.1
|
)
|
The following summarizes reclassifications from accumulated other comprehensive income for the
three
months ended
March 31, 2017
and March 25, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Amount Reclassified from
Accumulated Other Comprehensive Income
|
|
|
|
Three Months Ended March 31, 2017
|
|
Three Months Ended March 25, 2016
|
|
Line Item in the Unaudited Condensed Consolidated
Statement of Income
|
Amortization of unrealized loss on derivatives
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
Interest expense
|
Income tax provision
|
—
|
|
|
—
|
|
|
Income tax benefit
|
Net of income taxes
|
0.2
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
Amortization of pension and post-retirement benefit plans:
|
|
|
|
|
|
Net actuarial loss
|
2.3
|
|
|
2.6
|
|
|
(1)
|
Prior service credit
|
(0.6
|
)
|
|
(0.7
|
)
|
|
(1)
|
Divestiture of discontinued operations
|
(3.1
|
)
|
|
—
|
|
|
Income from discontinued operations, net of income taxes
|
Plan settlements
|
69.2
|
|
|
3.7
|
|
|
(1)
Selling, general and
administrative expenses
|
Total before tax
|
67.8
|
|
|
5.6
|
|
|
|
Income tax provision
|
(31.4
|
)
|
|
(2.0
|
)
|
|
Income tax benefit
|
Net of income taxes
|
36.4
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
Currency translation
|
(4.7
|
)
|
|
—
|
|
|
Income from discontinued operations, net of income taxes
|
|
|
|
|
|
|
Total reclassifications for the period
|
$
|
31.9
|
|
|
$
|
3.8
|
|
|
|
|
|
(1)
|
These accumulated other comprehensive income components are included in the computation of net periodic benefit cost. See Note
12
for additional details.
|
Share Repurchases
On November 19, 2015, the Company's Board of Directors authorized a
$500.0 million
share repurchase program (the “November 2015 Program”), which was completed in the three months ended December 30, 2016. On March 16, 2016, the Company's Board of Directors authorized an additional
$350.0 million
share repurchase program (the “March 2016 Program”), which was completed during the three months ended March 31, 2017. On March 1, 2017, the Company's Board of Directors authorized an additional
$1.0 billion
share repurchase program (the "March 2017 Program"), which commenced upon the completion of the March 2016 Program. The March 2017 Program has no time limit or expiration date, and the Company currently expects to fully utilize the program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2017 Repurchase Program
|
|
March 2016
Repurchase Program
|
|
November 2015 Repurchase Program
|
|
Number of Shares
|
|
Amount
|
|
Number of Shares
|
|
Amount
|
|
Number of Shares
|
|
Amount
|
Authorized repurchase amount
|
|
|
$
|
1,000.0
|
|
|
|
|
$
|
350.0
|
|
|
|
|
$
|
500.0
|
|
Repurchases:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,510,824
|
|
|
425.6
|
|
Transition Period 2016
|
—
|
|
|
—
|
|
|
1,501,676
|
|
|
84.0
|
|
|
1,063,337
|
|
|
74.4
|
|
Fiscal 2017
|
220,573
|
|
|
9.6
|
|
|
5,366,741
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266.0
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—
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—
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Remaining amount available
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$
|
990.4
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$
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—
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$
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—
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(1)
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Represents the Company's historical fiscal year ending on the last Friday in September.
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The Company also repurchases shares from employees in order to satisfy employee tax withholding requirements in connection with the vesting of restricted shares and share option exercises.
In disposing of assets or businesses, the Company has historically provided representations, warranties and indemnities to cover various risks and liabilities, including unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities related to periods prior to disposition. The Company assesses the probability of potential liabilities related to such representations, warranties and indemnities and adjusts potential liabilities as a result of changes in facts and circumstances. The Company believes, given the information currently available, that their ultimate resolutions will not have a material adverse effect on its financial condition, results of operations and cash flows.
In connection with the sale of the Specialty Chemicals business (formerly known as Mallinckrodt Baker) in fiscal 2010, the Company agreed to indemnify the purchaser with respect to various matters, including certain environmental, health, safety, tax and other matters. The indemnification obligations relating to certain environmental, health and safety matters have a term of
17 years
from the sale, while some of the other indemnification obligations have an indefinite term. The amount of the liability relating to all of these indemnification obligations included in other liabilities on the Company's unaudited condensed consolidated balance sheets as of both
March 31, 2017
and December 30, 2016 was
$15.1 million
, of which
$12.4 million
related to environmental, health and safety matters. The value of the environmental, health and safety indemnity was measured based on the probability-weighted present value of the costs expected to be incurred to address environmental, health and safety claims made under the indemnity. The aggregate fair value of these indemnification obligations did not differ significantly from their aggregate carrying value at
March 31, 2017
and December 30, 2016. As of
March 31, 2017
, the maximum future payments the Company could be required to make under these indemnification obligations were
$71.0 million
. The Company was required to pay
$30.0 million
into an escrow account as collateral to the purchaser, of which
$19.1 million
and
$19.0 million
remained in restricted cash, included in long-term other assets on the unaudited condensed consolidated balance sheets at
March 31, 2017
and
December 30, 2016
, respectively.
The Company has recorded liabilities for known indemnification obligations included as part of environmental liabilities, which are discussed in Note 16.
In addition, the Company is also liable for product performance; however, the Company believes, given the information currently available, that their ultimate resolutions will not have a material adverse effect on its financial condition, results of operations and cash flows.
The Company is required to provide the U.S. Nuclear Regulatory Commission financial assurance demonstrating its ability to fund the decommissioning of its Maryland Heights, Missouri radiopharmaceuticals production facility upon closure, though the Company does not intend to close this facility. The Company has provided this financial assurance in the form of surety bonds totaling
$30.2 million
. As of
March 31, 2017
, the Company had various other letters of credit, guarantees and surety bonds totaling
$30.4 million
.
In addition, as part of the Company's legal separation the Company entered into a separation and distribution agreement with Covidien plc ("Covidien"), which was subsequently acquired by Medtronic plc, provides for cross-indemnities principally designed to place financial responsibility of the obligations and liabilities of the Company's business with the Company and financial responsibility for the obligations and liabilities of Covidien's remaining business with Covidien, among other indemnities.
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16.
|
Commitments and Contingencies
|
The Company is subject to various legal proceedings and claims, including patent infringement claims, product liability matters, environmental matters, employment disputes, contractual disputes and other commercial disputes, including those described below. The Company believes that these legal proceedings and claims likely will be resolved over an extended period of time. Although it is not feasible to predict the outcome of these matters, the Company believes, unless indicated below, given the information currently available, that their ultimate resolutions will not have a material adverse effect on its financial condition, results of operations and cash flows.
Governmental Proceedings
In January 2017, the Company received a subpoena from the SEC for documents related to the Company’s public statements, filings and other disclosures regarding Acthar sales, profits, revenue, promotion and pricing.
In December 2016, the Company received a subpoena from the United States Attorney’s Office ("USAO") for the District of Massachusetts for documents related to the Company’s provision of financial and other support to patients, including through charitable foundations, and related matters.
In November 2014, the Company received a Civil Investigative Demand ("CID") from the Civil Medicaid Fraud Division of the Texas Attorney General's Office. According to the CID, the Attorney General's office is investigating the possibility of false reporting of information by the Company regarding the prices of certain of its drugs used by Texas Medicaid to establish reimbursement rates for pharmacies that dispensed the Company's drugs to Texas Medicaid recipients.
Mallinckrodt Inc. v. U.S. Food and Drug Administration and United States of America.
The Company filed a Complaint for Declaratory and Injunctive Relief ("the Complaint") in the U.S. District Court for the District of Maryland Greenbelt Division against the FDA and the United States of America in November 2014 for judicial review of what the Company believes is the FDA's inappropriate and unlawful reclassification of the Company's Methylphenidate HCl Extended-Release tablets USP (CII) ("Methylphenidate ER") in the Orange Book: Approved Drug Products with Therapeutic Equivalence ("Orange Book") on November 13, 2014. In its Complaint, the Company asked the court to: issue an injunction to (a) set aside the FDA's reclassification of the Company's Methylphenidate ER products from freely substitutable at the pharmacy level (class AB) to presumed to be therapeutically inequivalent (class BX) in the Orange Book and (b) prohibit the FDA from reclassifying the Company's Methylphenidate ER products in the future without following applicable legal requirements; and issue a declaratory judgment that the FDA's action reclassifying the Company's Methylphenidate ER products in the Orange Book is unlawful. The Company concurrently filed a motion with the same court requesting an expedited hearing to issue a temporary restraining order ("TRO") directing the FDA to reinstate the Orange Book AB rating for the Company's Methylphenidate ER products on a temporary basis. The court denied the Company's motion for a TRO. In December 2014, the FDA filed a motion to dismiss the Complaint with the district court. The Company filed its opposition to the motion to dismiss in January 2015, and concurrently filed a motion for summary judgment. In July 2015, the court granted the FDA’s motion to dismiss with respect to three of the five counts in the Complaint and granted summary judgment in favor of the FDA with respect to the two remaining counts. The Company appealed the court’s decision to the U.S. Court of Appeals for the Fourth Circuit. On October 18, 2016, the FDA initiated proceedings, proposing to withdraw approval of Mallinckrodt’s Abbreviated New Drug Application ("ANDA") for Methylphenidate ER. On October 21, 2016, the United States Court of Appeals for the Fourth Circuit issued an order removing the Company’s pending litigation with the FDA from the Court’s oral argument calendar and placing that litigation in abeyance pending the outcome of the withdrawal proceedings. The Company concurrently submitted to the FDA requests for a hearing in the withdrawal proceeding and for a 90-day extension of the deadline for submitting documentation supporting the necessity of a hearing. The FDA granted the Company’s initial request to extend the deadline to March 20, 2017, and on February 21, 2017, the FDA suspended the deadline in order to give the Center for Drug Evaluation and Research ("CDER") an opportunity to
complete its production of documents. The Company is preparing the supporting documentation for its submission and plans to vigorously set forth its position in the withdrawal proceedings.
In March 2014, the USAO for the Eastern District of Pennsylvania requested the production of documents related to an investigation of the U.S. promotion of Therakos’ immunotherapy drug/device system UVADEX/UVAR XTS and UVADEX/CELLEX (collectively, the "Therakos System"), for indications not approved by the FDA, including treatment of patients with graft versus host disease ("GvHD") and solid organ transplant patients, including pediatric patients. The investigation also includes Therakos’ efforts to secure FDA approval for additional uses of, and alleged quality issues relating to, UVADEX/UVAR. In August 2015, the USAO for the Eastern District of Pennsylvania sent Therakos a subsequent request for documents related to the investigation and has since made certain related requests. We are in the process of responding to those requests.
In June 2014, Questcor Inc. ("Questcor") received a subpoena and CID from the FTC seeking documentary materials and information regarding the FTC's investigation into whether Questcor's acquisition of certain rights to develop, market, manufacture, distribute, sell and commercialize MNK-1411 (the product formerly described as Synacthen Depot®) from Novartis AG and Novartis Pharma AG (collectively, "Novartis") violates antitrust laws. Subsequently, California, Maryland, Texas, Washington, New York and Alaska (collectively, "the Investigating States") commenced similar investigations focused on whether the transaction violates state antitrust laws. On January 17, 2017, the FTC, all Investigating States (except California) ("the Settling States") and the Company entered into an agreement to resolve this matter for a one-time cash payment of
$102.0 million
and an agreement to license MNK-1411 to a third party designated by the FTC for possible development in Infantile Spasms (IS) and Nephrotic Syndrome (NS) in the U.S. To facilitate that settlement, a complaint was filed on January 18, 2017, in the U.S. District Court for the District of Columbia. The settlement was approved by the court on January 30, 2017.
In September 2012,
Questcor received a subpoena from the USAO for the Eastern District of Pennsylvania for information relating to its promotional practices related to Acthar. Questcor has also been informed by the USAO for the Eastern District of Pennsylvania that the USAO for the Southern District of New York and the SEC are participating in the investigation to review Questcor's promotional practices and related matters related to Acthar. On March 9, 2015, the Company received a "No Action" letter from the SEC regarding its review of the Company's promotional practices related to Acthar.
In November 2011 and October 2012, the Company received subpoenas from the U.S. Drug Enforcement Administration requesting production of documents relating to its suspicious order monitoring program for controlled substances. The USAO for the Eastern District of Michigan is investigating the possibility that the Company failed to report suspicious orders of controlled substances during the period 2006-2011 in violation of the Controlled Substances Act and its related regulations. The USAO for the Northern District of New York and Office of Chief Counsel for the U.S. Drug Enforcement Administration ("DEA") are investigating the possibility that the Company failed to maintain appropriate records and security measures with respect to manufacturing of certain controlled substances at its Hobart facility during the period 2012-2013. The Company has reached an agreement in principle with the DEA and the USAOs for the Eastern District of Michigan and the Northern District of New York, respectively, to settle these investigations. As part of the agreement, the Company will pay
$35.0 million
to resolve all potential claims. The agreement in principle is subject to additional review and approval by the Department of Justice and DEA. The Company believes, given the information currently available, that the ultimate resolution, after taking into account amounts already accrued, will not have a material adverse effect on its financial condition, results of operations and cash flows.
We have responded to or are in the process of responding to each of the subpoenas and the CIDs and we intend to cooperate fully in each such investigation.
Patent/Antitrust Litigation
Putative Class Action Litigation
. On April 6, 2017, a putative class action lawsuit was filed against the Company and United BioSource Corporation ("UBC") in the U.S. District Court for the Northern District of Illinois. The case is captioned City of Rockford v. Mallinckrodt ARD, Inc., et al., No. 3:17-cv-50107. The complaint purports to be brought on behalf of all self-funded entities in the U.S. and its Territories that paid for Acthar from August 2007 to the present. The lawsuit alleges that the Company engaged in anticompetitive, unfair, and deceptive acts to artificially raise and maintain the price of Acthar. To this end, the suit alleges that the Company unlawfully maintained a monopoly in a purported ACTH product market by acquiring the U.S. rights to Synacthen Depot; conspired with UBC and violated anti-racketeering laws by selling Acthar through an exclusive distributor; and committed a fraud on consumers by failing to correctly identify Acthar’s active ingredient on package inserts. The Company intends to vigorously defend itself in this matter.
Inomax Patent Litigation: Praxair Distribution, Inc. and Praxair, Inc. (collectively "Praxair").
In February 2015, INO Therapeutics LLC and Ikaria, Inc., subsidiaries of the Company, filed suit in the U.S. District Court for the District of Delaware against Praxair following receipt of a January 2015 notice from Praxair concerning its submission of an ANDA containing a Paragraph IV patent certification with the FDA for a generic version of Inomax. In July 2016, the Company filed a second suit against Praxair in the U.S. District Court for the District of Delaware following receipt of a Paragraph IV notice concerning three additional patents recently added to the FDA Orange Book that was submitted by Praxair regarding its ANDA for a generic version of Inomax. The
infringement claims in the second suit have been added to the original suit. In September 2016, the Company filed a third suit against Praxair in the U.S. District Court for the District of Delaware following receipt of a Paragraph IV notice concerning a fourth patent recently added to the FDA Orange Book that was submitted by Praxair regarding its ANDA for a generic version of Inomax.
The Company intends to vigorously enforce its intellectual property rights relating to Inomax in both the Inter Partes Review ("IPR") and Praxair litigation proceedings to prevent the marketing of infringing generic products prior to the expiration of the patents covering Inomax. Trial of the suit filed in February 2015 was held in March 2017 and a decision is not expected until later in 2017. An adverse outcome in the Praxair litigation ultimately could result in the launch of a generic version of Inomax before the expiration of the last of the listed patents on February 19, 2034 (August 19, 2034 including pediatric exclusivity), which could adversely affect the Company's ability to successfully maximize the value of Inomax and have an adverse effect on its financial condition, results of operations and cash flows.
Inomax Patents: IPR Proceedings.
In February 2015 and March 2015, the U.S. Patent and Trademark Office ("USPTO") issued Notices of Filing Dates Accorded to Petitions for IPR petitions filed by Praxair Distribution, Inc. concerning ten patents covering Inomax (i.e., five patents expiring in 2029 and five patents expiring in 2031).
In July 2015, the USPTO Patent Trial and Appeal Board ("PTAB") issued rulings denying the institution of four of the five IPR petitions challenging the five patents expiring in 2029. The PTAB also issued a ruling in July 2015 that instituted the IPR proceeding in the fifth of this group of patents and the PTAB ruled in July 2016 that one claim of this patent survived review and is valid while the remaining claims were unpatentable. The Company believes the valid claim describes and encompasses the manner in which Inomax is distributed in conjunction with its approved labeling and that Praxair infringes that claim. Praxair filed an appeal and the Company filed a cross-appeal of this decision to the Court of Appeals for the Federal Circuit. In March 2016, Praxair Distribution, Inc. submitted additional IPR petitions for the five patents expiring in 2029. The PTAB issued non-appealable rulings in August and September 2016 denying institution of all five of these additional IPR petitions.
In September 2015, the USPTO PTAB issued rulings that instituted the IPR proceedings in each of the second set of five patents that expire in 2031. In September 2016, the PTAB ruled that all claims in the five patents expiring in 2031 are patentable.
Ofirmev Patent Litigation: B. Braun Medical Inc.
In April 2017, Mallinckrodt Hospital Products Inc. and Mallinckrodt IP, subsidiaries of the Company, and Pharmatop, the owner of the two U.S. patents licensed exclusively by the Company, filed suit in the U.S. District Court for the District of Delaware against B. Braun Medical Inc. ("B. Braun") alleging that B. Braun infringed U.S. Patent Nos. 6,992,218 ("the ‘218 patent") and 9,399,012 ("the ‘012 patent") following receipt of a February 2017 notice from B. Braun concerning its submission of a New Drug Application ("NDA"), containing a Paragraph IV patent certification with the FDA for a competing version of Ofirmev.
Ofirmev Patent Litigation: Agila Specialties Private Limited, Inc. (now Mylan Laboratories Ltd.) and Agila Specialties Inc. (a Mylan Inc. Company), (collectively “Agila”).
In December 2014, Cadence and Mallinckrodt IP, subsidiaries of the Company, and Pharmatop, the owner of the two U.S. patents licensed exclusively by the Company, filed suit in the U.S. District Court for the District of Delaware against Agila alleging that Agila infringed U.S. Patent No. 6,028,222 ("the '222 patent") and the '218 patent following receipt of a November 2014 notice from Agila concerning its submission of a NDA containing a Paragraph IV patent certification with the FDA for a competing version of Ofirmev. Separately, on December 1, 2016 Mallinckrodt IP filed suit in the U.S. District Court for the District of Delaware against Agila alleging that Agila infringed the ‘012 patent. On December 31, 2016, the parties entered into settlement agreements on both suits under which Agila was granted the non-exclusive right to market a competing intravenous acetaminophen product in the U.S. under its NDA after December 6, 2020, or earlier under certain circumstances.
Ofirmev Patent Litigation: InnoPharma Licensing LLC and InnoPharma, Inc.
In September 2014, Cadence and Mallinckrodt IP, subsidiaries of the Company, and Pharmatop, the owner of the two U.S. patents licensed exclusively by the Company, filed suit in the U.S. District Court for the District of Delaware against InnoPharma Licensing LLC and InnoPharma, Inc. (both are subsidiaries of Pfizer and collectively "InnoPharma") alleging that InnoPharma infringed the '222 and the '218 patents following receipt of an August 2014 notice from InnoPharma concerning its submission of a New Drug Application ("NDA"), containing a Paragraph IV patent certification with the FDA for a competing version of Ofirmev. Separately, on December 1, 2016 Mallinckrodt IP filed suit in the U.S. District Court for the District of Delaware against InnoPharma alleging that InnoPharma infringed the ‘012 patent.
On May 4, 2017, the parties entered into settlement agreements on both suits under which InnoPharma was granted the non-exclusive right to market a competing intravenous acetaminophen product in the U.S. under its NDA after December 6, 2020, or earlier under certain circumstances.
The Company has successfully asserted the ‘222 and ‘218 patents and maintained their validity in both litigation and proceedings at the USPTO. The Company will continue to vigorously enforce its intellectual property rights relating to Ofirmev to prevent the marketing of infringing generic or competing products prior to December 6, 2020, which, if unsuccessful, could adversely affect the Company's ability to successfully maximize the value of Ofirmev and have an adverse effect on its financial condition, results of operations and cash flows.
Tyco Healthcare Group LP, et al. v. Mutual Pharmaceutical Company, Inc.
In March 2007, the Company filed a patent infringement suit in the U.S. District Court for the District of New Jersey against Mutual Pharmaceutical Co., Inc., et al. (collectively, "Mutual") after Mutual submitted an ANDA to the FDA seeking to sell a generic version of the Company's 7.5 mg RESTORIL™ sleep aid product. Mutual also filed antitrust and unfair competition counterclaims. The patents at issue have since expired or been found invalid. The trial court issued an opinion and order granting the Company's motion for summary judgment regarding Mutual's antitrust and unfair competition counterclaims. Mutual appealed this decision to the U.S. Court of Appeals for the Federal Circuit and the Federal Circuit issued a split decision, affirming the trial court in part and remanding to the trial court certain counterclaims for further proceedings. The Company filed a motion for summary judgment with the U.S. District Court regarding the remanded issues. In May 2015, the trial court issued an opinion granting-in-part and denying-in-part the Company’s motion for summary judgment. In March 2017, the parties entered into a settlement agreement and the case was dismissed.
Commercial and Securities Litigation
Putative Class Action Securities Litigation.
On January 23, 2017, a putative class action lawsuit was filed against the Company and Chief Executive Officer ("CEO") Mark Trudeau in the U.S. District Court for the District of Columbia, captioned
Patricia A. Shenk v. Mallinckrodt plc, et al
., No. 17-cv-00145-EGS. The complaint purports to be brought on behalf of all persons who purchased Mallinckrodt’s publicly traded securities on a domestic exchange between November 25, 2014 and January 18, 2017. The lawsuit generally alleges that the Company made false or misleading statements related to Acthar and Synacthen to artificially inflate the price of the Company’s stock. In particular, the complaint alleges a failure by the Company to provide accurate disclosures concerning the long-term sustainability of Acthar revenues, and the exposure of Acthar to Medicare and Medicaid reimbursement rates. On January 26, 2017, a second putative class action lawsuit, captioned
Jyotindra Patel v. Mallinckrodt plc, et al.
, No. 1:17-cv-00171 was filed against the same defendants named in the
Shenk
lawsuit in the U.S. District Court for the District of Columbia. The
Patel
complaint purports to be brought on behalf of shareholders during the same period of time as that set forth in the
Shenk
lawsuit and asserts claims similar to those set forth in the
Shenk
lawsuit. On March 13, 2017, a third putative class action lawsuit, captioned
Amy T. Schwartz, et al., v. Mallinckrodt plc, et al.,
was filed against the same defendants named in the
Shenk
lawsuit in the U.S. District Court for the District of Columbia. The
Schwartz
complaint purports to be brought on behalf of shareholders who purchased shares of the Company between July 14, 2014 and January 18, 2017 and asserts claims similar to those set forth in the
Shenk
lawsuit. On March 23, 2017, a fourth putative class action lawsuit, captioned
Fulton County Employees’ Retirement System v. Mallinckrodt plc, et al.,
was filed against the Company, CEO Mark Trudeau and Chief Financial Officer ("CFO") Matthew Harbaugh in the U.S. District Court for the District of Columbia. The
Fulton County
complaint purports to be brought on behalf of shareholders during the same period of time as that set forth in the
Schwartz
lawsuit and asserts claims similar to those set forth in the
Shenk
lawsuit. On March 27, 2017, four separate plaintiff groups moved to consolidate the pending cases and to be appointed as lead plaintiffs in the consolidated case. Since that time, two of the plaintiff groups have withdrawn their motions. The Company intends to vigorously defend itself in this matter.
Retrophin Litigation.
In January 2014, Retrophin, Inc. ("Retrophin") filed a lawsuit against Questcor in the U.S. District Court for the Central District of California, alleging a variety of federal and state antitrust violations based on Questcor's acquisition from Novartis of certain rights to develop, market, manufacture, distribute, sell and commercialize Synacthen. In June 2015, the parties entered into a binding settlement agreement, under the terms of which Retrophin agreed to dismiss the litigation with prejudice and Questcor agreed to make a one-time cash payment to Retrophin in the amount of
$15.5 million
.
Putative Class Action Securities Litigation.
In September 2012, a putative class action lawsuit was filed against Questcor and certain of its officers and directors in the U.S. District Court for the Central District of California, captioned
John K. Norton v. Questcor Pharmaceuticals, et al.
, No. SACvl2-1623 DMG (FMOx). The complaint purported to be brought on behalf of shareholders who purchased Questcor common stock between April 26, 2011 and September 21, 2012. The complaint generally alleged that Questcor and certain of its officers and directors engaged in various acts to artificially inflate the price of Questcor stock and enable insiders to profit through stock sales. The complaint asserted that Questcor and certain of its officers and directors violated sections l0(b) and/or 20(a) of the Securities Exchange Act of 1934, as amended ("the Exchange Act"), by making allegedly false and/or misleading statements concerning the clinical evidence to support the use of Acthar for indications other than infantile spasms, the promotion of the sale and use of Acthar in the treatment of multiple sclerosis and nephrotic syndrome, reimbursement for Acthar from third-party insurers, and Questcor's outlook and potential market growth for Acthar. The complaint sought damages in an unspecified amount and equitable relief against the defendants. This lawsuit was consolidated with
four
subsequently-filed actions asserting similar claims under the caption:
In re Questcor Securities Litigation
, No. CV 12-01623 DMG (FMOx). In October 2013, the District Court granted in part and denied in part Questcor's motion to dismiss the consolidated amended complaint. In October 2013, Questcor filed an answer to the consolidated amended complaint and fact discovery was concluded in January 2015. In April 2015, the parties executed a long-form settlement agreement, under the terms of which Questcor agreed to pay
$38.0 million
to resolve the plaintiff's claims, inclusive of all fees and costs. Questcor and the individual defendants maintain that the plaintiffs' claims are without merit, and entered into the settlement to eliminate the uncertainties, burden and expense of further protracted litigation. During fiscal 2015, the Company established a
$38.0 million
reserve for this settlement, which was subsequently paid to a settlement fund. The court issued its final approval of the settlement on September 18, 2015.
Glenridge Litigation.
In June 2011, Glenridge Pharmaceuticals, LLC ("Glenridge"), filed a lawsuit against Questcor in the Superior Court of California, Santa Clara County, alleging that Questcor had underpaid royalties to Glenridge under a royalty agreement related to net sales of Acthar. In August 2012, Questcor filed a separate lawsuit against the
three
principals of Glenridge, as well as Glenridge, challenging the enforceability of the royalty agreement. In August 2013, the lawsuits were consolidated into
one
case in the Superior Court of California, Santa Clara County. In October 2014, the parties entered into a binding term sheet settling the lawsuit. Under the terms of the settlement, the royalty rate payable by Questcor was reduced, royalties were capped instead of being payable for so long as Acthar was sold and Questcor agreed to pay Glenridge a reduced amount in satisfaction of royalties Questcor had previously accrued but not paid during the course of the lawsuit. In February 2015, the settlement agreement was finalized, with terms consistent with the October 2014 term sheet.
Pricing Litigation
State of Utah v. Apotex Corp., et al.
The Company, along with several other pharmaceutical companies, was a defendant in this matter which was filed in May 2008, in the Third Judicial Circuit of Salt Lake County, Utah. The State of Utah alleges, generally, that the defendants reported false pricing information in connection with certain drugs that are reimbursable under Utah Medicaid, resulting in overpayment by Utah Medicaid for those drugs, and is seeking monetary damages and attorneys' fees. The Company believes that it has meritorious defenses to these claims and vigorously defended against them. In December 2015, the parties entered into a binding settlement agreement, under the terms of which the State of Utah agreed to dismiss the litigation with prejudice and the Company agreed to make a one-time cash payment to the State of Utah within the reserve established for this matter.
Environmental Remediation and Litigation Proceedings
The Company is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites, including those described below. The ultimate cost of site cleanup and timing of future cash outlays is difficult to predict, given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. The Company concluded that, as of
March 31, 2017
, it was probable that it would incur remedial costs in the range of
$38.3 million
to
$114.3 million
. The Company also concluded that, as of
March 31, 2017
, the best estimate within this range was
$75.7 million
, of which
$3.2 million
was included in accrued and other current liabilities and the remainder was included in environmental liabilities on the unaudited condensed consolidated balance sheet at
March 31, 2017
. While it is not possible at this time to determine with certainty the ultimate outcome of these matters, the Company believes, given the information currently available, that the final resolution of all known claims, after taking into account amounts already accrued, will not have a material adverse effect on its financial condition, results of operations and cash flows.
Coldwater Creek, Saint Louis County, Missouri.
The Company is named as a defendant in numerous tort complaints with numerous plaintiffs pending in the U.S. District Court for the Eastern District of Missouri that were filed in or after February 2012. These cases allege personal injury for alleged exposure to radiological substances, including in Coldwater Creek in Missouri, and in the air. Plaintiffs allegedly lived and/or worked in various locations in Saint Louis County, Missouri near Coldwater Creek. Radiological residues which may have been present in the creek have previously been remediated by the U.S. Army Corps of Engineers ("USACE"). The USACE continues to study and remediate the creek and surrounding areas. The Company believes that it has meritorious defenses to these complaints and is vigorously defending against them. The Company is unable to estimate a range of reasonably possible losses for the following reasons: (i) the proceedings are in intermediate stages; (ii) the Company has not received and reviewed complete information regarding the plaintiffs and their medical conditions; and (iii) there are significant factual and scientific issues to be resolved. Groups of bellwether plaintiffs have been selected by the court and discovery is ongoing. While it is not possible at this time to determine with certainty the ultimate outcome of this case, the Company believes, given the information currently available, that the final resolution of all known claims, after taking into account amounts already accrued, will not have a material adverse effect on its financial condition, results of operations and cash flows.
Lower Passaic River, New Jersey
. The Company and approximately
70
other companies originally comprised the Lower Passaic Cooperating Parties Group ("the CPG") and are parties to a May 2007 Administrative Order on Consent ("AOC") with the Environmental Protection Agency ("EPA") to perform a RI/FS of the 17-mile stretch known as the Lower Passaic River Study Area ("the River"). The Company's potential liability stems from former operations at Lodi and Belleville, New Jersey. In June 2007, the EPA issued a draft Focused Feasibility Study ("FFS") that considered interim remedial options for the lower 8-miles of the river, in addition to a "no action" option. As an interim step related to the 2007 AOC, on June 18, 2012 the CPG voluntarily entered into an AOC with the EPA for remediation actions focused solely at mile 10.9 of the River. The Company's estimated costs related to the RI/FS and focused remediation at mile 10.9, based on interim allocations, are immaterial and have been accrued.
In April 2014, the EPA issued its revised FFS, with remedial alternatives to address cleanup of the lower 8-mile stretch of the River, which also included a "no action" option. The EPA estimated the cost for the remediation alternatives ranged from
$365.0 million
to
$3.2 billion
. The EPA's preferred approach would involve bank-to-bank dredging of the lower 8-mile stretch of the River and installing an engineered cap at a discounted, estimated cost of
$1.7 billion
. Based on the issuance of the EPA's revised FFS, the Company recorded a
$23.1 million
accrual in the second quarter of fiscal 2014 representing the Company's estimate of its allocable share of the joint and several remediation liability resulting from this matter.
In April 2015, the CPG presented a draft of the RI/FS of the River to the EPA. The CPG's RI/FS included alternatives that ranged from "no action," targeted remediation of the entire 17-mile stretch of the River to remedial actions consistent with the EPA's preferred approach for the lower 8-mile stretch of the River and also included remediation alternatives for the upper 9-mile stretch of the River. The discounted cost estimates for the CPG remediation alternatives ranged from
$483.4 million
to
$2.7 billion
. The Company recorded an additional charge of
$13.3 million
in the second quarter of fiscal 2015 based on the Company's estimate of its allocable share of the joint and several remediation liability resulting from this matter.
On March 4, 2016, the EPA issued the Record of Decision ("ROD") for the lower 8 miles of the River. The EPA's selected remedy for this stretch of the River was a slight modification of the preferred approach it identified in the revised FFS issued in April 2014. The new discounted, estimated cost is
$1.38 billion
. By letter dated March 31, 2016, EPA notified the Company, and approximately
98
other parties, of the Company’s potential liability for the lower 8 miles of the River. The letter also announced the EPA's intent to seek to determine whether one company, Occidental Chemicals Corporation ("OCC"), will voluntarily enter into an agreement to perform the remedial design for the remedy selected in the ROD. The letter states that, after execution of such an agreement, EPA plans to begin negotiation of an agreement under which OCC and the other major PRPs would implement and/or pay for the EPA’s selected remedy for the lower 8 miles of the River. Finally, the letter announced EPA's intent to provide a separate notice to unspecified parties of the opportunity to discuss a cash out settlement for the lower 8 miles of the River at a later date. On October 5, 2016, EPA announced that OCC had entered into an agreement to develop the remedial design.
By letter dated March 30, 2017, the EPA notified the Company, limited to its former Lodi facility, and nineteen other PRPs of their eligibility to enter into a cash out settlement for the lower 8 miles of the River. In exchange for the settlement, the Company would receive,
inter alia
, a covenant not to sue and contribution protection. There is no reopener provision should costs exceed estimated amounts. The settlement would be announced in the Federal Register and be subject to public comment, after which EPA would determine whether to proceed with the settlement.
Despite the issuance of the revised FFS and ROD by the EPA, and the RI/FS by the CPG, there are many uncertainties associated with the final agreed-upon remediation and the Company's allocable share of the remediation. As of November 20, 2015, the Company withdrew from the CPG, but remains liable for its obligations under the two above-referenced AOCs, as well as potential future liabilities. Given those uncertainties, the amounts accrued may not be indicative of the amounts for which the Company may be ultimately responsible and will be refined as the remediation progresses.
Mallinckrodt Veterinary, Inc., Millsboro, Delaware.
The Company previously operated a plant in Millsboro, Delaware ("the Millsboro Site") that manufactured various animal healthcare products. In 2005, the Delaware Department of Natural Resources and Environmental Control found trichloroethylene ("TCE") in the Millsboro public water supply at levels that exceeded the federal drinking water standards. Further investigation to identify the TCE plume in the ground water indicated that the plume has extended to property owned by a third party near the Millsboro Site. The Company, and another former owner, have assumed responsibility for the Millsboro Site cleanup under the Alternative Superfund Program administered by the EPA. The Company and another PRP have entered into
two
AOCs with the EPA to perform investigations to abate, mitigate or eliminate the release or threat of release of hazardous substances at the Millsboro Site and to conduct an Engineering Evaluation/Cost Analysis ("EE/CA") to characterize the nature and extent of the contamination. The Company, along with the other party, continues to conduct the studies and prepare remediation plans in accordance with the AOCs. In January 2017, the EPA issued its Action Memorandum regarding the EE/CA. The parties are negotiating a third AOC to implement the removal action. While it is not possible at this time to determine with certainty the ultimate outcome of this matter, the Company believes, given the information currently available, that the ultimate resolution of all known claims, after taking into account amounts already accrued, will not have a material adverse effect on its financial condition, results of operations and cash flows.
Crab Orchard National Wildlife Refuge Superfund Site, near Marion, Illinois.
The Company is a successor in interest to International Minerals and Chemicals Corporation ("IMC"). Between 1967 and 1982, IMC leased portions of the Additional and Uncharacterized Sites ("AUS") Operable Unit at the Crab Orchard Superfund Site ("the Site") from the government and manufactured various explosives for use in mining and other operations. In March 2002, the Department of Justice, the U.S. Department of the Interior and the EPA (together, "the Government Agencies") issued a special notice letter to General Dynamics Ordnance and Tactical Systems, Inc. ("General Dynamics"), one of the other potentially responsible parties ("PRPs") at the Site, to compel General Dynamics to perform the remedial investigation and feasibility study ("RI/FS") for the AUS Operable Unit. General Dynamics negotiated an AOC with the Government Agencies to conduct an extensive RI/FS at the Site under the direction of the U.S. Fish and Wildlife Service. General Dynamics asserted in August 2004 that the Company is jointly and severally liable, along with approximately eight other lessees and operators at the AUS Operable Unit, for alleged contamination of soils and groundwater resulting from historic operations, and has threatened to file a contribution claim against the Company and other parties for recovery of its costs incurred in
connection with the RI/FS activities being conducted at the AUS Operable Unit. The Company and other PRPs who received demand letters from General Dynamics have explored settlement alternatives, but have not reached settlement to date. General Dynamics has completed the RI and initiated the FS, and the PRPs have entered into an agreement to enter into non-binding mediation, which has begun. While it is not possible at this time to determine with certainty the ultimate outcome of this matter, the Company believes, given the information currently available, that the final resolution of all known claims, after taking into account amounts already accrued, will not have a material adverse effect on its financial condition, results of operations and cash flows.
Products Liability Litigation
Beginning with lawsuits brought in July 1976, the Company is named as a defendant in personal injury lawsuits based on alleged exposure to asbestos-containing materials. A majority of the cases involve product liability claims based principally on allegations of past distribution of products containing asbestos. A limited number of the cases allege premises liability based on claims that individuals were exposed to asbestos while on the Company's property. Each case typically names dozens of corporate defendants in addition to the Company. The complaints generally seek monetary damages for personal injury or bodily injury resulting from alleged exposure to products containing asbestos. The Company's involvement in asbestos cases has been limited because it did not mine or produce asbestos. Furthermore, in the Company's experience, a large percentage of these claims have never been substantiated and have been dismissed by the courts. The Company has not suffered an adverse verdict in a trial court proceeding related to asbestos claims and intends to continue to defend these lawsuits. When appropriate, the Company settles claims; however, amounts paid to settle and defend all asbestos claims have been immaterial. As of
March 31, 2017
, there were approximately
11,700
asbestos-related cases pending against the Company.
The Company estimates pending asbestos claims and claims that were incurred but not reported and related insurance recoveries, which are recorded on a gross basis in the unaudited condensed consolidated balance sheets. The Company's estimate of its liability for pending and future claims is based on claims experience over the past
five
years and covers claims either currently filed or expected to be filed over the next
seven
years. The Company believes that it has adequate amounts recorded related to these matters. While it is not possible at this time to determine with certainty the ultimate outcome of these asbestos-related proceedings, the Company believes, given the information currently available, that the ultimate resolutions of all known and anticipated future claims, after taking into account amounts already accrued, along with recoveries from insurance, will not have a material adverse effect on its financial condition, results of operations and cash flows.
Industrial Revenue Bonds
Through March 31, 2017, the Company exchanged title to
$16.0 million
of its plant assets in return for an equal amount of Industrial Revenue Bonds ("IRB") issued by Saint Louis County. The Company also simultaneously leased such assets back from Saint Louis County under capital leases expiring through December 2025, the terms of which provide it with the right of offset against the IRBs. The lease also provides an option for the Company to repurchase the assets at the end of the lease for nominal consideration. These transactions collectively result in a ten year property tax abatement from the date the property is placed in service. Due to the right of offset, the capital lease obligations and IRB assets are recorded net in the unaudited condensed consolidated balance sheets. The Company expects that the right of offset will be applied to payments required under these arrangements.
Interest Bearing Deferred Tax Obligation
As part of the integration of Questcor, the Company entered into an internal installment sale transaction related to certain Acthar intangible assets during the three months ended December 26, 2014. The installment sale transaction resulted in a taxable gain. In accordance with Internal Revenue Code Section 453A ("Section 453A") the gain is considered taxable in the period in which installment payments are received. During the three months ended December 25, 2015, the Company entered into similar transactions with certain intangible assets acquired in the acquisitions of Ikaria, Inc. and Therakos, Inc. During the three months ended March 31, 2017, the Company sold its Intrathecal Therapy business with a portion of the consideration from the sale being in the form of a note receivable subject to the installment sale provisions described above. As of
March 31, 2017
, the Company had an aggregate
$1,781.7 million
of interest bearing U.S. deferred tax liabilities associated with outstanding installment notes. The GAAP calculation of interest associated with these deferred tax liabilities is subject to variable interest rates. The Company recognized interest expense associated with the Section 453A deferred tax liabilities of
$18.4 million
and
$19.1 million
for the three months ended March 31, 2017 and March 25, 2016, respectively.
The Company has reported Section 453A interest on its tax returns on the basis of its interpretation of the U.S. Internal Revenue Code and Regulations. Alternative interpretations of these provisions could result in additional interest payable on the deferred tax liability. Due to the inherent uncertainty in these interpretations, the Company has deferred the recognition of the benefit associated with the Company’s interpretation and maintains a corresponding liability of
$34.5 million
and
$30.3 million
as of
March 31, 2017
and December 30, 2016, respectively. The balance of this liability is expected to increase over future periods until such uncertainty is
resolved. Favorable resolution of this uncertainty would likely result in a material reversal of this liability and a benefit being recorded to interest expense within the unaudited condensed consolidated statements of income.
Acquisition-Related Litigation
Several putative class actions were filed by purported holders of Questcor common stock in connection with the Questcor Acquisition
(Hansen v. Thompson, et al., Heng v. Questcor Pharmaceuticals, Inc., et al., Buck v. Questcor Pharmaceuticals, Inc., et al., Ellerbeck v. Questcor Pharmaceuticals, Inc., et al., Yokem v. Questcor Pharmaceuticals, Inc., et al., Richter v. Questcor Pharmaceuticals, Inc., et al., Tramantano v. Questcor Pharmaceuticals, Inc., et al., Crippen v. Questcor Pharmaceuticals, Inc., et al., Patel v. Questcor Pharmaceuticals, Inc., et al.,
and
Postow v. Questcor Pharmaceuticals, Inc., et al.)
. The actions were consolidated on June 3, 2014. The consolidated complaint named as defendants, and generally alleged that, the directors of Questcor breached their fiduciary duties in connection with the acquisition by, among other things, agreeing to sell Questcor for inadequate consideration and pursuant to an inadequate process. The consolidated complaint also alleged that the Questcor directors breached their fiduciary duties by failing to disclose purportedly material information to shareholders in connection with the merger. The consolidated complaint also alleged, among other things, that the Company aided and abetted the purported breaches of fiduciary duty. The lawsuits sought various forms of relief, including but not limited to, rescission of the transaction, damages and attorneys' fees and costs.
On July 29, 2014, the defendants reached an agreement in principle with the plaintiffs in the consolidated actions, and that agreement was reflected in a Memorandum of Understanding ("MOU"). In connection with the settlement contemplated by the MOU, Questcor agreed to make certain additional disclosures related to the proposed transaction with the Company, which are contained in the Company's Current Report on Form 8-K filed with the SEC on July 30, 2014. Additionally, as part of the settlement and pursuant to the MOU, the Company agreed to forbear from exercising certain rights under the merger agreement with Questcor, as follows: the four business day period referenced in Section 5.3(e) of the merger agreement with Questcor was reduced to three business days. Consistent with the terms of the MOU, the parties entered into a formal stipulation of settlement in February 2015 and re-executed the stipulation of settlement on May 7, 2015 (collectively the "Stipulation of Settlement").
The Stipulation of Settlement was subject to customary conditions, including court approval. On May 8, 2015, the California Court denied plaintiffs' Motion for Preliminary Approval of Settlement. On October 23, 2015, the parties submitted a proposed Stipulation and Order re Dismissal With Prejudice dismissing the action with prejudice as to each of the named plaintiffs and without prejudice as to the remainder of the class and, on October 30, 2015, the California Court entered that Order.
Other Matters
The Company is a defendant in a number of other pending legal proceedings relating to present and former operations, acquisitions and dispositions. The Company does not expect the outcome of these proceedings, either individually or in the aggregate, to have a material adverse effect on its financial condition, results of operations and cash flows.
|
|
|
17.
|
Financial Instruments and Fair Value Measurements
|
Fair value is defined as the exit price that would be received from the sale of an asset or paid to transfer a liability, using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes a three-level fair value hierarchy, which maximizes the use of observable inputs and minimizes the use of unobservable inputs used in measuring fair value. The levels within the hierarchy are as follows:
Level 1— observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2— significant other observable inputs that are observable either directly or indirectly; and
Level 3— significant unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.
The following tables provide a summary of the significant assets and liabilities that are measured at fair value on a recurring basis at the end of each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
Debt and equity securities held in rabbi trusts
|
$
|
32.7
|
|
|
$
|
21.5
|
|
|
$
|
11.2
|
|
|
$
|
—
|
|
Equity securities
|
35.1
|
|
|
35.1
|
|
|
—
|
|
|
—
|
|
Foreign exchange forward and option contracts
|
0.2
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
$
|
68.0
|
|
|
$
|
56.8
|
|
|
$
|
11.2
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Deferred compensation liabilities
|
$
|
32.1
|
|
|
$
|
—
|
|
|
$
|
32.1
|
|
|
$
|
—
|
|
Contingent consideration and acquired contingent liabilities
|
250.2
|
|
|
—
|
|
|
—
|
|
|
250.2
|
|
Foreign exchange forward and option contracts
|
0.9
|
|
|
0.9
|
|
|
—
|
|
|
—
|
|
|
$
|
283.2
|
|
|
$
|
0.9
|
|
|
$
|
32.1
|
|
|
$
|
250.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2016
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Debt and equity securities held in rabbi trusts
|
$
|
33.6
|
|
|
$
|
22.8
|
|
|
$
|
10.8
|
|
|
$
|
—
|
|
Foreign exchange forward and option contracts
|
0.7
|
|
|
0.7
|
|
|
—
|
|
|
—
|
|
|
$
|
34.3
|
|
|
$
|
23.5
|
|
|
$
|
10.8
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Deferred compensation liabilities
|
$
|
32.5
|
|
|
$
|
—
|
|
|
$
|
32.5
|
|
|
$
|
—
|
|
Contingent consideration and acquired contingent liabilities
|
250.5
|
|
|
—
|
|
|
—
|
|
|
250.5
|
|
Foreign exchange forward and option contracts
|
3.4
|
|
|
3.4
|
|
|
—
|
|
|
—
|
|
|
$
|
286.4
|
|
|
$
|
3.4
|
|
|
$
|
32.5
|
|
|
$
|
250.5
|
|
Debt and equity securities held in rabbi trusts.
Debt securities held in rabbi trusts primarily consist of U.S. government and agency securities and corporate bonds. When quoted prices are available in an active market, the investments are classified as level 1. When quoted market prices for a security are not available in an active market, they are classified as level 2. Equity securities held in rabbi trusts primarily consist of U.S. common stocks, which are valued using quoted market prices reported on nationally recognized securities exchanges.
Equity securities
. Equity securities consist of shares in Mesoblast, for which quoted prices are available in an active market; therefore, the investment is classified as level 1 and is valued based on quoted market prices reported on a nationally recognized securities exchange.
Foreign exchange forward and option contracts.
Foreign currency option and forward contracts are used to economically manage the foreign exchange exposures of operations outside the U.S. Quoted prices are available in an active market; as such, these derivatives are classified as level 1.
Deferred compensation liabilities.
The Company maintains a non-qualified deferred compensation plan in the U.S., which permits eligible employees of the Company to defer a portion of their compensation. A recordkeeping account is set up for each participant and the participant chooses from a variety of funds for the deemed investment of their accounts. The recordkeeping accounts generally correspond to the funds offered in the Company's U.S. tax-qualified defined contribution retirement plan and the account balance fluctuates with the investment returns on those funds.
Contingent consideration and acquired contingent liabilities.
The Company maintains various contingent consideration and acquired contingent liabilities associated with the acquisitions of Questcor, Hemostasis products and Stratatech.
The contingent liability associated with the acquisition of Questcor pertains to the Company's license agreement with Novartis AG and Novartis Pharma AG (collectively "Novartis") related to the developmental product MNK-1411. The fair value of the contingent payments was measured based on the net present value of a probability-weighted assessment. At March 31, 2017, the total remaining payments under the license agreement shall not exceed
$165.0 million
. At
March 31, 2017
and December 30, 2016, the fair value of the MNK-1411 contingent liability was
$126.2 million
and
$124.7 million
, respectively.
As part of the Hemostasis Acquisition, the Company provided contingent consideration to The Medicines Company in the form of sales based milestones associated with Raplixa and PreveLeak, and acquired contingent liabilities associated with The Medicines Company's prior acquisitions of the aforementioned products. The Company determined the fair value of the contingent consideration and acquired contingent liabilities based on an option pricing model to be
$59.3 million
and
$11.2 million
, respectively, at
March 31, 2017
. The fair value of the contingent consideration and acquired contingent liabilities based on an option pricing model were
$58.9 million
and
$11.2 million
, respectively, as of December 30, 2016.
As part of the Stratatech acquisition, the Company provided contingent consideration to the Stratatech Corporation, primarily in the form of regulatory filing and approval milestones associated with the deep partial thickness and full thickness indications associated with the StrataGraft product. The Company assesses the likelihood of and timing of making such payments. The fair value of the contingent payments was measured based on the net present value of a probability-weighted assessment. The Company determined the fair value of the contingent consideration associated with the Stratatech acquisition to be
$53.5 million
and
$55.7 million
at March 31, 2017 and December 30, 2016, respectively.
The following table provides a summary of the changes in the Company's contingent consideration and acquired contingent liabilities:
|
|
|
|
|
Balance at December 30, 2016
|
$
|
250.5
|
|
Accretion expense
|
1.5
|
|
Fair value adjustment
|
(1.8
|
)
|
Balance at March 31, 2017
|
$
|
250.2
|
|
Financial Instruments Not Measured at Fair Value
The carrying amounts of cash and cash equivalents, accounts receivable, notes receivable, accounts payable and the majority of other current assets and liabilities approximate fair value because of their short-term nature. The Company classifies cash on hand and deposits in banks, including commercial paper, money market accounts and other investments it may hold from time to time, with an original maturity of three months or less, as cash and cash equivalents (level 1). The fair value of restricted cash was equivalent to its carrying value of
$19.1 million
as of both
March 31, 2017
and
December 30, 2016
, (level 1), which was included in prepaid expenses and other current assets and other assets on the unaudited condensed consolidated balance sheets. The Company received a portion of consideration for the sale of the Intrathecal business in the form of a note receivable. The fair value of the note receivable was equivalent to its carrying value of
$154.0 million
as of March 31, 2017 (level 1). The Company entered into short-term investment certificates during the three months ended December 30, 2016. These certificates are carried at cost, which approximates fair value, of
$4.9 million
and
$11.1 million
at
March 31, 2017
and
December 30, 2016
, respectively (level 2). These certificates are included in prepaid expenses and other current assets on the unaudited condensed consolidated balance sheets. The Company's life insurance contracts are carried at cash surrender value, which is based on the present value of future cash flows under the terms of the contracts (level 3). Significant assumptions used in determining the cash surrender value include the amount and timing of future cash flows, interest rates and mortality charges. The fair value of these contracts approximates the carrying value of
$67.0 million
and
$67.6 million
at
March 31, 2017
and
December 30, 2016
, respectively. These contracts are included in other assets on the unaudited condensed consolidated balance sheets.
The carrying value of the Company's revolving credit facility and variable-rate receivable securitization approximates fair value due to the short-term nature of these instruments. The carrying value of the
4.00%
term loan approximates the fair value of the instrument, as calculated using the discounted exit price, which is therefore classified as level 3. Since the quoted market prices for the Company's term loans and
8.00%
and
9.50%
debentures are not available in an active market, they are classified as level 2 for purposes of developing an estimate of fair value. The Company's
3.50%
,
4.75%
,
4.875%
,
5.50%
,
5.625%
and
5.75%
notes are classified as level 1, as quoted prices are available in an active market for these notes. The following table presents the carrying values and estimated fair values of the Company's long-term debt, excluding capital leases, as of the end of each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 30, 2016
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
Variable-rate receivable securitization
|
$
|
225.0
|
|
|
$
|
225.0
|
|
|
$
|
250.0
|
|
|
$
|
250.0
|
|
3.50% notes due April 2018
|
300.0
|
|
|
300.1
|
|
|
300.0
|
|
|
298.7
|
|
4.875% notes due April 2020
|
700.0
|
|
|
701.4
|
|
|
700.0
|
|
|
699.5
|
|
Term loans due March 2021
|
—
|
|
|
—
|
|
|
1,948.5
|
|
|
1,953.2
|
|
4.00% term loan due February 2022
|
6.4
|
|
|
6.4
|
|
|
6.5
|
|
|
6.5
|
|
9.50% debentures due May 2022
|
10.4
|
|
|
11.8
|
|
|
10.4
|
|
|
12.0
|
|
5.75% notes due August 2022
|
884.0
|
|
|
869.5
|
|
|
884.0
|
|
|
850.3
|
|
8.00% debentures due March 2023
|
4.4
|
|
|
4.8
|
|
|
4.4
|
|
|
4.9
|
|
4.75% notes due April 2023
|
600.0
|
|
|
510.0
|
|
|
600.0
|
|
|
520.9
|
|
5.625% notes due October 2023
|
738.0
|
|
|
701.9
|
|
|
738.0
|
|
|
682.4
|
|
Term loan due September 2024
|
1,865.0
|
|
|
1,863.6
|
|
|
—
|
|
|
—
|
|
5.50% notes due April 2025
|
695.0
|
|
|
639.5
|
|
|
695.0
|
|
|
615.7
|
|
Revolving credit facility
|
—
|
|
|
—
|
|
|
100.0
|
|
|
100.0
|
|
Concentration of Credit and Other Risks
Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of accounts receivable. The Company does not typically require collateral from customers. A portion of the Company's accounts receivable outside the U.S. includes sales to government-owned or supported healthcare systems in several countries, which are subject to payment delays. Payment is dependent upon the financial stability and creditworthiness of those countries' national economies.
The following table shows net sales attributable to distributors that accounted for 10% or more of the Company's total net sales:
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
2017
|
|
March 25,
2016
|
CuraScript, Inc.
|
36
|
%
|
|
34
|
%
|
McKesson Corporation
|
10
|
%
|
|
13
|
%
|
The following table shows accounts receivable attributable to distributors that accounted for 10% or more of the Company's gross accounts receivable at the end of each period:
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 30,
2016
|
McKesson Corporation
|
28
|
%
|
|
28
|
%
|
Amerisource Bergen Corporation
|
14
|
%
|
|
15
|
%
|
CuraScript, Inc.
|
17
|
%
|
|
15
|
%
|
Cardinal Health, Inc.
|
11
|
%
|
|
10
|
%
|
The following table shows net sales attributable to products that accounted for 10% or more of the Company's total net sales:
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
2017
|
|
March 25,
2016
|
Acthar
|
34
|
%
|
|
30
|
%
|
Inomax
|
16
|
%
|
|
14
|
%
|
The two reportable segments are further described below:
|
|
•
|
Specialty Brands
includes branded pharmaceutical products and therapies; and
|
|
|
•
|
Specialty Generics
includes specialty generic pharmaceuticals and API consisting of biologics, medicinal opioids, synthetic controlled substances, acetaminophen and other active ingredients.
|
Selected information by reportable segment was as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
2017
|
|
March 25,
2016
|
Net sales:
|
|
|
|
Specialty Brands
|
$
|
557.2
|
|
|
$
|
535.0
|
|
Specialty Generics
|
238.6
|
|
|
264.4
|
|
Net sales of reportable segments
|
795.8
|
|
|
799.4
|
|
Other
(1)
|
15.1
|
|
|
16.4
|
|
Net sales
|
$
|
810.9
|
|
|
$
|
815.8
|
|
Operating income:
|
|
|
|
Specialty Brands
|
$
|
275.0
|
|
|
$
|
260.9
|
|
Specialty Generics
|
76.2
|
|
|
98.9
|
|
Segment operating income
|
351.2
|
|
|
359.8
|
|
Unallocated amounts:
|
|
|
|
|
|
Corporate and unallocated expenses
(2)
|
(67.2
|
)
|
|
(25.4
|
)
|
Intangible asset amortization
|
(175.1
|
)
|
|
(175.0
|
)
|
Restructuring and related charges, net
(3)
|
(18.7
|
)
|
|
(10.1
|
)
|
Non-restructuring impairment charges
|
—
|
|
|
(16.9
|
)
|
Operating income
|
$
|
90.2
|
|
|
$
|
132.4
|
|
|
|
(1)
|
Represents net sales under an ongoing supply agreement with the acquirer of the CMDS business.
|
|
|
(2)
|
Includes administration expenses and certain compensation, legal, environmental and other costs not charged to the Company's reportable segments.
|
|
|
(3)
|
Includes restructuring-related accelerated depreciation.
|
Net sales by product family within the Company's reportable segments are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2017
|
|
March 25, 2016
|
Acthar
|
$
|
271.8
|
|
|
$
|
248.4
|
|
Inomax
|
128.4
|
|
|
115.5
|
|
Ofirmev
|
73.4
|
|
|
71.1
|
|
Therakos immunotherapy
|
51.2
|
|
|
50.2
|
|
Hemostasis products
|
13.1
|
|
|
11.4
|
|
Other
|
19.3
|
|
|
38.4
|
|
Specialty Brands
|
557.2
|
|
|
535.0
|
|
|
|
|
|
Hydrocodone (API) and hydrocodone-containing tablets
|
30.3
|
|
|
40.8
|
|
Oxycodone (API) and oxycodone-containing tablets
|
22.1
|
|
|
37.9
|
|
Methylphenidate ER
|
23.7
|
|
|
24.6
|
|
Other controlled substances
|
107.4
|
|
|
121.9
|
|
Other products
|
55.1
|
|
|
39.2
|
|
Specialty Generics
|
238.6
|
|
|
264.4
|
|
|
|
|
|
Other
(1)
|
15.1
|
|
|
16.4
|
|
Net sales
|
$
|
810.9
|
|
|
$
|
815.8
|
|
|
|
(1)
|
Represents net sales under an ongoing supply agreement with the acquirer of the CMDS business.
|
|
|
|
19.
|
Condensed Consolidating Financial Statements
|
MIFSA, an indirectly
100%
-owned subsidiary of Mallinckrodt plc, is the borrower under the
3.50%
notes due April 2018 and the
4.75%
notes due April 2023 (collectively, "the Notes"), which are fully and unconditionally guaranteed by Mallinckrodt plc. The following information provides the composition of the Company's comprehensive income, assets, liabilities, equity and cash flows by relevant group within the Company: Mallinckrodt plc as guarantor of the Notes, MIFSA as issuer of the Notes and the other subsidiaries. There are no subsidiary guarantees related to the Notes.
Set forth on the following pages are the condensed consolidating financial statements for the three months ended
March 31, 2017
and
March 25, 2016
, and as of
March 31, 2017
and
December 30, 2016
. Eliminations represent adjustments to eliminate investments in subsidiaries and intercompany balances and transactions between or among Mallinckrodt plc, MIFSA and other subsidiaries. Condensed consolidating financial information for Mallinckrodt plc and MIFSA, on a standalone basis, has been presented using the equity method of accounting for subsidiaries.
MALLINCKRODT PLC
CONDENSED CONSOLIDATING BALANCE SHEET
As of
March 31, 2017
(unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mallinckrodt plc
|
|
Mallinckrodt International Finance S.A.
|
|
Other Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
0.4
|
|
|
$
|
130.3
|
|
|
$
|
129.1
|
|
|
$
|
—
|
|
|
$
|
259.8
|
|
Accounts receivable, net
|
—
|
|
|
—
|
|
|
486.3
|
|
|
—
|
|
|
486.3
|
|
Inventories
|
—
|
|
|
—
|
|
|
358.8
|
|
|
—
|
|
|
358.8
|
|
Prepaid expenses and other current assets
|
0.7
|
|
|
0.3
|
|
|
187.4
|
|
|
—
|
|
|
188.4
|
|
Notes receivable
|
—
|
|
|
—
|
|
|
154.0
|
|
|
—
|
|
|
154.0
|
|
Current assets held for sale
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Intercompany receivables
|
71.2
|
|
|
19.5
|
|
|
1,101.1
|
|
|
(1,191.8
|
)
|
|
—
|
|
Total current assets
|
72.3
|
|
|
150.1
|
|
|
2,416.7
|
|
|
(1,191.8
|
)
|
|
1,447.3
|
|
Property, plant and equipment, net
|
—
|
|
|
—
|
|
|
911.4
|
|
|
—
|
|
|
911.4
|
|
Goodwill
|
—
|
|
|
—
|
|
|
3,446.2
|
|
|
—
|
|
|
3,446.2
|
|
Intangible assets, net
|
—
|
|
|
—
|
|
|
8,778.9
|
|
|
—
|
|
|
8,778.9
|
|
Investment in subsidiaries
|
4,763.5
|
|
|
21,387.3
|
|
|
10,310.0
|
|
|
(36,460.8
|
)
|
|
—
|
|
Intercompany loans receivable
|
904.4
|
|
|
—
|
|
|
4,056.7
|
|
|
(4,961.1
|
)
|
|
—
|
|
Other assets
|
—
|
|
|
—
|
|
|
191.8
|
|
|
—
|
|
|
191.8
|
|
Total Assets
|
$
|
5,740.2
|
|
|
$
|
21,537.4
|
|
|
$
|
30,111.7
|
|
|
$
|
(42,613.7
|
)
|
|
$
|
14,775.6
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
$
|
—
|
|
|
$
|
18.3
|
|
|
$
|
226.6
|
|
|
$
|
—
|
|
|
$
|
244.9
|
|
Accounts payable
|
—
|
|
|
0.8
|
|
|
114.6
|
|
|
—
|
|
|
115.4
|
|
Accrued payroll and payroll-related costs
|
—
|
|
|
—
|
|
|
69.3
|
|
|
—
|
|
|
69.3
|
|
Accrued interest
|
—
|
|
|
79.2
|
|
|
1.6
|
|
|
—
|
|
|
80.8
|
|
Accrued and other current liabilities
|
1.2
|
|
|
9.2
|
|
|
515.4
|
|
|
—
|
|
|
525.8
|
|
Current liabilities held for sale
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Intercompany payables
|
624.8
|
|
|
471.7
|
|
|
95.3
|
|
|
(1,191.8
|
)
|
|
—
|
|
Total current liabilities
|
626.0
|
|
|
579.2
|
|
|
1,022.8
|
|
|
(1,191.8
|
)
|
|
1,036.2
|
|
Long-term debt
|
—
|
|
|
5,679.9
|
|
|
20.0
|
|
|
—
|
|
|
5,699.9
|
|
Pension and postretirement benefits
|
—
|
|
|
—
|
|
|
67.5
|
|
|
—
|
|
|
67.5
|
|
Environmental liabilities
|
—
|
|
|
—
|
|
|
72.5
|
|
|
—
|
|
|
72.5
|
|
Deferred income taxes
|
—
|
|
|
—
|
|
|
2,338.1
|
|
|
—
|
|
|
2,338.1
|
|
Other income tax liabilities
|
—
|
|
|
—
|
|
|
71.8
|
|
|
—
|
|
|
71.8
|
|
Intercompany loans payable
|
—
|
|
|
4,961.1
|
|
|
—
|
|
|
(4,961.1
|
)
|
|
—
|
|
Other liabilities
|
—
|
|
|
7.2
|
|
|
368.2
|
|
|
—
|
|
|
375.4
|
|
Total Liabilities
|
626.0
|
|
|
11,227.4
|
|
|
3,960.9
|
|
|
(6,152.9
|
)
|
|
9,661.4
|
|
Shareholders' Equity
|
5,114.2
|
|
|
10,310.0
|
|
|
26,150.8
|
|
|
(36,460.8
|
)
|
|
5,114.2
|
|
Total Liabilities and Shareholders' Equity
|
$
|
5,740.2
|
|
|
$
|
21,537.4
|
|
|
$
|
30,111.7
|
|
|
$
|
(42,613.7
|
)
|
|
$
|
14,775.6
|
|
MALLINCKRODT PLC
CONDENSED CONSOLIDATING BALANCE SHEET
As of
December 30, 2016
(unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mallinckrodt plc
|
|
Mallinckrodt International Finance S.A.
|
|
Other Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
0.5
|
|
|
$
|
44.5
|
|
|
$
|
297.0
|
|
|
$
|
—
|
|
|
$
|
342.0
|
|
Accounts receivable, net
|
—
|
|
|
—
|
|
|
431.0
|
|
|
—
|
|
|
431.0
|
|
Inventories
|
—
|
|
|
—
|
|
|
350.7
|
|
|
—
|
|
|
350.7
|
|
Prepaid expenses and other current assets
|
1.0
|
|
|
—
|
|
|
130.9
|
|
|
—
|
|
|
131.9
|
|
Notes receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Current assets held for sale
|
—
|
|
|
—
|
|
|
310.9
|
|
|
—
|
|
|
310.9
|
|
Intercompany receivables
|
59.7
|
|
|
65.1
|
|
|
1,081.3
|
|
|
(1,206.1
|
)
|
|
—
|
|
Total current assets
|
61.2
|
|
|
109.6
|
|
|
2,601.8
|
|
|
(1,206.1
|
)
|
|
1,566.5
|
|
Property, plant and equipment, net
|
—
|
|
|
—
|
|
|
881.5
|
|
|
—
|
|
|
881.5
|
|
Goodwill
|
—
|
|
|
—
|
|
|
3,498.1
|
|
|
—
|
|
|
3,498.1
|
|
Intangible assets, net
|
—
|
|
|
—
|
|
|
9,000.5
|
|
|
—
|
|
|
9,000.5
|
|
Investment in subsidiaries
|
5,534.1
|
|
|
20,624.1
|
|
|
10,988.5
|
|
|
(37,146.7
|
)
|
|
—
|
|
Intercompany loans receivable
|
3.5
|
|
|
—
|
|
|
3,325.9
|
|
|
(3,329.4
|
)
|
|
—
|
|
Other assets
|
—
|
|
|
—
|
|
|
259.7
|
|
|
—
|
|
|
259.7
|
|
Total Assets
|
$
|
5,598.8
|
|
|
$
|
20,733.7
|
|
|
$
|
30,556.0
|
|
|
$
|
(41,682.2
|
)
|
|
$
|
15,206.3
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
$
|
—
|
|
|
$
|
19.7
|
|
|
$
|
251.5
|
|
|
$
|
—
|
|
|
$
|
271.2
|
|
Accounts payable
|
0.1
|
|
|
0.1
|
|
|
111.9
|
|
|
—
|
|
|
112.1
|
|
Accrued payroll and payroll-related costs
|
—
|
|
|
—
|
|
|
76.1
|
|
|
—
|
|
|
76.1
|
|
Accrued interest
|
—
|
|
|
53.9
|
|
|
14.8
|
|
|
—
|
|
|
68.7
|
|
Accrued and other current liabilities
|
1.9
|
|
|
7.5
|
|
|
649.4
|
|
|
—
|
|
|
658.8
|
|
Current liabilities held for sale
|
—
|
|
|
—
|
|
|
120.3
|
|
|
—
|
|
|
120.3
|
|
Intercompany payables
|
612.5
|
|
|
467.1
|
|
|
126.5
|
|
|
(1,206.1
|
)
|
|
—
|
|
Total current liabilities
|
614.5
|
|
|
548.3
|
|
|
1,350.5
|
|
|
(1,206.1
|
)
|
|
1,307.2
|
|
Long-term debt
|
—
|
|
|
5,860.6
|
|
|
20.2
|
|
|
—
|
|
|
5,880.8
|
|
Pension and postretirement benefits
|
—
|
|
|
—
|
|
|
136.4
|
|
|
—
|
|
|
136.4
|
|
Environmental liabilities
|
—
|
|
|
—
|
|
|
73.0
|
|
|
—
|
|
|
73.0
|
|
Deferred income taxes
|
—
|
|
|
—
|
|
|
2,398.1
|
|
|
—
|
|
|
2,398.1
|
|
Other income tax liabilities
|
—
|
|
|
—
|
|
|
70.4
|
|
|
—
|
|
|
70.4
|
|
Intercompany loans payable
|
—
|
|
|
3,329.4
|
|
|
—
|
|
|
(3,329.4
|
)
|
|
—
|
|
Other liabilities
|
—
|
|
|
7.0
|
|
|
349.1
|
|
|
—
|
|
|
356.1
|
|
Total Liabilities
|
614.5
|
|
|
9,745.3
|
|
|
4,397.7
|
|
|
(4,535.5
|
)
|
|
10,222.0
|
|
Shareholders' Equity
|
4,984.3
|
|
|
10,988.4
|
|
|
26,158.3
|
|
|
(37,146.7
|
)
|
|
4,984.3
|
|
Total Liabilities and Shareholders' Equity
|
$
|
5,598.8
|
|
|
$
|
20,733.7
|
|
|
$
|
30,556.0
|
|
|
$
|
(41,682.2
|
)
|
|
$
|
15,206.3
|
|
MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended
March 31, 2017
(unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mallinckrodt plc
|
|
Mallinckrodt International Finance S.A.
|
|
Other Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
810.9
|
|
|
$
|
—
|
|
|
$
|
810.9
|
|
Cost of sales
|
—
|
|
|
—
|
|
|
392.3
|
|
|
—
|
|
|
392.3
|
|
Gross profit
|
—
|
|
|
—
|
|
|
418.6
|
|
|
—
|
|
|
418.6
|
|
Selling, general and administrative expenses
|
18.2
|
|
|
0.2
|
|
|
289.7
|
|
|
—
|
|
|
308.1
|
|
Research and development expenses
|
—
|
|
|
—
|
|
|
62.2
|
|
|
—
|
|
|
62.2
|
|
Restructuring charges, net
|
—
|
|
|
—
|
|
|
17.2
|
|
|
—
|
|
|
17.2
|
|
Non-restructuring impairment charges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Gains on divestiture and license
|
—
|
|
|
—
|
|
|
(59.1
|
)
|
|
—
|
|
|
(59.1
|
)
|
Operating income
|
(18.2
|
)
|
|
(0.2
|
)
|
|
108.6
|
|
|
—
|
|
|
90.2
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(3.3
|
)
|
|
(85.3
|
)
|
|
(20.2
|
)
|
|
14.6
|
|
|
(94.2
|
)
|
Interest income
|
1.1
|
|
|
0.3
|
|
|
14.1
|
|
|
(14.6
|
)
|
|
0.9
|
|
Other expense, net
|
15.4
|
|
|
(9.9
|
)
|
|
(13.0
|
)
|
|
—
|
|
|
(7.5
|
)
|
Intercompany fees
|
(5.5
|
)
|
|
—
|
|
|
5.5
|
|
|
—
|
|
|
—
|
|
Equity in net income (loss) of subsidiaries
|
408.7
|
|
|
597.0
|
|
|
500.5
|
|
|
(1,506.2
|
)
|
|
—
|
|
(Loss) income from continuing operations before income taxes
|
398.2
|
|
|
501.9
|
|
|
595.5
|
|
|
(1,506.2
|
)
|
|
(10.6
|
)
|
Income tax benefit
|
(2.0
|
)
|
|
(0.3
|
)
|
|
(37.2
|
)
|
|
—
|
|
|
(39.5
|
)
|
Income from continuing operations
|
400.2
|
|
|
502.2
|
|
|
632.7
|
|
|
(1,506.2
|
)
|
|
28.9
|
|
Income from discontinued operations, net of income taxes
|
(1.0
|
)
|
|
(1.7
|
)
|
|
373.0
|
|
|
—
|
|
|
370.3
|
|
Net income
|
399.2
|
|
|
500.5
|
|
|
1,005.7
|
|
|
(1,506.2
|
)
|
|
399.2
|
|
Other comprehensive loss, net of tax
|
62.6
|
|
|
62.6
|
|
|
125.0
|
|
|
(187.6
|
)
|
|
62.6
|
|
Comprehensive income
|
$
|
461.8
|
|
|
$
|
563.1
|
|
|
$
|
1,130.7
|
|
|
$
|
(1,693.8
|
)
|
|
$
|
461.8
|
|
MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended
March 25, 2016
(unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mallinckrodt plc
|
|
Mallinckrodt International Finance S.A.
|
|
Other Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
815.8
|
|
|
$
|
—
|
|
|
$
|
815.8
|
|
Cost of sales
|
—
|
|
|
—
|
|
|
390.7
|
|
|
—
|
|
|
390.7
|
|
Gross profit
|
—
|
|
|
—
|
|
|
425.1
|
|
|
—
|
|
|
425.1
|
|
Selling, general and administrative expenses
|
13.9
|
|
|
0.2
|
|
|
195.2
|
|
|
—
|
|
|
209.3
|
|
Research and development expenses
|
—
|
|
|
—
|
|
|
58.1
|
|
|
—
|
|
|
58.1
|
|
Restructuring charges, net
|
—
|
|
|
—
|
|
|
8.4
|
|
|
—
|
|
|
8.4
|
|
Non-restructuring impairment charge
|
—
|
|
|
—
|
|
|
16.9
|
|
|
—
|
|
|
16.9
|
|
Operating (loss) income
|
(13.9
|
)
|
|
(0.2
|
)
|
|
146.5
|
|
|
—
|
|
|
132.4
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(69.9
|
)
|
|
(81.5
|
)
|
|
(21.7
|
)
|
|
75.9
|
|
|
(97.2
|
)
|
Interest income
|
—
|
|
|
0.2
|
|
|
75.9
|
|
|
(75.9
|
)
|
|
0.2
|
|
Other income (expense), net
|
12.3
|
|
|
(0.1
|
)
|
|
(12.9
|
)
|
|
—
|
|
|
(0.7
|
)
|
Intercompany fees
|
(2.8
|
)
|
|
0.1
|
|
|
2.7
|
|
|
—
|
|
|
—
|
|
Equity in net income of subsidiaries
|
192.5
|
|
|
332.0
|
|
|
252.8
|
|
|
(777.3
|
)
|
|
—
|
|
Income (loss) from continuing operations before income taxes
|
118.2
|
|
|
250.5
|
|
|
443.3
|
|
|
(777.3
|
)
|
|
34.7
|
|
Income tax benefit
|
(0.1
|
)
|
|
(3.8
|
)
|
|
(59.9
|
)
|
|
—
|
|
|
(63.8
|
)
|
Income from continuing operations
|
118.3
|
|
|
254.3
|
|
|
503.2
|
|
|
(777.3
|
)
|
|
98.5
|
|
Income from discontinued operations, net of income taxes
|
—
|
|
|
(1.5
|
)
|
|
21.3
|
|
|
—
|
|
|
19.8
|
|
Net income
|
118.3
|
|
|
252.8
|
|
|
524.5
|
|
|
(777.3
|
)
|
|
118.3
|
|
Other comprehensive (loss) income, net of tax
|
0.2
|
|
|
0.2
|
|
|
0.2
|
|
|
(0.4
|
)
|
|
0.2
|
|
Comprehensive income
|
$
|
118.5
|
|
|
$
|
253.0
|
|
|
$
|
524.7
|
|
|
$
|
(777.7
|
)
|
|
$
|
118.5
|
|
MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the
three
months ended
March 31, 2017
(unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mallinckrodt plc
|
|
Mallinckrodt International Finance S.A.
|
|
Other Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
$
|
1,177.5
|
|
|
$
|
134.8
|
|
|
$
|
1,062.6
|
|
|
$
|
(2,472.3
|
)
|
|
$
|
(97.4
|
)
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
—
|
|
|
(52.6
|
)
|
|
—
|
|
|
(52.6
|
)
|
Acquisitions and intangibles, net of cash acquired
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Proceeds from divestiture of discontinued operations, net of cash
|
—
|
|
|
—
|
|
|
576.9
|
|
|
—
|
|
|
576.9
|
|
Intercompany loan investment, net
|
(900.9
|
)
|
|
—
|
|
|
(724.0
|
)
|
|
1,624.9
|
|
|
—
|
|
Investment in subsidiary
|
—
|
|
|
(307.9
|
)
|
|
—
|
|
|
307.9
|
|
|
—
|
|
Other
|
—
|
|
|
—
|
|
|
(10.8
|
)
|
|
—
|
|
|
(10.8
|
)
|
Net cash from investing activities
|
(900.9
|
)
|
|
(307.9
|
)
|
|
(210.5
|
)
|
|
1,932.8
|
|
|
513.5
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
Issuance of external debt
|
—
|
|
|
—
|
|
|
25.0
|
|
|
—
|
|
|
25.0
|
|
Repayment of external debt and capital leases
|
—
|
|
|
(183.5
|
)
|
|
(50.4
|
)
|
|
—
|
|
|
(233.9
|
)
|
Debt financing costs
|
—
|
|
|
(12.5
|
)
|
|
(0.5
|
)
|
|
—
|
|
|
(13.0
|
)
|
Proceeds from exercise of share options
|
2.1
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
2.2
|
|
Repurchase of shares
|
(279.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(279.6
|
)
|
Intercompany loan borrowings, net
|
—
|
|
|
1,624.9
|
|
|
—
|
|
|
(1,624.9
|
)
|
|
—
|
|
Intercompany dividends
|
—
|
|
|
(1,170.0
|
)
|
|
(1,302.3
|
)
|
|
2,472.3
|
|
|
—
|
|
Capital contribution
|
—
|
|
|
—
|
|
|
307.9
|
|
|
(307.9
|
)
|
|
—
|
|
Other
|
0.8
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
1.0
|
|
Net cash from financing activities
|
(276.7
|
)
|
|
258.9
|
|
|
(1,020.0
|
)
|
|
539.5
|
|
|
(498.3
|
)
|
Effect of currency rate changes on cash
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net change in cash, cash equivalents and restricted cash
|
(0.1
|
)
|
|
85.8
|
|
|
(167.9
|
)
|
|
—
|
|
|
(82.2
|
)
|
Cash, cash equivalents and restricted cash at beginning of period
|
0.5
|
|
|
44.5
|
|
|
316.1
|
|
|
—
|
|
|
361.1
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
0.4
|
|
|
$
|
130.3
|
|
|
$
|
148.2
|
|
|
$
|
—
|
|
|
$
|
278.9
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
$
|
0.4
|
|
|
$
|
130.3
|
|
|
$
|
129.1
|
|
|
$
|
—
|
|
|
$
|
259.8
|
|
Restricted Cash, Current at end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
Restricted Cash, Noncurrent at end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19.1
|
|
|
$
|
—
|
|
|
19.1
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
0.4
|
|
|
$
|
130.3
|
|
|
$
|
148.2
|
|
|
$
|
—
|
|
|
$
|
278.9
|
|
MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the
three
months ended
March 25, 2016
(unaudited, in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mallinckrodt plc
|
|
Mallinckrodt International Finance S.A.
|
|
Other Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
$
|
3.7
|
|
|
$
|
26.0
|
|
|
$
|
198.9
|
|
|
$
|
—
|
|
|
$
|
228.6
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
—
|
|
|
(42.4
|
)
|
|
—
|
|
|
(42.4
|
)
|
Acquisitions and intangibles, net of cash acquired
|
—
|
|
|
—
|
|
|
(170.1
|
)
|
|
—
|
|
|
(170.1
|
)
|
Proceeds from divestiture of discontinued operations, net of cash
|
—
|
|
|
(1.4
|
)
|
|
7.2
|
|
|
—
|
|
|
5.8
|
|
Intercompany loan investment, net
|
—
|
|
|
89.8
|
|
|
(309.4
|
)
|
|
219.6
|
|
|
—
|
|
Investment in subsidiary
|
—
|
|
|
(130.0
|
)
|
|
—
|
|
|
130.0
|
|
|
—
|
|
Other
|
—
|
|
|
—
|
|
|
3.9
|
|
|
—
|
|
|
3.9
|
|
Net cash from investing activities
|
—
|
|
|
(41.6
|
)
|
|
(510.8
|
)
|
|
349.6
|
|
|
(202.8
|
)
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
Issuance of external debt
|
—
|
|
|
—
|
|
|
16.4
|
|
|
—
|
|
|
16.4
|
|
Repayment of external debt and capital leases
|
—
|
|
|
(5.0
|
)
|
|
(16.9
|
)
|
|
—
|
|
|
(21.9
|
)
|
Debt financing costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Proceeds from exercise of share options
|
2.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.7
|
|
Repurchase of shares
|
(226.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(226.2
|
)
|
Intercompany loan borrowings, net
|
219.6
|
|
|
—
|
|
|
—
|
|
|
(219.6
|
)
|
|
—
|
|
Capital contribution
|
—
|
|
|
—
|
|
|
130.0
|
|
|
(130.0
|
)
|
|
—
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net cash from financing activities
|
(3.9
|
)
|
|
(5.0
|
)
|
|
129.5
|
|
|
(349.6
|
)
|
|
(229.0
|
)
|
Effect of currency rate changes on cash
|
—
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
1.4
|
|
Net change in cash, cash equivalents and restricted cash
|
(0.2
|
)
|
|
(20.6
|
)
|
|
(181.0
|
)
|
|
—
|
|
|
(201.8
|
)
|
Cash, cash equivalents and restricted cash at beginning of period
|
0.3
|
|
|
158.5
|
|
|
429.6
|
|
|
—
|
|
|
588.4
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
0.1
|
|
|
$
|
137.9
|
|
|
$
|
248.6
|
|
|
$
|
—
|
|
|
$
|
386.6
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
$
|
0.1
|
|
|
$
|
137.9
|
|
|
$
|
203.4
|
|
|
$
|
—
|
|
|
$
|
341.4
|
|
Restricted Cash, Current at end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26.2
|
|
|
$
|
—
|
|
|
$
|
26.2
|
|
Restricted Cash, Noncurrent at end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19.0
|
|
|
$
|
—
|
|
|
$
|
19.0
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
0.1
|
|
|
$
|
137.9
|
|
|
$
|
248.6
|
|
|
$
|
—
|
|
|
$
|
386.6
|
|
Commitments and Contingencies
Putative Class Action Litigation
. On April 6, 2017, a putative class action lawsuit was filed against the Company and United BioSource Corporation (“UBC”) in the U.S. District Court for the Northern District of Illinois. The case is captioned City of Rockford v. Mallinckrodt ARD, Inc., et al., No. 3:17-cv-50107. The complaint purports to be brought on behalf of all self-funded entities in the United States and its Territories that paid for Acthar from August 2007 to the present. The lawsuit alleges that the Company engaged in anticompetitive, unfair, and deceptive acts to artificially raise and maintain the price of Acthar. To this end, the suit alleges that the Company unlawfully maintained a monopoly in a purported ACTH product market by acquiring the U.S. rights to Synacthen Depot; conspired with UBC and violated anti-racketeering laws by selling Acthar through an exclusive distributor; and committed a fraud on consumers by failing to correctly identify Acthar’s active ingredient on package inserts. The Company intends to vigorously defend itself in this matter.
Ofirmev Patent Litigation: InnoPharma Licensing LLC and InnoPharma, Inc.
In September 2014, Cadence and Mallinckrodt IP, subsidiaries of the Company, and Pharmatop, the owner of the two U.S. patents licensed exclusively by the Company, filed suit in the U.S. District Court for the District of Delaware against InnoPharma Licensing LLC and InnoPharma, Inc. (both are subsidiaries of Pfizer and collectively "InnoPharma") alleging that InnoPharma infringed the '222 and the '218 patents following receipt of an August 2014 notice from InnoPharma concerning its submission of a New Drug Application ("NDA"), containing a Paragraph IV patent certification with the FDA for a competing version of Ofirmev. Separately, on December 1, 2016 Mallinckrodt IP filed suit in the U.S. District Court for the District of Delaware against InnoPharma alleging that InnoPharma infringed the ‘012 patent.
On May 4, 2017, the parties entered into settlement agreements on both suits under which InnoPharma was granted the non-exclusive right to market a competing intravenous acetaminophen product in the U.S. under its NDA after December 6, 2020, or earlier under certain circumstances.