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 Mallinckrodt plc Reports Fourth Quarter and Fiscal 2017 Results, Announces 2018 Guidance and Sets 2018 Strategic Priorities
   Tuesday, February 27, 2018 6:00:00 AM ET

Mallinckrodt plc (MNK ), a leading global specialty pharmaceutical company, today reported results for the three months and fiscal year ended Dec. 29, 2017. Unless otherwise noted, the quarter comparisons are to the prior year comparable three-month period ended Dec. 30, 2016 and the fiscal year comparisons are to the prior fiscal year ended Sept. 30, 2016 as prescribed by GAAP.

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

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

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

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

Mallinckrodt’s 2018 strategic initiatives include:

-- Maximizing the productivity and contribution of both inline brands and the near-term development portfolio;

-- Further streamlining the organization - moving to discontinued operations and seeking to dispose of non-core assets; streamlining its operating model to increase efficiency and productivity, allowing greater investment into its Specialty Brands segment. With this the company seeks to reduce its annual selling, general and administrative (SG&A) spend by $100 million no later than the early 2020s while continuing to increase R&D spending.

-- Ensuring a highly disciplined capital allocation strategy with a focus on reducing debt and pursuing business development and share repurchases where they make sense;

-- Continuing to refine the senior management team to increase focus on performance and drive sustainable growth for the future, illustrated by the recent recruitment of Mark Casey as General Counsel;

-- Attracting additional innovative pharmaceutical expertise to the company’s Board of Directors, similar to the third quarter 2017 appointment of David Norton.

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

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

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

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

Fiscal Year 2017 Results

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

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

BUSINESS SEGMENT RESULTS

Specialty Brands Segment

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

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

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

Specialty Generics Segment

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

LIQUIDITY

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

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

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

2018 MALLINCKRODT FINANCIAL GUIDANCE

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

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

Metric                                    2018 Guidance
(excluding foreign currency impact)
Total net sales for continuing operations Increase 3% to 6%
Net interest expense                      $370 million to $390 million
Adjusted effective tax rate               9% to 11%
Adjusted diluted EPS                      $6.00 to $6.50

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

CONFERENCE CALL AND WEBCAST

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

-- At the Mallinckrodt website: http://www.mallinckrodt.com/investors .

-- By telephone: For both listen-only participants and those who wish to take part in the question-and-answer portion of the call, the telephone dial-in number in the U.S. is (877) 359-9508. For participants outside the U.S., the dial-in number is (224) 357-2393. Callers will need to provide the Conference ID of 2589547.

-- Through an audio replay: A replay of the call will be available beginning at 11:30 a.m. Eastern Time on Tuesday, Feb. 27, 2018, and ending at 11:59 p.m. Eastern Time on Tuesday, Mar. 13, 2018. Dial-in numbers for U.S.-based participants are (855) 859-2056 or (800) 585-8367. Participants outside the U.S. should use the replay dial-in number of (404) 537-3406. All callers will be required to provide the Conference ID of 2589547.

ABOUT MALLINCKRODT

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

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

NON-GAAP FINANCIAL MEASURES

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

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

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

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

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

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

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

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

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

CAUTIONARY STATEMENTS RELATED TO FORWARD-LOOKING STATEMENTS

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

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

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

1 Generally accepted accounting principles in the United States

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

3 Excludes external manufacturing operations which will remain a continuing operation

CONTACTS

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

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

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

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

MALLINCKRODT PLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except per share data)
                                                             Three Months Ended
                                                             December 29,  Percent of December 30,  Percent of
                                                             2017          Net sales  2016          Net sales
Net sales                                                    $    792.3    100.0   %  $    829.9    100.0  %
Cost of sales                                                371.3         46.9       384.1         46.3
Gross profit                                                 421.0         53.1       445.8         53.7
Selling, general and administrative expenses                 175.0         22.1       368.3         44.4
Research and development expenses                            86.4          10.9       66.2          8.0
Restructuring charges, net                                   (0.9)         (0.1)      3.8           0.5
Non-restructuring impairment charges                         63.7          8.0        214.3         25.8
Gains on divestiture and license                             (0.3)         --         --            --
Operating income (loss)                                      97.1          12.3       (206.8)       (24.9)
Interest expense                                             (90.1)        (11.4)     (91.3)        (11.0)
Interest income                                              1.8           0.2        0.5           0.1
Other loss, net                                              (0.2)         --         (0.9)         (0.1)
Income (loss) from continuing operations before income taxes 8.6           1.1        (298.5)       (36.0)
Income tax benefit                                           (1,598.8)     (201.8)    (121.7)       (14.7)
Income (loss) from continuing operations                     1,607.4       202.9      (176.8)       (21.3)
Income from discontinued operations, net of income taxes     1.3           0.2        23.6          2.8
Net income (loss)                                            $    1,608.7  203.0   %  $    (153.2)  (18.5) %
Basic earnings per share:
Income (loss) from continuing operations                     $    17.43               $    (1.67)
Income from discontinued operations                          0.01                     0.22
Net income (loss)                                            17.45                    (1.45)
Diluted earnings per share:
Income (loss) from continuing operations                     $    17.40               $    (1.67)
Income from discontinued operations                          0.01                     0.22
Net income (loss)                                            17.41                    (1.45)
Weighted-average number of shares outstanding:
Basic                                                        92.2                     105.7
Diluted                                                      92.4                     105.7
MALLINCKRODT PLC
NON-GAAP MEASURES
(unaudited, in millions except per share data)
                                              Three Months Ended
                                              December 29, 2017                                   December 30, 2016
                                              Gross       SG&A       Net              Diluted     Gross       SG&A        Net             Diluted
                                              profit                 income           net         profit                  (loss)          net (loss)
                                                                                      income                              income          income
                                                                                      per                                                 per share
                                                                                      share
GAAP                                          $  421.0    $  175.0   $    1,608.7     $   17.41   $  445.8    $   368.3   $   (153.2)     $   (1.45)
Adjustments:
Intangible asset amortization                 169.8       (1.7)      171.5            1.86        174.0       (1.7)       175.7           1.65
Restructuring and related charges, net (1)    0.5         (1.1)      0.7              0.01        0.5         (1.0)       5.3             0.05
Inventory step-up expense                     1.5         --         1.5              0.02        3.6         --          3.6             0.03
Income from discontinued operations           --          --         (1.3)            (0.01)      --          --          (23.6)          (0.22)
Change in contingent consideration fair value --          45.5       (45.5)           (0.49)      --          (1.3)       1.3             0.01
Acquisition related expenses                  --          (5.1)      5.1              0.06        --          (0.1)       0.1             --
Non-restructuring impairment charges          --          --         63.7             0.69        --          --          207.0           1.95
Significant legal and environmental charges   --          --         --               --          --          (102.0)     102.0           0.96
Pension settlement charge                     --          --         --               --          --          (45.0)      45.0            0.42
Reorganization of legal entity ownership (2)  --          --         (1,082.0)        (11.71)     --          --          --              --
U.S. Tax Reform (3)                           --          --         (457.4)          (4.95)      --          --          --              --
Income taxes (4)                              --          --         (78.8)           (0.85)      --          --          (159.6)         (1.50)
As adjusted                                   $  592.8    $  212.6   $    186.2       $   2.01    $  623.9    $   217.2   $   203.6       $   1.91
Percent of net sales                          74.8     %  26.8     % 23.5         %               75.2     %  26.2      % 24.5        %
(1) Includes pre-tax accelerated depreciation.
(2) Represents the incremental tax and interest expense associated with non-cash internal legal entity reorganization. Of the total adjustment, $8.9 million represents a one-time charge to interest expense related to the reduction in the Company’s interest-bearing deferred tax liabilities.
(3) Represents the incremental tax and interest expense associated with the impact of the U.S. tax reform bill being signed into law. Of the total adjustment, $0.5 million represents a one-time reduction to interest expense related to the reduction in the Company’s interest-bearing deferred tax liabilities.
(4) Includes tax effects of above adjustments as well as the elimination of deferred tax benefits recognized upon pay down of intercompany installment notes created by internal sales of acquired intangible assets.
MALLINCKRODT PLC
SEGMENT NET SALES AND CONSTANT-CURRENCY GROWTH
(unaudited, in millions)
                   Three Months Ended
                   December 29, December 30, Percent    Currency   Constant-
                   2017         2016         change     impact     currency
                                                                   growth
Specialty Brands   $    582.2   $    603.1   (3.5) %    0.2  %     (3.7) %
Specialty Generics 195.8        212.9        (8.0)      0.5        (8.5)
                   778.0        816.0        (4.7)      0.3        (5.0)
Other(1)           14.3         13.9         2.9        --         2.9
Net sales          $    792.3   $    829.9   (4.5) %    0.3  %     (4.8) %
(1) Represents net sales from an ongoing, post-divestiture supply agreement with the acquirer of the contrast media and delivery systems ("CMDS") business. Amounts for periods prior to the divestiture represent the reclassification of intercompany sales to third-party sales to conform with the expected presentation of the ongoing supply agreement.
MALLINCKRODT PLC
SELECT PRODUCT LINE NET SALES
(unaudited, in millions)
                                                     Three Months Ended
                                                     December 29, December 30, Percent     Currency   Constant-
                                                     2017         2016         change      impact     currency
                                                                                                      growth
Specialty Brands
H.P. Acthar Gel                                      $    295.2   $    325.4   (9.3)  %    --   %     (9.3)  %
Inomax                                               125.6        118.3        6.2         0.1        6.1
Ofirmev                                              78.0         72.5         7.6         --         7.6
Therakos                                             57.2         47.4         20.7        2.3        18.4
Hemostasis                                           12.3         13.4         (8.2)       --         (8.2)
Other                                                13.9         26.1         (46.7)      0.6        (47.3)
Specialty Brands Total                               $    582.2   $    603.1   (3.5)  %    0.2  %     (3.7)  %
Specialty Generics
Hydrocodone (API) and hydrocodone-containing tablets $    22.0    $    23.2    (5.2)  %    --   %     (5.2)  %
Oxycodone (API) and oxycodone-containing tablets     18.2         24.3         (25.1)      --         (25.1)
Methylphenidate ER                                   13.5         22.0         (38.6)      --         (38.6)
Other controlled substances                          90.6         104.9        (13.6)      --         (13.6)
Other                                                51.5         38.5         33.8        2.8        31.0
Specialty Generics Total                             $    195.8   $    212.9   (8.0)  %    0.5  %     (8.5)  %
MALLINCKRODT PLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except per share data)
                                                         Fiscal Year Ended
                                                         December 29,  Percent of  September 30, Percent of
                                                         2017          Net sales   2016          Net sales
Net sales                                                $    3,221.6  100.0  %    $    3,380.8  100.0  %
Cost of sales                                            1,565.3       48.6        1,525.8       45.1
Gross profit                                             1,656.3       51.4        1,855.0       54.9
Selling, general and administrative expenses             920.9         28.6        925.3         27.4
Research and development expenses                        277.3         8.6         262.2         7.8
Restructuring charges, net                               31.2          1.0         33.3          1.0
Non-restructuring impairment charges                     63.7          2.0         16.9          0.5
Gains on divestiture and license                         (56.9)        (1.8)       --            --
Operating income                                         420.1         13.0        617.3         18.3
Interest expense                                         (369.1)       (11.5)      (384.6)       (11.4)
Interest income                                          4.6           0.1         1.3           --
Other income (loss), net                                 6.0           0.2         (0.6)         --
Income from continuing operations before income taxes    61.6          1.9         233.4         6.9
Income tax benefit                                       (1,709.6)     (53.1)      (255.6)       (7.6)
Income from continuing operations                        1,771.2       55.0        489.0         14.5
Income from discontinued operations, net of income taxes 363.2         11.3        154.7         4.6
Net income                                               $    2,134.4  66.3   %    $    643.7    19.0   %
Basic earnings per share:
Income from continuing operations                        $    18.13                $    4.42
Income from discontinued operations                      3.72                      1.40
Net income                                               21.85                     5.82
Diluted earnings per share:
Income from continuing operations                        $    18.09                $    4.39
Income from discontinued operations                      3.71                      1.39
Net income                                               21.80                     5.77
Weighted-average number of shares outstanding:
Basic                                                    97.7                      110.6
Diluted                                                  97.9                      111.5
MALLINCKRODT PLC
NON-GAAP MEASURES
(unaudited, in millions except per share data)
                                              Fiscal Year Ended
                                              December 29, 2017                                      September 30, 2016
                                              Gross         SG&A        Net              Diluted     Gross         SG&A        Net           Diluted
                                              profit                    income           net         profit                    income        net
                                                                                         income                                              income
                                                                                         per                                                 per
                                                                                         share                                               share
GAAP                                          $  1,656.3    $   920.9   $    2,134.4     $   21.80   $  1,855.0    $   925.3   $   643.7     $   5.77
Adjustments:
Intangible asset amortization                 685.8         (8.7)       694.5            7.09        692.8         (7.3)       700.1         6.28
Restructuring and related charges, net (1)    2.1           (3.2)       36.4             0.37        1.8           (3.1)       38.2          0.34
Inventory step-up expense                     10.1          --          10.1             0.10        24.3          --          24.3          0.22
Income from discontinued operations           --            --          (363.2)          (3.71)      --            --          (154.7)       (1.39)
Change in contingent consideration fair value --            41.4        (41.4)           (0.42)      --            (4.4)       4.4           0.04
Acquisition related expenses                  --            (7.4)       7.4              0.08        --            (6.9)       6.9           0.06
Non-restructuring impairment charges          --            --          63.7             0.65        --            --          16.9          0.15
Debt refinancing                              --            --          10.0             0.10        --            --          --            --
Pension settlement charges                    --            (69.2)      69.2             0.71        --            --          --            --
Intrathecal divestiture                       --            --          (56.6)           (0.58)      --            --          --            --
Significant legal and environmental charges   --            --          --               --          --            (14.5)      14.5          0.13
Reorganization of legal entity ownership (2)  --            --          (1,045.9)        (10.68)     --            --          --            --
U.S. Tax Reform (3)                           --            --          (457.4)          (4.67)      --            --          --            --
Income taxes (4)                              --            --          (327.8)          (3.35)      --            --          (418.6)       (3.75)
As adjusted                                   $  2,354.3    $   873.8   $    733.4       $   7.49    $  2,573.9    $   889.1   $   875.7     $   7.85
Percent of net sales                          73.1       %  27.1      % 22.8         %               76.1       %  26.3      % 25.9      %
(1) Includes pre-tax accelerated depreciation.
(2) Represents the incremental tax and interest expense associated with non-cash internal legal entity reorganization. Of the total adjustment, $8.9 million represents a one-time charge to interest expense related to the reduction in the Company’s interest-bearing deferred tax liabilities.
(3) Represents the incremental tax and interest expense associated with the impact of the U.S. tax reform bill being signed into law. Of the total adjustment, $0.5 million represents a one-time reduction to interest expense related to the reduction in the Company’s interest-bearing deferred tax liabilities.
(4) Includes tax effects of above adjustments as well as the elimination of deferred tax benefits recognized upon pay down of intercompany installment notes created by internal sales of acquired intangible assets.
MALLINCKRODT PLC
SEGMENT NET SALES AND CONSTANT-CURRENCY GROWTH
(unaudited, in millions)
                   Fiscal Year Ended
                   December 29,   September 30,  Percent     Currency    Constant-
                   2017           2016           change      impact      currency
                                                                         growth
Specialty Brands   $    2,325.3   $    2,300.6   1.1    %    (0.1) %     1.2    %
Specialty Generics 839.5          1,025.2        (18.1)      0.2         (18.3)
                   3,164.8        3,325.8        (4.8)       --          (4.8)
Other(1)           56.8           55.0           3.3         --          3.3
Net sales          $    3,221.6   $    3,380.8   (4.7)  %    --    %     (4.7)  %
(1) Represents net sales from an ongoing, post-divestiture supply agreement with the acquirer of the CMDS business. Amounts for periods prior to the divestiture represent the reclassification of intercompany sales to third-party sales to conform with the expected presentation of the ongoing supply agreement.
MALLINCKRODT PLC
SELECT PRODUCT LINE NET SALES
(unaudited, in millions)
                                                     Fiscal Year Ended
                                                     December 29,   September 30,  Percent     Currency    Constant-
                                                     2017           2016           change      impact      currency
                                                                                                           growth
Specialty Brands
H.P. Acthar Gel                                      $    1,195.1   $    1,160.4   3.0    %    --    %     3.0    %
Inomax                                               505.2          474.3          6.5         --          6.5
Ofirmev                                              302.5          284.3          6.4         --          6.4
Therakos                                             214.9          207.6          3.5         (1.7)       5.2
Hemostasis                                           55.1           42.5           29.6        --          29.6
Other                                                52.5           131.5          (60.1)      0.1         (60.2)
Specialty Brands Total                               $    2,325.3   $    2,300.6   1.1    %    (0.1) %     1.2    %
Specialty Generics
Hydrocodone (API) and hydrocodone-containing tablets $    85.3      $    146.5     (41.8) %    --    %     (41.8) %
Oxycodone (API) and oxycodone-containing tablets     78.8           126.2          (37.6)      --          (37.6)
Methylphenidate ER                                   71.7           103.5          (30.7)      --          (30.7)
Other controlled substances                          409.6          468.1          (12.5)      --          (12.5)
Other                                                194.1          180.9          7.3         1.0         6.3
Specialty Generics Total                             $    839.5     $    1,025.2   (18.1) %    0.2   %     (18.3) %
MALLINCKRODT PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions)
                                           December 29,    December 30,
                                           2017            2016
Assets
Current Assets:
Cash and cash equivalents                  $    1,260.9    $    342.0
Accounts receivable, net                   445.8           431.0
Inventories                                340.4           350.7
Prepaid expenses and other current assets  84.1            131.9
Notes receivable                           154.0           --
Current assets held for sale               --              310.9
Total current assets                       2,285.2         1,566.5
Property, plant and equipment, net         966.8           881.5
Goodwill                                   3,482.7         3,498.1
Intangible assets, net                     8,375.0         9,000.5
Other assets                               171.2           259.7
Total Assets                               $    15,280.9   $    15,206.3
Liabilities and Shareholders’ Equity
Current Liabilities:
Current maturities of long-term debt       $    313.7      $    271.2
Accounts payable                           113.3           112.1
Accrued payroll and payroll-related costs  98.5            76.1
Accrued interest                           57.0            68.7
Income taxes payable                       15.8            101.7
Accrued and other current liabilities      452.1           557.1
Current liabilities held for sale          --              120.3
Total current liabilities                  1,050.4         1,307.2
Long-term debt                             6,420.9         5,880.8
Pension and postretirement benefits        67.1            136.4
Environmental liabilities                  73.2            73.0
Deferred income taxes                      689.0           2,398.1
Other income tax liabilities               94.1            70.4
Other liabilities                          364.2           356.1
Total Liabilities                          8,758.9         10,222.0
Shareholders’ Equity:
Preferred shares                           --              --
Ordinary shares                            18.4            23.6
Ordinary shares held in treasury at cost   (1,564.7)       (919.8)
Additional paid-in capital                 5,492.6         5,424.0
Retained earnings                          2,588.6         529.0
Accumulated other comprehensive income     (12.9)          (72.5)
Total Shareholders’ Equity                 6,522.0         4,984.3
Total Liabilities and Shareholders’ Equity $    15,280.9   $    15,206.3
MALLINCKRODT PLC
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
                                                                               Fiscal Year Ended  Three Months Ended  Fiscal Year Ended
                                                                               December 29,       December 30,        September 30,
                                                                               2017               2016                2016
Cash Flows From Operating Activities:
Net income (loss)                                                              $     2,134.4      $      (153.2)      $     643.7
Adjustments to reconcile net cash from operating activities:
Depreciation and amortization                                                  808.3              203.2               834.5
Share-based compensation                                                       59.2               11.0                42.9
Deferred income taxes                                                          (1,744.1)          (204.3)             (432.9)
Non-cash impairment charges                                                    63.7               214.3               16.9
Inventory provisions                                                           34.1               8.5                 29.2
Gain on disposal of discontinued operations                                    (418.1)            --                  (95.3)
Other non-cash items                                                           (21.4)             (9.2)               29.6
Changes in assets and liabilities, net of the effects of acquisitions:
Accounts receivable, net                                                       (16.2)             36.5                31.2
Inventories                                                                    (23.6)             (26.3)              (17.3)
Accounts payable                                                               (25.8)             5.4                 (9.7)
Income taxes                                                                   (34.2)             0.6                 93.9
Other                                                                          (89.0)             109.1               17.9
Net cash from operating activities                                             727.3              195.6               1,184.6
Cash Flows From Investing Activities:
Capital expenditures                                                           (186.1)            (65.2)              (182.9)
Acquisitions and intangibles, net of cash acquired                             (76.3)             (1.8)               (245.4)
Proceeds from disposal of discontinued operations, net of cash                 576.9              --                  266.7
Other                                                                          3.9                (10.2)              6.0
Net cash from investing activities                                             318.4              (77.2)              (155.6)
Cash Flows From Financing Activities:
Issuance of external debt                                                      1,465.0            190.0               98.3
Repayment of external debt and capital leases                                  (917.2)            (86.7)              (568.6)
Debt financing costs                                                           (12.7)             --                  (0.1)
Proceeds from exercise of share options                                        4.1                0.4                 14.0
Repurchase of shares                                                           (651.7)            (158.8)             (652.9)
Other                                                                          (17.7)             1.2                 (53.0)
Net cash from financing activities                                             (130.2)            (53.9)              (1,162.3)
Effect of currency rate changes on cash                                        2.5                (3.0)               0.3
Net change in cash, cash equivalents and restricted cash                       918.0              61.5                (133.0)
Cash, cash equivalents and restricted cash at beginning of period              361.1              299.6               432.6
Cash, cash equivalents and restricted cash at end of period                    $     1,279.1      $      361.1        $     299.6
Cash and cash equivalents at end of period                                     $     1,260.9      $      342.0        $     280.5
Restricted cash included in prepaid expenses and other assets at end of period --                 0.1                 0.1
Restricted cash included in other long-term assets at end of period            18.2               19.0                19.0
Cash, cash equivalents and restricted cash at end of period                    $     1,279.1      $      361.1        $     299.6

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