Mallinckrodt plc Reports Strong Fourth Quarter and 2019 Results

STAINES-UPON-THAMES, United Kingdom, Feb. 25, 2020 /PRNewswire/ -- Mallinckrodt plc (NYSE: MNK), a global biopharmaceutical company, today reported results for the three months and fiscal year ended Dec. 27, 2019. Unless otherwise noted, the three months and fiscal year comparisons are to the prior year comparable period ended Dec. 28, 2018.

Net sales were $804.9 million in the quarter with diluted loss per share of $13.76, primarily driven by $1.643 billion in expense associated with the agreement in principle pertaining to a global opioid resolution, partially offset by a $377.4 million gain on debt extinguishment. Adjusted diluted EPS was $2.40 versus $2.18, an increase of 10.1%.

"We are pleased with the operating strength of the business as we finished 2019," said Mark Trudeau, President and Chief Executive Officer of Mallinckrodt. "Our hospital products had an exceptional fourth quarter, as we anticipated, and the Specialty Generics segment finished the year strong, marking its fourth consecutive quarter of growth. Acthar(®) Gel performed largely in line with our expectations given a challenging payer environment. We remain focused on executing our long-term strategy for this product by generating clinically meaningful data and exploring opportunities to drive greater access for patients. At the same time, we continue to advance our pipeline, including preparing for approval submissions for terlipressin and StrataGraft(®) in the coming months."

Trudeau continued, "Over the past year, it has been one of our top priorities to remove three uncertainties impacting our business - opioid litigation, near-term debt maturities and the Acthar CMS(1) matter. We are pleased that we now have what we believe to be a clear path forward for resolving two of those: reaching an agreement in principle on the terms of a comprehensive global opioid resolution, and taking steps to strengthen our capital structure by addressing near term maturities. While managing these uncertainties, we remain focused on achieving our long-term vision of becoming an innovation-driven biopharmaceutical company focused on improving outcomes for underserved patients with severe and critical conditions."

COMPANY FINANCIAL RESULTS

Fourth Quarter 2019 Results
Gross profit was $373.1 million with gross profit as a percentage of net sales of 46.4%, compared with 43.5%, driven by inventory step-up expense in the prior period and product mix. Adjusted gross profit was $575.9 million, compared with $608.0 million, with adjusted gross profit as a percentage of net sales of 71.5%, compared with 72.8%, driven primarily by product mix.

Selling, general and administrative (SG&A) expenses were $169.2 million or 21.0% of net sales, as compared to $239.6 million, or 28.7%, driven primarily by legal settlement expenses in the prior period and the change in the fair value of contingent consideration. Adjusted SG&A expenses were $191.6 million or 23.8% of net sales, compared with $212.2 million or 25.4%. Adjusted SG&A expenses decreased due to ongoing focused efforts on SG&A reductions.

Research and development expenses were $81.4 million or 10.1% of net sales, as compared to $100.4 million or 12.0%, due to the completion of certain development programs.

As a result of the agreement in principle for a global opioid resolution, the company recorded a $1.643 billion expense attributed to the anticipated structured cash payments under the settlement agreement and the anticipated warrants to purchase ordinary shares at $3.15 per share representing approximately 19.99% of the company's fully diluted outstanding shares, including after giving effect to the exercise of the warrants.

The company recorded $274.5 million in non-recurring impairments in the quarter, related to its VTS-270 in-process research and development intangible asset; as compared to $3.891 billion in the prior year, which was primarily attributed to the goodwill impairment.

Interest expense was $77.2 million as compared to $90.1 million, a reduction of 14.3%, driven by our continued focus on deleveraging.

Income tax benefit was $327.7 million, for an effective tax rate of 22.0%. The adjusted effective tax rate was 15.5%.

Fiscal Year 2019 Results
Net sales were $3.163 billion, compared with $3.216 billion. The decrease was primarily attributed to Acthar(®) Gel (repository corticotropin injection), partially offset by strength in the hospital products, AMITIZA(® )(lubiprostone) and the Specialty Generics segment.

On a GAAP(2) basis, net loss was $996.5 million, compared with $3.607 billion, with diluted loss per share of $11.88 compared to $42.94, both periods impacted by significant one-time items with the opioid agreement in principle liability in 2019 and the goodwill impairment in 2018.

Adjusted net income was $747.5 million, compared with $682.2 million. Adjusted diluted EPS was $8.88 compared with $8.01, an increase of 10.9%.

BUSINESS SEGMENT RESULTS

Specialty Brands Segment
Net sales for the segment in the fourth quarter 2019 were $611.4 million.

    --  Acthar(®) Gel net sales were $232.6 million, a 17.8% decrease,
        primarily driven by continued reimbursement challenges impacting new and
        returning patients and continued payer scrutiny on overall specialty
        pharmaceutical spending.


    --  INOMAX(®) (nitric oxide) gas, for inhalation net sales were $143.8
        million, an increase of 3.7%, or 3.8% on a constant-currency basis,
        driven by strong customer demand for INOmax, partially offset by
        increased competition in the market.


    --  OFIRMEV(®) (acetaminophen) injection net sales were $111.8 million, an
        increase of 28.2%, primarily due to significant quarter-to-quarter order
        variability that is expected to continue until loss of exclusivity.


    --  Therakos(® )immunology platform net sales were $63.3 million, an
        increase of 11.1%, or 11.3% on a constant-currency basis, primarily due
        to the capture of new patients, and the conversion to the Cellex device.
    --  AMITIZA net sales were $50.9 million, down 21.2% due to lower royalties
        in the U.S. due to an increasingly competitive landscape.

Specialty Generics Segment
The segment reported fourth quarter net sales in 2019 of $193.5 million, an increase of 6.0%.

LIQUIDITY
Cash provided by operating activities in the fourth quarter was $208.8 million, with free cash flow of $184.5 million. For the year, operating cash flow was $742.9 million and free cash flow $609.9 million.

The cash balance at the end of the year was $790.9 million, and the revolving credit facility was fully drawn. During the fourth quarter, the company executed a debt exchange offer, which reduced total debt by $383.2 million. With this exchange offer, cash generated from operations, and debt repurchased at a discount earlier in the year, the company reduced net debt by $1.176 billion in 2019, and ended the year with net debt of $4.632 billion.

In conjunction with announcing the agreement in principle for a global opioid resolution, the company also announced that it has entered into certain agreements relating to potential financing and debt exchange transactions, which if implemented, will address near-term debt maturities of the company.

CONFERENCE CALL AND WEBCAST
Mallinckrodt will hold a conference call today 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 4168459.
    --  Through an audio replay: A replay of the call will be available
        beginning at 11:30 a.m. Eastern Time on Tuesday, Feb. 25, 2020, and
        ending at 11:30 a.m. Eastern Time on Tuesday, March 10, 2020. 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 4168459.

ABOUT MALLINCKRODT
Mallinckrodt is a global business consisting of multiple wholly owned subsidiaries that develop, manufacture, market and distribute specialty pharmaceutical products and therapies. The company's Specialty Brands reportable segment's 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. Its Specialty Generics reportable segment includes specialty generic drugs and active pharmaceutical ingredients. 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, net debt 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, amortization and non-restructuring impairment charges; restructuring and related charges, net; inventory step-up expenses; discontinued operations; changes in fair value of contingent consideration obligations; acquisition-related expenses; significant legal and environmental charges; losses on divestiture; unrealized gain on equity investment; gains on debt extinguishment, net; separation costs; research and development upfront payments; tax effects of aforementioned adjustments, changes in related uncertain tax positions, as well as impacts from certain transactions, such as acquisitions or reorganizations; 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 loss, divided by loss from continuing and income from 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 adjustment included in the reconciliation of adjusted net income primarily represents the tax impact of adjustments between net loss and adjusted net income, changes in related uncertain tax positions, as well as tax impacts from certain transactions, such as acquisitions or reorganizations.

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 $208.8 million less capital expenditures of $24.3 million, each as prepared in accordance with GAAP.

Free cash flow for the fiscal year represents net cash provided by operating activities of $742.9 million less capital expenditures of $133.0 million, each as prepared in accordance with GAAP.

Net debt as of Dec. 27, 2019 represents the total principal debt outstanding of $5.423 billion less unrestricted cash of $790.9 million, each as prepared in accordance with GAAP.

Net debt as of Dec. 28, 2018 represents the total principal debt outstanding of $6.157 billion less unrestricted cash of $348.9 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, legal, 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: governmental investigations and inquiries, regulatory actions and lawsuits brought against Mallinckrodt by government agencies and private parties with respect to its historical commercialization of opioids, including the non-binding agreement in principle regarding terms and conditions of a global settlement to resolve all current and future opioid-related claims; scrutiny from governments, legislative bodies and enforcement agencies related to sales, marketing and pricing practices; 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; the reimbursement practices of governmental health administration authorities, private health coverage insurers and other third-party payers; complex reporting and payment obligations under the Medicare and Medicaid rebate programs and other governmental purchasing and rebate programs; cost containment efforts of customers, purchasing groups, third-party payers and governmental organizations; changes in or failure to comply with relevant laws and regulations; Mallinckrodt's and its partners' ability to successfully develop or commercialize new products or expand commercial opportunities; Mallinckrodt's ability to navigate price fluctuations; competition; Mallinckrodt's and its partners' ability to protect intellectual property rights; limited clinical trial data for Acthar Gel; clinical studies and related regulatory processes; product liability losses and other litigation liability; material health, safety and environmental liabilities; potential indemnification liabilities to Covidien pursuant to the separation and distribution agreement; business development activities; retention of key personnel; the effectiveness of information technology infrastructure including cybersecurity and data leakage risks; customer concentration; Mallinckrodt's reliance on certain individual products that are material to its financial performance; Mallinckrodt's ability to receive procurement and production quotas granted by the U.S. Drug Enforcement Administration; complex manufacturing processes; conducting business internationally; Mallinckrodt's ability to achieve expected benefits from restructuring activities; Mallinckrodt's significant levels of intangible assets and related impairment testing; labor and employment laws and regulations; natural disasters or other catastrophic events; Mallinckrodt's substantial indebtedness and its ability to generate sufficient cash to reduce its indebtedness; the proposed refinancing of certain near-term debt maturities; future changes to U.S. and foreign tax laws or the impact of disputes with governmental tax authorities; and the impact of Irish laws.

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 27, 2019, 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.

CONTACTS

Investor Relations
Daniel J. Speciale, CPA
Vice President, Investor Relations and IRO
314-654-3638
daniel.speciale@mnk.com

Media
Michael Freitag / Aaron Palash / Aura Reinhard
Joele Frank, Wilkinson Brimmer Katcher
(212) 355-4449

(1) Centers for Medicare & Medicaid Services
(2 )Generally accepted accounting principles in the United States

Mallinckrodt, the "M" brand mark and the Mallinckrodt Pharmaceuticals logo are trademarks of a Mallinckrodt company. Other brands are trademarks of a Mallinckrodt company or their respective owners. © 2020 Mallinckrodt. 02/20


                                                                           
            
              MALLINCKRODT PLC


                                                                       
     
          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                       
     
          (unaudited, in millions, except per share data)




                                                                            
            
              Three Months Ended


                                                        December 27,        Percent of                                   December 28,    Percent of
                                                                2019                                                              2018
                                                                            Net sales                                                    Net sales




     Net sales                                        $
            804.9                                                             100.0                                        $
           834.9       100.0
                                                                                                                                      %                                                               %



     Cost of sales                          431.8                                               53.6                                                       471.6                          56.5




     Gross profit                           373.1                                               46.4                                                       363.3                          43.5


      Selling, general and
       administrative
       expenses                              169.2                                               21.0                                                       239.6                          28.7


      Research and
       development expenses                   81.4                                               10.1                                                       100.4                          12.0


      Restructuring charges,
       net                                  (12.9)                                             (1.6)                                                        1.2                           0.1


      Non-restructuring
       impairment charges                    274.5                                               34.1                                                     3,891.1                         466.1


      Losses on divestiture                   33.5                                                4.2                                                         0.2


      Opioid-related
       litigation settlement
       charge                              1,643.4                                              204.2




     Operating loss                     (1,816.0)                                           (225.6)                                                  (3,869.2)                       (463.4)


      Interest expense                      (77.2)                                             (9.6)                                                     (90.1)                       (10.8)


      Interest income                          2.9                                                0.4                                                         1.6                           0.2


      Gain on debt
       extinguishment, net                   377.4                                               46.9                                                         5.7                           0.7


      Other income, net                       24.2                                                3.0                                                         7.4                           0.9



      Loss from continuing
       operations before
       income taxes                      (1,488.7)                                           (185.0)                                                  (3,944.6)                       (472.5)


      Income tax benefit                   (327.7)                                            (40.7)                                                    (226.2)                       (27.1)



      Loss from continuing
       operations                        (1,161.0)                                           (144.2)                                                  (3,718.4)                       (445.4)


      Income from
       discontinued
       operations, net of
       income taxes                            3.9                                                0.5




     Net loss                                     $
            (1,157.1)                                                          (143.8)                                      $
        (3,718.4)    (445.4)
                                                                                                                                      %                                                               %





      Basic (loss) earnings per share:


      Loss from continuing
       operations                                    $
            (13.80)                                                                                            $
     (44.64)


      Income from
       discontinued
       operations                             0.05



     Net loss                             (13.76)                                                                                            (44.64)


      Diluted (loss) earnings per share:


      Loss from continuing
       operations                                    $
            (13.80)                                                                                            $
     (44.64)


      Income from
       discontinued
       operations                             0.05



     Net loss                             (13.76)                                                                                            (44.64)


      Weighted-average number of shares
       outstanding:



     Basic                                                     84.1                                                                                      83.3



     Diluted                                                   84.1                                                                                      83.3


                                                                                                                                            
           
                MALLINCKRODT PLC


                                                                                                                                           
           
                NON-GAAP MEASURES


                                                                                                                               
             
            (unaudited, in millions except per share data)




                                                                                                   
              
       Three Months Ended


                                                         
        
             December 27, 2019                                                                                                       
             
             December 28, 2018


                                          Gross     SG&A          Net (loss)                            Diluted                             Gross                        SG&A                          Net (loss)                              Diluted
                                   profit                  income                          net (loss)                             profit                                              income                             net (loss)
                                                                                          income                                                                                                                         income
                                                                                            per                                                                                                                            per
                                                                                          share(1)                                                                                                                      share(1)

                                                                                                                                                                                                                                      ---


     GAAP                                      $
     373.1                                       $
              169.2                                          $
              (1,157.1)                                               $
          (13.76)                              $
       363.3               $
       239.6   $
        (3,718.4)   $
        (44.64)



     Adjustments:


      Intangible asset
       amortization                       202.8                         (0.8)                              203.6                                                           2.42                               192.0                                (1.7)             193.7                     2.28


      Restructuring and related
       charges, net (2)                       -                                                          (12.9)                                                        (0.15)                                                                  (0.3)               1.5                     0.02


      Inventory step-up expense               -                                                                                                                                                             41.3                                                   41.3                     0.49


      Income from discontinued
       operations                             -                                                           (3.9)                                                        (0.05)


      Change in contingent
       consideration fair value               -                         36.7                              (36.7)                                                        (0.44)                                                                   16.9             (16.9)                  (0.20)


      Acquisition related expenses            -                                                                                                                                                                                                (2.0)               2.0                     0.02


      Non-restructuring
       impairment charges (3)                 -                                                           274.5                                                           3.26                                                                                   3,891.1                    45.83


      Significant legal and
       environmental charges (4)              -                                                         1,643.4                                                          19.52                                                                  (31.5)              31.5                     0.37



     Divestitures                            -                                                            33.5                                                           0.40                                                                                       0.2



     Separation costs                        -                       (13.5)                               13.5                                                           0.16                                                                   (6.0)               6.0                     0.07


      Gains on debt
       extinguishment, net                    -                                                         (377.4)                                                        (4.48)                                                                                    (6.2)                  (0.07)


      Unrealized gain on equity
       investment (5)                         -                                                          (13.7)                                                        (0.16)


      Legal entity and
       intercompany financing
       organization                           -                                                          (26.0)                                                        (0.31)                                                                                  (173.7)                  (2.05)



     U.S. Tax Reform                         -                                                                                                                                                                                                                    0.6                     0.01



     Income taxes (6)                        -                                                         (338.7)                                                        (4.02)                                                                                   (81.6)                  (0.96)


      Depreciation catch up (7)               -                                                                                                                                                             11.4                                (2.8)              13.7                     0.16



     As adjusted                               $
     575.9                                       $
              191.6                                              $
              202.1                                                   $
          2.40                               $
       608.0               $
       212.2    $
           184.8    $
           2.18





      Percent of net sales                 71.5                          23.8                      25.1
            %                                                                                 72.8                                    25.4
                                              %                            %                                                                                                                       %                                      %            22.1
     %



     
     (1) In periods where losses from
              continuing operations are
              incurred, potential ordinary
              shares outstanding are excluded
              from the calculation of diluted
              earnings per share, prepared in
              accordance with GAAP, as they
              would be anti-dilutive. These
              dilutive shares are included in
              the calculation of adjusted
              diluted earnings per share if
              dilutive to adjusted net income.
              As a result, the adjusted diluted
              earnings per share utilized a
              weighted average share count of
              84.2 and 84.9 shares for the
              three months ended December 27,
              2019 and December 28, 2018,
              respectively.





     
     (2) Includes pre-tax accelerated
              depreciation.





     
     (3) The three months ended December
              27, 2019 includes an in-process
              research and development
              ("IPR&D") intangible asset
              impairment of $274.5 million
              related to VTS-270. The three
              months ended December 28, 2018
              includes the goodwill impairment
              of $3,672.8 million and an IPR&D
              intangible asset impairment of
              $218.3 million related to MNK-
              1411.





     
     (4) Includes the opioid-related
              litigation settlement charge of
              $1.643 billion.





     
     (5) Represents an unrealized gain
              related to the company's equity
              investment in Silence
              Therapeutics plc ("Silence").





     
     (6) Includes tax effects of above
              adjustments (unless otherwise
              separately stated), changes in
              related uncertain tax positions,
              as well as certain installment
              sale transactions and other
              intercompany transactions.





     
     (7) During the three months ended
              December 28, 2018, "the Specialty
              Generics Disposal Group" was
              reclassified to held and used
              after being classified as held-
              for-sale since February 2018.
              In accordance with GAAP,
              depreciation and amortization are
              not recorded during the period in
              which a disposal group is
              classified as held-for-sale.
              When the disposal group was
              reclassified to held and used, it
              was measured at its carrying
              amount before it was classified
              as held-for-sale, adjusted for
              depreciation and amortization
              expense that would have been
              recognized had the disposal group
              been continuously classified as
              held and used.  The effect of the
              required adjustment has been
              reflected in loss from continuing
              operations during the fourth
              quarter of 2018, the period in
              which the held-for-sale
              criteria was no longer met.




             This adjustment represents $17.7
              million of depreciation expense,
              net of tax of $4.0 million,
              recorded during the three months
              ended December 28, 2018 that
              would have been recognized during
              the first three quarters of
              fiscal 2018 had the Specialty
              Generics Disposal Group been
              continuously classified as held
              and used. This will not be
              reflected in the fiscal 2018 non-
              GAAP measures table as the catch-
              up in the three months ended
              December 28, 2018 results in an
              accurate depiction of total
              depreciation expense for fiscal
              2018. Consistent with historical
              periods, intangible asset
              amortization is a non-GAAP
              adjustment and is therefore not
              called out separately as a result
              in the change in classification
              of the disposal group.


                                                                         
         
                MALLINCKRODT PLC


                                                                
          
         SEGMENT NET SALES AND CONSTANT-CURRENCY GROWTH


                                                                       
       
                (unaudited, in millions)




                                  Three Months Ended


                  December 27,                       December 28,                          Percent                                 Currency               Constant-
                          2019                                2018                change                                    impact               currency
                                                                                                                                              growth

                                                                                                                                                                ---

     Specialty                 $
       611.4                                                             $
              652.4                                         (6.3) 
      %  (6.3)
      Brands
                                                                                                                                                                  %           %


     Specialty
      Generics(1)        193.5                                     182.5                                                                  6.0                           6.0



     Net sales                 $
       804.9                                                             $
              834.9                                         (3.6)       (3.6)



              
                (1)              Includes net sales from the
                                               post-divestiture supply
                                               agreement with the acquirer
                                               of the contrast media and
                                               delivery systems ("CMDS")
                                               business.


                                                                                     
            
           MALLINCKRODT PLC


                                                                                 
            
         SELECT PRODUCT LINE NET SALES


                                                                                   
            
         (unaudited, in millions)




                                                   Three Months Ended


                                  December 27,                        December 28,                            Percent                      Currency                Constant-
                                          2019                                 2018                  change                         impact                currency
                                                                                                                                                      growth

                                                                                                                                                                         ---


     Specialty Brands



     Acthar Gel                               $
        232.6                                                               $
       283.0                                     (17.8)             %  (17.8)
                                                                                                                                                                           %                     %



     INOmax                             143.8                                        138.7                                                       3.7                           (0.1)     3.8



     Ofirmev                            111.8                                         87.2                                                      28.2                                    28.2



     Therakos                            63.3                                         57.0                                                      11.1                           (0.2)    11.3



     Amitiza                             50.9                                         64.6                                                    (21.2)                                 (21.2)



     BioVectra (1)                        3.3                                         17.4                                                    (81.0)                          (0.2)  (80.8)



     Other                                5.7                                          4.5                                                      26.7                           (0.4)    27.1



      Specialty Brands Total                   $
        611.4                                                               $
       652.4                                      (6.3)             %   (6.3)

                                                                                                                                                                           %                     %






     Specialty Generics


      Hydrocodone (API) and
       hydrocodone-containing                                                                                                                                              %                     %
       tablets                                  $
        25.1                                                                $
       19.6                                       28.1              %    28.1


      Oxycodone (API) and
       oxycodone-containing
       tablets (2)                        21.6                                         22.8                                                     (5.3)                                  (5.3)


      Acetaminophen (API) (2)             46.8                                         43.7                                                       7.1                                     7.1


      Other controlled substances
       (2)                               86.8                                         85.8                                                       1.2                                     1.2



     Other (2)                           13.2                                         10.6                                                      24.5                                    24.5


      Specialty Generics Total                 $
        193.5                                                               $
       182.5                                        6.0              %     6.0
                                                                                                                                                                           %                     %



              
                (1)              In November 2019, the company
                                               completed its sale of the
                                               BioVectra business.





              
                (2)              Prior period amounts have been
                                               reclassified to conform to
                                               current period presentation.


                             
         
                MALLINCKRODT PLC


                           
       
                SEGMENT OPERATING INCOME


                           
       
                (unaudited, in millions)




                                                   Three Months Ended


                                 December 27,                                    December 28,
                                         2019                             2018

                                                                          ---

      Specialty Brands (1)                          $
              310.3                            $
          298.7


      Specialty Generics
       (2)                              28.0                              (5.4)



      Segment operating
       income                           338.3                              293.3



     Unallocated amounts:


      Corporate and
       allocated expenses
       (3)                            (32.2)                            (70.1)


      Intangible asset
       amortization                   (203.6)                           (193.7)


      Restructuring and
       related charges,
       net (4)                           12.9                              (1.6)


      Non-restructuring
       impairments                    (274.5)                         (3,891.1)


      Separation costs                 (13.5)                             (6.0)


      Opioid-related
       litigation
       settlement charge            (1,643.4)


      Operating loss                            $
              (1,816.0)                         $
        (3,869.2)



     
     (1) The three months ended December 28,
              2018 includes $41.3 million of
              inventory fair-value step up
              expense related to Amitiza.





     
     (2) During the fourth quarter of 2018,
              the Specialty Generics Disposal
              Group was reclassified to held-
              and-used and measured at its
              carrying amount before it was
              classified as held-for-sale,
              adjusted for depreciation and
              amortization expense that would
              have been recognized had the
              disposal group been continuously
              classified as held and used. The
              total depreciation adjustment of
              $17.7 million was reflected in the
              Specialty Generics segment
              operating income during the fourth
              quarter of 2018, the period in
              which the held-for-sale criteria
              were no longer met.





     
     (3) Includes administration expenses and
              certain compensation, legal,
              environmental and other costs not
              charged to the company's reportable
              segments.





     
     (4) Includes restructuring-related
              accelerated depreciation.


                                                               
              
                MALLINCKRODT PLC


                                                   
          
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


                                                   
          
                (unaudited, in millions, except per share data)




                                                          
              
                Fiscal Year


                                           2019           Percent of                   2018                            Percent of
                                                Net sales                                              Net sales

                                                                                                                            ---


     Net sales                                     $
          3,162.5                   100.0
                                                                                                                                                                                 %
                                                                                         %                                                                 $
       3,215.6       100.0


      Cost of sales                     1,741.1                             55.1                                                      1,744.4                         54.2




     Gross profit                      1,421.4                             44.9                                                      1,471.2                         45.8


      Selling, general and
       administrative
       expenses                           831.0                             26.3                                                        834.1                         25.9


      Research and
       development expenses               349.4                             11.0                                                        361.1                         11.2


      Restructuring charges,
       net                                (1.7)                           (0.1)                                                       103.0                          3.2


      Non-restructuring
       impairment charges                 388.0                             12.3                                                      3,893.1                        121.1


      Losses on divestiture                33.5                              1.1                                                          0.8


      Opioid-related
       litigation settlement
       charge                           1,643.4                             52.0



      Operating loss                  (1,822.2)                          (57.6)                                                   (3,720.9)                      (115.7)


      Interest expense                  (309.0)                           (9.8)                                                     (370.2)                      (11.5)


      Interest income                       9.5                              0.3                                                          8.2                          0.3


      Gain on debt
       extinguishment, net                466.6                             14.8                                                          8.5                          0.3


      Other income, net                    63.6                              2.0                                                         22.4                          0.7



      Loss from continuing
       operations before
       income taxes                   (1,591.5)                          (50.3)                                                   (4,052.0)                      (126.0)


      Income tax benefit                (584.3)                          (18.5)                                                     (430.1)                      (13.4)



      Loss from continuing
       operations                     (1,007.2)                          (31.8)                                                   (3,621.9)                      (112.6)


      Income from
       discontinued
       operations, net of
       income taxes                        10.7                              0.3                                                         14.9                          0.5




     Net loss                                      $
          (996.5)                 (31.5)                                                               $
       (3,607.0)    (112.2)
                                                                                         %                                                                                       %





      Basic (loss) earnings per share:


      Loss from continuing
       operations                                   $
          (12.00)                                                                           $
     (43.12)


      Income from
       discontinued
       operations                          0.13                                                                             0.18



     Net loss                          (11.88)                                                                         (42.94)


      Diluted (loss) earnings per share:


      Loss from continuing
       operations                                   $
          (12.00)                                                                           $
     (43.12)


      Income from
       discontinued
       operations                          0.13                                                                             0.18



     Net loss                          (11.88)                                                                         (42.94)


      Weighted-average number of shares
       outstanding:



     Basic                                83.9                                                                             84.0



     Diluted                              83.9                                                                             84.0


                                                                                                                                
          
                MALLINCKRODT PLC


                                                                                                                               
          
                NON-GAAP MEASURES


                                                                                                                  
              
           (unaudited, in millions except per share data)




                                                                                          
              
     Fiscal Year


                                                                                                                          2019                                                                                                             2018


                                          Gross       SG&A        Net (loss)                Diluted                            Gross                       SG&A                          Net (loss)                          Diluted
                                   profit                  income              net (loss)                           profit                                              income                         net (loss)
                                                                              income                                                                                                                   income
                                                                                per                                                                                                                      per
                                                                              share(1)                                                                                                                share(1)

                                                                                                                                                                                                                   ---


     GAAP                                      $
     1,421.4                         $
              831.0                                          $
              (996.5)                                           $
         (11.88)                                  $
       1,471.2               $
       834.1   $
        (3,607.0)   $
        (42.94)



     Adjustments:


      Intangible asset
       amortization                       847.9                         (5.5)                  853.4                                                        10.14                               733.6                            (6.6)                740.2                       8.69


      Restructuring and related
       charges, net (2)                       -                                               (1.7)                                                      (0.02)                                3.0                            (2.2)                108.2                       1.27


      Inventory step-up expense            10.0                                                 10.0                                                         0.12                               120.8                                                 120.8                       1.42


      Income from discontinued
       operations                             -                                              (10.7)                                                      (0.13)                                                                                  (14.9)                    (0.17)


      Change in contingent
       consideration fair value               -                         60.2                  (60.2)                                                      (0.71)                                                               50.2                (50.2)                    (0.59)


      Acquisition related expenses            -                                                                                                                                                                              (5.8)                  5.8                       0.07


      Non-restructuring
       impairment charges (3)                 -                                               388.0                                                         4.61                                                                                  3,893.1                      45.69


      Significant legal and
       environmental charges (4)              -                       (28.2)                1,671.6                                                        19.85                                                              (19.7)                 19.7                       0.23



     Divestitures                            -                                                33.5                                                         0.40                                                                                      0.8                       0.01


      R&D upfront payment                     -                                                20.0                                                         0.24



     Separation costs                        -                       (63.9)                   63.9                                                         0.76                                                               (6.0)                  6.0                       0.07


      Gains on debt
       extinguishment, net                    -                                             (466.6)                                                      (5.54)                                                                                  (12.7)                    (0.15)


      Unrealized gain on equity
       investment (5)                         -                                              (20.2)                                                      (0.24)


      Legal entity and
       intercompany financing
       organization                           -                                             (212.8)                                                      (2.53)                                                                                 (256.0)                    (3.00)



     U.S. Tax Reform                         -                                                                                                                                                                                                   (8.5)                    (0.10)



     Income taxes (6)                        -                                             (524.2)                                                      (6.23)                                                                                 (263.1)                    (3.09)




     As adjusted                               $
     2,279.3                         $
              793.6                                            $
              747.5                                               $
         8.88                                   $
       2,328.6               $
       844.0    $
           682.2    $
           8.01





      Percent of net sales                 72.1                          25.1                    23.6                                                                               72.4                                26.2
                                              %                            %                      %                                                                                 %                                  %             21.2
        %



     
     (1) In periods where losses from
              continuing operations are
              incurred, potential ordinary
              shares outstanding are excluded
              from the calculation of diluted
              earnings per share, prepared in
              accordance with GAAP, as they
              would be anti-dilutive. These
              dilutive shares are included in
              the calculation of adjusted
              diluted earnings per share if
              dilutive to adjusted net income.
              As a result, the adjusted diluted
              earnings per share utilized a
              weighted average share count of
              84.2 and 85.2 shares for fiscal
              2019 and 2018, respectively.





     
     (2) Includes pre-tax accelerated
              depreciation.





     
     (3) Fiscal 2019 includes IPR&D
              intangible asset impairments of
              $274.5 and $113.5 million related
              to VTS-270 and stannsoporfin,
              respectively. Fiscal 2018 includes
              the goodwill impairment of
              $3,672.8 million and an IPR&D
              intangible asset impairment of
              $218.3 million related to MNK-
              1411.





     
     (4) Includes the opioid-related
              litigation settlement charge of
              $1.643 billion.





     
     (5) Represents an unrealized gain
              related to the company's equity
              investment in Silence. Fiscal 2019
              includes an unrealized gain of
              $6.5 million and $13.7 million for
              the three months ended September
              27, 2019 and the three months
              ended December 27, 2019,
              respectively.





     
     (6) Includes tax effects of above
              adjustments (unless otherwise
              separately stated), changes in
              related uncertain tax positions,
              as well as certain installment
              sale transactions and other
              intercompany transactions.


                                                         
             
                MALLINCKRODT PLC


                                                     
     
             SEGMENT NET SALES AND CONSTANT-CURRENCY GROWTH


                                                       
           
                (unaudited, in millions)




                   
           
          Fiscal Year


                   2019                       2018                        Percent                               Currency                Constant-
                                                           change                                      impact                  currency
                                                                                                                                growth

                                                                                                                                            ---

     Specialty          $
       2,423.8                           $
              2,496.7                                       (2.9)                       (0.2)     (2.7)
      Brands
                                                                                                                           %                           %         %


     Specialty
      Generics(1) 738.7                        718.9                                      2.8                                                  (0.1)       2.9



     Net sales          $
       3,162.5                           $
              3,215.6                                       (1.7)                       (0.2)     (1.5)



              
                (1)              Includes net sales from the
                                               post-divestiture supply
                                               agreement with the acquirer
                                               of the CMDS business.


                                                                           
           
                MALLINCKRODT PLC


                                                                       
         
               SELECT PRODUCT LINE NET SALES


                                                                         
         
                (unaudited, in millions)




                                    
            
          Fiscal Year


                                    2019                        2018                          Percent                         Currency                 Constant-
                                                                               change                                  impact                 currency
                                                                                                                                               growth

                                                                                                                                                           ---


     Specialty Brands



     Acthar Gel                           $
        952.7                             $
              1,110.1                                 (14.2)                                   %  (14.2)
                                                                                                                                          %                                           %



     INOmax                       571.4                         542.7                                        5.3                                             (0.1)            5.4



     Ofirmev                      384.0                         341.9                                       12.3                                                             12.3



     Therakos                     246.9                         231.2                                        6.8                                             (1.5)            8.3



     Amitiza                      208.5                         183.8                                       13.4                                                             13.4



     BioVectra (1)                 40.1                          53.1                                     (24.5)                                            (2.3)         (22.2)



     Other                         20.2                          33.9                                     (40.4)                                            (1.0)         (39.4)



      Specialty Brands Total             $
        2,423.8                             $
              2,496.7                                  (2.9)                       (0.2)           (2.7)

                                                                                                                                          %                           %               %






     Specialty Generics


      Hydrocodone (API) and
       hydrocodone-containing                                                                                                             %                                           %
       tablets                              $
        76.3                                $
              65.9                                   15.8                                    %    15.8


      Oxycodone (API) and
       oxycodone-containing
       tablets (2)                  74.9                          66.1                                       13.3                                                             13.3


      Acetaminophen (API) (2)      189.9                         192.7                                      (1.5)                                                           (1.5)


      Other controlled substances
       (2)                        352.5                         343.8                                        2.5                                             (0.1)            2.6



     Other (2)                     45.1                          50.4                                     (10.5)                                                          (10.5)


      Specialty Generics Total             $
        738.7                               $
              718.9                                    2.8                        (0.1)
                                                                                                                                          %                                           %
                                                                                                                                                                      %             2.9



              
                (1)              In November 2019, the company
                                               completed its sale of the
                                               BioVectra business.





              
                (2)              Prior period amounts have been
                                               reclassified to conform to
                                               current period presentation.


                              
            
              MALLINCKRODT PLC


                           
             
            SEGMENT OPERATING INCOME


                           
             
            (unaudited, in millions)




                                    
           
               Fiscal Year


                                  2019                                     2018

                                                                           ---

      Specialty Brands (1)               $
            1,174.5                           $
        1,093.1


      Specialty Generics         108.1                                       89.3



      Segment operating
       income                  1,282.6                                    1,182.4



     Unallocated amounts:


      Corporate and
       allocated expenses
       (2)                    (137.8)                                   (155.8)


      Intangible asset
       amortization            (853.4)                                   (740.2)


      Restructuring and
       related charges,
       net (3)                     1.7                                    (108.2)


      Non-restructuring
       impairment charges      (388.0)                                 (3,893.1)


      Separation costs          (63.9)                                     (6.0)


      R&D upfront payment
       (4)                     (20.0)


      Opioid-related
       litigation
       settlement charge     (1,643.4)


      Operating loss                   $
            (1,822.2)                        $
        (3,720.9)



     
     (1) Includes $10.0 million and $118.8
              million of inventory fair-value
              step up expense, primarily related
              to Amitiza during fiscal 2019 and
              2018, respectively.





     
     (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.





     
     (4) Represents R&D expense incurred
              related to an upfront payment made
              to Silence in connection with the
              license and collaboration agreement
              entered into in July 2019.


                                                        
       
                MALLINCKRODT PLC


                                             
              
         CONDENSED CONSOLIDATED BALANCE SHEETS


                                                    
         
              (unaudited, in millions)




                                                                  December 27,                                   December 28,
                                                                          2019                            2018

                                                                                                          ---


     
                Assets



     Current Assets:


      Cash and cash equivalents                                                     $
              790.9                            $
         348.9


      Accounts receivable, net                                           577.5                             623.3



     Inventories                                                        312.1                             322.3


      Prepaid expenses and other
       current assets                                                    150.2                             132.7


      Total current assets                                             1,830.7                           1,427.2


      Property, plant and
       equipment, net                                                    896.5                             982.0


      Intangible assets, net                                           7,018.0                           8,282.8



     Other assets                                                       593.7                             185.3


                   Total Assets                                                  $
              10,338.9                         $
         10,877.3





                   Liabilities and Shareholders' Equity



     Current Liabilities:


      Current maturities of
       long-term debt                                                               $
              633.6                             $
         22.4


      Accounts payable                                                   139.8                             147.5


      Accrued payroll and
       payroll-related costs                                             105.2                             124.0


      Accrued interest                                                    62.9                              77.6


      Accrued and other current
       liabilities                                                       485.4                             572.2



      Total current liabilities                                        1,426.9                             943.7



     Long-term debt                                                   4,741.2                           6,069.2


      Opioid-related litigation
       settlement liability                                            1,643.4


      Pension and postretirement
       benefits                                                           62.4                              60.5


      Environmental liabilities                                           60.0                              59.7


      Deferred income taxes                                               11.0                             324.3


      Other income tax
       liabilities                                                       227.1                             228.0


      Other liabilities                                                  226.2                             304.6


                   Total Liabilities                                   8,398.2                           7,990.0



     Shareholders' Equity:


      Preferred shares                                                       -



     Ordinary shares                                                     18.7                              18.5


      Ordinary shares held in
       treasury at cost                                              (1,615.7)                        (1,617.4)


      Additional paid-in
       capital                                                         5,562.5                           5,528.2


      Retained deficit                                               (2,016.9)                        (1,017.7)


      Accumulated other
       comprehensive loss                                                (7.9)                           (24.3)



                   Total Shareholders' Equity                          1,940.7                           2,887.3



                   Total Liabilities and
                    Shareholders' Equity                                         $
              10,338.9                         $
         10,877.3


                                                               
              
                MALLINCKRODT PLC


                                         
              
                CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS


                                                           
              
                (unaudited, in millions)




                                                                                                  
              
                Fiscal Year


                                                                                                2019                                      2018

                                                                                                                                          ---


     
                Cash Flows From Operating Activities:



     Net Loss                                                                                         $
              (996.5)                       $
        (3,607.0)



     Adjustments to reconcile net cash from operating activities:



     Depreciation and amortization                                                            951.1                                       852.1



     Share-based compensation                                                                  33.8                                        34.6



     Deferred income taxes                                                                  (604.3)                                    (541.5)



     Non-cash impairment charges                                                              388.0                                     3,893.1



     Inventory provisions                                                                      18.0                                        37.9



     Losses on divestiture                                                                     33.5                                         0.8



     Gain on debt extinguishment, net                                                       (466.6)                                      (8.5)



     Other non-cash items                                                                    (65.7)                                     (42.4)



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



     Accounts receivable, net                                                                  31.6                                     (145.8)



     Inventories                                                                             (23.1)                                       63.1



     Accounts payable                                                                           6.7                                        24.6



     Income taxes                                                                             (2.1)                                       99.0



     Opioid-related litigation settlement liability                                         1,600.0



     Other                                                                                  (161.5)                                        5.5




     Net cash from operating activities                                                       742.9                                       665.5




     
                Cash Flows From Investing Activities:



     Capital expenditures                                                                   (133.0)                                    (127.0)



     Acquisitions, net of cash                                                                    -                                    (699.9)



     Proceeds from divestiture, net of cash                                                    95.1                                       313.0



     Other                                                                                     29.6                                        33.6




     Net cash from investing activities                                                       (8.3)                                    (480.3)




     
                Cash Flows From Financing Activities:



     Issuance of external debt                                                                695.0                                       690.3



     Repayment of external debt                                                             (945.1)                                  (1,693.6)



     Debt financing costs                                                                    (10.1)                                     (12.1)



     Proceeds from exercise of share options                                                    0.6                                         1.0



     Repurchase of shares                                                                     (2.6)                                     (57.5)



     Other                                                                                   (17.9)                                     (23.1)




     Net cash from financing activities                                                     (280.1)                                  (1,095.0)




     Effect of currency rate changes on cash                                                    0.6                                       (1.8)



                   Net change in cash, cash equivalents and restricted cash                    455.1                                     (911.6)


                   Cash, cash equivalents and restricted cash at beginning of period           367.5                                     1,279.1


                   Cash, cash equivalents and restricted cash at end of period                           $
              822.6                          $
          367.5






     
                Cash and cash equivalents at end of period                                            $
              790.9                          $
          348.9


                   Restricted cash included in other long-term assets at end of period          31.7                                        18.6


                   Cash, cash equivalents and restricted cash at end of period                           $
              822.6                          $
          367.5

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SOURCE Mallinckrodt plc