(unaudited, dollars in millions, except share data, per share data and where indicated)
The unaudited condensed consolidated financial statements have been prepared in U.S. Dollarsdollars and in accordance with accounting principles generally accepted in the U.S. ("GAAP"). The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of net salesrevenues and expenses. Actual results may differ from those estimates. The unaudited condensed consolidated financial statements include the accounts of Mallinckrodt plc,the Company, its wholly-ownedwholly owned subsidiaries and entities in which they own or control more than fifty percent50% of the voting shares, or have the ability to control through similar rights. All intercompany balances and transactions have been eliminated in consolidation and all normal recurring adjustments necessary for a fair presentation have been included in the results reported. The results of entities disposed of are included in the unaudited condensed consolidated financial statements up to the date of disposal, and where appropriate, these operations have been reflected asreported in discontinued operations. Divestitures of product lines and businesses that did not qualify asmeeting the criteria for discontinued operations have been reflected in operating income. All intercompany balances and transactions have been eliminated in consolidation and, in the opinion of management, all normal recurring adjustments necessary for a fair presentation have been included in the interim results reported. The December 30, 2016fiscal year end balance sheet data was derived from the unaudited condensedaudited consolidated financial statements, but doesdo not include all of the annual disclosures required by GAAP; accordingly these unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited annual consolidated and combined financial statements included in its Annual Report on Form 10-K for the periodfiscal year ended September 30, 2016,December 28, 2018 filed with the U.S. Securities and Exchange Commission ("SEC") on November 29, 2016.February 26, 2019.
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| |
| 2. | Recently Issued Accounting Standards |
Adopted
The Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2017-04, "Intangibles2018-02, "Income Statement - Goodwill and Other: Simplifying the Test for Goodwill Impairment,Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," in January 2017.February 2018. This update eliminates step 2ASU allows for a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for the stranded tax effects arising from the goodwill impairment test, and requireschange in the goodwill impairment testreduction of the U.S. federal statutory income tax rate from 35% to be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.21%. The Company early adopted this standard as of day 1 of fiscal 2019, which resulted in fiscal 2017, which did not have a materialreclassification between AOCI and retained deficit of $0.5 million, and had no impact toon the unaudited condensed consolidatedCompany's results of operations or financial statements. The Company will apply this standard to prospective goodwill impairment tests.position.
The FASB issued ASU 2016-16, "Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory,2016-02, "Leases," in OctoberFebruary 2016. This update simplifiesASU was issued to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the practice of how income tax consequences of an intra-entity transfer of an asset other than inventory should be recognized. Upon adoption, the entity must recognize such income tax consequences when the intra-entity transfer occurs rather than waiting until such timebalance sheet as the asset has been sold to an outside party. The Company early adopted this standard in fiscal 2017, which resulted in a $75.0 million decrease to beginning retained earnings with an offsetting decrease of $67.2 million to other assetslease liability and a $7.8 million decrease to prepaid expenses on its unaudited condensed consolidated balance sheet. The prior periods were not restated.
The FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," in August 2016 and ASU 2016-18 "Statement of Cash Flows (Topic 230): Restricted Cash," in November 2016. These updates provide guidance for nine targeted clarifications with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The Company early adopted these standards in fiscal 2017 and revised the prior year statement of cash flows. The adoption of ASU 2016-18, regarding presentation of restricted cash, increased the net cash used in investing activities during the nine months ended September 30, 2016 by $47.4 million. The adoption of ASU 2016-15, regarding the other targeted clarifications, did not result in any material changes to the unaudited condensed consolidated financial statements.
The FASB issued ASU 2016-09, "Stock Compensation," in March 2016. This update simplifies several aspects of the accounting for share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification of certain tax effects within the statement of cash flows. The Company adopted this guidance in fiscal 2017, which resulted in a $2.9 million increase to beginning retained earnings to recognize net operating loss carryforwards, net of a valuation allowance, attributable to excess tax benefits on stock compensation that had not been previously recognized in additional paid-in capital.
The FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments," in September 2015. This update requires an acquirer to recognize adjustments to the provisional amounts that are identified during the measurement period in the reporting period in which the adjusting amounts are determined. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The Company adopted this standard in fiscal 2017, which did not have any impact on historical acquisitions.
The FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory," in July 2015. The issuance of this update is part of the FASB's initiative to more closely align the measurement of inventory between GAAP and International Financial Reporting Standards ("IFRS"). Under the new guidance, inventory must be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted this standard in fiscal 2017, which did not have a material impact to the unaudited condensed consolidated financial statements.
Not Yet Adopted
The FASB issued ASU 2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities" in August 2017. This update simplifies the application of hedge accounting and enhances the economics of the entity’s risk management activities in its financial statements. The update amends the guidance on designation and measurement for qualifying hedging relationships requiring the application of a modified retrospective approach on the date of adoption. This guidance is effective for the Company in the first quarter of fiscal 2019. The Company is assessing the timing of adoption and the impact of this guidance on the unaudited condensed consolidated financial statements.
The FASB issued ASU 2017-09, "Compensation - Stock Compensation: Scope of Modification Accounting," in May 2017. Under the new guidance, the effects of a modification should be accounted for unless all of the following are met: (1) the fair value or calculated intrinsic value of the modified award is the same as the fair value of the original award immediately before the original award is modified; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award
immediately before the original award is modified; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. This guidance is effective for the Company in the first quarter of fiscal 2018. The Company expects the impact of this guidance to be immaterial to the unaudited condensed consolidated financial statements upon adoption.
The FASB issued ASU 2017-07, "Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post Retirement Benefit Cost," in March 2017. This update requires that the service cost component be disaggregated from the other components of net benefit cost. Service cost should be reported in the same line item or items as other compensation costs arising from services rendered by pertinent employees during the period. The other components of net benefit cost should be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. This guidance is effective for the Company in the first quarter of fiscal 2018. The Company expects the impact of this guidance to be immaterial to the unaudited condensed consolidated financial statements upon adoption.
The FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business," in January 2017. This update provides a screen to determine whether or not a set of assets is a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of assets is not a business. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set of assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. This guidance is effective for the Company in the first quarter of fiscal 2018. Depending upon the individual facts and circumstances of future transactions, this guidance may result in more transactions being accounted for as asset acquisitions rather than business combinations.
The FASB issued ASU 2014-09, "Revenue from Contracts with Customers," in May 2014. The issuance of ASU 2014-09 and IFRS 15, "Revenue from Contracts with Customers," completes the joint effort by the FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and IFRS. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, applying the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract(s); (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract(s); and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance is effective for the Company in the first quarter of fiscal year 2018.right-of-use asset. The FASB subsequently issued additional ASUs to clarify the guidance inof ASU 2014-09. The ASUs issued include ASU 2016-08, "Revenue from Contracts with Customers;2016-02 ("Topic 842," ASU 2016-10 "Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing;" and ASU 2016-12, "Narrow-Scope Improvements and Practical Expedients.") as amended. The Company has completedadopted this standard as of day 1 of fiscal 2019 utilizing the modified transition approach expedient which allows an entity to elect not to recast its assessmentcomparative periods in the period of certain customer arrangementsadoption. In addition, the Company elected to use the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The Company also elected the hindsight practical expedient to determine the lease term for existing leases. Adoption of the new standard resulted in the recording of additional lease assets and has preliminarily assessed certain other customer arrangements basedcorresponding liabilities of $83.1 million and $99.7 million, respectively, as of day 1 of fiscal 2019. Refer to Note 9 for further details on the nature of its business; and at this time, the Company does not anticipate a significant impact upon adoption. However, the assessment is ongoing and a more detailed analysis of contracts subject to the preliminary assessment or review of additional contracts may identify a more significant impact. The Company currently expects, in part due to the limited anticipated impact, that it will utilize the modified retrospective transition approach of adopting the ASU.Company's leases.
The Company's status of various ASUs are further described within the notes to the financial statements included within the Company's Annual Report filed on Form 10-K for the fiscal year ended September 30, 2016.
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| 3. | Discontinued Operations and DivestituresRevenue from Contracts with Customers |
Discontinued OperationsProduct Sales Revenue
Nuclear Imaging: On January 27, 2017, the Company completed the sale of its Nuclear Imaging business to IBA Molecular ("IBAM")
See Note 16 for approximately $690.0 million before tax impacts, including up-front consideration of approximately $574.0 million, up to $77.0 million of contingent consideration and the assumption of certain liabilities. The Company recorded a pre-tax gain on the salepresentation of the Nuclear Imaging business of $362.8 million during the nine months ended September 29, 2017, which excluded any potential proceeds from the contingentCompany's net sales by product family.
Reserves for variable consideration and reflects a charge of $0.6 million during the three months ended September 29, 2017 primarily as a result of the final working capital adjustment associated with the purchase agreement.
The following table summarizes the financial results of the Nuclear Imaging business presentedreflects activity in the unaudited condensed consolidated statements of income:Company's sales reserve accounts:
|
| | | | | | | | | | | | | | | |
| | Rebates and Chargebacks | | Product Returns | | Other Sales Deductions | | Total |
| Balance as of December 29, 2017 | $ | 327.4 |
| | $ | 34.5 |
| | $ | 14.7 |
| | $ | 376.6 |
|
| Provisions | 1,029.0 |
| | 23.2 |
| | 29.5 |
| | 1,081.7 |
|
| Payments or credits | (999.2 | ) | | (22.5 | ) | | (31.1 | ) | | (1,052.8 | ) |
| Balance as of June 29, 2018 | $ | 357.2 |
| | $ | 35.2 |
| | $ | 13.1 |
| | $ | 405.5 |
|
| | | | | | | | |
| Balance as of December 28, 2018 | $ | 354.3 |
| | $ | 34.0 |
| | $ | 17.1 |
| | $ | 405.4 |
|
| Provisions | 1,214.3 |
| | 11.7 |
| | 34.7 |
| | 1,260.7 |
|
| Payments or credits | (1,240.2 | ) | | (15.6 | ) | | (35.9 | ) | | (1,291.7 | ) |
| Balance as of June 28, 2019 | $ | 328.4 |
| | $ | 30.1 |
| | $ | 15.9 |
| | $ | 374.4 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| Major line items constituting income from discontinued operations | September 29, 2017 | | September 30, 2016 | | September 29, 2017 | | September 30, 2016 |
| Net sales | $ | — |
| | $ | 108.8 |
| | $ | 31.6 |
| | $ | 315.0 |
|
| Cost of sales | — |
| | 54.6 |
| | 15.6 |
| | 153.8 |
|
| Selling, general and administrative expenses | — |
| | 19.1 |
| | 7.8 |
| | 64.5 |
|
| Restructuring charges, net | — |
| | (0.3 | ) | | — |
| | 0.1 |
|
| Other | — |
| | 2.2 |
| | (0.2 | ) | | 3.6 |
|
| Income from discontinued operations | — |
| | 33.2 |
| | 8.4 |
| | 93.0 |
|
| (Loss) gain on divestiture of discontinued operations | (0.6 | ) | | — |
| | 362.8 |
| | — |
|
| (Loss) income from discontinued operations, before income taxes | (0.6 | ) | | 33.2 |
| | 371.2 |
| | 93.0 |
|
| Income tax (benefit) expense | (0.1 | ) | | 24.8 |
| | 5.2 |
| | 43.8 |
|
| (Loss) income from discontinued operations, net of income taxes | $ | (0.5 | ) | | $ | 8.4 |
| | $ | 366.0 |
| | $ | 49.2 |
|
Product sales transferred to customers at a point in time and over time were as follows:
During |
| | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 28,
2019 | | June 29,
2018 | | June 28,
2019 | | June 29,
2018 |
| Product sales transferred at a point in time | 82.9 | % | | 84.0 | % | | 81.8 | % | | 82.7 | % |
| Product sales transferred over time | 17.1 | % | | 16.0 | % | | 18.2 | % | | 17.3 | % |
Transaction price allocated to the three months ended September 29, 2017, there was an income tax benefit of $0.1 million associated with the $0.6 million loss recognized on divestiture. During the nine months ended September 29, 2017, there was income tax expense of $0.9 million associated with the $362.8 million gain on divestiture and a $4.3 million income tax expense associated with the $8.4 million income from discontinued operations. The tax impact of the gain recognized on divestiture was favorably impacted by a benefit from permanently deductible items.remaining performance obligations
The following table summarizes the assets and liabilitiesincludes estimated revenue from contracts extending greater than one year for certain of the Nuclear Imaging businessCompany's hospital products that are expected to be recognized in the future related to performance obligations that were unsatisfied or partially unsatisfied as of June 28, 2019:
|
| | | |
| Remainder of Fiscal 2019 | $ | 81.5 |
|
| Fiscal 2020 | 154.2 |
|
| Fiscal 2021 | 60.3 |
|
| Fiscal 2022 | 9.2 |
|
| Thereafter | 6.2 |
|
Costs to fulfill a contract
As of June 28, 2019 and December 28, 2018, the total net book value of the devices used in the Company's portfolio of drug-device combination products, which are used in satisfying future performance obligations, were $27.5 million and $28.4 million, respectively, and are classified as held for salein property, plant and equipment, net, on the unaudited condensed consolidated balance sheets:sheets. The associated depreciation expense recognized during the six months ended June 28, 2019 and June 29, 2018 was $3.4 million and $6.8 million, respectively.
Product Royalty Revenues
The Company licenses certain rights to Amitiza to a third party in exchange for royalties on net sales of the product. The Company recognizes such royalty revenue as the related sales occur. The royalty rates consist of several tiers ranging from 18% to 26% with the royalty rate resetting every year. The associated royalty revenue recognized was as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 28,
2019 | | June 29,
2018 | | June 28,
2019 | | June 29,
2018 |
| Royalty revenue | $ | 19.4 |
| | $ | 21.6 |
| | $ | 36.8 |
| | $ | 29.6 |
|
|
| | | | | | | |
| | September 29, 2017 | | December 30, 2016 |
| Carrying amounts of major classes of assets included as part of discontinued operations | | | |
| Accounts receivable | $ | — |
| | $ | 49.6 |
|
| Inventories | — |
| | 20.0 |
|
| Property, plant and equipment, net | — |
| | 188.7 |
|
| Other current and non-current assets | — |
| | 52.6 |
|
| Total assets classified as held for sale in the balance sheet | $ | — |
| | $ | 310.9 |
|
| | | | |
| Carrying amounts of major classes of liabilities included as part of discontinued operations | | | |
| Accounts payable | $ | — |
| | $ | 19.7 |
|
| Other current and non-current liabilities | — |
| | 100.6 |
|
| Total liabilities classified as held for sale in the balance sheet | $ | — |
| | $ | 120.3 |
|
Royalty revenue for the three and six months ended June 29, 2018 reflects royalty revenue for the period subsequent to the Company's February 2018 acquisition of Sucampo Pharmaceuticals, Inc. ("Sucampo Acquisition").
Contract Liabilities
The following table summarizes significant cash and non-cash transactionsreflects the balance of the Nuclear Imaging business that are included withinCompany's contract liabilities at the unaudited condensed consolidated statementsend of cash flows for the respective periods:
|
| | | | | | | |
| | June 28,
2019 | | December 28,
2018 |
| Accrued and other current liabilities | $ | 20.3 |
| | $ | 20.4 |
|
| Other liabilities | 16.9 |
| | 15.1 |
|
| Contract liabilities | $ | 37.2 |
| | $ | 35.5 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 29, 2017 | | September 30, 2016 | | September 29, 2017 | | September 30, 2016 |
| Depreciation | $ | — |
| | $ | 4.5 |
| | $ | — |
| | $ | 14.3 |
|
| Capital expenditures | — |
| | 4.0 |
| | 0.3 |
| | 7.8 |
|
All other notes toRevenue recognized during the unaudited condensed consolidated financial statements that were impacted by this discontinued operation have been reclassified accordingly.
CMDS: On November 27, 2015, the Company completed the sale of its contrast media and delivery systems ("CMDS") business to Guerbet S.A. ("Guerbet") for cash consideration of approximately $270.0 million, subject to net working capital adjustments. During the threesix months ended September 30, 2016,June 28, 2019 from amounts included in contract liabilities at the Company had no net sales and a loss on the sale of business of $4.0 million, with $0.4 million related income tax effect. During the nine months ended September 30, 2016, the Company had $1.8 million of net sales, a $0.2 million income tax effect and $4.4 million loss, net of tax. All activity related to the CMDS business has been reported in discontinued operations.
Divestitures
On January 30, 2017, the Company announced that it had entered into a definitive agreement to sell its Intrathecal Therapy business to Piramal Enterprises Limited's subsidiary in the United Kingdom ("U.K."), Piramal Critical Care ("Piramal"), for approximately $203.0 million, including fixed consideration of $171.0 million and contingent consideration of up to $32.0 million. The $171.0 million of fixed consideration consisted of $17.0 million received at closing and a $154.0 million note receivable that is due one year from the transaction closing date. The transaction was completed on March 17, 2017. The Company recorded a pre-tax gain on the salebeginning of the business of $56.6 million during the nine months ended September 29, 2017, which excluded any potential proceeds from the contingent consideration and reflects a post-sale working capital adjustment of $0.4 million during the three months ended September 29, 2017. The financial results of the Intrathecal Therapy business are presented within continuing operations as this divestiture did not meet the criteria for discontinued operations classification.period was $9.2 million.
As part of the divestiture and calculation of the gain, the Company wrote off intangible assets of $48.7 million and goodwill of $49.8 million, from the Specialty Brands segment, ascribed to the Intrathecal Therapy business. The Company is committed to reimburse up to $7.3 million of product development expenses incurred by Piramal. The remaining items included in the gain calculation are attributable to inventory transferred and transaction costs incurred by the Company.
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| |
| 4. | Acquisitions, License Agreements and Other Investments |
During the three months ended September 29, 2017 and September 30, 2016, the Company recognized $2.7 million and $3.4 million, respectively, of expense primarily associated with fair value adjustments of acquired inventory. During the nine months ended September 29, 2017 and September 30, 2016, the Company recognized $8.6 million and $8.1 million, respectively, of expense primarily associated with fair value adjustments of acquired inventory. The amount of acquisition-related costs included within operating income for the three and nine months ended September 29, 2017 were $1.2 million and $2.3 million, respectively. The amount of acquisition-related costs included within operating income for the three and nine months ended September 30, 2016 was $3.8 million and $5.8 million, respectively.
The Company's acquisitions and license agreements are described further within the notes to the financial statements included within the Company's Annual Report filed on Form 10-K for the fiscal year ended September 30, 2016.
InfaCare
On September 25, 2017, the Company acquired InfaCare Pharmaceutical Corporation ("InfaCare") in a transaction valued at approximately $80.4 million, with additional payments of up to $345.0 million dependent on regulatory and sales milestones ("the InfaCare Acquisition"). Consideration for the transaction consisted of approximately $37.2 million in cash paid to the prior shareholders of InfaCare and the assumption of approximately $43.2 million of debt and other liabilities, which was repaid in conjunction with the InfaCare Acquisition. InfaCare is focused on development and commercialization of proprietary pharmaceuticals for neonatal and pediatric patient populations. InfaCare's developmental product stannsoporfin, a heme oxygenase inhibitor, is under investigation for its potential to reduce the production of bilirubin, the elevation of which can contribute to serious consequences in infants. The fair value of the contingent consideration associated with the transaction was $35.0 million at September 25, 2017. The InfaCare Acquisition was funded with cash on hand.
Stratatech
On August 31, 2016, the Company acquired Stratatech Corporation ("Stratatech") - which includes StrataGraft®, a regenerative skin tissue and a technology platform for genetically enhanced skin tissues - for upfront considerations of $76.0 million, and contingent milestone payments, which are primarily regulatory, and royalty obligations that could result in up to $121.0 million of additional consideration ("the Stratatech Acquisition"). Stratatech is a regenerative medicine company focused on the development of unique, proprietary skin substitute products. Developmental products include StrataGraft® regenerative skin tissue ("StrataGraft") and a technology platform for genetically enhanced skin tissues. The Stratatech Acquisition was funded with cash on hand.
Hemostasis Products
On February 1, 2016, the Company acquired three commercial stage topical hemostasis drugs from The Medicines Company ("the Hemostasis Acquisition") - RECOTHROM® Thrombin topical (Recombinant) ("Recothrom"), PreveLeakTM Surgical Sealant ("PreveLeak"), and RAPLIXATM (Fibrin Sealant (Human)) ("Raplixa") - for upfront consideration of $173.5 million, inclusive of existing inventory, and contingent sales-based milestone payments that could result in up to $395.0 million of additional consideration. The fair value of the contingent consideration and acquired contingent liabilities associated with the transaction were $52.0 million and $10.6 million, respectively, at February 1, 2016. The Hemostasis Acquisition was funded with cash on hand.
Fair Value Allocation
The following amounts represent the preliminary allocations of the fair value of the identifiable assets acquired and liabilities assumed for the InfaCare Acquisition, including preliminary goodwill, intangible assets and the related deferred tax balances. The Company expects to complete its valuation analysis and finalize deferred tax balances as of the acquisition date no later than twelve months from the date of the acquisition. The changes in the purchase price allocation and preliminary goodwill based on the final valuation may include, but are not limited to, finalization of working capital settlements, the impact of U.S. state tax rates in determining the deferred tax balances and changes in assumptions utilized in the preliminary valuation report.
|
| | | |
| | InfaCare |
| Cash and cash equivalents | $ | 1.3 |
|
| Intangible assets | 113.5 |
|
| Goodwill | 13.3 |
|
| Other assets, current and non-current | 0.1 |
|
| Total assets acquired | 128.2 |
|
| Current liabilities | 14.7 |
|
| Deferred tax liabilities, net (non-current) | 11.3 |
|
| Contingent consideration | 35.0 |
|
| Total debt | 30.0 |
|
| Total liabilities assumed | 91.0 |
|
| Net assets acquired | $ | 37.2 |
|
The following is a reconciliation of the total consideration to net assets acquired:
|
| | | |
| | InfaCare |
| Total consideration, net of cash | $ | 70.9 |
|
| Plus: cash assumed in acquisition | 1.3 |
|
| Total consideration | 72.2 |
|
| Less: contingent consideration | (35.0 | ) |
| Net assets acquired | $ | 37.2 |
|
Intangible assets acquired consist of the following:
|
| | | | | |
| InfaCare | Amount | | Amortization Period |
| In-process research and development ("IPR&D") - stannsoporfin | $ | 113.5 |
| | Non-Amortizable |
The IPR&D intangible assets relates to stannsoporfin. The fair value of the IPR&D was determined using the income approach, which is a valuation technique that provides an estimate of fair value of the assets based on the market participant expectations of cash flows the asset would generate. The cash flows were discounted at a rate of 13.5%. The IPR&D discount rate for stannsoporfin was developed after assigning a probability of success to achieving the projected cash flows based on the current stage of development, inherent uncertainty in the FDA approval process and risks associated with commercialization of a new product. Based on the Company's preliminary estimate, the excess of purchase price over net tangible and intangible assets acquired resulted in goodwill, which represents future product development, the assembled workforce, and the tax status of the transaction. The goodwill is not deductible for U.S. income tax purposes. All assets acquired are included within the Company's Specialty Brands segment.
Licenses and Other Investments
In January 2017, $21.5 million of consideration was remitted to Mesoblast Limited ("Mesoblast") in exchange for equity shares and rights to a nine month exclusivity period related to any potential commercial and development agreements the Company may enter into for Mesoblast's therapy products used to treat acute graft versus host disease and/or chronic low back pain. As a result of this transaction the Company recorded an available for sale investment of $19.7 million included within prepaid and other current assets and an intangible asset of $1.8 million in the unaudited condensed consolidated balance sheet. This intangible asset was fully amortized as of September 29, 2017 as the nine month exclusivity period had ended.
|
| |
5. | Restructuring and Related Charges |
In July 2016, the Company's Board of Directors approved a $100.0 million to $125.0 million restructuring program ("the 2016 Mallinckrodt Program"), designed to further improve the Company'sits cost structure as itthe Company continues to transform theits business. The 2016 Mallinckrodt Program is expected to includeincluded actions across both the Specialty Brands segment and the Specialty Generics segments,segment, as well as within the corporate functions. The 2016 Mallinckrodt Program was substantially completed in fiscal 2018.
In February 2018, the Company's Board of Directors approved a $100.0 million to $125.0 million restructuring program ("the 2018 Mallinckrodt Program") that is of similar design as the 2016 Mallinckrodt Program. The utilization of the 2018 Mallinckrodt Program commenced upon substantial completion of the 2016 Mallinckrodt Program. There is no specified time period associated with the 20162018 Mallinckrodt Program.
In addition to the 2018 and 2016 Mallinckrodt Program,Programs, the Company takes certainhas taken restructuring actions to generate synergies from its acquisitions.
Net restructuring and related charges by segment arewere as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 28,
2019 | | June 29,
2018 | | June 28,
2019 | | June 29,
2018 |
| Specialty Brands | $ | (0.1 | ) | | $ | 47.0 |
| | $ | 0.4 |
| | $ | 47.5 |
|
| Specialty Generics | (0.9 | ) | | 0.1 |
| | 2.6 |
| | 5.2 |
|
| Corporate | 0.8 |
| | 11.7 |
| | 1.0 |
| | 34.3 |
|
| Restructuring and related charges, net | (0.2 | ) | | 58.8 |
| | 4.0 |
| | 87.0 |
|
| Less: accelerated depreciation | — |
| | — |
| | — |
| | — |
|
| Restructuring charges, net | $ | (0.2 | ) | | $ | 58.8 |
| | $ | 4.0 |
| | $ | 87.0 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 29,
2017 | | September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| Specialty Brands | $ | 14.6 |
| | $ | 4.9 |
| | $ | 24.1 |
| | $ | 21.7 |
|
| Specialty Generics | (0.6 | ) | | 0.7 |
| | 7.3 |
| | 2.3 |
|
| Corporate | 1.5 |
| | 3.1 |
| | 4.3 |
| | 10.0 |
|
| Restructuring and related charges, net | 15.5 |
| | 8.7 |
| | 35.7 |
| | 34.0 |
|
| Less: accelerated depreciation | (1.2 | ) | | (1.9 | ) | | (3.6 | ) | | (4.8 | ) |
| Restructuring charges, net | $ | 14.3 |
| | $ | 6.8 |
| | $ | 32.1 |
| | $ | 29.2 |
|
Net restructuring and related charges by program arewere comprised of the following:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 28,
2019 | | June 29,
2018 | | June 28,
2019 | | June 29,
2018 |
| 2018 Mallinckrodt Program | $ | (0.9 | ) | | $ | — |
| | $ | 2.6 |
| | $ | — |
|
| 2016 Mallinckrodt Program | 1.5 |
| | 52.3 |
| | 2.2 |
| | 60.5 |
|
| Acquisition programs | (0.8 | ) | | 6.5 |
| | (0.8 | ) | | 26.5 |
|
| Total charges expected to be settled in cash | $ | (0.2 | ) | | $ | 58.8 |
| | $ | 4.0 |
| | $ | 87.0 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 29,
2017 | | September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| 2016 Mallinckrodt Program | $ | 15.5 |
| | $ | 8.3 |
| | $ | 35.7 |
| | $ | 8.3 |
|
| 2013 Mallinckrodt Program | — |
| | 0.3 |
| | — |
| | 22.7 |
|
| Acquisitions | — |
| | 0.1 |
| | — |
| | 3.0 |
|
| Total | 15.5 |
| | 8.7 |
| | 35.7 |
| | 34.0 |
|
| Less: accelerated depreciation | (1.2 | ) | | (1.9 | ) | | (3.6 | ) | | (4.8 | ) |
| Total charges expected to be settled in cash | $ | 14.3 |
| | $ | 6.8 |
| | $ | 32.1 |
| | $ | 29.2 |
|
The following table summarizes cash activity for restructuring reserves, substantially all of which are related to contract termination costs, employee severance and benefits:benefits, and exiting certain facilities:
|
| | | | | | | | | | | | | | | |
| | 2018 Mallinckrodt Program | | 2016 Mallinckrodt Program | | Acquisition Programs | | Total |
| Balance as of December 28, 2018 | $ | 2.2 |
| | $ | 61.0 |
| | $ | 7.8 |
| | $ | 71.0 |
|
| Charges | 3.5 |
| | 2.4 |
| | — |
| | 5.9 |
|
| Changes in estimate | (0.9 | ) | | (0.2 | ) | | (0.8 | ) | | (1.9 | ) |
| Cash payments | (1.4 | ) | | (11.0 | ) | | (1.4 | ) | | (13.8 | ) |
Reclassifications (1) | — |
| | (5.0 | ) | | (4.3 | ) | | (9.3 | ) |
| Balance as of June 28, 2019 | $ | 3.4 |
| | $ | 47.2 |
| | $ | 1.3 |
| | $ | 51.9 |
|
| |
| (1) | Represents the reclassification of lease liabilities, net to lease liabilities and lease assets, which are reflected within other liabilities and other assets on the unaudited condensed consolidated balance sheet, due to the adoption of ASU 2016-02. |
|
| | | | | | | | | | | | | | | |
| | 2016 Mallinckrodt Program | | 2013 Mallinckrodt Program | | Acquisitions | | Total |
| Balance at December 30, 2016 | $ | 9.5 |
| | $ | 5.1 |
| | $ | 0.2 |
| | $ | 14.8 |
|
| Charges | 33.9 |
| | — |
| | — |
| | 33.9 |
|
| Changes in estimate | (1.8 | ) | | — |
| | — |
| | (1.8 | ) |
| Cash payments | (19.8 | ) | | (3.7 | ) | | (0.2 | ) | | (23.7 | ) |
| Reclassifications | (0.7 | ) | | 0.3 |
| | — |
| | (0.4 | ) |
| Balance at September 29, 2017 | $ | 21.1 |
| | $ | 1.7 |
| | $ | — |
| | $ | 22.8 |
|
NetAs of June 28, 2019, net restructuring and related charges including associated asset impairments, incurred cumulative-to-datecumulative to date related to the 2018 and 2016 Mallinckrodt Program wasPrograms were as follows:
|
| | | | | | | |
| | 2018 Mallinckrodt Program | | 2016 Mallinckrodt Program |
| Specialty Brands | $ | 3.0 |
| | $ | 82.2 |
|
| Specialty Generics | 2.6 |
| | 14.6 |
|
| Corporate | 2.2 |
| | 27.6 |
|
| | $ | 7.8 |
| | $ | 124.4 |
|
|
| | | |
| | 2016 Mallinckrodt Program |
| Specialty Brands | $ | 31.3 |
|
| Specialty Generics | 8.6 |
|
| Corporate | 9.3 |
|
| | $ | 49.2 |
|
Substantially allAll of the restructuring reserves were included in accrued and other current liabilities on the Company's unaudited condensed consolidated balance sheets.
The Company recognized an income tax benefit of $31.2$24.3 million on incomea loss from continuing operations before income taxes of $33.1$24.8 million for the three months ended September 29, 2017,June 28, 2019, and an income tax benefit of $56.4$44.4 million on incomea loss from continuing operations before income taxes of $53.6$41.2 million for the three months ended September 30, 2016.June 29, 2018. This resulted in effective tax rates of negative 94.3%98.0% and negative 105.2%107.8% for the three months ended SeptemberJune 28, 2019 and June 29, 2017 and September 30, 2016,2018, respectively. The income tax benefit for the three months ended September 29, 2017 isJune 28, 2019 was comprised of $60.0$5.6 million of current tax benefitexpense and $28.8 million of deferred tax expense. The net deferred tax expense of $28.8 million includes $45.5$29.9 million of deferred tax benefit, which is predominantlywas predominately related to previously acquired intangible assets offset by $74.3 million of deferred tax expense related to utilizationintangibles, the generation of tax attributes.loss and credit carryforwards net of valuation allowances and the non-restructuring impairment charge, as further discussed in Note 10. The income tax benefit for the three months ended September 30, 2016 isJune 29, 2018 was comprised of $37.9$10.2 million of current tax expense and $94.3$54.6 million of deferred tax benefit. The deferred tax benefit which iswas predominantly related to previously acquired intangible assets.intangibles.
The Company recognized an income tax benefit of $110.8$229.0 million on incomea loss from continuing operations before income taxes of $53.0$74.3 million for the ninesix months ended September 29, 2017,June 28, 2019, and an income tax benefit of $218.3$81.0 million on incomea loss from continuing operations before income taxes of $166.9$98.7 million for the ninesix months ended September 30, 2016.June 29, 2018. This resulted in effective tax rates of negative 209.1%308.2% and negative 130.8%82.1% for the ninesix months ended SeptemberJune 28, 2019 and June 29, 2017 and September 30, 2016,2018, respectively. The income tax benefit for the ninesix months ended September 29, 2017 isJune 28, 2019 was comprised of $20.5$44.1 million of current tax expense and $131.3$273.1 million of deferred tax benefit. The net deferred tax benefit of $131.3 million includes $232.8 million of deferred tax benefit which iswas predominantly related to previously acquired intangible assets offset by $101.5 millionintangibles, the generation of tax loss and credit carryforwards net of valuation allowances, the non-restructuring impairment charge, as well as the reorganization of the Company's intercompany financing and associated legal entity ownership, which eliminated the interest bearing deferred tax expense related to utilization of tax attributes.obligation. The income tax benefit for the ninesix months ended September 30, 2016 isJune 29, 2018 was comprised of $85.9$21.4 million of current tax expense and $304.2$102.4 million of deferred tax benefit. The deferred tax benefit which iswas predominantly related to previously acquired intangible assets.intangibles.
The effectiveincome tax ratebenefit was $24.3 million for the three months ended September 29, 2017, asJune 28, 2019, compared with a tax benefit of $44.4 million for the three months ended September 30, 2016 increasedJune 29, 2018. The $20.1 million net decrease in the tax benefit included a $20.7 million decrease attributed to changes in the timing, amount and jurisdictional mix of income, a $7.1 million decrease attributed to the gain on debt repurchased and a $3.4 million decrease attributed to restructuring and related charges, partially offset by 10.9 percentage points. Included within thisan increase in tax benefit of $8.5 million attributed to the non-restructuring impairment charge and $2.6 million increase attributed to separation costs.
The income tax benefit was $229.0 million for the six months ended June 28, 2019, compared with a tax benefit of $81.0 million for the six months ended June 29, 2018. The $148.0 million net increase was a 109.4 percentage pointin the tax benefit included an increase relatedof $189.8 million attributed to the completion of certain aspects oftax benefit from the reorganization of the Company's intercompany financing and associated legal entity ownership, discussed further below, which occurred duringa $8.5 million increase attributed to the non-restructuring impairment charge and a $3.6 million increase attributed to separation costs, partially offset by a decrease in tax benefit of $35.2 million predominately attributed to changes in the timing, amount and jurisdictional mix of income, a $9.8 million decrease attributed to restructuring and related charges and a $8.9 million decrease attributed to the gain on debt repurchased.
During the three months ended SeptemberMarch 29, 2017. Also within this increase was a 36.7 percentage point increase attributable to the recognition of previously unrecognized tax benefits, which occurred during the three months ended September 30, 2016. The remaining 135.2 percentage point decrease was primarily attributable to differing levels of income from continuing operations before taxes for the three months ended September 29, 2017 as compared with the three months ended September 30, 2016.
The effective tax rate for the nine months ended September 29, 2017, as compared with the nine months ended September 30, 2016 decreased by 78.3 percentage points. Included within this net decrease was a 183.5 percentage point decrease primarily attributable to differing levels of income from continuing operations before taxes for the nine months ended September 29, 2017 as compared with the nine months ended September 30, 2016. Of the remaining 105.2 percentage point increase, a 16.5 percentage point increase is related to the tax benefit of a U.K. tax credit on a dividend between affiliates, which occurred during the nine months ended September 30, 2016, a 5.0 percentage point increase related to the divestiture of the Intrathecal Therapy Business, which occurred during the nine months ended September 29, 2017, a 15.5 percentage point increase attributable to the recognition of previously unrecognized tax benefits, which occurred within the nine months ended September 30, 2016, and a 68.2 percentage point increase related to the completion of certain aspects of the reorganization of the Company's legal entity ownership discussed further below, which occurred during the nine months ended September 29, 2017.
During the nine months ended September 29, 2017, the three months ended December 30, 2016 and the twelve months ended September 30, 2016, the Company’s cash paid for income taxes, net was $90.9 million, $95.6 million and $165.4 million, respectively.
During the three and nine months ended September 29, 2017, the Company recognized an income tax benefit of $0.1 million and income tax expense of $5.2 million, respectively associated with the Nuclear Imaging business divestiture, as discussed in Note 3, in discontinued operations within the unaudited condensed consolidated statement of income.
On October 6, 20172019, the Company completed a reorganization of its intercompany financing and associated legal entity ownership (“in response to the Reorganization”)changing global tax environment. As a result, during the six months ended June 28, 2019, the Company recognized current income tax expense of $28.9 million and a deferred income tax benefit of $218.7 million with a corresponding reduction to align with its ongoing transformationnet deferred tax liabilities. The reduction in net deferred tax liabilities was comprised of a decrease in interest-bearing deferred tax obligations which resulted in the elimination of the December 28, 2018 balance of $227.5 million, a $42.3 million increase to become an innovation-driven specialty pharmaceuticals growth company. Many factorsa deferred tax asset related to excess interest carryforwards, a $26.4 million increase in various other net deferred tax liabilities and a $24.7 million decrease to a deferred tax asset related to tax loss and credit carryforwards net of
valuation allowances. The elimination of the interest-bearing deferred tax obligation also eliminated the annual Internal Revenue Code section 453A interest expense.
During the six months ended June 28, 2019, and the fiscal year ended December 28, 2018, the net cash payments for income taxes were considered in effecting the Reorganization, including streamlining treasury functions, simplifying legal entity reporting processes,$21.5 million and capital allocation efficiencies.$12.4 million, respectively. During the three months ended September 29, 2017,June 28, 2019, the Company recognizedfiled its U.S. Federal income tax expense of $36.1 million, with an offset to deferred tax liabilities commensurate with the completion of certain aspects of the Reorganization during the third quarter of 2017. See Note 20 Subsequent Eventsreturn for additional information related to the future tax effects of this Reorganization.
The Company early adopted ASU 2016-16 in the first quarter of 2017 utilizing the modified retrospective basis adoption method, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period for $75.0 million with an offsetting decrease of $67.2 million to other assets andended September 28, 2018 reporting a $7.8 million decrease to prepaid expenses on its unaudited condensed consolidated balance sheets. The prior periods were not restated.
The Company adopted ASU 2016-09 in the first quarter of 2017 and recorded an adjustment to retained earnings of $2.9 million to recognizeU.S. Federal net operating loss carryforwards,carryforward expiring in fiscal 2038. As of June 28, 2019, the Company’s U.S. Federal net operating loss carryforward was $815.4 million ($171.2 million measured at applicable statutory tax rates and net of a valuation allowance, attributable to excessuncertain tax benefits on stock compensation that had not been previously recognized in additional paid-in capital.
The Company refined its acquisition accounting estimate associated with the measurement of its acquired Stratatech net deferred tax liabilities in the first quarter of 2017, resulting in a decrease to the acquired net deferred tax liabilities from $24.3 million to $22.1 million.
The InfaCare Acquisition resulted in a net deferred tax liability increase of $11.3 million. Significant components of this include $20.3 million of net deferred tax liabilities associated with intangibles partially offset by $8.7 million of deferred tax assets associated with non U.K. net operating losses.
The divestiture of the Intrathecal Therapy Business was completed on March 17, 2017. This divestiture resulted in a net deferred tax liability increase of $38.9 million. Significant components of this increase include an increase of $56.5 million of deferred tax liability associated with future consideration, a decrease of $2.3 million of deferred tax asset associated with net operating losses, a decrease of $17.9 million of deferred tax liability associated with intangibles, an increase of $2.6 million of deferred tax asset associated with committed product development, and a decrease of $0.6 million of other net deferred tax assets.positions).
The Company's unrecognized tax benefits, excluding interest, totaled $123.0$448.9 million at September 29, 2017 and $118.7$287.7 million atas of June 28, 2019 and December 30, 2016.28, 2018, respectively. The net increase of $4.3$161.2 million primarily resulted from a net increase to current year tax positions of $8.7$151.7 million, net decreasesincreases from prior period tax positions of $1.7$13.7 million, a net decrease from settlements of $0.9 million and a net decreasesdecrease from a lapse of statute of limitations of $2.7$3.3 million. If favorably settled, $121.3$437.4 million of unrecognized tax benefits at September 29, 2017as of June 28, 2019 would favorably impactbenefit the effective tax rate.rate, of which up to $20.0 million may be reported in discontinued operations. The total amount of accrued interest and penalties related to these obligations was $6.8$44.6 million at September 29, 2017 and $7.1$37.1 million atas of June 28, 2019 and December 30, 2016.28, 2018, respectively.
It is reasonably possible that within the next twelve months the unrecognized tax benefits could decrease by up to $102.8 million and the amount of related interest and penalties could decrease by up to $32.5 million as a result of payments or releases due to the resolution of various U.K. and non-U.K. examinations, appeals and litigation and the expiration of various statutes of limitation, thatlimitation.
Due to a legislative change during the unrecognizedthree months ended June 28, 2019, the overall corporate income tax benefits will decreaserate in Luxembourg has decreased from 26.01% to 24.94% effective January 1, 2019. As a result, the Company’s net deferred tax assets decreased by up to $30.2approximately $65.8 million, and the amount of related interest and penalties will decreaseassociated valuation allowances were also decreased by up to $4.4 million.this same amount.
Basic earnings per share is computed by dividing net income by the number of weighted-average shares outstanding during the period. Diluted earnings per share is computed using the weighted-average shares outstanding and, if dilutive, potential ordinary shares outstanding during the period. Potential ordinary shares represent the incremental ordinary shares issuable for restricted share units and share option exercises. The Company calculates the dilutive effect of outstanding restricted share units and share options on earnings per share by application of the treasury stock method. Dilutive securities, including participating securities, are not included in the computation of loss per share when the Company reports a net loss from continuing operations as the impact would be anti-dilutive.
The weighted-average number of shares outstanding used in the computations of basic and diluted earnings per share were as follows (in millions): |
| | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 28,
2019 | | June 29,
2018 | | June 28,
2019 | | June 29,
2018 |
| Basic | 83.8 |
| | 83.2 |
| | 83.7 |
| | 84.7 |
|
| Dilutive impact of restricted share units and share options | — |
| | 0.3 |
| | 0.6 |
| | — |
|
| Diluted | 83.8 |
| | 83.5 |
| | 84.3 |
| | 84.7 |
|
|
| | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 29, 2017 | | September 30, 2016 | | September 29, 2017 | | September 30, 2016 |
| Basic | 96.7 |
| | 107.6 |
| | 99.5 |
| | 109.1 |
|
| Dilutive impact of restricted share units and share options | 0.3 |
| | 1.0 |
| | 0.3 |
| | 0.9 |
|
| Diluted | 97.0 |
| | 108.6 |
| | 99.8 |
| | 110.0 |
|
The computation of diluted weighted-average shares outstanding for both the three and ninesix months ended SeptemberJune 28, 2019 excluded approximately 4.6 million shares of equity awards, and for both the three and six months ended June 29, 2017 excludes2018 excluded approximately 4.3 million and 3.6 million shares of equity awards, respectively, because the effect would have been anti-dilutive. The computation of diluted weighted-average shares outstanding for the three and nine months ended September 30, 2016 excludes approximately 1.6 million and 1.7 million shares of equity awards, respectively, because the effect would have been anti-dilutive.
Inventories were comprised of the following at the end of eachthe respective period:
|
| | | | | | | |
| | June 28,
2019 | | December 28,
2018 |
| Raw materials and supplies | $ | 63.8 |
| | $ | 69.2 |
|
| Work in process | 177.3 |
| | 167.6 |
|
| Finished goods | 96.3 |
| | 85.5 |
|
| | $ | 337.4 |
| | $ | 322.3 |
|
|
| | | | | | | |
| | September 29,
2017 | | December 30,
2016 |
| Raw materials and supplies | $ | 76.3 |
| | $ | 72.6 |
|
| Work in process | 160.4 |
| | 178.4 |
|
| Finished goods | 104.6 |
| | 99.7 |
|
| | $ | 341.3 |
| | $ | 350.7 |
|
|
| |
9.8. | Property, Plant and Equipment |
The gross carrying amount and accumulated depreciation of property, plant and equipment were comprised of the following at the end of each period was as follows:the respective period:
|
| | | | | | | |
| | June 28,
2019 | | December 28, 2018 |
| Property, plant and equipment, gross | $ | 1,987.8 |
| | $ | 1,936.2 |
|
| Less: accumulated depreciation | (993.6 | ) | | (954.2 | ) |
| Property, plant and equipment, net | $ | 994.2 |
| | $ | 982.0 |
|
|
| | | | | | | |
| | September 29,
2017 | | December 30, 2016 |
| Property, plant and equipment, gross | $ | 1,820.4 |
| | $ | 1,679.4 |
|
| Less: accumulated depreciation | (858.0 | ) | | (797.9 | ) |
| Property, plant and equipment, net | $ | 962.4 |
| | $ | 881.5 |
|
Depreciation expense for property, plant and equipment was as follows: |
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 28,
2019 | | June 29,
2018 | | June 28,
2019 | | June 29,
2018 |
| Depreciation expense | $ | 24.4 |
| | $ | 14.2 |
| | $ | 49.2 |
| | $ | 34.8 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 29, 2017 | | September 30, 2016 | | September 29, 2017 | | September 30, 2016 |
| Depreciation expense | $ | 27.3 |
| | $ | 27.3 |
| | $ | 83.5 |
| | $ | 87.6 |
|
|
| |
10.9. | Goodwill and Intangible AssetsLeases |
The gross carrying amountCompany assesses all contracts at inception to determine whether a lease exists. The Company leases office space, manufacturing and accumulated impairmentwarehousing facilities, equipment and vehicles, all of goodwill by segmentwhich are operating leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately. The Company's lease agreements do not contain variable lease payments or any material residual value guarantees.
Lease assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term as of the commencement date. As the Company's leases do not generally provide an implicit rate, the Company utilized its incremental borrowing rate based on the information available at commencement date in determining the present value of future lease payments. The Company used the incremental borrowing rate on December 29, 2018 for leases that commenced prior to that date. Most leases include one or more options to terminate or renew, with renewal terms that can extend the lease term from one to five years. The exercise of lease renewal options is at the endCompany's sole discretion. Termination and renewal options are included within the lease assets and liabilities only to the extent they are reasonably certain.
Lease assets and liabilities were reported in the following unaudited condensed consolidated balance sheet captions in the amounts shown:
|
| | | |
| | June 28,
2019 |
| Other assets | $ | 90.6 |
|
| | |
| Accrued and other current liabilities | $ | 19.6 |
|
| Other liabilities | 77.7 |
|
| Total lease liabilities | $ | 97.3 |
|
Dependent on the nature of each periodthe leased asset, lease expense is included within cost of sales or selling, general and administrative expenses ("SG&A"). The components of lease expense were as follows:
|
| | | | | | | | | | | | | | | |
| | September 29, 2017 | | December 30, 2016 |
| | Gross Carrying Amount | | Accumulated Impairment | | Gross Carrying Amount | | Accumulated Impairment |
| Specialty Brands | $ | 3,459.5 |
| | $ | — |
| | $ | 3,498.1 |
| | $ | — |
|
| Specialty Generics | 207.0 |
| | (207.0 | ) | | 207.0 |
| | (207.0 | ) |
| Total | $ | 3,666.5 |
| | $ | (207.0 | ) | | $ | 3,705.1 |
| | $ | (207.0 | ) |
|
| | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 28,
2019 | | June 28,
2019 |
| Lease cost: | | | |
| Operating lease cost | $ | 5.3 |
| | $ | 10.2 |
|
| Short-term lease cost | 1.1 |
| | 2.2 |
|
| Sublease income | (0.2 | ) | | (0.4 | ) |
| Total lease cost | $ | 6.2 |
| | $ | 12.0 |
|
Lease terms and discount rates were as follows:
|
| | |
| June 28,
2019 |
| Weighted-average remaining lease term (in years) - operating lease | 7.4 |
|
| Weighted-average discount rate - operating leases | 3.8 | % |
Maturities of lease liabilities as of June 28, 2019 were as follows:
|
| | | |
| | Operating Leases |
| Remainder of Fiscal 2019 | $ | 11.8 |
|
| Fiscal 2020 | 21.6 |
|
| Fiscal 2021 | 16.3 |
|
| Fiscal 2022 | 12.3 |
|
| Fiscal 2023 | 11.7 |
|
| Thereafter | 39.2 |
|
| Total lease payments | 112.9 |
|
| Less: Interest | (15.6 | ) |
| Present value of lease liabilities | $ | 97.3 |
|
Other supplemental cash flow information related to leases were as follows:
|
| | | |
| | Six Months Ended |
| | June 28,
2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | |
| Operating cash flows from operating leases | $ | 11.3 |
|
| Lease assets obtained in exchange for lease obligations: | |
| Operating leases | 6.9 |
|
Stannsoporfin
During the ninethree months ended September 29, 2017,June 28, 2019, the grossCompany recognized a full impairment on its in-process research and development ("IPR&D") asset related to stannsoporfin of $113.5 million as the Company will no longer pursue this development product.
VTS-270
VTS-270 is the Company’s development product to treat Niemann-Pick Type C, a complicated, ultra-rare neurodegenerative disease that typically presents in childhood and is ultimately fatal. The results of the Company’s completed registration trial for the
product did not show a statistically significant separation from placebo. Neither the VTS-270 nor the placebo arm showed disease progression as would be expected for a neurodegenerative condition over 52 weeks of observation. The Company is in the process of evaluating this portion of the study in order to ensure the data was properly captured and of the highest quality. The U.S. Food and Drug Administration ("FDA") indicated to the Company at a Type A meeting in August 2018 that their view on the potential approvability will be based on the totality of data, not a single study or endpoint. Accordingly, the Company’s review of the data from the Phase 2b/3 trial, including the longer term open label portion, continues to proceed and is being assessed in combination with several other available data sources. A better understanding of the potential benefit of VTS-270 will emerge as the Company carefully considers the totality of data available and continues to work with the primary investigators and the FDA to determine the best path forward. The Company will continue to assess the impact of any changes to planned revenue or earnings on the fair value of the associated IPR&D asset of $274.5 million included within intangible assets, net on the unaudited condensed consolidated balance sheet as of June 28, 2019.
The Company annually tests the indefinite-lived intangible assets for impairment, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable by either a qualitative or income approach. Management relies on a number of goodwill withinqualitative factors when considering a potential impairment such as changes to planned revenue or earnings that could affect significant inputs used to determine the Specialty Brands segment decreased by $38.6 million. The decrease was primarily attributable to the salefair value of the Intrathecal Therapy business to Piramal. The Company ascribed $49.8 million of goodwill to that business and it was factored into the gain on sale of the business. The decrease was offset by $13.3 million attributable to the InfaCare Acquisition. The remaining change in goodwill was related to a purchase accounting adjustment for the Stratatech Acquisition primarily attributable to changes in deferred tax balances.indefinite-lived intangible asset.
The gross carrying amount and accumulated amortization of intangible assets were comprised of the following at the end of each period were as follows:the respective period:
|
| | | | | | | | | | | | | | | |
| | June 28, 2019 | | December 28, 2018 |
| | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Amortizable: | | | | | | | |
| Completed technology | $ | 10,456.9 |
| | $ | 3,413.3 |
| | $ | 10,467.9 |
| | $ | 2,980.6 |
|
| License agreements | 120.1 |
| | 72.1 |
| | 120.1 |
| | 70.1 |
|
| Trademarks | 82.0 |
| | 20.0 |
| | 81.9 |
| | 18.1 |
|
| Customer relationships | 28.5 |
| | 15.8 |
| | 27.5 |
| | 14.1 |
|
| Total | $ | 10,687.5 |
| | $ | 3,521.2 |
| | $ | 10,697.4 |
| | $ | 3,082.9 |
|
| Non-Amortizable: | | | | | | | |
| Trademarks | $ | 35.0 |
| | | | $ | 35.0 |
| | |
| In-process research and development | 519.8 |
| | | | 633.3 |
| | |
| Total | $ | 554.8 |
| | | | $ | 668.3 |
| | |
|
| | | | | | | | | | | | | | | |
| | September 29, 2017 | | December 30, 2016 |
| | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Amortizable: | | | | | | | |
| Completed technology | $ | 9,955.6 |
| | $ | 2,101.3 |
| | $ | 10,028.7 |
| | $ | 1,617.1 |
|
| Licenses | 177.1 |
| | 120.1 |
| | 177.1 |
| | 112.7 |
|
| Customer relationships | 30.0 |
| | 11.7 |
| | 27.6 |
| | 8.4 |
|
| Trademarks | 82.2 |
| | 13.5 |
| | 82.1 |
| | 10.9 |
|
| Other | 8.6 |
| | 8.6 |
| | 6.7 |
| | 6.7 |
|
| Total | $ | 10,253.5 |
| | $ | 2,255.2 |
| | $ | 10,322.2 |
| | $ | 1,755.8 |
|
| Non-Amortizable: | | | | | | | |
| Trademarks | $ | 35.0 |
| | | | $ | 35.0 |
| | |
| In-process research and development | 512.6 |
| | | | 399.1 |
| | |
| Total | $ | 547.6 |
| | | | $ | 434.1 |
| | |
Ofirmev®
Since the Company's acquisition of Ofirmev in March 2014, the related completed technology intangible asset had been amortized using the straight-line method over a useful life of eight years. As the product nears loss of exclusivity, the Company believes it is better positioned to reliably determine the pattern in which the remaining economic benefits of the intangible asset are consumed. As a result, during the six months ended June 28, 2019 the Company concluded that the sum of the years digits method, an accelerated method of amortization, would more accurately reflect the consumption of the economic benefits over the remaining useful life of the asset. This change in amortization method resulted in additional amortization expense of $29.8 million and $65.7 million during the three and six months ended June 28, 2019, respectively, which impacted basic earnings per share for the respective periods by $0.36 and $0.78 per share.
Intangible asset amortization expense
Intangible asset amortization expense was as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 28, 2019 | | June 29,
2018 | | June 28, 2019 | | June 29,
2018 |
| Amortization expense | $ | 216.6 |
| | $ | 184.3 |
| | $ | 439.4 |
| | $ | 362.3 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 29, 2017 | | September 30, 2016 | | September 29, 2017 | | September 30, 2016 |
| Amortization expense | $ | 173.2 |
| | $ | 175.9 |
| | $ | 523.0 |
| | $ | 526.7 |
|
The estimated aggregate amortization expense on intangible assets owned by the Company is expected to be as follows:
|
| | | |
| Remainder of Fiscal 2019 | $ | 414.7 |
|
| Fiscal 2020 | 756.7 |
|
| Fiscal 2021 | 659.9 |
|
| Fiscal 2022 | 587.3 |
|
| Fiscal 2023 | 583.1 |
|
|
| | | |
| Remainder of Fiscal 2017 | $ | 172.6 |
|
| Fiscal 2018 | 686.7 |
|
| Fiscal 2019 | 686.3 |
|
| Fiscal 2020 | 686.0 |
|
| Fiscal 2021 | 685.8 |
|
Debt was comprised of the following at the end of eachthe respective period: |
| | | | | | | | | | | | | | | |
| | June 28, 2019 | | December 28, 2018 |
| | Principal | | Unamortized Discount and Debt Issuance Costs | | Principal | | Unamortized Discount and Debt Issuance Costs |
| Current maturities of long-term debt: | | | | | | | |
| 4.875% notes due April 2020 | $ | 700.0 |
| | $ | 2.0 |
| | $ | — |
| | $ | — |
|
| Term loan due September 2024 | 15.6 |
| | 0.1 |
| | 16.4 |
| | 0.2 |
|
| Term loan due February 2025 | 4.1 |
| | 0.1 |
| | 6.0 |
| | 0.1 |
|
| Other | 0.4 |
| | — |
| | 0.3 |
| | — |
|
| Total current debt | 720.1 |
| | 2.2 |
| | 22.7 |
| | 0.3 |
|
| Long-term debt: | | | | | | | |
| 4.875% notes due April 2020 | — |
| | — |
| | 700.0 |
| | 3.2 |
|
| Variable-rate receivable securitization due July 2020 | 200.0 |
| | 0.3 |
| | 250.0 |
| | 0.4 |
|
| 9.50% debentures due May 2022 | 10.4 |
| | — |
| | 10.4 |
| | — |
|
| 5.75% notes due August 2022 | 663.2 |
| | 4.7 |
| | 835.2 |
| | 7.0 |
|
| 8.00% debentures due March 2023 | 4.4 |
| | — |
| | 4.4 |
| | — |
|
| 4.75% notes due April 2023 | 400.1 |
| | 2.4 |
| | 500.2 |
| | 3.5 |
|
| 5.625% notes due October 2023 | 680.2 |
| | 6.6 |
| | 731.4 |
| | 8.0 |
|
| Term loan due September 2024 | 1,509.1 |
| | 17.3 |
| | 1,597.4 |
| | 19.8 |
|
| Term loan due February 2025 | 400.5 |
| | 6.7 |
| | 591.0 |
| | 10.7 |
|
| 5.50% notes due April 2025 | 596.1 |
| | 6.1 |
| | 692.1 |
| | 7.7 |
|
| Revolving credit facility | 405.0 |
| | 3.8 |
| | 220.0 |
| | 4.5 |
|
| Other | 1.9 |
| | — |
| | 1.9 |
| | — |
|
| Total long-term debt | 4,870.9 |
| | 47.9 |
| | 6,134.0 |
| | 64.8 |
|
| Total debt | $ | 5,591.0 |
| | $ | 50.1 |
| | $ | 6,156.7 |
| | $ | 65.1 |
|
|
| | | | | | | | | | | | | | | |
| | September 29, 2017 | | December 30, 2016 |
| | Principal | | Unamortized Discount and Debt Issuance Costs | | Principal | | Unamortized Discount and Debt Issuance Costs |
| Current maturities of long-term debt: | | | | | | | |
| Variable-rate receivable securitization due July 2017 | $ | — |
| | $ | — |
| | $ | 250.0 |
| | $ | 0.3 |
|
| 3.50% notes due April 2018 | 300.0 |
| | 0.4 |
| | — |
| | — |
|
| Term loan due March 2021 | — |
| | — |
| | 20.0 |
| | 0.3 |
|
| 4.00% term loan due February 2022 | — |
| | — |
| | 1.0 |
| | — |
|
| Term loan due September 2024 | 18.6 |
| | 0.2 |
| | — |
| | — |
|
| Capital lease obligation and vendor financing agreements | 0.2 |
| | — |
| | 0.8 |
| | — |
|
| Total current debt | 318.8 |
| | 0.6 |
| | 271.8 |
| | 0.6 |
|
| Long-term debt: | | | | | | | |
| 3.50% notes due April 2018 | — |
| | — |
| | 300.0 |
| | 0.9 |
|
| 4.875% notes due April 2020 | 700.0 |
| | 6.3 |
| | 700.0 |
| | 8.2 |
|
| Variable-rate receivable securitization due July 2020 | 200.0 |
| | 0.7 |
| | — |
| | — |
|
| Term loan due March 2021 | — |
| | — |
| | 1,928.5 |
| | 33.4 |
|
| 4.00% term loan due February 2022 | — |
| | — |
| | 5.5 |
| | — |
|
| 9.50% debentures due May 2022 | 10.4 |
| | — |
| | 10.4 |
| | — |
|
| 5.75% notes due August 2022 | 884.0 |
| | 10.0 |
| | 884.0 |
| | 11.6 |
|
| 8.00% debentures due March 2023 | 4.4 |
| | — |
| | 4.4 |
| | — |
|
| 4.75% notes due April 2023 | 526.5 |
| | 4.7 |
| | 600.0 |
| | 6.1 |
|
| 5.625% notes due October 2023 | 738.0 |
| | 10.1 |
| | 738.0 |
| | 11.4 |
|
| Term loan due September 2024 | 1,837.1 |
| | 27.7 |
| | — |
| | — |
|
| 5.50% notes due April 2025 | 692.1 |
| | 9.3 |
| | 695.0 |
| | 10.2 |
|
| Revolving credit facility | — |
| | 6.3 |
| | 100.0 |
| | 3.2 |
|
| Total long-term debt | 5,592.5 |
| | 75.1 |
| | 5,965.8 |
| | 85.0 |
|
| Total debt | $ | 5,911.3 |
| | $ | 75.7 |
| | $ | 6,237.6 |
| | $ | 85.6 |
|
As of June 28, 2019, the applicable interest rate and outstanding borrowings on the Company's variable-rate debt instruments were as follows:
|
| | | | | | |
| | Applicable interest rate | | Outstanding borrowings |
| Term loan due September 2024 | 5.08 | % | | $ | 1,524.7 |
|
| Term loan due February 2025 | 5.53 | % | | 404.6 |
|
| Variable-rate receivable securitization | 3.30 | % | | 200.0 |
|
| Revolving credit facility | 4.64 | % | | 405.0 |
|
As of June 28, 2019, the Company continues to be in full compliance with the provisions and covenants associated with its debt agreements. The Company's debt instruments are further described within the notes to the financial statements included within the Company's Annual Report filed on Form 10-K for the fiscal year ended September 30, 2016.December 28, 2018.
On July 28, 2017, Mallinckrodt Securitization S.à r.l. ("Mallinckrodt Securitization"), a wholly-owned special purpose subsidiary of the Company, entered into a $250.0 million accounts receivable securitization facility ("the Receivable Securitization") with a three year term. Mallinckrodt Securitization may, from time to time, obtain up to $250.0 million in third-party borrowings secured by certain receivables. The borrowings under the Receivable Securitization are to be repaid as the secured receivables are collected. Loans under the Receivable Securitization will bear interest (including facility fees) at a rate equal to one month LIBOR rate plus a margin of 0.9%. Unused commitments on the Receivables Securitization are subject to an annual commitment fee of 0.4%. The Receivable Securitization agreements contain customary representations, warranties, and affirmative and negative covenants. The size of the securitization facility may be increased to $300.0 million upon approval of the third-party lenders.
On February 28, 2017, Mallinckrodt International Finance, S.A. ("MIFSA") and Mallinckrodt CB LLC ("MCB") refinanced the March 2014 and August 2014 term loans, both of which were due in March 2021 ("the Existing Term Loans"). The refinanced term loans had an initial aggregate principal amount of $1,865.0 million, are due in September 2024 and bear interest at LIBOR plus 2.75% ("the 2017 Term Loan"). The 2017 Term Loan requires quarterly principal amortization payments in an amount equal to 0.25% of the original principal balance of the 2017 Term Loan payable on the last day of each calendar quarter, which commenced on June 30, 2017, with the remaining balance due on September 24, 2024. The Company accounted for the term loan refinancing as a debt modification.
In conjunction with the term loan refinancing, MIFSA and MCB replaced the existing revolving credit facility of $500.0 million due in March 2019 with a $900.0 million facility that matures on February 28, 2022 ("the 2017 Revolving Credit Facility"). The 2017 Revolving Credit Facility bears interest at LIBOR plus 2.25%. The 2017 Revolving Credit Facility reduced the letter of credit provision from $150.0 million to $50.0 million. Unused commitments under the 2017 Revolving Credit Facility are subject to an annual commitment fee of 0.275%. Fees applied to outstanding letters of credit is based on the interest rate applied to borrowings. The
2017 Revolving Credit Facility added certain wholly-owned subsidiaries of the Company as borrowers, in addition to Mallinckrodt plc, MIFSA and MCB.
|
| |
| 12. | Accumulated Other Comprehensive Loss |
The 2017 Term Loan and 2017 Revolving Credit Facility (collectively "the 2017 Facilities") are fully and unconditionally guaranteed by Mallinckrodt plc, certaincomponents of its direct or indirect wholly-owned U.S. subsidiaries and each of its direct or indirect wholly-owned subsidiaries that owns directly or indirectly any such wholly-owned U.S. subsidiaries and certain of itsaccumulated other subsidiaries (collectively, "the Guarantors"). comprehensive loss were as follows:
|
| | | | | | | | | | | | | | | |
| | Currency Translation | | Unrecognized Loss on Derivatives | | Unrecognized Gain (Loss) on Benefit Plans | | Accumulated Other Comprehensive Loss |
| Balance as of December 28, 2018 | $ | (20.4 | ) | | $ | (4.0 | ) | | $ | 0.1 |
| | $ | (24.3 | ) |
| Impact of accounting standard adoptions | — |
| | — |
| | 0.5 |
| | 0.5 |
|
| Other comprehensive income before reclassifications | 3.7 |
| | — |
| | — |
| | 3.7 |
|
| Amounts reclassified from accumulated other comprehensive loss | — |
| | 0.7 |
| | (0.7 | ) | | — |
|
| Net current period other comprehensive income (loss) | 3.7 |
| | 0.7 |
| | (0.7 | ) | | 3.7 |
|
| Balance as of June 28, 2019 | $ | (16.7 | ) | | $ | (3.3 | ) | | $ | (0.1 | ) | | $ | (20.1 | ) |
|
| | | | | | | | | | | | | | | |
| | Currency Translation | | Unrecognized Loss on Derivatives | | Unrecognized Loss on Benefit Plans | | Accumulated Other Comprehensive Loss |
| Balance as of December 29, 2017 | $ | (8.2 | ) | | $ | (4.7 | ) | | $ | (1.5 | ) | | $ | (14.4 | ) |
| Other comprehensive (loss) income before reclassifications | (7.3 | ) | | — |
| | 0.9 |
| | (6.4 | ) |
| Amounts reclassified from accumulated other comprehensive loss | — |
| | 0.5 |
| | (1.4 | ) | | (0.9 | ) |
| Net current period other comprehensive (loss) income | (7.3 | ) | | 0.5 |
| | (0.5 | ) | | (7.3 | ) |
| Balance as of June 29, 2018 | $ | (15.5 | ) | | $ | (4.2 | ) | | $ | (2.0 | ) | | $ | (21.7 | ) |
The 2017 Facilities are secured by a security interest in certain assets of MIFSA, MCB and the Guarantors. The 2017 Facilities contain customary affirmative and negative covenants, which include, amongfollowing summarizes reclassifications from accumulated other things, restrictions on the Company's ability to declare or pay dividends, create liens, incur additional indebtedness, enter into sale and lease-back transactions, make investments, dispose of assets and merge or consolidate with any other person.comprehensive loss:
|
| | | | | | | | | |
| | Amount Reclassified from Accumulated Other Comprehensive Loss | | |
| | Six Months Ended | | |
| | June 28,
2019 | | June 29,
2018 | | Line Item in the Unaudited Condensed Consolidated Statement of Income |
| Amortization and other of unrealized loss on derivatives | $ | 0.7 |
| | $ | 0.5 |
| | Interest expense |
| Amortization of pension and post-retirement benefit plans: | | | | | |
| Net actuarial loss | 0.3 |
| | 0.3 |
| | Other income, net |
| Prior service credit | (1.0 | ) | | (1.0 | ) | | Other income, net |
| Plan settlements | — |
| | (0.7 | ) | | Other income, net |
| Total reclassifications for the period | $ | — |
| | $ | (0.9 | ) | | |
As a result of the 2017 Facilities financing transaction and the write-off of certain deferred financing costs associated with an $83.5 million payment on the Existing Term Loans, the Company recorded a $10.0 million charge included within the other expense line in the unaudited condensed consolidated statement of income.
As of September 29, 2017, the applicable interest rate on outstanding borrowings under the Company's revolving credit facility was approximately 3.58%, and there were no outstanding borrowings. As of September 29, 2017, the applicable interest rate on outstanding borrowings under the variable-rate receivable securitization was 2.13%, and outstanding borrowings totaled $200.0 million. At September 29, 2017, the applicable interest rate for the term loan due September 2024 was 4.08%, and outstanding borrowings totaled $1,855.7 million.
As of September 29, 2017, the Company continues to be in full compliance with the provisions and covenants associated with its debt agreements.
The net periodic benefit cost for the Company's defined benefit pension plans was as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 29,
2017 | | September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| Service cost | $ | — |
|
| $ | 0.6 |
| | $ | 1.5 |
| | $ | 1.4 |
|
| Interest cost | 0.1 |
|
| 2.7 |
| | 2.2 |
| | 9.7 |
|
| Expected return on plan assets | — |
|
| (4.1 | ) | | (1.3 | ) | | (12.5 | ) |
| Amortization of net actuarial loss | 0.1 |
|
| 3.5 |
| | 2.7 |
| | 8.7 |
|
| Amortization of prior service cost | — |
| | — |
| | 0.2 |
| | — |
|
| Plan settlements | — |
| | 1.1 |
| | 69.7 |
| | 8.1 |
|
| Net periodic benefit cost | $ | 0.2 |
|
| $ | 3.8 |
| | $ | 75.0 |
| | $ | 15.4 |
|
The net periodic benefit credit for the Company's postretirement benefit plans was approximately zero and $0.1 million for the three months ended September 29, 2017 and September 30, 2016, respectively, and for both the nine months ended September 29, 2017 and September 30, 2016 the net periodic benefit credit was approximately zero.
Net periodic benefit cost for the Company's defined benefit pension plans and postretirement benefit plans was included within cost of sales; research and development; and selling, general and administrative ("SG&A") expenses on the unaudited condensed consolidated statements of income.
Pension Plan Termination
During the nine months ended September 29, 2017, the Company completed the third-party settlement of remaining obligations of six defined benefit pension plans that were terminated during fiscal 2016. In conjunction with this final settlement, the Company made a $61.3 million cash contribution to the terminated plans and recognized a $69.7 million charge, included within SG&A expenses.
|
| |
| 13. | Accumulated Other Comprehensive Income (Loss) |
The following summarizes the change in accumulated other comprehensive income (loss) for the nine months ended September 29, 2017 and September 30, 2016:
|
| | | | | | | | | | | | | | | | | | | |
| | Currency Translation | | Unrecognized Gain (Loss) on Derivatives | | Unrecognized Gain (Loss) on Benefit Plans | | Unrecognized Gain on Equity Securities | | Accumulated Other Comprehensive Income (Loss) |
| Balance at December 30, 2016 | $ | (19.5 | ) | | $ | (5.7 | ) | | $ | (47.3 | ) | | $ | — |
| | $ | (72.5 | ) |
| Other comprehensive income before reclassifications | 17.7 |
| | — |
| | 5.3 |
| | 0.1 |
| | 23.1 |
|
| Amounts reclassified from accumulated other comprehensive income | (4.7 | ) | | 0.9 |
| | 40.1 |
| | — |
| | 36.3 |
|
| Net current period other comprehensive income | 13.0 |
| | 0.9 |
| | 45.4 |
| | 0.1 |
| | 59.4 |
|
| Balance at September 29, 2017 | $ | (6.5 | ) | | $ | (4.8 | ) | | $ | (1.9 | ) | | $ | 0.1 |
| | $ | (13.1 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | Currency Translation | | Unrecognized Gain (Loss) on Derivatives | | Unrecognized Gain (Loss) on Benefit Plans | | Unrecognized Gain on Equity Securities | | Accumulated Other Comprehensive Income (Loss) |
| Balance at December 25, 2015 | $ | (7.9 | ) | | $ | (6.3 | ) | | $ | (51.1 | ) | | $ | — |
| | $ | (65.3 | ) |
| Other comprehensive income (loss) before reclassifications | 10.2 |
| | — |
| | (39.5 | ) | | — |
| | (29.3 | ) |
| Amounts reclassified from accumulated other comprehensive income | (0.7 | ) | | 0.4 |
| | 9.3 |
| | — |
| | 9.0 |
|
| Net current period other comprehensive income (loss) | 9.5 |
| | 0.4 |
| | (30.2 | ) | | — |
| | (20.3 | ) |
| Balance at Balance at September 30, 2016 | $ | 1.6 |
| | $ | (5.9 | ) | | $ | (81.3 | ) | | $ | — |
| | $ | (85.6 | ) |
The following summarizes reclassifications from accumulated other comprehensive income for the nine months ended September 29, 2017 and September 30, 2016:
|
| | | | | | | | | |
| | Amount Reclassified from Accumulated Other Comprehensive Income | | |
| | Nine Months Ended | | |
| | September 29,
2017 | | September 30,
2016 | | Line Item in the Unaudited Condensed Consolidated Statement of Income |
| Amortization and other of unrealized loss on derivatives | $ | 1.1 |
| | $ | 0.6 |
| | Interest expense |
| Income tax provision | (0.2 | ) | | (0.2 | ) | | Income tax benefit |
| Net of income taxes | 0.9 |
| | 0.4 |
| | |
| | | | | | |
| Amortization of pension and post-retirement benefit plans: | | | | | |
| Net actuarial loss | 2.8 |
| | 8.8 |
| | (1) |
| Prior service credit | (1.6 | ) | | (2.1 | ) | | (1) |
| Divestiture of discontinued operations | (3.1 | ) | | — |
| | Income from discontinued operations, net of income taxes |
| Plan settlements | 69.7 |
| | 8.1 |
| | (1) Selling, general and administrative expenses |
| Total before tax | 67.8 |
| | 14.8 |
| | |
| Income tax provision | (27.7 | ) | | (5.5 | ) | | Income tax benefit |
| Net of income taxes | 40.1 |
| | 9.3 |
| | |
| Currency translation | (4.7 | ) | | (0.7 | ) | | Income from discontinued operations, net of income taxes |
| Total reclassifications for the period | $ | 36.3 |
| | $ | 9.0 |
| | |
| |
(1) | These accumulated other comprehensive income components are included in the computation of net periodic benefit cost. See Note 12 for additional details.
|
Share Repurchases
On November 19, 2015, the Company's Board of Directors authorized a $500.0 million share repurchase program (the "November 2015 Program"), which was completed in the three months ended December 30, 2016. On March 16, 2016, the Company's Board of Directors authorized an additional $350.0 million share repurchase program (the "March 2016 Program"), which was completed during the three months ended March 31, 2017. On March 1, 2017, the Company's Board of Directors authorized an additional $1.0 billion share repurchase program (the "March 2017 Program"), which commenced upon the completion of the March 2016 Program. The March 2017 Program has no time limit or expiration date, and the Company currently expects to fully utilize the program.
|
| | | | | | | | | | | | | | | | | | | | |
| | March 2017 Repurchase Program | | March 2016 Repurchase Program | | November 2015 Repurchase Program |
| | Number of Shares | | Amount | | Number of Shares | | Amount | | Number of Shares | | Amount |
| Authorized repurchase amount | | | $ | 1,000.0 |
| | | | $ | 350.0 |
| | | | $ | 500.0 |
|
| Repurchases: | | | | | | | | | | | |
Fiscal 2016 (1) | — |
| | — |
| | — |
| | — |
| | 6,510,824 |
| | 425.6 |
|
| Transition Period 2016 | — |
| | — |
| | 1,501,676 |
| | 84.0 |
| | 1,063,337 |
| | 74.4 |
|
| Fiscal 2017 | 4,111,722 |
| | 167.0 |
| | 5,366,741 |
| | 266.0 |
| | — |
| | — |
|
| Remaining amount available | | | $ | 833.0 |
| | | | $ | — |
| | | | $ | — |
|
| |
(1) | Represents the Company's historical fiscal year ending on the last Friday in September. |
The Company also repurchases shares from employees in order to satisfy employee tax withholding requirements in connection with the vesting of restricted shares and share option exercises.
In disposing of assets or businesses, the Company has historicallyfrom time to time provided representations, warranties and indemnities to cover various risks and liabilities, including unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities related to periods prior to disposition. The Company assesses the probability of potential liabilities related to such representations, warranties and indemnities and adjusts potential liabilities as a result of changes in facts and circumstances. The Company believes, given the information currently available, that theirthe ultimate resolutions will not have a material adverse effect on its financial condition, results of operations and cash flows.
In connection with the sale of the Specialty Chemicals business (formerly known as Mallinckrodt Baker) in fiscal 2010, the Company agreed to indemnify the purchaser with respect to various matters, including certain environmental, health, safety, tax and other matters. The indemnification obligations relating to certain environmental, health and safety matters have a term of 17 years from the sale, while some of the other indemnification obligations have an indefinite term. The amount of the liability relating to all of these indemnification obligations included in other liabilities on the Company's unaudited condensed consolidated balance sheets as of September 29, 2017June 28, 2019 and December 30, 201628, 2018 was $14.9$15.0 million and $15.1$14.6 million, respectively, of which $12.2$12.6 million and $12.4$11.8 million, respectively, related to environmental, health and safety matters. The value of the environmental, health and safety indemnity was measured based on the probability-weighted present value of the costs expected to be incurred to address environmental, health and
safety claims made under the indemnity. The aggregate fair value of these indemnification obligations did not differ significantly from their aggregate carrying value at September 29, 2017as of June 28, 2019 and December 30, 2016.28, 2018. As of September 29, 2017,June 28, 2019, the maximum future payments the Company could be required to make under these indemnification obligations were $70.2 million. The Company was required to pay $30.0 million into an escrow account as collateral to the purchaser, of which $18.2$18.8 million and $19.0$18.6 million remained in restricted cash, included in other long-term other assets on the unaudited condensed consolidated balance sheets at September 29, 2017as of June 28, 2019 and December 30, 2016,28, 2018, respectively.
The Company has recorded liabilities for known indemnification obligations included as part of environmental liabilities, which are discussed in Note 16.14.
The Company is also liable for product performance; however, the Company believes, given the information currently available, that theirthe ultimate resolutionsresolution of any such claims will not have a material adverse effect on its financial condition, results of operations and cash flows.
The Company was previously required to provide the U.S. Nuclear Regulatory Commission financial assurance demonstrating its ability to fund the decommissioning of its Maryland Heights, Missouri, radiopharmaceuticals production facility upon closure. Following the sale of the Nuclear Imaging business, the surety bond was canceled in April 2017 and the Company is no longer required to provide financial assurance to the U.S. Nuclear Regulatory Commission for that facility. As of September 29, 2017,June 28, 2019, the Company had various other letters of credit, guarantees and surety bonds totaling $29.1$36.2 million.
As part of the Company's legal separation, the Company entered into a separation and distribution agreement with Covidien plc ("Covidien"), which was subsequently acquired by Medtronic plc. Such agreement provides for cross-indemnities principally designed to place financial responsibility of the obligations and liabilities of the Company's business with the Company and financial responsibility for the obligations and liabilities of Covidien's remaining business with Covidien, among other indemnities.
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16.14. | Commitments and Contingencies |
The Company is subject to various legal proceedings and claims, including patent infringement claims, product liability matters, personal injury, environmental matters, employment disputes, contractual disputes and other commercial disputes, including those described below. The Company believes that these legal proceedings and claims likely will be resolved over an extended period of time. Although it is not feasible to predict the outcome of these matters, the Company believes, unless indicated below, given the information currently available, that their ultimate resolutionsresolution will not have a material adverse effect on its financial condition, results of operations and cash flows.
Governmental Proceedings
Opioid RelatedOpioid-Related Matters
Since 2017, multiple U.S. states, counties, other governmental persons or entities and private plaintiffs have filed lawsuits against certain entities of the Company, as well as various other manufacturers, distributors, pharmacies, pharmacy benefit managers, individual doctors and/or others, asserting claims relating to defendants’ alleged sales, marketing, distribution, reimbursement, prescribing, dispensing and/or other practices with respect to prescription opioid medications, including certain of the Company's products. As of August 6, 2019, the cases the Company is aware of include, but are not limited to, approximately 2,153 cases filed by counties, cities, Native American tribes and/or other government-related persons or entities; approximately 140 cases filed by hospitals, health systems, unions, health and welfare funds or other third-party payers; approximately 103 cases filed by individuals and 10 cases filed by the Attorneys General for New Mexico, Kentucky, Rhode Island, Georgia, Florida, Alaska, New York, Hawaii, Nevada and Idaho, with Idaho being the only state Attorney General to file in federal as opposed to state court. Certain of the lawsuits have been filed as putative class actions.
Most pending federal lawsuits have been coordinated in a federal multi-district litigation (“MDL”) pending in the U.S. District Court for the Northern District of Ohio. The CompanyMDL court has been namedissued a series of case management orders permitting motion practice addressing threshold legal issues in several lawsuitscertain cases, allowing discovery, setting pre-trial deadlines and setting a trial date on October 21, 2019 for two cases originally filed in federal court broughtthe Northern District of Ohio by various countiesSummit County and cities, along with otherCuyahoga County against opioid manufacturers, distributors, and often, distributors.pharmacies. The counties claim that opioid manufacturers' marketing activities changed the medical standard of care for treating both chronic and acute pain, which led to increases in the sales of their prescription opioid products. They also allege that opioid manufacturers’ and distributors’ failure to maintain effective controls against diversion was a substantial cause of the opioid crisis.
Other lawsuits remain pending in various state courts. In general,some jurisdictions, such as Connecticut, Illinois, Massachusetts, New York, Pennsylvania, South Carolina, Texas and West Virginia, certain of the 235 state lawsuits have been coordinated for pre-trial proceedings before a single court within their respective state court systems. State cases are generally at the pleading and/or discovery stage.
The lawsuits assert a variety of claims, ofincluding, but not limited to, public nuisance, negligence, civil conspiracy, fraud, violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) or similar state laws, violations of state Controlled Substances Acts or state False Claims Acts, product liability, consumer fraud, unfair or deceptive trade practices, false advertising, insurance fraud, unjust enrichment and other common law and statutory claims arising from defendants’ manufacturing, distribution, marketing and promotion of opioids and seek restitution, damages, injunctive and other relief and attorneys’ fees and costs. TheseThe claims have been filed generally are based on alleged misrepresentations and/or amendedomissions in connection with the sale and marketing of prescription opioid medications and/or an alleged failure to includetake adequate steps to prevent abuse and diversion.
The Company intends to vigorously defend itself against all of these lawsuits as detailed above and similar lawsuits that may be brought by others. Since these lawsuits are in early stages, the Company is unable to predict outcomes or estimate a range of reasonably possible losses.
In addition to the lawsuits described above, certain entities of the Company have received subpoenas and civil investigative demands ("CID(s)") for information concerning the sale, marketing and/or distribution of prescription opioid medications and the Company's suspicious order monitoring programs, including from the U.S. Department of Justice ("DOJ") and the Attorneys General for Missouri, New Hampshire, Kentucky, Washington, Alaska, South Carolina, Puerto Rico, New York, West Virginia, Indiana and the Divisions of Consumer Protection and Occupational and Professional Licensing of the Utah Department of Commerce. The Company has been contacted by the coalition of State Attorneys General investigating the role manufacturers and distributors may have had in contributing to the increased use of opioids in the U.S. On January 27, 2018, the Company received a grand jury subpoena from the U.S. Attorneys’ Office (“USAO”) for the Southern District of Florida for documents related to the distribution, marketing and sale of generic oxymorphone products. On April 17, 2019, the Company received a grand jury subpoena from the USAO for the Eastern District of New York ("EDNY") for documents related to the sales and marketing of controlled substances, the policies and procedures regarding controlled substances, and other related documents. On June 4, 2019, the Company received a rider from the USAO for EDNY requesting additional documents regarding the Company's anti-diversion program. The Company is responding or has responded to these subpoenas, CIDs and any informal requests for documents.
In August 2018, the Company received a letter from the leaders of the Energy and Commerce Committee in the U.S. House of Representatives requesting a range of documents relating to its marketing and distribution of opioids. The Company completed its response to this letter in December 2018. The Company will cooperate with the investigation, which is expected to continue and may ultimately result in a congressional hearing in the second half of 2019.
The Attorneys General for Kentucky, Alaska and New York have subsequently filed lawsuits against the Company. Similar subpoenas and investigations may be brought by others or the foregoing matters may be expanded or result in litigation. Since these investigations and/or lawsuits are in early stages, the Company is unable to predict outcomes or estimate a range of reasonably possible losses.
New York State Opioid Stewardship Act. On October 24, 2018, the Company filed suit in the U.S. District Court for the Southern District of Illinois (October 26, 2017New York against the State of New York, asking the court to declare New York State’s Opioid Stewardship Act (“OSA”) unconstitutional and October 27, 2017),to enjoin its enforcement. On December 19, 2018, the U.S. District Courtcourt declared the OSA unconstitutional and granted the Company’s motion for preliminary injunctive relief. On January 17, 2019, the Southern DistrictState of Ohio (between September 22, 2017 and November 6, 2017),New York appealed the U.S. District Court for the Northern District of Alabama (October 25, 2017), the U.S. District Court for the Eastern District of Michigan (October 12, 2017), and the U.S. District Courts for the Eastern and Western Districts of Kentucky (between October 3 and October 30, 2017).court’s decision. The Company intends to vigorously defend itselfassert its position in these matters.this matter. In April 2019, the State of New York passed its 2020 budget, which amended the OSA so that if the OSA decision is reversed on appeal, the OSA would apply only to the sale or distribution of certain opioids in New York for 2017 and 2018 and, effective July 1, 2019, imposed an excise tax on certain opioids.
On June 13, 2017,
Other Matters
Medicaid Lawsuit. In May 2019, the District Attorneys General of Tennessee’s First, Second and Third Judicial Districts and Baby Doe jointlyCompany filed a lawsuit under the Administrative Procedure Act ("APA") in Circuit Courtfederal district court for Sullivan Countythe District of Columbia against the Centers for Medicare & Medicaid Services ("CMS") and the Department of Health and Human Services. The dispute involves the base date average manufacturer price ("AMP") under the Medicaid Drug Rebate Program for Mallinckrodt’s Acthar® Gel (repository corticotropin injection) ("Acthar Gel"). A drug’s “base date AMP” is used to calculate the Medicaid rebate amount payable by the drug’s manufacturer to state Medicaid agencies when the drug is prescribed to Medicaid beneficiaries. At issue in Kingsport, Tennessee against certain prescription opioid manufacturers, includingthe lawsuit is whether FDA’s 2010 approval of a new drug application for use of Acthar Gel in treating infantile spasms rendered Acthar Gel eligible for a new base date AMP, as indicated by CMS written communications in 2012. In May 2019, CMS indicated that if the Company and other parties. The lawsuit alleges violationsfailed to revert to use of Tennessee’s Drug Dealer Liability Act and public nuisance laws arising outthe original base date AMP in its calculation of defendants’ alleged opioid sales and marketing practices, seeking restitution, damages, injunctive and other relief and attorneys’ fees and costs. On September 29, 2017, a similar lawsuit was filed against the Company and other parties by several other Tennessee District Attorneys General and two Baby Does in the Circuit Court for Campbell County in Jacksboro, Tennessee and generally parallels the claims in the Sullivan County lawsuit and seeks similar relief. On August 3, 2017, a lawsuit was filed in Multnomah County Circuit Court in Oregon by the County of Multnomah against certain prescription opioid manufacturers, includingActhar Medicaid rebates, CMS would identify the Company as well as distributorsbeing out of compliance with its Medicaid Drug Rebate Program reporting requirements, among other potential actions, triggering certain negative consequences. As such, the Company filed a lawsuit alleging (i) that CMS has violated the Medicaid drug rebate statute, (ii) that CMS has violated its own regulations defining “single source drug,” (iii) that CMS has failed to adequately explain its change in position based on two letters that CMS sent Questcor Pharmaceuticals Inc. ("Questcor") in 2012 regarding the base date AMP for Acthar Gel, (iv) that CMS failed to give the Company fair notice of its latest position, and healthcare providers, asserting claims of public nuisance, abnormally dangerous activity, fraud,(v) that CMS should be prohibited from applying its new position retroactively. The court held a hearing regarding this matter on August 2, 2019 and negligence,the court took the matter under advisement. While the Company believes that its lawsuit has strong factual and seeking relief similarlegal bases, the potential for retroactive non-recurring charges could range from zero to that sought in the Tennessee and federal actions. The Company intends to vigorously defend itself in these matters.approximately $600.0 million.
The Company has also received various subpoenas and requests for information related to the distribution, marketing and sale of the Company’s opioid products. On July 26, 2017,Florida Civil Investigative Demand. In February 2019, the Company received a subpoenaCID from the DepartmentU.S. Attorney’s Office for the Middle District of Justice, on August 24, 2017,Florida for documents related to alleged payments to healthcare providers in Florida and whether those payments violated the Company received a Civil Investigative Demand (“CID”) from the Missouri Attorney General’s Office and on September 22, 2017, the Company received a subpoena from the New Hampshire Attorney General’s Office.Anti-Kickback Statute. The Company is in the process of responding to these subpoenasthis demand for documents and the CID, and the Company intends to cooperate fully in these investigations.with the investigation.
U.S. House Committee Investigation.In January 2017,2019, the Company along with 11 other pharmaceutical companies, received a letter from the U.S. House Committee on Oversight and Reform requesting information relating to the Company's pricing strategy for Acthar Gel and related matters. The Company is cooperating with the Committee's investigation.
Boston Civil Investigative Demand. In January 2019, the Company received a subpoenaCID from the SEC for documents related to the Company’s public statements, filings and other disclosures regarding Acthar sales, profits, revenue, promotion and pricing. The Company has responded to this subpoena, and the Company intends to cooperate fully in the investigation.
Boston Subpoena. In December 2016, the Company received a subpoena from the United StatesU.S. Attorney’s Office ("USAO") for the District of Massachusetts for documents related to the Company’s provisionparticipation in the Medicaid Drug Rebate Program. The Company is in the process of financialresponding to this demand for documents and other supportintends to patients, includingcooperate with the investigation.
through charitable foundations,Generic Pricing Subpoena. In March 2018, the Company received a grand jury subpoena issued by the U.S. District Court for the Eastern District of Pennsylvania pursuant to which the Antitrust Division of the DOJ is seeking documents regarding generic products and pricing, communications with generic competitors and other related matters. The Company is in the process of responding to this subpoena and the Company intends to cooperate fully in the investigation.
Texas Pricing Investigation. Boston Subpoena. In November 2014,December 2016, the Company received a CIDsubpoena from the Civil Medicaid Fraud Division of the Texas Attorney General's Office. According to the CID, the Attorney General's office is investigating the possibility of false reporting of information by the Company regarding the prices of certain of its drugs used by Texas Medicaid to establish reimbursement rates for pharmacies that dispensed the Company's drugs to Texas Medicaid recipients. The Company is in the process of responding to these requests.
Mallinckrodt Inc. v. U.S. Food and Drug Administration, et al. In November 2014, the Company filed a Complaint ("the Complaint") in the U.S. District CourtUSAO for the District of Maryland Greenbelt Division againstMassachusetts for documents related to the FDACompany’s provision of financial and the United States for judicial review of what theother support to patients, including through charitable foundations, and related matters. The Company believes is the FDA's inappropriateresponded to these requests and unlawful reclassification of the Company's Methylphenidate HCl Extended-Release tablets USP (CII) ("Methylphenidate ER")continues to cooperate fully in the Orange Book: Approved Drug Products with Therapeutic Equivalence ("Orange Book") on November 13, 2014. The Company also sought a temporary restraining order ("TRO") directing the FDA to reinstate the Orange Book AB rating for the Company's Methylphenidate ER products. The court denied the Company's motion for a TRO and in July 2015, the court granted the FDA’s motion to dismiss with respect to three of the five counts in the Complaint and granted summary judgment in favor of the FDA with respect to the two remaining counts. The Company appealed the court’s decision to the U.S. Court of Appeals for the Fourth Circuit. On October 18, 2016, the FDA initiated proceedings, proposing to withdraw approval of the Company's Abbreviated New Drug Application ("ANDA") for Methylphenidate ER. On October 21, 2016, the United States Court of Appeals for the Fourth Circuit issued an order placing that litigation in abeyance pending the outcome of the withdrawal proceedings. The Company concurrently submitted to the FDA requests for a hearing in the withdrawal proceeding and for an extension of the deadline for submitting documentation supporting the necessity of a hearing. The FDA granted the Company’s initial request to extend the deadline, and on February 21, 2017, the FDA suspended the deadline in order to give the Center for Drug Evaluation and Research ("CDER") an opportunity to complete its production of documents. CDER shared an initial set of documents with the Company in June 2017 and is in the process of completing production documents to the Company. The Company is preparing the supporting documentation for its submission and plans to vigorously set forth its position in the withdrawal proceedings.investigation.
Therakos Investigation. Subpoena. In March 2014, the USAO for the Eastern District of Pennsylvania requested the production of documents related to an investigation of the U.S. promotion of Therakos’ immunotherapy drug/device system UVADEX/UVAR XTS and UVADEX/CELLEX (collectively, the "Therakos System"), for indications not approved by the FDA, including treatment of patients with graft versus host disease ("GvHD") and solid organ transplant patients, including pediatric patients. The investigation also includes Therakos’ efforts to secure FDA approval for additional uses of, and alleged quality issues relating to, UVADEX/UVAR. In August 2015, the USAO for the Eastern District of Pennsylvania sent Therakos a subsequent request for documents related to the investigation and has since made certain related requests. The Company isresponded to these requests and continues to cooperate fully in the processinvestigation.
MNK 2011 Inc. (formerly known as Mallinckrodt Inc.) v. U.S. Food and Drug Administration and United States of responding to these requests.
FTC Investigation. America.In JuneNovember 2014, Questcor Inc. ("Questcor") received a subpoena and CID from the FTC seeking documentary materials and information regardingFDA reclassified the FTC's investigation into whether Questcor's acquisition of certain rights to develop, market, manufacture, distribute, sell and commercialize MNK-1411 (the product formerly described as Synacthen Depot®) from Novartis AG and Novartis Pharma AG (collectively, "Novartis") violates antitrust laws. Subsequently, California, Maryland, Texas, Washington, New York and Alaska (collectively, "the Investigating States") commenced similar investigations focused on whetherCompany's Methylphenidate ER in the transaction violates state antitrust laws. On January 17, 2017, the FTC, all Investigating States (except California)Orange Book: Approved Drug Products with Therapeutic Equivalence ("the Settling States"Orange Book") and. In November 2014, the Company entered into an agreement to resolve this matter forfiled a one-time cash payment of $102.0 million and an agreement to license MNK-1411 to a third party designated by the FTC for possible development in Infantile Spasms ("IS") and Nephrotic Syndrome ("NS") in the U.S. To facilitate that settlement, a complaint was filed on January 18, 2017,Complaint in the U.S. District Court for the District of Columbia. The settlement was approved byMaryland Greenbelt Division against the FDA and the United States (the "MD Complaint") for judicial review of the FDA’s reclassification. In July 2015, the court on January 30, 2017. On July 16, 2017,granted the Company announced the completionFDA's motion to dismiss with respect to three of the U.S. licensefive counts in the MD Complaint and granted summary judgment in favor of both the Synacthen trademark and certain intellectual property associatedFDA with MNK-1411respect to West Pharmaceuticalsthe two remaining counts (the “MD Order”). On October 18, 2016, the FDA initiated proceedings, proposing to develop and pursue possible FDAwithdraw approval of the productCompany's Abbreviated New Drug Application ("ANDA") for Methylphenidate ER. On October 21, 2016, the U.S. Court of Appeals for the Fourth Circuit issued an order placing the Company’s appeal of the MD Order in ISabeyance pending the outcome of the withdrawal proceedings. The parties exchanged documents and NS. Thein April 2018, the Company retains the right to develop MNK-1411 for all other indicationsfiled its submission in support of its position in the U.S.withdrawal proceedings. A potential outcome of the withdrawal proceedings is that the Company's Methylphenidate ER products may lose their FDA approval and retains rightshave to be withdrawn from the Synacthen trademark outside the U.S.market.
Questcor DOJ Investigation. Subpoena. In September 2012,Questcor received a subpoena from the USAO for the Eastern District of Pennsylvania for information relating to its promotional practices related to Acthar.Acthar Gel. Questcor has also beensubsequently was informed by the USAO for the Eastern District of Pennsylvania that the USAO for the Southern District of New York and the SEC arewere participating in the investigation to review Questcor's promotional practices and related matters pertaining to Acthar Gel. The current investigation also relates to Questcor's provision of financial and other support to patients, including through charitable foundations and related to Acthar.matters. On March 9, 2015, the Company received a "No Action" letter from the SEC regarding its review of the Company's promotional practices related to Acthar.
DEA Investigation. In November 2011 and October 2012, the Company received subpoenas fromActhar Gel. On or about March 8, 2019, the U.S. Drug Enforcement Administration requesting productionDistrict Court for the Eastern District of documents relating to its suspicious order monitoring program for controlled substances. ThePennsylvania unsealed two qui tam actions involving the allegations under investigation by the USAO for the Eastern District of Michigan is investigatingPennsylvania. The DOJ intervened in both actions, which have since been consolidated. The Company has reached an agreement in principle with the possibilityDOJ and the qui tam plaintiffs to resolve the portion of the investigation and the litigation involving promotional practices for $15.4 million, and has appropriate reserves for that purpose.
On or about June 4, 2019, the DOJ filed its Complaint in Intervention in the litigation, alleging claims under the federal False Claim Act based on Questcor's relationship with and donations to an independent charitable patient co-pay foundation. The Company disagrees with the DOJ's characterization of the facts and applicable law. The Company intends to defend the lawsuit in court. At this stage of the lawsuit, the Company failedis not able to report suspicious ordersreasonably estimate the expected amount or range of controlled substances during the period 2006-2011 in violationcost or any loss associated with this lawsuit.
Patent Litigation
Ofirmev Patent Litigation: Altan Pharma Ltd. In March 2019, Mallinckrodt Hospital Products Inc. and Mallinckrodt Hospital Products IP Limited, both subsidiaries of the Controlled Substances ActCompany, and its related regulations. The USAONew Pharmatop LP, the current owner of the U.S. patents licensed exclusively by the Company, filed suit in the U.S. District Court for the NorthernDistrict of Delaware against Altan Pharma Ltd. (“Altan”) alleging that Altan infringed U.S. Patent No. 6,992,218 ("the ‘218 patent"), U.S. Patent No. 9,399,012 ("the ‘012 patent"), U.S. Patent No. 9,610,265 ("the ‘265 patent") and U.S. Patent No. 9,987,238 (“the ‘238 patent”) following receipt of a February 2019 notice from
Altan concerning its submission of a new drug application, containing a Paragraph IV patent certification with the FDA for a competing version of Ofirmev. The Company has previously asserted the ‘218 patent and maintained their validity in both litigation and proceedings at the U.S. Patent and Trademark Office. In addition, the Company has also previously asserted the ‘012, ‘265 and ‘238 patents. The Company will continue to vigorously enforce its intellectual property rights relating to Ofirmev to prevent the marketing of infringing generic or competing products prior to December 6, 2020, which, if unsuccessful, could adversely affect the Company's ability to successfully maximize the value of Ofirmev and have an adverse effect on its financial condition, results of operations and cash flows.
Amitiza Patent Litigation: Sun Pharmaceutical Industries, Ltd. and Sun Pharmaceutical Industries, Inc. In October 2018, Sucampo AG, Sucampo Pharmaceuticals, Inc. and Sucampo Pharma LLC, all subsidiaries of the Company, and Takeda Pharmaceutical Company Limited, Takeda Pharmaceuticals USA, Inc., and Takeda Pharmaceuticals America, Inc. (collectively "Takeda," the exclusive licensee under the patents in litigation) filed suit in the U.S. District Court for the District of New YorkJersey against Sun Pharmaceutical Industries, Ltd. and OfficeSun Pharmaceutical Industries, Inc. (collectively “Sun”) alleging that Sun infringed U.S. Patent Nos. 7,795,312, 8,026,393, 8,097,653, 8,338,639, 8,389,542, 8,748,481 and 8,779,187 following receipt of Chief Counsel for the U.S. Drug Enforcement Administration ("DEA") are investigating the possibility that the Company failed to maintain appropriate records and security measures with respect to manufacturinga September 2018 notice from Sun concerning its submission of certain controlled substances at its Hobart facility during the period 2012-2013. On July 11, 2017, the Company
entered intoan ANDA containing a final settlementParagraph IV patent certification with the DEA and the USAOsFDA for the Eastern Districta generic version of Michigan and the Northern District of New YorkAmitiza. The Company intends to settle these investigations. As part of the agreement, the Company paid $35.0 millionvigorously enforce its intellectual property rights relating to resolve all potential claims.Amitiza.
Patent Litigation
Inomax Patent Litigation: Praxair Distribution, Inc. and Praxair, Inc. (collectively "Praxair"“Praxair”). In February 2015, INO Therapeutics LLC and Ikaria, Inc., both subsidiaries of the Company, filed suit in the U.S. District Court for the District of Delaware against Praxair following receipt of a January 2015 notice from Praxair concerning its submission of an ANDA containing a Paragraph IV patent certification with the FDA for a generic version of Inomax. In July 2016, the Company filed a second suit against Praxair in the U.S. District Court for the District of Delaware following receipt of a Paragraph IV notice concerning three additional patents recently added to the FDA Orange Book that was submitted by Praxair regarding its ANDA for a generic version of Inomax. The infringement claims in the second suit have been added to the original suit. In September 2016, the Company filed a third suit against Praxair in the U.S. District Court for the District of Delaware following receipt of a Paragraph IV notice concerning a fourth patent recently added to the FDA Orange Book that was submitted by Praxair regarding its ANDA for a generic version of Inomax.
The Company intends to vigorously enforce its intellectual property rights relating to Inomax in both the Inter Partes Review ("IPR") and Praxair litigation proceedings to prevent the marketing of infringing generic products prior to the expiration of the patents covering Inomax. Trial of the suit filed in February 2015 was held in March 2017 and a decision was rendered September 5, 2017 that ruled five patents invalid and six patents not infringed. The Company has appealed the decision to the Court of Appeals for the Federal Circuit. The oral arguments in the appeal occurred on February 6, 2019. Praxair received FDA approval of their ANDA for their Noxivent nitric oxide and clearance of their 510(k) for their NOxBOXi device on October 2, 2018. An adverse outcome in the appeal of the Praxair litigation decision ultimately(or a broad at-risk launch by Praxair prior to the appellate decision) could result in the launch of a generic version of Inomaxcompetitive nitric oxide product before the expiration of the last of the listed patents on February 19, 2034 (August 19, 2034May 3, 2036 (November 3, 2036 including pediatric exclusivity), which could adversely affect the Company's ability to successfully maximize the value of Inomax and have an adverse effect on its financial condition, results of operations and cash flows.
Inomax Patents: IPR Proceedings. In February 2015
Commercial and March 2015, the U.S. Patent and Trademark Office ("USPTO") issued Notices of Filing Dates Accorded to Petitions for IPR petitionsSecurities Litigation
Putative Class Action Securities Litigation (Strougo). On July 26, 2019, a putative class action lawsuit was filed by Praxair Distribution, Inc. concerning ten patents covering Inomax (i.e., five patents expiring in 2029 and five patents expiring in 2031).
In July 2015, the USPTO Patent Trial and Appeal Board ("PTAB") issued rulings denying the institution of four of the five IPR petitions challenging the five patents expiring in 2029. The PTAB also issued a ruling in July 2015 that instituted the IPR proceeding in the fifth of this group of patents and the PTAB ruled in July 2016 that one claim of this patent survived review and is valid while the remaining claims were unpatentable. The Company believes the valid claim describes and encompasses the manner in which Inomax is distributed in conjunction with its approved labeling and that Praxair infringes that claim. Praxair filed an appeal andagainst the Company, filed a cross-appeal of this decision to the Court of Appeals for the Federal Circuit. In March 2016, Praxair Distribution, Inc. submitted additional IPR petitions for the five patents expiring in 2029. The PTAB issued non-appealable rulings in Augustits Chief Executive Officer ("CEO"), its Chief Financial Officer ("CFO") Bryan M. Reasons, its former Interim CFO George A. Kegler and September 2016 denying institution of all five of these additional IPR petitions. This group of five patents are those patents ruled invalid by the District Court in the September 5, 2017 decision.
In September 2015, the USPTO PTAB issued rulings that instituted the IPR proceedings in each of the second set of five patents that expire in 2031. In September 2016, the PTAB ruled that all claims in the five patents expiring in 2031 are patentable. Three of these patents were asserted in the Praxair litigation and part of the six patents ruled not infringed by the District Court in the September 5, 2017 decision.
Ofirmev Patent Litigation: B. Braun Medical Inc. In April 2017, Mallinckrodt Hospital Products Inc. and Mallinckrodt IP, subsidiaries of the Company, and Pharmatop, the owner of the two U.S. patents licensed exclusively by the Company, filed suitits former CFO Matthew K. Harbaugh, in the U.S. District Court for the Southern District of DelawareNew York, captioned Barbara Strougo v. Mallinckrodt plc, et al. The complaint purports to be brought on behalf of all persons who purchased or otherwise acquired Mallinckrodt's securities between February 28, 2018 and July 16, 2019. The lawsuit generally alleges that the defendants made false and misleading statements in violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder related to the Company’s clinical study designed to assess the efficacy and safety of its Acthar Gel in patients with amyotrophic lateral sclerosis. The lawsuit seeks monetary damages in an unspecified amount. The Company intends to vigorously defend itself in this matter.
Putative Class Action Litigation - Plumbers & Pipefitters Local 322: On July 19, 2019, Pipefitters Local 322 filed a putative state class action lawsuit against B. Braun Medical Inc. ("B. Braun") alleging that B. Braun infringed U.S. Patent Nos. 6,992,218 ("the ‘218 patent")Company in the Superior Court of New Jersey, Camden County, proceeding as United Assoc. of Plumbers & Pipefitters Local 322 of Southern New Jersey v. Mallinckrodt ARD, LLC. The complaint makes similar allegations as alleged in related state and 9,399,012 ("federal actions filed by the ‘012 patent") following receiptsame plaintiff law firm filed in Illinois, Pennsylvania, Tennessee and Maryland, including references to pending qui tam allegations within the Eastern District of a February 2017 notice from B. Braun concerning its submissionPennsylvania. In particular, the complaint alleges violations of athe New Drug Application ("NDA"), containing a Paragraph IV patent certificationJersey Consumer Fraud Act, the New Jersey Antitrust Act, violation of state RICO statutes, negligent misrepresentation, conspiracy and unjust enrichment associated with the FDA forcommercialization of Acthar Gel. The Company intends to vigorously defend itself in this matter.
Putative Class Action Litigation - Steamfitters Local Union No. 420: On July 12, 2019, Steamfitters Local Union No. 420 filed a competing version of Ofirmev. Following receipt of a second Paragraph IV notice letter from B. Braun on April 24, 2017 directed toputative class action lawsuit against the ‘012 patent, Mallinckrodt Hospital Products Inc.Company and Mallinckrodt IP filed suit in June 2017 in the U.S. District Court for the District of Delaware against B. Braun alleging that B. Braun infringed the ‘012 patent and U.S. 9,610,265 (“the ‘265 patent”). In both instances, a protective suit was filedvarious pharmaceutical distributors in the U.S. District Court for the Eastern District of Pennsylvania, proceeding as Steamfitters Local Union No. 420 v. Mallinckrodt ARD, LLC et al. The complaint makes
similar allegations as alleged in related state and federal actions filed by the same plaintiff law firm filed in Illinois, Pennsylvania, Tennessee and Maryland. In particular, the Complaint alleges claims of RICO violations under 18 U.S.C. § 1962(c); conspiracy to protectviolate 18 U.S.C. § 1962(c); violations of the 30-month stay against any venue challengePennsylvania (and other states) Unfair Trade Practices and Consumer Protection laws; negligent misrepresentation; aiding and abetting/conspiracy; and unjust enrichment. The complaint also seeks declaratory and injunctive relief. The Company intends to vigorously defend itself in Delaware. In July 2017, B. Braun filed motions to dismiss both actions in Delaware due to improper venue based on the recent U.S. Supreme Court TC Heartland decision on venue in patent cases, and alsothis matter.
Acument Global. On May 21, 2019, Acument Global Technologies, Inc., filed a separate motion to dismissnon-class complaint in the original action in Pennsylvania. Following receiptstate court of a third Paragraph IV notice letter from B. Braun on July 13, 2017 that included a certification to the ‘265 patent, amended complaints were filed in July 2017 in the U.S. District Courts for the Districts of Delaware and Eastern District of Pennsylvania by Mallinckrodt Hospital Products Inc., Mallinckrodt IP and Pharmatop. Also in July 2017, Mallinckrodt Hospital Products Inc., Mallinckrodt IP and Pharmatop filed a motion to stay the action in the Eastern District of Pennsylvania. A hearing occurred August 24, 2017 in the U.S. District Court for the District of Delaware regarding B. Braun’s motion to dismiss the Delaware actions for improper venue. A decision has not been rendered. A scheduling conference occurred October 4, 2017 in the U.S. District Court for the Eastern District of Pennsylvania and no decisions were rendered on any of the pending motions. A hearing on these pending motions has been scheduled for December 29, 2017.
Ofirmev Patent Litigation: Agila Specialties Private Limited, Inc. (now Mylan Laboratories Ltd.) and Agila Specialties Inc. (a Mylan Inc. Company), (collectively “Agila”). In December 2014, Cadence and Mallinckrodt IP, subsidiaries ofTennessee, against the Company and Pharmatop,other defendants alleging violation of Tennessee Consumer Protection Laws, unjust enrichment, fraud and conspiracy to defraud. The case alleges similar facts as the ownerMSP and Rockford matters below, and is captioned Acument Global Technologies, Inc., v. Mallinckrodt ARD et al. The Company intends to vigorously defend itself in this matter.
Washington County Board of the two U.S. patents licensed exclusively by the Company,Education ("WCBE"). On May 21, 2019, WCBE filed suita non-class complaint in the U.S. District Court for the Districtstate court of DelawareMaryland, against Agila alleging that Agila infringed U.S. Patent No. 6,028,222 ("the '222") patent and the '218 patent following receipt of a November 2014 notice from Agila concerning its submission of a NDA containing a Paragraph IV patent certification with the FDA for a competing version of Ofirmev. Separately, on December 1, 2016 Mallinckrodt IP filed suit in the U.S. District Court for the District of Delaware against Agila alleging that Agila infringed the ‘012 patent. On December 31, 2016, the parties entered into settlement agreements on both suits under which Agila was granted the non-exclusive right to market a competing intravenous acetaminophen product in the U.S. under its NDA on or after December 6, 2020, or earlier under certain circumstances.
Ofirmev Patent Litigation: InnoPharma Licensing LLC and InnoPharma, Inc. In September 2014, Cadence and Mallinckrodt IP, subsidiaries of the Company and Pharmatop,other defendants alleging violation of Maryland Consumer Protection Act, negligent misrepresentation, fraud, unjust enrichment, and conspiracy to defraud. The case alleges similar facts as the ownerMSP and Rockford matters below, and is captioned Washington County Board of the two U.S. patents licensed exclusively by the Company, filed suit in the U.S. District Court for the District of Delaware against InnoPharma Licensing LLC and InnoPharma, Inc. (both are subsidiaries of Pfizer and collectively "InnoPharma") alleging that InnoPharma infringed the '222 patent and the '218 patent following receipt of an August 2014 notice from InnoPharma concerning its submission of a NDA, containing a Paragraph IV patent certification with the FDA for a competing version of Ofirmev. Separately, on December 1, 2016Education v. Mallinckrodt IP filed suit in the U.S. District Court for the District of Delaware against InnoPharma alleging that InnoPharma infringed the ‘012 patent. On May 4, 2017, the parties entered into settlement agreements on both suits under which InnoPharma was granted the non-exclusive right to market a competing intravenous acetaminophen product in the U.S. under its NDA on or after December 6, 2020, or earlier under certain circumstances.
The Company has successfully asserted the ‘222 and ‘218 patents and maintained their validity in both litigation and proceedings at the USPTO. The Company will continue to vigorously enforce its intellectual property rights relating to Ofirmev to prevent the marketing of infringing generic or competing products prior to December 6, 2020, which, if unsuccessful, could adversely affect the Company's ability to successfully maximize the value of Ofirmev and have an adverse effect on its financial condition, results of operations and cash flows.
Tyco Healthcare Group LP, et al. v. Mutual Pharmaceutical Company, Inc. In March 2007, the Company filed a patent infringement suit in the U.S. District Court for the District of New Jersey against Mutual Pharmaceutical Co.,ARD Inc., et al. (collectively, "Mutual") after Mutual submittedThe Company intends to vigorously defend itself in this matter.
Local 542. On May 25, 2018, the International Union of Operating Engineers Local 542 filed a non-class complaint in the state court of Pennsylvania against the Company and other defendants alleging improper pricing and distribution of Acthar Gel, in violation of Pennsylvania's Unfair Trade Practices and Consumer Protection Law, aiding and abetting, unjust enrichment and negligent misrepresentation. The case alleges similar facts as the MSP and Rockford matters below, and is captioned Int'l Union of Operating Engineers Local 542 v. Mallinckodt ARD Inc. et al. Plaintiff filed an ANDAamended complaint on August 27, 2018. The Company intends to vigorously defend itself in this matter.
Grifols. On March 13, 2018, Grifols initiated arbitration against the FDA seeking to sellCompany, alleging breach of a generic version ofManufacturing and Supply Agreement entered into between the Company's 7.5 mg RESTORIL™ sleep aid product. Mutual also filed antitrustpredecessor-in-interest, Cadence Pharmaceuticals Inc., and unfair competition counterclaims. The patents at issue have since expired or been found invalid. The trial court issued an opinion and order granting the Company's motion for summary judgment regarding Mutual's antitrust and unfair competition counterclaims. Mutual appealed this decision to the U.S. Court of Appeals for the Federal Circuit and the Federal Circuit issued a split decision, affirming the trial court in part and remanding to the trial court certain counterclaims for further proceedings.Grifols. The Company filed a motion for summary judgment with the U.S. District Court regarding the remanded issues. In May 2015, the trial court issued an opinion granting-in-part and denying-in-part the Company’s motion for summary judgment. In March 2017, the partieshas entered into a settlement agreementfor this matter and the case was dismissed.has appropriate reserves for that purpose.
Commercial and Securities Litigation
Putative Class Action Litigation (MSP). On October 30, 2017, a putative class action lawsuit was filed against the Company and United BioSource Corporation ("UBC") in the U.S. District Court for the Central District of California. ThePursuant to a motion filed by the defendants, the case was transferred to the U.S. District Court for the Northern District of Illinois, and is captioned currently proceeding as MSP Recovery Claims, Series II LLC, et al. v. Mallinckrodt ARD, Inc., et al. The Company filed a motion to dismiss on February 23, 2018. The motion to dismiss was granted on January 25, 2019. MSP was provided with leave to amend its complaint, purports to be broughtand filed the operative First Amended Class Action Complaint on behalf of two classes: all Medicare Advantage OrganizationsApril 10, 2019 asserting claims under federal antitrust law, state antitrust laws and related entities in the U.S. who purchased or provided reimbursement for Acthar pursuant to (i) Medicare Part C contracts (Class 1) and (ii) Medicare Part D contracts (Class 2) since January 1, 2011, with certain exclusions.state consumer protection laws. The complaint alleges that the Company engaged in anticompetitive, unfair, and deceptive acts to artificially raise and maintain the price of Acthar. To this end, the complaint alleges that the Company unlawfully maintained a monopoly in a purported ACTH product market by acquiring the U.S. rights to Synacthen® Depot ("Synacthen") and reaching anti-competitive agreements with the other defendants by selling Acthar Gel through an exclusive distribution network. The complaint purports to allege claims under federalbe brought on behalf of all third-party payers, or their assignees, in the U.S. and state antitrust laws and state unfair competition and unfair trade practice laws.its territories, who have, as indirect purchasers, in whole or in part, paid for, provided reimbursement for, and/or possess the recovery rights to reimbursement for the indirect purchase of Acthar Gel from August 1, 2007 to present. The Company intends to vigorously defend itself in this matter.
Employee Stock Purchase Plan ("ESPP") Securities Litigation. On July 20, 2017, a purported purchaser of Mallinckrodt stock through Mallinckrodt’s Employee Stock Purchase Plans (“ESPPs”),Mallinckrodt's ESPPs, filed a derivative and class action lawsuit in the Federal District Court in the Eastern District of Missouri, captioned Solomon v. Mallinckrodt plc, et al., against the Company, its Chief Executive OfficerCEO Mark C. Trudeau, ("CEO") , its Chief Financial Officerformer CFO Matthew K. Harbaugh, ("CFO"), its Controller Kathleen A. Schaefer, and current and former directors of the Company. TheOn September 6, 2017, plaintiff voluntarily dismissed its complaint in the Federal District Court for the Eastern District of Missouri complaint and refiled itvirtually the same complaint in the U.S. District Court for the District of Columbia. The complaint purports to be brought on behalf of all persons who purchased or otherwise acquired Mallinckrodt stock between November 25, 2014, and January 18, 2017, inthrough the ESPPs. In the alternative, the plaintiff alleges a class action for those same purchasers/acquirers of stock in the ESPPs during the same period. The complaint asserts claims under Section
11 of the Securities Act, and for breach of fiduciary duty, misrepresentation, non-disclosure, mismanagement of the ESPPs’ESPPs' assets and breach of contract arising from substantially similar allegations as those contained in the putative class action securities litigation described in the following paragraph. Stipulated co-lead plaintiffs were approved by the court on March 1, 2018. Co-lead Plaintiffs filed an amended complaint on January 23, 2017 and describedJune 4, 2018 having a class period of July 14, 2014 to November 6, 2017. On July 6, 2018, this matter was stayed by agreement of the parties pending resolution of the Shenk matter below. There are two competing movants to serve as lead plaintiff/lead counsel, and those motions remain pending. The Company intends to vigorously defend itself in this matter.
Putative Class Action Litigation (Rockford). On April 6, 2017, a putative class action lawsuit was filed against the Company and United BioSource Corporation ("UBC")UBC in the U.S. District Court for the Northern District of Illinois. The case is captioned City of Rockford v. Mallinckrodt ARD, Inc., et al. The complaint was subsequently amended, most recently on December 8, 2017, to include an additional named plaintiff and additional defendants. As amended, the complaint purports to be brought on behalf of all self-funded entities in the U.S. and its Territories, excluding any Medicare Advantage Organizations, related entities and certain others, that paid for Acthar Gel from August 2007 to the present. An amendedThe Company filed a motion to dismiss the complaint, which was filedgranted in part by the court on October 9, 2017, adding defendantsJanuary 25, 2019, dismissing one of two named plaintiffs and allegingall claims with the exception of federal and state antitrust claims. The remaining allegation in the case is that the Company engaged in anticompetitive, fraudulent, and deceptiveanti-competitive acts to artificially raise and maintain the price of Acthar.Acthar Gel. To
this end, the amended complaintsuit alleges that the Company unlawfully maintained a monopoly in a purported ACTH product market by acquiring the U.S. rights to Synacthen Depot;Synacthen; and conspired with the other named defendants and violated anti-racketeering laws by selling Acthar Gel through an exclusive distribution network; and committed a fraud on consumers by misrepresenting the value of Acthar.distributor. The Company intends to vigorously defend itself in this matter.
Putative Class Action Securities Litigation. Litigation (Shenk). On January 23, 2017, a putative class action lawsuit was filed against the Company and its CEO in the U.S. District Court for the District of Columbia, captioned Patricia A. Shenk v. Mallinckrodt plc, et al. The complaint purports to be brought on behalf of all persons who purchased Mallinckrodt’sMallinckrodt's publicly traded securities on a domestic exchange between November 25, 2014 and January 18, 2017. The lawsuit generally alleges that the Company made false or misleading statements related to Acthar Gel and Synacthen to artificially inflate the price of the Company’sCompany's stock. In particular, the complaint alleges a failure by the Company to provide accurate disclosures concerning the long-term sustainability of Acthar Gel revenues, and the exposure of Acthar Gel to Medicare and Medicaid reimbursement rates. On January 26, 2017, a second putative class action lawsuit, captioned Jyotindra Patel v. Mallinckrodt plc, et al. was filed against the same defendants named in the Shenk lawsuit in the U.S. District Court for the District of Columbia. The Patel complaint purports to be brought on behalf of shareholders during the same period of time as that set forth in the Shenk lawsuit and asserts claims similar to those set forth in the Shenk lawsuit. On March 13, 2017, a third putative class action lawsuit, captioned Amy T. Schwartz, et al., v. Mallinckrodt plc, et al., was filed against the same defendants named in the Shenk lawsuit in the U.S. District Court for the District of Columbia. The Schwartz complaint purports to be brought on behalf of shareholders who purchased shares of the Company between July 14, 2014 and January 18, 2017 and asserts claims similar to those set forth in the Shenk lawsuit. On March 23, 2017, a fourth putative class action lawsuit, captioned Fulton County Employees’Employees' Retirement System v. Mallinckrodt plc, et al., was filed against the Company, and its CEO and former CFO in the U.S. District Court for the District of Columbia. The Fulton County complaint purports to be brought on behalf of shareholders during the same period of time as that set forth in the Schwartz lawsuit and asserts claims similar to those set forth in the Shenk lawsuit. On March 27, 2017, four separate plaintiff groups moved to consolidate the pending cases and to be appointed as lead plaintiffs in the consolidated case. Since that time, two of the plaintiff groups have withdrawn their motions. There are two competing movantsLead plaintiff was designated by the court on March 9, 2018. Lead plaintiff filed a consolidated complaint on May 18, 2018, alleging a class period from July 14, 2014 to serveNovember 6, 2017, the Company, its CEO, its former CFO, and Executive Vice President, Hugh O'Neill, as defendants, and containing similar claims, but further alleging misstatements regarding payer reimbursement restrictions for Acthar Gel. On August 30, 2018, the lead plaintiff/lead counsel,plaintiff voluntarily dismissed the claims against Mr. O'Neill without prejudice. The Company filed a motion to dismiss the complaint which was granted in part, and those motions remain pending.denied in part by the court on July 30, 2019. The Company intends to vigorously defend itself in this matter.
Retrophin Litigation. In January 2014, Retrophin, Inc. ("Retrophin") filed a lawsuit against Questcor in the U.S. District Court for the Central District of California, alleging a variety of federal and state antitrust violations based on Questcor's acquisition from Novartis of certain rights to develop, market, manufacture, distribute, sell and commercialize Synacthen. In June 2015, the parties entered into a binding settlement agreement, under the terms of which Retrophin agreed to dismiss the litigation with prejudice and Questcor agreed to make a one-time cash payment to Retrophin in the amount of $15.5 million.
Putative Class Action Securities Litigation. In September 2012, a putative class action lawsuit was filed against Questcor and certain of its officers and directors in the U.S. District Court for the Central District of California, captioned John K. Norton v. Questcor Pharmaceuticals, et al. The complaint purported to be brought on behalf of shareholders who purchased Questcor common stock between April 26, 2011 and September 21, 2012. The complaint generally alleged that Questcor and certain of its officers and directors engaged in various acts to artificially inflate the price of Questcor stock and enable insiders to profit through stock sales. The complaint asserted that Questcor and certain of its officers and directors violated sections l0(b) and/or 20(a) of the Securities Exchange Act of 1934, as amended ("the Exchange Act"), by making allegedly false and/or misleading statements concerning the clinical evidence to support the use of Acthar for indications other than infantile spasms, the promotion of the sale and use of Acthar in the treatment of multiple sclerosis and nephrotic syndrome, reimbursement for Acthar from third-party insurers, and Questcor's outlook and potential market growth for Acthar. The complaint sought damages in an unspecified amount and equitable relief against the defendants. This lawsuit was consolidated with four subsequently-filed actions asserting similar claims under the caption: In re Questcor Securities Litigation. In October 2013, the District Court granted in part and denied in part Questcor's motion to dismiss the consolidated amended complaint. In October 2013, Questcor filed an answer to the consolidated amended complaint and fact discovery was concluded in January 2015. In April 2015, the parties executed a long-form settlement agreement, under the terms of which Questcor agreed to pay $38.0 million to resolve the plaintiff's claims, inclusive of all fees and costs. Questcor and the individual defendants maintain that the plaintiffs' claims are without merit, and entered into the settlement to eliminate the uncertainties, burden and expense of further protracted litigation. During fiscal 2015, the Company established a $38.0 million reserve for this settlement, which was subsequently paid to a settlement fund. The court issued its final approval of the settlement on September 18, 2015.
Glenridge Litigation. In June 2011, Glenridge Pharmaceuticals, LLC ("Glenridge"), filed a lawsuit against Questcor in the Superior Court of California, Santa Clara County, alleging that Questcor had underpaid royalties to Glenridge under a royalty agreement related to net sales of Acthar. In August 2012, Questcor filed a separate lawsuit against the three principals of Glenridge, as well as Glenridge, challenging the enforceability of the royalty agreement. In August 2013, the lawsuits were consolidated into one case in the Superior Court of California, Santa Clara County. In October 2014, the parties entered into a binding term sheet settling the lawsuit. Under the terms of the settlement, the royalty rate payable by Questcor was reduced, royalties were capped instead of being payable for so long as Acthar was sold and Questcor agreed to pay Glenridge a reduced amount in satisfaction of royalties Questcor had previously accrued but not paid during the course of the lawsuit. In February 2015, the settlement agreement was finalized, with terms consistent with the October 2014 term sheet.
Pricing Litigation
State of Utah v. Apotex Corp., et al. The Company, along with several other pharmaceutical companies, was a defendant in this matter which was filed in May 2008, in the Third Judicial Circuit of Salt Lake County, Utah. The State of Utah alleges, generally, that the defendants reported false pricing information in connection with certain drugs that are reimbursable under Utah Medicaid, resulting in overpayment by Utah Medicaid for those drugs, and is seeking monetary damages and attorneys' fees. The Company believes that it has meritorious defenses to these claims and vigorously defended against them. In December 2015, the parties entered into a binding settlement agreement, under the terms of which the State of Utah agreed to dismiss the litigation with prejudice and the Company agreed to make a one-time cash payment to the State of Utah within the reserve established for this matter.
Environmental Remediation and Litigation Proceedings
The Company is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites, including those described below. The ultimate cost of site cleanup and timing of future cash outlays is difficult to predict, given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. The Company concluded that, as of September 29, 2017,June 28, 2019, it was probable that it would incur remedialremediation costs in the range of $37.8$36.9 million to $114.2$86.1 million. The Company also concluded that, as of September 29, 2017,June 28, 2019, the best estimate within this range was $75.5$62.3 million, of which $2.4$1.8 million was included in accrued and other current liabilities and the remainder was included in environmental liabilities on the unaudited condensed consolidated balance sheet at September 29, 2017.as of June 28, 2019. While it is not possible at this time to determine with certainty the ultimate outcome of these matters, the Company believes, given the information currently available, that the final resolution of all known claims, after taking into account amounts already accrued, will not have a material adverse effect on its financial condition, results of operations and cash flows.
Coldwater Creek, Saint Louis County, Missouri. The Company is named as a defendant in numerous tort complaints with numerous plaintiffs pending in the U.S. District Court for the Eastern District of Missouri that were filed in or after February 2012. These cases allege personal injury for alleged exposure to radiological substances, including in Coldwater Creek in Missouri, and in the air. Plaintiffs allegedly lived and/or worked in various locations in Saint Louis County, Missouri, near Coldwater Creek. Radiological residues which may have been present in the creek have previously been remediated by the U.S. Army Corps of Engineers ("USACE"). The USACE continues to study and remediate the creek and surrounding areas. The Company believes that it has meritorious defenses to these complaints and is vigorously defending against them. The Company is unable to estimate a range of reasonably possible losses for the following reasons: (i) the proceedings are in intermediate stages; (ii) the Company has not received and reviewed complete information regarding the plaintiffs and their medical conditions; and (iii) there are significant factual and scientific issues to be resolved. Groups of bellwether plaintiffs have been selected by the court and discovery is ongoing. While it is not possible at this time to determine with certainty the ultimate outcome of this case, the Company believes, given the information currently available, that the final resolution of all known claims, after taking into account amounts already accrued, will not have a material adverse effect on its financial condition, results of operations and cash flows.
Lower Passaic River, New Jersey. The Company and approximately 70 other companies originally comprised the Lower Passaic ("Cooperating Parties Group ("the CPG"Group" or "CPG") and are parties to a May 2007 Administrative Order on Consent ("AOC") with the Environmental Protection Agency ("EPA") to perform a remedial investigation and feasibility study ("RI/FS") of the 17-mile stretch known as the Lower Passaic River Study Area ("the River"). Study Area. The Company's potential liability stems from former operations at Lodi and Belleville, New Jersey. In June 2007, the EPA issued a draft Focused Feasibility Study ("FFS") that considered interim remedial options for the lower 8-miles of the river, in addition to a "no action" option. As an interim step related to the 2007 AOC, on June 18, 2012 the CPG voluntarily entered into an AOC with the EPA for remediation actions focused solely at mile 10.9 of the River. The Company's estimated costs related to the RI/FS and focused remediation at mile 10.9, based on interim allocations, are immaterial and have been accrued.
In April 2014, the EPA issued itsa revised FFS,Focused Feasibility Study ("FFS"), with remedial alternatives to address cleanup of the lower 8-mile stretch of the River, which also included a "no action" option.River. The EPA estimated the cost for the remediation alternatives ranged from $365.0 million to $3.2 billion. Thebillion and the EPA's preferred approach would involve bank-to-bank dredging of the lower 8-mile stretch of the River
and installinghad an engineered cap at a discounted, estimated cost of $1.7 billion. Based on the issuance of the EPA's revised FFS, the Company recorded a $23.1 million accrual in the second quarter of fiscal 2014 representing the Company's estimate of its allocable share of the joint and several remediation liability resulting from this matter.
In April 2015, the CPG presented a draft of the RI/FS of the River to the EPA. The CPG's RI/FSEPA that included alternatives that ranged from "no action," targeted remediation ofalternative remedial actions for the entire 17-mile stretch of the River to remedial actions consistent with the EPA's preferred approach for the lower 8-mile stretch of the River and also included remediation alternatives for the upper 9-mile stretch of the River. The discounted cost estimates for the CPG remediation alternatives ranged from $483.4 million to $2.7 billion. The Company recorded an additional accrual of $13.3 million in the second quarter of fiscal 2015 based on the Company's estimate of its allocable share of the joint and several remediation liability resulting from this matter.
On November 20, 2015, the Company withdrew from the CPG, but remains liable for its obligations under the two above-referenced AOCs, as well as potential future liabilities.
On March 4, 2016, the EPA issued the Record of Decision ("ROD") for the lower 8 miles of the River. The EPA's selected remedy for this stretch of the River waswith a slight modification of theon its preferred approach it identified in theand a revised FFS issued in April 2014. The new discounted, estimated cost wasof $1.38 billion. By letter dated March 31,On October 5, 2016, the EPA notified the Company, and approximately 98 other parties, of the Company’s potential liability for the lower 8 miles of the River. The letter also announced the EPA's intent to seek to determine whether one company,that Occidental Chemicals Corporation ("OCC"), would voluntarily enter into an agreement to perform the remedial design for the remedy selected in the ROD. The letter stated that, after execution of such an agreement, EPA planned to begin negotiation of an agreement under which OCC and the other major PRPs would implement and/or pay for the EPA’s selected remedy for the lower 8 miles of the River. Finally, the letter announced EPA's intent to provide a separate notice to unspecified parties of the opportunity to discuss a cash out settlement for the lower 8 miles of the River at a later date. On October 5, 2016, EPA announced that OCC had entered into an agreement to develop the remedial design.
By letter dated March 30, 2017,On August 7, 2018, the EPA notifiedfinalized a buyout offer of $280,600 with the Company, limited to its former Lodi facility, and nineteen other PRPs of their eligibility to enter into a cash out settlement for the lower 8 miles of the River. In exchange forDuring the settlement,three months ended September 28, 2018, the Company would receive, inter alia, a covenant notreduced the accrual associated with this matter by $11.8 million to sue and contribution protection. There is no reopener provision should costs exceed estimated amounts. The Company submitted$26.2 million, which represents the executed settlement agreementCompany's estimate of its remaining liability related to EPA on July 26, 2017. The settlement will be announced in the Federal Register and be subject to public comment, after which EPA will determine whether to proceed with the settlement.River.
Despite the issuance of the revised FFS and ROD by the EPA, and the RI/FS by the CPG, and the cash out settlement by the EPA there are many uncertainties associated with the final agreed-upon remediation, potential future liabilities and the Company's allocable share of the remediation. Given those uncertainties, the amounts accrued may not be indicative of the amounts for which the Company may be ultimately responsible and will be refined as the remediation progresses.
Mallinckrodt Veterinary,Occidental Chemical Corp. v. 21st Century Fox America, Inc., Millsboro, Delaware. The Company previously operated a facility in Millsboro, Delaware ("the Millsboro Site") where various animal healthcare products were manufactured. In 2005, the Delaware Department of Natural Resources and Environmental Control found trichloroethylene ("TCE") in the Millsboro public water supply at levels that exceeded the federal drinking water standards. Further investigation to identify the TCE plume in the ground water indicated that the plume has extended to property owned by a third party near the Millsboro Site. The Company and another former owner, have assumed responsibilityapproximately 120 other companies were named as defendants in a lawsuit filed on June 30, 2018, by OCC, in which OCC seeks cost recovery and contribution for the Millsboro Site cleanup under the Alternative Superfund Program administered by the EPA. The Companypast and another PRP have entered into two AOCs with the EPAfuture costs in response to perform investigations to abate, mitigate or eliminate the release or threat of releasereleases and threatened releases of hazardous substances atinto the Millsboro Site and to conduct an Engineering Evaluation/Cost Analysis ("EE/CA") to characterize the nature and extentlower 8 miles of the contamination.River. A former Mallinckrodt facility located in Jersey City, NJ (located in Newark Bay) and the former Belleville facility were named in the suit. Due to an indemnification agreement with AVON Inc., Mallinckrodt has tendered the liability for the Jersey City site to AVON Inc. and they have accepted. The Company along withretains a share of the other party, continuesliability for this suit related to conduct the studies and prepare remediation plans in accordance withBelleville facility. A motion to dismiss several of the AOCs. In January 2017,claims was denied by the EPA issued its Action Memorandum regarding the EE/CA. The parties have negotiated a third AOC to implement the removal action. The AOC has been fully executed, with an effective date of August 8, 2017.court. While it is not possible at this time to determine with certainty the ultimate outcome of this matter, the Company believes, given the information currently available, that the ultimate resolution of all known claims, after taking into account amounts already accrued will not have a material adverse effect on its financial condition, results of operations and cash flows.
Crab Orchard National Wildlife Refuge Superfund Site, near Marion, Illinois. The Company is a successor in interest toBetween 1967 and 1982, International Minerals and Chemicals Corporation ("IMC"). Between 1967 and 1982, IMC, a predecessor in interest to the Company, leased portions of the Additional and Uncharacterized Sites ("AUS") Operable Unit at the Crab Orchard Superfund Site ("the CO Site") from the government and manufactured various explosives for use in mining and other operations. In March 2002, the Department of Justice, the U.S. Department of the Interior and the EPA (together, "the Government Agencies") issued a special notice letter to General Dynamics Ordnance and Tactical Systems, Inc. ("General Dynamics"), one of the other potentially responsible parties ("PRPs") at the CO Site, to compel General Dynamics to perform the RI/FS for the AUS Operable Unit. General Dynamics negotiated an AOC with the Government Agencies to conduct an extensive RI/FS at the CO Site under the direction of the U.S. Fish and Wildlife Service. General Dynamics asserted in August 2004 that the Company is jointly and severally liable, along with approximately eight other lessees and operators at the AUS Operable Unit, for costs associated with alleged contamination of soils and groundwater resulting from historic operations, and has threatened to file a contribution claim against the Company and other parties for recovery of its costs incurred in connection with the RI/FS activities being conducted at the
AUS Operable Unit. The Company and other PRPs who received demand letters from General Dynamics have explored settlement alternatives, but have not reached settlement to date. General Dynamics has completed the RI and initiated the FS, and the PRPs have reached an agreement to enterentered into a non-binding mediation process, which has begun.process. While it is not possible at this time to determine with certainty the ultimate outcome of this matter, the Company believes, given the information currently available, that the final resolution of all known claims, after taking into account amounts already accrued, will not have a material adverse effect on its financial condition, results of operations and cash flows.
Products Liability Litigation
Beginning with lawsuits brought in July 1976, the Company is named as a defendant in personal injury lawsuits based on alleged exposure to asbestos-containing materials. A majority of the cases involve product liability claims based principally on allegations of past distribution of products containing asbestos. A limited number of the cases allege premises liability based on claims that individuals were exposed to asbestos while on the Company's property. Each case typically names dozens of corporate defendants in addition to the Company. The complaints generally seek monetary damages for personal injury or bodily injury resulting from alleged exposure to products containing asbestos. The Company's involvement in asbestos cases has been limited because it did not mine or produce asbestos. Furthermore, in the Company's experience, a large percentage of these claims have never been substantiated and have been dismissed by the courts. The Company has not suffered an adverse verdict in a trial court proceeding related to asbestos claims and intends to continue to vigorously defend itself in these matters.lawsuits. When appropriate, the Company settles claims; however, amounts paid to settle and defend all asbestos claims have been immaterial. As of September 29, 2017,June 28, 2019, there were approximately 11,50011,700 asbestos-related cases pending against the Company.
The Company estimates pending asbestos claims, and claims that were incurred but not reported and related insurance recoveries, which are recorded on a gross basis in the unaudited condensed consolidated balance sheets. The Company's estimate of its liability for pending and future claims is based on claims experience over the past five years and covers claims either currently filed or expected to be filed over the next seven years. The Company believes that it has adequate amounts recorded related to these matters. While it is not possible at this time to determine with certainty the ultimate outcome of these asbestos-related proceedings, the Company believes, given the information currently available, that the ultimate resolutionsresolution of all known and anticipated future claims, after taking into account amounts already accrued, along with recoveries from insurance, will not have a material adverse effect on its financial condition, results of operations and cash flows.
Industrial Revenue Bonds
Through September 29, 2017, the Company exchanged title to $16.0 million of its plant assets in return for an equal amount of Industrial Revenue Bonds ("IRB") issued by Saint Louis County. The Company also simultaneously leased such assets back from Saint Louis County under capital leases expiring through December 2025, the terms of which provide it with the right of offset against the IRBs. The lease also provides an option for the Company to repurchase the assets at the end of the lease for nominal consideration. These transactions collectively result in a ten year property tax abatement from the date the property is placed in service. Due to the right of offset, the capital lease obligations and IRB assets are recorded net in the unaudited condensed consolidated balance sheets. The Company expects that the right of offset will be applied to payments required under these arrangements.
Interest-bearing Deferred Tax Obligation
As part of the integration of Questcor, the Company entered into an internal installment sale transaction related to certain Acthar Gel intangible assets during the three months ended December 26, 2014. The installment sale transaction resulted in a taxable gain. In accordance with Internal Revenue Code Section 453A ("Section 453A") the gain is considered taxable in the period in which
installment payments are received. During the three months ended December 25, 2015, the Company entered into similar transactions with certain intangible assets acquired in the acquisitions of Ikaria, Inc. and Therakos, Inc.
During the three months ended March 31, 2017,29, 2019, the Company soldcompleted its Intrathecal Therapy business withreorganization of its intercompany financing and associated legal entity ownership. As a portion of the consideration from the sale being in the form of a note receivable subject to the installment sale provisions described above. As of September 29, 2017,result, the Company had an aggregate $1,606.7 million ofno remaining interest-bearing U.S. deferred tax liabilities associated with outstanding installment notes.as of June 28, 2019, compared to $227.5 million as of December 28, 2018. See Note 5 for further details regarding this reorganization. The GAAP calculation of interest associated with these deferred tax liabilities is subject to variable interest rates. The Company recognized interest expense associated with these deferred tax liabilities of $17.6$11.7 million and $17.4 million forduring the threesix months ended SeptemberJune 29, 2017 and September 30, 2016, respectively, and $53.9 million and $55.1 million for the nine months ended September 29, 2017 and September 30, 2016, respectively.2018.
The Company has reported Section 453A interest on its tax returns on the basis of its interpretation of the U.S. Internal Revenue Code and Regulations. Alternative interpretations of these provisions could result in additional interest payable on the deferred tax liability. Due to the inherent uncertainty in these interpretations, the Company has deferred the recognition of the benefit associated with the Company’sCompany's interpretation and maintains a corresponding liability of $42.9$47.4 million and $30.3$56.0 million as of September 29,
2017June 28, 2019 and December 30, 2016,28, 2018, respectively. The balancedecrease of this liability is expected$8.6 million was recognized as a benefit to increase over future periods until such uncertainty is resolved. Favorableinterest expense during the three months ended June 28, 2019, due to a lapse of certain statute of limitations. Further favorable resolution of this uncertainty would likely result in a material reversal of this liability and a benefit being recorded to interest expense within the unaudited condensed consolidated statements of income.
Acquisition-Related Litigation
Several putative class actions were filed by purported holders of Questcor common stock in connection with the Questcor Acquisition (Hansen v. Thompson, et al., Heng v. Questcor Pharmaceuticals, Inc., et al., Buck v. Questcor Pharmaceuticals, Inc., et al., Ellerbeck v. Questcor Pharmaceuticals, Inc., et al., Yokem v. Questcor Pharmaceuticals, Inc., et al., Richter v. Questcor Pharmaceuticals, Inc., et al., Tramantano v. Questcor Pharmaceuticals, Inc., et al., Crippen v. Questcor Pharmaceuticals, Inc., et al., Patel v. Questcor Pharmaceuticals, Inc., et al., and Postow v. Questcor Pharmaceuticals, Inc., et al.). The actions were consolidated on June 3, 2014. The consolidated complaint named as defendants, and generally alleged that, the directors of Questcor breached their fiduciary duties in connection with the acquisition by, among other things, agreeing to sell Questcor for inadequate consideration and pursuant to an inadequate process. The consolidated complaint also alleged that the Questcor directors breached their fiduciary duties by failing to disclose purportedly material information to shareholders in connection with the merger. The consolidated complaint also alleged, among other things, that the Company aided and abetted the purported breaches of fiduciary duty. The lawsuits sought various forms of relief, including but not limited to, rescission of the transaction, damages and attorneys' fees and costs.
On July 29, 2014, the defendants reached an agreement in principle with the plaintiffs in the consolidated actions, and that agreement was reflected in a Memorandum of Understanding ("MOU"). In connection with the settlement contemplated by the MOU, Questcor agreed to make certain additional disclosures related to the proposed transaction with the Company, which are contained in the Company's Current Report on Form 8-K filed with the SEC on July 30, 2014. Additionally, as part of the settlement and pursuant to the MOU, the Company agreed to forbear from exercising certain rights under the merger agreement with Questcor, as follows: the four business day period referenced in Section 5.3(e) of the merger agreement with Questcor was reduced to three business days. Consistent with the terms of the MOU, the parties entered into a formal stipulation of settlement in February 2015 and re-executed the stipulation of settlement on May 7, 2015 (collectively the "Stipulation of Settlement").
The Stipulation of Settlement was subject to customary conditions, including court approval. On May 8, 2015, the California Court denied plaintiffs' Motion for Preliminary Approval of Settlement. On October 23, 2015, the parties submitted a proposed Stipulation and Order re Dismissal With Prejudice dismissing the action with prejudice as to each of the named plaintiffs and without prejudice as to the remainder of the class and, on October 30, 2015, the California Court entered that Order.
Other Matters
The Company is a defendant in a number of other pending legal proceedings relating to present and former operations, acquisitions and dispositions. The Company does not expect the outcome of these proceedings, either individually or in the aggregate, to have a material adverse effect on its financial condition, results of operations and cash flows.
The Company's legal proceedings and claims are further described within the notes to the financial statements included within the Company's Annual Report filed on Form 10-K for the fiscal year ended December 28, 2018.
|
| |
17.15. | Financial Instruments and Fair Value Measurements |
Fair value is defined as the exit price that would be received from the sale of an asset or paid to transfer a liability, using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes a three-level fair value hierarchy, which maximizes the use of observable inputs and minimizes the use of unobservable inputs used in measuring fair value. The levels within the hierarchy are as follows:
Level 1— observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2— significant other observable inputs that are observable either directly or indirectly; and
Level 3— significant unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.
The following tables provide a summary of the significant assets and liabilities that are measured at fair value on a recurring basis at the end of each period:
|
| | | | | | | | | | | | | | | |
| June 28,
2019 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
| Significant Other Observable Inputs (Level 2) |
| Significant Unobservable Inputs (Level 3) |
| Assets: |
|
|
|
|
|
|
|
|
| Debt and equity securities held in rabbi trusts | $ | 35.4 |
| | $ | 25.6 |
| | $ | 9.8 |
| | $ | — |
|
| | | | | | | |
| Liabilities: | | | | | | | |
| Deferred compensation liabilities | $ | 45.4 |
| | $ | — |
| | $ | 45.4 |
| | $ | — |
|
| Contingent consideration and acquired contingent liabilities | 130.4 |
| | — |
| | — |
| | 130.4 |
|
| $ | 175.8 |
| | $ | — |
| | $ | 45.4 |
| | $ | 130.4 |
|
|
| | | | | | | | | | | | | | | |
| | December 28,
2018 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Assets: | | | | | | | |
| Debt and equity securities held in rabbi trusts | $ | 33.1 |
| | $ | 22.4 |
| | $ | 10.7 |
| | $ | — |
|
| | | | | | | | |
| Liabilities: | | | | | | | |
| Deferred compensation liabilities | $ | 38.5 |
| | $ | — |
| | $ | 38.5 |
| | $ | — |
|
| Contingent consideration and acquired contingent liabilities | 151.4 |
| | — |
| | — |
| | 151.4 |
|
| | $ | 189.9 |
| | $ | — |
| | $ | 38.5 |
| | $ | 151.4 |
|
|
| | | | | | | | | | | | | | | |
| September 29,
2017 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
| Significant Other Observable Inputs (Level 2) |
| Significant Unobservable Inputs (Level 3) |
| Assets: |
|
|
|
|
|
|
|
|
| Debt and equity securities held in rabbi trusts | $ | 34.1 |
| | $ | 23.2 |
| | $ | 10.9 |
| | $ | — |
|
| Equity securities | 21.6 |
| | 21.6 |
| | — |
| | — |
|
| Foreign exchange forward and option contracts | 0.6 |
| | 0.6 |
| | — |
| | — |
|
| | $ | 56.3 |
| | $ | 45.4 |
| | $ | 10.9 |
| | $ | — |
|
| | | | | | | |
| Liabilities: | | | | | | | |
| Deferred compensation liabilities | $ | 38.9 |
| | $ | — |
| | $ | 38.9 |
| | $ | — |
|
| Contingent consideration and acquired contingent liabilities | 268.6 |
| | — |
| | — |
| | 268.6 |
|
| Foreign exchange forward and option contracts | 1.2 |
| | 1.2 |
| | — |
| | — |
|
| $ | 308.7 |
| | $ | 1.2 |
| | $ | 38.9 |
| | $ | 268.6 |
|
|
| | | | | | | | | | | | | | | |
| | December 30,
2016 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Assets: | | | | | | | |
| Debt and equity securities held in rabbi trusts | $ | 33.6 |
| | $ | 22.8 |
| | $ | 10.8 |
| | $ | — |
|
| Foreign exchange forward and option contracts | 0.7 |
| | 0.7 |
| | — |
| | — |
|
| | $ | 34.3 |
| | $ | 23.5 |
| | $ | 10.8 |
| | $ | — |
|
| | | | | | | | |
| Liabilities: | | | | | | | |
| Deferred compensation liabilities | $ | 32.5 |
| | $ | — |
| | $ | 32.5 |
| | $ | — |
|
| Contingent consideration and acquired contingent liabilities | 250.5 |
| | — |
| | — |
| | 250.5 |
|
| Foreign exchange forward and option contracts | 3.4 |
| | 3.4 |
| | — |
| | — |
|
| | $ | 286.4 |
| | $ | 3.4 |
| | $ | 32.5 |
| | $ | 250.5 |
|
Debt and equity securities held in rabbi trusts. Debt securities held in rabbi trusts primarily consist of U.S. government and agency securities and corporate bonds. When quoted prices are available in an active market, the investments are classified as level 1. When quoted market prices for a security are not available in an active market, they are classified as level 2. Equity securities held in rabbi trusts primarily consist of U.S. common stocks, which are valued using quoted market prices reported on nationally recognized securities exchanges.
Equity securities. Equity securities consist of shares in Mesoblast, for which quoted prices are available in an active market; therefore, the investment is classified as level 1 and is valued based on quoted market prices reported on a nationally recognized securities exchange.
Foreign exchange forward and option contracts. Foreign currency option and forward contracts are used to economically manage the foreign exchange exposures of operations outside the U.S. Quoted prices are available in an active market; as such, these derivatives are classified as level 1.
Deferred compensation liabilities. The Company maintains a non-qualified deferred compensation plan in the U.S., which permits eligible employees of the Company to defer a portion of their compensation. A recordkeeping account is set up for each participant and the participant chooses from a variety of funds for the deemed investment of their accounts. The recordkeeping accounts generally correspond to the funds offered in the Company's U.S. tax-qualified defined contribution retirement plan and the account balance fluctuates with the investment returns on those funds.
Contingent consideration and acquired contingent liabilities. The Company maintains various contingent consideration and acquired contingent liabilities associated with the acquisitions of Questcor, Hemostasis products, Stratatech Corporation ("Stratatech"), and InfaCare.Ocera Therapeutics, Inc. ("Ocera").
DuringThe contingent liability associated with the nine months ended September 29, 2017,acquisition of Questcor pertains to the Company's license agreement with Novartis AG and Novartis Pharma AG (collectively "Novartis") related to Synacthen, otherwise known as the Company's development product MNK-1411. Under the terms of this agreement, the Company paid the required annual payment of $25.0 million related toduring the license of developmental product MNK-1411 from Novartis.six months ended June 28, 2019. The fair value of the remaining contingent payments was measured based on the net present value of a probability-weighted assessment. At September 29, 2017,As of June 28, 2019, the total remaining
payments under the license agreement shall not exceed $140.0$90.0 million. At September 29, 2017 and December 30, 2016, the fair value of the MNK-1411 contingent liability was $104.5 million and $124.7 million, respectively.
As part of the Hemostasis Acquisition, the Company provided contingent consideration to The Medicines Company in the form of sales-based milestones associated with Raplixa and PreveLeak, and acquired contingent liabilities associated with The Medicines Company's prior acquisitions of the aforementioned products. The Company determined the fair value of the contingent consideration and acquired contingent liabilities based on an option pricing modelassociated with the acquisition of Questcor to be $62.2$52.9 million and $11.6$76.2 million respectively, at September 29, 2017. The fair value of the contingent consideration and acquired contingent liabilities based on an option pricing model were $58.9 million and $11.2 million, respectively, as of June 28, 2019 and December 30, 2016.28, 2018, respectively.
As part of the Stratatech Acquisition,acquisition, the Company provided contingent consideration to the prior shareholders of Stratatech, primarily in the form of regulatory filing and approval milestones associated with the deep partial thickness and full thickness indications associated with the StrataGraft product.®. The Company assesses the likelihood of and timing of making such payments. The fair value of the contingent payments was measured based on the net present value of a probability-weighted assessment. The Company determined the fair value of the contingent consideration associated with the Stratatech Acquisition to be $55.3$55.6 million and $55.7$53.7 million at September 29, 2017as of June 28, 2019 and December 30, 2016,28, 2018, respectively.
As part of the InfaCare Acquisition,Ocera acquisition, the Company provided contingent consideration to the prior shareholders of InfaCareOcera in the form of both regulatory approvalpatient enrollment clinical study milestones for full-termintravenous ("IV") and pre-term neonates for stannsoporfinoral formulations of MNK-6105 and
MNK-6106, which represent the IV and oral formulations, respectively, and sales-based milestones associated with stannsoporfin.MNK-6105 and MNK-6106. The Company determined the fair value of the contingent consideration based on an option pricing model to be $35.0$21.9 million and $21.5 million as of September 25, 2017.June 28, 2019 and December 28, 2018, respectively.
Of the total fair value of the contingent consideration of $130.4 million, $52.4 million was classified as current and $78.0 million was classified as non-current in the unaudited condensed consolidated balance sheet as of June 28, 2019. The following table provides a summary ofsummarizes the changes in the Company'sfiscal 2019 activity for contingent consideration and acquired contingent liabilities:consideration:
|
| | | |
| Balance as of December 28, 2018 | $ | 151.4 |
|
| Payments | (25.0 | ) |
| Accretion expense | 1.7 |
|
| Fair value adjustments | 2.3 |
|
| Balance as of June 28, 2019 | $ | 130.4 |
|
|
| | | |
| Balance at December 30, 2016 | $ | 250.5 |
|
| Acquisition date fair value of contingent consideration | 35.0 |
|
| Payments | (25.0 | ) |
| Accretion expense | 4.0 |
|
| Fair value adjustment | 4.1 |
|
| Balance at September 29, 2017 | $ | 268.6 |
|
Financial Instruments Not Measured at Fair Value
The following methods and assumptions were used by the Company in estimating fair values for financial instruments not measured at fair value as of September 29, 2017June 28, 2019 and December 30, 2016:28, 2018:
The carrying amounts of cash and cash equivalents, accounts receivable, notes receivable, accounts payable and the majority of other current assets and liabilities approximate fair value because of their short-term nature. The Company classifies cash on hand and deposits in banks, including commercial paper, money market accounts and other investments it may hold from time to time, with an original maturity of three months or less, as cash and cash equivalents (level 1). The fair value of restricted cash was equivalent to its carrying value of $18.2 million and $19.1 million as of September 29, 2017 and December 30, 2016, (level 1), respectively, which was included in prepaid expenses and other current assets and other assets on the unaudited condensed consolidated balance sheets.
| |
| • | The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and the majority of other current assets and liabilities approximate fair value because of their short-term nature. The Company classifies cash on hand and deposits in banks, including commercial paper, money market accounts and other investments it may hold from time to time, with an original maturity of three months or less, as cash and cash equivalents (level 1). The fair value of restricted cash was equivalent to its carrying value of $18.8 million and $18.6 million as of June 28, 2019 and December 28, 2018, (level 1), respectively, which was included in prepaid expenses and other current assets and other assets on the unaudited condensed consolidated balance sheets. |
The Company received a portion of consideration foras part of contingent earn-out payments related to the sale of the IntrathecalNuclear Imaging business in the form of a note receivable. The fair value of the note receivable was equivalent to its carrying value of $154.0 million as of September 29, 2017 (level 1).
The Company entered into short-term investmentpreferred equity certificates during both the threesix months ended December 30, 2016.June 28, 2019 and June 29, 2018. These certificatessecurities are classified as held-to-maturity and are carried at amortized cost, which approximates fair value (level 3), of $1.6$18.9 million and $11.1$9.0 million at September 29, 2017as of June 28, 2019 and December 30, 2016, respectively (level 2). These certificates are included in prepaid expenses and other current assets on the unaudited condensed consolidated balance sheets.
The Company's life insurance contracts are carried at cash surrender value, which is based on the present value of future cash flows under the terms of the contracts (level 3). Significant assumptions used in determining the cash surrender value include the amount and timing of future cash flows, interest rates and mortality charges. The fair value of these contracts approximates the carrying value of $66.8 million and $67.6 million at September 29, 2017 and December 30, 2016,28, 2018, respectively. These contractssecurities are included in other assets on the unaudited condensed consolidated balance sheets.
| |
| • | The Company's life insurance contracts are carried at cash surrender value, which is based on the present value of future cash flows under the terms of the contracts (level 3). Significant assumptions used in determining the cash surrender value include the amount and timing of future cash flows, interest rates and mortality charges. The fair value of these contracts approximates the carrying value of $66.6 million and $66.4 million as of June 28, 2019 and December 28, 2018, respectively. These contracts are included in other assets on the unaudited condensed consolidated balance sheets. |
| |
| • | The carrying value of the Company's revolving credit facility and variable-rate receivable securitization approximates fair value due to the short-term nature of these instruments, and is therefore classified as level 1. The Company's 4.875%, 5.75%, 4.75%, 5.625% and 5.50% notes are classified as level 1, as quoted prices are available in an active market for these notes. Since the quoted market prices for the Company's term loans and 9.50% and 8.00% debentures are not available in an active market, they are classified as level 2 for purposes of developing an estimate of fair value. The fair value of the "other" loan is based on the present value of future cash flows under the terms of the agreement with future cash flows and interest rates as significant assumptions, and therefore classified as level 3. The following table presents the carrying values and estimated fair values of the Company's debt as of the end of each period: |
The carrying value of the Company's revolving credit facility and variable-rate receivable securitization approximates fair value due to the short-term nature of these instruments. The carrying value of the 4.00% term loan approximates the fair value of the instrument, as calculated using the discounted exit price, which is therefore classified as level 3. Since the quoted market prices for the Company's term loans and 8.00% and 9.50% debentures are not available in an active market, they are classified as level 2 for purposes of developing an estimate of fair value. The Company's 3.50%, 4.75%, 4.875%, 5.50%, 5.625% and 5.75% notes are classified as level 1, as quoted prices are available in an active market for these notes. The following table presents the carrying values and estimated fair values of the Company's long-term debt, excluding capital leases, as of the end of each period: |
| | | | | | | | | | | | | | | |
| June 28, 2019 |
| December 28, 2018 |
| Carrying Value |
| Fair Value |
| Carrying Value |
| Fair Value |
| Level 1: | | | | | | | |
| 4.875% notes due April 2020 | $ | 700.0 |
| | $ | 675.1 |
| | $ | 700.0 |
| | $ | 676.6 |
|
| Variable-rate receivable securitization due July 2020 | 200.0 |
| | 200.0 |
| | 250.0 |
| | 250.0 |
|
| 5.75% notes due August 2022 | 663.2 |
| | 567.7 |
| | 835.2 |
| | 713.6 |
|
| 4.75% notes due April 2023 | 400.1 |
| | 281.1 |
| | 500.2 |
| | 336.7 |
|
| 5.625% notes due October 2023 | 680.2 |
| | 513.5 |
| | 731.4 |
| | 557.0 |
|
| 5.50% notes due April 2025 | 596.1 |
| | 399.8 |
| | 692.1 |
| | 479.1 |
|
| Revolving credit facility | 405.0 |
| | 405.0 |
| | 220.0 |
| | 220.0 |
|
| Level 2: | | | | | | | |
| 9.50% debentures due May 2022 | 10.4 |
| | 9.5 |
| | 10.4 |
| | 9.7 |
|
| 8.00% debentures due March 2023 | 4.4 |
| | 3.7 |
| | 4.4 |
| | 3.8 |
|
| Term loan due September 2024 | 1,524.7 |
| | 1,365.8 |
| | 1,613.8 |
| | 1,472.4 |
|
| Term loan due February 2025 | 404.6 |
| | 363.3 |
| | 597.0 |
| | 548.0 |
|
| Level 3: | | | | | | | |
| Other | 2.3 |
| | 2.2 |
| | 2.2 |
| | 2.2 |
|
| Total debt | $ | 5,591.0 |
| | $ | 4,786.7 |
| | $ | 6,156.7 |
| | $ | 5,269.1 |
|
|
| | | | | | | | | | | | | | | |
| September 29, 2017 |
| December 30, 2016 |
| Carrying Value |
| Fair Value |
| Carrying Value |
| Fair Value |
| Variable-rate receivable securitization due July 2017 | $ | — |
| | $ | — |
| | $ | 250.0 |
| | $ | 250.0 |
|
| 3.50% notes due April 2018 | 300.0 |
| | 300.2 |
| | 300.0 |
| | 298.7 |
|
| 4.875% notes due April 2020 | 700.0 |
| | 696.7 |
| | 700.0 |
| | 699.5 |
|
| Variable-rate receivable securitization due July 2020 | 200.0 |
| | 200.0 |
| | — |
| | — |
|
| Term loans due March 2021 | — |
| | — |
| | 1,948.5 |
| | 1,953.2 |
|
| 4.00% term loan due February 2022 | — |
| | — |
| | 6.5 |
| | 6.5 |
|
| 9.50% debentures due May 2022 | 10.4 |
| | 11.5 |
| | 10.4 |
| | 12.0 |
|
| 5.75% notes due August 2022 | 884.0 |
| | 853.3 |
| | 884.0 |
| | 850.3 |
|
| 8.00% debentures due March 2023 | 4.4 |
| | 4.7 |
| | 4.4 |
| | 4.9 |
|
| 4.75% notes due April 2023 | 526.5 |
| | 448.5 |
| | 600.0 |
| | 520.9 |
|
| 5.625% notes due October 2023 | 738.0 |
| | 689.5 |
| | 738.0 |
| | 682.4 |
|
| Term loan due September 2024 | 1,855.7 |
| | 1,853.8 |
| | — |
| | — |
|
| 5.50% notes due April 2025 | 692.1 |
| | 625.4 |
| | 695.0 |
| | 615.7 |
|
| Revolving credit facility | — |
| | — |
| | 100.0 |
| | 100.0 |
|
Concentration of Credit and Other Risks
Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of accounts receivable. The Company generally does not typically require collateral from customers. A portion of the Company's accounts receivable outside the U.S. includes sales to government-owned or supported healthcare systems in several countries, which are subject to payment delays. Payment is dependent upon the financial stability and creditworthiness of those countries' national economies.
The following table shows net sales attributable to distributors that accounted for 10%10.0% or more of the Company's total net sales:
|
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 29,
2017 |
| September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| CuraScript, Inc. | 41 | % | | 40 | % | | 40 | % | | 37 | % |
| McKesson Corporation | 9 | % | | 11 | % | | 9 | % | | 11 | % |
|
| | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 28,
2019 | | June 29,
2018 | | June 28,
2019 | | June 29,
2018 |
| CuraScript, Inc. | 31.9 | % | | 35.6 | % | | 29.8 | % | | 35.6 | % |
The following table shows accounts receivable attributable to distributors that accounted for 10%10.0% or more of the Company's gross accounts receivable at the end of each period:
| |
| September 29,
2017 |
| December 30,
2016 | June 28,
2019 | | December 28,
2018 |
| AmerisourceBergen Corporation | | 27.7 | % | | 25.7 | % |
| McKesson Corporation | 20 | % | | 28 | % | 13.4 | % | | 21.9 | % |
| Amerisource Bergen Corporation | 14 | % | | 15 | % | |
| CuraScript, Inc. | 14 | % |
| 15 | % | 15.7 | % | | 13.1 | % |
| Cardinal Health, Inc. | 11 | % |
| 10 | % | |
The following table shows net sales attributable to products that accounted for 10%10.0% or more of the Company's total net sales:
|
| | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 28,
2019 | | June 29,
2018 | | June 28,
2019 | | June 29,
2018 |
| Acthar Gel | 32.4 | % | | 35.5 | % | | 30.4 | % | | 34.0 | % |
| Inomax | 17.0 | % | | 15.9 | % | | 18.0 | % | | 17.1 | % |
| Ofirmev | 11.0 | % | | 10.4 | % | | 11.5 | % | | 10.6 | % |
|
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 29,
2017 |
| September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| Acthar | 39 | % | | 37 | % | | 37 | % | | 34 | % |
| Inomax | 16 | % |
| 14 | % | | 16 | % | | 14 | % |
TheAs part of the May 28, 2019 update to the Company's planned separation described within Note 1, the Company's two reportable segments were realigned and are further described below:
| |
| • | Specialty Brands includes innovative specialty pharmaceutical brands (inclusive of Amitiza); and |
| |
| • | Specialty Generics includes niche specialty generic drugs and APIs. |
Specialty Brands includes branded medicines; and
All prior period segment information has been reclassified to reflect the realignment of the Company's reportable segments on a comparable basis. Refer to Note 18 for an update on the Company's plans for the Specialty Generics includes specialty generic drugs, API and external manufacturing.
business.Selected information by reportable segment was as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 28,
2019 | | June 29,
2018 | | June 28,
2019 | | June 29,
2018 |
| Net sales: | | | | | | | |
| Specialty Brands | $ | 627.8 |
| | $ | 631.7 |
| | $ | 1,232.0 |
| | $ | 1,204.3 |
|
| Specialty Generics | 195.5 |
| | 193.8 |
| | 381.9 |
| | 376.5 |
|
| Net Sales | $ | 823.3 |
| | $ | 825.5 |
| | $ | 1,613.9 |
| | $ | 1,580.8 |
|
| Operating (loss) income: | | | | | | | |
| Specialty Brands | $ | 321.4 |
| | $ | 265.2 |
| | $ | 596.9 |
| | $ | 506.4 |
|
| Specialty Generics | 33.9 |
| | 43.1 |
| | 58.3 |
| | 78.2 |
|
| Segment operating income | 355.3 |
| | 308.3 |
| | 655.2 |
| | 584.6 |
|
| Unallocated amounts: | | | | | | | |
Corporate and unallocated expenses (1) | (36.4 | ) | | (12.5 | ) | | (82.2 | ) | | (56.5 | ) |
| Intangible asset amortization | (216.6 | ) | | (184.3 | ) | | (439.4 | ) | | (362.3 | ) |
| Restructuring and related charges, net | 0.2 |
| | (58.8 | ) | | (4.0 | ) | | (87.0 | ) |
| Non-restructuring impairments | (113.5 | ) | | — |
| | (113.5 | ) | | — |
|
Separation costs (2) | (18.9 | ) | | — |
| | (30.6 | ) | | — |
|
Operating (loss) income (3) | $ | (29.9 | ) | | $ | 52.7 |
| | $ | (14.5 | ) | | $ | 78.8 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 29,
2017 |
| September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| Net sales: |
|
|
| | | | |
| Specialty Brands | $ | 591.4 |
|
| $ | 633.1 |
| | $ | 1,743.1 |
| | $ | 1,757.4 |
|
| Specialty Generics | 189.1 |
| | 239.8 |
| | 643.7 |
| | 767.6 |
|
| Net sales of reportable segments | 780.5 |
|
| 872.9 |
| | 2,386.8 |
| | 2,525.0 |
|
Other (1) | 13.4 |
|
| 14.3 |
| | 42.5 |
| | 44.6 |
|
| Net sales | $ | 793.9 |
|
| $ | 887.2 |
| | $ | 2,429.3 |
| | $ | 2,569.6 |
|
| Operating income: |
|
|
| | | | |
| Specialty Brands | $ | 316.6 |
|
| $ | 334.1 |
| | $ | 865.7 |
| | $ | 897.1 |
|
| Specialty Generics | 40.4 |
| | 63.9 |
| | 179.9 |
| | 260.9 |
|
| Segment operating income | 357.0 |
|
| 398.0 |
| | 1,045.6 |
| | 1,158.0 |
|
| Unallocated amounts: |
|
|
|
|
| | | | |
Corporate and unallocated expenses (2) | (47.6 | ) |
| (65.7 | ) | | (163.9 | ) | | (125.2 | ) |
| Intangible asset amortization | (173.2 | ) |
| (175.9 | ) | | (523.0 | ) | | (526.7 | ) |
Restructuring and related charges, net (3) | (15.5 | ) |
| (8.7 | ) | | (35.7 | ) | | (34.0 | ) |
| Non-restructuring impairment charges | — |
| | — |
| | — |
| | (16.9 | ) |
| Operating income | $ | 120.7 |
| | $ | 147.7 |
| | $ | 323.0 |
| | $ | 455.2 |
|
| |
| (1) | Represents net sales under an ongoing supply agreement with the acquirer of the CMDS business. |
| |
(2) | Includes administration expenses and certain compensation, legal, environmental and other costs not charged to the Company's reportable segments.segment. |
| |
| (2) | Represents costs incurred related to the separation of the Company's Specialty Generics segment, inclusive of rebranding costs, which are included in SG&A. |
| |
| (3) | Includes restructuring-related accelerated depreciation.The amount of operating loss included in the Company's unaudited condensed consolidated statement of income for the three and six months ended June 29, 2018 related to the Sucampo Acquisition was $37.0 million and $67.7 million, respectively. Included within these results were $17.9 million and $27.0 million of amortization associated with intangibles recognized from this acquisition and $31.5 million and $46.5 million of expense associated with fair value adjustments of acquired inventory for the three and six months ended June 29, 2018, respectively. |
Net sales by product family within the Company's reportable segments arewere as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 28,
2019 | | June 29,
2018 | | June 28,
2019 | | June 29,
2018 |
| Acthar Gel | $ | 266.4 |
| | $ | 293.2 |
| | $ | 490.3 |
| | $ | 537.0 |
|
| Inomax | 139.7 |
| | 131.0 |
| | 290.8 |
| | 270.8 |
|
| Ofirmev | 90.5 |
| | 85.6 |
| | 186.1 |
| | 167.6 |
|
| Therakos | 60.9 |
| | 56.8 |
| | 122.7 |
| | 114.2 |
|
Amitiza (1) | 52.0 |
| | 48.0 |
| | 105.0 |
| | 71.0 |
|
| BioVectra | 13.9 |
| | 11.3 |
| | 26.3 |
| | 21.8 |
|
| Other | 4.4 |
| | 5.8 |
| | 10.8 |
| | 21.9 |
|
| Specialty Brands | 627.8 |
| | 631.7 |
| | 1,232.0 |
| | 1,204.3 |
|
| | | | | | | | |
| Hydrocodone (API) and hydrocodone-containing tablets | 18.1 |
| | 16.9 |
| | 35.5 |
| | 30.8 |
|
| Oxycodone (API) and oxycodone-containing tablets | 19.6 |
| | 13.1 |
| | 36.1 |
| | 29.7 |
|
| Acetaminophen (API) | 48.4 |
| | 51.7 |
| | 94.6 |
| | 101.1 |
|
| Other controlled substances | 98.6 |
| | 99.5 |
| | 192.8 |
| | 188.5 |
|
| Other | 10.8 |
| | 12.6 |
| | 22.9 |
| | 26.4 |
|
| Specialty Generics | 195.5 |
| | 193.8 |
| | 381.9 |
| | 376.5 |
|
| Net Sales | $ | 823.3 |
| | $ | 825.5 |
| | $ | 1,613.9 |
| | $ | 1,580.8 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 29,
2017 | | September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| Acthar | $ | 308.7 |
| | $ | 327.0 |
| | $ | 899.9 |
| | $ | 873.7 |
|
| Inomax | 125.7 |
| | 126.9 |
| | 379.6 |
| | 363.5 |
|
| Ofirmev | 75.4 |
| | 75.6 |
| | 224.5 |
| | 217.4 |
|
| Therakos immunotherapy | 55.3 |
| | 54.5 |
| | 157.7 |
| | 157.2 |
|
| Hemostasis products | 16.2 |
| | 17.2 |
| | 42.8 |
| | 42.5 |
|
| Other | 10.1 |
| | 31.9 |
| | 38.6 |
| | 103.1 |
|
| Specialty Brands | 591.4 |
| | 633.1 |
| | 1,743.1 |
| | 1,757.4 |
|
| | | | | | | | |
| Hydrocodone (API) and hydrocodone-containing tablets | 10.0 |
| | 30.8 |
| | 63.3 |
| | 109.8 |
|
| Oxycodone (API) and oxycodone-containing tablets | 13.4 |
| | 28.8 |
| | 60.6 |
| | 97.3 |
|
| Methylphenidate ER | 14.3 |
| | 23.4 |
| | 58.2 |
| | 72.3 |
|
| Other controlled substances | 103.9 |
| | 111.8 |
| | 319.0 |
| | 358.4 |
|
| Other products | 47.5 |
| | 45.0 |
| | 142.6 |
| | 129.8 |
|
| Specialty Generics | 189.1 |
| | 239.8 |
| | 643.7 |
| | 767.6 |
|
| | | | | | | | |
Other (1) | 13.4 |
| | 14.3 |
| | 42.5 |
| | 44.6 |
|
| Net sales | $ | 793.9 |
| | $ | 887.2 |
| | $ | 2,429.3 |
| | $ | 2,569.6 |
|
| |
| (1) | RepresentsAmitiza consists of both product net sales under an ongoing supply agreement with the acquirer of the CMDS business.and royalties. Refer to Note 3 for further details on Amitiza's revenues. |
|
| |
19.17. | Condensed Consolidating Financial Statements |
MIFSA, an indirectly 100%-owned subsidiary of Mallinckrodt plc established to own, directly or indirectly, substantially all of the operating subsidiaries of the Company, to issue debt securities and to perform treasury operations.
MIFSA is the borrower under the 3.50% notes due April 2018 and the 4.75% notes due April 2023 (collectively, "the("the 2013 Notes"), which are fully and unconditionally guaranteed by Mallinckrodt plc. The following information provides the composition of the Company's comprehensive income, assets, liabilities, equity and cash flows by relevant group within the Company: Mallinckrodt plc as guarantor of the 2013 Notes, MIFSA as issuer of the 2013 Notes and the other subsidiaries.operating companies that represent assets of MIFSA. There are no subsidiary guarantees related to the 2013 Notes.
Set forth on the following pagesbelow are the condensed consolidating financial statements for the three and ninesix months ended SeptemberJune 28, 2019 and June 29, 2017 and September 30, 2016,2018, and as of September 29, 2017June 28, 2019 and December 30, 2016.28, 2018. Eliminations represent adjustments to eliminate investments in subsidiaries and intercompany balances and transactions between or among Mallinckrodt plc, MIFSA and other subsidiaries. Condensed consolidating financial information for Mallinckrodt plc and MIFSA, on a standalone basis, has been presented using the equity method of accounting for subsidiaries.
MALLINCKRODT PLC
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 29, 2017June 28, 2019
(unaudited, in millions)
| | | | Mallinckrodt plc | | Mallinckrodt International Finance S.A. | | Other Subsidiaries | | Eliminations | | Consolidated | Mallinckrodt plc | | Mallinckrodt International Finance S.A. | | Other Subsidiaries | | Eliminations | | Consolidated |
| Assets | | | | | | | | | | | | | | | | | | |
| Current Assets: | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 0.7 |
| | $ | 37.6 |
| | $ | 333.5 |
| | $ | — |
| | $ | 371.8 |
| $ | 0.1 |
| | $ | 4.9 |
| | $ | 236.1 |
| | $ | — |
| | $ | 241.1 |
|
| Accounts receivable, net | — |
| | — |
| | 464.3 |
| | — |
| | 464.3 |
| — |
| | — |
| | 528.4 |
| | — |
| | 528.4 |
|
| Inventories | — |
| | — |
| | 341.3 |
| | — |
| | 341.3 |
| — |
| | — |
| | 337.4 |
| | — |
| | 337.4 |
|
| Prepaid expenses and other current assets | 0.3 |
| | 0.2 |
| | 120.6 |
| | — |
| | 121.1 |
| 0.3 |
| | 0.3 |
| | 111.9 |
| | — |
| | 112.5 |
|
| Notes receivable | — |
| | — |
| | 154.0 |
| | — |
| | 154.0 |
| |
| Current assets held for sale | — |
| | — |
| | — |
| | — |
| | — |
| |
| Intercompany receivables | 127.9 |
| | 246.8 |
| | 694.1 |
| | (1,068.8 | ) | | — |
| 134.1 |
| | 28.9 |
| | 5,885.7 |
| | (6,048.7 | ) | | — |
|
| Total current assets | 128.9 |
| | 284.6 |
| | 2,107.8 |
| | (1,068.8 | ) | | 1,452.5 |
| 134.5 |
| | 34.1 |
| | 7,099.5 |
| | (6,048.7 | ) | | 1,219.4 |
|
| Property, plant and equipment, net | — |
| | — |
| | 962.4 |
| | — |
| | 962.4 |
| — |
| | — |
| | 994.2 |
| | — |
| | 994.2 |
|
| Goodwill | — |
| | — |
| | 3,459.5 |
| | — |
| | 3,459.5 |
| |
| Intangible assets, net | — |
| | — |
| | 8,545.9 |
| | — |
| | 8,545.9 |
| — |
| | — |
| | 7,721.1 |
| | — |
| | 7,721.1 |
|
| Investment in subsidiaries | 4,923.4 |
| | 21,531.2 |
| | 10,654.1 |
| | (37,108.7 | ) | | — |
| 2,673.5 |
| | 12,937.0 |
| | 3,849.3 |
| | (19,459.8 | ) | | — |
|
| Intercompany loans receivable | 744.8 |
| | — |
| | 4,710.0 |
| | (5,454.8 | ) | | — |
| 462.3 |
| | — |
| | 2,613.9 |
| | (3,076.2 | ) | | — |
|
| Other assets | — |
| | — |
| | 191.6 |
| | — |
| | 191.6 |
| — |
| | — |
| | 287.0 |
| | — |
| | 287.0 |
|
| Total Assets | $ | 5,797.1 |
| | $ | 21,815.8 |
| | $ | 30,631.3 |
| | $ | (43,632.3 | ) | | $ | 14,611.9 |
| $ | 3,270.3 |
| | $ | 12,971.1 |
| | $ | 22,565.0 |
| | $ | (28,584.7 | ) | | $ | 10,221.7 |
|
| | | | | | | | | | | | | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | | | | | | | | | | | |
| Current Liabilities: | | | | | | | | | | | | | | | | | | |
| Current maturities of long-term debt | $ | — |
| | $ | 318.0 |
| | $ | 0.2 |
| | $ | — |
| | $ | 318.2 |
| $ | — |
| | $ | — |
| | $ | 717.9 |
| | $ | — |
| | $ | 717.9 |
|
| Accounts payable | — |
| | — |
| | 104.9 |
| | — |
| | 104.9 |
| — |
| | — |
| | 148.6 |
| | — |
| | 148.6 |
|
| Accrued payroll and payroll-related costs | — |
| | — |
| | 84.4 |
| | — |
| | 84.4 |
| — |
| | — |
| | 79.8 |
| | — |
| | 79.8 |
|
| Accrued interest | — |
| | 77.5 |
| | 0.6 |
| | — |
| | 78.1 |
| — |
| | 4.0 |
| | 41.9 |
| | — |
| | 45.9 |
|
| Income taxes payable | — |
| | — |
| | 28.1 |
| | — |
| | 28.1 |
| |
| Accrued and other current liabilities | 1.3 |
| | 0.4 |
| | 438.7 |
| | — |
| | 440.4 |
| 0.8 |
| | 0.2 |
| | 564.3 |
| | — |
| | 565.3 |
|
| Current liabilities held for sale | — |
| | — |
| | — |
| | — |
| | — |
| |
| Intercompany payables | 682.8 |
| | — |
| | 386.0 |
| | (1,068.8 | ) | | — |
| 194.3 |
| | 5,638.9 |
| | 215.5 |
| | (6,048.7 | ) | | — |
|
| Total current liabilities | 684.1 |
| | 395.9 |
| | 1,042.9 |
| | (1,068.8 | ) | | 1,054.1 |
| 195.1 |
| | 5,643.1 |
| | 1,768.0 |
| | (6,048.7 | ) | | 1,557.5 |
|
| Long-term debt | — |
| | 5,303.3 |
| | 214.1 |
| | — |
| | 5,517.4 |
| — |
| | 397.6 |
| | 4,425.4 |
| | — |
| | 4,823.0 |
|
| Pension and postretirement benefits | — |
| | — |
| | 67.5 |
| | — |
| | 67.5 |
| — |
| | — |
| | 59.5 |
| | — |
| | 59.5 |
|
| Environmental liabilities | — |
| | — |
| | 73.1 |
| | — |
| | 73.1 |
| — |
| | — |
| | 60.5 |
| | — |
| | 60.5 |
|
| Deferred income taxes | — |
| | — |
| | 2,294.1 |
| | — |
| | 2,294.1 |
| — |
| | — |
| | 53.4 |
| | — |
| | 53.4 |
|
| Other income tax liabilities | — |
| | — |
| | 78.5 |
| | — |
| | 78.5 |
| — |
| | — |
| | 262.5 |
| | — |
| | 262.5 |
|
| Intercompany loans payable | — |
| | 5,454.8 |
| | — |
| | (5,454.8 | ) | | — |
| — |
| | 3,076.2 |
| | — |
| | (3,076.2 | ) | | — |
|
| Other liabilities | — |
| | 7.7 |
| | 406.5 |
| | — |
| | 414.2 |
| — |
| | 4.9 |
| | 325.2 |
| | — |
| | 330.1 |
|
| Total Liabilities | 684.1 |
| | 11,161.7 |
| | 4,176.7 |
| | (6,523.6 | ) | | 9,498.9 |
| 195.1 |
| | 9,121.8 |
| | 6,954.5 |
| | (9,124.9 | ) | | 7,146.5 |
|
| Shareholders' Equity | 5,113.0 |
| | 10,654.1 |
| | 26,454.6 |
| | (37,108.7 | ) | | 5,113.0 |
| 3,075.2 |
| | 3,849.3 |
| | 15,610.5 |
| | (19,459.8 | ) | | 3,075.2 |
|
| Total Liabilities and Shareholders' Equity | $ | 5,797.1 |
| | $ | 21,815.8 |
| | $ | 30,631.3 |
| | $ | (43,632.3 | ) | | $ | 14,611.9 |
| $ | 3,270.3 |
| | $ | 12,971.1 |
| | $ | 22,565.0 |
| | $ | (28,584.7 | ) | | $ | 10,221.7 |
|
MALLINCKRODT PLC
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 30, 201628, 2018
(unaudited, in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Mallinckrodt plc | | Mallinckrodt International Finance S.A. | | Other Subsidiaries | | Eliminations | | Consolidated |
| Assets | | | | | | | | | |
| Current Assets: | | | | | | | | | |
| Cash and cash equivalents | $ | 0.4 |
| | $ | 140.8 |
| | $ | 207.7 |
| | $ | — |
| | $ | 348.9 |
|
| Accounts receivable, net | — |
| | — |
| | 623.3 |
| | — |
| | 623.3 |
|
| Inventories | — |
| | — |
| | 322.3 |
| | — |
| | 322.3 |
|
| Prepaid expenses and other current assets | 3.9 |
| | 0.2 |
| | 128.6 |
| | — |
| | 132.7 |
|
| Intercompany receivables | 131.1 |
| | 29.2 |
| | 1,087.9 |
| | (1,248.2 | ) | | — |
|
| Total current assets | 135.4 |
| | 170.2 |
| | 2,369.8 |
| | (1,248.2 | ) | | 1,427.2 |
|
| Property, plant and equipment, net | — |
| | — |
| | 982.0 |
| | — |
| | 982.0 |
|
| Intangible assets, net | — |
| | — |
| | 8,282.8 |
| | — |
| | 8,282.8 |
|
| Investment in subsidiaries | 2,481.6 |
| | 25,506.1 |
| | 8,362.1 |
| | (36,349.8 | ) | | — |
|
| Intercompany loans receivable | 497.7 |
| | — |
| | 12,343.0 |
| | (12,840.7 | ) | | — |
|
| Other assets | — |
| | — |
| | 185.3 |
| | — |
| | 185.3 |
|
| Total Assets | $ | 3,114.7 |
| | $ | 25,676.3 |
| | $ | 32,525.0 |
| | $ | (50,438.7 | ) | | $ | 10,877.3 |
|
| | | | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | | |
| Current Liabilities: | | | | | | | | | |
| Current maturities of long-term debt | $ | — |
| | $ | 22.1 |
| | $ | 0.3 |
| | $ | — |
| | $ | 22.4 |
|
| Accounts payable | 0.1 |
| | — |
| | 147.4 |
| | — |
| | 147.5 |
|
| Accrued payroll and payroll-related costs | — |
| | — |
| | 124.0 |
| | — |
| | 124.0 |
|
| Accrued interest | — |
| | 48.7 |
| | 28.9 |
| | — |
| | 77.6 |
|
| Accrued and other current liabilities | 0.6 |
| | 0.4 |
| | 571.2 |
| | — |
| | 572.2 |
|
| Intercompany payables | 226.7 |
| | 827.8 |
| | 193.7 |
| | (1,248.2 | ) | | — |
|
| Total current liabilities | 227.4 |
| | 899.0 |
| | 1,065.5 |
| | (1,248.2 | ) | | 943.7 |
|
| Long-term debt | — |
| | 3,566.9 |
| | 2,502.3 |
| | — |
| | 6,069.2 |
|
| Pension and postretirement benefits | — |
| | — |
| | 60.5 |
| | — |
| | 60.5 |
|
| Environmental liabilities | — |
| | — |
| | 59.7 |
| | — |
| | 59.7 |
|
| Deferred income taxes | — |
| | — |
| | 324.3 |
| | — |
| | 324.3 |
|
| Other income tax liabilities | — |
| | — |
| | 228.0 |
| | — |
| | 228.0 |
|
| Intercompany loans payable | — |
| | 12,840.7 |
| | — |
| | (12,840.7 | ) | | — |
|
| Other liabilities | — |
| | 7.6 |
| | 297.0 |
| | — |
| | 304.6 |
|
| Total Liabilities | 227.4 |
| | 17,314.2 |
| | 4,537.3 |
| | (14,088.9 | ) | | 7,990.0 |
|
| Shareholders' Equity | 2,887.3 |
| | 8,362.1 |
| | 27,987.7 |
| | (36,349.8 | ) | | 2,887.3 |
|
| Total Liabilities and Shareholders' Equity | $ | 3,114.7 |
| | $ | 25,676.3 |
| | $ | 32,525.0 |
| | $ | (50,438.7 | ) | | $ | 10,877.3 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Mallinckrodt plc | | Mallinckrodt International Finance S.A. | | Other Subsidiaries | | Eliminations | | Consolidated |
| Assets | | | | | | | | | |
| Current Assets: | | | | | | | | | |
| Cash and cash equivalents | $ | 0.5 |
| | $ | 44.5 |
| | $ | 297.0 |
| | $ | — |
| | $ | 342.0 |
|
| Accounts receivable, net | — |
| | — |
| | 431.0 |
| | — |
| | 431.0 |
|
| Inventories | — |
| | — |
| | 350.7 |
| | — |
| | 350.7 |
|
| Prepaid expenses and other current assets | 1.0 |
| | — |
| | 130.9 |
| | — |
| | 131.9 |
|
| Notes receivable | — |
| | — |
| | — |
| | — |
| | — |
|
| Current assets held for sale | — |
| | — |
| | 310.9 |
| | — |
| | 310.9 |
|
| Intercompany receivables | 59.7 |
| | 65.1 |
| | 1,081.3 |
| | (1,206.1 | ) | | — |
|
| Total current assets | 61.2 |
| | 109.6 |
| | 2,601.8 |
| | (1,206.1 | ) | | 1,566.5 |
|
| Property, plant and equipment, net | — |
| | — |
| | 881.5 |
| | — |
| | 881.5 |
|
| Goodwill | — |
| | — |
| | 3,498.1 |
| | — |
| | 3,498.1 |
|
| Intangible assets, net | — |
| | — |
| | 9,000.5 |
| | — |
| | 9,000.5 |
|
| Investment in subsidiaries | 5,534.1 |
| | 20,624.1 |
| | 10,988.5 |
| | (37,146.7 | ) | | — |
|
| Intercompany loans receivable | 3.5 |
| | — |
| | 3,325.9 |
| | (3,329.4 | ) | | — |
|
| Other assets | — |
| | — |
| | 259.7 |
| | — |
| | 259.7 |
|
| Total Assets | $ | 5,598.8 |
| | $ | 20,733.7 |
| | $ | 30,556.0 |
| | $ | (41,682.2 | ) | | $ | 15,206.3 |
|
| | | | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | | |
| Current Liabilities: | | | | | | | | | |
| Current maturities of long-term debt | $ | — |
| | $ | 19.7 |
| | $ | 251.5 |
| | $ | — |
| | $ | 271.2 |
|
| Accounts payable | 0.1 |
| | 0.1 |
| | 111.9 |
| | — |
| | 112.1 |
|
| Accrued payroll and payroll-related costs | — |
| | — |
| | 76.1 |
| | — |
| | 76.1 |
|
| Accrued interest | — |
| | 53.9 |
| | 14.8 |
| | — |
| | 68.7 |
|
| Income taxes payable | — |
| | — |
| | 101.7 |
| | — |
| | 101.7 |
|
| Accrued and other current liabilities | 1.9 |
| | 7.5 |
| | 547.7 |
| | — |
| | 557.1 |
|
| Current liabilities held for sale | — |
| | — |
| | 120.3 |
| | — |
| | 120.3 |
|
| Intercompany payables | 612.5 |
| | 467.1 |
| | 126.5 |
| | (1,206.1 | ) | | — |
|
| Total current liabilities | 614.5 |
| | 548.3 |
| | 1,350.5 |
| | (1,206.1 | ) | | 1,307.2 |
|
| Long-term debt | — |
| | 5,860.6 |
| | 20.2 |
| | — |
| | 5,880.8 |
|
| Pension and postretirement benefits | — |
| | — |
| | 136.4 |
| | — |
| | 136.4 |
|
| Environmental liabilities | — |
| | — |
| | 73.0 |
| | — |
| | 73.0 |
|
| Deferred income taxes | — |
| | — |
| | 2,398.1 |
| | — |
| | 2,398.1 |
|
| Other income tax liabilities | — |
| | — |
| | 70.4 |
| | — |
| | 70.4 |
|
| Intercompany loans payable | — |
| | 3,329.4 |
| | — |
| | (3,329.4 | ) | | — |
|
| Other liabilities | — |
| | 7.0 |
| | 349.1 |
| | — |
| | 356.1 |
|
| Total Liabilities | 614.5 |
| | 9,745.3 |
| | 4,397.7 |
| | (4,535.5 | ) | | 10,222.0 |
|
| Shareholders' Equity | 4,984.3 |
| | 10,988.4 |
| | 26,158.3 |
| | (37,146.7 | ) | | 4,984.3 |
|
| Total Liabilities and Shareholders' Equity | $ | 5,598.8 |
| | $ | 20,733.7 |
| | $ | 30,556.0 |
| | $ | (41,682.2 | ) | | $ | 15,206.3 |
|
MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended September 29, 2017June 28, 2019
(unaudited, in millions)
| | | | Mallinckrodt plc | | Mallinckrodt International Finance S.A. | | Other Subsidiaries | | Eliminations | | Consolidated | Mallinckrodt plc | | Mallinckrodt International Finance S.A. | | Other Subsidiaries | | Eliminations | | Consolidated |
| Net sales | $ | — |
| | $ | — |
| | $ | 793.9 |
| | $ | — |
| | $ | 793.9 |
| $ | — |
| | $ | — |
| | $ | 823.3 |
| | $ | — |
| | $ | 823.3 |
|
| Cost of sales | 0.9 |
| | — |
| | 392.4 |
| | — |
| | 393.3 |
| 0.7 |
| | — |
| | 433.7 |
| | — |
| | 434.4 |
|
| Gross profit | (0.9 | ) | | — |
| | 401.5 |
| | — |
| | 400.6 |
| |
| Gross (loss) profit | | (0.7 | ) | | — |
| | 389.6 |
| | — |
| | 388.9 |
|
| Selling, general and administrative expenses | 13.4 |
| | 0.2 |
| | 192.1 |
| | — |
| | 205.7 |
| 13.9 |
| | 0.4 |
| | 211.6 |
| | — |
| | 225.9 |
|
| Research and development expenses | 1.8 |
| | — |
| | 57.7 |
| | — |
| | 59.5 |
| 1.8 |
| | — |
| | 77.8 |
| | — |
| | 79.6 |
|
| Restructuring charges, net | — |
| | — |
| | 14.3 |
| | — |
| | 14.3 |
| — |
| | — |
| | (0.2 | ) | | — |
| | (0.2 | ) |
| Non-restructuring impairment charges | — |
| | — |
| | — |
| | — |
| | — |
| |
| Losses on divestiture and license | — |
| | — |
| | 0.4 |
| | — |
| | 0.4 |
| |
| Operating (loss) income | (16.1 | ) | | (0.2 | ) | | 137.0 |
| | — |
| | 120.7 |
| |
| Non-restructuring impairment charge | | — |
| | — |
| | 113.5 |
| | — |
| | 113.5 |
|
| Operating loss | | (16.4 | ) | | (0.4 | ) | | (13.1 | ) | | — |
| | (29.9 | ) |
| | | | | | | | | | | | | | | | | | | |
| Interest expense | (3.3 | ) | | (90.9 | ) | | (19.0 | ) | | 20.6 |
| | (92.6 | ) | (1.5 | ) | | (61.8 | ) | | (97.4 | ) | | 89.2 |
| | (71.5 | ) |
| Interest income | 2.2 |
| | 0.4 |
| | 19.3 |
| | (20.6 | ) | | 1.3 |
| 2.8 |
| | 0.2 |
| | 88.4 |
| | (89.2 | ) | | 2.2 |
|
| Other income, net | 1.4 |
| | 1.7 |
| | 0.6 |
| | — |
| | 3.7 |
| 5.5 |
| | 29.5 |
| | 39.4 |
| | — |
| | 74.4 |
|
| Intercompany fees | (4.3 | ) | | — |
| | 4.3 |
| | — |
| | — |
| (3.5 | ) | | — |
| | 3.5 |
| | — |
| | — |
|
| Equity in net income of subsidiaries | 82.4 |
| | 261.8 |
| | 174.7 |
| | (518.9 | ) | | — |
| 18.8 |
| | 69.7 |
| | 33.5 |
| | (122.0 | ) | | — |
|
| Income from continuing operations before income taxes | 62.3 |
| | 172.8 |
| | 316.9 |
| | (518.9 | ) | | 33.1 |
| |
| Income tax benefit | (1.4 | ) | | (2.1 | ) | | (27.7 | ) | | — |
| | (31.2 | ) | |
| Income from continuing operations | 63.7 |
| | 174.9 |
| | 344.6 |
| | (518.9 | ) | | 64.3 |
| |
| Loss from discontinued operations, net of income taxes | — |
| | (0.2 | ) | | (0.4 | ) | | — |
| | (0.6 | ) | |
| Income (loss) from continuing operations before income taxes | | 5.7 |
| | 37.2 |
| | 54.3 |
| | (122.0 | ) | | (24.8 | ) |
| Income tax (benefit) expense | | (1.1 | ) | | 6.6 |
| | (29.8 | ) | | — |
| | (24.3 | ) |
| Income (loss) from continuing operations | | 6.8 |
| | 30.6 |
| | 84.1 |
| | (122.0 | ) | | (0.5 | ) |
| Income from discontinued operations, net of income taxes | | — |
| | 2.9 |
| | 4.4 |
| | — |
| | 7.3 |
|
| Net income | 63.7 |
| | 174.7 |
| | 344.2 |
| | (518.9 | ) | | 63.7 |
| 6.8 |
| | 33.5 |
| | 88.5 |
| | (122.0 | ) | | 6.8 |
|
| Other comprehensive loss, net of tax | (5.1 | ) | | (5.1 | ) | | (10.5 | ) | | 15.6 |
| | (5.1 | ) | |
| Other comprehensive income, net of tax | | 2.4 |
| | 2.4 |
| | 4.3 |
| | (6.7 | ) | | 2.4 |
|
| Comprehensive income | $ | 58.6 |
| | $ | 169.6 |
| | $ | 333.7 |
| | $ | (503.3 | ) | | $ | 58.6 |
| $ | 9.2 |
| | $ | 35.9 |
| | $ | 92.8 |
| | $ | (128.7 | ) | | $ | 9.2 |
|
MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended September 30, 2016June 29, 2018
(unaudited, in millions)
| | | | Mallinckrodt plc | | Mallinckrodt International Finance S.A. | | Other Subsidiaries | | Eliminations | | Consolidated | Mallinckrodt plc | | Mallinckrodt International Finance S.A. | | Other Subsidiaries | | Eliminations | | Consolidated |
| Net sales | $ | — |
| | $ | — |
| | $ | 887.2 |
| | $ | — |
| | $ | 887.2 |
| $ | — |
| | $ | — |
| | $ | 825.5 |
| | $ | — |
| | $ | 825.5 |
|
| Cost of sales | — |
| | — |
| | 397.0 |
| | — |
| | 397.0 |
| 0.7 |
| | — |
| | 430.8 |
| | — |
| | 431.5 |
|
| Gross profit | — |
| | — |
| | 490.2 |
| | — |
| | 490.2 |
| |
| Gross (loss) profit | | (0.7 | ) | | — |
| | 394.7 |
| | — |
| | 394.0 |
|
| Selling, general and administrative expenses | 14.7 |
| | 0.1 |
| | 253.0 |
| | — |
| | 267.8 |
| 11.3 |
| | 0.2 |
| | 178.4 |
| | — |
| | 189.9 |
|
| Research and development expenses | — |
| | — |
| | 67.9 |
| | — |
| | 67.9 |
| 1.7 |
| | — |
| | 90.9 |
| | — |
| | 92.6 |
|
| Restructuring charges, net | — |
| | — |
| | 6.8 |
| | — |
| | 6.8 |
| — |
| | — |
| | 58.8 |
| | — |
| | 58.8 |
|
| Non-restructuring impairment charge | — |
| | — |
| | — |
| | — |
| | — |
| |
| Losses on divestiture and license | — |
| | — |
| | — |
| | — |
| | — |
| |
| Operating (loss) income | (14.7 | ) | | (0.1 | ) | | 162.5 |
| | — |
| | 147.7 |
| (13.7 | ) | | (0.2 | ) | | 66.6 |
| | — |
| | 52.7 |
|
| | | | | | | | | | | | | | | | | | | |
| Interest expense | (36.1 | ) | | (82.0 | ) | | (19.4 | ) | | 43.5 |
| | (94.0 | ) | (1.6 | ) | | (110.0 | ) | | (7.7 | ) | | 24.2 |
| | (95.1 | ) |
| Interest income | — |
| | 0.2 |
| | 43.8 |
| | (43.5 | ) | | 0.5 |
| 2.2 |
| | 0.3 |
| | 23.1 |
| | (24.2 | ) | | 1.4 |
|
| Other income (expense), net | 7.4 |
| | — |
| | (8.0 | ) | | — |
| | (0.6 | ) | 0.6 |
| | — |
| | (0.8 | ) | | — |
| | (0.2 | ) |
| Intercompany fees | (5.6 | ) | | — |
| | 5.6 |
| | — |
| | — |
| (4.0 | ) | | — |
| | 4.0 |
| | — |
| | — |
|
| Equity in net income of subsidiaries | 157.1 |
| | 302.7 |
| | 224.5 |
| | (684.3 | ) | | — |
| 31.0 |
| | 232.9 |
| | 124.3 |
| | (388.2 | ) | | — |
|
| Income from continuing operations before income taxes | 108.1 |
| | 220.8 |
| | 409.0 |
| | (684.3 | ) | | 53.6 |
| |
| Income (loss) from continuing operations before income taxes | | 14.5 |
| | 123.0 |
| | 209.5 |
| | (388.2 | ) | | (41.2 | ) |
| Income tax benefit | (6.9 | ) | | (4.1 | ) | | (45.4 | ) | | — |
| | (56.4 | ) | (1.1 | ) | | (1.2 | ) | | (42.1 | ) | | — |
| | (44.4 | ) |
| Income from continuing operations | 115.0 |
| | 224.9 |
| | 454.4 |
| | (684.3 | ) | | 110.0 |
| 15.6 |
| | 124.2 |
| | 251.6 |
| | (388.2 | ) | | 3.2 |
|
| (Loss) income from discontinued operations, net of income taxes | — |
| | (0.4 | ) | | 5.4 |
| | — |
| | 5.0 |
| |
| Income from discontinued operations, net of income taxes | | — |
| | 0.1 |
| | 12.3 |
| | — |
| | 12.4 |
|
| Net income | 115.0 |
| | 224.5 |
| | 459.8 |
| | (684.3 | ) | | 115.0 |
| 15.6 |
| | 124.3 |
| | 263.9 |
| | (388.2 | ) | | 15.6 |
|
| Other comprehensive loss, net of tax | (19.9 | ) | | (19.9 | ) | | (39.8 | ) | | 59.7 |
| | (19.9 | ) | (4.9 | ) | | (4.9 | ) | | (9.9 | ) | | 14.8 |
| | (4.9 | ) |
| Comprehensive income | $ | 95.1 |
| | $ | 204.6 |
| | $ | 420.0 |
| | $ | (624.6 | ) | | $ | 95.1 |
| $ | 10.7 |
| | $ | 119.4 |
| | $ | 254.0 |
| | $ | (373.4 | ) | | $ | 10.7 |
|