UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________________________________
FORM 10-Q
 ________________________________________________________________________________________
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 28, 20182019
or
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number : 001-35803
 ________________________________________________________________________________________
Mallinckrodt plc
(Exact name of registrant as specified in its charter)
 ________________________________________________________________________________________
Ireland 98-1088325
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3 Lotus Park, The Causeway, Staines-Upon-Thames,
Surrey TW18 3AG, United Kingdom
(Address of principal executive offices) (Zip Code)

Telephone: +44 0178463 6700
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)(Trading Symbol(s))(Name of each exchange on which registered)
Ordinary shares, par value $0.20 per shareMNKNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x☒     No  o☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x☒     No  o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company"company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
 
Large accelerated filerAccelerated Filer☒xAccelerated Filer☐Emerging Growth Company☐
Non-accelerated Filer☐Smaller Reporting Company☐  Accelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o☐      No  x☒

Indicate number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Ordinary shares, $0.20 par value - 83,313,24084,008,556 shares as of NovemberAugust 2, 20182019.




MALLINCKRODT PLC
INDEX
 
  Page
   
PART I.
FINANCIAL INFORMATION
 
Item 1.
Financial Statements (Unaudited).
 
 
Condensed Consolidated Statements of Income for the three and ninesix months ended SeptemberJune 28, 20182019 and SeptemberJune 29, 2017.2018.
2
 
Condensed Consolidated Statements of Comprehensive Income for the three and ninesix months ended SeptemberJune 28, 20182019 and SeptemberJune 29, 2017.2018.
3
 
Condensed Consolidated Balance Sheets as of SeptemberJune 28, 20182019 and December 29, 2017.28, 2018.
4
 
Condensed Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 28, 20182019 and SeptemberJune 29, 2017.2018.
5
 
Condensed Consolidated StatementStatements of Changes in Shareholders' Equity for the period from Decemberthree and six months ended June 28, 2019 and June 29, 2017 to September 28, 2018.
6
 
Notes to Condensed Consolidated Financial Statements.
7
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
4941
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
6255
Item 4.
Controls and Procedures.
6255
   
PART II.
OTHER INFORMATION
 
Item 1.
Legal Proceedings.
6356
Item 1A.
Risk Factors.
6361
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
63
Item 3.
Defaults Upon Senior Securities.
63
Item 4.
Mine Safety Disclosures.
63
Item 5.
Other Information.
6461
Item 6.
Exhibits.
6562
   
SIGNATURES
6663








PART I. FINANCIAL INFORMATION
 
Item 1.Financial Statements.

MALLINCKRODT PLC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except per share data)

Three Months Ended Nine Months EndedThree Months Ended Six Months Ended
September 28,
2018		 September 29,
2017		 September 28,
2018		 September 29,
2017		June 28,
2019		 June 29,
2018		 June 28,
2019		 June 29,
2018
Net sales$640.0
 $600.6
 $1,844.3
 $1,760.7
$823.3
 $825.5
 $1,613.9
 $1,580.8
Cost of sales326.2
 268.0
 936.7
 808.3
434.4
 431.5
 889.9
 839.3
Gross profit313.8
 332.6
 907.6
 952.4
388.9
 394.0
 724.0
 741.5
              
Selling, general and administrative expenses164.0
 186.3
 520.7
 618.5
225.9
 189.9
 456.1
 401.1
Research and development expenses78.5
 46.9
 223.9
 144.2
79.6
 92.6
 164.9
 174.6
Restructuring charges, net14.7
 15.4
 96.5
 26.3
(0.2) 58.8
 4.0
 87.0
Losses (gains) on divestiture0.6
 0.4
 0.6
 (56.6)
Operating income56.0
 83.6
 65.9
 220.0
Non-restructuring impairment charge113.5
 —
 113.5
 —
Operating (loss) income(29.9) 52.7
 (14.5) 78.8
              
Interest expense(93.6) (92.6) (280.1) (279.0)(71.5) (95.1) (154.2) (186.5)
Interest income2.0
 1.3
 6.6
 2.8
2.2
 1.4
 3.7
 4.6
Other income (expense), net13.4
 3.0
 17.5
 (70.6)74.4
 (0.2) 90.7
 4.4
Loss from continuing operations before income taxes(22.2) (4.7) (190.1) (126.8)(24.8) (41.2) (74.3) (98.7)
              
Income tax benefit(125.2) (57.8) (222.0) (153.4)(24.3) (44.4) (229.0) (81.0)
Income from continuing operations103.0
 53.1
 31.9
 26.6
(Loss) income from continuing operations(0.5) 3.2
 154.7
 (17.7)
              
Income from discontinued operations, net of income taxes10.8
 10.6
 79.5
 499.1
7.3
 12.4
 7.0
 15.3
              
Net income$113.8
 $63.7
 $111.4
 $525.7
Net income (loss)$6.8
 $15.6
 $161.7
 $(2.4)
              
Basic earnings per share (Note 8):       
Income from continuing operations$1.24
 $0.55
 $0.38
 $0.27
Basic earnings per share (Note 6):       
(Loss) income from continuing operations$(0.01) $0.04
 $1.85
 $(0.21)
Income from discontinued operations0.13
 0.11
 0.94
 5.02
0.09
 0.15
 0.08
 0.18
Net income$1.37
 $0.66
 $1.32
 $5.28
Net income (loss)$0.08
 $0.19
 $1.93
 $(0.03)
              
Basic weighted-average shares outstanding83.2
 96.7
 84.2
 99.5
83.8
 83.2
 83.7
 84.7
              
Diluted earnings per share (Note 8):       
Income from continuing operations$1.21
 $0.55
 $0.37
 $0.27
Diluted earnings per share (Note 6):       
(Loss) income from continuing operations
$(0.01) $0.04
 $1.84
 $(0.21)
Income from discontinued operations0.13
 0.11
 0.93
 5.00
0.09
 0.15
 0.08
 0.18
Net income$1.34
 $0.66
 $1.31
 $5.27
Net income (loss)$0.08
 $0.19
 $1.92
 $(0.03)
              
Diluted weighted-average shares outstanding85.0
 97.0
 85.2
 99.8
83.8
 83.5
 84.3
 84.7



See Notes to Condensed Consolidated Financial Statements.





MALLINCKRODT PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)


 Three Months Ended Nine Months Ended
 September 28,
2018		 September 29,
2017		 September 28,
2018		 September 29,
2017
Net income$113.8
 $63.7
 $111.4
 $525.7
Other comprehensive income (loss), net of tax:       
Currency translation adjustments3.2
 5.6
 (4.1) 13.0
Derivatives, net of $-, $-, $- and $0.2 tax0.2
 0.3
 0.7
 0.9
Benefit plans, net of $-, $-, $- and ($31.4) tax(0.4) (0.5) (0.9) 45.4
Investments, net of $-, $-, $-, and $- tax—
 (10.5) —
 0.1
Total other comprehensive income (loss), net of tax3.0
 (5.1) (4.3) 59.4
Comprehensive income$116.8
 $58.6
 $107.1
 $585.1
 Three Months Ended Six Months Ended
 June 28,
2019		 June 29,
2018		 June 28,
2019		 June 29,
2018
Net income (loss)$6.8
 $15.6
 $161.7
 $(2.4)
Other comprehensive income (loss), net of tax:       
Currency translation adjustments2.3
 (5.0) 3.7
 (7.3)
Derivatives, net of tax0.5
 0.1
 0.7
 0.5
Benefit plans, net of tax(0.4) —
 (0.7) (0.5)
Total other comprehensive income (loss), net of tax2.4
 (4.9) 3.7
 (7.3)
Comprehensive income (loss)$9.2
 $10.7
 $165.4
 $(9.7)

See Notes to Condensed Consolidated Financial Statements.




MALLINCKRODT PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except share data)

September 28,
2018		 December 29,
2017		June 28,
2019		 December 28,
2018
Assets      
Current Assets:      
Cash and cash equivalents$290.7
 $1,260.9
$241.1
 $348.9
Accounts receivable, less allowance for doubtful accounts of $3.4 and $2.8349.6
 275.4
Accounts receivable, less allowance for doubtful accounts of $4.7 and $5.0528.4
 623.3
Inventories143.4
 128.7
337.4
 322.3
Prepaid expenses and other current assets117.7
 74.7
112.5
 132.7
Notes receivable—
 154.0
Current assets held for sale1,136.8
 391.5
Total current assets2,038.2
 2,285.2
1,219.4
 1,427.2
Property, plant and equipment, net439.3
 413.2
994.2
 982.0
Goodwill3,675.4
 3,482.7
Intangible assets, net8,585.2
 8,261.0
7,721.1
 8,282.8
Long-term assets held for sale—
 742.7
Other assets170.5
 156.2
287.0
 185.3
Total Assets$14,908.6
 $15,341.0
$10,221.7
 $10,877.3
      
Liabilities and Shareholders' Equity      
Current Liabilities:      
Current maturities of long-term debt$16.7
 $313.7
$717.9
 $22.4
Accounts payable76.6
 77.3
148.6
 147.5
Accrued payroll and payroll-related costs89.0
 78.4
79.8
 124.0
Accrued interest77.0
 57.0
45.9
 77.6
Income taxes payable43.4
 15.5
Accrued and other current liabilities437.5
 368.5
565.3
 572.2
Current liabilities held for sale182.4
 140.0
Total current liabilities922.6
 1,050.4
1,557.5
 943.7
Long-term debt6,174.0
 6,420.9
4,823.0
 6,069.2
Pension and postretirement benefits65.2
 67.1
59.5
 60.5
Environmental liabilities49.8
 62.8
60.5
 59.7
Deferred income taxes668.9
 749.1
53.4
 324.3
Other income tax liabilities127.6
 94.1
262.5
 228.0
Long-term liabilities held for sale—
 22.6
Other liabilities296.9
 352.0
330.1
 304.6
Total Liabilities8,305.0
 8,819.0
7,146.5
 7,990.0
Shareholders' Equity:      
Preferred shares, $0.20 par value, 500,000,000 authorized; none issued and outstanding—
 —
—
 —
Ordinary A shares, €1.00 par value, 40,000 authorized; none issued and outstanding—
 —
—
 —
Ordinary shares, $0.20 par value, 500,000,000 authorized; 92,678,152 and 92,196,662 issued;
83,243,748 and 86,336,232 outstanding

18.5
 18.4
Ordinary shares held in treasury at cost, 9,434,404 and 5,860,430(1,618.5) (1,564.7)
Ordinary shares, $0.20 par value, 500,000,000 authorized; 93,339,914 and 92,705,747 issued;
83,918,620 and 83,323,877 outstanding

18.7
 18.5
Ordinary shares held in treasury at cost, 9,421,294 and 9,381,870(1,617.4) (1,617.4)
Additional paid-in capital5,521.3
 5,492.6
5,551.5
 5,528.2
Retained earnings2,701.0
 2,588.6
Retained deficit(857.5) (1,017.7)
Accumulated other comprehensive loss(18.7) (12.9)(20.1) (24.3)
Total Shareholders' Equity6,603.6
 6,522.0
3,075.2
 2,887.3
Total Liabilities and Shareholders' Equity$14,908.6
 $15,341.0
$10,221.7
 $10,877.3

See Notes to Condensed Consolidated Financial Statements.




MALLINCKRODT PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)

Nine Months EndedSix Months Ended
September 28,
2018		 September 29,
2017		June 28,
2019		 June 29,
2018
Cash Flows From Operating Activities:      
Net income$111.4
 $525.7
Net income (loss)$161.7
 $(2.4)
Adjustments to reconcile net cash from operating activities:      
Depreciation and amortization597.0
 606.5
488.6
 397.1
Share-based compensation27.9
 46.1
22.8
 16.4
Deferred income taxes(232.7) (128.7)(271.2) (101.0)
Loss (gain) on divestiture0.6
 (418.1)
Non-cash impairment charge113.5
 —
Other non-cash items(3.7) 40.8
(76.0) (19.0)
Changes in assets and liabilities, net of the effects of acquisitions:      
Accounts receivable, net(59.0) (34.7)95.5
 (21.8)
Inventories43.1
 (18.2)(23.8) 18.4
Accounts payable(0.1) (30.2)7.2
 2.1
Income taxes16.7
 (68.1)22.4
 7.4
Other(20.1) (72.6)(73.3) (35.4)
Net cash from operating activities481.1
 448.5
467.4
 261.8
Cash Flows From Investing Activities:      
Capital expenditures(93.3) (151.3)(77.6) (67.1)
Acquisitions, net of cash(699.9) (35.9)—
 (699.9)
Proceeds from divestitures, net of cash313.2
 576.9
—
 298.3
Other28.8
 0.5
8.2
 12.4
Net cash from investing activities(451.2) 390.2
(69.4) (456.3)
Cash Flows From Financing Activities:      
Issuance of external debt657.2
 540.0
200.0
 657.2
Repayment of external debt and capital lease obligation(1,563.4) (887.5)
Repayment of external debt(685.9) (1,392.8)
Debt financing costs(12.0) (12.7)—
 (12.0)
Proceeds from exercise of share options1.0
 4.0
0.5
 —
Repurchase of shares(57.4) (437.7)(2.5) (56.8)
Other(24.3) (18.6)(18.5) (24.9)
Net cash from financing activities(998.9) (812.5)(506.4) (829.3)
Effect of currency rate changes on cash(0.9) 2.7
0.8
 (1.2)
Net change in cash, cash equivalents and restricted cash(969.9) 28.9
(107.6) (1,025.0)
Cash, cash equivalents and restricted cash at beginning of period1,279.1
 361.1
367.5
 1,279.1
Cash, cash equivalents and restricted cash at end of period$309.2
 $390.0
$259.9
 $254.1
      
Cash and cash equivalents at end of period$290.7
 $371.8
$241.1
 $235.7
Restricted cash included in other assets at end of period18.5
 18.2
18.8
 18.4
Cash, cash equivalents and restricted cash at end of period$309.2
 $390.0
$259.9
 $254.1

See Notes to Condensed Consolidated Financial Statements.





MALLINCKRODT PLC
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited, in millions)
 
Ordinary Shares Treasury Shares 
Additional
Paid-In Capital
 Retained Earnings Accumulated Other Comprehensive Loss 
Total
Shareholders'
Equity
Ordinary Shares Treasury Shares 
Additional
Paid-In Capital
 Retained Earnings (Deficit) Accumulated Other Comprehensive Loss 
Total
Shareholders'
Equity
Number 
Par
 Value
 Number Amount Number 
Par
 Value
 Number Amount 
Balance at December 29, 201792.2
 $18.4
 5.9
 $(1,564.7) $5,492.6
 $2,588.6
 $(12.9) $6,522.0
Balance as of December 29, 201792.2
 $18.4
 5.9
 $(1,564.7) $5,492.6
 $2,588.6
 $(12.9) $6,522.0
Impact of accounting standard adoptions, net of tax—
 —
 —
 —
 —
 2.6
 (1.5) 1.1
—
 —
 —
 —
 —
 2.6
 (1.5) 1.1
Net income—
 —
 —
 —
 —
 111.4
 —
 111.4
Net loss—
 —
 —
 —
 —
 (18.0) —
 (18.0)
Currency translation adjustments—
 —
 —
 —
 —
 —
 (4.1) (4.1)—
 —
 —
 —
 —
 —
 (2.3) (2.3)
Change in derivatives, net of tax—
 —
 —
 —
 —
 —
 0.7
 0.7
—
 —
 —
 —
 —
 —
 0.4
 0.4
Change in benefit plans, net of tax—
 —
 —
 —
 —
 —
 (0.9) (0.9)—
 —
 —
 —
 —
 —
 (0.5) (0.5)
Vesting of restricted shares0.5
 0.1
 0.1
 (2.2) 0.8
 —
 —
 (1.3)0.3
 0.1
 —
 (1.4) —
 —
 —
 (1.3)
Share-based compensation—
 —
 —
 —
 27.9
 —
 —
 27.9
—
 —
 —
 —
 4.6
 —
 —
 4.6
Reissuance of treasury shares—
 —
 (0.2) 3.6
 —
 (1.6) —
 2.0
—
 —
 —
 0.8
 —
 (0.3) —
 0.5
Repurchase of shares—
 —
 3.6
 (55.2) —
 —
 —
 (55.2)—
 —
 2.9
 (45.2) —
 —
 —
 (45.2)
Balance at September 28, 201892.7
 $18.5
 9.4
 $(1,618.5) $5,521.3
 $2,701.0
 $(18.7) $6,603.6
Balance as of March 30, 201892.5
 $18.5
 8.8
 $(1,610.5) $5,497.2
 $2,572.9
 $(16.8) $6,461.3
Net income—
 —
 —
 —
 —
 15.6
 —
 15.6
Currency translation adjustments—
 —
 —
 —
 —
 —
 (5.0) (5.0)
Change in derivatives, net of tax—
 —
 —
 —
 —
 —
 0.1
 0.1
Vesting of restricted shares—
 —
 0.1
 (0.2) (0.1) —
 —
 (0.3)
Share-based compensation—
 —
 —
 —
 11.8
 —
 —
 11.8
Reissuance of treasury shares—
 —
 (0.1) 1.6
 —
 (0.7) —
 0.9
Repurchase of shares—
 —
 0.7
 (10.0) —
 —
 —
 (10.0)
Balance as of June 29, 201892.5
 $18.5
 9.5
 $(1,619.1) $5,508.9
 $2,587.8
 $(21.7) $6,474.4
               
Balance as of December 28, 201892.7
 $18.5
 9.4
 $(1,617.4) $5,528.2
 $(1,017.7) $(24.3) $2,887.3
Impact of accounting standard adoptions, net of tax—
 —
 —
 —
 —
 (0.5) 0.5
 —
Net income—
 —
 —
 —
 —
 154.9
 —
 154.9
Currency translation adjustments—
 —
 —
 —
 —
 —
 1.4
 1.4
Change in derivatives, net of tax—
 —
 —
 —
 —
 —
 0.2
 0.2
Change in benefit plans, net of tax—
 —
 —
 —
 —
 —
 (0.3) (0.3)
Share options exercised—
 —
 —
 —
 0.3
 —
 —
 0.3
Vesting of restricted shares0.2
 0.1
 —
 (0.5) —
 —
 —
 (0.4)
Share-based compensation—
 —
 —
 —
 10.0
 —
 —
 10.0
Reissuance of treasury shares—
 —
 —
 0.9
 —
 (0.4) —
 0.5
Balance as of March 29, 201992.9
 $18.6
 9.4
 $(1,617.0) $5,538.5
 $(863.7) $(22.5) $3,053.9
Net income—
 —
 —
 —
 —
 6.8
 —
 6.8
Currency translation adjustments—
 —
 —
 —
 —
 —
 2.3
 2.3
Change in derivatives, net of tax—
 —
 —
 —
 —
 —
 0.5
 0.5
Change in benefit plans, net of tax—
 —
 —
 —
 —
 —
 (0.4) (0.4)
Share options exercised—
 —
 —
 —
 0.2
 —
 —
 0.2
Vesting of restricted shares0.4
 0.1
 0.1
 (2.0) —
 —
 —
 (1.9)
Share-based compensation—
 —
 —
 —
 12.8
 —
 —
 12.8
Reissuance of treasury shares—
 —
 (0.1) 1.6
 —
 (0.6) —
 1.0
Balance as of June 28, 201993.3
 $18.7
 9.4
 $(1,617.4) $5,551.5
 $(857.5) $(20.1) $3,075.2
 
See Notes to Condensed Consolidated Financial Statements.




MALLINCKRODT PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in millions, except share data, per share data and where indicated)

1.Background and Basis of Presentation
Background
Mallinckrodt plc and itsis a global business consisting of multiple wholly owned subsidiaries (collectively, "Mallinckrodt" or "the Company") is a global business that develops, manufactures, marketsdevelop, manufacture, market and distributesdistribute specialty pharmaceutical products and therapies. Areas of focus include autoimmune and rare diseases in specialty areas like neurology, rheumatology, nephrology, pulmonology and ophthalmology; immunotherapy and neonatal respiratory critical care therapies; analgesics and gastrointestinal products.
On February 22, 2018,May 28, 2019, as an update to the Company's Board of Directors authorized commencement of a process to dispose of (1) its Specialty Generics business comprisedplanned separation of the previously reported Specialty Generics and Amitiza® (lubiprostone) ("Amitiza") segment, with the exception of BioVectra, Inc. - a wholly-owned subsidiaryCompany announced that given the strong, return-to-growth performance of the Company that operates a contract manufacturingSpecialty Generics business, in Canada ("BioVectra"), (2) certain of its non-promoted brands business, which was previously reflected inthe Amitiza product should remain with the Specialty Brands segment; and (3) its ongoing, post-divestiture supply agreementbusiness. As a result of this announcement, the Company identified two reportable segments that align with the acquireroperations of the contrast media and delivery systems ("CMDS") business,two independent publicly traded companies anticipated post-separation, which was previously reflected in the Other non-operatingare further described below:
•
Specialty Brands includes innovative specialty pharmaceutical brands (inclusive of Amitiza); and
•
Specialty Generics includes niche specialty generic drugs and active pharmaceutical ingredients ("API(s)").
All prior period segment (referred to collectively as the "Specialty Generics Disposal Group"). The Company evaluated the criteria prescribed by United States ("U.S.") Generally Accepted Accounting Principles ("GAAP") for recording a disposal group as held for sale and discontinued operations. This criteria was met during the three months ended March 30, 2018, and as a result, prior year balances haveinformation has been recast to presentreflect the financial resultsrealignment of the disposal group asCompany's reportable segments on a discontinued operation.
Ascomparable basis. Refer to Note 18 for an update on the Company's plans for the Specialty Generics Disposal Group is reported as a discontinued operation, the Company's continuing operations are limited to the results of operations from the Specialty Brandssegment. The Specialty Brands segment markets branded pharmaceutical products for autoimmune and rare diseases in the specialty areas of neurology, rheumatology, nephrology, ophthalmology and pulmonology; immunotherapy and neonatal respiratory critical care therapies, analgesics and gastrointestinal products. The Company's diversified, in-line portfolio of both marketed and development products is focused on patients with significant unmet medical needs.business.
The Company owns or has rights to use the trademarks and trade names that are used in conjunction with the operation of its business. One of the more important trademarks that the Company owns or has rights to use that appears in this Quarterly Report on Form 10-Q is "Mallinckrodt," which is a registered trademark or the subject of pending trademark applications in the United States ("U.S.") and other jurisdictions. Solely for convenience, the Company only uses the ™ or ® symbols the first time any trademark or trade name is mentioned in the following notes. Such references are not intended to indicate in any way that the Company will not assert, to the fullest extent permitted under applicable law, its rights to its trademarks and trade names. Each trademark or trade name of any other company appearing in the following notes is, to the Company's knowledge, owned by such other company.

Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in U.S. dollars and in accordance with GAAP.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 revenues and expenses. Actual results may differ from those estimates. The unaudited condensed consolidated financial statements include the accounts of the Company, its wholly-ownedwholly owned subsidiaries and entities in which they own or control more than 50% 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 reported in discontinued operations. Divestitures of product lines and businesses not meeting the criteria for discontinued operations have been reflected in operating income. The fiscal year end balance sheet data was derived from audited consolidated financial statements, but do 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 financial statements included in its Annual Report on Form 10-K for the periodfiscal year ended December 29, 201728, 2018 filed with the U.S. Securities and Exchange Commission ("SEC") on February 27, 2018.26, 2019.
Beginning in the first quarter through the third quarter of fiscal 2018, the historical financial results attributable to "the Specialty Generics Disposal Group" were reflected in the Company's interim unaudited condensed consolidated financial statements as discontinued operations. As a result of the December 6, 2018 announcement of the planned separation of the Specialty Generics business, the Specialty Generics Disposal Group no longer met the requirements to be classified as held-for-sale, and the historical financial results attributable to the Specialty Generics Disposal Group were recast as continuing operations in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2018, as well as the unaudited condensed consolidated financial statements for the prior periods as presented herein.




Fiscal Year
The Company reports its results based on a "52-53 week" year ending on the last Friday of December. Unless otherwise indicated, the three and ninesix months ended SeptemberJune 28, 2019 refers to the thirteen and twenty-six week periods ended June 28, 2019 and the three and six months ended June 29, 2018 refers to the thirteen and thirty-ninetwenty-six week periods ended September 28, 2018 and the three and nine months ended SeptemberJune 29, 2017 refers to the thirteen and thirty-nine week periods ended September 29, 2017.2018.




2.Recently Issued Accounting Standards
Adopted
The Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2018-05,2018-02, "Income TaxesStatement - Reporting Comprehensive Income (Topic 740)220): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SEC Update),Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," in MarchFebruary 2018. This update adds SEC paragraphs pursuantASU allows for a reclassification from accumulated other comprehensive income ("AOCI") to the SEC's Staff Accounting Bulletin ("SAB") 118, which provides guidance on accountingretained earnings for the stranded tax effects arising from the change in the reduction of the Tax Cuts and Jobs Act ("TCJA") that was enacted in December 2017. SAB 118 provides a measurement period that should not extend beyond one yearU.S. federal statutory income tax rate from the TCJA enactment date for companies35% to complete their accounting for the tax effects of the TCJA. The amendments are effective upon addition to the FASB Accounting Standards Codification ("ASC")21%. The Company adopted this guidancestandard as of day 1 of fiscal 2019, which resulted in fiscal 2018. See Note 7 for additional detailsa reclassification between AOCI and retained deficit of $0.5 million, and had no impact on the Company's assessmentresults of impact of this adoption.
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 valueoperations 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. The Company adopted this standard in fiscal 2018 and will apply this standard to prospective modifications. The adoption of this guidance did not result in any material changes to the unaudited condensed consolidated financial statements.
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. The Company adopted this guidance in fiscal 2018 which required retroactive application resulting in the reclassification of $72.4 million of other components of net benefit costs to other income (expense), net for the nine months ended September 29, 2017 from selling, general and administrative expenses ("SG&A") of $70.8 million, cost of sales of $1.2 million, and research and development expenses ("R&D") of $0.4 million. The adoption of this guidance did not result in any material changes to the unaudited condensed consolidated financial statements.
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 require that (1) 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. The Company adopted this guidance in fiscal 2018, which did not have a material impact to the unaudited condensed consolidated financial statements.
The FASB issued ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," in January 2016. This update addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Under the new guidance, equity investments, other than equity method investments, are to be measured at fair value with changes in fair value recognized through net income. The Company adopted this guidance in fiscal 2018, resulting in a $1.5 million increase to beginning retained earnings with an offsetting decrease to accumulated other comprehensive loss relating to the unrealized gain on its investment in Mesoblast Limited ("Mesoblast"). The adoption of this standard did not result in any material changes to the unaudited condensed consolidated financial statements.

The FASB issued ASU 2014-09, "Revenue from Contracts with Customers," in May 2014. The issuance of ASU 2014-09 and International Financial Reporting Standards ("IFRS") 15, "Revenue from Contracts with Customers," completes the joint effort by the FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and 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 FASB subsequently issued additional ASUs to clarify the guidance in ASU 2014-09. The additional ASUs issued include ASU 2016-08, "Revenue from Contracts with Customers;" ASU 2016-10 "Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing;" and ASU 2016-12, "Narrow-Scope Improvements and Practical Expedients."



The Company adopted ASU 2014-09 and its related amendments (collectively known as "ASC 606") effective on December 30, 2017 using the modified retrospective transition approach. The adoption of ASC 606 represents a change in accounting principle that more closely aligns revenue recognition with the delivery of the Company's products and will provide financial statement readers with enhanced disclosures, which have been included in Note 3. The cumulative effect of applying the new standard to contracts not completed at December 30, 2017 was recorded as a $1.1 million increase, net of tax, to beginning retained earnings. The prior periods were not restated. The adoption of this standard did not result in any material changes to the unaudited condensed consolidated financial statements.

Not Yet Adopted
The FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," in August 2018. This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this update also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. Upon adoption, the update will be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. This guidance is effective for the Company in the first quarter of fiscal 2020; however, early adoption is permitted. The Company is currently assessing the impact of this guidance on the unaudited condensed consolidated financial statements.position.
The FASB issued ASU 2016-02, "Leases," in February 2016. This updateASU was issued to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined under ASU 2016-02). This guidance is effective for the Company in the first quarter of fiscal 2019.asset. The FASB subsequently issued additional ASUs to clarify the guidance inof ASU 2016-02. The ASUs include ASU 2018-10, "Codification Improvements to 2016-02 ("Topic 842, Leases" and ASU 2018-11 "Leases, (Topic 842), Targeted Improvements.") as amended. The Company currently expects to utilizeadopted this standard as of day 1 of fiscal 2019 utilizing the additionalmodified transition approach as provided under ASU 2018-11,expedient which allows an entity to elect not to recast its comparative periods in the period of adoption. 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 the initial applicationexisting leases. Adoption of the new leasing standard at the adoption date (day 1 of fiscal 2019) with a cumulative-effect adjustment to the opening balance of retained earnings. The Company has identified its population of lease agreements and is currently assessing other arrangements such as supply and service agreements for embedded leases. Although the Company isresulted in the processrecording of determining the potential impact on its consolidated financial statements, it anticipates that the most significant change will be related to the Company recording additional lease assets and corresponding 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 balance sheet for operatingCompany's leases. The ultimate impact of the new standard will depend on the total amount of the Company's lease commitments as of the adoption date.

3.Revenue from Contracts with Customers
Product Sales Revenue

The Company sells its products through distributors who resell the products to institutions and end user customers, while certain products are sold and distributed directly to hospitals. The Company also enters into arrangements with indirect customers, such as health care providers and payers, to establish contract pricingSee Note 16 for certain products that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchasepresentation of the Company's products.net sales by product family.
 
Reserves for variable consideration
 
Product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. These reserves result from estimated chargebacks, rebates, product returns and other sales deductions that are offered within contracts between the Company and its customers, health care providers and payers relating to the Company's sales of its products. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer). Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted for relevant factors such as the Company's historical experience, estimated future trends, estimated customer inventory levels, current contracted sales terms with customers, level of utilization of the Company's products and other competitive factors. Overall, these reserves reflect the Company's best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration included in the transaction price may be constrained (reduced), and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. The Company adjusts reserves for rebates, chargebacks, product returns and other sales deductions to reflect differences between estimated and actual experience. Such adjustments impact the amount of net sales recognized in the period of adjustment.  



The following table reflects activity in the Company's sales reserve accounts, on a continuing operations basis:accounts:
Rebates and Chargebacks Product Returns Other Sales Deductions TotalRebates and Chargebacks Product Returns Other Sales Deductions Total
Balance at December 29, 2017$60.3
 $4.1
 $1.1
 $65.5
Balance as of December 29, 2017$327.4
 $34.5
 $14.7
 $376.6
Provisions221.2
 6.6
 7.4
 235.2
1,029.0
 23.2
 29.5
 1,081.7
Payments or credits(205.8) (5.9) (7.4) (219.1)(999.2) (22.5) (31.1) (1,052.8)
Balance at September 28, 2018$75.7
 $4.8
 $1.1
 $81.6
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
Provisions1,214.3
 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


 See Note 19 for presentation of the Company's net sales by product family.


Product sales are recognized when the customer obtains control of the Company's product. Control is transferred either at a point in time, generally upon delivery to the customer site, or in the case of certain of the Company's products, over the period in which the customer has access to the product and related services. Revenue recognized over time is based upon either consumption of the product or passage of time based upon the Company's determination of the measure that best aligns with how the obligation is satisfied. The Company's considerations of why such measures provide a faithful depiction of the transfer of its products are as follows:

For those contracts whereby revenue is recognized over time based upon consumption of the product, the Company either has:
1)the right to invoice the customer in an amount that directly corresponds with the value to the customer of the Company's performance to date, for which the practical expedient to recognize revenue in proportion to the amount it has the right to invoice has been applied, or
2)the remaining goods and services to which the customer is entitled is diminished upon consumption.

For those contracts whereby revenue is recognized over time based upon the passage of time, the benefit that the customer receives from unlimited access to the Company's product does not vary, regardless of consumption. As a result, the Company's obligation diminishes with the passage of time; therefore, it was determined that ratable recognition of the transaction price over the contract period is the measure that best aligns with how the obligation is satisfied.

Product sales transferred to customers at a point in time and over time arewere as follows:
Three Months Ended Nine Months EndedThree Months Ended Six Months Ended
September 28,
2018		 September 28,
2018		June 28,
2019		 June 29,
2018		 June 28,
2019		 June 29,
2018
Product sales transferred at a point in time78.9% 77.9%82.9% 84.0% 81.8% 82.7%
Product sales transferred over time21.1% 22.1%17.1% 16.0% 18.2% 17.3%


Transaction price allocated to the remaining performance obligations

The majority of the Company's contracts (as defined under ASC 606) are less than one year; therefore, the related disclosure of the amount of transaction price allocated to the performance obligations that are unsatisfied at period end has been omitted, with the exception of those noted below. The following table includes estimated revenue from contracts extending greater than one year for certain of the Company's hospital products that are expected to be recognized in the future related to performance obligations that arewere unsatisfied or partially unsatisfied at Septemberas of June 28, 2018:2019:
Remainder of Fiscal 2018$71.7
Fiscal 2019135.3
Remainder of Fiscal 2019$81.5
Fiscal 2020118.6
154.2
Fiscal 202123.9
60.3
Fiscal 20229.2
Thereafter3.2
6.2


Costs to obtain a contract

As the majority of the Company's contracts are short-term in nature, sales commissions are generally expensed when incurred as the amortization period would have been less than one year. These costs are recorded within SG&A expenses. For contracts that extend beyond one year, the incremental expense recognition matches the recognition of related revenue and therefore, no costs to obtain a contract were capitalized upon adoption of ASC 606.



Costs to fulfill a contract

The Company capitalizesAs of June 28, 2019 and December 28, 2018, the costs associated withtotal net book value of the devices used in the Company's portfolio of drug-device combination products, which are used in satisfaction ofsatisfying future performance obligations. Capital expenditures for these devices represent cash outflows for the Company's cost to produce the asset, which isobligations, were $27.5 million and $28.4 million, respectively, and are classified in property, plant and equipment, net, on the unaudited condensed consolidated balance sheet and expensed to cost of sales over the useful life of the equipment. As of September 28, 2018, the total net book value of these devices was $27.6 million.sheets. The associated depreciation expense recognized during the ninesix months ended SeptemberJune 28, 2019 and June 29, 2018 was $8.5 million.$3.4 million and $6.8 million, respectively.


Product Royalty Revenues
 
In relation to the Company's acquisition of Sucampo Pharmaceuticals, Inc. on February 13, 2018, as discussed in further detail in Note 5, it acquired an arrangement under which theThe Company licenses certain rights to Amitiza® (lubiprostone) ("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 duringwas 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


Royalty revenue for the three and ninesix months ended September 28,June 29, 2018 was $22.5 million and $52.1 million, respectively.reflects royalty revenue for the period subsequent to the Company's February 2018 acquisition of Sucampo Pharmaceuticals, Inc. ("Sucampo Acquisition").

Contract BalancesLiabilities

Accounts receivable are recorded whenThe following table reflects the right to consideration becomes unconditional. Payments received from customers are typically based upon payment terms of 30 days. The Company does not maintain contract asset balances aside from the accounts receivable balance presented on the unaudited condensed consolidated balance sheet as costs to obtain a contract are expensed when incurred and the amortization period would have been less than one year. These costs are recorded within SG&A expenses.
Contract liabilities are recorded when cash payments are received in advance of the Company's performance, including amounts which are refundable. Contractcontract liabilities asat the end of September 28, 2018 and December 29, 2017 were as follows:the respective periods:
September 28,
2018		 December 29,
2017		June 28,
2019		 December 28,
2018
Accrued and other current liabilities$21.2
 $13.9
$20.3
 $20.4
Other liabilities14.0
 6.3
16.9
 15.1
Contract liabilities$35.2
 $20.2
$37.2
 $35.5

Revenue recognized during the ninesix months ended SeptemberJune 28, 20182019 from amounts included in contract liabilities at the beginning of the period was approximately $14.9$9.2 million.




4.Discontinued Operations and Divestitures
Discontinued Operations
Specialty Generics Disposal Group: On February 22, 2018, the Specialty Generics Disposal Group met the criteria for held for sale classification and discontinued operation presentation upon commencement of a process to dispose of the group.


The following table summarizes the financial results of the Specialty Generics Disposal Group presented in the unaudited condensed consolidated statements of income:
 Three Months Ended Nine Months Ended
 September 28,
2018		 September 29,
2017		 September 28,
2018		 September 29,
2017
Major line items constituting income from discontinued operations:       
Net sales$159.9
 $193.3
 $536.4
 $668.6
Cost of sales107.3
 125.3
 336.1
 384.5
Selling, general and administrative expenses29.4
 19.3
 73.8
 56.6
Research and development expenses7.6
 12.6
 36.8
 46.3
Restructuring charges, net0.1
 (1.1) 5.3
 5.8
Non-restructuring impairment charges2.0
 —
 2.0
 —
Other income, net—
 0.6
 0.3
 4.4
Income from discontinued operations13.5
 37.8
 82.7
 179.8
Income tax expense2.3
 26.6
 18.1
 42.6
Income from discontinued operations, net of income taxes$11.2
 $11.2
 $64.6
 $137.2


The following table summarizes the assets and liabilities of the Specialty Generics Disposal Group that are classified as held for sale on the unaudited condensed consolidated balance sheets:
 September 28,
2018		 December 29, 2017
Carrying amounts of major classes of assets included as part of discontinued operations:   
Accounts receivable$189.0
 $170.4
Inventories205.9
 211.7
Property, plant and equipment, net561.7
 553.6
Intangible assets, net110.3
 114.0
Other current and non-current assets69.9
 84.5
Total assets classified as held for sale in the balance sheet$1,136.8
 $1,134.2
    
Carrying amounts of major classes of liabilities included as part of discontinued operations:   
Accounts payable$39.0
 $36.0
Other current and non-current liabilities143.4
 126.6
Total liabilities classified as held for sale in the balance sheet$182.4
 $162.6


The following table summarizes significant cash and non-cash transactions of the Specialty Generics Disposal Group that are included within the unaudited condensed consolidated statements of cash flows for the respective periods:
 Three Months Ended Nine Months Ended
 September 28,
2018		 September 29,
2017		 September 28,
2018		 September 29,
2017
Depreciation, including accelerated depreciation$0.6
 $15.3
 $12.1
 $45.7
Amortization—
 3.9
 1.7
 14.6
Capital expenditures5.9
 11.1
 21.7
 41.7

All other notes to the unaudited condensed consolidated financial statements that were impacted by this discontinued operation have been reclassified accordingly.

Nuclear Imaging: On January 27, 2017, the Company completed the sale of its Nuclear Imaging business to IBA Molecular ("IBAM") for approximately $690.0 million before tax impacts, including up-front consideration of approximately $574.0 million, up to $77.0 million of contingent consideration and the assumption of certain liabilities. The Company recorded a pre-tax gain on the sale


of the Nuclear Imaging business of $362.8 million during the nine months ended September 29, 2017, which excluded any potential proceeds from the contingent consideration and reflects a charge of $0.6 million during the three months ended September 29, 2017 primarily as a result of ongoing working capital adjustments associated with the purchase agreement. During the nine months ended September 28, 2018 the Company received a total of $15.0 million in contingent consideration related to the sale of the Nuclear Imaging business, consisting of a $6.0 million cash payment and the issuance of $9.0 million par value non-voting preferred equity certificates. The preferred equity certificates accrue interest at a rate of 10.0% per annum and are redeemable on the retirement date of July 27, 2025, or earlier if elected by the issuer, for cash at a price equal to the par value and any accrued but unpaid interest. The Company recorded tax expense of $1.5 million associated with the $6.0 million contingent consideration cash payment. The $9.0 million in preferred equity certificates is presented as a non-cash investing activity on the unaudited condensed consolidated statement of cash flows. The $13.5 million of contingent consideration received, net of tax, was recorded as income from discontinued operations.
The following table summarizes the financial results of the Nuclear Imaging business presented in the unaudited condensed consolidated statements of income:
 Three Months Ended Nine Months Ended
 September 29,
2017		 September 29,
2017
Major line items constituting income from discontinued operations:   
Net sales$—
 $31.6
Cost of sales—
 15.6
Selling, general and administrative expenses—
 7.8
Other—
 (0.2)
Income from discontinued operations—
 8.4
(Loss) gain on divestiture of discontinued operations(0.6) 362.8
(Loss) income from discontinued operations, before income taxes(0.6) 371.2
Income tax (benefit) expense(0.1) 5.2
(Loss) income from discontinued operations, net of income taxes$(0.5) $366.0

During the three months ended September 29, 2017, there was 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.
The Company incurred $0.3 million of capital expenditures related to the Nuclear Imaging business that are included within the unaudited condensed consolidated statements of cash flows for the nine months ended September 29, 2017.
All other notes to the unaudited condensed consolidated financial statements that were impacted by this discontinued operation have been reclassified accordingly.

Divestitures
PreveLeak/Recothrom: On March 16, 2018, the Company completed the sale of a portion of its Hemostasis business, inclusive of its PreveLeak™ Surgical Sealant ("PreveLeak") and RECOTHROM® Thrombin topical (Recombinant) ("Recothrom") products to Baxter International, Inc. ("Baxter") for approximately $185.0 million, with a base payment of $153.0 million, inclusive of existing inventory and subject to a closing inventory adjustment, with the remainder in potential future milestones. Baxter assumed other expenses, including contingent liabilities associated with PreveLeak. During the nine months ended September 28, 2018, the Company recorded a pre-tax loss on the sale of $0.6 million, which excluded any potential proceeds from the attainment of future milestones and reflected a post-sale closing inventory adjustment of $13.7 million. The financial results of the PreveLeak and Recothrom operations are presented within continuing operations as this divestiture did not meet the criteria for discontinued operations presentation.
As part of the divestiture and calculation of the gain, the Company wrote off intangible assets of $49.9 million and goodwill of $51.5 million, from the Specialty Brands segment, ascribed to the PreveLeak and Recothrom operations. The remaining items included in the loss calculation are primarily attributable to inventory transferred, contingent consideration transferred and transaction costs incurred by the Company.



Intrathecal Therapy: On March 17, 2017, the Company completed the sale of 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 was due one year from the transaction closing date. During the nine months ended September 29, 2017, the Company recorded a pre-tax gain on the sale of the business of $56.6 million, which excluded any potential proceeds from the contingent consideration and reflects a post-sale adjustment of $0.4 million during the three months ended September 29, 2017. On February 28, 2018, the Company received $154.0 million from Piramal for the settlement of the aforementioned note receivable. The financial results of the Intrathecal Therapy business are presented within continuing operations as this divestiture did not meet the criteria for discontinued operations presentation.
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, of which $3.1 million was included in accrued and other current liabilities on the unaudited condensed consolidated balance sheet as of September 28, 2018. The remaining items included in the gain calculation are attributable to inventory transferred and transaction costs incurred by the Company.

5.Acquisitions

Sucampo Pharmaceuticals, Inc.
On February 13, 2018, the Company acquired Sucampo Pharmaceuticals, Inc. ("Sucampo") through the acquisition of all the outstanding common stock of Sucampo. Consideration for the transaction consisted of approximately $1.2 billion, including the assumption of Sucampo's third-party debt ("the Sucampo Acquisition"). The acquisition was funded through the issuance of $600.0 million aggregate principal amount of senior secured notes, a $900.0 million borrowing under the Company's revolving credit facility, as discussed further in Note 12, and cash on hand. Sucampo's commercialized products include Amitiza, a leading global product in the branded constipation market, and Rescula® (unoprostone isopropyl ophthalmic solution) 0.15% ("Rescula"), which is indicated for ocular hypertension and open-angle glaucoma, and marketed solely in Japan. Through this acquisition, the Company acquired VTS-270, a Phase 3 development product for Niemann-Pick Type C, a rare, neurodegenerative and ultimately fatal disease that can present at any age. Also acquired was an option to exercise a collaborative agreement with Cancer Prevention Pharmaceuticals ("CPP") associated with the development of CPP-1X/sulindac, a Phase 3 development product for Familial Adenomatous Polyposis ("FAP").
Upon completion of the Sucampo Acquisition, Sucampo's 3.25% convertible senior notes due 2021 ("the Sucampo Notes") became eligible to receive increased consideration in conjunction with a make-whole fundamental change, such that each $1,000 principal face amount of Sucampo Notes could be converted into $1,221 in cash. As of September 28, 2018, the issued convertible debt of $300.0 million had been converted and paid in full by the Company.

Fair value allocation
The following amounts represent the preliminary allocations of the fair value of the identifiable assets acquired and liabilities assumed for the Sucampo 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.


Cash and cash equivalents$149.6
Accounts receivable35.7
Inventory153.2
Intangible assets919.5
Goodwill244.7
Other current and non-current assets25.9
Total assets acquired1,528.6
Current liabilities108.3
Deferred tax liabilities, net (non-current)170.2
Debt366.3
Other noncurrent liabilities36.2
Total liabilities assumed681.0
Net assets acquired$847.6


The following is a reconciliation of the total consideration to net assets acquired:
Total consideration, net of cash$698.0
Plus: cash assumed in acquisition149.6
Total consideration/net assets acquired$847.6


Intangible assets acquired consist of the following:
  Amount Amortization Period Discount Rate
Completed technology - Amitiza $634.0
 9 years 14.0%
Completed technology - Rescula 11.0
 8 years 14.0%
In-process research and development - VTS-270 274.5
 Non-Amortizable 15.0%

The fair value of the completed technology and in-process research and development ("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 commensurate with the level of risk associated with each asset or its projected cash flows. The discount rates were developed after assigning a probability of success to achieving the projected cash flows based on the current stage of development, inherent uncertainty in the U.S. Food and Drug Administration ("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.

Financial results - The amount of net sales and loss included in the Company's results for the periods presented were as follows:
 Three Months Ended Nine Months Ended
 September 28,
2018		 September 29,
2017		 September 28,
2018		 September 29,
2017
Net sales$50.7
 $—
 $124.5
 $—
Operating loss(32.2) —
 (99.9) —



The following was included within cost of sales for the periods presented:
 Three Months Ended Nine Months Ended
 September 28,
2018		 September 29,
2017		 September 28,
2018		 September 29,
2017
Intangible asset amortization$18.0
 $—
 $45.0
 $—
Inventory fair value step-up expense31.0
 —
 77.5
 —


Acquisition-related costs incurred for the acquisition of $3.2 million were recognized during the nine months ended September 28, 2018.



Licenses
On April 5, 2018 (the "Exercise Date"), the Company exercised the option under its collaborative agreement with CPP to negotiate terms of an exclusive license to develop and commercialize CPP-1X/sulindac in North America. In addition, the Company provided CPP with a $10.0 million upfront R&D payment for expenses related to the FAP pivotal trial incurred during the "Negotiation Period," or the period from the Exercise Date through the execution of such license agreement. CPP shall return to the Company any portion of the R&D payment that is not utilized during the Negotiation Period. Of the $10.0 million upfront payment, $7.3 million was utilized during the nine months ended September 28, 2018 and recorded as R&D expense within the condensed consolidated statement of income. The remaining $2.7 million was included in prepaid expenses and other current assets on the unaudited condensed consolidated balance sheet as of September 28, 2018.
On August 4, 2018, the license agreement with CPP was executed and the Company paid $5.0 million upfront with cash on hand and gained exclusive rights to develop and commercialize the product in North America, if approved. The agreement includes additional payments of up to $185.0 million dependent on developmental, regulatory and sales milestones, subject to reduction up to $15.0 million related to amounts provided by the Company in advance of entering into this agreement, and provides for both parties' reimbursement of R&D expenses from future profits. Following the commercialization of the product, CPP and the Company will share profits in accordance with the agreement. The Company will manage the development of the product in North America.

6.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 Disposal Group,segment, as well as within the corporate functions. The 2016 Mallinckrodt Program iswas substantially complete.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 2018 Mallinckrodt Program.
In addition to the 20162018 and 20182016 Mallinckrodt Programs, the Company takes certainhas taken restructuring actions to generate synergies from its acquisitions.
Net restructuring and related charges reflected in continuing operations by segment arewere as follows:
Three Months Ended Nine Months EndedThree Months Ended Six Months Ended
September 28,
2018		 September 29,
2017		 September 28,
2018		 September 29,
2017		June 28,
2019		 June 29,
2018		 June 28,
2019		 June 29,
2018
Specialty Brands$3.2
 $14.6
 $73.7
 $24.1
$(0.1) $47.0
 $0.4
 $47.5
Specialty Generics(0.9) 0.1
 2.6
 5.2
Corporate16.4
 1.5
 27.7
 4.3
0.8
 11.7
 1.0
 34.3
Restructuring and related charges, net19.6
 16.1
 101.4
 28.4
(0.2) 58.8
 4.0
 87.0
Less: accelerated depreciation(4.9) (0.7) (4.9) (2.1)—
 —
 —
 —
Restructuring charges, net$14.7
 $15.4
 $96.5
 $26.3
$(0.2) $58.8
 $4.0
 $87.0


Net restructuring and related charges reflected in continuing operations by program arewere comprised of the following:
Three Months Ended Nine Months EndedThree Months Ended Six Months Ended
September 28,
2018		 September 29,
2017		 September 28,
2018		 September 29,
2017		June 28,
2019		 June 29,
2018		 June 28,
2019		 June 29,
2018
2018 Mallinckrodt Program$5.2
 $—
 $5.2
 $—
$(0.9) $—
 $2.6
 $—
2016 Mallinckrodt Program9.7
 16.1
 65.1
 28.4
1.5
 52.3
 2.2
 60.5
Acquisition programs4.7
 —
 31.1
 —
(0.8) 6.5
 (0.8) 26.5
Total19.6
 16.1
 101.4
 28.4
Less: non-cash charges, including accelerated depreciation and impairments(4.9) (0.7) (4.9) (2.1)
Total charges expected to be settled in cash$14.7
 $15.4
 $96.5
 $26.3
$(0.2) $58.8
 $4.0
 $87.0





The following table summarizes cash activity for restructuring reserves, reflected in continuing operations, substantially all of which are related to contract termination costs, and employee severance and benefits:benefits, and exiting certain facilities:
2018 Mallinckrodt Program 2016 Mallinckrodt Program Acquisition Programs Total2018 Mallinckrodt Program 2016 Mallinckrodt Program Acquisition Programs Total
Balance at December 29, 2017$—
 $14.1
 $0.8
 $14.9
Balance as of December 28, 2018$2.2
 $61.0
 $7.8
 $71.0
Charges2.2
 68.4
 29.9
 100.5
3.5
 2.4
 —
 5.9
Changes in estimate—
 (3.3) (0.7) (4.0)(0.9) (0.2) (0.8) (1.9)
Cash payments—
 (11.5) (21.9) (33.4)(1.4) (11.0) (1.4) (13.8)
Reclassifications(1)—
 (1.0) —
 (1.0)—
 (5.0) (4.3) (9.3)
Currency translation—
 0.7
 —
 0.7
Balance at September 28, 2018$2.2
 $67.4
 $8.1
 $77.7
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.

Total Company


As 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 Programs were as follows:
2018 Mallinckrodt Program 2016 Mallinckrodt Program2018 Mallinckrodt Program 2016 Mallinckrodt Program
Specialty Brands$3.0
 $80.0
$3.0
 $82.2
Specialty Generics2.6
 14.6
Corporate2.2
 26.5
2.2
 27.6
Specialty Generics Disposal Group—
 14.4
$5.2
 $120.9
$7.8
 $124.4

On January 8, 2018, the Company announced that it would discontinue marketing of Raplixa® after an evaluation of strategic options. During the nine months ended September 29, 2018, the Company incurred restructuring expenses of $48.8 million under the 2016 Mallinckrodt Program, consisting primarily of contract termination costs related to the production of Raplixa. Amounts paid in the future may differ from the amount currently recorded.
All of the restructuring reserves were included in accrued and other current liabilities on the Company's unaudited condensed consolidated balance sheets.

7.5.Income Taxes
The Company recognized an income tax benefit of $125.2$24.3 million on a loss from continuing operations before income taxes of $22.2$24.8 million for the three months ended SeptemberJune 28, 2018,2019, and an income tax benefit of $57.8$44.4 million on a loss from continuing operations before income taxes of $4.7$41.2 million for the three months ended SeptemberJune 29, 2017.2018. This resulted in effective tax rates of 564.0%98.0% and 1,229.8%107.8% for the three months ended SeptemberJune 28, 20182019 and SeptemberJune 29, 2017,2018, respectively. The income tax benefit for the three months ended SeptemberJune 28, 2018 is2019 was comprised of $16.1$5.6 million of current tax expense and $141.3$29.9 million of deferred tax benefit, which is predominantlywas predominately related to previously acquired intangible assets andintangibles, the generation of tax loss and credit carryforwards net operating losses.of valuation allowances and the non-restructuring impairment charge, as further discussed in Note 10. The income tax benefit for the three months ended SeptemberJune 29, 2017 is2018 was comprised of $81.4$10.2 million of current tax benefitexpense and $23.6$54.6 million of deferred tax expense.benefit. The net deferred tax expense of $23.6 million includes $50.7 million of deferred tax benefit which iswas predominantly related to previously acquired intangible assets offset by $74.3 million of deferred tax expense related to utilization of tax attributes.intangibles.
The Company recognized an income tax benefit of $222.0$229.0 million on a loss from continuing operations before income taxes of $190.1$74.3 million for the ninesix months ended SeptemberJune 28, 2018,2019, and an income tax benefit of $153.4$81.0 million on a loss from continuing operations before income taxes of $126.8$98.7 million for the ninesix months ended SeptemberJune 29, 2017.2018. This resulted in effective tax rates of 116.8%308.2% and 121.0%82.1% for the ninesix months ended SeptemberJune 28, 20182019 and SeptemberJune 29, 2017,2018, respectively. The income tax benefit for the ninesix months ended SeptemberJune 28, 2018 is2019 was comprised of $29.2$44.1 million of current tax expense and $251.2$273.1 million of deferred tax benefit. The deferred tax benefit which iswas predominantly related to previously acquired intangible assets andintangibles, the generation of tax loss and credit carryforwards net operating losses.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 obligation. The income tax benefit for the ninesix months ended SeptemberJune 29, 2017 is2018 was comprised of $13.6$21.4 million of current tax benefitexpense and $139.8$102.4 million of deferred tax benefit. The net deferred tax benefit of $139.8 million includes $241.3 million of deferred tax benefit, which iswas predominantly related to previously acquired intangible assets offset by $101.5 million of deferred tax expense related to utilization of tax attributes.intangibles.
The income tax benefit was $125.2$24.3 million for the three months ended SeptemberJune 28, 2018,2019, compared with a tax benefit of $57.8$44.4 million for the three months ended SeptemberJune 29, 2017.2018. The $67.4$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 an 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 in the tax benefit includesincluded an increase of $82.3$189.8 million attributableattributed to the tax benefit from the reorganization of the Company's intercompany financing and associated legal entity


ownership, which occurred during the three months ended September 28, 2018, ana $8.5 million increase of $17.3 million attributable to tax expense from a reorganization of legal entity ownership which occurred during the three months ended September 29, 2017, an increase of $9.1 million attributableattributed to the tax benefit from an adjustmentnon-restructuring impairment charge and a $3.6 million increase attributed to the provisional estimate of the remeasurement of its net U.S. deferred tax liabilities resulting from U.S. Tax Reform, and an increase in tax benefit of $3.7 million attributable to the impact of acquisitions occurring since September 29, 2017;separation costs, partially offset by a decrease to tax benefit of $36.7 million attributable to the reduction in the U.S. federal corporate statutory rate resulting from U.S. Tax Reform, and a decrease in tax benefit of $8.3$35.2 million attributablepredominately attributed to changes in the timing, amount and jurisdictional mix of operating income.
The income, tax benefit was $222.0a $9.8 million for the nine months ended September 28, 2018, compared withdecrease attributed to restructuring and related charges and a tax benefit of $153.4$8.9 million for the nine months ended September 29, 2017. The $68.6 million net increase in the tax benefit includes an increase of $82.3 million attributabledecrease attributed to the tax benefit from reorganization of the Company's intercompany financing and associated legal entity ownership which occurred during the nine months ended September 28, 2018, an increase of $27.1 million attributable to tax expense from the impact of dispositions predominately occurring during the nine months ended September 29, 2017, an increase of $17.3 million attributable to tax expense from a reorganization of legal entity ownership which occurred during the nine months ended September 29, 2017, an increase in tax benefit of $11.8 million attributable to the impact of acquisitions occurring since September 29, 2017, an increase of $9.1 million attributable to the tax benefit from an adjustment to the provisional estimate of the remeasurement of its net U.S. deferred tax liabilities resulting from U.S. Tax Reform, and an increase in tax benefit of $9.1 million attributable to changes in the amount and jurisdictional mix of operating income; partially offset by a decrease to tax benefit of $70.0 million attributable to the reduction in the U.S. federal corporate statutory rate from U.S. Tax Reform, and a decrease of $18.1 million attributable to tax benefit from the termination of the defined benefit pension plans which occurred during the nine months ended September 29, 2017.gain on debt repurchased.
During the three months ended September 28, 2018,March 29, 2019, the Company initiatedcompleted a reorganization of its intercompany financing and associated legal entity ownership in response to the changing global tax environment. As a result, during the six months ended June 28, 2019, the Company recognized current income tax expense of $1.0$28.9 million and a deferred income tax benefit of $83.3$218.7 million with a corresponding reduction to net deferred tax liabilities. The reduction in net deferred tax liabilities iswas comprised of a $67.0decrease 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 a deferred tax asset related to excess interest carryforwards, a $26.4 million increase in various other net deferred tax assets associated withliabilities and a $24.7 million decrease to a deferred tax asset related to tax loss and credit carryforwards a $58.9 million increase innet of



valuation allowances. The elimination of the interest-bearing deferred tax liabilities associated with its investment in partnership, a $58.9 million decrease in deferred tax liabilities predominately associated with intangible assets and a $16.3 million decrease related to a change in valuation allowances as a result ofobligation also eliminated the utilization of tax loss and credit carryforwards.annual Internal Revenue Code section 453A interest expense.
During the ninesix months ended SeptemberJune 28, 2018,2019, and the fiscal year ended December 29, 2017,28, 2018, the net cash payments for income taxes were $12.5$21.5 million and $73.4$12.4 million, respectively.
The Sucampo Acquisition resulted During the three months ended June 28, 2019, the Company filed its U.S. Federal income tax return for the period ended September 28, 2018 reporting a U.S. Federal net operating loss carryforward expiring in afiscal 2038. As of June 28, 2019, the Company’s U.S. Federal net deferredoperating loss carryforward was $815.4 million ($171.2 million measured at applicable statutory tax liability increaserates and net of $170.2 million. Significant components of this increase include $179.3 million of deferreduncertain tax liabilities associated with intangible assets and a $24.1 million deferred tax liability associated with inventories. The increase in deferred tax liabilities is partially offset by $29.4 million of deferred tax assets associated with tax loss and credit carryforwards, and various other net deferred tax assets of $3.8 million.
The sale of a portion of the Hemostasis business, inclusive of the PreveLeak and Recothrom products, was completed on March 16, 2018. This divestiture resulted in a net deferred tax liability decrease of $3.0 million. A significant component of this decrease includes a decrease of $3.0 million of deferred tax liability associated with inventories. In addition, there was a decrease of $1.5 million associated with other deferred tax assets, a decrease of $2.4 million of deferred tax asset associated with tax loss and credit carryforwards, and a decrease of $4.2 million of deferred tax asset associated with intangible assets, all of which were offset by a reduction in valuation allowance of $8.1 million.positions).
The Company's unrecognized tax benefits, excluding interest, totaled $192.3$448.9 million at Septemberand $287.7 million as of June 28, 2019 and December 28, 2018, and $182.5 million at December 29, 2017.respectively. The net increase of $9.8$161.2 million primarily resulted from a net increase to current year tax positions of $151.7 million, net increases from prior period tax positions predominately from acquired companies of $16.6$13.7 million, a net decrease from settlements of $2.0$0.9 million and a net decrease from a lapse of statute of limitations of $4.8$3.3 million. If favorably settled, $179.5$437.4 million of unrecognized tax benefits at Septemberas of June 28, 20182019 would benefit the effective tax 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 $18.0$44.6 million at Septemberand $37.1 million as of June 28, 2019 and December 28, 2018, and $7.1 million at December 29, 2017.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 $34.2approximately $65.8 million, and the amount of related interest and penalties will decreaseassociated valuation allowances were also decreased by up to $5.7 million.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the TCJA. The TCJA reduces the U.S. federal corporate statutory rate from 35% to 21%, requires companies to pay a one-time transition tax on certain undistributed earnings of the Company's foreign subsidiaries of U.S. entities and creates new taxes on certain foreign sourced earnings. The Company is applying the guidance in SAB 118 when accounting for the enactment-date effects of the TCJA. At September 28, 2018, the Company has not completed its accounting for all of the tax effects of the TCJA. As discussed below, the Company has recorded provisional estimates for certain provisions where the accounting is incomplete but a reasonable estimate can be made. In other cases, the Company continues to evaluate certain portions of the TCJA and the application of ASC 740 and no adjustments have been made in the unaudited condensed consolidated financial statements. In all cases, the Company will continue to


make and refine its calculations as additional analysis is completed. These estimates may also be affected as the Company gains a more thorough understanding of the tax law.
During fiscal 2017 the Company recorded a deferred tax benefit of $444.8 million for the provisional estimate of the remeasurement of its net U.S. deferred tax liabilities for the reduction in the U.S. federal corporate statutory tax rate to 21%. The provisional estimate was affected by other analyses related to the TCJA, including, but not limited to, having a U.S. tax return year that straddles the effective date of the statutory rate change and that is different than the Company's financial statement year. During the three and nine months ended September 28, 2018, on the basis of additional analysis related to certain tax calculations, the Company recognized an additional deferred tax benefit of $9.1 million, impacting the effective tax rate by 41.0 and 4.8 percentage points, respectively.
The one-time transition tax under the TCJA is based upon the amount of post-1986 cumulative undistributed earnings of certain of the Company's subsidiaries which was deferred from U.S. income tax under previous U.S. law. In fiscal 2017, the Company estimated this item would not result in any current or future tax. For the nine months ended September 28, 2018, no adjustments related to this provisional estimate have been made. While the Company is able to make a reasonable estimate of the impact of the one-time transition tax, additional information will continue to be gathered to finalize this conclusion.
Because of the complexity and uncertainties of the new global intangible low-taxed income rules, the Company continues to evaluate this portion of the TCJA and the application of ASC 740. Under GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to global intangible low-taxed income as a current-period expense when incurred or (2) factoring such amounts into a company's measurement of its deferred taxes. The Company's selection of an accounting policy with respect to these new tax rules will depend on whether it expects to have future U.S. inclusions in taxable income related to global intangible low-taxed income and, if so, what the tax impact is expected to be. Whether the Company expects to have future U.S. inclusions in taxable income depends on not only the Company's current structure and estimated future results of global operations but also its intent and ability to modify its structure and/or business. While the Company estimates these rules will not have a material tax impact, it is not yet able to finalize the effect of this portion of the TCJA. Therefore, the Company has not made any adjustments related to this item in its unaudited condensed consolidated financial statements and has not made a policy decision regarding whether to record deferred taxes on global intangible low-taxed income.same amount.

8.6.Earnings per Share
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 Nine Months EndedThree Months Ended Six Months Ended
September 28,
2018		 September 29,
2017		 September 28,
2018		 September 29,
2017		June 28,
2019		 June 29,
2018		 June 28,
2019		 June 29,
2018
Basic83.2
 96.7
 84.2
 99.5
83.8
 83.2
 83.7
 84.7
Dilutive impact of restricted share units and share options1.8
 0.3
 1.0
 0.3
—
 0.3
 0.6
 —
Diluted85.0
 97.0
 85.2
 99.8
83.8
 83.5
 84.3
 84.7


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, 2018 excludesexcluded approximately 3.43.6 million shares of equity awards, because the effect would have been anti-dilutive. The computation of diluted weighted-average shares outstanding for the three and nine months ended September 29, 2017 excludes approximately 4.3 million and 3.6 million shares of equity awards, respectively, because the effect would have been anti-dilutive.







9.7.Inventories
Inventories were comprised of the following at the end of eachthe respective period: 
September 28,
2018		 December 29,
2017		June 28,
2019		 December 28,
2018
Raw materials and supplies$22.0
 $23.7
$63.8
 $69.2
Work in process91.3
 61.1
177.3
 167.6
Finished goods30.1
 43.9
96.3
 85.5
$143.4
 $128.7
$337.4
 $322.3





10.8.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:
September 28,
2018		 December 29, 2017June 28,
2019		 December 28, 2018
Property, plant and equipment, gross$620.9
 $569.7
$1,987.8
 $1,936.2
Less: accumulated depreciation(181.6) (156.5)(993.6) (954.2)
Property, plant and equipment, net$439.3
 $413.2
$994.2
 $982.0


Depreciation expense for property, plant and equipment was as follows:
 Three Months Ended Nine Months Ended
 September 28, 2018 September 29, 2017 September 28, 2018 September 29, 2017
Depreciation expense$15.1
 $12.0
 $38.4
 $37.8
 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


11.9.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 goodwillwhich 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 liabilities77.7
Total lease liabilities$97.3





Dependent on the nature of each period wasthe 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 28, 2018 December 29, 2017
 Gross Carrying Amount Accumulated Impairment Gross Carrying Amount Accumulated Impairment
Specialty Brands$3,675.4
 $—
 $3,482.7
 $—
 Three Months Ended Six Months Ended
 June 28,
2019		 June 28,
2019
Lease cost:   
Operating lease cost$5.3
 $10.2
Short-term lease cost1.1
 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 lease7.4
Weighted-average discount rate - operating leases3.8%


During the nine months ended SeptemberMaturities of lease liabilities as of June 28, 2018, the gross carrying value of goodwill within the Specialty Brands segment increased by $192.7 million. The increase was attributable to the Sucampo Acquisition, which yielded $244.7 million of goodwill, partially offset by $51.5 million of goodwill ascribed to the sale of a portion of the Company's Hemostasis business, inclusive of the PreveLeak and Recothrom products. The remaining change in goodwill was related to purchase accounting adjustments during the twelve month measurement period for previous acquisitions.2019 were as follows:
 Operating Leases
Remainder of Fiscal 2019$11.8
Fiscal 202021.6
Fiscal 202116.3
Fiscal 202212.3
Fiscal 202311.7
Thereafter39.2
Total lease payments112.9
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 leases6.9


10.Intangible Assets

Stannsoporfin
On May 3, 2018, in a joint meeting,During the FDA's Gastrointestinal Drugs Advisory Committee and Pediatric Advisory Committee (the "Advisory Committee") recommended that the risk benefit profile of the Company's stannsoporfin IPR&D product does not support approval for the treatment of newborns ≥35 weeks of gestational age with indicators of hemolysis who are at risk of developing hyperbilirubinemia (severe jaundice).
On August 9, 2018,three months ended June 28, 2019, the Company receivedrecognized a complete response letter from the FDAfull impairment on its in-process research and development ("IPR&D") asset related to its new drug application ("NDA") for stannsoporfin. In the letter, the FDA provided guidance regarding areas of further evaluation for resubmitting the stannsoporfin NDA for the treatment of newborns ≥35 weeks of gestational age with indicators of hemolysis who are at risk of developing


hyperbilirubinemia. While the timing of the development program has shifted outward, the Company continues to have conversations with 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 $113.5 million included within intangible assets, net onas the unaudited condensed consolidated balance sheets as of September 28, 2018 and December 29, 2017. Refer to Note 18 for the associated impact on the Company's contingent consideration liability related to stannsoporfin.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 recently 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 FDAU.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 SeptemberJune 28, 2018.2019.
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 qualitative factors when considering a potential impairment such as changes to planned revenue or earnings that could affect significant inputs used to determine the fair value of the 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 was as follows:the respective period:
September 28, 2018 December 29, 2017June 28, 2019 December 28, 2018
Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated AmortizationGross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Amortizable:              
Completed technology$10,278.4
 $2,656.4
 $9,693.0
 $2,126.1
$10,456.9
 $3,413.3
 $10,467.9
 $2,980.6
License agreements120.1
 72.1
 120.1
 70.1
Trademarks82.0
 20.0
 81.9
 18.1
Customer relationships28.7
 14.0
 29.5
 12.2
28.5
 15.8
 27.5
 14.1
Trademarks75.3
 13.4
 75.5
 10.8
Other8.6
 8.6
 8.6
 8.6
Total$10,391.0
 $2,692.4
 $9,806.6
 $2,157.7
$10,687.5
 $3,521.2
 $10,697.4
 $3,082.9
Non-Amortizable:              
Trademarks$35.0
   $35.0
  $35.0
   $35.0
  
In-process research and development851.6
   577.1
  519.8
   633.3
  
Total$886.6
   $612.1
  $554.8
   $668.3
  


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 Nine Months Ended
 September 28, 2018 September 29, 2017 September 28, 2018 September 29, 2017
Amortization expense$184.2
 $169.3
 $544.8
 $508.4
 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









The estimated aggregate amortization expense on intangible assets owned by the Company is expected to be as follows:
Remainder of Fiscal 2018$184.2
Fiscal 2019737.2
Remainder of Fiscal 2019$414.7
Fiscal 2020736.9
756.7
Fiscal 2021736.6
659.9
Fiscal 2022609.6
587.3
Fiscal 2023583.1


12.11.Debt
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 202415.6
 0.1
 16.4
 0.2
Term loan due February 20254.1
 0.1
 6.0
 0.1
Other0.4
 —
 0.3
 —
Total current debt720.1
 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 2020200.0
 0.3
 250.0
 0.4
9.50% debentures due May 202210.4
 —
 10.4
 —
5.75% notes due August 2022663.2
 4.7
 835.2
 7.0
8.00% debentures due March 20234.4
 —
 4.4
 —
4.75% notes due April 2023400.1
 2.4
 500.2
 3.5
5.625% notes due October 2023680.2
 6.6
 731.4
 8.0
Term loan due September 20241,509.1
 17.3
 1,597.4
 19.8
Term loan due February 2025400.5
 6.7
 591.0
 10.7
5.50% notes due April 2025596.1
 6.1
 692.1
 7.7
Revolving credit facility405.0
 3.8
 220.0
 4.5
Other1.9
 —
 1.9
 —
Total long-term debt4,870.9
 47.9
 6,134.0
 64.8
Total debt$5,591.0
 $50.1
 $6,156.7
 $65.1
 September 28, 2018 December 29, 2017
 Principal Unamortized Discount and Debt Issuance Costs Principal Unamortized Discount and Debt Issuance Costs
Current maturities of long-term debt:       
3.50% notes due April 2018$—
 $—
 $300.0
 $0.2
Term loan due September 202412.3
 0.2
 14.0
 0.3
Term loan due February 20254.5
 0.1
 —
 —
ACOA (1) loan due December 2028
0.2
 —
 —
 —
Capital lease obligation and vendor financing agreements—
 —
 0.2
 —
Total current debt17.0
 0.3
 314.2
 0.5
Long-term debt:       
4.875% notes due April 2020700.0
 3.8
 700.0
 5.7
Variable-rate receivable securitization due July 2020225.0
 0.5
 200.0
 0.7
9.50% debentures due May 202210.4
 —
 10.4
 —
5.75% notes due August 2022884.0
 8.0
 884.0
 9.5
8.00% debentures due March 20234.4
 —
 4.4
 —
4.75% notes due April 2023500.2
 3.7
 526.5
 4.5
5.625% notes due October 2023731.4
 8.4
 738.0
 9.7
Term loan due September 20241,601.5
 20.7
 1,837.2
 26.7
Term loan due February 2025592.5
 11.1
 —
 —
5.50% notes due April 2025692.1
 8.0
 692.1
 9.0
ACOA loan due December 20281.6
 —
 —
 —
Revolving credit facility300.0
 4.9
 900.0
 5.9
Total long-term debt6,243.1
 69.1
 6,492.6
 71.7
Total debt$6,260.1
 $69.4
 $6,806.8
 $72.2
(1)Atlantic Canada Opportunities Agency ("ACOA")
In April 2018, $300.0 million of the Company's 3.50% unsecured, fixed-rate notes matured and were repaid with cash on hand.
In March 2018, BioVectra entered into an agreement with the ACOA to obtain an interest-free loan of up to $5.0 million Canadian Dollars ("CAD") in exchange for specified investments in Canada. The loan is repayable in equal monthly installments over 10 years starting in January 2019. The Company has the option of prepaying this loan without any penalties. As of September 28, 2018, the outstanding principal under this agreement was approximately $1.8 million.
In February 2018, in conjunction with the Sucampo Acquisition, Mallinckrodt International Finance S.A. ("MIFSA") and Mallinckrodt CB LLC ("MCB") issued a $600.0 million senior secured term loan.  The variable-rate loan bears an interest rate of LIBOR plus 300 basis points and was issued with a discount of 25 basis points.  The incremental term loan requires quarterly principal amortization payments in an amount equal to 1.00% of the original principal balance of the incremental term loan, and may be reduced by making optional prepayments. The quarterly principal amortization is payable on the last day of each calendar quarter, which commenced on June 30, 2018, with the remaining principal balance due on February 24, 2025. The incremental term loan matures on February 24, 2025 under terms generally consistent with the term loan due September 2024.



In January 2018, the Company made a $225.0 million prepayment on its term loan due September 2024.  In making this payment, the Company satisfied certain obligations included within external debt agreements to reinvest proceeds from the sale of assets and businesses within one year of the respective transaction or use the proceeds to pay down debt. 
As of SeptemberJune 28, 2018,2019, the applicable interest rate and outstanding borrowings on the Company's variable-rate debt instruments were as follows:
Applicable interest rate Outstanding borrowingsApplicable interest rate Outstanding borrowings
Term loan due September 20245.14% $1,613.8
5.08% $1,524.7
Term loan due February 20255.52% 597.0
5.53% 404.6
Variable-rate receivable securitization3.16% 225.0
3.30% 200.0
Revolving credit facility4.64% 300.0
4.64% 405.0

As of SeptemberJune 28, 2018,2019, 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 December 29, 2017.

13.Retirement Plans
The net periodic benefit (credit) cost for the Company's defined benefit pension plans was as follows:
 Three Months Ended Nine Months Ended
 September 28,
2018		 September 29,
2017		 September 28,
2018		 September 29,
2017
Service cost$0.1
 $—
 $0.2
 $1.3
Interest cost0.2
 0.1
 0.5
 1.7
Expected return on plan assets—
 —
 —
 (0.8)
Amortization of net actuarial loss0.1
 —
 0.4
 1.8
Amortization of prior service cost—
 —
 0.1
 0.2
Plan settlements(3.4) —
 (3.4) 69.7
Net periodic benefit (credit) cost$(3.0) $0.1
 $(2.2) $73.9


The net periodic benefit credit for the Company's postretirement benefit plans was approximately $0.1 million and zero for the three months ended September 28, 2018 and September 29, 2017, respectively, and $1.1 million and zero for the nine months ended September 28, 2018 and September 29, 2017, respectively.

Of the net periodic benefit (credit) cost for the Company's defined benefit pension plans and postretirement benefit plans, only service costs are included within other employee compensation costs recorded within cost of sales, R&D, and SG&A expenses, while all other components of the net periodic benefit costs are included within other income and expense 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 the 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, recorded as other income (expense), net within the unaudited condensed consolidated statement of income. During the three months ended September 28, 2018, the Company received a refund of $3.4 million of the initial cash contribution, recorded as other income (expense), net within the unaudited condensed consolidated statement of income.2018.




14.12.Accumulated Other Comprehensive Loss
The following summarizes the change incomponents of accumulated other comprehensive loss for the nine months ended September 28, 2018 and September 29, 2017:were as follows:
 Currency Translation Unrecognized Loss on Derivatives Unrecognized Loss on Benefit Plans 
Unrecognized Gain on Investment (1)
 
Accumulated Other Comprehensive Loss (1)
Balance at December 29, 2017$(8.2) $(4.7) $(1.5) $—
 $(14.4)
Other comprehensive (loss) income before reclassifications(4.1) —
 4.3
 —
 0.2
Amounts reclassified from accumulated other comprehensive loss—
 0.7
 (5.2) —
 (4.5)
Net current period other comprehensive (loss) income(4.1) 0.7
 (0.9) —
 (4.3)
Balance at September 28, 2018$(12.3) $(4.0) $(2.4) $—
 $(18.7)
 Currency Translation Unrecognized Loss on Derivatives Unrecognized Gain (Loss) on Benefit Plans Accumulated Other Comprehensive Loss
Balance as of December 28, 2018$(20.4) $(4.0) $0.1
 $(24.3)
Impact of accounting standard adoptions—
 —
 0.5
 0.5
Other comprehensive income before reclassifications3.7
 —
 —
 3.7
Amounts reclassified from accumulated other comprehensive loss—
 0.7
 (0.7) —
Net current period other comprehensive income (loss)3.7
 0.7
 (0.7) 3.7
Balance as of June 28, 2019$(16.7) $(3.3) $(0.1) $(20.1)

(1)Upon adoption of ASU 2016-01, a reclassification of $1.5 million relating to the unrealized gain on investment resulted in an increase to beginning retained earnings with an offsetting decrease to accumulated other comprehensive loss. See Note 2 for additional details.
 Currency Translation Unrecognized Loss on Derivatives Unrecognized Loss on Benefit Plans Unrecognized Gain on Investment Accumulated Other Comprehensive Loss
Balance at December 30, 2016$(19.5) $(5.7) $(47.3) $—
 $(72.5)
Other comprehensive income before reclassifications17.7
 —
 5.6
 0.1
 23.4
Amounts reclassified from accumulated other comprehensive loss(4.7) 0.9
 39.8
 —
 36.0
Net current period other comprehensive income13.0
 0.9
 45.4
 0.1
 59.4
Balance at September 29, 2017$(6.5) $(4.8) $(1.9) $0.1
 $(13.1)
 Currency Translation Unrecognized Loss on Derivatives Unrecognized Loss on Benefit Plans Accumulated Other Comprehensive Loss
Balance as of December 29, 2017$(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 following summarizes reclassifications from accumulated other comprehensive loss for the nine months ended September 28, 2018 and September 29, 2017:loss:
 
Amount Reclassified from
Accumulated Other Comprehensive Loss
  
 Nine Months Ended  
 September 28,
2018		 September 29,
2017		 
Line Item in the Unaudited Condensed Consolidated
Statement of Income
Currency translation$—
 $(4.7) Income from discontinued operations, net of income taxes
      
Amortization and other of unrealized loss on derivatives0.7
 1.1
 Interest expense
Income tax provision—
 (0.2) Income tax benefit
Net of income taxes0.7
 0.9
  
      
Amortization of pension and post-retirement benefit plans:     
Net actuarial loss0.4
 1.8
 
(1)  
Prior service credit(1.5) (1.0) 
(1)  
Divestiture of discontinued operations—
 (3.1) Income from discontinued operations, net of income taxes
Plan settlements(4.1) 69.7
 
(1)  
Total before tax(5.2) 67.4
  
Income tax provision—
 (27.6) Income tax benefit
Net of income taxes(5.2) 39.8
  
      
Total reclassifications for the period$(4.5) $36.0
  
(1)These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. See Note 13 for additional details.




15.Equity

On March 16, 2016, the Company's Board of Directors authorized a $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 expiration date, and the Company currently expects to fully utilize the program.

 
March 2017
Repurchase Program
 
March 2016
Repurchase Program
 Number of Shares Amount Number of Shares Amount
Authorized repurchase amount  $1,000.0
   $350.0
Repurchases:       
Transition Period 2016 (1)
—
 —
 1,501,676
 84.0
Fiscal 201713,490,448
 380.6
 5,366,741
 266.0
Fiscal 20183,610,968
 55.2
 —
 —
Remaining amount available  $564.2
   $—
 
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
 $0.5
 Interest expense
Amortization of pension and post-retirement benefit plans:     
Net actuarial loss0.3
 0.3
 Other income, net
Prior service credit(1.0) (1.0) Other income, net
Plan settlements—
 (0.7) Other income, net
Total reclassifications for the period$—
 $(0.9)  


(1) Represents the period from October 1, 2016 through December 30, 2016. The Company historically reported its results based on a "52-53 week" year ending on the last Friday in September. On May 17, 2016, the Board of Directors of the Company approved a change in the Company's fiscal year end to the last Friday in December from the last Friday in September. The change in fiscal year end became effective for the Company's 2017 fiscal year, which began on December 31, 2016 and ended on December 29, 2017. As a result of the change in fiscal year end, the Company filed a Transition Report on Form 10-Q on February 7, 2017 covering the period from October 1, 2016 through December 30, 2016.

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.

16.13.Guarantees
In disposing of assets or businesses, the Company has from time to time provided representations, warranties and indemnities to cover various risks and liabilities, including unknown damage to 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 SeptemberJune 28, 2019 and December 28, 2018 and December 29, 2017 was $14.3$15.0 million and $14.9$14.6 million, respectively, of which $11.6$12.6 million and $12.1$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 Septemberas of June 28, 20182019 and December 29, 2017.28, 2018. As of SeptemberJune 28, 2018,2019, 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 $18.5$18.8 million and $18.3$18.6 million remained in restricted cash, included in other long-term other assets on the unaudited condensed consolidated balance sheets at Septemberas of June 28, 20182019 and December 29, 2017,28, 2018, respectively.
The Company has recorded liabilities for known indemnification obligations included as part of environmental liabilities, which are discussed in Note 17.14.
The Company is also liable for product performance; however, the Company believes, given the information currently available, that the ultimate resolution of any such claims will not have a material adverse effect on its financial condition, results of operations and cash flows.
As of SeptemberJune 28, 2018,2019, the Company had various other letters of credit, guarantees and surety bonds totaling $22.5$36.2 million.



17.14.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 resolutions areresolution will not expected to have a material adverse effect on its financial condition, results of operations and cash flows.

Governmental Proceedings
Opioid RelatedOpioid-Related Matters
Multidistrict Litigation. TheSince 2017, multiple U.S. states, counties, other governmental persons or entities and private plaintiffs have filed lawsuits against certain entities of the Company, alongas 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 otherrespect to prescription opioid manufacturers and often, distributors, has been named in lawsuits broughtmedications, 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 various counties, cities, Native American tribes and/or other government-related persons or entities; approximately 140 cases filed by hospitals, health care clinics, Medicaid managed care organizations,systems, unions, health and welfare funds or other third-party payers. In general,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 MDL court has issued a series of case management orders permitting motion practice addressing threshold legal issues in certain cases, allowing discovery, setting pre-trial deadlines and setting a trial date on October 21, 2019 for two cases originally filed in the Northern District of Ohio by Summit County and Cuyahoga County against opioid manufacturers, distributors, and 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 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"(“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'defendants’ manufacturing, distribution, marketing and promotion of opioids and seek restitution, damages, injunctive and other relief and attorneys'attorneys’ fees and costs. These lawsuits were originally filed against, The claims generally are based on alleged misrepresentations and/or amended to include, the Companyomissions in various U.S. District Courts or in state courtsconnection with the state court lawsuits subsequently removedsale and marketing of prescription opioid medications and/or an alleged failure to U.S. District Courts. On December 5, 2017, the Judicial Panel in Multidistrict Litigation ("JPML") issued its order establishing a Multidistrict Litigation ("MDL") in the Northern District of Ohio for opioid litigation casestake adequate steps to prevent abuse and transferring those cases to the MDL that were originally filed in U.S. District Courts or removed to U.S. District Courts from state court.  There are currently 1,275 lawsuits naming the Company that either are in the MDL or are expected to be transferred to the MDL. 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 these matters.
State Court Lawsuits. On July 12, 2018,early stages, the CommonwealthCompany is unable to predict outcomes or estimate a range of Kentucky, through its Attorney General, filed suit in the Madison County Circuit Court in Kentucky against the Company. The lawsuit asserts violations of the Kentucky Consumer Protection Act, Medicaid Fraud Statute and Assistance Program Fraud Statute, asserts claims of public nuisance, fraud, negligence and unjust enrichment, and seeks relief similar to that sought in other state and federal actions.
On May 15, 2018, the State of Florida, through its Attorney General, filed suit in the Circuit Court of the Sixth Judicial Circuit in and for Pasco County in Florida against certain opioid distributors and manufacturers, including the Company. The lawsuit asserts violations of the Florida Deceptive and Unfair Trade Practices and RICO, asserts claims of public nuisance and negligence and seeks relief similar to that sought in other state and federal actions.
On December 20, 2017, the State of New Mexico, through its Attorney General, amended its lawsuit pending in the First Judicial District Court in the County of Santa Fe against certain opioid distributors and manufacturers, to add the Company. The lawsuit asserts violations of public nuisance laws and the New Mexico Unfair Practices, Medicaid Fraud and Racketeering Acts and seeks relief similar to that sought in other state and federal actions.reasonably possible losses.
In addition to the lawsuits described above, certain entities of the Company is currently named in 88 lawsuits pending in state courts in Alabama (1), Arkansas (1), Connecticut (2), Florida (2), Georgia (1), Illinois (3), Louisiana (2), Maryland (1), Massachusetts (2), Missouri (1), Nevada (1), New Hampshire (8), New York (16), Oklahoma (1), Pennsylvania (10), Tennessee (3), Texas (12), Utah (7), Virginia (12) and West Virginia (2). These state lawsuits are brought on behalf of cities, counties, towns, third party payers, individuals, and hospitals. The lawsuits assert claims and seek damages similar to those sought in the cases pending before the MDL. The Company intends to vigorously defend itself in these state court matters.
Investigations. The Company has alsohave received various subpoenas and requestscivil investigative demands ("CID(s)") for information related toconcerning the sale, marketing and/or distribution marketingof prescription opioid medications and sale of the Company's opioid products. On July 26, 2017,suspicious order monitoring programs, including from the Company received a subpoena from theU.S. Department of Justice ("DOJ"), on August 24, 2017, and the Company received a Civil Investigative Demand ("CID") from theAttorneys General for Missouri, Attorney General's Office, on September 22, 2017, the Company received a subpoena from the New Hampshire, Attorney General's Office, on January 9, 2018, the Company received a subpoena and CID from the Kentucky, Attorney General's Office, on January 16, 2018, the Company received a CID from the Attorney General's Office for the State of Washington, on February 5, 2018, the Company received a subpoena from the Attorney General's Office for the State of Alaska, on May 15, 2018, the Company received a CID from the Attorney General's Office for the State of South Carolina, Puerto Rico, New York, West Virginia, Indiana and on September 25, 2018, the Company received a CID fromDivisions of Consumer Protection and Occupational and Professional Licensing of the Attorney General's Office for Puerto Rico.


In addition, on January 27, 2018 the Company received a grand jury subpoena from the U.S. Attorneys' Office ("USAO") for the Southern DistrictUtah Department of Florida for documents related to the Company's distribution, marketing and sale of its oxymorphone generic products.
The Company is in the process of responding to these subpoenas and CIDs.
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.
OnIn August 2, 2018, the Company received a letter from the leaders of the Energy and Commerce Committee leaders in the U.S. House of Representatives sentrequesting 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 New York against the State of New York, asking the court to declare New York State’s Opioid Stewardship Act (“OSA”) unconstitutional and to enjoin its enforcement. On December 19, 2018, the court declared the OSA unconstitutional and granted the Company’s motion for preliminary injunctive relief. On January 17, 2019, the State of New York appealed the court’s decision. The Company intends to vigorously assert its position in 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.

Other Matters

Medicaid Lawsuit. In May 2019, the Company requesting information aboutfiled a lawsuit under the Company's effortsAdministrative Procedure Act ("APA") in federal district court for the 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 monitorcalculate 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 the 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 failed to revert to use of the original base date AMP in its opioid salescalculation of Acthar Medicaid rebates, CMS would identify the Company as being 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 suspicious orders.Acthar Gel, (iv) that CMS failed to give the Company fair notice of its latest position, and (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 the court took the matter under advisement. While the Company believes that its lawsuit has strong factual and legal bases, the potential for retroactive non-recurring charges could range from zero to approximately $600.0 million.
Florida Civil Investigative Demand. In February 2019, the Company received a CID from the U.S. Attorney’s Office for the Middle District of Florida for documents related to alleged payments to healthcare providers in Florida and whether those payments violated the Anti-Kickback Statute. The Company is in the process of responding to this letter.
The Companydemand for documents and intends to cooperate fully in these investigations.with the investigation.
Since these lawsuits and investigations are in early stages,



U.S. House Committee Investigation. In January 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 unablecooperating with the Committee's investigation.
Boston Civil Investigative Demand. In January 2019, the Company received a CID from the U.S. Attorney’s Office for the District of Massachusetts for documents related to predict their outcome or estimate a rangethe Company’s participation in the Medicaid Drug Rebate Program. The Company is in the process of reasonably possible losses.
Other Mattersresponding to this demand for documents and intends to cooperate with the investigation. 
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 Department of JusticeDOJ 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.
SEC Subpoena. In January 2017, the Company received a subpoena from the SEC for documents related to the Company's public statements, filings and other disclosures regarding H.P. Acthar® Gel sales, profits, promotion and pricing. The Company has responded to this subpoena, and in February 2018, the SEC notified the Company that it had concluded its investigation and that no enforcement action was recommended against the Company.
Boston Subpoena. In December 2016, the Company received a subpoena from the USAO for the District of Massachusetts for documents related to the Company'sCompany’s provision of financial and other support to patients, including through charitable foundations, and related matters. The Company is in the process of respondingresponded to this subpoena,these requests and the Company intendscontinues to cooperate fully in the investigation.
Texas Pricing Investigation. In November 2014, the Company received a CID from the Civil Medicaid Fraud Division of the Texas Attorney General's Office. According to the CID, the Attorney General's office is investigating the possibility of false reporting of information by the Company regarding the prices of certain of its drugs used by Texas Medicaid to establish reimbursement rates for pharmacies that dispensed the Company's drugs to Texas Medicaid recipients. The Company has responded to these requests.
Mallinckrodt Inc. v. U.S. Food and Drug Administration and United States of America. In November 2014, the Company filed a Complaint ("the Complaint") in the U.S. District Court for the District of Maryland Greenbelt Division against the FDA and the United States for judicial review of what the Company believes is the FDA's inappropriate and unlawful reclassification of the Company's Methylphenidate HCl Extended-Release tablets USP (CII) ("Methylphenidate ER") in the Orange Book: Approved Drug Products with Therapeutic Equivalence ("Orange Book"). 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 a second set of documents in October 2017. Following the Company's receipt of the October tranche of documents from CDER, the Company presented a supplemental document request to CDER to ensure all of its initial document requests were fulfilled, and on February 13, 2018, CDER provided a final set of documents in response to the Company's requests. In April 2018, the Company filed its submission in support of its position in the withdrawal proceedings. A potential outcome of the withdrawal proceedings is that the Company's Methylphenidate ER products may lose their FDA approval.
FTC Investigation. In June 2014, Questcor Pharmaceuticals, Inc. ("Questcor") received a subpoena and CID from the Federal Trade Commission ("FTC") seeking documentary materials and information regarding the FTC's investigation into whether Questcor's acquisition of certain rights to develop, market, manufacture, distribute, sell and commercialize Synacthen Depot® from Novartis AG and Novartis Pharma AG (collectively, "Novartis") violates antitrust laws. Subsequently, California, Maryland, Texas, Washington, New York and Alaska (collectively, "the Investigating States") commenced similar investigations focused on whether the transaction


violates state antitrust laws. On January 17, 2017, the FTC, all Investigating States (except California) ("the Settling States") and the Company entered into an agreement to resolve this matter for a one-time cash payment of $102.0 million and an agreement to license Synacthen Depot to a third party designated by the FTC for possible development in Infantile Spasms ("IS") and Nephrotic Syndrome ("NS") in the U.S. To facilitate that settlement, a complaint was filed on January 18, 2017, in the U.S. District Court for the District of Columbia. The settlement was approved by the court on January 30, 2017. On July 16, 2017, the Company announced the completion of the U.S. license of both the Synacthen trademark and certain intellectual property associated with Synacthen Depot to West Pharmaceuticals to develop and pursue possible FDA approval of the product in IS and NS. The Company retains the right to develop MNK-1411 (the product formerly described as Synacthen Depot) for all other indications in the U.S. and retains rights to the Synacthen trademark outside the U.S.
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'®Therakos’ 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'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 process of responding to these requests.investigation.
DEA Investigation. MNK 2011 Inc. (formerly known as Mallinckrodt Inc.) v. U.S. Food and Drug Administration and United States of America.In November 2011 and October 2012,2014, the FDA reclassified the Company's Methylphenidate ER in the Orange Book: Approved Drug Products with Therapeutic Equivalence ("the Orange Book"). In November 2014, the Company received subpoenas fromfiled a Complaint in the U.S. Drug Enforcement Administration ("DEA") requesting production of documents relating to its suspicious order monitoring program for controlled substances. The USAODistrict Court for the Eastern District of Michigan investigatedMaryland Greenbelt Division against the possibility thatFDA and the Company failed to report suspicious orders of controlled substances during the period 2006-2011 in violationUnited States (the "MD Complaint") for judicial review of the Controlled Substances Act and its related regulations. The USAO forFDA’s reclassification. In July 2015, the Northern District of New York and Office of Chief Counsel forcourt granted the U.S. DEA investigated the possibility that the Company failedFDA's motion to maintain appropriate records and security measuresdismiss with respect to manufacturingthree of certain controlled substances at its Hobart,the five counts in the MD Complaint and granted summary judgment in favor of the FDA with respect to the two remaining counts (the “MD Order”). On October 18, 2016, the FDA initiated proceedings, proposing to withdraw approval of the Company's Abbreviated New York facility duringDrug Application ("ANDA") for Methylphenidate ER. On October 21, 2016, the period 2012-2013. In July 2017,U.S. Court of Appeals for the Fourth Circuit issued an order placing the Company’s appeal of the MD Order in abeyance pending the outcome of the withdrawal proceedings. The parties exchanged documents and in April 2018, the Company entered into a final settlement withfiled its submission in support of its position in the DEA and the USAOs for the Eastern District of Michigan and the Northern District of New York to settle these investigations. As partwithdrawal proceedings. A potential outcome of the agreement,withdrawal proceedings is that the Company paid $35.0 millionCompany's Methylphenidate ER products may lose their FDA approval and have to resolve all potential claims.be withdrawn from the 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 H.P. 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 were participating in the investigation to review Questcor's promotional practices and related matters relatedpertaining to H.P. Acthar Gel. The current investigation also relates to Questcor's provision of financial and other support to patients, including through charitable foundations and related 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 H.P. Acthar Gel. On or about March 8, 2019, the U.S. District Court for the Eastern District of Pennsylvania unsealed two qui tam actions involving the allegations under investigation by the USAO for the Eastern District of Pennsylvania. The DOJ intervened in both actions, which have since been consolidated. The Company has reached an agreement in principle with the DOJ 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 cooperate fullydefend the lawsuit in court. At this stage of the investigation.lawsuit, the Company is not able to reasonably estimate the expected amount or range of cost 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 Company, and New 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 District 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..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 Jersey against Sun Pharmaceutical Industries, Ltd. and Sun 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 a September 2018 notice from Sun concerning its submission of an ANDA containing a Paragraph IV patent certification with the FDA for a generic version of Amitiza. The Company intends to vigorously enforce its intellectual property rights relating to Amitiza.
Amitiza Patent Litigation: Teva Pharmaceuticals USA, Inc. In September 2017, Sucampo AG and Sucampo Pharmaceuticals, Inc., subsidiaries of the Company, and Takeda filed suit in the U.S. District Court for the District of New Jersey against Teva Pharmaceuticals USA, Inc. ("Teva")alleging that Teva infringed U.S. Patent Nos. 6,414,016, 6,982,283, 7,795,312, 8,026,393, 8,071,613, 8,097,653, 8,338,639, 8,389,542 and 8,748,481 following receipt of an August 2017 notice from Teva concerning its submission of an ANDA containing a Paragraph IV patent certification with the FDA for a generic version of Amitiza. On June 28, 2018, the parties entered into a settlement agreement under which Teva was granted the non-exclusive right to market a competing lubiprostone product in the U.S. under its ANDA on or after January 1, 2023, or earlier under certain circumstances.
Amitiza Patent Litigation: Amneal Pharmaceuticals, LLC. In April 2017, Sucampo AG and Sucampo Pharmaceuticals, Inc., subsidiaries of the Company, and Takeda filed suit in the U.S. District Court for the District of New Jersey against Amneal Pharmaceuticals, LLC ("Amneal")alleging that Amneal infringed U.S. Patent Nos. 6,982,283, 8,026,393, 8,097,653, 8,338,639 and 8,389,542 following receipt of a March 2017 notice from Amneal concerning its submission of an ANDA containing a Paragraph IV patent certification with the FDA for a generic version of Amitiza. On June 28, 2018, the parties entered into a settlement agreement under which Amneal was granted the non-exclusive right to market a competing lubiprostone product in the U.S. under its ANDA on or after January 1, 2023, or earlier under certain circumstances.


Amitiza Patent Litigation:Par and DRL. Settlement and License Agreements were entered into with Anchen Pharmaceuticals, Inc., Par Pharmaceutical, Inc. and Par Pharmaceutical Companies, Inc. (collectively "Par") and Dr. Reddy's Laboratories, Inc. and Dr. Reddy's Laboratories, Ltd. (collectively "DRL") to settle Paragraph IV patent litigation with each of Par and DRL. Under the terms of the Par settlement dated September 30, 2014, Par was granted a non-exclusive license and right to market a competing generic of Amitiza on or after January 1, 2021, or earlier under certain circumstances. Under the terms of the DRL settlement dated September 14, 2016, DRL was granted a non-exclusive license and right to market a competing generic of Amitiza on or after January 1, 2023, or earlier under certain circumstances.
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®.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 the Praxair litigation 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 (or a decisionbroad at-risk launch by Praxair to launch at-risk 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 May 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 petitions filed by Praxair Distribution, Inc. concerning ten patents covering Inomax (i.e., five patents expiring in 2029 and five patents expiring in 2031).
In July 2015 the USPTO Patent Trial and Appeal Board ("PTAB") issued rulings denying the institution of four of the five IPR petitions challenging the five patents expiring in 2029.  The PTAB also issued a ruling in July 2015 that instituted the IPR proceeding in the fifth of this group of patents and the PTAB ruled in July 2016 that one claim of this patent survived review and is valid while the remaining claims were unpatentable.  The Company believed the claim held valid by the PTAB describes and encompasses a manner in which Inomax is distributed in conjunction with its approved labeling and that Praxair infringes that claim. Praxair filed an appeal and Mallinckrodt filed a cross-appeal of this decision to the Court of Appeals for the Federal Circuit. Oral argument of that appeal occurred in January 2018. The Federal Circuit decision was issued May 16, 2018 and held all claims unpatentable (invalid).
In March 2016, Praxair Distribution, Inc. submitted additional IPR petitions for the five patents expiring in 2029. The PTAB issued non-appealable rulings in August and September 2016 denying institution of all five of these additional IPR petitions.
In September 2015 the USPTO PTAB issued rulings that instituted the IPR proceedings in each of the second set of five patents that expire in 2031. In September 2016 the PTAB ruled that all claims in the five patents expiring in 2031 are patentable.Securities Litigation
Ofirmev Patent Litigation: Aurobindo Pharma U.S.A., IncPutative Class Action Securities Litigation (Strougo).. In December 2017, Mallinckrodt Hospital Products Inc. and Mallinckrodt IP Unlimited Group, subsidiaries of On July 26, 2019, a putative class action lawsuit was filed against the Company, and New Pharmatop L.P.its Chief Executive Officer ("Pharmatop"CEO"), the current owner of the two U.S. patents licensed exclusively by the Company, filed suitits Chief Financial Officer ("CFO") Bryan M. Reasons, its former Interim CFO George A. Kegler and its 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 Aurobindo Pharma U.S.A., Inc. ("Aurobindo") alleging that Aurobindo infringed U.S. Patent No. 6,992,218 ("the '218 patent"), U.S. Patent No. 9,399,012 ("Company in the '012 patent")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 U.S. Patent No. 9,610,265 ("federal actions filed by the '265 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 November 2017 notice from Aurobindo concerning its submissionPennsylvania.  In particular, the complaint alleges violations of an ANDA, containing a Paragraph IV patent certificationthe New Jersey Consumer Fraud Act, the New Jersey Antitrust Act, violation of state RICO statutes, negligent misrepresentation, conspiracy and unjust enrichment associated with the FDA for a competing versioncommercialization of Ofirmev®. On May 7, 2018 the parties entered into a settlement agreement under which Aurobindo was granted the non-exclusive rightActhar Gel.  The Company intends to market a competing intravenous acetaminophen productvigorously defend itself in the U.S. under its ANDA on or after December 6, 2020, or earlier under certain circumstances.this matter.
Ofirmev Patent Litigation: B. Braun Medical Inc.Putative Class Action Litigation - Steamfitters Local Union No. 420:  In April 2017, Mallinckrodt Hospital Products Inc. and Mallinckrodt IP, subsidiaries ofOn July 12, 2019, Steamfitters Local Union No. 420 filed a putative class action lawsuit against the Company and Pharmatop, the then owner of the two U.S. patents licensed exclusively by the Company, filed suitvarious pharmaceutical distributors in the U.S. District Court for the Eastern District of Delaware against B. Braun Medical Inc. ("B. Braun") alleging that B. Braun infringed the '218 patent and the '012 patent following receipt of a February 2017 notice from B. Braun concerning its submission of a New Drug Application ("NDA"), containing a Paragraph IV patent certification with the FDA for a competing version of Ofirmev. On October 3, 2018, the parties entered into a settlement agreement under which B. Braun was granted the non-exclusive right to market a competing intravenous acetaminophen product in the U.S. under its ANDA on or after December 6, 2020, or earlier under certain circumstances.Pennsylvania, proceeding as Steamfitters Local Union No. 420 v. Mallinckrodt ARD, LLC et al.  The complaint makes




Ofirmev Patent Litigation: InnoPharma Licensing LLCsimilar allegations as alleged in related state and InnoPharma, Inc. federal actions filed by the same plaintiff law firm filed in Illinois, Pennsylvania, Tennessee and Maryland.   In September 2014, Cadence Pharmaceuticals, Inc. ("Cadence") and Mallinckrodt IP, subsidiariesparticular, the Complaint alleges claims of RICO violations under 18 U.S.C. § 1962(c); conspiracy to violate 18 U.S.C. § 1962(c); violations of the Company,Pennsylvania (and other states) Unfair Trade Practices and Pharmatop, the then owner of the two U.S. patents licensed exclusively by the Company, filed suit in the U.S. District Court for the District of Delaware against InnoPharma Licensing LLCConsumer Protection laws; negligent misrepresentation; aiding and InnoPharma, Inc. (both are subsidiaries of Pfizerabetting/conspiracy; and collectively "InnoPharma") alleging that InnoPharma infringed U.S. Patent Nos. 6,028,222 ("the '222 patent")unjust enrichment. The complaint also seeks declaratory and 6,992,218 ("the '218 patent"). Separately, on December 1, 2016 Mallinckrodt IP Filed suit in the U.S. District Court for the District of Delaware against InnoPharma alleging that InnoPharma infringed the '012 patent. On May 4, 2017 the parties entered into settlement agreements on both suits under which InnoPharma was granted the non-exclusive right to market a competing intravenous acetaminophen product in the U.S. under its NDA on or after December 6, 2020, or earlier under certain circumstances.
Ofirmev Patent Litigation: Agila Specialties Private Limited, Inc. (now Mylan Laboratories Ltd.) and Agila Specialties Inc. (a Mylan Inc. Group), (collectively "Agila").  In December 2014, Cadence and Mallinckrodt IP, subsidiaries of the Company, and Pharmatop filed suit in the U.S. District Court for the District of Delaware against Agila alleging that Agila infringed the '222 and the '218 patents. 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.
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 Group, Inc. In March 2007, the Company filed a patent infringement suit in the U.S. District Court for the District of New Jersey against Mutual Pharmaceutical Co., Inc., et al. (collectively, "Mutual") after Mutual submitted an ANDA to the FDA seeking to sell a generic version of the Company's 7.5 mg RESTORIL™ sleep aid product. Mutual also filed antitrust and unfair competition counterclaims. The patents at issue have since expired or been found invalid. In March 2017, the parties entered into a settlement agreement regarding the antitrust and unfair competition counterclaims and the case was dismissed.
Jazz Pharmaceuticals, Inc. and Jazz Pharmaceuticals Ireland v. Mallinckrodt PLC, Mallinckrodt Inc. and Mallinckrodt LLC. In January 2018, Jazz Pharmaceuticals, Inc. and Jazz Pharmaceuticals Ireland (collectively, "Jazz") filed suit in the U.S. District Court for the District of New Jersey against the Company alleging that the Company infringed U.S. Patent Nos. 7,668,730, 7,765,106, 7,765,107, 7,895,059, 8,457,988, 8,589,182, 8,731,963, 8,772,306, 9,050,302, and 9,486,426 following receipt of a November 2017 notice from the Company concerning its submission of an ANDA, containing a Paragraph IV patent certification with the FDA for a competing version of Xyrem. On June 4, 2018, the parties entered into a settlement agreement under which the Company was granted the non-exclusive right to market a competing sodium oxybate product in the U.S. under its ANDA on or after December 31, 2025, or earlier under certain circumstances.
Shire Development LLC, Shire LLC and Shire US, Inc. v. SpecGx LLC. In May 2018, Shire Development LLC, Shire LLC and Shire US, Inc. (collectively “Shire”) filed suit in the U.S. District Court for the District of Delaware against the Company alleging that the Company infringed U.S. Patent Nos. 6,913,768, 8,846,100, and 9,173,857 following receipt of an April 2018 notice from the Company concerning its submission of an ANDA, containing a Paragraph IV patent certification with the FDA for a competing version of Mydayis.injunctive relief.  The Company intends to vigorously defend its position.itself in this matter.
Acument Global. On May 21, 2019, Acument Global Technologies, Inc., filed a non-class complaint in the state court of Tennessee, against the Company and other defendants alleging violation of Tennessee Consumer Protection Laws, unjust enrichment, fraud and conspiracy to defraud. The case alleges similar facts as the MSP 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 Education ("WCBE"). On May 21, 2019, WCBE filed a non-class complaint in the state court of Maryland, against the Company and 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 MSP and Rockford matters below, and is captioned Washington County Board of Education v. Mallinckrodt ARD Inc., et al. The Company intends to vigorously defend itself in this matter.
CommercialLocal 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 Securities Litigationother 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 amended 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 Company, alleging breach of a Manufacturing and Supply Agreement entered into between the Company's predecessor-in-interest, Cadence Pharmaceuticals Inc., and Grifols. Mallinckrodt intends to vigorously defend itself inThe Company has entered into a settlement for this matter.matter and has appropriate reserves for that purpose.
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 captionedcurrently 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 H.P. Acthar Gel 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 H.P. Acthar Gel. 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 H.P. Acthar Gel through an exclusive distribution network. The complaint purports to allege claims under federal and state antitrust laws and state unfair competition and unfair trade practice laws. Pursuant to a motion filed by defendants,


this case has been transferred to the U.S. District Court for the Northern District of Illinois. The Company intends to vigorously defend itself in this matter.
Putative Class Action Litigation. On April 6, 2017, a putative class action lawsuit was filed against the Company and 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 entitiesthird-party payers, or their assignees, in the U.S. and its Territories, excluding any Medicare Advantage Organizations, related entities and certain others, thatterritories, who have, as indirect purchasers, in whole or in part, paid for, H.P.provided reimbursement for, and/or possess the recovery rights to reimbursement for the indirect purchase of Acthar Gel from August 1, 2007 to the present. The lawsuit alleges that the Company engaged in anticompetitive, unfair, and deceptive acts to artificially raise and maintain the price of H.P. Acthar Gel. To this end, the suit alleges that the Company unlawfully maintained a monopoly in a purported ACTH product market by acquiring the U.S. rights to Synacthen Depot; conspired with UBC and violated anti-racketeering laws by selling H.P. Acthar Gel through an exclusive distributor; and committed fraud on consumers by failing to correctly identify H.P. Acthar Gel's active ingredient on package inserts. 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"),ESPPs, filed a derivative 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. On September 6, 2017, plaintiff voluntarily dismissed its complaint in the Federal District Court for the Eastern District of Missouri and refiled virtually 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, through 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' 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-LeadCo-lead Plaintiffs filed an amended complaint on June 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.
Putative Class Action Litigation (Rockford). On April 6, 2017, a putative class action lawsuit was filed against the Company and 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. The Company filed a motion to dismiss the complaint, which was granted in part by the court on January 25, 2019, dismissing one of two named plaintiffs and all claims with the exception of federal and state antitrust claims. The remaining allegation in the case is that the Company engaged in anti-competitive acts to artificially raise and maintain the price of Acthar Gel. To



this end, the suit alleges that the Company unlawfully maintained a monopoly in a purported ACTH product market by acquiring the U.S. rights to Synacthen; and conspired with the other named defendants by selling Acthar Gel through an exclusive 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'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 H.P. Acthar Gel and Synacthen to artificially inflate the price of the Company's stock. In particular, the complaint alleges a failure by the Company to provide accurate disclosures concerning the long-term sustainability of H.P. Acthar Gel revenues, and the exposure of H.P. 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' 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. Lead plaintiff was designated by the court on March 9, 2018. Lead Plaintiffplaintiff filed a consolidated complaint on May 18, 2018, alleging a class period from July 14, 2014 to November 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 H.P. Acthar Gel. On August 30, 2018, Lead Plaintiffthe lead 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 denied in part by the court on July 30, 2019. The Company intends to vigorously defend itself in this matter.

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 alleged, generally, that the defendants reported false pricing information in connection with certain drugs that were reimbursable under Utah Medicaid, resulting in overpayment by Utah Medicaid for those drugs, and sought monetary damages and attorneys' fees. The Company believes that it had 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 SeptemberJune 28, 2018,2019, it was probable that it would incur remedialremediation costs in the range of $26.7$36.9 million to $67.3$86.1 million. The Company also concluded that, as of SeptemberJune 28, 2018,2019, the best estimate within this range was $52.2$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 Septemberas of June 28, 2018.2019. 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 had meritorious defenses to these complaints and vigorously defended against them. Groups of bellwether plaintiffs have been selected by the court and discovery is ongoing. Upon further evaluation of the Company's potential exposure, this matter is no longer considered material.
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 contained 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. 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 had an estimated cost of $1.7 billion.
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 alternative remedial actions for the entire 17-mile stretch of the River.
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. On October 5, 2016, the EPA announced that Occidental Chemicals Corporation ("OCC") had entered into an agreement to develop the remedial design.
On August 7, 2018, the EPA finalized a buyout offer of $280,600 with the Company, limited to its former Lodi facility, for the lower 8 miles of the River. In exchange for this settlement, the Company received, inter alia, a covenant not to sue and contribution protection. During the three months ended September 28, 2018, the Company reduced the accrual associated with this matter by $11.8 million to $26.2 million, which represents the Company's estimate of its remaining liability related to the River.



Despite the issuance of the revised FFS and ROD by the EPA, 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.



Occidental Chemical Corp. v. 21st Century Fox America, Inc. The Company and approximately 120 other companies were named as defendants in a suitlawsuit filed on June 30, 2018, by OCC.OCC, in which OCC seeks cost recovery and contribution for past and future costs in response to releases and threatened releases of hazardous substances into the Lower Passaic River ("the River"). The suit relates to the lower 8 miles of the 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 retains a share of the liability for this suit related to the Belleville facility. The approximately 120 other companies have formed a group to defend against the claims made in the suit. A motion to dismiss several of the claims has been submitted towas denied by the court.
Mallinckrodt Veterinary, 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 responsibility for the Millsboro Site cleanup under the Alternative Superfund Program administered by the EPA. The companies have entered into two AOCs with the EPA to perform investigations to abate, mitigate or eliminate the release or threat of release of hazardous substances at the Millsboro Site and to conduct an Engineering Evaluation/Cost Analysis ("EE/CA") to characterize the nature and extent of the contamination. In January 2017, 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. 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 SeptemberJune 28, 2018,2019, there were approximately 11,60011,700 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.

Acquisition-Related Litigation
Several putative class actions were filed by purported holders of Questcor common stock in connection with the Company's acquisition of Questcor in 2014 (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.

Interest-bearing Deferred Tax Obligation
As part of the integration of Questcor, the Company entered into an internal installment sale transaction related to certain H.P. 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. During the three months ended March 30, 2018, the Company received payment on the note receivable and settled all installment sale provisions related to its sale of the Intrathecal Therapy business.
As of September 28, 2018,result, the Company had an aggregate $537.9 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 $6.4$11.7 million and $17.6 million forduring the threesix months ended September 28, 2018 and SeptemberJune 29, 2017, respectively, and $18.1 million and $53.9 million for the nine months ended September 28, 2018 and September 29, 2017, 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's interpretation and maintains a corresponding liability of $56.0$47.4 million and $46.0$56.0 million as of SeptemberJune 28, 2019 and December 28, 2018, and December 29, 2017, 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.



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.

18.15.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:

September 28,
2018
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)
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$35.3
 $24.5
 $10.8
 $—
$35.4
 $25.6
 $9.8
 $—
Equity securities—
 —
 —
 —
Foreign exchange forward and option contracts—
 —
 —
 —
$35.3
 $24.5
 $10.8
 $—

              
Liabilities:              
Deferred compensation liabilities$41.7
 $—
 $41.7
 $—
$45.4
 $—
 $45.4
 $—
Contingent consideration and acquired contingent liabilities167.3
 —
 —
 167.3
130.4
 —
 —
 130.4
Foreign exchange forward and option contracts0.1
 0.1
 —
 —

$209.1
 $0.1
 $41.7
 $167.3
$175.8
 $—
 $45.4
 $130.4
December 29,
2017		 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
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$35.4
 $24.0
 $11.4
 $—
$33.1
 $22.4
 $10.7
 $—
Equity securities22.7
 22.7
 —
 —
Foreign exchange forward and option contracts0.1
 0.1
 —
 —
$58.2
 $46.8
 $11.4
 $—
              
Liabilities:              
Deferred compensation liabilities$42.7
 $—
 $42.7
 $—
$38.5
 $—
 $38.5
 $—
Contingent consideration and acquired contingent liabilities246.4
 —
 —
 246.4
151.4
 —
 —
 151.4
Foreign exchange forward and option contracts0.1
 0.1
 —
 —
$289.2
 $0.1
 $42.7
 $246.4
$189.9
 $—
 $38.5
 $151.4




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 Limited, 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. During the nine months ended September 28, 2018, the Company's remaining shares were sold for gross proceeds of $25.5 million resulting in a $3.4 million gain being recognized within other income (expense), net within the unaudited condensed consolidated statement of income.
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, Stratatech Corporation ("Stratatech"), and Ocera Therapeutics, Inc. ("Ocera").
The contingent liability associated with the acquisition of Questcor pertains to the Company's license agreement with Novartis AG and Novartis Pharma AG (collectively "Novartis") related to Synacthen, otherwise known as the Company's development product MNK-1411. DuringUnder the nine months ended September 28, 2018,terms of this agreement, the Company paid the required annual payment of $25.0 million related toduring the license of development 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. As of SeptemberJune 28, 2018,2019, the total remaining payments under the license agreement shall not exceed $115.0$90.0 million. The Company determined the fair value of the contingent consideration associated with the acquisition of Questcor to be $86.7$52.9 million and $111.8$76.2 million as of SeptemberJune 28, 20182019 and December 29, 2017,28, 2018, respectively.
As part of the acquisition of a development program from Stratatech in August 2016,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 StrataGraft®. 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 acquisition of Stratatech Acquisition to be $56.9$55.6 million and $53.5$53.7 million as of SeptemberJune 28, 20182019 and December 29, 2017,28, 2018, respectively.
As part of the acquisition of Ocera in December 2017,acquisition, the Company provided contingent consideration to the prior shareholders of Ocera in the form of both patient enrollment clinical study milestones for MNK-6105 and MNK-6106 (previously referred to collectively as OCR-002), which represent the intravenous ("IV") and Oraloral formulations of MNK-6105 and



MNK-6106, which represent the IV and oral formulations, respectively, and sales-based milestones associated with MNK-6105 and MNK-6106. The Company determined the fair value of the contingent consideration based on an option pricing model to be $23.7$21.9 million and $22.0$21.5 million as of SeptemberJune 28, 2019 and December 28, 2018, and December 29, 2017, respectively.
Prior to September 28, 2018, the Company maintained various contingent consideration and acquired contingent liabilities associated with the acquisitions of three commercial stage topical hemostasis drugs from the Medicines Company ("the Hemostasis Acquisition") and InfaCare Pharmaceutical Corporation ("InfaCare").
As part of the Hemostasis Acquisition in February 2016, the Company provided contingent consideration to The Medicines Company in the form of sales based milestones associated with Raplixa and PreveLeak, and acquired contingent liabilities associated with The Medicines Company's prior acquisitions of the aforementioned products. The Company determined the fair value of the contingent consideration and acquired contingent liabilities based on an option pricing model to be $7.0 million and $17.1 million at December 29, 2017, respectively. The Company paid $12.0 million related to the FDA approval of PreveLeak during the three months ended March 30, 2018. On March 16, 2018, the Company sold a portion of the Hemostasis business, inclusive of the Recothrom and PreveLeak products to Baxter and the remaining contingent consideration liability balance of $12.1 million was transferred upon sale.
As part of the acquisition of InfaCare in September 2017, the Company provided contingent consideration to the prior shareholders of InfaCare in the form of both regulatory approval milestones for full-term and pre-term neonates for stannsoporfin and sales-based milestones associated with stannsoporfin. Due to recent developments and discussions with the FDA, as discussed


in further detail in Note 11, the timing of the development program is expected to shift outward. During the three and nine months ended September 28, 2018, the Company recognized a $7.0 million and $35.0 million fair value adjustment due to this shift in timing and its impact on the achievement of milestones per the purchase agreement. The fair value of the contingent consideration is zero after the aforementioned adjustments as of September 28, 2018. The fair value of the contingent consideration based on an option pricing model was determined to be $35.0 million as of December 29, 2017.
Of the total fair value of the contingent consideration of $167.3$130.4 million, $52.8$52.4 million was classified as current and $114.5$78.0 million was classified as non-current in the unaudited condensed consolidated balance sheet as of SeptemberJune 28, 2018.2019. The following table summarizes the fiscal 20182019 activity for contingent consideration:
Balance at December 29, 2017$246.4
Disposal of business(12.1)
Balance as of December 28, 2018$151.4
Payments(37.0)(25.0)
Accretion expense3.3
1.7
Fair value adjustments(33.3)2.3
Balance at September 28, 2018$167.3
Balance as of June 28, 2019$130.4


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 SeptemberJune 28, 20182019 and December 29, 2017:28, 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 $18.5$18.8 million and $18.3$18.6 million as of SeptemberJune 28, 20182019 and December 29, 201728, 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 as part of contingent earn-out payments related to the sale of the Nuclear Imaging business in the form of preferred equity certificates during both the ninesix months ended SeptemberJune 28, 2019 and June 29, 2018. These securities are classified as held-to-maturity and are carried at amortized cost, which approximates fair value (level 3), of $18.9 million and $9.0 million at Septemberas of June 28, 2019 and December 28, 2018, (level 3).respectively. These securities 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 $66.1$66.6 million and $67.0$66.4 million atas of SeptemberJune 28, 20182019 and December 29, 201728, 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, (level 1).and is therefore classified as level 1. The Company's3.50%, 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 ACOA"other" loan is based on the present value of future cash flows under the terms of the agreement (level 3) with future cash flows and interest rates as significant assumptions.assumptions, and therefore classified as level 3. The following table presents the carrying values and estimated fair values of the Company's debt excluding capital leases, as of the end of each period:





September 28, 2018
December 29, 2017June 28, 2019
December 28, 2018

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value
Carrying
Value

Fair
Value

Carrying
Value

Fair
Value
Level 1       
3.50% notes due April 2018$—
 $—
 $300.0
 $299.1
Level 1:       
4.875% notes due April 2020700.0
 694.7
 700.0
 675.2
$700.0
 $675.1
 $700.0
 $676.6
Variable-rate receivable securitization due July 2020225.0
 225.0
 200.0
 200.0
200.0
 200.0
 250.0
 250.0
5.75% notes due August 2022884.0
 815.9
 884.0
 804.8
663.2
 567.7
 835.2
 713.6
4.75% notes due April 2023500.2
 427.7
 526.5
 412.4
400.1
 281.1
 500.2
 336.7
5.625% notes due October 2023731.4
 648.6
 738.0
 628.8
680.2
 513.5
 731.4
 557.0
5.50% notes due April 2025692.1
 583.9
 692.1
 564.5
596.1
 399.8
 692.1
 479.1
Revolving credit facility300.0
 300.0
 900.0
 900.0
405.0
 405.0
 220.0
 220.0
Level 2       
Level 2:       
9.50% debentures due May 202210.4
 11.0
 10.4
 10.9
10.4
 9.5
 10.4
 9.7
8.00% debentures due March 20234.4
 4.5
 4.4
 4.4
4.4
 3.7
 4.4
 3.8
Term loan due September 20241,613.8
 1,605.5
 1,851.2
 1,848.7
1,524.7
 1,365.8
 1,613.8
 1,472.4
Term loan due February 2025597.0
 596.8
 —
 —
404.6
 363.3
 597.0
 548.0
Level 3       
ACOA loan due December 20281.8
 1.8
 —
 —
Level 3:       
Other2.3
 2.2
 2.2
 2.2
Total debt$6,260.1
 $5,915.4
 $6,806.6
 $6,348.8
$5,591.0
 $4,786.7
 $6,156.7
 $5,269.1


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 10.0% or more of the Company's total net sales:
 Three Months Ended Nine Months Ended
 September 28,
2018		 September 29,
2017		 September 28,
2018		 September 29,
2017
CuraScript, Inc.44.9% 55.2% 46.1% 55.7%
 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 10.0% or more of the Company's gross accounts receivable at the end of each period:
 September 28,
2018		 December 29,
2017
CuraScript, Inc.30.8% 33.8%
 June 28,
2019		 December 28,
2018
AmerisourceBergen Corporation27.7% 25.7%
McKesson Corporation13.4% 21.9%
CuraScript, Inc.15.7% 13.1%
The following table shows net sales attributable to products that accounted for 10.0% or more of the Company's total net sales:

Three Months Ended Nine Months EndedThree Months Ended Six Months Ended

September 28,
2018		 September 29,
2017		 September 28,
2018		 September 29,
2017		June 28,
2019		 June 29,
2018		 June 28,
2019		 June 29,
2018
H.P. Acthar Gel45.3% 51.4% 44.8% 51.1%
Acthar Gel32.4% 35.5% 30.4% 34.0%
Inomax20.8% 20.9% 21.9% 21.6%17.0% 15.9% 18.0% 17.1%
Ofirmev13.6% 12.6% 13.8% 12.8%11.0% 10.4% 11.5% 10.6%






19.16.Segment Data
The Company's continuing operations are limitedAs part of the May 28, 2019 update to the resultsCompany'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.
All prior period segment information has been reclassified to reflect the realignment of operations from the Specialty Brands segment asCompany's reportable segments on a comparable basis. Refer to Note 18 for an update on the Company's plans for the Specialty Generics Disposal Group is reported as a discontinued operation. See Note 4 for further details on the Specialty Generics Disposal Group. business.
Selected information for theby reportable segment iswas as follows:

Three Months Ended Nine Months EndedThree Months Ended Six Months Ended

September 28,
2018		 September 29,
2017		 September 28,
2018		 September 29,
2017		June 28,
2019		 June 29,
2018		 June 28,
2019		 June 29,
2018
Net sales:              
Specialty Brands$640.0
 $600.6
 $1,844.3
 $1,760.7
$627.8
 $631.7
 $1,232.0
 $1,204.3
Operating income:       
Specialty Generics195.5
 193.8
 381.9
 376.5
Net Sales$823.3
 $825.5
 $1,613.9
 $1,580.8
Operating (loss) income:       
Specialty Brands$287.8
 $314.8
 $794.0
 $851.8
$321.4
 $265.2
 $596.9
 $506.4
Specialty Generics33.9
 43.1
 58.3
 78.2
Segment operating income355.3
 308.3
 655.2
 584.6
Unallocated amounts:              
Corporate and unallocated expenses (1)
(28.0) (45.8) (81.9) (95.0)(36.4) (12.5) (82.2) (56.5)
Intangible asset amortization(184.2) (169.3) (544.8) (508.4)(216.6) (184.3) (439.4) (362.3)
Restructuring and related charges, net (2)
(19.6) (16.1) (101.4) (28.4)
Operating income$56.0
 $83.6
 $65.9
 $220.0
Restructuring and related charges, net0.2
 (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


(1)Includes administration expenses and certain compensation, legal, environmental and other costs not charged to the Company's reportable segment.
(2)Includes restructuring-related accelerated depreciation.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)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 segment issegments were as follows:
Three Months Ended Nine Months EndedThree Months Ended Six Months Ended
September 28,
2018		 September 29,
2017		 September 28,
2018		 September 29,
2017		June 28,
2019		 June 29,
2018		 June 28,
2019		 June 29,
2018
H.P. Acthar Gel$290.1
 $308.7
 $827.1
 $899.9
Acthar Gel$266.4
 $293.2
 $490.3
 $537.0
Inomax133.2
 125.7
 404.0
 379.6
139.7
 131.0
 290.8
 270.8
Ofirmev87.1
 75.4
 254.7
 224.5
90.5
 85.6
 186.1
 167.6
Therakos60.0
 55.3
 174.2
 157.7
60.9
 56.8
 122.7
 114.2
Amitiza (1)
48.2
 —
 119.2
 —
52.0
 48.0
 105.0
 71.0
BioVectra13.9
 16.0
 35.7
 36.4
13.9
 11.3
 26.3
 21.8
Other7.5
 19.5
 29.4
 62.6
4.4
 5.8
 10.8
 21.9
Net sales$640.0
 $600.6
 $1,844.3
 $1,760.7
Specialty Brands627.8
 631.7
 1,232.0
 1,204.3
       
Hydrocodone (API) and hydrocodone-containing tablets18.1
 16.9
 35.5
 30.8
Oxycodone (API) and oxycodone-containing tablets19.6
 13.1
 36.1
 29.7
Acetaminophen (API)48.4
 51.7
 94.6
 101.1
Other controlled substances98.6
 99.5
 192.8
 188.5
Other10.8
 12.6
 22.9
 26.4
Specialty Generics195.5
 193.8
 381.9
 376.5
Net Sales$823.3
 $825.5
 $1,613.9
 $1,580.8

(1)Amitiza consists of both product net sales and royalties. Refer to Note 3 for further details on Amitiza's revenues.
(1)Amitiza consists of both product net sales and royalties. Refer to Note 3 for further details on Amitiza's revenues.

20.17.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, which were paid in full in 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, 20182019 and SeptemberJune 29, 2017,2018, and as of SeptemberJune 28, 20182019 and December 29, 2017.28, 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 SeptemberJune 28, 20182019
(unaudited, in millions)

Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations ConsolidatedMallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Assets                  
Current Assets:                  
Cash and cash equivalents$0.3
 $151.3
 $139.1
 $—
 $290.7
$0.1
 $4.9
 $236.1
 $—
 $241.1
Accounts receivable, net—
 —
 349.6
 —
 349.6
—
 —
 528.4
 —
 528.4
Inventories—
 —
 143.4
 —
 143.4
—
 —
 337.4
 —
 337.4
Prepaid expenses and other current assets3.3
 0.2
 114.2
 —
 117.7
0.3
 0.3
 111.9
 —
 112.5
Notes receivable—
 —
 —
 —
 —
Current assets held for sale—
 —
 1,136.8
 —
 1,136.8
Intercompany receivables192.0
 52.2
 353.5
 (597.7) —
134.1
 28.9
 5,885.7
 (6,048.7) —
Total current assets195.6
 203.7
 2,236.6
 (597.7) 2,038.2
134.5
 34.1
 7,099.5
 (6,048.7) 1,219.4
Property, plant and equipment, net—
 —
 439.3
 —
 439.3
—
 —
 994.2
 —
 994.2
Goodwill—
 —
 3,675.4
 —
 3,675.4
Intangible assets, net—
 —
 8,585.2
 —
 8,585.2
—
 —
 7,721.1
 —
 7,721.1
Investment in subsidiaries6,194.4
 29,157.0
 11,964.2
 (47,315.6) —
2,673.5
 12,937.0
 3,849.3
 (19,459.8) —
Intercompany loans receivable504.0
 —
 13,073.8
 (13,577.8) —
462.3
 —
 2,613.9
 (3,076.2) —
Other assets—
 —
 170.5
 —
 170.5
—
 —
 287.0
 —
 287.0
Total Assets$6,894.0
 $29,360.7
 $40,145.0
 $(61,491.1) $14,908.6
$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$—
 $16.5
 $0.2
 $—
 $16.7
$—
 $—
 $717.9
 $—
 $717.9
Accounts payable0.1
 0.1
 76.4
 —
 76.6
—
 —
 148.6
 —
 148.6
Accrued payroll and payroll-related costs—
 —
 89.0
 —
 89.0
—
 —
 79.8
 —
 79.8
Accrued interest—
 76.2
 0.8
 —
 77.0
—
 4.0
 41.9
 —
 45.9
Income taxes payable—
 —
 43.4
 —
 43.4
Accrued and other current liabilities1.6
 0.4
 435.5
 —
 437.5
0.8
 0.2
 564.3
 —
 565.3
Current liabilities held for sale—
 —
 182.4
 —
 182.4
Intercompany payables288.7
 19.4
 289.6
 (597.7) —
194.3
 5,638.9
 215.5
 (6,048.7) —
Total current liabilities290.4
 112.6
 1,117.3
 (597.7) 922.6
195.1
 5,643.1
 1,768.0
 (6,048.7) 1,557.5
Long-term debt—
 3,698.3
 2,475.7
 —
 6,174.0
—
 397.6
 4,425.4
 —
 4,823.0
Pension and postretirement benefits—
 —
 65.2
 —
 65.2
—
 —
 59.5
 —
 59.5
Environmental liabilities—
 —
 49.8
 —
 49.8
—
 —
 60.5
 —
 60.5
Deferred income taxes—
 —
 668.9
 —
 668.9
—
 —
 53.4
 —
 53.4
Other income tax liabilities—
 —
 127.6
 —
 127.6
—
 —
 262.5
 —
 262.5
Intercompany loans payable—
 13,577.8
 —
 (13,577.8) —
—
 3,076.2
 —
 (3,076.2) —
Other liabilities—
 7.8
 289.1
 —
 296.9
—
 4.9
 325.2
 —
 330.1
Total Liabilities290.4
 17,396.5
 4,793.6
 (14,175.5) 8,305.0
195.1
 9,121.8
 6,954.5
 (9,124.9) 7,146.5
Shareholders' Equity6,603.6
 11,964.2
 35,351.4
 (47,315.6) 6,603.6
3,075.2
 3,849.3
 15,610.5
 (19,459.8) 3,075.2
Total Liabilities and Shareholders' Equity$6,894.0
 $29,360.7
 $40,145.0
 $(61,491.1) $14,908.6
$3,270.3
 $12,971.1
 $22,565.0
 $(28,584.7) $10,221.7





MALLINCKRODT PLC
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 29, 201728, 2018
(unaudited, in millions)

Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations ConsolidatedMallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Assets                  
Current Assets:                  
Cash and cash equivalents$0.7
 $908.8
 $351.4
 $—
 $1,260.9
$0.4
 $140.8
 $207.7
 $—
 $348.9
Accounts receivable, net—
 —
 275.4
 —
 275.4
—
 —
 623.3
 —
 623.3
Inventories—
 —
 128.7
 —
 128.7
—
 —
 322.3
 —
 322.3
Prepaid expenses and other current assets1.0
 0.2
 73.5
 —
 74.7
3.9
 0.2
 128.6
 —
 132.7
Notes receivable—
 —
 154.0
 —
 154.0
Current assets held for sale—
 —
 391.5
 —
 391.5
Intercompany receivables70.0
 173.4
 831.4
 (1,074.8) —
131.1
 29.2
 1,087.9
 (1,248.2) —
Total current assets71.7
 1,082.4
��2,205.9
 (1,074.8) 2,285.2
135.4
 170.2
 2,369.8
 (1,248.2) 1,427.2
Property, plant and equipment, net—
 —
 413.2
 —
 413.2
—
 —
 982.0
 —
 982.0
Goodwill—
 —
 3,482.7
 —
 3,482.7
Intangible assets, net—
 —
 8,261.0
 —
 8,261.0
—
 —
 8,282.8
 —
 8,282.8
Long-term assets held for sale—
 —
 742.7
 —
 742.7
Investment in subsidiaries6,551.6
 23,217.8
 12,356.2
 (42,125.6) —
2,481.6
 25,506.1
 8,362.1
 (36,349.8) —
Intercompany loans receivable593.1
 —
 4,664.8
 (5,257.9) —
497.7
 —
 12,343.0
 (12,840.7) —
Other assets—
 —
 156.2
 —
 156.2
—
 —
 185.3
 —
 185.3
Total Assets$7,216.4
 $24,300.2
 $32,282.7
 $(48,458.3) $15,341.0
$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$—
 $313.5
 $0.2
 $—
 $313.7
$—
 $22.1
 $0.3
 $—
 $22.4
Accounts payable0.1
 —
 77.2
 —
 77.3
0.1
 —
 147.4
 —
 147.5
Accrued payroll and payroll-related costs—
 —
 78.4
 —
 78.4
—
 —
 124.0
 —
 124.0
Accrued interest—
 53.0
 4.0
 —
 57.0
—
 48.7
 28.9
 —
 77.6
Income taxes payable—
 —
 15.5
 —
 15.5
Accrued and other current liabilities0.8
 0.4
 367.3
 —
 368.5
0.6
 0.4
 571.2
 —
 572.2
Current liabilities held for sale—
 —
 140.0
 —
 140.0
Intercompany payables693.5
 104.6
 276.7
 (1,074.8) —
226.7
 827.8
 193.7
 (1,248.2) —
Total current liabilities694.4
 471.5
 959.3
 (1,074.8) 1,050.4
227.4
 899.0
 1,065.5
 (1,248.2) 943.7
Long-term debt—
 6,206.8
 214.1
 —
 6,420.9
—
 3,566.9
 2,502.3
 —
 6,069.2
Pension and postretirement benefits—
 —
 67.1
 —
 67.1
—
 —
 60.5
 —
 60.5
Environmental liabilities—
 —
 62.8
 —
 62.8
—
 —
 59.7
 —
 59.7
Deferred income taxes—
 —
 749.1
 —
 749.1
—
 —
 324.3
 —
 324.3
Other income tax liabilities—
 —
 94.1
 —
 94.1
—
 —
 228.0
 —
 228.0
Long-term liabilities held for sale—
 —
 22.6
 —
 22.6
Intercompany loans payable—
 5,257.9
 —
 (5,257.9) —
—
 12,840.7
 —
 (12,840.7) —
Other liabilities—
 7.8
 344.2
 —
 352.0
—
 7.6
 297.0
 —
 304.6
Total Liabilities694.4
 11,944.0
 2,513.3
 (6,332.7) 8,819.0
227.4
 17,314.2
 4,537.3
 (14,088.9) 7,990.0
Shareholders' Equity6,522.0
 12,356.2
 29,769.4
 (42,125.6) 6,522.0
2,887.3
 8,362.1
 27,987.7
 (36,349.8) 2,887.3
Total Liabilities and Shareholders' Equity$7,216.4
 $24,300.2
 $32,282.7
 $(48,458.3) $15,341.0
$3,114.7
 $25,676.3
 $32,525.0
 $(50,438.7) $10,877.3










MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended SeptemberJune 28, 20182019
(unaudited, in millions)

Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations ConsolidatedMallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Net sales$—
 $—
 $640.0
 $—
 $640.0
$—
 $—
 $823.3
 $—
 $823.3
Cost of sales0.7
 —
 325.5
 —
 326.2
0.7
 —
 433.7
 —
 434.4
Gross (loss) profit(0.7) —
 314.5
 —
 313.8
(0.7) —
 389.6
 —
 388.9
Selling, general and administrative expenses12.4
 0.1
 151.5
 —
 164.0
13.9
 0.4
 211.6
 —
 225.9
Research and development expenses1.6
 —
 76.9
 —
 78.5
1.8
 —
 77.8
 —
 79.6
Restructuring charges, net—
 —
 14.7
 —
 14.7
—
 —
 (0.2) —
 (0.2)
Losses on divestiture—
 —
 0.6
 —
 0.6
Operating (loss) income(14.7) (0.1) 70.8
 —
 56.0
Non-restructuring impairment charge—
 —
 113.5
 —
 113.5
Operating loss(16.4) (0.4) (13.1) —
 (29.9)
                  
Interest expense(1.6) (112.0) (257.4) 277.4
 (93.6)(1.5) (61.8) (97.4) 89.2
 (71.5)
Interest income2.4
 249.6
 27.4
 (277.4) 2.0
2.8
 0.2
 88.4
 (89.2) 2.2
Other income (expense), net2.3
 (156.8) 167.9
 —
 13.4
Other income, net5.5
 29.5
 39.4
 —
 74.4
Intercompany fees(3.5) (0.1) 3.6
 —
 —
(3.5) —
 3.5
 —
 —
Equity in net income of subsidiaries127.8
 238.9
 221.9
 (588.6) —
18.8
 69.7
 33.5
 (122.0) —
Income (loss) from continuing operations before income taxes112.7
 219.5
 234.2
 (588.6) (22.2)5.7
 37.2
 54.3
 (122.0) (24.8)
Income tax benefit(1.1) (2.4) (121.7) —
 (125.2)
Income from continuing operations113.8
 221.9
 355.9
 (588.6) 103.0
Income tax (benefit) expense(1.1) 6.6
 (29.8) —
 (24.3)
Income (loss) from continuing operations6.8
 30.6
 84.1
 (122.0) (0.5)
Income from discontinued operations, net of income taxes—
 —
 10.8
 —
 10.8
—
 2.9
 4.4
 —
 7.3
Net income113.8
 221.9
 366.7
 (588.6) 113.8
6.8
 33.5
 88.5
 (122.0) 6.8
Other comprehensive income, net of tax3.0
 3.0
 5.8
 (8.8) 3.0
2.4
 2.4
 4.3
 (6.7) 2.4
Comprehensive income$116.8
 $224.9
 $372.5
 $(597.4) $116.8
$9.2
 $35.9
 $92.8
 $(128.7) $9.2




MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended SeptemberJune 29, 20172018
(unaudited, in millions)

Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations ConsolidatedMallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Net sales$—
 $—
 $600.6
 $—
 $600.6
$—
 $—
 $825.5
 $—
 $825.5
Cost of sales0.9
 —
 267.1
 —
 268.0
0.7
 —
 430.8
 —
 431.5
Gross (loss) profit(0.9) —
 333.5
 —
 332.6
(0.7) —
 394.7
 —
 394.0
Selling, general and administrative expenses13.4
 0.2
 172.7
 —
 186.3
11.3
 0.2
 178.4
 —
 189.9
Research and development expenses1.8
 —
 45.1
 —
 46.9
1.7
 —
 90.9
 —
 92.6
Restructuring charges, net—
 —
 15.4
 —
 15.4
—
 —
 58.8
 —
 58.8
Losses on divestiture—
 —
 0.4
 —
 0.4
Operating (loss) income(16.1) (0.2) 99.9
 —
 83.6
(13.7) (0.2) 66.6
 —
 52.7
                  
Interest expense(3.3) (90.9) (19.0) 20.6
 (92.6)(1.6) (110.0) (7.7) 24.2
 (95.1)
Interest income2.2
 0.4
 19.3
 (20.6) 1.3
2.2
 0.3
 23.1
 (24.2) 1.4
Other income (expense), net1.4
 1.7
 (0.1) —
 3.0
0.6
 —
 (0.8) —
 (0.2)
Intercompany fees(4.3) —
 4.3
 —
 —
(4.0) —
 4.0
 —
 —
Equity in net income of subsidiaries82.4
 261.8
 174.7
 (518.9) —
31.0
 232.9
 124.3
 (388.2) —
Income (loss) from continuing operations before income taxes62.3
 172.8
 279.1
 (518.9) (4.7)14.5
 123.0
 209.5
 (388.2) (41.2)
Income tax benefit(1.4) (2.1) (54.3) —
 (57.8)(1.1) (1.2) (42.1) —
 (44.4)
Income from continuing operations63.7
 174.9
 333.4
 (518.9) 53.1
15.6
 124.2
 251.6
 (388.2) 3.2
(Loss) income from discontinued operations, net of income taxes—
 (0.2) 10.8
 —
 10.6
Income from discontinued operations, net of income taxes—
 0.1
 12.3
 —
 12.4
Net income63.7
 174.7
 344.2
 (518.9) 63.7
15.6
 124.3
 263.9
 (388.2) 15.6
Other comprehensive loss, net of tax(5.1) (5.1) (10.5) 15.6
 (5.1)(4.9) (4.9) (9.9) 14.8
 (4.9)
Comprehensive income$58.6
 $169.6
 $333.7
 $(503.3) $58.6
$10.7
 $119.4
 $254.0
 $(373.4) $10.7



























MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the ninesix months ended SeptemberJune 28, 20182019
(unaudited, in millions)

Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations ConsolidatedMallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Net sales$—
 $—
 $1,844.3
 $—
 $1,844.3
$—
 $—
 $1,613.9
 $—
 $1,613.9
Cost of sales1.6
 —
 935.1
 —
 936.7
1.3
 —
 888.6
 —
 889.9
Gross (loss) profit(1.6) —
 909.2
 —
 907.6
(1.3) —
 725.3
 —
 724.0
Selling, general and administrative expenses30.1
 0.5
 490.1
 —
 520.7
25.2
 0.6
 430.3
 —
 456.1
Research and development expenses3.8
 —
 220.1
 —
 223.9
3.2
 —
 161.7
 —
 164.9
Restructuring charges, net—
 —
 96.5
 —
 96.5
—
 —
 4.0
 —
 4.0
Losses on divestiture—
 —
 0.6
 —
 0.6
Non-restructuring impairment charge—
 —
 113.5
 —
 113.5
Operating (loss) income(35.5) (0.5) 101.9
 —
 65.9
(29.7) (0.6) 15.8
 —
 (14.5)
                  
Interest expense(6.2) (323.2) (272.2) 321.5
 (280.1)(12.6) (132.1) (136.4) 126.9
 (154.2)
Interest income6.8
 251.6
 69.7
 (321.5) 6.6
15.0
 0.3
 115.3
 (126.9) 3.7
Other income (expense), net9.0
 (154.0) 162.5
 —
 17.5
Other income, net8.7
 30.7
 51.3
 —
 90.7
Intercompany fees(12.0) (0.1) 12.1
 —
 —
(10.0) —
 10.0
 —
 —
Equity in net income of subsidiaries145.9
 647.2
 425.4
 (1,218.5) —
188.1
 368.1
 262.5
 (818.7) —
Income (loss) from continuing operations before income taxes108.0
 421.0
 499.4
 (1,218.5) (190.1)159.5
 266.4
 318.5
 (818.7) (74.3)
Income tax benefit(3.4) (4.4) (214.2) —
 (222.0)
Income tax (benefit) expense(2.2) 6.6
 (233.4) —
 (229.0)
Income from continuing operations111.4
 425.4
 713.6
 (1,218.5) 31.9
161.7
 259.8
 551.9
 (818.7) 154.7
Income from discontinued operations, net of income taxes—
 —
 79.5
 —
 79.5
—
 2.7
 4.3
 —
 7.0
Net income111.4
 425.4
 793.1
 (1,218.5) 111.4
161.7
 262.5
 556.2
 (818.7) 161.7
Other comprehensive loss, net of tax(4.3) (4.3) (9.3) 13.6
 (4.3)
Other comprehensive income, net of tax3.7
 3.7
 6.7
 (10.4) 3.7
Comprehensive income$107.1
 $421.1
 $783.8
 $(1,204.9) $107.1
$165.4
 $266.2
 $562.9
 $(829.1) $165.4

































MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the ninesix months ended SeptemberJune 29, 20172018
(unaudited, in millions)

 Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Net sales$—
 $—
 $1,760.7
 $—
 $1,760.7
Cost of sales1.8
 —
 806.5
 —
 808.3
Gross (loss) profit(1.8) —
 954.2
 —
 952.4
Selling, general and administrative expenses46.7
 0.6
 571.2
 —
 618.5
Research and development expenses3.6
 —
 140.6
 —
 144.2
Restructuring charges, net—
 —
 26.3
 —
 26.3
Gains on divestiture—
 —
 (56.6) —
 (56.6)
Operating (loss) income(52.1) (0.6) 272.7
 —
 220.0
          
Interest expense(10.0) (264.9) (57.9) 53.8
 (279.0)
Interest income5.3
 1.0
 50.3
 (53.8) 2.8
Other income (expense), net19.0
 (1.6) (88.0) —
 (70.6)
Intercompany fees(13.3) —
 13.3
 —
 —
Equity in net income of subsidiaries572.1
 1,113.5
 848.1
 (2,533.7) —
Income (loss) from continuing operations before income taxes521.0
 847.4
 1,038.5
 (2,533.7) (126.8)
Income tax benefit(4.7) (2.6) (146.1) —
 (153.4)
Income from continuing operations525.7
 850.0
 1,184.6
 (2,533.7) 26.6
(Loss) income from discontinued operations, net of income taxes—
 (1.9) 501.0
 —
 499.1
Net income525.7
 848.1
 1,685.6
 (2,533.7) 525.7
Other comprehensive income, net of tax59.4
 59.4
 117.9
 (177.3) 59.4
Comprehensive income$585.1
 $907.5
 $1,803.5
 $(2,711.0) $585.1

 Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Net sales$—
 $—
 $1,580.8
 $—
 $1,580.8
Cost of sales0.9
 —
 838.4
 —
 839.3
Gross (loss) profit(0.9) —
 742.4
 —
 741.5
Selling, general and administrative expenses17.7
 0.4
 383.0
 —
 401.1
Research and development expenses2.2
 —
 172.4
 —
 174.6
Restructuring charges, net—
 —
 87.0
 —
 87.0
Operating (loss) income(20.8) (0.4) 100.0
 —
 78.8
          
Interest expense(4.6) (211.2) (14.8) 44.1
 (186.5)
Interest income4.4
 2.0
 42.3
 (44.1) 4.6
Other income (expense), net6.7
 2.8
 (5.1) —
 4.4
Intercompany fees(8.5) —
 8.5
 —
 —
Equity in net income of subsidiaries18.1
 408.3
 203.5
 (629.9) —
(Loss) income from continuing operations before income taxes(4.7) 201.5
 334.4
 (629.9) (98.7)
Income tax benefit(2.3) (2.0) (76.7) —
 (81.0)
(Loss) income from continuing operations(2.4) 203.5
 411.1
 (629.9) (17.7)
Income from discontinued operations, net of income taxes—
 —
 15.3
 —
 15.3
Net (loss) income(2.4) 203.5
 426.4
 (629.9) (2.4)
Other comprehensive loss, net of tax(7.3) (7.3) (15.1) 22.4
 (7.3)
Comprehensive (loss) income$(9.7) $196.2
 $411.3
 $(607.5) $(9.7)































MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the ninesix months ended SeptemberJune 28, 20182019
(unaudited, in millions)

Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations ConsolidatedMallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Cash Flows From Operating Activities:                  
Net cash from operating activities$447.6
 $43.0
 $1,420.5
 $(1,430.0) $481.1
$(16.2) $56.5
 $430.8
 $(3.7) $467.4
Cash Flows From Investing Activities:                  
Capital expenditures—
 —
 (93.3) —
 (93.3)—
 —
 (77.6) —
 (77.6)
Acquisitions, net of cash acquired—
 —
 (699.9) —
 (699.9)
Acquisitions, net of cash—
 —
 —
 —
 —
Proceeds from divestitures, net of cash—
 —
 313.2
 —
 313.2
—
 —
 —
 —
 —
Intercompany loan investment, net(393.6) (85.2) (367.2) 846.0
 —
40.9
 —
 (580.8) 539.9
 —
Investment in subsidiary—
 (168.3) —
 168.3
 —
—
 (658.6) —
 658.6
 —
Other—
 —
 28.8
 —
 28.8
—
 —
 8.2
 —
 8.2
Net cash from investing activities(393.6) (253.5) (818.4) 1,014.3
 (451.2)40.9
 (658.6) (650.2) 1,198.5
 (69.4)
Cash Flows From Financing Activities:                  
Issuance of external debt—
 600.0
 57.2
 —
 657.2
—
 —
 200.0
 —
 200.0
Repayment of external debt and capital lease obligation—
 (1,166.8) (396.6) —
 (1,563.4)—
 (98.6) (587.3) —
 (685.9)
Debt financing costs—
 (12.0) —
 —
 (12.0)—
 —
 —
 —
 —
Proceeds from exercise of share options1.0
 —
 —
 —
 1.0
0.5
 —
 —
 —
 0.5
Repurchase of shares(57.4) —
 —
 —
 (57.4)(2.5) —
 —
 —
 (2.5)
Intercompany loan borrowings, net—
 846.0
 —
 (846.0) —
(24.9) 564.8
 —
 (539.9) —
Intercompany dividends—
 (814.2) (615.8) 1,430.0
 —
—
 —
 (3.7) 3.7
 —
Capital contribution—
 —
 168.3
 (168.3) —
—
 —
 658.6
 (658.6) —
Other2.0
 —
 (26.3) —
 (24.3)1.9
 —
 (20.4) —
 (18.5)
Net cash from financing activities(54.4) (547.0) (813.2) 415.7
 (998.9)(25.0) 466.2
 247.2
 (1,194.8) (506.4)
Effect of currency rate changes on cash—
 —
 (0.9) —
 (0.9)—
 —
 0.8
 —
 0.8
Net change in cash, cash equivalents and restricted cash(0.4) (757.5) (212.0) —
 (969.9)(0.3) (135.9) 28.6
 —
 (107.6)
Cash, cash equivalents and restricted cash at beginning of period0.7
 908.8
 369.6
 —
 1,279.1
0.4
 140.8
 226.3
 —
 367.5
Cash, cash equivalents and restricted cash at end of period$0.3
 $151.3
 $157.6
 $—
 $309.2
$0.1
 $4.9
 $254.9
 $—
 $259.9
                  
Cash and cash equivalents at end of period$0.3
 $151.3
 $139.1
 $—
 $290.7
$0.1
 $4.9
 $236.1
 $—
 $241.1
Restricted Cash, included in other assets at end of period—
 —
 18.5
 —
 18.5
—
 —
 18.8
 —
 18.8
Cash, cash equivalents and restricted cash at end of period$0.3
 $151.3
 $157.6
 $—
 $309.2
$0.1
 $4.9
 $254.9
 $—
 $259.9





MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the ninesix months ended SeptemberJune 29, 20172018
(unaudited, in millions)

Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations ConsolidatedMallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Cash Flows From Operating Activities:                  
Net cash from operating activities$1,172.0
 $1,233.7
 $1,963.0
 $(3,920.2) $448.5
$453.6
 $102.3
 $1,135.9
 $(1,430.0) $261.8
Cash Flows From Investing Activities:                  
Capital expenditures—
 —
 (151.3) —
 (151.3)—
 —
 (67.1) —
 (67.1)
Acquisitions, net of cash acquired—
 —
 (35.9) —
 (35.9)
Acquisitions, net of cash—
 —
 (699.9) —
 (699.9)
Proceeds from divestitures, net of cash—
 —
 576.9
 —
 576.9
—
 —
 298.3
 —
 298.3
Intercompany loan investment, net(741.3) —
 (920.8) 1,662.1
 —
(398.3) (85.2) (12.4) 495.9
 —
Investment in subsidiary—
 (1,412.5) —
 1,412.5
 —
—
 (163.1) 41.3
 121.8
 —
Other—
 —
 0.5
 —
 0.5
—
 —
 12.4
 —
 12.4
Net cash from investing activities(741.3) (1,412.5) (530.6) 3,074.6
 390.2
(398.3) (248.3) (427.4) 617.7
 (456.3)
Cash Flows From Financing Activities:                  
Issuance of external debt—
 500.0
 40.0
 —
 540.0
—
 600.0
 57.2
 —
 657.2
Repayment of external debt and capital lease obligation—
 (759.9) (127.6) —
 (887.5)—
 (1,011.2) (381.6) —
 (1,392.8)
Debt financing costs—
 (12.7) —
 —
 (12.7)—
 (12.0) —
 —
 (12.0)
Proceeds from exercise of share options4.0
 —
 —
 —
 4.0
—
 —
 —
 —
 —
Repurchase of shares(437.7) —
 —
 —
 (437.7)(56.8) —
 —
 —
 (56.8)
Intercompany loan borrowings, net—
 1,614.5
 47.6
 (1,662.1) —
—
 495.9
 —
 (495.9) —
Intercompany dividends—
 (1,170.0) (2,750.2) 3,920.2
 —
—
 (814.2) (615.8) 1,430.0
 —
Capital contribution—
 —
 1,412.5
 (1,412.5) —
—
 —
 121.8
 (121.8) —
Other3.2
 —
 (21.8) —
 (18.6)1.4
 —
 (26.3) —
 (24.9)
Net cash from financing activities(430.5) 171.9
 (1,399.5) 845.6
 (812.5)(55.4) (741.5) (844.7) 812.3
 (829.3)
Effect of currency rate changes on cash—
 —
 2.7
 —
 2.7
—
 —
 (1.2) —
 (1.2)
Net change in cash, cash equivalents and restricted cash0.2
 (6.9) 35.6
 —
 28.9
(0.1) (887.5) (137.4) —
 (1,025.0)
Cash, cash equivalents and restricted cash at beginning of period0.5
 44.5
 316.1
 —
 361.1
0.7
 908.8
 369.6
 —
 1,279.1
Cash, cash equivalents and restricted cash at end of period$0.7
 $37.6
 $351.7
 $—
 $390.0
$0.6
 $21.3
 $232.2
 $—
 $254.1
                  
Cash and cash equivalents at end of period$0.7
 $37.6
 $333.5
 $—
 $371.8
$0.6
 $21.3
 $213.8
 $—
 $235.7
Restricted Cash, included in other assets at end of period—
 —
 18.2
 —
 18.2
—
 —
 18.4
 —
 18.4
Cash, cash equivalents and restricted cash at end of period$0.7
 $37.6
 $351.7
 $—
 $390.0
$0.6
 $21.3
 $232.2
 $—
 $254.1





21.18.Subsequent Events
Specialty Generics Separation Update
On August 6, 2019, the Company announced that based on current market conditions and developments, including increasing uncertainties created by the opioid litigation, the Company is suspending for now its previously announced plans to spin off the Specialty Generics company.

Tax Matters
On August 5, 2019, the Internal Revenue Service ("IRS") proposed an adjustment to the taxable income of Mallinckrodt Hospital Products Inc. (“MHP”) as a result of its findings in the audit of MHP’s tax year ended September 26, 2014. MHP, then known as Cadence Pharmaceuticals, Inc. (“Cadence”), was acquired by the Company as a U.S. subsidiary on March 19, 2014. Following the acquisition of Cadence, the Company transferred certain rights and risks in Ofirmev intellectual property (“Transferred IP”) to a wholly owned non-U.S. subsidiary of the Company. The transfer occurred at a price (“Transfer Price”) determined in conjunction with the Company’s external advisors, in accordance with applicable Treasury Regulations and with reference to the $1,329.0 million taxable consideration paid by the Company to the shareholders of Cadence. The IRS asserts the value of the Transferred IP exceeds the value of the acquired Cadence shares and, further, partially disallows the Company’s control premium subtraction. The proposed adjustment to taxable income of $871.0 million, excluding potential associated interest and penalties, is proposed as a multi-year adjustment and may result in a non-cash reduction of the Company’s U.S. Federal net operating loss carryforward of $815.4 million. The Company strongly disagrees with the proposed increase to the Transfer Price and intends to contest it through all available administrative and judicial remedies, which may take a number of years to conclude. The final outcome cannot be reasonably quantified at this time, however, the adjustment may be material. The Company believes its allowance for income tax contingencies is adequate.

License Agreement
On July 18, 2019, the Company entered into a license and collaboration agreement with Silence Therapeutics plc ("Silence") that will allow the companies to develop and commercialize ribonucleic acid interference ("RNAi") drug targets designed to inhibit the complement cascade, a group of proteins that are involved in the immune system and that play a role in the development of inflammation. These proteins are known to contribute to the pathogenesis of many diseases, including autoimmune disease. Under the terms of the agreement, the Company will obtain an exclusive worldwide license to Silence's C3 complement asset, SLN500, with options to license up to two additional complement-targeted assets in Silence's preclinical complement-directed RNAi development program. Silence will be responsible for preclinical activities, and for executing the development program of each asset until the end of Phase 1, after which the Company will assume clinical development and responsibility for global commercialization.
During the three months ending September 27, 2019, the Company will provide Silence with an upfront payment of $20.0 million. Silence is also eligible to receive up to $10.0 million in research milestones for SLN500 and for each optioned asset, in addition to funding for Phase 1 clinical development including good manufacturing practices (GMP) manufacturing. Silence will fund all other preclinical activities. The collaboration provides for potential added clinical and regulatory milestone payments of up to $100.0 million for SLN500, as well as commercial milestone payments of up to $563.0 million for SLN500. Should the Company opt to license one or two additional assets, Silence could receive up to $703.0 million in similar clinical, regulatory, and commercial milestone payments per asset. Silence would also receive tiered, low double-digit to high-teen royalties on net sales for SLN500 and each optioned asset.
In addition to the aforementioned agreement, on July 24, 2019, the Company acquired an equity investment of $5.0 million in Silence Therapeutics.

Financing Activities
On October 22, 2018,July 11, 2019, the Company borrowed an additional $25.0$400.0 million on its receivable securitization,revolving credit facility, bringing total outstanding borrowings to $250.0$805.0 million for this instrument as of the date of this report.
On October 23, 2018,July 19, 2019, the Company made an $80.0repaid $200.0 million paymentof its outstanding obligations under its variable-rate receivable securitization, thus automatically terminating this facility, which was classified as long-term on the revolving credit facility, bringing total outstanding borrowingsunaudited condensed consolidated balance sheet as of June 28, 2019.
Subsequent to $220.0 million for this instrument as ofJune 28, 2019 and up through the date of this report.filing, the Company repurchased fixed-rate debt that aggregated to a principal amount of $70.9 million, which resulted in a gain on repurchase of $18.0 million.




Commitments and Contingencies
Certain litigation matters occurred during the ninesix months ended SeptemberJune 28, 20182019 or prior, but had subsequent updates through the issuance of this report. See further discussion in Note 17.14.




Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes included in this Quarterly Report on Form 10-Q. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs and involve risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended December 29, 2017,28, 2018, filed with the United States ("U.S.") Securities and Exchange Commission ("the SEC") on February 27, 2018.26, 2019.
We own or have rights to use the trademarks and trade names that we use in conjunction with the operation of our business. One of the more important trademarks that we own or have rights to use that appears in this Quarterly Report on Form 10-Q is "Mallinckrodt," which is a registered trademark or the subject of pending trademark applications in the U.S. and other jurisdictions. Solely for convenience, we only use the ™ or ® symbols the first time any trademark or trade name is mentioned in the following discussion. Such references are not intended to indicate in any way that we will not assert, to the fullest extent permitted under applicable law, our rights to our trademarks and trade names. Each trademark or trade name of any other company appearing in the following discussion is, to our knowledge, owned by such other company.

Overview
We are a global business consisting of multiple wholly owned subsidiaries that develops, manufactures, marketsdevelop, manufacture, market and distributesdistribute specialty pharmaceutical products and therapies. Areas of focus include autoimmune and rare diseases in specialty areas like neurology, rheumatology, nephrology, pulmonology and ophthalmology; immunotherapy and neonatal respiratory critical care therapies; analgesics and gastrointestinal products.
On February 22, 2018,May 28, 2019, as an update to our Board of Directors authorized commencement of a process to dispose of (1) our Specialty Generics business comprisedplanned separation of the previously reported Specialty Generics and Amitiza® (lubiprostone) ("Amitiza") segment withdiscussed further below, we announced that given the exceptionstrong, return-to-growth performance of BioVectra, Inc. - our wholly-owned subsidiary that operates a contract manufacturingthe Specialty Generics business, in Canada ("BioVectra"), (2) certain of our non-promoted brands business, which was previously reflected inthe Amitiza product should remain with the Specialty Brands segment; and (3) our ongoing, post-divestiture supply agreementbusiness. As a result of this announcement, we identified two reportable segments that align with the acquireroperations of the contrast media and delivery systems (CMDS) business,two independent publicly traded companies anticipated post-separation, which was previously reflected in the Other non-operatingare further described below:
•
Specialty Brands includes innovative specialty pharmaceutical brands (inclusive of Amitiza); and
•
Specialty Generics includes niche specialty generic drugs and active pharmaceutical ingredients ("API(s)").
All prior period segment (referred to collectively as the "Specialty Generics Disposal Group"). We evaluated the criteria prescribed by U.S. Generally Accepted Accounting Principles ("GAAP") for recording a disposal group as held for sale and discontinued operations. This criteria was met during the three months ended March 30, 2018, and as a result, prior year balances haveinformation has been recast to presentreflect the financial resultsrealignment of the disposal group asour reportable segments on a discontinued operation.
Ascomparable basis. Refer below for an update on our plans for the Specialty Generics Disposal Group is reported as a discontinued operation, our continuing operations are limited to the results of operations from the Specialty Brandssegment. Our Specialty Brands segment markets branded pharmaceutical products for autoimmune and rare diseases in the specialty areas of neurology, rheumatology, nephrology, ophthalmology and pulmonology; immunotherapy and neonatal respiratory critical care therapies, analgesics and gastrointestinal products. Our diversified, in-line portfolio of both marketed and development products is focused on patients with significant unmet medical needs.business.
For further information on our business and products, refer to our Annual Report on Form 10-K for the fiscal year ended December 29, 2017,2018, filed with the SEC on February 27, 2018.26, 2019.

Significant Events
AcquisitionsSeparation
Our long-standing goal remains to be an innovation-driven biopharmaceutical company focused on improving outcomes for underserved patients with severe and critical conditions. However, based on current market conditions and developments, including increasing uncertainties created by the opioid litigation, subsequent to June 28, 2019, we decided to suspend for now our previously announced plans to spin off the Specialty Generics company (the "Separation"). We continue to actively consider a range of options intended to lead to the ultimate separation of the Specialty Generics business, consistent with our previously stated strategy.
Beginning in the first quarter through the third quarter of fiscal 2018, the historical financial results attributable to "the Specialty Generics Disposal Group" were reflected in our interim unaudited condensed consolidated financial statements as discontinued operations. As a result of the December 6, 2018 Separation announcement, the Specialty Generics Disposal Group no longer met the requirements to be classified as held-for-sale, and the historical financial results attributable to the Specialty Generics Disposal Group were recast as continuing operations in our Annual Report on Form 10-K for the fiscal year ended December 28, 2018, as well as the unaudited condensed consolidated financial statements as presented herein.
During the three and six months ended June 28, 2019, we incurred $18.9 million and $30.6 million in costs related to the Separation, respectively. These costs, which are included in selling, general and administrative ("SG&A") expenses, primarily relate to professional fees and incremental costs incurred to build out the corporate infrastructure of the new company, as well as rebranding initiatives.





Tax Matters
On February 13, 2018,August 5, 2019, the Company acquired SucampoInternal Revenue Service ("IRS") proposed an adjustment to the taxable income of Mallinckrodt Hospital Products Inc. (“MHP”) as a result of its findings in the audit of MHP’s tax year ended September 26, 2014. MHP, then known as Cadence Pharmaceuticals, Inc. ("Sucampo"(“Cadence”) through, was acquired as a U.S. subsidiary on March 19, 2014. Following the acquisition of all the outstanding common stock of Sucampo. Consideration for the transaction consisted of approximately $1.2 billion, including the assumption of Sucampo's third-party debt ("the Sucampo Acquisition"). The acquisition was funded through the issuance of $600.0 million aggregate principal amount of senior secured notes (as discussed further below), a $900.0 million borrowing under our revolving credit facilityCadence, we transferred certain rights and cash on hand. Sucampo's commercialized products include Amitizarisks in Ofirmev® (lubiprostone)intellectual property (“Transferred IP”) to one of our wholly owned non-U.S. subsidiaries. The transfer occurred at a price (“Transfer Price”) determined in conjunction with our external advisors, in accordance with applicable Treasury Regulations and with reference to the $1,329.0 million taxable consideration we paid to the shareholders of Cadence. The IRS asserts the value of the Transferred IP exceeds the value of the acquired Cadence shares and, further, partially disallows our control premium subtraction. The proposed adjustment to taxable income of $871.0 million, excluding potential associated interest and penalties, is proposed as a multi-year adjustment and may result in a non-cash reduction of our U.S. Federal net operating loss carryforward of $815.4 million. We strongly disagree with the proposed increase to the Transfer Price and intend to contest it through all available administrative and judicial remedies, which may take a number of years to conclude. The final outcome cannot be reasonably quantified at this time, however, the adjustment may be material. We believe our allowance for income tax contingencies is adequate.

Medicaid Lawsuit
In May 2019, we filed a lawsuit in federal district court against the Centers for Medicare & Medicaid Services ("Amitiza"CMS"), and the Department of Health and Human Services. This lawsuit is in response to a leading global product indecision by CMS to require that we revert to the branded constipation market, and Resculaprior base date average manufacturer price (“AMP”) used to calculate Medicaid drug rebates for Acthar® (unoprostone isopropyl ophthalmic solution) 0.15%Gel(repository corticotropin injection) ("Rescula"Acthar Gel"), which has the practical effect of imposing approximately $600.0 million in retroactive rebates and prospective rebate increases of approximately $100.0 million annually. This matter is indicated for ocular hypertension and open-angle glaucoma, and marketed solelyfurther described in Japan. Through this acquisition, we acquired VTS-270, a Phase 3 development product for Niemann-Pick Type C, a rare, neurodegenerative, and ultimately fatal disease that can present at any age. Also acquired was an option to exercise a collaborative agreement with Cancer Prevention Pharmaceuticals ("CPP") associated with the development of CPP-1X/sulindac, a Phase 3 development product for Familial Adenomatous Polyposis ("FAP"). For more information on our ongoing development of CPP-1X/sulindac, refer to "Research and Development Investment" within this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.



Discontinued Operations and Divestitures
As previously mentioned, on February 22, 2018, our Board of Directors authorized commencement of a process to dispose of the Specialty Generics Disposal Group. Refer to Note 414 to the unaudited condensed consolidated financial statements for further information onstatements.

Reorganization of Intercompany Financing and Legal Entity Ownership
During the Specialty Generics Disposal Group.
Onthree months ended March 16, 2018,29, 2019, we completed the sale of a portionreorganization of our Hemostasis business, inclusiveintercompany financing and associated legal entity ownership in response to the changing global tax environment. As a result, during the six months ended June 28, 2019, we recognized current income tax expense of our PreveLeak™ Surgical Sealant ("PreveLeak")$28.9 million and Recothrom® Thrombin topical (Recombinant) ("Recothrom") products to Baxter International, Inc. ("Baxter") for approximately $185.0a deferred income tax benefit of $218.7 million with a base paymentcorresponding reduction to net deferred tax liabilities. The reduction in net deferred tax liabilities was comprised of $153.0a decrease in interest-bearing deferred tax obligations, which resulted in the elimination of the December 28, 2018 balance of $227.5 million, inclusive of existing inventory and subjecta $42.3 million increase to a closing inventory adjustment, withdeferred 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 remainder in potential future milestones. Baxter assumed other expenses, including contingent liabilities associated with PreveLeak. We recorded a pre-tax loss oninterest-bearing deferred tax obligation also eliminated the sale of $0.6 million during the three and nine months ended September 28, 2018, which excluded any potential proceeds from the attainment of future milestones and reflected a post-sale closing inventory adjustment of $13.7 million. The financial results associated with the operations of PreveLeak and Recothrom are presented within continuing operations as this divestiture did not meet the criteria for discontinued operations classification.annual Internal Revenue Code section 453A interest expense.

Stannsoporfin
On May 3, 2018, inDuring the three months ended June 28, 2019, we recognized a joint meeting, the Federal Drug Administration's ("FDA") Gastrointestinal Drugs Advisory Committee and Pediatric Advisory Committee (the "Advisory Committee") recommended that the risk benefit profile offull impairment on our stannsoporfin in-process research and development ("IPR&D") product does not support approval for the treatment of newborns ≥35 weeks of gestational age with indicators of hemolysis who are at risk of developing hyperbilirubinemia (severe jaundice). On August 9, 2018, we received a complete response letter from the FDAasset related to our new drug application ("NDA") for stannsoporfin which provided guidance regarding areas of further evaluation for resubmitting the stannsoporfin NDA. While the timing of the development program has shifted outward, we continue to have conversations with the FDA to determine the best path forward. We 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 $113.5 million included within intangible assets, net on the unaudited condensed consolidated balance sheets as of September 28, 2018 and December 29, 2017.
As part of the acquisition of InfaCare Pharmaceutical Corporation ("InfaCare") in September 2017, we provided contingent consideration to the prior shareholders of InfaCare in the form of both regulatory approval milestones for full-term and pre-term neonates for stannsoporfin and sales-based milestones associated with stannsoporfin. Due to recent developments and discussions with the FDA, the timing of thewill no longer pursue this development has shifted outward. During the three and nine months ended September 28, 2018, we recognized a $7.0 million and $35.0 million fair value adjustment, respectively, due to this shift in timing and its impact on the achievement of milestones per the purchase agreement. The fair value of the contingent consideration is zero after the aforementioned adjustments as of September 28, 2018.product. 

VTS-270
VTS-270 is our 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 our recently 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. We are 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 FDAU.S. Food and Drug Administration ("FDA") indicated to us 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, our 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 we carefully consider the totality of data available and continue to work with the primary investigators and the FDA to determine the best path forward. We will continue to assess the impact of any changes to planned revenue or earnings on the fair value of the associated IPR&Din-process research and development asset of $274.5 million included within intangible assets, net on the unaudited condensed consolidated balance sheet as of June 28, 2019.




CPP-1X/sulindac
In May 2019, we along with Cancer Prevention Pharmaceuticals, Inc. ("CPP"), announced that CPP's pivotal phase 3 clinical trial for CPP-1X/sulindac in patients with familial adenomatous polyposis ("FAP") did not meet its primary endpoint. Specifically, the reduction of time to the first occurrence of an FAP-related event for the combination of CPP-1X/sulindac did not reach statistical significance compared to the two control arms. Based on the topline results, we are no longer pursuing the commercialization of the CPP-1X/sulindac program under our collaborative agreement.

Silence Therapeutics
On July 18, 2019, we entered into a license and collaboration agreement with Silence Therapeutics plc ("Silence") that will allow the companies to develop and commercialize ribonucleic acid interference ("RNAi") drug targets designed to inhibit the complement cascade, a group of proteins that are involved in the immune system and that play a role in the development of inflammation. These proteins are known to contribute to the pathogenesis of many diseases, including autoimmune disease. Under the terms of the agreement, we will obtain an exclusive worldwide license to Silence's C3 complement asset, SLN500, with options to license up to two additional complement-targeted assets in Silence's preclinical complement-directed RNAi development program. Silence will be responsible for preclinical activities, and for executing the development program of each asset until the end of Phase 1, after which we will assume clinical development and responsibility for global commercialization.
During the three months ending September 28, 2018.27, 2019, we will provide Silence with an upfront payment of $20.0 million. Silence is also eligible to receive up to $10.0 million in research milestones for SLN500 and for each optioned asset, in addition to funding for Phase 1 clinical development including good manufacturing practices (GMP) manufacturing. Silence will fund all other preclinical activities. The collaboration provides for potential added clinical and regulatory milestone payments of up to $100.0 million for SLN500, as well as commercial milestone payments of up to $563.0 million for SLN500. Should we opt to license one or two additional assets, Silence could receive up to $703.0 million in similar clinical, regulatory, and commercial milestone payments per asset. Silence would also receive tiered, low double-digit to high-teen royalties on net sales for SLN500 and each optioned asset.
In addition to the aforementioned agreement, on July 24, 2019, we acquired an equity investment of $5.0 million in Silence Therapeutics.


Business Factors Influencing the Results of Operations
Products
Specialty Brands
Net sales of Acthar Gel for the three months ended June 28, 2019 decreased $26.8 million, or 9.1%, to $266.4 million driven primarily by continued reimbursement challenges impacting new and returning patients and continued payer scrutiny on overall specialty pharmaceutical spending. This is partially offset by strength in Ofirmev, Inomax® and Therakos®, as well as an increase in Amitiza® net sales.
Specialty Generics
After experiencing contraction over the last several years, the Specialty Generics business is projected to return to growth in fiscal 2019, as compared to fiscal 2018, primarily driven by share recapture in specialty generic products. Net sales from the Specialty Generics segment increased $1.7 million or 0.9% to $195.5 million for the three months ended June 28, 2019 compared to $193.8 million for the three months ended June 29, 2018.
The U.S. generic market is growing overall in volume, but has been declining in value over the past several years due to pricing pressure. Hydrocodone, oxycodone and other controlled substances have experienced significant volume declines due to continued downward pressure on the use of opioids in the U.S. Despite this market contraction, acetaminophen and opioids are still viewed as the standard of care for many types of pain. Pain management represents the second largest therapeutic area in the U.S. based upon prescriptions dispensed, with pain medications accounting for approximately one out of every 11 dispensed prescriptions in 2018. We expect the decline in usage rates for opioids in the U.S. to continue, stabilizing at levels consistent with historical prescribing patterns and aligning with treatment guidelines being developed by the medical community. Globally, we expect the use of acetaminophen and opioids to trend with population rates for the foreseeable future.




Opioid-Related Matters
As a result of the Sucampo Acquisition in fiscal 2018, we obtained the sales and marketing rights for Amitiza and Rescula and acquired an arrangement under which we license certain rights to Amitiza to a third party in exchange for royalties on net salesgreater awareness of the product. The additionpublic health issue of opioid abuse, there has been increased scrutiny of, and investigation into, the commercial practices of opioid manufacturers, distributors, and others in the supply chain by state and federal agencies. We, along with other opioid manufacturers and others in the supply chain, have been the subject of federal and state government investigations and enforcement actions, as well as lawsuits by private parties, focused on the misuse and abuse of opioid medications in the U.S. Similar investigations, lawsuits and other actions may be initiated in the future. We will continue to incur significant legal costs in defending these productsmatters and could in the future be required to our Specialty Brands portfolio contributedpay significant amounts as a result of fines, penalties, settlements or judgments. Such litigation and related matters are described in Note 14 to the net sales and operating income within this segment. The aggregate net sales of these products were $50.7 million and $124.5 million during the three and nine months ended September 28, 2018, respectively, which includes both royalty revenue and product sales. Our cost of sales for the three and nine months ended September 28, 2018 included $31.0 million and $77.5 million of expense recognition associated with the fair value


adjustments of acquired inventory, respectively and $18.0 million and $45.0 million of amortization associated with intangibles recognized from this acquisition, respectively. Included within selling, general and administrative expenses ("SG&A") in our unaudited condensed consolidated statement of income was $0.5 million and $3.2 million of transaction costs incurred during the three and nine months ended September 28, 2018, respectively, associated with our acquisition.

Restructuring Initiatives
We continue to realign our cost structure due to the changing nature of our business and look for opportunities to achieve operating efficiencies.
In July 2016, our Board of Directors approved a $100.0 million to $125.0 million restructuring program ("the 2016 Mallinckrodt Program") designed to further improve our cost structure, as we continue to transform our business. The 2016 Mallinckrodt Program is expected to include actions across both the Specialty Brands segment and the Specialty Generics Disposal Group, as well as within corporate functions. There is no specified time period associated with the 2016 Mallinckrodt Program. Through September 28, 2018, we incurred restructuring charges of $120.9 million under the 2016 Mallinckrodt Program, which are expected to generate savings, primarily within our SG&A expenses. The 2016 Mallinckrodt Program is substantially complete.
In February 2018, our 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 2018 Mallinckrodt Program. Through September 28, 2018, we incurred restructuring charges of $5.2 million under the 2018 Mallinckrodt Program, which are expected to generate savings, primarily within our SG&A expenses.
In addition to the 2016 and 2018 Mallinckrodt Programs, we take certain restructuring actions to generate synergies from our acquisitions.
On January 8, 2018 we announced that we would discontinue marketing of Raplixa® after an evaluation of strategic options. During the nine months ended September 28, 2018, we incurred restructuring expenses of $48.8 million under the 2016 Mallinckrodt Program, consisting primarily of contract termination costs related to the production of Raplixa. Amounts paid in the future may differ from the amount currently recorded.financial statements.

Research and Development Investment
We devote significant resources to research and development ("R&D") of products and proprietary drug technologies. We incurred R&D expenses from continuing operations of $78.5$79.6 million and $223.9$164.9 million for the three and ninesix months ended SeptemberJune 28, 2018,2019, respectively, and $46.9$92.6 million and $144.2$174.6 million for the three and ninesix months ended SeptemberJune 29, 2017,2018, respectively. We expect to continue to pursue targeted investments in R&D activities, both for existing products and the development of new portfolio assets. We intend to focus our R&D investments in the specialty pharmaceuticals areas, specifically investments to support our Specialty Brands business, where we believe there is the greatest opportunity for growth and profitability.
On April 5, 2018 (the "Exercise Date"), we exercised the option under our collaborative agreement with CPP to negotiate terms of an exclusive license to develop and commercialize CPP-1X/sulindac in North America. In addition, we provided CPP with a $10.0 million upfront R&D payment for expenses related to the FAP pivotal trial incurred during the "Negotiation Period", or the period from the Exercise Date through the execution of such license agreement. CPP shall return to us any portion of the R&D payment that is not utilized during the Negotiation Period. Of the $10.0 million upfront payment, $7.3 million was utilized during the nine months ended September 28, 2018 and recorded as R&D expense within the unaudited condensed consolidated statement of income. The remaining $2.7 million was included in prepaid expenses and other current assets on the unaudited condensed consolidated balance sheet as of September 28, 2018.
On August 4, 2018, the license agreement with CPP was executed and the Company paid $5.0 million upfront with cash on hand and gained exclusive rights to develop and commercialize the product in North America, if approved. The agreement includes additional payments of up to $185.0 million dependent on developmental, regulatory and sales milestones, subject to reduction up to $15.0 million related to amounts provided by the Company in advance of entering into this agreement, and provides for both parties' reimbursement of R&D expenses from future profits. Following the commercialization of the product, CPP and the Company will share profits in accordance with the agreement. The Company will manage the development of the product in North America.








Results of Operations
Three Months Ended SeptemberJune 28, 20182019 Compared with Three Months Ended SeptemberJune 29, 20172018

Net Sales
Net sales by geographic area were as follows (dollars in millions): 
 Three Months Ended  
 June 28,
2019		 June 29,
2018		 Percentage
Change
U.S.$717.2
 $729.1
 (1.6)%
Europe, Middle East and Africa73.5
 64.2
 14.5
Other geographic areas32.6
 32.2
 1.2
Net sales$823.3
 $825.5
 (0.3)

Net sales for the three months ended June 28, 2019 decreased $2.2 million, or 0.3%, to $823.3 million, compared with $825.5 million for the three months ended June 29, 2018. This decrease in net sales was primarily driven by a decrease in net sales of Acthar Gel, partially offset by continued strength in Ofirmev, Inomax, Therakos and Amitiza, as well as increased net sales from the Specialty Generics segment as it continues in its return to growth. For further information on changes in our net sales, refer to "Segment Results" within this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Operating Income
Gross profit. Gross profit for the three months ended June 28, 2019 decreased $5.1 million, or 1.3%, to $388.9 million, compared with $394.0 million for the three months ended June 29, 2018. Gross profit margin was 47.2% for the three months ended June 28, 2019, compared with 47.7% for the three months ended June 29, 2018. The decrease in gross profit and gross profit margin was primarily attributable to an additional $29.8 million of amortization for the Ofirmev intangible asset resulting from a change in amortization method as discussed further in Note 10 to the unaudited condensed consolidated financial statements, as well as higher depreciation expense. The additional amortization and depreciation expense was partially offset by a decrease in the amortization of the inventory fair value adjustments related to Amitiza, which was fully amortized during the first quarter of 2019.
Selling, general and administrative expenses. SG&A expenses for the three months ended June 28, 2019 were $225.9 million, compared with $189.9 million for the three months ended June 29, 2018, an increase of $36.0 million, or 19.0%. This increase was primarily driven by a $27.5 million decrease in the fair value of the contingent consideration liability related to stannsoporfin recorded during the three months ended June 29, 2018. The remaining increase was attributable to various factors, including $18.9 million in costs related to the Separation, inclusive of rebranding initiatives, and an increase in legal expense, partially offset by cost benefits gained from restructuring actions, including lower employee compensation costs and advertising costs. SG&A



expenses were 27.4% of net sales for the three months ended June 28, 2019 and 23.0% of net sales for the three months ended June 29, 2018.
Research and development expenses. R&D expenses decreased $13.0 million, or 14.0%, to $79.6 million for the three months ended June 28, 2019, compared with $92.6 million for the three months ended June 29, 2018. Current R&D activities focus on performing clinical studies and publishing clinical and non-clinical experiences and evidence that support health economic activities and patient outcomes. As a percentage of net sales, R&D expenses were 9.7% and 11.2% for the three months ended June 28, 2019 and June 29, 2018, respectively.
Restructuring charges, net. During the three months ended June 28, 2019, we recognized a net benefit of $0.2 million, primarily related to employee severance and benefits. During the three months ended June 29, 2018, we recorded $58.8 million of restructuring charges, net, primarily related to contract termination costs related to the production of Raplixa, as well as the exiting of certain facilities and employee severance and benefits associated with the acquisition of Sucampo Pharmaceuticals, Inc. ("the Sucampo Acquisition") in February 2018.

Non-Operating Items
Interest expense and interest income. During the three months ended June 28, 2019 and June 29, 2018, net interest expense was $69.3 million and $93.7 million, respectively. This decrease was primarily attributable to the recognition of an $8.6 million benefit to interest expense during the three months ended June 28, 2019, due to a lapse of certain statute of limitations, in addition to a $6.3 million decrease in interest accrued on deferred tax liabilities associated with our previously outstanding installment notes. For further information, refer to Note 14 to the unaudited condensed consolidated financial statements. Additionally, a lower average outstanding debt balance during the three months ended June 28, 2019 yielded a decrease in interest expense of $7.8 million over the comparable period. Interest income increased to $2.2 million for the three months ended June 28, 2019, compared with $1.4 million for the three months ended June 29, 2018, primarily related to interest on preferred equity certificates received as contingent consideration associated with the sale of the Nuclear Imaging business.
Other income (expense), net. During the three months ended June 28, 2019, we recorded other income, net, of $74.4 million and during the three months ended June 29, 2018, we recorded other expense, net, of $0.2 million. The increase was primarily attributable to a gain of $65.0 million on debt repurchased, as well as royalty income, partially offset by a write-off of unamortized debt discount and fees during the three months ended June 28, 2019. The other expense, net, recorded during the three months ended June 29, 2018 represented items including gains on intercompany financing, foreign currency transactions losses and related hedging instruments.
Income tax benefit. We recognized an income tax benefit of $24.3 million on a loss from continuing operations before income taxes of $24.8 million for the three months ended June 28, 2019, and an income tax benefit of $44.4 million on a loss from continuing operations before income taxes of $41.2 million for the three months ended June 29, 2018. This resulted in effective tax rates of 98.0% and 107.8% for the three months ended June 28, 2019 and June 29, 2018, respectively. The income tax benefit for the three months ended June 28, 2019 was comprised of $5.6 million of current tax expense and $29.9 million of deferred tax benefit, which was predominately related to previously acquired intangibles, the generation of tax loss and credit carryforwards net of valuation allowances and the non-restructuring impairment charge, as further discussed in Note 10 of the unaudited condensed consolidated financial statements. The income tax benefit for the three months ended June 29, 2018 was comprised of $10.2 million of current tax expense and $54.6 million of deferred tax benefit. The deferred tax benefit was predominantly related to previously acquired intangibles.
The income tax benefit was $24.3 million for the three months ended June 28, 2019, compared with a tax benefit of $44.4 million for the three months ended June 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 an increase in tax benefit of $8.5 million attributed to the non-restructuring impairment charge and $2.6 million increase attributed to separation costs.
Income from discontinued operations, net of income taxes. We recorded income from discontinued operations of $7.3 million and $12.4 million during the three months ended June 28, 2019 and June 29, 2018, respectively, primarily related to the receipt of contingent consideration associated with the sale of the Nuclear Imaging business.




Six Months Ended June 28, 2019 Compared with Six Months Ended June 29, 2018
Net Sales
Net sales by geographic area were as follows (dollars in millions): 
Three Months Ended  Six Months Ended  
September 28,
2018		 September 29,
2017		 Percentage
Change		June 28,
2019		 June 29,
2018		 Percentage
Change
U.S.$576.4
 $563.4
 2.3%$1,396.9
 $1,399.3
 (0.2)%
Europe, Middle East and Africa36.9
 16.0
 130.6
148.3
 124.1
 19.5
Other geographic areas26.7
 21.2
 25.9
68.7
 57.4
 19.7
Net sales$640.0
 $600.6
 6.6
$1,613.9
 $1,580.8
 2.1

Net sales for the threesix months ended SeptemberJune 28, 20182019 increased $39.4$33.1 million, or 6.6%2.1%, to $640.0$1,613.9 million, compared with $600.6$1,580.8 million for the threesix months ended SeptemberJune 29, 2017.2018. This increase was primarily driven by net sales of Amitiza, which was acquired during the newly acquired Amitiza product,first quarter of 2018, and continued strength in Ofirmev,® Inomax and Therakos® demand, and benefits of Inomax® contracting and consumption.Therakos. These increases were partially offset by decreased net sales of H.P. Acthar® Gel, driven by the residual impact ofas previously reported patient withdrawal issues. We have taken a number of steps to address the issue, including engagement with payers, prescribers and patients.mentioned. In addition, we experienced lower net sales in Other branded products primarily due to the sale of Recothrom during the first quarter of 2018. For further information on changes in our net sales, refer to "Segment Results" within this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Operating Income
Gross profit. Gross profit for the threesix months ended SeptemberJune 28, 20182019 decreased $18.8$17.5 million, or 5.7%2.4%, to $313.8$724.0 million, compared with $332.6$741.5 million for the threesix months ended SeptemberJune 29, 2017.2018. Gross profit margin was 49.0%44.9% for the threesix months ended SeptemberJune 28, 2018,2019, compared with 55.4%46.9% for the threesix months ended SeptemberJune 29, 2017.2018. The decrease in gross profit and gross profit margin was primarily attributable to an additional $65.7 million of amortization for the Ofirmev intangible asset resulting from a change in amortization method as discussed further in Note 10 to the unaudited condensed consolidated financial statements. This additional amortization was partially offset by a decrease in the amortization of the Amitiza intangible asset and expense recognition of inventory fair value adjustments associated withrelated to Amitiza, which was fully amortized during the product.first quarter of 2019.
Selling, general and administrative expenses. SG&A expenses for the threesix months ended SeptemberJune 28, 20182019 were $164.0$456.1 million, compared with $186.3$401.1 million for the threesix months ended SeptemberJune 29, 2017, a decrease2018, an increase of $22.3$55.0 million, or 12.0%13.7%. The decreaseThis increase was primarily attributable to various factors, including an $11.8$30.6 million reduction in costs related to the accrual associated with our Lower Passaic River, New Jersey environmental remediation liability;Separation, inclusive of rebranding initiatives, and increased legal expenses. Additionally, during the six months ended June 29, 2018 we recorded a $7.0$28.0 million decrease in the fair value of the contingent consideration liability related to stannsoporfin; lower legal fees and advertising and promotion expenses; in addition tostannsoporfin. These increases were partially offset by cost benefits gained from restructuring actions, including lower stock compensation expenses. These changes were partially offset by higher one-time employee compensation costs and professional fees.lower advertising costs. SG&A expenses were 25.6%28.3% of net sales for the threesix months ended SeptemberJune 28, 20182019 and 31.0%25.4% of net sales for the threesix months ended SeptemberJune 29, 2017.2018.
Research and development expenses. R&D expenses increased $31.6decreased $9.7 million, or 67.4%5.6%, to $78.5$164.9 million for the threesix months ended SeptemberJune 28, 2018,2019, compared with $46.9$174.6 million for the threesix months ended SeptemberJune 29, 2017. The increase was primarily attributable to the additional pipeline products that have been acquired within the past year.2018. Current R&D activities focus on performing clinical studies and publishing clinical and non-clinical experiences and evidence that support health economic activities and patient outcomes. As a percentage of net sales, R&D expenses were 12.3%10.2% and 7.8%11.0% for the threesix months ended SeptemberJune 28, 20182019 and SeptemberJune 29, 2017,2018, respectively.
Restructuring charges, net. During the threesix months ended SeptemberJune 28, 2018,2019 we recorded $19.6$4.0 million of restructuring and related charges, net, including $4.9 million of accelerated depreciation in SG&A and cost of sales, primarily related to employee severance and benefits and exiting certain facilities.benefits. During the threesix months ended SeptemberJune 29, 2017,2018, we recorded $16.1$87.0 million of restructuring and related charges, net, including $0.7 million of accelerated depreciation in SG&A and cost of sales, primarily related to exiting certain facilities.
Losses on divestiture. During the three months ended September 28, 2018, we recorded a $0.6 million pre-tax loss associated with a post-sale closing inventory adjustment related to the sale of a portion of our Hemostasis business, inclusive of our PreveLeak and Recothrom products. During the three months ended September 29, 2017, we recorded a $0.4 million pre-tax loss associated with additional transaction costs related to the sale of our Intrathecal Therapy business.


Non-Operating Items
Interest expense and interest income. During the three months ended September 28, 2018 and September 29, 2017, net interest expense was $91.6 million and $91.3 million, respectively. This increase was attributable to a higher average outstanding debt balance during the three months ended September 28, 2018, following the close of the Sucampo Acquisition, which yielded an increase in interest expense of $12.2 million over the comparable period. This was partially offset by an $11.2 million decrease in interest accrued on deferred tax liabilities associated with outstanding installment notes primarily due to our fiscal 2017 legal entity reorganization and the Tax Cut and Jobs Act ("TCJA") that reduced the interest-bearing U.S. deferred tax liabilities balance. In addition, interest income increased to $2.0 million for the three months ended September 28, 2018, compared with $1.3 million for the three months ended September 29, 2017 primarily related to higher interest earned on our money market funds.
Other income, net. During the three months ended September 28, 2018 and September 29, 2017, we recorded other income, net, of $13.4 million and $3.0 million, respectively. The increase is primarily attributable to the receipt of $8.2 million of royalty income and a refund of $3.4 million of the initial cash contribution related to the settlement of remaining obligations of six defined benefit pension plans that were terminated during fiscal 2016. The remaining amounts in both fiscal years represented items including gains and losses on intercompany financing, foreign currency transactions and related hedging instruments.
Income tax benefit. We recognized an income tax benefit of $125.2 million on a loss from continuing operations before income taxes of $22.2 million for the three months ended September 28, 2018, and an income tax benefit of $57.8 million on a loss from continuing operations before income taxes of $4.7 million for the three months ended September 29, 2017. This resulted in effective tax rates of 564.0% and 1,229.8% for the three months ended September 28, 2018 and September 29, 2017, respectively. The income tax benefit for the three months ended September 28, 2018 is comprised of $16.1 million of current tax expense and $141.3 million of deferred tax benefit which is predominantly related to acquired intangible assets and the generation of net operating losses. The income tax benefit for the three months ended September 29, 2017 is comprised of $81.4 million of current tax benefit and $23.6 million of deferred tax expense. The net deferred tax expense of $23.6 million includes $50.7 million of deferred tax benefit which is predominantly related to acquired intangible assets offset by $74.3 million of deferred tax expense related to utilization of tax attributes.
The income tax benefit was $125.2 million for the three months ended September 28, 2018, compared with a tax benefit of $57.8 million for the three months ended September 29, 2017. The $67.4 million net increase in the tax benefit includes an increase of $82.3 million attributable to the tax benefit from the reorganization of the Company's intercompany financing and associated legal entity ownership which occurred during the three months ended September 28, 2018, an increase of $17.3 million attributable to tax expense from a reorganization of legal entity ownership which occurred during the three months ended September 29, 2017, an increase of $9.1 million attributable to the tax benefit from an adjustment to the provisional estimate of the remeasurement of its net U.S. deferred tax liabilities resulting from U.S. Tax Reform, and an increase in tax benefit of $3.7 million attributable to the impact of acquisitions occurring since September 29, 2017; partially offset by a decrease to tax benefit of $36.7 million attributable to the reduction in the U.S. federal corporate statutory rate resulting from U.S. Tax Reform, and a decrease in tax benefit of $8.3 million attributable to changes in the amount and jurisdictional mix of operating income.
Income from discontinued operations, net of income taxes. We recorded income from discontinued operations of $10.8 million and $10.6 million during the three months ended September 28, 2018 and September 29, 2017, respectively. The income from discontinued operations for the three months ended September 28, 2018 consisted of $11.2 million of income from operating results, net of tax, associated with the Specialty Generics Disposal Group and a $0.4 million loss, net of tax, related to various post-sale adjustments associated with our previous divestitures. The income from discontinued operations for the three months ended September 29, 2017 included $11.2 million of income from operating results, net of tax, associated with the Specialty Generics Disposal Group and a $0.6 million loss, net of tax, related to various post-sale adjustments associated with our previous divestitures



Results of Operations
Nine Months Ended September 28, 2018 Compared with Nine Months Ended September 29, 2017
Net Sales
Net sales by geographic area were as follows (dollars in millions): 
 Nine Months Ended  
 September 28,
2018		 September 29,
2017		 Percentage
Change
U.S.$1,669.0
 $1,665.2
 0.2%
Europe, Middle East and Africa101.0
 50.5
 100.0
Other geographic areas74.3
 45.0
 65.1
Net sales$1,844.3
 $1,760.7
 4.7

Net sales for the nine months ended September 28, 2018 increased $83.6 million, or 4.7%, to $1,844.3 million, compared with $1,760.7 million for the nine months ended September 29, 2017. This increase was primarily driven by net sales of the newly acquired Amitiza product, strength in Ofirmev and Therakos demand and benefits of Inomax contracting and consumption. These increases were partially offset by decreased net sales of H.P. Acthar Gel driven by the residual impact of previously reported patient withdrawal issues. We have taken a number of steps to address the issue, including engagement with payers, prescribers and patients. In addition, we experienced lower net sales in Other branded products primarily due to the sale of Recothrom in the first quarter of 2018 and our Intrathecal Therapy business in the first quarter of 2017. For further information on changes in our net sales, refer to "Segment Results" within this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Operating Income
Gross profit. Gross profit for the nine months ended September 28, 2018 decreased $44.8 million, or 4.7%, to $907.6 million, compared with $952.4 million for the nine months ended September 29, 2017. Gross profit margin was 49.2% for the nine months ended September 28, 2018, compared with 54.1% for the nine months ended September 29, 2017. The decrease in gross profit and gross profit margin was primarily attributable to amortization of the Amitiza intangible asset and expense recognition of inventory fair value adjustments associated with the product.
Selling, general and administrative expenses. SG&A expenses for the nine months ended September 28, 2018 were $520.7 million, compared with $618.5 million for the nine months ended September 29, 2017, a decrease of $97.8 million, or 15.8%. This decrease was primarily attributable to various factors, including a $35.0 million decrease in fair value of the contingent consideration liability related to stannsoporfin; cost benefits gained from restructuring actions, including lower stock compensation expense and employee compensation costs; an $11.8 million reduction in the accrual associated with our Lower Passaic River, New Jersey environmental remediation liability; in addition to lower legal fees. SG&A expenses were 28.2% of net sales for the nine months ended September 28, 2018 and 35.1% of net sales for the nine months ended September 29, 2017.
Research and development expenses. R&D expenses increased $79.7 million, or 55.3%, to $223.9 million for the nine months ended September 28, 2018, compared with $144.2 million for the nine months ended September 29, 2017. The increase was primarily attributable to the additional pipeline products that have been acquired within the past year. Current R&D activities focus on performing clinical studies and publishing clinical and non-clinical experiences and evidence that support health economic activities and patient outcomes. As a percentage of net sales, R&D expenses were 12.1% and 8.2% for the nine months ended September 28, 2018 and September 29, 2017, respectively.
Restructuring charges, net. During the nine months ended September 28, 2018 we recorded $101.4 million of restructuring and related charges, net, including $4.9 million of accelerated depreciation in SG&A and cost of sales. During the nine months ended September 29, 2017, we recorded $28.4 million including $2.1 million of accelerated depreciation, in cost of sales. The increase over the comparable period was primarily attributable to contract termination costs related to the production of Raplixa, as well as employee severance and benefits, and the exiting of certain facilities.
Gains on divestiture. During the nine months ended September 28, 2018, we sold a portion of our Hemostasis business, inclusive of our PreveLeak and Recothrom products. As a result of this sale, we recorded a pre-tax loss of $0.6 million. In comparison, during the nine months ended September 29, 2017, we recorded a $56.6 million pre-tax gain associated with the sale of our Intrathecal Therapy business.



Non-Operating Items
Interest expense and interest income. During the ninesix months ended SeptemberJune 28, 20182019 and SeptemberJune 29, 2017,2018, net interest expense was $273.5$150.5 million and $276.2$181.9 million, respectively. InterestThis decrease was primarily attributable to an $11.6 million decrease in interest accrued on deferred tax liabilities associated with our previously outstanding installment notes, decreased $35.8in addition to the recognition of an $8.6 million primarilybenefit to interest expense during the three months ended June 28, 2019, due to our fiscal 2017 legal entity reorganization anda lapse of certain statute of limitations. For further information, refer to Note 14 to the TCJA that reduced the interest-bearing U.S. deferred tax liabilities balance. Also, non-cash interest expense decreased by $1.2 million over the comparable period. These decreases were partially offset byunaudited condensed consolidated financial statements. Additionally, a higherlower average outstanding debt balance during the ninesix months ended SeptemberJune 28, 2018, following the close of the Sucampo Acquisition, which2019 yielded an increasea decrease in interest expense of $38.1$10.0



million and non-cash interest expense decreased by $2.0 million over the comparable period. During the ninesix months ended SeptemberJune 28, 2018,2019, we also recognized interest income of $6.6$3.7 million compared to $2.8$4.6 million during the ninesix months ended SeptemberJune 29, 2017 primarily related2018, due to highera decrease in interest rates resulting in lower interest earned on our money market funds.
Other income (expense), net. During the ninesix months ended SeptemberJune 28, 2019 and June 29, 2018, we recorded other income, net, of $17.5$90.7 million and $4.4 million, respectively. The increase was primarily attributable to a gain of $79.9 million on debt repurchased, as well as royalty income, partially offset by a write-off of unamortized debt discount and fees during the ninesix months ended September 29, 2017, we recorded other expense, net, of $70.6 million.June 28, 2019. The ninesix months ended September 28,June 29, 2018 included royalty income received of $8.2 million, a gain of $6.5 million on debt repurchased and a refund of $3.4 million of the initial cash contribution related to the settlement of remaining obligations of six defined benefit pension plans that were terminated during fiscal 2016. The nine months ended September 29, 2017 included a $69.7 million charge from the recognition of previously deferred losses on the settlement of obligations associated with the termination of six defined benefit pension plans. This settlement charge was reclassified from SG&A to other income (expense), net as a result of our adoption of Accounting Standards Update 2017-07, "Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post Retirement Benefit Cost," in fiscal 2018, which required retroactive application. In addition, there was a $10.0 million charge associated with the refinancing of our term loan during the nine months ended September 29, 2017.repurchased. The remaining amounts in both periods represented items including gains and losses on intercompany financing, foreign currency transactions and related hedging instruments.
Income tax benefit. We recognized an income tax benefit of $222.0$229.0 million on a loss from continuing operations before income taxes of $190.1$74.3 million for the ninesix months ended SeptemberJune 28, 2018,2019, and an income tax benefit of $153.4$81.0 million on a loss from continuing operations before income taxes of $126.8$98.7 million for the ninesix months ended SeptemberJune 29, 2017.2018. This resulted in effective tax rates of 116.8%308.2% and 121.0%82.1% for the ninesix months ended SeptemberJune 28, 20182019 and SeptemberJune 29, 2017,2018, respectively. The income tax benefit for the ninesix months ended SeptemberJune 28, 2018 is2019 was comprised of $29.2$44.1 million of current tax expense and $251.2 million of deferred tax benefit which is predominantly related to acquired intangible assets and the generation of net operating losses. The income tax benefit for the nine months ended September 29, 2017 is comprised of $13.6 million of current tax benefit and $139.8$273.1 million of deferred tax benefit. The net deferred tax benefit of $139.8 million includes $241.3 million of deferred tax benefit, which iswas predominantly related to previously acquired intangible assets offset by $101.5 million of deferred tax expense related to utilizationintangibles, the generation of tax attributes.
The income tax benefit was $222.0 million forloss and credit carryforwards net of valuation allowances, the nine months ended September 28, 2018, compared with a tax benefit of $153.4 million fornon-restructuring impairment charge, as well as the nine months ended September 29, 2017. The $68.6 million net increase in the tax benefit includes an increase of $82.3 million attributable to the tax benefit from reorganization of the Company'sour intercompany financing and associated legal entity ownership, which occurred duringeliminated the nineinterest bearing deferred tax obligation. The income tax benefit for the six months ended SeptemberJune 29, 2018 was comprised of $21.4 million of current tax expense and $102.4 million of deferred tax benefit. The deferred tax benefit was predominantly related to previously acquired intangibles.
The income tax benefit was $229.0 million for the six months ended June 28, 2018,2019, compared with a tax benefit of $81.0 million for the six months ended June 29, 2018. The $148.0 million net increase in the tax benefit included an increase of $27.1$189.8 million attributable to tax expense from the impact of dispositions predominately occurring during the nine months ended September 29, 2017, an increase of $17.3 million attributable to tax expense from a reorganization of legal entity ownership which occurred during the nine months ended September 29, 2017, an increase in tax benefit of $11.8 million attributable to the impact of acquisitions occurring since September 29, 2017, an increase of $9.1 million attributableattributed to the tax benefit from an adjustmentthe reorganization of our intercompany financing and associated legal entity ownership, a $8.5 million increase attributed to the provisional estimate of the remeasurement of its net U.S. deferred tax liabilities resulting from U.S. Tax Reform,non-restructuring impairment charge and ana $3.6 million increase attributed to separation costs, partially offset by a decrease in tax benefit of $9.1$35.2 million attributablepredominately attributed to changes in the timing, amount and jurisdictional mix of operating income; partially offset byincome, a $9.8 million decrease attributed to tax benefit of $70.0restructuring and related charges and a $8.9 million attributabledecrease attributed to the reduction in the U.S. federal corporate statutory rate from U.S. Tax Reform, and a decrease of $18.1 million attributable to tax benefit from the termination of the defined benefit pension plans which occurred during the nine months ended September 29, 2017.gain on debt repurchased.
Income from discontinued operations, net of income taxes. We recorded income from discontinued operations of $79.5$7.0 million and $499.1$15.3 million during the ninesix months ended SeptemberJune 28, 2019 and June 29, 2018, and September 29, 2017, respectively. The income from discontinued operations for the nine months ended September 28, 2018 consisted of $64.6 million of income from operating results, net of tax, associated with the Specialty Generics Disposal Group and $13.5 million of income, net of tax, fromrespectively, primarily related to the receipt of contingent consideration related toassociated with the sale of the Nuclear Imaging business. The income from discontinued operations for the nine months ended September 29, 2017 included a $361.7 million gain on divestiture and $4.1 million of income from operating results, both net of tax, associated with the Nuclear Imaging business and $137.2 million of income from operating results, net of tax, associated with the Specialty Generics Disposal Group. These were partially offset by various post-sale adjustments associated with our previous divestitures.



Segment Results
Our continuing operations are limited to the results of operations from the Specialty Brandssegment as the Specialty Generics Disposal Group is reported as a discontinued operation. Management measures and evaluates our Specialty Brands segmentoperating segments based on segment net sales and operating income. Management excludes certain corporate expenses from segment operating income. In addition, certain amounts that management considers to be non-recurring or non-operational are excluded from segment operating income because management evaluates the operating results of the segmentsegments excluding such items. These items may include, but are not limited to, intangible asset amortization, impairments and net restructuring and related charges.charges, non-restructuring impairments and separation costs. Although these amounts are excluded from segment operating income, as applicable, they are included in reported consolidated operating income and in the reconciliations presented below. Selected information by business segment is as follows:

Three Months Ended SeptemberJune 28, 20182019 Compared with Three Months Ended SeptemberJune 29, 20172018
Net Sales
Net sales for Specialty Brands by key products were as follows (dollarssegment are shown in the following table (dollars in millions):
 Three Months Ended  
 September 28,
2018		 September 29,
2017		 Percentage Change
H.P. Acthar Gel$290.1
 $308.7
 (6.0)%
Inomax133.2
 125.7
 6.0
Ofirmev87.1
 75.4
 15.5
Therakos60.0
 55.3
 8.5
Amitiza (1)
48.2
 —
 —
BioVectra13.9
 16.0
 (13.1)
Other7.5
 19.5
 (61.5)
Specialty Brands$640.0
 $600.6
 6.6
 Three Months Ended  
 June 28,
2019		 June 29,
2018		 
Percentage
Change
Specialty Brands$627.8
 $631.7
 (0.6)%
Specialty Generics195.5
 193.8
 0.9
Net sales$823.3
 $825.5
 (0.3)
(1)Amitiza consists of both product net sales and royalties. Refer to Note 3 to the unaudited condensed consolidated financial statements for further information on Amitiza's revenue.



Specialty Brands. Net sales for the three months ended SeptemberJune 28, 2018 increased $39.42019 decreased $3.9 million to $640.0$627.8 million, compared with $600.6$631.7 million for the three months ended SeptemberJune 29, 2017.2018. The decrease in net sales was primarily driven by a $26.8 million or 9.1% decrease in Acthar Gel net sales driven primarily by continued reimbursement challenges impacting new and returning patients and continued payer scrutiny on overall specialty pharmaceutical spending, partially offset by strength in Inomax, Ofirmev, Therakos and Amitiza resulting in increased net sales of $8.7 million, $4.9 million, $4.1 million and $4.0 million, respectively, compared with the three months ended June 29, 2018.
Net sales for Specialty Brands by geography were as follows (dollars in millions):
 Three Months Ended  
 June 28,
2019		 June 29,
2018		 Percentage
Change
U.S.$559.4
 $570.6
 (2.0)%
Europe, Middle East and Africa40.2
 34.0
 18.2
Other28.2
 27.1
 4.1
Net sales$627.8
 $631.7
 (0.6)

Net sales for Specialty Brands by key products were as follows (dollars in millions):
 Three Months Ended  
 June 28,
2019		 June 29,
2018		 Percentage Change
Acthar Gel$266.4
 $293.2
 (9.1)%
Inomax139.7
 131.0
 6.6
Ofirmev90.5
 85.6
 5.7
Therakos60.9
 56.8
 7.2
Amitiza52.0
 48.0
 8.3
BioVectra13.9
 11.3
 23.0
Other4.4
 5.8
 (24.1)
Specialty Brands$627.8
 $631.7
 (0.6)

Specialty Generics. Net sales for the three months ended June 28, 2019 increased $1.7 million, or 0.9%, to $195.5 million, compared with $193.8 million for the three months ended June 29, 2018. The increase in net sales was driven by Oxycodone and Hydrocodone products of $6.5 million and $1.2 million, respectively. These increases were partially offset by a $3.3 million decrease in acetaminophen products net sales compared to the three months ended June 29, 2018.
Net sales for Specialty Generics by geography were as follows (dollars in millions):
 Three Months Ended  
 June 28,
2019		 June 29,
2018		 
Percentage
Change
U.S.$157.8
 $158.5
 (0.4)%
Europe, Middle East and Africa33.3
 30.2
 10.3
Other4.4
 5.1
 (13.7)
Net sales$195.5
 $193.8
 0.9




Net sales for Specialty Generics by key products were as follows (dollars in millions):
 Three Months Ended  
 June 28,
2019		 June 29,
2018		 Percentage Change
Hydrocodone (API) and hydrocodone-containing tablets$18.1
 $16.9
 7.1 %
Oxycodone (API) and oxycodone-containing tablets19.6
 13.1
 49.6
Acetaminophen (API)48.4
 51.7
 (6.4)
Other controlled substances98.6
 99.5
 (0.9)
Other10.8
 12.6
 (14.3)
Specialty Generics$195.5
 $193.8
 0.9

Operating Income
Operating income by segment and as a percentage of segment net sales for the three months ended June 28, 2019 and June 29, 2018 is shown in the following table (dollars in millions):
 Three Months Ended
 June 28, 2019 June 29, 2018
Specialty Brands (1)
$321.4
 51.2% $265.2
 42.0%
Specialty Generics33.9
 17.3
 43.1
 22.2
Segment operating income355.3
 43.2
 308.3
 37.3
Unallocated amounts:       
Corporate and allocated expenses(36.4)   (12.5)  
Intangible asset amortization(216.6)   (184.3)  
Restructuring and related charges, net0.2
   (58.8)  
Non-restructuring impairment(113.5)   —
  
Separation costs(18.9)   —
  
Total operating (loss) income$(29.9)   $52.7
  
(1)Includes $31.5 million of inventory fair-value step up expense, primarily related to Amitiza, during the three months ended June 29, 2018.
Specialty Brands. Operating income for the three months ended June 28, 2019 increased $56.2 million to $321.4 million, compared with $265.2 million for the three months ended June 29, 2018. Operating margin increased to 51.2% for the three months ended June 28, 2019 compared with 42.0% for the three months ended June 29, 2018. While net sales decreased, gross margin increased $24.7 million primarily driven by an additional $31.5 million of expense recorded during the three months ended June 29, 2018 related to the inventory fair value adjustments for Amitiza, which was fully amortized in the first quarter of 2019. The increase in operating income and margin was also attributable to decreases in SG&A expenses of $18.6 million, primarily driven by lower employee compensation costs, and R&D expenses of $13.1 million.
Specialty Generics. Operating income for the three months ended June 28, 2019 decreased $9.2 million to $33.9 million, compared with $43.1 million for the three months ended June 29, 2018. Operating margin decreased to 17.3% for the three months ended June 28, 2019, compared with 22.2% for the three months ended June 29, 2018. The decrease in operating income and margin was impacted by a $12.1 million increase in SG&A primarily due to higher legal expense related to opioid defense costs, partially offset by a $2.5 million increase in gross profit.
Corporate and allocated expenses. Corporate and allocated expenses were $36.4 million and $12.5 million for the three months ended June 28, 2019 and June 29, 2018, respectively. This increase was primarily driven by a $27.5 million decrease in the fair value of the contingent consideration liability related to stannsoporfin recorded during the during the three months ended June 29, 2018, in addition to higher professional and legal expenses, partially offset by lower employee compensation costs.









Six Months Ended June 28, 2019 Compared with Six Months Ended June 29, 2018
Net Sales
Net sales by segment are shown in the following table (dollars in millions): 
 Six Months Ended  
 June 28,
2019		 June 29,
2018		 
Percentage
Change
Specialty Brands$1,232.0
 $1,204.3
 2.3%
Specialty Generics381.9
 376.5
 1.4
Net sales$1,613.9
 $1,580.8
 2.1

Specialty Brands. Net sales for the six months ended June 28, 2019 increased $27.7 million to $1,232.0 million, compared with $1,204.3 million for the six months ended June 29, 2018. The increase in net sales was primarily driven by net sales of $48.2 million fromAmitiza, which was acquired during the newly acquired Amitiza productfirst quarter of 2018, and an increasecontinued strength in Ofirmev, TherakosInomax and Inomax net salesTherakos compared with the threesix months ended SeptemberJune 29, 2017 as Ofirmev and Therakos experienced increased demand and Inomax net sales continue to benefit from favorable contracting and consumption.2018. These increases were partially offset by an $18.6a $46.7 million or 6.0%8.7% decrease in H.P. Acthar Gel net sales, driven by the residual impact ofas previously reported patient withdrawal issues,mentioned, and a $12.0an $11.1 million or 61.5%50.7% decrease in Other products compared with the threesix months ended SeptemberJune 29, 2017.2018. The decrease in Other products net sales iswas primarily attributable to the sale of Recothrom during the first quarter of 2018, which contributed net sales of $15.3$10.5 million during the threesix months ended SeptemberJune 29, 2017.2018.

Operating Income
Operating income by segment and as a percentage of segment netNet sales for the three months ended September 28, 2018 and September 29, 2017 is shownSpecialty Brands by geography were as follows (dollars in the following table (dollars in millions):
 Three Months Ended
 September 28, 2018 September 29, 2017
Specialty Brands$287.8
 45.0% $314.8
 52.4%
Unallocated amounts:       
Corporate and allocated expenses(28.0)   (45.8)  
Intangible asset amortization(184.2)   (169.3)  
Restructuring and related charges, net (1)
(19.6)   (16.1)  
Total operating income$56.0
   $83.6
  
(1)Includes restructuring-related accelerated depreciation.


 Six Months Ended  
 June 28,
2019		 June 29,
2018		 Percentage
Change
U.S.$1,090.6
 $1,092.6
 (0.2)%
Europe, Middle East and Africa81.0
 64.1
 26.4
Other60.4
 47.6
 26.9
Net sales$1,232.0
 $1,204.3
 2.3

Specialty Brands. Operating income for the three months ended September 28, 2018 decreased $27.0 million to $287.8 million, compared with $314.8 million for the three months ended September 29, 2017. Operating margin decreased to 45.0% for the three months ended September 28, 2018 compared with 52.4% for the three months ended September 29, 2017. The decrease in operating income and margin was primarily due to a $31.6 million increase in R&D expenses over the comparable period and expense recognition of inventory fair value adjustments associated with Amitiza. These changes were partially offset by a decrease of $5.4 million in SG&A expenses compared with the three months ended September 29, 2017 primarily due to lower advertising and promotion expenses, legal fees and cost benefits gained from restructuring actions, including stock compensation expenses and employee compensation costs partially offset by increased professional fees.
Corporate and allocated expenses. Corporate and allocated expenses were $28.0 million and $45.8 million for the three months ended September 28, 2018 and September 29, 2017, respectively. This decrease was primarily driven by an $11.8 million reduction in the accrual associated with our Lower Passaic River, New Jersey environmental remediation liability and a $7.0 million decrease in fair value of the contingent consideration liability related to stannsoporfin during the three months ended September 28, 2018, partially offset by higher one-time employee compensation costs.

Nine Months Ended September 28, 2018 Compared with Nine Months Ended September 29, 2017
Net Sales
Net sales for Specialty Brands by key products were as follows (dollars(dollars in millions):
 Nine Months Ended  
 September 28,
2018		 September 29,
2017		 Percentage Change
H. P. Acthar Gel$827.1
 $899.9
 (8.1)%
Inomax404.0
 379.6
 6.4
Ofirmev254.7
 224.5
 13.5
Therakos174.2
 157.7
 10.5
Amitiza (1)
119.2
 —
 —
BioVectra35.7
 36.4
 (1.9)
Other29.4
 62.6
 (53.0)
Specialty Brands$1,844.3
 $1,760.7
 4.7
(1)Amitiza consists of both product net sales and royalties. Refer to Note 3 to the unaudited condensed consolidated financial statements for further information on Amitiza's revenue.
 Six Months Ended  
 June 28,
2019		 June 29,
2018		 Percentage Change
Acthar Gel$490.3
 $537.0
 (8.7)%
Inomax290.8
 270.8
 7.4
Ofirmev186.1
 167.6
 11.0
Therakos122.7
 114.2
 7.4
Amitiza105.0
 71.0
 47.9
BioVectra26.3
 21.8
 20.6
Other10.8
 21.9
 (50.7)
Specialty Brands$1,232.0
 $1,204.3
 2.3

Specialty Brands.Generics. Net sales for the ninesix months ended SeptemberJune 28, 20182019 increased $83.6$5.4 million, or 1.4%, to $1,844.3$381.9 million, compared with $1,760.7$376.5 million for the ninesix months ended SeptemberJune 29, 2017.2018. The increase in net sales was primarily driven by net salesOxycodone and Hydrocodone products of $119.2$6.4 million from the newly acquired Amitiza product and an increase in Ofirmev, Therakos and Inomax net sales compared with the nine months ended September 29, 2017 as Ofirmev and Therakos experienced increased demand and Inomax net sales continue to benefit from favorable contracting and consumption.$4.7 million, respectively. These increases were partially offset by a $72.8$6.5 million or 8.1% decrease in H.P. Acthar Gel net sales driven by the residual impact of previously reported patient withdrawal issues, and a $33.2 million or 53.0% decrease in Other products compared with the nine months ended September 29, 2017. The decrease in Otheracetaminophen products net sales is primarily attributable to a decrease of $31.3 million relatedcompared to the sale of Recothrom during the first quarter of 2018, and the sale of our Intrathecal Therapy business during the first quarter of 2017, which up through the March 17, 2017 divestiture date contributed net sales of $8.0 million.six months ended June 29, 2018.




Net sales for Specialty Generics by geography were as follows (dollars in millions):
 Six Months Ended  
 June 28,
2019		 June 29,
2018		 
Percentage
Change
U.S.$306.3
 $306.7
 (0.1)%
Europe, Middle East and Africa67.3
 60.0
 12.2
Other8.3
 9.8
 (15.3)
Net sales$381.9
 $376.5
 1.4

Net sales for Specialty Generics by key products were as follows (dollars in millions):
 Six Months Ended  
 June 28,
2019		 June 29,
2018		 Percentage Change
Hydrocodone (API) and hydrocodone-containing tablets$35.5
 $30.8
 15.3 %
Oxycodone (API) and oxycodone-containing tablets36.1
 29.7
 21.5
Acetaminophen (API)94.6
 101.1
 (6.4)
Other controlled substances192.8
 188.5
 2.3
Other22.9
 26.4
 (13.3)
Specialty Generics$381.9
 $376.5
 1.4

Operating Income
Operating income by segment and as a percentage of segment net sales were as follows (dollars in millions):
Nine Months EndedSix Months Ended
September 28, 2018 September 29, 2017June 28, 2019 June 29, 2018
Specialty Brands(1)$794.0
 43.1% $851.8
 48.4%$596.9
 48.4% $506.4
 42.0%
Specialty Generics58.3
 15.3
 78.2
 20.8
Segment operating income655.2
 40.6
 584.6
 37.0
Unallocated amounts:              
Corporate and allocated expenses(81.9)   (95.0)  (82.2)   (56.5)  
Intangible asset amortization(544.8)   (508.4)  (439.4)   (362.3)  
Restructuring and related charges, net (1)
(101.4)   (28.4)  
Restructuring and related charges, net(4.0)   (87.0)  
Non-restructuring impairment(113.5)   —
  
Separation costs(30.6)   —
  
Total operating income$65.9
   $220.0
  $(14.5)   $78.8
  
(1)Includes restructuring-related accelerated depreciation.$10.0 million and $46.5 million of inventory fair-value step up expense, primarily related to Amitiza, during the three months ended June 28, 2019 and June 29, 2018, respectively.

Specialty Brands. Operating income for the ninesix months ended SeptemberJune 28, 2018 decreased $57.82019 increased $90.5 million to $794.0$596.9 million, compared with $851.8$506.4 million for the ninesix months ended SeptemberJune 29, 2017.2018. Operating margin decreasedincreased to 43.1% for the nine months ended September 28, 2018, compared with 48.4% for the ninesix months ended SeptemberJune 28, 2019, compared with 42.0% for the six months ended June 29, 2017.2018. The decreaseincrease in operating income and margin was primarily due to an $82.4includes a $57.6 million increase in R&D expenses overgross profit primarily driven by an additional $36.5 million of expense recorded during the comparable period and expense recognition ofsix months ended June 29, 2018 related to the inventory fair value adjustments associated with Amitiza. These changes were partially offset by a decreasefor Amitiza, which was fully amortized in the first quarter of $25.6 million in2019. Additionally, SG&A expenses decreased $32.5 million compared withto the ninesix months ended SeptemberJune 29, 20172018 primarily due to cost benefits gained from restructuring actions, including lower employee compensation costs, and stock compensation expenses, in addition to lower advertising expenses.
Specialty Generics. Operating income for the six months ended June 28, 2019 decreased $19.9 million to $58.3 million, compared with $78.2 million for the six months ended June 29, 2018. Operating margin decreased to 15.3% for the six months ended June 28, 2019, compared with 20.8% for the six months ended June 29, 2018. The decrease in operating income and margin



was primarily impacted by a $31.9 million increase in SG&A primarily due to higher legal fees.expense related to opioid defense costs, partially offset by a $9.9 million decrease in R&D expense.
Corporate and allocated expenses. Corporate and allocated expenses were $81.9$82.2 million and $95.0$56.5 million for the ninesix months ended SeptemberJune 28, 2019 and June 29, 2018, and September 29, 2017, respectively. The nine months ended September 28, 2018 includedThis increase was primarily driven by a $35.0$28.0 million decrease in fair value of the contingent consideration liability related to stannsoporfin and an $11.8 million reduction inrecorded during the accrual associated with our Lower Passaic River, New Jersey environmental remediation liability. The ninesix months ended SeptemberJune 29, 2017 included a pre-tax gain of $56.6 million associated with the sale of our Intrathecal Therapy business. The remaining decrease of $22.9 million was primarily due to cost benefits gained from restructuring actions including lower stock compensation expenses, in addition to lower legal expenses; all of which are partially offset by an increase in professional fees and acquisition-related costs.2018.

Liquidity and Capital Resources
Significant factors driving our liquidity position include cash flows generated from operating activities, financing transactions, capital expenditures, cash paid in connection with acquisitions and licenselicensing agreements and cash received as a result of our divestitures. We believe that our future cash from operations, borrowing capacity under our revolving credit facility and access to capital markets will provide adequate resources to fund our working capital needs, capital expenditures and strategic investments for the foreseeable future.
A summary of our cash flows from operating, investing and financing activities is provided in the following table (dollars in millions):
Nine Months EndedSix Months Ended
September 28,
2018		 September 29,
2017		June 28,
2019		 June 29,
2018
Net cash from:      
Operating activities$481.1
 $448.5
$467.4
 $261.8
Investing activities(451.2) 390.2
(69.4) (456.3)
Financing activities(998.9) (812.5)(506.4) (829.3)
Effect of currency exchange rate changes on cash and cash equivalents(0.9) 2.7
0.8
 (1.2)
Net decrease in cash and cash equivalents$(969.9) $28.9
$(107.6) $(1,025.0)





Operating Activities
Net cash provided by operating activities of $481.1$467.4 million for the ninesix months ended SeptemberJune 28, 2018,2019 was primarily attributable to net income from continuing operations of $31.9 million and income from discontinued operations of $79.5$161.7 million, adjusted for non-cash items of $389.1$277.7 million, driven by depreciation and amortization of $597.0$488.6 million and a non-cash impairment charge of $113.5 million, partially offset by $232.7a $271.2 million related to a reduction in our deferred income tax liabilities and other non-cash adjustments, including a $19.4$79.9 million gain on debt repurchased. Net investment in working capital contributed $28.0 million of cash flow from operating activities. Included within this change in working capital was a $95.5 million decrease in accounts receivable primarily attributable to a shift in customer mix and the timing of receipts, in addition to a higher balance of gross receivables at the end of fiscal 2018. This was partially offset by a $73.3 million net cash outflow related to other assets and liabilities, which included decreases in accrued payroll and accrued interest of $44.2 million and $31.8 million, respectively.
Net cash provided by operating activities of $261.8 million for the six months ended June 29, 2018 was primarily attributable to a net loss of $2.4 million, adjusted for non-cash items of $293.5 million driven by depreciation and amortization of $397.1 million, partially offset by a $29.3 million outflow from net investment in working capital. Included within this change in working capital were a $20.1$35.4 million net cash outflow related to other assets and liabilities, and a $59.0$21.8 million increase in accounts receivable, partially offset by a $43.1 million decrease in inventory and a $16.7 million net cash inflow related to income taxes.
Net cash provided by operating activities of $448.5 million for the nine months ended September 29, 2017 was primarily attributable to income from continuing operations of $26.6 million and income from discontinued operations of $499.1 million partially offset by an adjustment for non-cash items of $146.6 million, in addition to a $223.8 million outflow from net investment in working capital. Included within this change in working capital were cash payments of $102.0 million for the FTC settlement, a $61.3 million contribution to the terminated pension plans that were settled during the nine months ended September 29, 2017, a $34.7$2.1 million increase in accounts receivable and a $30.2 million decrease in accounts payable, and a $68.1$7.4 million increase in net payables related to income taxes. The net cash outflow relatedfrom other assets and liabilities was primarily attributable to income taxes.
The aforementioned cash flows from operating activities include cash flowsthe payment of liabilities assumed from the ongoing operations of the Specialty Generics Disposal Group and the Nuclear Imaging business that are included within discontinued operations. Subsequent to the completion of the Nuclear Imaging transaction on January 27, 2017, we no longer generate cash flows from the operation of this business. See further discussion of our discontinued operationsSucampo Acquisition in Note 4 of the notes to the unaudited condensed consolidated financial statements.February 2018.

Investing Activities
Net cash used in investing activities was $451.2$69.4 million for the ninesix months ended SeptemberJune 28, 2018,2019, compared with a $390.2$456.3 million net cash inflow for the ninesix months ended SeptemberJune 29, 2017.2018. The $841.4$386.9 million change primarily resulted from the cash outflows during the three months ended March 30, 2018 related to the Sucampo Acquisition of $698.0 million. These cash outflows weremillion, partially offset by the inflow$144.3 million of $159.2 million in proceeds received, net of transaction costs, from the divestiture of a portion of the Hemostasis business, inclusive of the PreveLeak and Recothrom products duringproducts. During the ninethree months ended September 28, 2018; proceedsMarch 30, 2018, we also received payment of the $154.0 million related to the note receivable from the purchaser of the Intrathecal Therapy business, which was sold during the ninethree months ended September 29, 2017; and a $25.5 millionMarch 31, 2017. The cash inflow related to the sale of the remaining portion of our investmentused in Mesoblast Limitedinvesting activities during the ninesix months ended SeptemberJune 28, 2018. This is compared with $576.92019 was primarily attributable to $77.6 million of proceeds received from the divestiture of the Nuclear Imaging and Intrathecal Therapy businesses during the nine months ended September 29, 2017,in capital expenditures, partially offset by cash outflowsreceived from the disposal of $21.5 million related to the investment in Mesoblast Limited that was made during the nine months ended September 29, 2017. Additionally, there was a $58.0 million decrease in capital expenditures, compared to the nine months ended September 29, 2017.certain long-lived assets.



Under our term loan credit agreement, the proceeds from the sale of assets and businesses must be either reinvested into capital expenditures or business development activities within one year of the respective transaction or we are required to make repayments on our term loan. For further information, refer to "Debt and Capitalization" within this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Financing Activities
Net cash used in financing activities was $998.9$506.4 million for the ninesix months ended SeptemberJune 28, 2018,2019, compared with $812.5$829.3 million for the ninesix months ended SeptemberJune 29, 2017.2018. The $186.4$322.9 million increasedecrease in cash outflows was attributable to a $558.7$249.7 million increasedecrease in debt repayments, net of issuances, offset byand a $380.3$54.3 million decrease in shares repurchased. The significant components of our current year debt repayments included $600.0aggregate debt repayments of $281.4 million on our variable-rate term loans, open market debt repurchases that aggregated to a total principal amount of $419.2 million, and a repayment of $50.0 million on the receivable securitization program. These repayments were partially offset by a net draw of $185.0 million on our revolving credit facility. The six months ended June 29, 2018 included debt repayment of $450.0 million related to our revolving credit facility, a $225.0 million voluntary repayment of the variable-rate term loan maturing in 2024, repayment of $366.0 million of assumed debt from the Sucampo Acquisition, a $300.0 million repayment of fully matured unsecured fixed rate notes and open market debt repurchases that aggregated to a total principal amount of $33.0 million.

Debt and Capitalization
At SeptemberAs of June 28, 2018,2019, the total debt principal amountwas $5,591.0 million, of debtwhich $720.1 million was $6,260.1 millionclassified as compared with $6,806.8 million at December 29, 2017. current.
The total debt principal amountas of debt at SeptemberJune 28, 20182019 was comprised of $3,522.5 million of fixed-rate instruments, $2,210.8 million of variable-rate term loans, $300.0 million of borrowings under our revolving credit facility, $225.0 million of borrowings under a variable-rate securitization program and $1.8 million of an interest-free loan. the following:
Variable-rate instruments: 
Term loan due September 2024$1,524.7
Term loan due February 2025404.6
Variable-rate receivable securitization200.0
Revolving credit facility405.0
Fixed-rate instruments3,056.7
Debt principal$5,591.0
The variable-rate term loan interest rates are based on LIBOR, subject to a minimum LIBOR level of 0.75% with interest payments generally expected to be


payable every 90 days, and requires quarterly principal payments equal to 0.25% of the original principal amount. As of SeptemberJune 28, 2018,2019, our fixed-rate instruments have a weighted-average interest rate of 5.45%5.36% and pay interest at various dates throughout the fiscal year. OurPrior to termination of this facility on July 19, 2019, as discussed further below, our receivable securitization program bearsbore interest based on one-month LIBOR plus a margin of 0.90% and hashad a capacity of $250.0 million that may, subject to certain conditions, be increased to $300.0 million. In addition to the borrowing capacity under our receivable securitization program,As of June 28, 2019, we had $600.0$495.0 million available under our $900.0 million revolving credit facility at September 28, 2018.facility.
In November 2015, our Board of Directors authorized us to reduce our outstanding debt at our discretion. As market conditions warrant, we may from time to time repurchase debt securities issued by us, in the open market, in privately negotiated transactions, by tender offer or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements and other factors. The amounts involved may be material. During
Debt reduction continues to be one of the nineprimary focuses of our capital allocation strategy for fiscal 2019. Total principal debt reduction during the six months ended SeptemberJune 28, 2018, we repurchased2019 was $565.7 million, inclusive of debt that aggregated to arepurchases of total principal amount of $33.0 million.
At September 28, 2018, $17.0$419.2 million, voluntary prepayments of our debt principal was classified as current, as these payments are expected to be made within the next twelve months.
In January 2018, we made a $225.0$25.0 million prepaymentand $175.0 million on our outstanding term loanloans due September 2024.2024 and February 2025, respectively. In making this payment,these voluntary prepayments, we satisfied certain obligations included within external debt agreements to reinvest proceeds from the sale of assets and businesses within one year of the respective transaction or use the proceeds to pay down debt.   
In February 2018, in conjunction with the Sucampo Acquisition, the Company entered into a $600.0 million senior secured term loan. The variable-rate loan bears an interest rate of LIBOR plus 300 basis points and was issued with a discount of 25 basis points. The incremental term loan matures on February 25, 2025 under terms generally consistent with the Company's existing term loan.
Upon completion of the Sucampo Acquisition, Sucampo's 3.25% convertible senior notes due 2021 ("the Sucampo Notes") became eligible to receive increased consideration in conjunction with a make-whole fundamental change, such that each $1,000 principal face amount of Sucampo Notes could be converted into $1,221 in cash. As of SeptemberJune 28, 2018, all $300.0 million of the issued convertible debt was converted and paid in full.
In April 2018, $300.0 million of the 3.50% unsecured, fixed-rate notes matured and were repaid with cash on hand.
As of September 28, 2018,2019, we were, and expect to remain, in full compliance with the provisions and covenants associated with our debt agreements.
On October 22, 2018,July 11, 2019, we borrowed an additional $25.0$400.0 million on our receivable securitization,revolving credit facility, bringing total outstanding borrowings to $250.0$805.0 million for this instrument as of the date of this report.report, with $95.0 million of remaining availability. The proceeds from this draw will be used to continue to execute on a capital allocation strategy focused primarily on debt reduction, as well as general business needs. The additional liquidity better positions the Company to continue to redeem higher cost or discounted debt and accelerate progress toward its stated deleveraging goals.



On October 23, 2018,July 19, 2019, we made an $80.0repaid $200.0 million payment on the revolving credit facility, bringing totalof outstanding borrowingsobligations under our variable-rate receivable securitization, thus automatically terminating this facility.
Subsequent to $220.0 million for this instrument as ofJune 28, 2019 and up through the date of this report.filing, we repurchased fixed-rate debt that aggregated to a principal amount of $70.9 million, which resulted in a gain on repurchase of $18.0 million.

Commitments and Contingencies
Legal Proceedings
We are subject to various legal proceedings and claims, including patent infringement claims, product liability matters, environmental matters, employment disputes, contractual disputes and other commercial disputes, including those described inSee Note 17 of the notes to the unaudited condensed consolidated financial statements. We believe 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, we believe, unless otherwise indicated in Note 1714 of the notes to the unaudited condensed consolidated financial statements givenfor a description of the information currently available, that their ultimate resolutions are not expected to have a material adverse effect on our financial condition, resultslegal proceedings and claims as of operations and cash flows.June 28, 2019.

Guarantees
In disposing of assets or businesses, we have from time to timehistorically 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. We assess the probability of potential liabilities related to such representations, warranties and indemnities and adjust potential liabilities as a result of changes in facts and circumstances. We believe, given the information currently available, that their ultimate resolutions will not have a material adverse effect on our 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, we agreed to indemnify the purchaser with respect to various matters, including certain environmental, health, safety, tax These representations, warranties 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 unaudited condensed consolidated balance sheets as of September 28, 2018 and December 29, 2017 was $14.3 million and $14.9 million, respectively, of which $11.6 million and $12.1 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 28, 2018 and December 29, 2017. As of September 28, 2018, the maximum future payments we could be required to make under these indemnification obligations were $70.2 million. We were required to pay $30.0 million into an escrow account as collateral to the purchaser, of which $18.5 million and $18.3 million remained in restricted cash, included in long-term other assets on the unaudited condensed consolidated balance sheets at September 28, 2018 and December 29, 2017, respectively.
We have recorded liabilities for known indemnification obligations included as part of environmental liabilities, whichindemnities are discussed in Note 1713 of the notes to the unaudited condensed consolidated financial statements.
We are also liable for product performance; however, we believe, given the information currently available, that the ultimate resolution of any such claims will not have a material adverse effect on our financial condition, results of operations and cash flows.

Off-Balance Sheet Arrangements
As of SeptemberJune 28, 2018,2019, we had various letters of credit, guarantees and surety bonds totaling $22.5$36.2 million. There has been no change in our off-balance sheet arrangements during the ninesix months ended SeptemberJune 28, 2018. Refer to the Company's Annual Report filed on Form 10-K for the fiscal year ended December 29, 2017 for further detail on the Company's off-balance sheet arrangements.2019.

Critical Accounting Policies and Estimates
The preparation of our unaudited condensed consolidated financial statements in conformity with GAAPaccounting principles generally accepted in the U.S. (GAAP) requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities.
We believe that our accounting policies for revenue recognition, goodwill and other intangible assets, acquisitions, contingencies and income taxes are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. During the ninesix months ended SeptemberJune 28, 20182019, there were no significant changes to these policies or in the underlying accounting assumptions and estimates used in the above critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 29, 2017.28, 2018.
Refer to Note 29 to the unaudited condensed consolidated financial statements for our adoption of ASU 2014-09, "Revenue from Contracts with Customers,2016-02, "Leases," and its related amendments, which did not result in a material change to the unaudited condensed consolidated financial statements.amendments.

Forward-Looking Statements
We have made forward-looking statements in this Quarterly Report on Form 10-Q that are based on management's beliefs and assumptions and on information currently available to management. Forward-looking statements include, but are not limited to, information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements and the effects of competition, litigation and future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words "believe," "expect," "plan," "intend," "project," "anticipate," "estimate," "predict," "potential," "continue," "may," "should," "will," "would," "could" or the negative of these terms or similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any forward-looking statements.
The risk factors included within Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 29, 201728, 2018 and within Part II, Item 1A of this Quarterly Report on Form 10-Q could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business.



These forward-looking statements are made as of the filing date of this Quarterly Report on Form 10-Q. We expressly disclaim any obligation to update these forward-looking statements other than as required by law.



Item 3.Quantitative and Qualitative Disclosures About Market Risk.
Our operations include activities in the U.S. and countries outside of the U.S. These operations expose us to a variety of market risks, including the effects of changes in interest rates and currency exchange rates. We monitor and manage these financial exposures as an integral part of our overall risk management program. We do not utilize derivative instruments for trading or speculative purposes.

Interest Rate Risk
Our exposure to interest rate risk relates primarily to our variable-rate debt instruments, which bear interest based on LIBOR plus margin. As of SeptemberJune 28, 2018,2019, our outstanding debt included $2,210.8$1,929.3 million variable-rate debt on our senior secured term loans, $300.0$405.0 million outstanding borrowings on our senior unsecured revolving credit facility and $225.0$200.0 million variable-rate debt on our receivables securitization program. Assuming a one percent increase in the applicable interest rates, in excess of applicable minimum floors, quarterly interest expense would increase by approximately $6.8$6.3 million.
The remaining outstanding debt as of SeptemberJune 28, 20182019 is fixed-rate debt. Changes in market interest rates generally affect the fair value of fixed-rate debt, but do not impact earnings or cash flows.

Currency Risk
Certain net sales and costs of our non-U.S.international operations are denominated in the local currency of the respective countries. As such, profits from these subsidiaries may be impacted by fluctuations in the value of these local currencies relative to the U.S. dollar. We also have significant intercompany financing arrangements that may result in gains and losses in our results of operations. In an effort to mitigate the impact of currency exchange rate effects we may hedge certain operational and intercompany transactions; however, our hedging strategies may not fully offset gains and losses recognized in our results of operations.
The unaudited condensed consolidated statement of income is exposed to currency risk from intercompany financing arrangements, which primarily consist of intercompany debt and intercompany cash pooling, where the denominated currency of the transaction differs from the functional currency of one or more of our subsidiaries. We performed a sensitivity analysis for these arrangements as of SeptemberJune 28, 20182019 that measuresmeasured the potential unfavorable impact to income from continuing operations before income taxes from a hypothetical 10.0% adverse movement in foreign exchange rates relative to the U.S. dollar, with all other variables held constant. There is a $1.3 millionThe aggregate potential unfavorable impact from a hypothetical 10.0% adverse change in foreign exchange rates was $0.2 million aggregate potential as of SeptemberJune 28, 2018.2019. This hypothetical loss does not reflect any hypothetical benefits that would be derived from hedging activities, including cash holdings in similar foreign currencies that we have historically utilized to mitigate our exposure to movements in foreign exchange rates.
The financial results of our non-U.S.international operations are translated into U.S. dollars, further exposing us to currency exchange rate fluctuations. We have performed a sensitivity analysis as of SeptemberJune 28, 20182019 that measures the change in the net financial position arising from a hypothetical 10.0% adverse movement in the exchange rates of all foreign currencies used, including the Euro and the Canadian Dollar, our most widely used foreign currencies, relative to the U.S. dollar, with all other variables held constant. The aggregate potential change in net financial position from a hypothetical 10.0% adverse change in the above currencies was $14.2$14.6 million as of SeptemberJune 28, 20182019. The change in the net financial position associated with the translation of these currencies is generally recorded as an unrealized gain or loss on foreign currency translation within accumulated other comprehensive loss in shareholders' equity of our unaudited condensed consolidated balance sheets.

Item 4.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended ("the Exchange Act"), is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosure.



Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q.
As previously disclosed under “Part II - Item 9A - Controls and Procedures” in our Annual Report on Form 10-K for the fiscal year ended December 28, 2018, the Company did not design and maintain sufficiently precise or effective review and approval controls over the future cash flow forecasts used to develop certain management estimates, including those related to goodwill and other intangible assets. Management concluded that this control deficiency represented a material weakness. This material weakness did not result in a material misstatement to the Company’s financial statements or disclosures.
Management’s Remediation Initiatives
During the three months ended March 29, 2019, management, under the oversight of the executive leadership team and those charged with governance, completed the remedial actions below to improve the Company’s internal control over financial reporting and remediated the design of the material weakness:
Continued to emphasize the importance of, and monitor the sustained compliance with, the execution of our internal controls over financial reporting through, among other activities, numerous meetings and trainings.
Enhanced, and will continue to enhance, the design of internal controls governing oversight and evaluation of future cash flow forecasts used to develop certain management estimates, including those related to goodwill and other intangible assets.  
Tested the design effectiveness of the enhanced internal controls by performing them to re-evaluate the appropriateness, and test the accuracy, of information used to develop future cash flow forecasts in 2018.
Concluded the enhanced controls were designed effectively and developed a plan to implement them to support future cash flow forecasts in 2019.
During the three months ended March 29, 2019, we successfully completed the actions above of testing the design of the enhanced internal controls to the extent necessary to conclude that the deficiencies in the design of the internal controls over future cash flows have been remediated. We will test and conclude on the operating effectiveness of these controls as they occur in 2019. Based on thatthe activities and evaluation described above, our CEO and CFO concluded that, as of that date,June 28, 2019, our disclosure controls and procedures were effective.



The remediation efforts were intended both to address the identified material weakness and to enhance our overall financial control environment. Management is committed to continuous improvement of the Company’s internal control over financial reporting and will continue to diligently review the Company’s internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There hashave been no changechanges in our internal control over financial reporting during the most recent fiscal quarter ended June 28, 2019 that hashave materially affected, or is reasonablyare likely to materially affect, our internal control over financial reporting.



PART II. OTHER INFORMATION
 
Item 1.Legal Proceedings.
We are subject to various legal proceedings and claims, including patent infringement claims,government investigations, environmental matters, product liability matters, environmental matters,patent infringement claims, employment disputes, contractual disputes and other commercial disputes, including those described in Note 17 of the notes to the unaudited condensed consolidated financial statements.below. We believe 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, we believe, unless otherwise indicated in Note 17 of the notes to the unaudited condensed consolidated financial statements,below, given the information currently available, that their ultimate resolutions areresolution will not expected to have a material adverse effect on our financial condition, results of operations and cash flows.
Opioid-Related Matters
Since 2017, multiple U.S. states, counties, other governmental persons or entities and private plaintiffs have filed lawsuits against certain entities of our 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 our products. As of August 6, 2019, the cases we are 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.
Federal Lawsuits
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 MDL court has issued a series of case management orders permitting motion practice addressing threshold legal issues in certain cases, allowing discovery, setting pre-trial deadlines and setting a trial date on October 21, 2019 for two cases originally filed in the Northern District of Ohio by Summit County and Cuyahoga County against opioid manufacturers, distributors, and 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.
Summit County filed a complaint on December 20, 2017, an amended complaint that added us on April 25, 2018, and a second amended complaint on May 18, 2018. The manufacturer defendants jointly moved to dismiss the second amended complaint on May 25, 2018. Judge Polster, who is presiding over the MDL, denied the motion on December 19, 2018. Summit County filed a third amended complaint on March 21, 2019, which alleges violations of Racketeer-Influenced and Corrupt Organizations (“RICO”), the Ohio Corrupt Practices Act, statutory public nuisance, common law absolute public nuisance, negligence, common law fraud, violations of Injury Through Criminal Acts, unjust enrichment, and civil conspiracy. Summit County seeks damages including but not limited to actual damages, treble damages, equitable and/or injunctive relief, restitution, disgorgement of profits, compensatory and punitive damages, attorneys’ fees, all costs and expenses of suit, and pre- and post-judgment interest. Cuyahoga County filed a complaint on October 21, 2017, and an amended complaint on April 25, 2018 that added us. Cuyahoga County filed a third amended complaint on May 10, 2019. The third amended complaint contains causes of action and damages similar to those in the Summit County litigation. In June 2019, the parties filed motions for summary judgment and Daubert motions in Summit County and Cuyahoga County. The parties are in the process of briefing the summary judgment and Daubert motions and anticipate that all briefs will be submitted by the end of August 2019.
We are also named in 235 similar state court cases in 29 states. These state court cases include actions filed by (1) state attorneys general; (2) counties, cities, and other municipalities; (3) district attorneys; (4) hospitals and other health systems; (5) individuals; (6) third-party payers; and (7) Native American Tribes. There are differences among these cases. For furtherinstance, counties and cities often seek to recoup governmental expenses related to public services, while hospitals and other health systems typically seek compensation for opioid-related medical services. These cases also contain different causes of action. For example, state attorneys general complaints often utilize consumer protection statutes whereas third-party payers tend to focus on claims of fraud and breach of implied warranties. Further, not all lawsuits name the same defendants - some name manufacturers and distributors, while others also include pharmacies, pain clinics, doctors, and/or other individuals as defendants.
On June 14, 2019, MDL Plaintiffs filed a Notice of Motion and Motion for Certification of Rule 23(b)(3) Cities/Counties Negotiation Class. On July 9, 2019, the Plaintiffs' Executive Committee filed an Amended Motion for Class Certification. In July 2019, parties and third parties filed responses and replies to Plaintiffs' Amended Motion for Class Certification. A hearing on the Amended Motion took place on August 6, 2019.
State Court Lawsuits
A.Lawsuits Filed by State Attorneys General
Nine state attorneys general have filed lawsuits against us in their respective state courts. The Florida Attorney General was the first attorney general to file suit against us on May 15, 2018. The Nevada Attorney General filed the most recent attorney general lawsuit against us on June 17, 2019. In general, the state attorneys general allege that opioid manufacturers engaged in fraudulent or misleading marketing activities that led to increases in the sales of their prescription opioid products. They also allege that opioid manufacturers and distributors failed to maintain effective controls against diversion and to identify, report, and halt suspicious orders. For example, on August 14, 2018, the New York Attorney General brought an action against Purdue in the coordinated opioid litigation in Suffolk County, New York. An amended complaint was filed on March 28, 2019, naming us, among other opioid manufacturers, distributors, and individuals. The amended complaint alleges state law violations of the New York State Finance Law, the New York Social Service Law, the New York General Business Law, the New York Controlled Substance Act, and the New York Executive Law, as well as public nuisance, fraud, gross negligence, willful misconduct, and unjust enrichment against us. The amended complaint seeks, among other remedies, declaratory judgment, injunctive relief, the creation of an abatement fund, damages, civil penalties, and the disgorgement of profits. Certain defendants, including us, filed motions to dismiss on May 31, 2019. The State of New York opposed the motions on July 31, 2019 and defendants have until August 30, 2019 to reply. While the New York Attorney



General action is illustrative, there are differences between the cases filed by state attorneys general. Each lawsuit contains different causes of action, including different common law claims and alleged violations of state-specific statutes. The lawsuits also contain different claims for damages. For instance, the Kentucky and Hawaii actions seek punitive damages, but the Florida action does not. Further, not all lawsuits name the same defendants - some name manufacturers and distributors, while others also include pharmacies and/or individuals as defendants. The New York Attorney General action is currently part of the Track One cases in the New York consolidated proceedings in Suffolk County, New York, with a trial scheduled to begin on March 2, 2020.
B.Lawsuits Filed by Cities, Counties, and Other Municipalities
There are currently more than 198 lawsuits against us filed by cities, counties, and other municipalities, pending in various state courts in 21 states. The earliest lawsuit that remains in state court was filed by the County of Northampton, Pennsylvania on December 28, 2017. In general, the complaints allege that opioid manufacturers engaged in fraudulent or misleading marketing activities that led to increases in the sales of their prescription opioid products. They also allege that opioid manufacturers and distributors failed to maintain effective controls against diversion and to identify, report, and halt suspicious orders. For example, on May 16, 2018, Clark County filed an amended complaint in the Eighth Judicial District Court of Nevada and named us as a defendant, among other opioid manufacturers, distributors, and pharmacies. The amended complaint alleges violations of statutory public nuisance, common law public nuisance, negligent misrepresentation, negligence, and unjust enrichment. Clark County seeks damages including but not limited to compensatory and punitive damages, general damages, special damages, a fund for establishing a medical monitoring program, restitution and reimbursement, and attorneys’ fees and costs. Defendants filed motions to dismiss on October 19, 2018, which were denied on March 19, 2019. On June 4, 2019, the court denied defendants’ motion for partial reconsideration concerning their motions to dismiss. Several defendants, including us, have petitioned the Nevada Supreme Court for a writ of mandamus to dismiss the case, as well as a stay of proceedings pending resolution of that petition. While the Clark County action is illustrative, there are differences between the cases filed by cities, counties and other municipalities. These lawsuits contain different causes of action, including different common law claims and alleged violations of state-specific statutes. For example, municipalities in Maryland, Pennsylvania, and Virginia assert violations of their state consumer protection statutes, while many other states do not. The lawsuits also contain different claims for damages. For example, the City of Granite City and the County of Jersey, Illinois seek damages for particular public health expenditures, while municipalities in other states allege damages related more generally to costs for public services. Further, not all lawsuits name the same defendants - some name manufacturers and distributors, while others also include pharmacies and/or individuals as defendants.
In some jurisdictions, such as Connecticut, Illinois, Massachusetts, New York, Pennsylvania, South Carolina, Texas and West Virginia, certain of the 198 state lawsuits filed by counties, cities and other municipalities have been coordinated for pre-trial proceedings before a single court within their respective state court systems. The first coordinated proceeding was formed in New York on July 31, 2017. The most recent state coordinated proceeding was formed in Massachusetts on June 13, 2019. We are not named as a defendant in each case that may be pending in a particular state court MDL or coordinated proceeding. For example, approximately 49 cases filed by Texas counties are consolidated in the In re: Texas Opioid Litigation, No. 2018-63587, MDL No. 18-0358 (the “Texas MDL”), of which we are named in 16 cases. The Texas complaints generally allege violations of public nuisance, negligence, the Texas Controlled Substances Act, the Deceptive Trade Practices-Consumer Protection Act, unjust enrichment, common law fraud, and civil conspiracy, though there are differences among the complaints. Plaintiffs seek damages including but not limited to injunctive relief, economic and treble damages arising from alleged violations of the Texas Deceptive Trade Practices-Consumer Protection Act, civil penalties for violations of the Texas Controlled Substances Act, abatement of public nuisance, injunctive relief, punitive and actual damages, restitution, and attorneys’ fees. We have filed answers in certain cases. A hearing on bellwether selection and other trial scheduling matters occurred on July 26, 2019, in which eight bellwether counties and alternates were selected as candidates for four trials, the first two of which are tentatively scheduled to occur in October 2020 and January 2021. We are currently named in four out of the eight selected bellwether counties but plaintiffs may amend their complaints to add us to the other four cases. While the Texas MDL is illustrative, there are differences between the coordinated cases. Each states’ coordinated proceedings contain different causes of action, including different common law claims and alleged violations of state-specific statutes. For example, municipalities in Connecticut, Illinois, Massachusetts, New York, Pennsylvania, South Carolina, and Texas assert violations of their state unfair or deceptive trade practices acts, while other plaintiffs do not. The lawsuits also contain different claims for damages. For example, some of the cases in the Texas MDL request exemplary and punitive damages for gross negligence, while other cases do not. Further, not all lawsuits name the same defendants-some name manufacturers and distributors, while others also include pharmacies and/or individuals as defendants. A Case Management Order has been entered in the New York consolidated cases in Suffolk County, which provides for two separate case tracks to proceed to discovery and ultimately to trial. We are named in the three Track One cases with a trial scheduled to begin on March 2, 2020.
C.Lawsuits Filed by District Attorneys General
Three District Attorneys General (“DAGs”) have also filed lawsuits in state court against us. In general, they allege that defendants engaged in false and deceptive promotion of opioids and contributed to the oversupply and diversion of those products. They also allege that defendants’ actions caused high addiction rates, overdose deaths, and increased rates of neonatal abstinence syndrome. The DAGs have initiated lawsuits against opioid manufacturers, distributors, prescribers, retailers, and other individuals. The DAGs allege that defendants participated in an illegal opioids market and that plaintiffs suffered damages related to increased law



enforcement and health care costs, expenses related to rehabilitation and addiction treatment, prosecution costs, and foster care expenses, among others. Staubus et al. v. Purdue Pharma, LP et al., No. C-41916was filed in the Circuit Court for Sullivan County on June 13, 2017 and amended on July 27, 2017 and February 15, 2018. We joined a motion to dismiss filed by the manufacturer defendants and filed a supplemental motion to dismiss regarding Company-specific claims on March 23, 2018. The court held a hearing on the motion to dismiss, in addition to other motions, on May 8, 2018. The court denied the motions to dismiss in an order filed on June 12, 2018. We filed an answer to the second amended complaint on June 29, 2018. The parties are currently engaged in discovery. Effler et al. v. Purdue Pharma, LP et al., No. 16596was filed in the Circuit Court for Campbell County on September 29, 2017 and amended on October 6, 2017, January 10, 2018 and May 21, 2018. We joined a motion to dismiss filed by the manufacturer defendants on July 27, 2018. The court held a hearing on the motion to dismiss on October 4, 2018 and issued an order granting the manufacturer defendants’ motion to dismiss on October 5, 2018. Plaintiffs filed a Notice of Appeal on November 1, 2018. We joined defendants-appellees’ response brief which was filed on May 28, 2019. Plaintiff-appellants’ filed their reply brief on July 11, 2019, and oral argument occurred on July 18, 2019. Dunaway et al. v. Purdue Pharma, LP et al., No. CCI-2018-cv-6347 was filed in the Circuit Court for Cumberland County on January 10, 2018 and amended on August 7, 2018. We joined a motion to dismiss filed by the manufacturer defendants on September 21, 2018. Plaintiffs filed a second amended complaint on April 1, 2019, adding new defendants. A distributor defendant removed the action on May 3, 2019, and the district court remanded the case on May 22, 2019. We joined a motion to dismiss filed by the manufacturer defendants on July 15, 2019. Plaintiffs' opposition to defendants' motions to dismiss are due on September 30, 2019. Replies are due on October 30, 2019, and oral argument is scheduled for December 16, 2019. There are currently no trials set in these cases.
D.Lawsuits Filed by Hospitals and Health Systems
Hospitals and other health systems have also filed lawsuits in state courts against us, and there are currently three such lawsuits. The first lawsuit that remains in state court was filed by various hospitals and other health systems in West Virginia on April 29, 2019. The second lawsuit that remains in state court was filed by various hospitals and other health systems in Arizona on June 18, 2019. The third lawsuit that remains in state court was filed by various hospitals and other health systems in Tennessee on July 12, 2019. The plaintiffs allege that opioid manufacturers have engaged in fraudulent or misleading marketing activities that led to increases in the sales of their opioid products. They also allege that opioid manufacturers and distributors failed to maintain effective controls against diversion and to identify, report, and halt suspicious orders. For example, on April 29, 2019, various hospitals and other health systems in West Virginia filed a complaint in the Circuit Court of Marshall County, West Virginia against us, among other opioid manufacturers, distributors, pharmacies and individuals. A first amended complaint was filed on June 7, 2019, which asserts claims for negligence, nuisance, unjust enrichment, fraud and deceit, violation of Kentucky's Consumer Protection Act, civil conspiracy, fraudulent concealment and negligent and intentional diversion and distribution against an individual defendant. The plaintiffs seek judgment against defendants, jointly and severely, and they also seek damages and costs. This case will likely be transferred to West Virginia's Mass Litigation Panel. While the West Virginia action is illustrative, there are differences between these cases. Each lawsuit contains different causes of action, including different common law claims and alleged violations of state-specific statutes. The lawsuits also name different defendants: the Arizona plaintiff names manufacturers, distributors and pharmacies as defendants, while the West Virginia and Tennessee plaintiffs also include individuals as defendants. There are currently no trials set in these cases.
E.Lawsuits Filed by Individuals
Individuals have filed lawsuits in state courts against us, and there are currently nine such lawsuits. The first lawsuit that remains in state court was initially filed by the Estate of Bruce Brockel in the Circuit Court of Mobile County, Alabama, on October 25, 2017, and amended to add us to plaintiff’s first amended complaint on February 5, 2018. The most recent lawsuit that remains in state court was filed by plaintiff Tina Batts in the 22nd Judicial Circuit Court, City of St. Louis, Missouri, on July 29, 2019. In general, these lawsuits allege that opioid manufacturers have engaged in fraudulent or misleading marketing activities that led to increases in the sales of their opioid products. They also allege that opioid manufacturers and distributors failed to maintain effective controls against diversion and to identify, report, and halt suspicious orders. Individual plaintiffs generally claim that they suffered damages related to increased healthcare costs, or wrongful death. For example, on December 5, 2018, the Estate of Bruce Brockel filed a third amended complaint in the Circuit Court of Mobile County, Alabama against us, among other prescription opioid manufacturers and individual doctors. The complaint contains a variety of causes of actions, including medical malpractice, negligence, wantonness, Alabama extended manufacturer’s doctrine, fraud and misrepresentation, suppression and concealment, deceit, unjust enrichment and civil conspiracy. The plaintiff alleges that manufacturers engaged in the false and deceptive promotion of opioids, which led to the oversupply of opioids and caused decedent’s death. The plaintiff seeks damages in an unspecified amount. We moved to dismiss the complaint on March 26, 2019. An opposition to the motion to dismiss was filed on April 25, 2019. The motion is currently pending. While the Brockel action is illustrative, there are differences among the cases filed by individuals. Many of these lawsuits contain different causes of action. For example, Brockel asserts a claim for civil conspiracy, while five of the individual actions filed in Missouri state court do not. One of the cases, Robert Ruth, is a putative class action, asserting claims on behalf of Missouri citizens who purchased or paid for health insurance policies. Further, not all lawsuits name the same defendants - for example, some name manufacturers, while others also include individuals as defendants. There are currently no trials set in these cases.



F.Lawsuits Filed by Third-Party Payers
Third-party payers, such as insurers, have also filed lawsuits in state courts against us. There are currently six such lawsuits. The first lawsuit that remains in state court was filed by UFCW, Local 23 and Employers Health Fund in Pennsylvania on April 24, 2018. The most recent lawsuit that remains in state court, the Illinois Public Risk Fund, was filed on May 10, 2019. In general, plaintiffs allege that opioid manufacturers have engaged in fraudulent or misleading marketing activities that led to increases in the sales of their opioid products. They also allege that opioid manufacturers and distributors failed to maintain effective controls against diversion and to identify, report, and halt suspicious orders. Third-party payer plaintiffs claim that they paid costs for health issues stemming from opioid overuse.
The Illinois Public Risk Fund case asserts state law claims against the Company such as violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, fraudulent misrepresentation, insurance fraud, negligence, public nuisance and unjust enrichment. Fire and Police Retiree Health Care Fund, filed in Bexar County District Court in Texas and transferred to the Texas MDL, asserts similar state law claims against us, including public nuisance, common law fraud, negligence, gross negligence, unjust enrichment, civil conspiracy and fraudulent concealment. The remaining four cases are in Pennsylvania state court and have been consolidated in the coordinated proceedings in Delaware County, Pennsylvania. The Pennsylvania complaints assert state law claims for violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law statute, public nuisance, negligence, unjust enrichment, common law fraud, breach of implied warranties, negligence per se, negligent misrepresentation, negligent marketing and civil conspiracy. Defendants’ joint preliminary objections await rulings and certain test cases are proceeding to discovery. There are differences between these cases.  Certain of these lawsuits contain different causes of action.  For example, a case filed by Carpenters Health and Welfare Fund of Philadelphia and Vicinity asserts a claim for public nuisance, while a case filed by the International Union of Painters and Allied Trades, District Council 21 Welfare Funddoes not. The lawsuits also contain different claims for damages. For instance, Carpenters Health seeks a declaratory judgment regarding plaintiffs’ public nuisance claims, but Painters and Allied Trades does not. Further, not all lawsuits name the same defendants - some name manufacturers, while at least one lawsuit includes individuals as defendants. There are currently no trials set in these cases.

G.Lawsuits Filed by Native American Tribes
Seven Native American tribes have also filed lawsuits in state court against us that remain in state court. All seven cases were filed in state courts in Oklahoma. The first lawsuit that remains in state court was filed by Citizen Potawatomi Nation on July 15, 2019. The most recent lawsuits that remain in state court were filed by the Thlopthlocco Indian Tribal Town and Pawnee Nation of Oklahoma on July 30, 2019. In general, the Native American tribes allege that defendants downplayed the risks of prescription opioids, overstated their benefits, used third-parties to promote false information about prescription opioids, and failed to prevent the diversion of prescription opioid products. All seven complaints assert claims for public nuisance, actual and constructive fraud, negligence and negligent misrepresentation, civil conspiracy and unjust enrichment. Plaintiffs in all seven cases seek punitive damages, actual damages, compensation for past and future costs of abatement, an abatement fund and attorneys' fees and costs. We have not yet filed a response to any of the seven complaints.
We intend to vigorously defend ourselves against all of these lawsuits as detailed above and similar lawsuits that may be brought by others. Since these lawsuits are in early stages, we are unable to predict outcomes or estimate a range of reasonably possible losses.
Investigations and Other Inquiries
In addition to the lawsuits described above, certain entities of the Company have received subpoenas and civil investigative demands (“CIDs”) 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 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. We have 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, we 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, we 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, we received a rider from the USAO for EDNY requesting additional documents regarding our anti-diversion program. We are responding or have responded to these subpoenas, CIDs and any informal requests for documents.
The Attorneys General for Kentucky, Alaska and New York have subsequently filed lawsuits against us. 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, we are unable to predict outcomes or estimate a range of reasonably possible losses.



New York State Opioid Stewardship Act
On October 24, 2018, we filed suit in the U.S. District Court for the Southern District of New York against the State of New York, asking the court to declare New York State’s Opioid Stewardship Act (“OSA”) unconstitutional and to enjoin its enforcement. On December 19, 2018, the court declared the OSA unconstitutional and granted our motion for preliminary injunctive relief. On January 17, 2019, the State of New York appealed the court’s decision. We intend to vigorously assert our position in 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 pending legal proceedings, referappeal, 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.
DEA Investigation
In November 2011 and October 2012, we received subpoenas from the DEA requesting production of documents relating to our suspicious order monitoring program for controlled substances. The USAO for the Eastern District of Michigan investigated the possibility that we failed to report suspicious orders of controlled substances during the period 2006-2011 in violation of the Controlled Substances Act and its related regulations. The USAO for the Northern District of New York and Office of Chief Counsel for the U.S. DEA investigated the possibility that we failed to maintain appropriate records and security measures with respect to manufacturing of certain controlled substances at our Hobart facility during the period 2012-2013. In July 2017, we entered into a final settlement with the DEA and the USAOs for the Eastern District of Michigan and the Northern District of New York to settle these investigations. As part of the agreement, we paid $35.0 million in fiscal 2017 to resolve all potential claims and agreed, as part of a Memorandum of Agreement (“MOA”), to utilize all available transaction information to identify suspicious orders of any of our controlled substance products and to report to the DEA when we conclude that chargeback data or other information indicates that a downstream registrant poses a risk of diversion, among other things. The MOA remains in effect until July 10, 2020, but we will continue utilizing all available transaction information to identify suspicious orders for reporting to the DEA beyond that date.
House Energy and Commerce Committee Investigation of Opioid Marketing and Distribution
In August 2018, we 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 our marketing and distribution of opioids. We completed our response to this letter in December 2018. We will cooperate with the investigation, which is expected to continue and may ultimately result in a congressional hearing in the second half of 2019.
See Note 1714 of the notes to the unaudited condensed consolidated financial statements.statements for further description of the litigation, legal and administrative proceedings as of June 28, 2019.

Item 1A.Risk Factors.
There have been no material changes to the risk factors previously disclosed in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 29, 2017,28, 2018, filed with the SEC on February 27, 2018.26, 2019.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
(c) Issuer Purchases of Securities
The following table summarizes the repurchase activity of our ordinary shares during the three months ended SeptemberJune 28, 20182019. The repurchase activity presented below includes both market repurchases of shares and deemed repurchases in connection with the vesting of restricted share units under employee benefit plans to satisfy minimum statutory tax withholding obligations.
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 a $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 expiration date, and the Company currently expects to fully utilize the program.
 Total Number of
Shares Purchased		 
Average Price
Paid
Per Share
 Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs		 Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under Plans or Programs
June 30, 2018 to July 27, 201836,282
 $18.66
 —
 $564.2
July 27, 2018 to August 31, 2018121
 22.87
 —
 564.2
September 1, 2018 to September 28, 2018169
 34.62
 —
 564.2

Item 3.Defaults Upon Senior Securities.
 None.



Item 4.Mine Safety Disclosures.
 Not applicable.

Item 5.Other Information.
 None.



 Total Number of
Shares Purchased		 
Average Price
Paid
Per Share
 Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs		 
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under Plans or Programs
(in millions)
March 30, 2019 to April 26, 201932,151
 $22.80
 —
 $564.2
April 27, 2019 to May 31, 201980,759
 15.21
 —
 564.2
June 1, 2019 to June 28, 20192,492
 9.06
 —
 564.2
March 30, 2019 to June 28, 2019115,402
 17.19
    


Item 6.Exhibits.
Exhibit
Number
 Exhibit
   
31.1 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 
Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 
Interactive Data File (Form 10-Q for the quarterly period ended SeptemberJune 28, 20182019 filed in XBRL). The financial information contained in the XBRL-related documents is "unaudited" and "unreviewed." The instance document does not appear in the interactive file because its XBRL tags are embedded within the inline XBRL document.








SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 MALLINCKRODT PUBLIC LIMITED COMPANY
   
 By:/s/ Matthew K. HarbaughBryan M. Reasons
  
Matthew K. HarbaughBryan M. Reasons
Executive Vice President and Chief Financial Officer
(principal financial officer)



Date: NovemberAugust 6, 20182019



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