The Irish 2016 statutory filing is easier to understand. To much mumbo jumbo legalize in the USA 10K.
"Profit after taxation of $590.0 million and $313.0 million for fiscal 2016 and 2015, respectively, were credited to capital and reserves. No profits were distributed as dividends and the Company spent $652.9 million and $92.2 million acquiring its own shares during fiscal 2016 and 2015, respectively."
@Fishywoo,
Thanks for the info you've posted.
In the context of Mallinckrodt being a potential partner for MSB, I trust some followers of MSB might benefit from this sort of a discussion about Mallinckrodt, to the extent that it adds some value to their understanding of the company, especially how and where it might be a partnering fit with MSB (or otherwise, as the case may be).
Like you, I referenced the Irish accounts because they were easily accessible (Not that difficult: just a few clicks away, as you probably found, too).
Just one word of warning, though, those 2015 and 2016 Profit After Tax figures you quoted are really quite meaningless as measures of the underlying profitability of Mallinckrodt.
The reason I say this is because the $590m and $313m After Tax Profit figures for FY2016 and FY2015, respectively, which you quoted above, include Discontinued Operations. On a Continuing Operations basis, the corresponding After Tax Profit figures are, respectively, $435m and $225m.
Not just that, but the reported figures both reflect substantial tax credits in each year ($292m and $129m, respectively). In previous years, too, the tax expense item in the P&L is a number that doesn't reflect the average tax rate.
And in 2016 there's a $90m profit from the sale of a business that needs adjusting for.
The other problem with Mallinckrodt's P&L is that, every year since listing, it has included substantial restructuring charges and impairment charges
In terms of understanding what is happening inside a business, I think it is important to get a good grasp of what the true underlying profitability of the business is doing, i.e., without the distortions of widely varying tax rates or expenses and/or gains that could be considered to be one-off in nature. So one needs to strip out all the non-recurring items.
Which is what I have done below, by deriving "clean" Operating Profit (i.e., EBIT) and Pre-Tax Profit figures for Mallinckrodt over the 5 years since it listed (all figures in $m):
2012: EBIT = $272 / Pre-Tax Profit = $273
2013: EBIT = $252 / Pre-Tax Profit = $233
2014: EBIT = $166 / Pre-Tax Profit = $88
2015: EBIT = $387 / Pre-Tax Profit = $141
2016: EBIT = $577 / Pre-Tax Profit = $193
As can be seen, Mallinckrodt's Profitability was in sharp decline between 2012 and 2014.
Then, during 2015 and 2016 Operating Profit has increased sharply, as has Pre-Tax Profit, although not to the same extent.
The reason for this is because of the $5bn of acquisitions made during 2015 and 2016.
So, the way I read these events is that Mallinckrodt's legacy business - when it was spun out from Coviden in 2012 - was in a state of structural decline for whatever reason (probably the reason for Coviden flicking it off in the first case).
Then, in order to plug the growing earnings hole, Mallinckrodt's management went on an acquisition strategy. And while this may, at first glance, have had the desired effect on the P&L over the 2015 and 2016 years, one needs to not just look at the P&L in isolation, but at the impact the acquisition spree has had on the full set of financial accounts, especially the balance sheet.
And this is where I start to get a bit concerned about the suitability of Mallinckrodt as a viable funding partner for MSB.
For this is what Mallinckrodt's Net Debt has done over this review period.
NIBD @ 30 September balance dates (all figures in $m):
2012: 9
2013: 642
2014: 3,272
2015: 6,241
2016: 5,854
Concomitantly, the Interest Expense has ballooned, as follows (all figures in $m):
2012: 1
2013: 20
2014: 83
2015: 256
2016: 385
And this explains why the company's Pre-Tax Profits have not grown as quickly as the Operating Profit line... its because the Interest bill has, in recent years, been taking out a huge bite between these two line items.
It should not be lost on even the most novice of investors that when your Pre-Tax Profits in a certain year (let's take 2013 in this case) are $233m, and then after that, acquisitions amounting to $5.0bn are undertaken; and yet after that, Pre-Tax Profits are even lower (in this case $193m) than when the acquisitions occurred... when that happens, then you know that something is amiss and that something has to change.
Because - and this is where it relates to MSB - this combination of lower underlying profitability on the back of dramatically higher indebtedness, has left Mallinckrodt in what I think is a most challenging budgetary position.
It's solvency metrics are not in any shape that will allow it to be much in a way of a funding saviour for MSB:
EBIT/Net Interest Coverage Ratio (times):
2012: 272
2013: 12.6
2014: 2.0
2015: 1.5
2016: 1.5
Net Debt -to EBIT (times):
2012: Negligible
2013: 2.5
2014: 19.7
2015: 16.1
2016: 10.1
Even though there's been an improvement in Net Debt-to-EBIT in 2016, that was largely due to the sale of a business for $270m, as well as a $100m reduction in trade debtors.
But, either way, I think those debt metrics would make any banker sleep uneasily.
They certainly don't portend any scope for lavish generosity on Mallinckrodt's part in any pending partnership deals, I don't think.
PS. Of course, I concede that maybe my analysis is misguided and maybe Mallinckrodt will undertake a capital raising to repair its balance sheet (I note the stock has Mallinckrodt acquired on-market in itself over the past 2 years has not been cancelled, but is still being held as Treasury stock). But I think issuing stock at a price somewhere under $40/share (which is where I suspect it will need to be priced) it is going to be a difficult concept for the Mallinckrodt board to sell to its shareholder base when they were buying stock at around $100 just a few years back.
Finally, unrelated to Mallinckrodt's financial position, eight full pages of the 2016 Annual Report are devoted exclusively to contingent liabilities. I've never seen anything like it before.
The notes to the 2016 Annual Report go into considerable detail about Governmental Proceedings, Patent/Antitrust Litigation, Commercial and Securities Litigation, Pricing Litigation, Environmental Remediation and Litigation Proceedings, Products Liability Litigation, Tax Matters, Acquisition-Related Litigation, and Other Matters.
Even though some might conclude - rightly or wrongly - that this does not cast the company in the best light, one has to give the company credit for its degree of transparency around the extensive legal issues it is currently addressing.
Trust this all helps add even a little bit to the sum total of people's knowledge about Mallinckrodt, insofar as it relates to future commercial arrangements with Mesoblast.
(20min delay)