UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 28, 201427, 2015
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-36353
Perrigo Company plc
(Exact name of registrant as specified in its charter)
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| Ireland | | N/A |
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Treasury Building, Lower Grand Canal Street, Dublin 2, Ireland
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| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: +353 1 70940027094000
Securities registered pursuant to Section 12(b) of the Act:
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| Ordinary shares, €0.001 par value | | New York Stock Exchange |
| Title of each class | | Name of each exchange on which registered |
Ordinary shares, €0.001 par value | | New York Stock Exchange |
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES [X] NO [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. YES [ ] NO [X]
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 [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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| Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. | | YES | [X] | NO | [ ] |
| Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. | | YES | [ ] | NO | [X] |
| 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 | [ ] |
| Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). | | YES | [X] | NO | [ ] |
| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. | | | | | [ ] |
| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. | | | | | |
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Large accelerated filer [X] | [X] | | Accelerated filer | [ ] |
| Non-accelerated filer | [ ] | | Smaller reporting company | [ ] |
(Do not |
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Indicate by check ifmark whether the registrant is a smaller reporting company)shell company (as defined in Rule 12b-2 of the Act). | | YES | [ ] | NO | [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] YES [X] NO
The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the common stockour ordinary shares on December 27, 201326, 2014 as reported on the New York Stock Exchange, was $20,344,133,440. Shares of common stock$23,365,172,165. Ordinary shares held by each director or executive officer have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of August 8, 2014,7, 2015, the registrant had 133,817,750146,279,437 outstanding shares of common stock.ordinary shares.
Documents incorporated by reference:reference:
The information called for by Part III will be incorporated by reference from the Registrant's definitive Proxy Statement for its Annual Meeting of Shareholders to be filed pursuant to Regulation 14A or will be included in an amendment to this Form 10-K.
PERRIGO COMPANY PLC
FORM 10–K
FISCAL YEAR ENDED JUNE 28, 201427, 2015
TABLE OF CONTENTS
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| Part I. | | |
| Item 1. | | |
| Item 1A. | | |
| Item 1B. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| Additional Item. | | |
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| Part II. | | |
| Item 5. | | |
| Item 6. | | |
| Item 7. | | |
| Item 7A. | | |
| Item 8. | | |
| Item 9. | | |
| Item 9A. | | |
| Item 9B. | | |
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| Part III. | | |
| Item 10. | | |
| Item 11. | | |
| Item 12. | | |
| Item 13. | | |
| Item 14. | | |
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| Part IV. | | |
| Item 15. | | |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report are "forward-looking statements"“forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. These statements relate to future events or the Company’sour future financial performance and involve known and unknown risks, uncertainties and other factors that may cause theour, or our industry's, actual results, levels of activity, performance or achievements of the Company or its industry to be materially different from those expressed or implied by any forward-looking statements.In particular, statements about the Company’sour expectations, beliefs, plans, objectives, assumptions, future events or future performance contained in this report, including certain statements contained in "Business," "Risk Factors" and "Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential"“may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or the negative of those terms or other comparable terminology. The Company has
We have based these forward-looking statements on itsour current expectations, assumptions, estimates and projections. While the Company believeswe believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, manyincluding but not limited to the successful integration of the Omega Pharma Invest N.V. business and future actions that may be taken by Mylan N.V. ("Mylan") in furtherance of its unsolicited proposal to acquire control of us. Further, we are deemed to be in an "offer period" for the purposes of the Irish Takeover Rules, which are beyond the Company’s control.may restrict our ability to execute our strategy on a timely basis. These and other important factors including those discussed under "Risk Factors," may cause actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. The forward-looking statements in this report are made only as of the date hereof, and unless otherwise required by applicable securities laws, the Company disclaimswe disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
The directors of Perrigo Company plc ("Perrigo") accept responsibility for the information contained in this report. To the best of the knowledge and belief of our directors (who have taken all reasonable care to ensure such is the case), the information contained in this report is in accordance with the facts and does not omit anything likely to affect the import of such information.
A person interested in 1% or more of any class of relevant securities of Perrigo or Mylan may have disclosure obligations under Rule 8.3 of the Irish Takeover Panel Act, 1997, Takeover Rules, 2013.
This report contains trademarks, trade names and service marks that are the property of Perrigo, as well as, for informational purposes, trademarks, trade names, and service marks that are the property of other organizations. Solely for convenience, certain trademarks and trade names referred to in this report appear without the ® and ™ symbols, but those references are not intended to indicate that we or the applicable owner, as the case may be, will not assert, to the fullest extent under applicable law, our or their rights to such trademarks, trade names, and service marks.
Perrigo Company plc - Item 1
Business Overview
PART I.
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ItemITEM 1. | Business.
BUSINESS |
GENERAL
Perrigo Company plc (formerly known as Perrigo Company Limited, and prior thereto, Blisfont Limited) ("Perrigo" or "the Company"), was incorporated under the laws of Ireland on June 28, 2013, and2013. We became the successor registrant of Perrigo Company, a Michigan corporation, on December 18, 2013 in connection with the consummation of the acquisition of Elan Corporation, plc ("Elan"), which is discussed further below. From its beginnings as a packager of home remedies in 1887, Perrigo has grown to become a leading global healthcare supplier. Perrigo develops, manufacturesItem 8. Note 2. Unless the context requires otherwise, the terms "Perrigo", the "Company", "we," "our," "us," and distributes over-the-counter ("OTC") and generic prescription ("Rx") pharmaceuticals, nutritional products and active pharmaceutical ingredients ("API"), and has a specialty sciences business comprised of assets focused predominantly on the treatment of Multiple Sclerosis (Tysabri®). The Company is the world's largest manufacturer of OTC healthcare products for the store brand market. Perrigo's mission is to offer uncompromised "Quality Affordable Healthcare Products®", and it does so across a wide variety of product categories primarily in the United States, United Kingdom, Mexico, Israel and Australia, as well as many other key markets worldwide, including Canada, China and Latin America. The Company operates through several wholly owned subsidiaries. In the U.S., its operations are conducted primarily through L. Perrigo Company, Perrigo Company of South Carolina, Inc., Perrigo New York, Inc., PBM Products, LLC, PBM Nutritionals, LLC, Paddock Laboratories, LLC, Perrigo Diabetes Care, LLC, Sergeant's Pet Care Products, Inc. and Fidopharm, Inc. Outside the U.S., its operations are conducted primarily through Elan Pharma International Limited, Perrigo Israel Pharmaceuticals Ltd., Perrigo API Ltd., Quimica y Farmacia S.A. de C.V., Laboratorios Diba, S.A., Wrafton Laboratories Limited, Galpharm Healthcare Ltd., Orion Laboratories Pty Ltd and Rosemont Pharmaceuticals Ltd. Assimilar pronouns used herein referencesrefer to the "Company" mean Perrigo Company plc, its subsidiaries, and all predecessors of Perrigo Company plc and its subsidiaries.
WHO WE ARE
With the acquisition of Omega Pharma Invest N.V. ("Omega"), we are a leading global over-the-counter ("OTC") consumer goods and specialty pharmaceutical company, offering patients and customers high quality products at affordable prices. From our beginning in 1887 as a packager of home remedies, we have grown to become the world's largest manufacturer of OTC healthcare products and supplier of infant formulas for the store brand market. We are also a leading provider of generic extended topical prescription products, and we receive royalties from sales of the multiple sclerosis drug, Tysabri®. We provide “Quality Affordable Healthcare Products®” across a wide variety of product categories and geographies, primarily in North America, Europe and Australia, as well as in other markets, including Israel and China.
MAJOR DEVELOPMENTS IN OUR BUSINESS
Omega Acquisition
On March 30, 2015, we acquired Omega for $3.0 billion in equity and cash and assumed debt of $1.4 billion, for a total of $4.4 billion. Prior to its acquisition, Omega was one of the largest OTC companies in Europe. The Omega acquisition expanded our OTC leadership position across Europe, accelerated our international expansion and geographic diversification through enhanced scale and a broadened footprint, and diversified our revenue and cash flow streams while strengthening our financial profile.
Perrigo Company plc - Item 1
Business Overview
We have already begun utilizing the broader European platform established through the Omega acquisition, entering into an agreement on June 2, 2015 to acquire a portfolio of well-established OTC brands primarily in Europe from GlaxoSmithKline Consumer Healthcare (“GSK”), and an agreement on July 22, 2015 to acquire Naturwohl Pharma, GmbH ("Naturwohl"), with its leading German dietary supplement brand, Yokebe. Additional information on the Omega acquisition and pending GSK and Naturwohl acquisitions can be found in Item 8. Note 2.
Elan Acquisition
On December 18, 2013, we acquired Elan Corporation, plc ("Elan") in a cash and stock transaction totaling $9.5 billion. The acquisition led to our new corporate structure headquartered in Dublin, Ireland. We have utilized this structure to continue to grow in our core markets and to further expand outside of the U.S. The acquisition also provided us with our Tysabri® royalty stream, enhancing our operating cash flows and diversifying our net sales. Additional information on the Elan acquisition can be found in Item 8. Note 2.
Mylan N.V.'s Unsolicited Interest in the Company
The Company has five reportable segments, aligned primarily by type of product: Consumer Healthcare, Nutritionals, Rx Pharmaceuticals, API, and Specialty Sciences.
OUR SEGMENTS
In conjunction with the Omega acquisition, we changed our reporting segments in the fourth quarter of Elan,fiscal year 2015 to better align with our new organizational structure. These organizational changes were made to optimize our structure to better serve our customers and to reflect the way in which our chief operating decision maker reviews our operating results. Following this change, our reporting segments are as follows:
Company expanded its operating segmentsConsumer Healthcare ("CHC"), which includes our former Consumer Healthcare segment, former Nutritionals segment, and former Israel Pharmaceuticals and Diagnostics business, which was previously reported in our “Other” segment;
Branded Consumer Healthcare ("BCH"), which consists of the newly acquired Omega business;
Prescription Pharmaceuticals("Rx Pharmaceuticals"), which continues to include the Specialty Sciences segment, which is comprised of assets focused predominantly on the treatment of Multiple Sclerosis (Tysabri®).Rx Pharmaceuticals business; and
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| • | Specialty Sciences, which is comprised primarily of assets focused on the treatment of multiple sclerosis (Tysabri®). |
In addition, the Company haswe have an Other categoryreporting segment that consists of the Israelour former Active Pharmaceutical and Diagnostic Products operatingIngredients ("API") segment, which does not individually meet the quantitative thresholdsthreshold required to be a separately reportable segment. ThisAll historical segment structure is consistent with the way management makes operating decisions, allocates resources and manages the growth and profitability of the Company’s business.
Information concerning sales and operating income attributableinformation has been reclassified to each of the Company’sconform to this new reporting segment presentation. Financial information related to our business segments and geographic areas for the last three fiscal years ended on or around June 30 is set forth in Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations andlocations can be found in Item 8. Note 17 of the Notes to Consolidated Financial Statements. Information concerning identifiable assets of each of the Company’s reportable segments as of the last three fiscal years ended on or around June 30 is set forth in Note 17 of the Notes to Consolidated Financial Statements.
Elan Acquisition
On December 18, 2013, the Company acquired Elan for a purchase price totaling approximately $9.5 billion, which consisted of cash consideration totaling approximately $3.3 billion and Perrigo share consideration valued at approximately $6.1 billion.
The acquisition of Elan, headquartered in Dublin, Ireland, provided the Company with assets focused on the treatment of Multiple Sclerosis (Tysabri®). The Company's management believes the acquisition of Elan will provide recurring annual operational synergies, related cost reductions and tax savings. Certain of these synergies result from the elimination of redundant public company costs while optimizing back-office support. Additionally, due to changes to the jurisdictional mix of income and the new corporate structure following the acquisition of Elan, the Company was able to reduce its effective tax rate.
The operating results for Elan were included in a new "Specialty Sciences" segment of the Company's Consolidated Results of Operations beginning December 18, 2013. Additional information related to the acquisition of Elan and business segments is presented in Note 2 and Note 17, respectively, of the Notes to the Consolidated Financial Statements.
CONSUMER HEALTHCARE
The Consumer Healthcare ("CHC") segment is the world’s largest store brand manufacturer of OTC pharmaceutical products. Major product categories include analgesics, cough/cold/allergy/sinus, gastrointestinal, smoking cessation and animal health; secondary product categories include feminine hygiene, diabetes care and dermatological care.Overview
The CHC businesssegment is focused primarily on the sale of OTC store brand products, including cough, cold, and allergy products, analgesics, gastrointestinal products, smoking cessation products, infant formula and foods, vitamins, supplements, animal health products, and diagnostic products. We are a market leader in many geographies, including the U.S., U.K., and Mexico, and we are developing a market leadership position in Australia. We are the leader in OTC store brands, and market share of OTC store brand products has increased in recent yearsas retailer efforts to promote their own label programs have resulted in greater consumer awareness of the quality and value of store brand OTC products. In fiscal year 2015, our CHC segment contributed 60% to consolidated net sales.
The CHC segment develops, manufactures, and markets products that are comparable in quality and effectiveness to national brands. Store brand products. products must meet the same U.S. Food and Drug Administration
Perrigo Company plc - Item 1
CHC
("FDA") requirements as national brands. In most instances, our product packaging is designed to attract consumers and to invite and reinforce comparison to national brand products, which communicates store brand value to consumers.
The cost to the retailer of a store brand productproducts to retailers is significantly lower than that of a comparable nationally advertised brand-name product.products. Generally, the retailers’ dollar profit per unit of store brand product is greater than the dollar profit per unit of the comparable national brand product. The retailer, therefore, can price a store brand product below the competing national brand product and realize a greater profit margin. The consumer benefits by receiving a high quality product at a price below the comparable national brand product. Therefore, the Company'sAs a result, our business model savesresults in consumers saving money on their healthcare spending. The Company, one of the original architects of private label pharmaceuticals, is the market leader for store brand consumer healthcare products in many of the geographies where it currently competes – the U.S., U.K., and Mexico – and is continuing to develop a leadership position in Australia. The Company's market share of OTC store brand products has grown in recent yearsas new products, retailer efforts to increase consumer education and awareness, and economic conditions have directed consumers to the value of store brand product offerings.
Consumer Healthcare Business
The Company isWe are dedicated to being the leader in developing and marketing new store brand products and hashave a research and development ("R&D") staff that management believeswe believe is one of the most experienced in the industry at developing products comparable in formulation and quality to national brand products. ThisOur R&D team also responds to changes in existing national brand products by reformulating existing Company products. InFor example, in the OTC pharmaceutical market, certain new products are the result of changes in product status from "prescription
only" (Rx)("Rx") to OTC (non-prescription).OTC. These “Rx-to-OTC switches” require FDA approval by the Food and Drug Administration ("FDA"),through a process initiated by the drug innovator. The drug innovator usually throughbegins the process by filing of a New Drug Application ("NDA"), which is often followed by generics filing an Abbreviated New Drug Application ("ANDA"). As part
New drugs are also marketed through the FDA's OTC monograph process, which allows for the production of itsdrugs that are generally recognized as safe and effective without pre-market approval. The CHC segment also develops, manufactures, and distributes certain branded products when the strategy is synergistic with our store brand business. Branded products include the Company reliesGood Sense®, Sergeant's®, Sentry®, Herron®, Bright Beginnings®, and PetArmor® brands.
We manufacture our products at our plants in the U.S., U.K., Mexico, Israel, and Australia, and we source our remaining needs from third parties. We rely on both internal developmentR&D and strategic product development agreements with outside sources.sources to develop new products. In addition, the Company also engagesin order to maximize both our capacity and sales of proprietary formulas, we engage in contract manufacturing, which focuses oninvolves producing unique ANDA and monographproducts through partnerships with major pharmaceutical multi-level marketing and direct-to-consumer companiescompanies.
Recent Developments
In the fourth quarter of fiscal year 2015, we acquired Gelcaps Exportadora de Mexico, S.A. de C.V. ("Gelcaps"), the Mexican operations of Durham, North Carolina-based Patheon Inc. for $35.8 million in cash, which strengthened our supply chain and added softgel manufacturing technology capabilities to our business. The acquisition has broadened our presence, product portfolio, and customer network and has solidified our store brand leadership position in Mexico.
Products
Our CHC segment offers products in the following categories:
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| Product Category | | Description |
| Analgesics | | Pain relievers and fever reducers |
| Cough/cold/allergy/sinus | | Cough, cold, allergy, and sinus products |
| Gastrointestinal | | Antacids, anti-diarrheal, and anti-heartburn products |
| Infant nutritionals | | Infant formula and food products |
| Smoking cessation | | Gums, lozenges, and other products designed to help users quit smoking |
| Animal health | | Pet health and wellness products |
| VMS | | Vitamins, minerals, and dietary supplements |
| Other | | Feminine hygiene, diabetes care, dermatological care, diagnostic products, and other miscellaneous healthcare products |
Perrigo Company plc - Item 1
CHC
The chart below reflects net sales by providing unique ANDA and monograph products to its contract customers to maximize sales of proprietary formulas and to utilize available capacity.product category in the CHC segment for fiscal year 2015.
The Company is committed to consistently providing its customers with high quality products that adhere to "Current Good Manufacturing Practices" ("cGMP") regulations promulgated by the FDA and the health ministries of countries where the Company has commercial and operational presence. Substantially all products are developed using ingredients and formulas comparable to those of national brand products. In most instances, packaging is designed to increase visibility of store brand products and to invite and reinforce comparison to national brand products in order to communicate store brand value to the consumer.
The Company seeks to establish customer loyalty through superior customer service by providing a comprehensive assortment of high quality, value priced products; timely processing, shipment and delivery of orders; assistance in managing customer inventories and support in managing and building the customer’s store brand business. The Company also seeks to establish customer loyalty by providing marketing support that is directed at developing customized marketing programs for the customers’ store brand products. The primary objective of this store brand management approach is to enable customers to increase sales of their own store brand products by communicating store brand quality and value to the consumer. The Company’s sales and marketing personnel assist customers in the development and introduction of new store brand products and the promotion of customers’ existing store brand products by performing consumer research, providing market information and establishing individualized promotions and marketing programs.
The Consumer HealthcareCHC segment currently markets over 2,8004,900 store brand and other products, with over 11,00017,800 stock-keeping units ("SKUs"), to over 1,100 customers. The Company considers. We consider every different combination of package size, flavor, formulation, strength and dosage form (e.g., tablet,(tablet, liquid, softgel, etc.) of a given item as a separate "product." The Company also currently manufactures and markets certain products under its Good Sense®, Sergeant's®, Sentry®, Herron®, and PetArmor® brands.
Listed below are major Consumer Healthcare product categories the Company markets products under store brand labels, the annual retail market size for retailers in the U.S. (according to SymphonyIRI Group), and the names of certain national brands against which the Company’s store brand products compete.
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Product Categories | | Retail
Market Size
(Billions)
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Cough/Cold/Allergy/Sinus | | $7.2 | | Advil®, Afrin®, Alka Seltzer®, Allegra®, Benadryl®, Claritin®, DayQuil®, Delsym®, Dimetapp®, Mucinex®, NyQuil®, Robitussin®, Sudafed®, Theraflu®, Triaminic®, Tylenol®, Vicks®, Zyrtec® |
Gastrointestinal | | $3.9 | | Immodium A-D®, Maalox®, MiraLAX®, Mylanta®, Pepcid® AC, Pepto Bismol®, Phillips®, Prevacid®, Prilosec OTC®, Tagamet HB®, Tums®, Zantac® |
Analgesics | | $3.5 | | Advil®, Aleve®, Bayer®, Excedrin®, Motrin®, Tylenol® |
Smoking Cessation | | $0.9 | | Nicorette® |
Animal Health | | $0.5 | | Capstar®, Cosequin®, Frontline®, Heartgard®, Parastar® |
Diabetes Care | | $0.5 | | OneTouch Accu-check® |
The Company’s U.S.-based customers are major national and regional retail drug, supermarket and mass merchandise chains, including Walmart, CVS, Walgreens, Kroger, Target, Dollar General, Rite Aid, Sam’s Club, Costco, Petco and Petsmart and major wholesalers, including McKesson, Cardinal Health and AmerisourceBergen.
The Consumer Healthcare segment employs its own sales force to service larger customers and uses industry brokers for some retailers. Field sales employees, with support from marketing and customer service, are assigned to specific customers in order to understand and work most effectively with the customer. They assist customers in developing in-store marketing programs for consumers and optimize communication of customers’
needs to the rest of the Company. Industry brokers provide a distribution channel for some products, primarily those marketed under the Good Sense® label.
In contrast to national brand manufacturers, which incur considerable advertising and marketing expenditures targeted directly to the end consumer, the Consumer Healthcare segment’s primary marketing efforts are channeled through its customers, the retailers and wholesalers, and reach the consumer through its customers’ in-store marketing programs as well as the Company's own digital media programs. These programs are intended to communicate store brand value to the consumer by increasing visibilityWe launched a number of store brand products and inviting comparison to national brand products. Merchandising vehicles such as floor displays, bonus sizes, coupons, rebates, store signs and promotional packs are incorporated into customers’ programs. Because the retailer profit margin for store brand products is generally higher than for national brand products, retailers and wholesalers often commit funds for additional promotions. The Company’s marketing efforts are also directed at new product introductions and product conversions, as well as providing market data. Market analysis and research is used to monitor trends for individual products and product categories and develop category management recommendations. In addition, the Company's animal health business, which has a greater emphasis on branded products, utilizes direct to consumer advertising, including television commercials, on-line advertising, in-store display vehicles and social media, to promote product awareness.
Recent Developments
On February 28, 2014, the Company acquired a basket of value-brand OTC products sold in Australia and New Zealand from Aspen Global Inc. ("Aspen") for $53.7 million in cash. The acquisition of this product portfolio broadens the Company's product offering in Australia and New Zealand and furthers the Company's strategy to expand the Consumer Healthcare portfolio internationally.
New Product Introductions and Drug Application Approvals
The Company launched various newCHC products in CHC in fiscal year 2015, most notably the generic versions of Ensure2014®, most notably nicotine mini lozenges. Net sales related to all new products in CHC were $60.9 million for fiscal Ensure2014, $53.0 million for fiscal 2013® Plus, and $101.7 million for fiscal Frontline2012®. Plus. A Consumer HealthcareCHC product is considered new if it was added to the Company’sour product lines or sold to a new geographic area with different regulatory authorities within 12 months prior to the end of the period for which net sales are being measured. Net sales related to new CHC products totaled $155.2 million, $83.4 million, and $71.6 million for fiscal years 2015, 2014, and 2013, respectively.
In fiscal 2014, the Company,We, on itsour own or in conjunction with partners, received final approval from global health authorities for 156 new products within the FDA for one OTC drug application. AsCHC segment in fiscal year 2015, and as of June 28, 2014, the Company, on its own or in conjunction with partners,27, 2015, we had 17 OTC drug123 new product applications pending approval with the FDA.approval.
CompetitionSales and Marketing
The market for OTC pharmaceutical products is highly competitive. Competition is based on a variety of factors,Our customers include major global, national, and regional retail drug, supermarket, and mass merchandise chains such as Walmart, CVS, Walgreens, Kroger, Target, Dollar General, Rite Aid, Sam’s Club, Costco, Petco, Petsmart, Boots (U.K.), Tesco (U.K.), ASDA (U.K.), Woolworth (Australia), Coles (Australia), and major wholesalers, including price, qualityMcKesson, Cardinal Health, and assortment of products, customer service, marketing support and availability of and approvals for new products. The Company believes it competes favorably in these areas.AmerisourceBergen.
The Company’s competition in store brand products consists of several publicly traded and privately owned companies, including brand-name pharmaceutical companies. The competition is highly fragmented in terms of both geographic market coverage and product categories, such that a competitor generally does not compete across all product lines. Some of the Company’s competitors in the U.S. Consumer Healthcare market are Dr. Reddy’s Laboratories, Ltd., Actavis Inc., Ranbaxy Inc., PL Developments, Nipro Corporation, and LNK International, Inc. The Company’s store brand products also compete with nationally advertised brand-name products. Most of the national brand companies have financial resources substantially greater than those of the Company. National brand companies could in the future manufacture more store brand products or lower prices of their national brand products. Additionally, certain generic prescription drug manufacturers have elected to pursue OTC marketing status for products that have switched or are switching from Rx to OTC status.
NUTRITIONALS
The Nutritionals segment develops, manufactures, markets and distributes store brand infant and toddler formula products, infant and toddler foods, and vitamin, mineral and dietary supplement ("VMS") products to retailers, distributors and consumers primarily in the U.S., Canada, Mexico and China. Similar to the Consumer Healthcare segment, this business markets store brand products that are comparable in quality and formulation to the national brand products. The cost to the retailer of a store brand product is significantly lower than that of a comparable nationally advertised brand-name product. The retailer, therefore, can price a store brand product below the competing national brand product yet realize a greater profit margin. All infant formulas sold in the U.S. are subject to the same regulations governing manufacturing and ingredients under the Infant Formula Act of 1980, as amended ("Infant Formula Act"). Store brands, which offer substantial savings to consumers, must meet the same FDA requirements as the national brands. Substantially all products are developed using ingredients and formulas comparable to those of national brand products. In most instances, packaging is designed to increase visibility of store brand products and to invite and reinforce comparison to national brand products in order to communicate store brand value to the consumer.
Nutritionals Business
The Company is dedicated to being the leader in developing and marketing new store brand products and has a research and development staff that management believes is one of the most experienced in the industry at developing products comparable in formulation and quality to national brand products. This staff also responds to changes in national brand products by reformulating existing Company products. As part of its strategy, the Company relies on both internal development and strategic product development agreements with outside sources.
The Company seeksWe seek to establish customer loyalty through superior customer service by providing a comprehensive assortment of high quality,high-quality, value priced products; timely processing, shipment and delivery of orders; assistance in managing customer inventoriesinventories; and support in managing and building the customer’s store brand business. The Company also seeks to establish customer loyalty by providing marketing support that is directed at developing customized marketing programs for the customers’ store brand products. The primary objective of this store brand management approach is to enable customers to increase sales of their own store brand products by communicating store brand quality and value to the consumer. The Company’s sales and marketing personnel assist customers in the development and introduction of new store brand products, new packaging and the promotion of customers’ ongoing store brand products by performing consumer research, providing market information and establishing individualized promotions and marketing programs.
The Nutritionals segment currently markets over 900 store brand products, with nearly 3,400 SKUs, to nearly 150 customers. The Company considers every different combination of size, flavor, formulation (e.g., milk-based, soy-based, etc.), strength and form (e.g., tablet, liquid, softgel, powder, etc.) of a given item as a separate "product".
Listed below are major Nutritional product categories under which the Company markets products for store brand labels, the annual retail market size for retailers in the U.S. (according to SymphonyIRI Group) and the names of certain national brands against which the Company’s products compete.
|
| | | | | |
Product Categories | | Retail
Market Size
(Billions)
| | Comparable National Brands |
Dietary Supplements | | $6.3 | | | Centrum®, Flintstones®, One-A-Day®, Caltrate®, Pedialyte®, Osteo Bi-Flex® |
Infant Formulas | | $4.0 | (1)
| | Similac®, Enfamil®, Gerber Good Start®, Earth’s Best® |
Baby & Toddler Foods | | $1.5 | | | Gerber®, Beechnut®, Earth’s Best® |
(1) Includes Special Supplemental Nutrition Program for the Women, Infants and Children ("WIC") market.
The Company’s U.S.-based customers are major national and regional retail drug, supermarket and mass merchandise chains, including Walmart, CVS, Walgreens, Kroger, Target, Sam’s Club and Costco, as well as major wholesalers, including McKesson.
The NutritionalsCHC segment employs its own sales force to service larger customers, and it uses industry brokers for someother retailers. Field sales employees, with support from marketing and customer service, are assigned to specific customers in order to understand and work most effectively with the customer. They assist customers inby developing customized brand management and in-store marketing programs for consumerscustomers' store brand products and optimize communication of customers’ needs to the rest of the Company.
The Nutritionals segment’s primary marketing efforts are channeled through itsobjective of this store brand management approach is to enable our customers, the retailers and wholesalers to increase sales of their own store brand products by communicating store brand quality and reachvalue to the consumer through its customers’ in-storeand by inviting comparison to national brand products. Our sales and marketing programspersonnel assist
Perrigo Company plc - Item 1
CHC
customers in the development and other customer- specific vehicles. These programs are intended to increase visibilityintroduction of new store brand products and to invite comparisons to nationalin the promotion of customers’ existing store brand products in order to communicate store brand value to the consumer. Merchandising vehicles such asby providing market information; establishing individualized promotions and marketing programs, which may include floor displays, bonus sizes, coupons, rebates, store signs, and promotional packspacks; and by performing consumer research.
In contrast with national brand manufacturers, which incur considerable advertising and marketing expenditures targeted directly to the end user or consumer, the CHC segment’s primary marketing efforts are incorporated intochanneled through retailers and wholesalers and reach the consumer through our customers’ programs. Other traditional consumerin-store marketing vehicles such as print advertising, direct mailprograms and on-line communications are also employed to a limited extent.through our digital media programs. Because the retailerretail profit margin for store brand products is generally higher than for national brand products, retailers and wholesalers often commit funds for additional promotions.
Our animal health category, which has a greater emphasis on value-branded products, promotes product awareness through direct-to-consumer advertising including television commercials, on-line advertising, in-store display vehicles, and social media. In addition to in-store marketing programs, the Nutritionals segmentour infant formula category markets directly to consumers and healthcare professionals by sponsoring www.healthychildren.org, a website administered by the American Academy of Pediatrics.
Recent Developments
During the third quarter of fiscal 2014, the Company entered the Adult Nutrition category by entering into an exclusive supply agreement with KanPak LLC, a division of Golden State Foods, to manufacture store brand adult nutritional drinks comparable to Ensure® products.
New Product Introductions
Net sales related to new products in Nutritionals were $22.5 million for fiscal 2014, $18.6 million for fiscal 2013 and $69.8 million for fiscal 2012.The largest new product offering during fiscal 2014 was Insync® probiotic, which is being marketed as a branded product. During fiscal 2013, the Company introduced new plastic containers for its infant formula products, which while not technically a new formulation, was treated by customers and consumers as a new product line. Fiscal 2012 new product sales related primarily to the transition to the next generation of infant formulas within the product portfolio. A Nutritionals product is considered new if it was added to the Company’s product lines or sold to a new geographic area with different regulatory authorities within 12 months prior to the end of the period for which net sales are being measured.professionals.
Competition
The marketmarkets for OTC pharmaceuticals, nutritional products, and infant formula are highly competitive. Our primary competitors include manufacturers, such as LNK International, Inc., PL Developments, and nutritional productsDr. Reddy's Labs, and brand-name pharmaceutical and consumer product companies such as Johnson & Johnson, Pfizer, Bayer AG, Eli Lilly, Nestle S.A. (Gerber), Abbott Nutrition, and Mead Johnson Nutrition Co. The competition is highly competitive.fragmented in terms of geographic market coverage and product categories, such that a competitor generally does not compete across all product lines. However, some competitors do have larger sales volumes in certain of our categories. Additionally, national brand companies tend to have more resources committed to marketing their products and could in the future manufacture store brands of their products at lower prices than their national brand products. Competition is based on a variety of factors, including price, quality, and assortment of products, customer service, marketing support, and availability of and approvals for new products. See Item 1A. Risk Factors - Risks Related to Operations for additional information and risks associated with competition.
BRANDED CONSUMER HEALTHCARE
Overview
We established the BCH segment in the fourth quarter of fiscal year 2015, and it is comprised primarily of branded OTC sales attributable to Omega. The Company believes it competes favorablyBCH segment develops, manufactures, markets, and distributes some of Europe's most well-known OTC brands in the natural health and Vitamins, Minerals and Supplements ("VMS"), cough, cold and allergy, personal care and derma-therapeutics, lifestyle, and anti-parasite categories. In addition, the segment leverages its broad regulatory, sales, and distribution infrastructure to in-license and sell non-owned brands and generic pharmaceutical products. The BCH segment distributes these areas.products through an extensive network of pharmacies in 36 countries, primarily in Europe. Many BCH products are top sellers in the markets in which they compete. In fiscal year 2015, our BCH segment contributed 9% to consolidated net sales. In the future, we expect BCH to represent a larger portion of our consolidated net sales as fiscal year 2015 only included three months of Omega operations.
Through continued investment in R&D and new technologies, the BCH segment strives to offer high-quality products that meet consumers' needs. The Company’s competitioncombination of internal R&D, in-licensing, acquisitions, and partnerships support the product pipeline, both in terms of brand expansion and product improvement. Currently, most R&D is performed by external partners with oversight by our teams. The segment has seven plants dedicated to manufacturing certain of its products, but over 70% of its production is outsourced to third parties. We plan to bring some of the segment's R&D and manufacturing in-house as we integrate Omega into Perrigo operations.
Unlike the CHC segment, which develops and markets store brand products, consiststhe BCH segment focuses on building brands. In many non-U.S. markets brand marketing strategy can be more effective due to regulatory constraints, the absence of several publicly tradedlarge mass merchandisers or pharmacy chains, and privately owned companies, including brand-name pharmaceutical companies. Somedeveloping acceptance of store brand products. While the BCH segment sells products from over 300 brands both on its own and through third
Perrigo Company plc - Item 1
Branded CHC
parties, it focuses its resources on its "Top 20 brands", which are selected on the basis of their growth potential in the OTC market. Additional resources are allocated to these brands to build strong positions in the largest, most highly profitable categories in the OTC market, such as analgesics, cough, cold and allergy, and VMS, while maintaining leadership in smaller branded categories, such as head lice and wart treatments.
Recent Developments
Subsequent to year end, we agreed to acquire Naturwohl, with its leading German dietary supplement brand, Yokebe, for €130.0 million in cash. The acquisition will build on the segment's leading OTC product portfolio and European commercial infrastructure. The transaction is expected to close in the third quarter of calendar year 2015.
In the fourth quarter of fiscal year 2015, we announced that we had entered into an agreement to acquire a portfolio of established OTC brands from GSK for €200.0 million in cash. The acquisition of this portfolio will build upon the global platform we established through the Omega acquisition and will help us expand our market share in the European OTC market. The portfolio includes smoking cessation products, cold and flu treatments, pain relief products, nasal decongestants, and cold sore management products sold primarily in Europe. The acquisition is expected to close in the third quarter of calendar year 2015.
Products
Below are the categories in which the BCH segment competes and some of the Company’s competitorstop brands in each category.
|
| | | | |
| Product Category | | Description | | Top Brands |
| Natural Health and VMS | | Vitamins, minerals, supplements, and various other natural remedies.
| | Davitamon®/Etixx®, Biover®/Abtei®, Granufink®/Bional®
|
| |
| Cough, Cold, and Allergy | | Products that address respiratory symptoms, including traditional medications and alternative treatments such as aromatherapy and homeopathic solutions. | | Bittner®/Aflubin®, Prevalin®/Beconase®, Physiomer®/Libenar®, Phytosun®, Bronchenolo® |
| |
| |
| Personal Care and Derma-Therapeutics | | Products for the face and body, including sun care products, baby-specific products, feminine hygiene products, and solutions for various skin conditions and allergies such as eczema, psoriasis and rosacea.
| | Bodysol/Galenco®, ACO, Lactacyd®, Dermalex®(Repair), Wartner® |
| |
| |
| | |
| Lifestyle | | Weight management, pregnancy and fertility kits, pain relief, sleep management, and eye care. | | XLS (Medical)®, Predictor®, Solpadeine®/Antigrippine®, Silence®, Nytol® |
| |
| |
| Anti-Parasite | | Products focused on the elimination of parasites in both humans and pets including lice treatment and insect repellent. | | Paranix®, Jungle Formula®, Paravet®/Clément-Thékan®
|
| |
| |
The BCH segment currently markets over 5,200 products, with over 7,400 SKUs. We consider every different combination of package size, flavor, formulation, strength, and dosage form (tablet, liquid, softgel, etc.) of an item as a separate "product." Certain brands are considered "combination brands", as they are marketed under different names depending on the market in which they are sold. For these combination brands, we select the most appropriate products from each product line for infant formula are Abbott Laboratories, Mead Johnson Nutrition Co., Nestle S.A. (Gerber) and Danone Baby Nutrition. Most of the nationalcountry where they will be marketed, then adopt the brand companies have financial resources substantially greater than those of the Company. National brand companies could in the future manufacture more store brand products or lower prices of their national brand products. name that best matches local consumer preference.
The Company competes in the VMS category withsegment has recently launched a number of publicly-tradednew products, including a new ACO skin care line in the Nordic region, XLS (Medical)® Max Strength in key markets, and privately-owneda new dual action cough line in six new markets. Over the next six months, the BCH segment plans to roll out a Men's Health Vitamins line in the U.K. in partnership with Men's Health magazine, the Granufink® urological product line beginning in the U.K. under the brand name Urostemol, and create a new self-care category in collaboration with the pharmacy chain Boots. At June 27, 2015, the BCH segment had more than 50 strategic new product developments in five product categories, with each of its Top 20 brands having a five-year innovation master plan.
Perrigo Company plc - Item 1
Branded CHC
Sales and Marketing
Our customers include pharmacies, drug, and grocery stores located primarily in Europe, including Boots, ASDA, Tesco, DM, Rossmann, ETOS, and Kruidvat. The BCH segment sells its products through an established pharmacy sales force and an extensive network of pharmacists. Our sales representatives visit pharmacists daily, ensuring strong in-store visibility of our brands and facilitating pharmacist education programs. Our sales, marketing, and regulatory teams use training/merchandising teams to work in conjunction with base sales representatives to identify, implement, and defend healthcare claims for key products. We attract and retain key talent personnel from leading OTC, fast moving consumer goods ("FMCG"), and Rx companies suchto build strong local teams throughout the countries in which the BCH segment operates.
While BCH products have a higher average gross margin than products sold by the CHC segment, selling and administrative expenses are significantly higher for our BCH products due to the sales force mentioned above, as Bayer AG, Pfizer, Inc., NBTYwell as targeted advertising and Rexall Sundown, Inc.promotional spending to enhance brand equity. Key marketing communication tools include TV commercials, consumer leaflets, product websites, and IVC, Inc., some of which have broader product lines and larger nutrition category sales volumes than thosetargeted promotional campaigns.
Competition
The competitive landscape of the Company.European OTC market is highly fragmented, as local companies often hold leadership positions in individual product segments in particular countries. As a result, the relevant competition in each of the BCH segment's markets is mostly local, with Reckitt Benckiser, Boehringer Ingelheim, Novartis, and Johnson & Johnson as additional regional competitors. We believe our key advantage lies in our unique combination of best practices in sales, marketing, and product development from FMCG and OTC/Rx, while embracing the pharmacy channel to drive self-care. See Item 1A. Risk Factors - Risks Related to Operations for additional information and risks associated with competition.
PRESCRIPTION PHARMACEUTICALS
Overview
The Rx Pharmaceuticals segment develops, manufactures, and markets a portfolio of generic and specialty pharmaceutical prescription ("Rx") drugs primarily for the U.S. market. The Company definesand U.K. markets. We define this portfolio as predominantly "extended topical" and "specialty" as it encompasses a broad array of topical dosage forms such as creams, ointments, lotions, gels, shampoos, foams, suppositories, sprays, liquids, suspensions, solutions, and powders. The portfolio also includes select controlled substances, injectables, hormones, women's health products, oral solid dosage forms, and oral liquid formulations.
In fiscal year 2015, Rx BusinessPharmaceuticals contributed 22% to consolidated net sales.
The Company develops, manufactures and markets primarily generic "extended topical" and other specialty prescription pharmaceuticals. Topical and specialty products are manufactured at the Company’s New York, Minnesota, Israel and U.K. facilities and are also sourced from various FDA-approved third parties. The Company also manufactures certain other generic products, namely oral solids and oral liquids at its Michigan and Leeds, U.K. facilities. The Company’sOur current development areas include other delivery systems such as nasal sprays, oral liquids, metered dose inhalers, injectables, and transdermal products, some of which we are developeddeveloping with third parties. OtherOur other areas of expertise include theour production capabilities for controlled substance and hormonal products. In the U.S., R&D efforts focus on complex formulations, many of which require costly clinical endpoint trials. In the U.K., R&D focuses on oral liquid formulations for the branded Rx products for which liquid formulations are not available.
We manufacture our topical, specialty, and oral products in the U.S., Israel, and U.K., and also source from various FDA-inspectedthird parties. Rx Pharmaceuticals are manufactured, labeled, and packaged in facilities that comply with strict regulatory standards and meet customers’ stringent requirements.
In addition, the Rx Pharmaceuticals segment offers OTC products through the prescription channel (referred to as "ORx®"ORx® " that, these products are marketed using the Perrigo name). ORx®ORx® products are OTC products that are available for pharmacy fulfillment and healthcare reimbursement when prescribed by a physician. The Company offers over 100 ORx®We offer numerous ORx® products that are reimbursable through many health plans and the U.S. Medicaid and Medicare programs.
Perrigo Company plc - Item 1
Rx Pharmaceuticals
We actively collaborate with other pharmaceutical companies to develop, manufacture, and market certain products or groups of products. These types of agreements are common in the pharmaceutical industry. We may choose to enter into these types of agreements to, among other things, leverage our or our collaborators' scientific R&D expertise or utilize our extensive marketing and distribution resources. See Item 8. Note 1 for more information regarding our method for recognizing revenue and expenses related to collaboration agreements, as well as Item 8. Note 15 for more information regarding our current collaboration agreements.
Recent Developments
During fiscal year 2015 we acquired a portfolio of products from Lumara Health, Inc. ("Lumara"), a privately-held, Chesterfield, Missouri-based specialty pharmaceutical company, for cash consideration of $83.0 million. This acquisition further expanded our women's healthcare product offerings. Lumara products are marketed and sold as branded products by a small specialty sales force.
Products
The Rx Pharmaceuticals segment currently markets approximately 800 generic prescription and ORx®ORx® products with almost 1,300 SKUs, to approximately 350 customers.more than 1,400 SKUs. A SKU for a generic prescription product is a unique combination of the product’s package size, ingredient strength and dosage form (e.g., tablet,(tablet, syrup, cream, foam, ointment, gel, etc.). The CompanyWe generally holdshold the ANDA or product application for the drugs that it manufactureswe manufacture or entersenter into an arrangement with the application holder for the manufacture and/or marketing of certain products.
Listed below are some of the generic prescription products, including authorized generic and ORx®ORx® products, that the Company manufactureswe manufacture and/or distributes:distribute:
|
| | |
Generic Name(1) | | CompetitiveComparative Brand-Name Drug |
| Adapalene cream | | Differin®Differin® |
| Bacitracin ophthalmic ointment | | N/A |
Cetirizine tablets and syrup | | Zyrtec® |
| Clindamycin phosphate and benzoyl peroxide gel | | Duac®Duac® |
| Clobetasol foam, lotion and shampoo | | Olux®Olux®, Olux-E®Olux-E®, Clobex®Clobex® |
| Desonide cream, ointment | | Desonate®Desonate®, Tridesilon®Tridesilon® |
| Halobetasol ointment and cream | | Ultravate® |
Loratadine tablets | | Claritin® |
Liothyronine sodium tablets | | Cytomel®Ultravate® |
| Mupirocin ointment | | Bactroban®Bactroban® |
| Nystatin topical powder | | Mycostatin®Mycostatin® |
| Permethrin cream | | Elimite® |
Polyethylene glycol 3350 | | MiraLAX®Elimite® |
| Testosterone cypionate injection | | Depo® - TestoteroneDepo®, Testosterone |
| Triamcinolone acetonide nasal spray | | Nasacort® Nasacort® AQ |
Testosterone 1% Gel (2) | | Androgel |
Triamcinolone cream/ointment (2) | | Triderm/Kenalog |
Tacrolimus (2) | | Protopic |
Clobetasol Spray (2) | | Clobex |
| Hydrocorisone Suppositories | | Hydrocorisone Suppositories |
| Dihydroergotamine Injection | | D.H.E. 45 |
| Clindamycin Foam | | Evoclin |
The Company’s U.S.-based customers are major wholesalers, including Cardinal Health, McKesson and AmerisourceBergen, as well as national and regional retail drug, supermarket and mass merchandise chains, including Walgreens, Walmart, CVS, Rite Aid, Kroger and Safeway. Generic prescription drugs are sold to the consumer through the pharmacy counter of predominantly the same retail outlets as OTC pharmaceuticals and nutritional products.
Recent Developments
On February 18, 2014, the Company acquired a distribution and license agreement for the marketing and sale of methazolomide from Fera Pharmaceuticals, LLC ("Fera"), a privately-held specialty pharmaceutical company, for a cash payment of $17.3 million. The acquisition of this agreement further expanded the Company's ophthalmic offerings.
New Product Introductions and Drug Application Approvals
During fiscal (1)2014, the Company launched several new generic or authorized generic prescription products including Fluticasone propionate lotion, Nitroglycerine spray, Repaglinide, Fenofibrate, Fluocinonide cream, Calcipotreine betamethasone dipropionate, and Desloratadine, which containContains the same active ingredients present in the same dosage formsform as Cutivate®, Nitrolingual®, Prandin®, Tricor®, Vanos®, Taclonex®, and Clarinex®, respectively. the comparable brand-name drug
(2)New product launched in fiscal year 2015
Net sales related to new products were approximately $119.0 million, $106.4 million, for fiscal 2014,and $48.6 million for fiscal 2013years 2015, 2014, and $35.1 million for fiscal 2012.2013, respectively. An Rx PharmaceuticalsPharmaceutical product is considered new if it was added to the Company’sour product lines or sold to a new geographic area with different regulatory authorities within 12 months prior to the end of the period for which net sales are being measured.
In fiscal 2014, the Company,year 2015, we, on itsour own or in collaboration with partners, received final approval from the FDA for 10 prescription24 Rx drug applications. As of June 28, 2014, the Company,27, 2015, we, on itsour own or in collaboration with partners, had 33 generic10 Rx drug applications pending approval with the FDA.
Collaboration Agreements9
Perrigo Company plc - Item 1
Rx Pharmaceuticals
Sales and Marketing
The Company actively collaborates with otherOur customers include major wholesalers, including Cardinal Health, McKesson, and AmerisourceBergen; national and regional retail drug, supermarket and mass merchandise chains, including Walgreens, Walmart, CVS, Rite Aid, Kroger, and Safeway; hospitals; and pharmacies. ORx® products are sold to the consumer through the pharmacy counter of predominantly the same retail outlets as our OTC pharmaceutical companiesand nutritional products. In addition, we have a small specialty sales force consisting of representatives who visit healthcare professionals to develop, manufactureeducate them on the unique clinical characteristics and market certain products or groupsbenefits of our branded products. These types of agreements are not uncommonWe plan to continue to grow this sales force in the pharmaceutical industry. The Company may choose to enter into these types of agreements to, among other things, leverage its or others’ scientific research and development expertise or utilize its extensive marketing and distribution resources. See Note 1 of the Notes to Consolidated Financial Statements for more information regarding the Company’s method for recognizing revenue and expenses related to collaboration agreements, as well as Note 15 of the Notes to Consolidated Financial Statements for more information regarding the Company’s current collaboration agreements.near future.
Competition
The market for generic prescription drugsRx pharmaceuticals is subject to intense competition from other generic drug manufacturers, brand-name pharmaceutical companies launching their own generic version of atheir branded productproducts (known as an authorized generic)generics), manufacturers of branded drug products that continue to produce those products after patent expirations, and manufacturers of therapeutically similar drugs. Among the Company’sour generic drug manufacturer competitors are Actavis plc, Apotex Corp., Glenmark Generics Inc., Impax Laboratories, Inc., Mylan, Prasco, LLC, Sandoz, Sun Pharmaceuticals, Taro Pharmaceuticals, Teva Pharmaceutical Industries Ltd., Triax Pharmaceuticals, LLC, and Zydus Pharmaceuticals, as well as brand-name pharmaceutical companies where the Company offers a generic equivalent.Inc.
The Company believesWe believe that one of itsour primary competitive advantages is itsour ability to introduce difficult to develop and/or manufacture topical and other specialty generic equivalentsversions to brand-name drug products. Generally, these products are exposed to less competition due to the relatively longer and more expensive development, clinical trial, and approval processes. In addition, the Company believes it haswe believe we have a favorable competitive position due primarily to itsour efficient distribution systems, topical production economies of scale, customer service, and overall reputation.
Price competition from additional generic versions of the same product, as well as potential price competition from the original branded or authorized generic products, may result in a significant and/or rapid decline in sales and profit margins. In addition, competitors may develop their products more rapidly or complete the regulatory approval process sooner and market their products earlier than the Company. New drugs and future developments in improved and/or advanced drug delivery technologies or other therapeutic techniques may provide therapeutic or cost advantages See Item 1A. Risk Factors - Risks Related to competing products.
Many brand-name competitors try to prevent, discourage or delay the use of generic equivalents through various measures, including introduction of new branded products, legislative initiatives, changing dosage forms or dosing regimens just prior to introduction of a generic equivalent, regulatory processes, filing new patents or patent extensions, lawsuits, citizens’ petitions and negative publicity. In addition, brand-name companies sometimes launch, either through an affiliate or licensing arrangements with another company, an authorized generic at or near the time the first generic product is launched, depriving the generic product market exclusivity intended by the Hatch-Waxman Amendments to the Federal Food, Drug and Cosmetic Act ("Hatch-Waxman"). ForOperations for more information see Information Applicable to All Reported Segments – Government Regulation – U.S. Food and Drug Administration.
Many of the Company’s customers, which include chain drug stores, wholesalers, distributors, hospital systems and group purchasing organizations, continue to merge or consolidate. In addition, a number of its customers have instituted sourcing programs limiting the number of suppliers of generic pharmaceutical products carried by that customer. As a result of these developments, heightened competition exists among generic drug producers for business from this smaller and more selective customer base.risks associated with competition.
ACTIVE PHARMACEUTICAL INGREDIENTSSPECIALTY SCIENCES
Overview
The Specialty Sciences segment is comprised primarily of assets focused on the treatment of multiple sclerosis, specifically in connection with the drug Tysabri®. We are entitled to royalty payments from Biogen Idec Inc. ("Biogen") based on its Tysabri® sales in all indications and geographies. We received royalties of 12% on worldwide Biogen sales of Tysabri® from December 18, 2013 through April 30, 2014. Beginning on May 1, 2014 we received, and going forward we will receive, royalties of 18% on annual worldwide Biogen sales of Tysabri® up to $2.0 billion and 25% on sales above $2.0 billion. In fiscal year 2015, Specialty Sciences contributed 7% to consolidated net sales.
Competition
Tysabri® is a complex biological product, patent protected through 2024, and is administered under a strict Risk and Evaluation Mitigation Strategy ("REMS") program. In the event that the patent is invalidated or is infringed upon or if a biosimilar is introduced, the financial performance of our Specialty Sciences segment would be materially adversely affected. Tysabri® competes with many companies that are working to develop successful new therapies or alternative formulations of products for multiple sclerosis. If any of these competing products have a similar or more attractive profile in terms of efficacy, convenience, or safety, future sales of Tysabri® could be limited. However, the competition may be limited in its product development as Tysabri® is administered under an FDA-approved REMS. See Item 1A. Risk Factors - Risks Related to Operations for related risks.
Perrigo Company develops, manufacturesplc - Item 1
Other
OTHER
Overview
We have an Other segment that is comprised of API products, which does not meet the quantitative threshold required to be a separately reportable segment. We develop, manufacture, and marketsmarket API products, which are used worldwide by theboth generic drug industry and branded pharmaceutical companies. Certain of these ingredients are used in itsour own pharmaceutical products. The manufacturing of these API occurs primarily in Israel. This segment is undergoing a strategic platform transformation, moving certain production from Israel to the acquired API manufacturing facility in India to allow for lower cost production and to create space for other, more complex production in Israel.
API Business
The API business is based on the manufacture and supply of API to pharmaceutical companies for use in their production of pharmaceutical products. Moreover, it identifies API that will be critical to its pharmaceutical customers’ future product launches and then works closely with these customers on the development processes.
API development is focused on the synthesis of less common molecules for the U.S., European, and other internationalglobal markets. The Company isWe commercialize API that are critical to our pharmaceutical customers’ existing portfolios and future product launches, working closely with these customers on development processes. We are also focusing manufacturing and development activities on the synthesis of molecules for use in itsour own OTC and Rx pipeline products. This vertical integration may enable the Companyus to be more competitive onin the pricing of its otherour product lines. The Company believes it has a competitive advantage in its ability to produce difficult-to-develop or difficult-to-manufacture products through its understanding of regulatory issues, patents, and chemistry. Because of the complexity involved with these products and the inherently long development and regulatory timelines, the lead time to market a product can be long. The Company’s ability to continue to develop and market new products that have commercial potential is key to driving profitability in the API business.
The API business sells to customers who face similar regulatory oversight as the Company’s Rx Pharmaceuticals business in the U.S. and other regulated markets. As a result, the API business is dependent on these customers’ ability to obtain proper product approvals and maintain regulatory compliance with the FDA, the U.S. Federal Trade Commission ("FTC"), and the U.S. Drug Enforcement Administration ("DEA"), as well as several U.S. state and local agencies and non-U.S. agencies in localities in which the Company’s products are sold.
Because the Company’sour API customers depend on high qualityhigh-quality supply and regulatory support, the Company focuseswe focus on rigorous quality assurance, quality control, and regulatory compliance as part of itsour strategic positioning. The Company’sOur quality system is designed to comply with the regulatory requirements of the FDA, the European Medicines Agency ("EMA"), and other regulatory agencies such as the Australian Therapeutic Goods Administration. The Company isAdministration ("TGA"). We are regularly inspected by various regulatory authorities and customers.
The Company places a high priority on responding to client needs and requirements from project initiation through final production. It offers support throughout the development stage, preparation of Drug Master Files ("DMF") and assistance throughout the approval process. The API segment is supported by sales offices in the U.S. and Israel and sales agents in various other countries.
The Company currently manufactures and markets to generic and branded pharmaceutical companies worldwide the following API products:
|
| |
Ammonium lactate | Midazolam maleate |
Anastrozole | Modafinil |
Cetirizine dihydrochloride | Mometasone furoate anhydrous |
Cilostazol | Mometasone furoate monohydrate |
Cisatracurium besylate | Montelukast sodium |
Donepezil hydrochloride | Moxonidine |
Esomeprazole mg dihydrate | Omeprazole magnesium |
Fenofibrate | Palonosetron hydrochloride |
Flumazenil | Pentoxifylline |
Fluticasone propionate | Pramipexole base |
Granisetron base | Pramipexole dihydrochloride monohydrate |
Granisetron hydrochloride | Rocuronium bromide |
Halobetasol propionate | Rotigotine |
Ibuprofen | Temozolomide |
Imatinib mesylate | Terbinafine hydrochloride |
Imiquimod | Ticonazole |
Letrozole | Tiotropium bromide |
Levocetirizine dihydrochloride | Tramadol hydrochloride |
Recent Developments
To further improve the long-term cost position of its API business, on August 6, 2009, the Company acquired an 85% stake in Vedants Drug & Fine Chemicals Private Limited ("Vedants"), an API manufacturing facility in India, for $11.5 million in cash. The Company purchased the remaining 15% stake in Vedants during the second quarter of fiscal 2014 for $7.2 million in cash. The facility is located approximately 30 miles outside of Mumbai and is designated to manufacture various current and future mid- to high-volume API products, as well as expand the Company’s vertical integration of OTC, Rx, and future candidate Rx-to-OTC switch products. Manufacturing of API at the facility commenced during fiscal 2014 and commercial shipments are expected to begin in fiscal 2015. In addition, during the fourth quarter of fiscal 2014, the Company consolidated its research center in Tel-Aviv into the Neot Hovav production site and the site in India to reduce its future operating costs.
The Company is in the process of transitioning its long-term strategy for its API business from primarily third-party to a dual focus on third-party business, including products to be manufactured in India, and vertical integration of high value and more difficult-to-manufacture inputs to the Consumer Healthcare and Rx businesses in an effort to gain efficiencies and lower costs, thus increasing margins. With a limited pipeline of products in development for future third-party new product introductions, the API segment revenues will likely decrease in the future, while intercompany vertical integration revenues (which will be eliminated in consolidation) will increase. The Company plans to continue to opportunistically seek and execute upon niche, complex, and differentiated new product APIs for its overall portfolio, continue commercial production in the Company's new API site in India, and strive to develop unique collaborations and profit sharing agreements between the Company's API business and pharmaceutical companies globally.
New Product IntroductionsCompetition
Net sales related to new products were $39.6 million for fiscal 2014 and $7.1 million for fiscal 2012. There were no new API product launches during fiscal 2013. Fiscal 2014 new product sales related primarily to sales to the U.S. market of temozolomide, the generic equivalent of Temodar®. An API product is considered new if it was added to the Company’s product lines or sold to a new geographic area with different regulatory authorities within 12 months prior to the end of the period for which net sales are being measured.
Competition
The API segment operates in a highly competitive, price sensitive market in which the Company’s customers continue to consolidate and/or vertically integrate, thereby creating a smaller customer base. Since other manufacturers of API typically do not offer all of the same product lines or serve all of the same markets as
we do, the
Company’s API segment, the segmentbusiness competes on a product-by-product basis with a number of different competitors.
The Company’sOur API
businesscategory is subject to increased price competition from other manufacturers of API located mostly in India, China, and Europe. This competition may result in the loss of API clients and/or decreased
profitability in this business segment. However, the Company believes that its regulatory position, market reputation, client relationshipsprofitability. See Item 1A. Risk Factors - Risks Related to Operations for information and ability to manufacture difficult-to-develop API provide it with a competitive position.
SPECIALTY SCIENCES
As discussed above, as a result of the Elan acquisition on December 18, 2013, the Company expanded its operating segments to include the Specialty Sciences segment, which is comprised primarily of assets focused on the treatment of Multiple Sclerosis (Tysabri®).
The Company is entitled to royalty payments from Biogen Idec Inc. ("Biogen") based on its Tysabri® revenues in all indications and geographies. The royalty was 12% for the 12 month period ended May 1, 2014. Subsequent to May 1, 2014, the Company is entitled to 18% royalty payments on annual sales up to $2.0 billion and 25% royalty payments on annual sales above $2.0 billion. The asset's value is $5.8 billion, which is being amortized over its useful life of 20 years.
The Company is also entitled to royalty payments based on Prialt revenues. Prialt (ziconotide) is a non-narcotic intrathecal analgesic. The royalty rates range from 7% to 17.5% based on specific levels of annual U.S. sales. The preliminary value of the intangible asset is $11.0 million, which is being amortized over its useful life of 10 years. A variety of other marketable equity securities and equity method investments were included in the acquisition.
Recent Developments
During the third quarter of fiscal 2014, the Company entered into a series of agreements with former collaboration partner Transition Therapeutics Inc. ("Transition") to progress the clinical development of ELND005 (Scyllo-inositol) in a number of important indications, including Alzheimer's disease, Bipolar Disorder and Down Syndrome. As part of the agreement, Transition acquired all of the shares of a wholly owned, indirect Irish subsidiary of the Company, and is now solely responsible for all ongoing development activities and costsrisks associated with ELND005. The Company made a $15.0 million investment in return for 2,255,640 common shares of Transition and will be eligible to receive royalties and milestone payments should ELND005 be commercialized. The milestone payments range from $10.0 million to $15.0 million based on ELND005 approval as well as specific worldwide net sales hurdles. If commercialization were to occur, the Company would be entitled to receive a royalty of 6.5% of net sales for the life of the product.
Competitioncompetition.
Tysabri® competes primarily with Avonex, marketed by Biogen Idec; Betaseron®, marketed by Berlex (an affiliate of Bayer Schering Pharma AG) in the U.S. and sold under the name Betaferon® by Bayer Schering Pharma in Europe; Rebif®, marketed by Merck Serono and Pfizer in the U.S. and by Merck Serono in Europe; Copaxone® marketed by Teva Neurosciences, Inc. in the U.S. and Europe; Novartis AG’s Gilenya™, an oral treatment for relapsing MS; and Tecfidera®, an oral agent marketed by Biogen Idec globally. Many companies are working to develop new therapies or alternative formulations of products for MS that, if successfully developed, would compete with Tysabri®.
A drug may be subject to competition from alternative therapies during the period of patent protection or regulatory exclusivity and, thereafter, it may be subject to further competition from generic products or biosimilars. Governmental and other pressures toward the dispensing of generic products or biosimilars may rapidly and significantly reduce, slow or reverse the growth in sales and profitability of any product not protected by patents or regulatory exclusivity, and may adversely affect our future results and financial condition. However, the competition
may be limited in its product development as Tysabri® is administered under a FDA approved Risk and Evaluation Mitigation Strategy (REMS).
OTHER
The Company has an Other category comprised of Israel Pharmaceutical and Diagnostic Products, which does not meet the quantitative threshold required to be a separately reportable segment. The Israel Pharmaceutical business includes the marketing and manufacturing of branded and generic prescription drugs under long-term exclusive licenses and the importation and distribution of pharmaceutical and other medical products into Israel based on exclusive agreements with the manufacturers. The Israel Diagnostics business is a leading player in the medical and clinical laboratory market in Israel, supplying instrumentation, reagents and consumables to customers under multi-year agreements.
Competition
The Company’s Other category operates in competitive markets. These markets are based primarily in Israel, but the Company is also subject to competition in those markets from large multi-national companies looking to expand their position in the local Israeli market. In most instances, these companies are significantly larger than the Company on a global basis with greater financial resources and product lines. The Company also has several significant product supply agreements with outside vendors. As a result, the Company’s competitive position is largely dependent on its ability to maintain these agreements. The Company believes that its competitive advantages consist of its deep knowledge of the local markets, relevant infrastructure, customer relationships and strong local brand recognition.
INFORMATION APPLICABLE TO ALL REPORTABLE SEGMENTS
Research and Development
Research and development areis a key components componentof the Company’sour business strategy and, while managed centrally, on a global basis, areis performed in various locations in the U.S. and abroad. Development for both the Consumer Healthcare and Nutritionals markets focuses on products comparable or bettercountries in formulation, quality and effectiveness to existing national brand OTC products, nutritional supplement products, infant formulas and Rx-to-OTC switch products. The Company's animal health products focus on both generic and branded product development. Development of generic prescription drugs, primarily for the U.S. market, focuses on complex formulations, many of which require costly clinical endpoint trials. Development of generic products for the U.K. market focuses on oral liquid formulations for the branded Rx products for which liquid formulations are not available. Development of API for the global market also focuses on complex products with high barriers to entry.we operate. While the Company conductswe conduct a significant amount of itsour own research and development, itR&D, we also enters into strategic alliance agreements to obtain the rights to manufacture and/or distribute new products.
Research and development spending was $152.5 million for fiscal 2014, $115.2 millionfor fiscal 2013 and $105.8 millionfor fiscal 2012. In addition, due to changes in the projected development and regulatory timelines for various projects, the Company wrote off $6.0 million of IPR&D acquired as part of the Paddock and Rosemont acquisitions and $9.0 million acquired with the Paddock acquisition during fiscal 2014 and 2013, respectively.
Fiscal 2014 included incremental research and development expenses due to the Sergeant's, Velcera, and Aspen acquisitions, as well as research and development expenses related to the ELND005 Phase 2 clinical program in collaboration with Transition. The Company ended its collaboration with Transition during the third quarter of fiscal 2014 and is no longer responsible for ongoing development activities and costs associated with ELND005. See Note 5 of the Notes to the Consolidated Financial Statements for further information. Fiscal 2013 included incremental research and development expenses attributable to the acquisitions of Sergeant's, Rosemont, and Velcera. Fiscal 2012 included incremental research and development expenses attributable to the Paddock acquisition. While the Company conducts a significant amount of its own research and development, it also entersenter into strategic alliance agreements to obtain the rights to manufacture and/or distribute new products.
The Company anticipates thatR&D spending was $187.8 million, $152.5 million, and $115.2 million for fiscal years 2015, 2014, and 2013, respectively. In addition, we wrote off in-process research and development ("IPR&D") from previous acquisitions totaling $6.0 million during fiscal 2014 and $9.0 million during fiscal 2013 due to changes in the projected development and regulatory timelines for various projects.
Fiscal year 2015 included incremental R&D expense due to the Omega acquisition, as well as entry into a collaboration arrangement and an R&D contractual arrangement under which we funded a total of $28.0 million of R&D. Fiscal year 2014 included incremental research and development expense attributable to the Sergeant's Pet Care Products, Inc. ("Sergeant's") and Velcera Inc. ("Velcera") acquisitions that closed during fiscal year 2014, as well as research and development expense related to the ELND005 Phase 2 clinical program in collaboration with Transition Therapeutics, Inc. ("Transition") we acquired from Elan. We ended our collaboration with Transition during the third quarter of fiscal year 2014 and are no longer responsible for ongoing development activities and costs associated with ELND005. Fiscal year 2013 included incremental R&D expenses attributable to the acquisition of Sergeant's, Velcera, and Rosemont Pharmaceuticals Ltd. See Item 8. Note 2 and Item 8. Note 15 for more information on the acquisitions, collaboration arrangement, and R&D contractual arrangement noted above.
We anticipate that R&D expenditures will increase above fiscal 2014year 2015 levels in dollar terms but will remain relatively flat to slightly higher as a percentage of net sales infor the foreseeable future as thewe continue to
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Trademarks and Patents
The Company ownsWhile we own certain trademarks and patents; however, itspatents, neither our business as a whole, nor any of our segments, is not materially dependent upon itsour ownership of any one trademark or patent or group of trademarks or patents.
Significant Customers
The Company believes its primary customer base aligns with the concentration of large drug retailers in the current marketplace of the retail drug industry. Walmart accounted for 19% of consolidated net sales for fiscal 2014, 19% for fiscal 2013, and 20% for fiscal 2012. Should Walmart’s current relationship with the Company change adversely, the resulting loss of business would have a material adverse impact on the Company’s consolidated operating results and financial position. The Company does not anticipate such a change in the foreseeable future. In addition, while no other customer individually comprises more than 10% of total net sales, the Company does have other significant customers. Currently the Company generally has good relationships with all of its customers.
Manufacturing and Distribution
The Company’s primary manufacturing facilities are located in the U.S. and Israel (see Item 1A. Risk Factors – Conditions in Israel for further information). The Company also has secondary manufacturing facilities located in the U.K., Mexico, Australia and India, along with a joint venture located in China. The Company supplements its production capabilities with the purchase of some product from outside sources. During fiscal 2014, the approximate average capacity utilization was 60 - 65% for the Company's worldwide facilities. The capacity of some facilities may be fully utilized at certain times due to various reasons, such as customer demand, the seasonality of the cough/cold/flu, allergy or flea and tick seasons and new product launches. The Company may utilize available capacity by contract manufacturing for other companies.
The Company has logistics facilities located in the U.S., Israel, the U.K., Mexico and Australia. Both contract freight and common carriers are used to deliver products.
Seasonality
Revenues in the Company’s Consumer Healthcare segment are generally subject to the seasonal demands for cough/cold/flu products in its second and third fiscal quarters and allergy products in its first and fourth fiscal quarters. Historically, the Company’s sales of these products have varied from year to year based in large part on the severity and length of the cough/cold/flu season. While the Company believes that the severity and length of these seasons will continue to impact its sales of cough/cold/flu/oral electrolytes and allergy products, there can be no assurance that the Company’s future sales of these products will necessarily follow historical patterns. In addition, the Company's animal health products are subject to the seasonal demand for flea and tick products, which typically peaks during the warmer weather months. Revenues for the Nutritionals, Rx Pharmaceuticals and API segments, as well as the Other category, are generally not impacted significantly by seasonal conditions.
Materials Sourcing
Affordable high quality raw materials and packaging components are essential to all of the Company’sour business units due to the nature of the products it manufactures.we manufacture. Raw materials and packaging components are generally available from multiple suppliers. Supplies of certain raw materials, bulk tablets, and components are limited, or are available from one or only a few suppliers. While the Company haswe have the ability to manufacture and supply certain API materials for the Consumer Healthcare segment, certainour OTC and Rx pharmaceutical products, an increasing number of components and finished goods are purchased rather than manufactured because of temporary production limitations, FDA restrictions, or economic andconditions, or other factors.
Historically, the Company haswe have been able to react effectively to situations that require alternate sourcing. Should alternate sourcing be required,necessary, FDA requirements placed on products approved through the ANDA or NDA process could substantially lengthen the approval of an alternate source and adversely affect financial results. The Company hasWe believe we have good, cooperative working relationships with substantially all of itsour suppliers and hashave historically been able to capitalize on economies of scale in the purchase of materials and supplies due to itsour volume of purchases. See Item 1A. Risk Factors - Risks Related to Operations for risks associated with materials sourcing.
Manufacturing and Distribution
Our primary manufacturing facilities are in the U.S. and Israel. We also have secondary manufacturing facilities in the U.K., Belgium, France, Germany, Mexico, Australia, and India, along with a joint venture in China. See Item 1A. Risk Factors - Risks Related to Operationsfor risks associated with our manufacturing facilities. We supplement our production capabilities with the purchase of products from outside sources. The capacity of some facilities may be fully utilized at certain times for various reasons, such as customer demand, the seasonality of the cough/cold/flu, allergy, or flea and tick seasons, and new product launches. We may utilize available capacity by performing contract manufacturing for other companies. We have logistics facilities in the U.S., Israel, Mexico, Australia, and numerous locations throughout Europe. We use contract freight and common carriers to deliver our products.
Significant Customers
Our primary customer base aligns with the concentration of large drug retailers in the current global retail drug industry marketplace. Walmart is our largest customer and accounted for 15% of consolidated net sales in fiscal year 2015 and 19% in fiscal years 2014 and 2013. Sales to Walmart are primarily in the CHC segment. While we do not anticipate a change in the foreseeable future, should our current relationship with Walmart change adversely, the resulting loss of business could have a material adverse impact on our consolidated and CHC segment operating results and financial position. In addition, while no other customer individually comprises more than 10% of total net sales, we do have other significant customers. We believe we generally have good relationships with all of our customers. See Item 1A. Risk Factors - Risks Related to Operations for risks associated with customers.
Perrigo Company plc - Item 1
Seasonality
We historically have been impacted by seasonal demand and consumer dynamics in the retail environment in which our customers operate. Sales of OTC pharmaceutical products in the CHC segment are typically subject to seasonal demands for cough/cold/flu products in our second and third fiscal year quarters and allergy products in our first and fourth fiscal year quarters. Our BCH sales are also impacted by seasonality and tend to peak in the fourth fiscal year quarter due to increased demand for seasonal health and wellness products. In addition, our animal health products are subject to seasonal demand for flea and tick products that typically peaks during the warmer weather months, which occurs during our fourth fiscal year quarter. Our Rx Pharmaceutical, Specialty Sciences, and Other segments' sales are not generally impacted by seasonal conditions.
Environmental
The Company isWe are subject to various environmental laws and regulations. The Company believesWe have made, and continue to make, expenditures necessary to comply with applicable environmental laws, but do not believe that the costs for complying with such laws and regulations will not be material to the business of the Company. The Company doesour business. We do not have any material remediation liabilities outstanding.
In MarchWhile we believe that climate change could present risks to our business, including increased operating costs due to additional regulatory requirements, physical risks to our facilities, water limitations, and June of 2007, lawsuits were filed by three separate groups against both the State of Israel and the Council of Neot Hovav in connection with waste disposal and pollution from several companies, including the Company, that have operationsdisruptions to our supply chain, we do not believe these risks are material to our business in the Neot Hovav region of Israel. These lawsuits were subsequently consolidated into a single proceeding in the District Court of Beer-Sheva. The Council of Neot Hovav, in June 2008, and the State of Israel, in November 2008, asserted third-party claims against several companies, including the Company. The pleadings allege a variety of personal injuries arising out of the alleged environmental pollution. Neither the plaintiffs nor the third-party claimants were required to specify a maximum amount of damages, but the pleadings allege damages in excess of $72.5 million, subject to foreign currency fluctuations between the Israeli shekel and the U.S. dollar. On January 9, 2013, the District Court of Beer-Sheva ruled in favor of the Company. On February 20, 2013, the plaintiffs filed an appeal to the Supreme Court, which has scheduled a hearing on this matter on September 29, 2014. While the Company intends to vigorously defend against these claims, the Company cannot reasonably predict at this time the outcome or the liability, if any, associated with these claims.near term.
Corporate Social Responsibility
The Company isWe are committed to doing business in an ethical manner. The Company hasWe also have a long history of environmentally sound and efficient operations, safe and healthy working conditions, and active participation in the communities where the Company iswe are located.
The Company's As reflected in our Corporate Social Responsibility Commitment Statement, highlights seven areas at the heart of its efforts:we remain committed to:
Helping consumers access safe, effective and affordable healthcare products;
Complying with regulatory and legal requirements;
Demonstrating environmental stewardship;
Continuously improving packaging sustainability;
Protecting human rights of itsour global employees and challenging itsour partners to do the same;
Providing a safe and healthy work environment for itsour employees; and
Establishing effective community partnerships.
Through these efforts, the Company striveswe strive to minimize itsour impact on the environment, drive responsible business practices, and ensure the welfare of itsour employees now and into the future.
Government RegulationGOVERNMENT REGULATION AND PRICING
The manufacturing, processing, formulation, packaging, labeling, testing, storing, distributing, advertising, and sale of the Company’sour products are subject to regulation by one or more U.S.a variety of agencies includingin the FDA, the FTC, the DEA, the USDA, the U.S. Environmental Protection Agency (EPA) and the Consumer Product Safety Commission ("CPSC"), as well as several foreign, state and local regulatory agencies in localities in which the Company’sour products are sold. In addition, the Company manufactureswe manufacture and marketsmarket certain of itsour products in accordance with standards set by organizations, such as the United States Pharmacopeial Convention, Inc. ("USP"), NSF International ("NSF"), and the International Organization for Standardization ("ISO"). The Company believesvarious organizations. We believe that itsour policies, operations, and products comply in all material respects with existing regulations.regulations to which we are subject. See Item 1A. Risk Factors - Risks Related to Operations for related risks.
United States Regulation
U.S. Food and Drug Administration
The FDA has jurisdiction over the Company’sour ANDA, NDA, Drug Efficacy Implementation ("DESI drug"), and OTC monograph drug products, infant formulas, dietary supplements, food products, and medical devices. The FDA’s jurisdiction extends to the manufacturing, testing, labeling, packaging, storage, distribution, and distributionpromotion of these products. We are committed to consistently providing our customers with high-quality products that adhere to "Current Good Manufacturing Practices" ("cGMP") regulations promulgated by the FDA .
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Regulation
OTC and Rx Pharmaceuticals
All facilities where Rx and OTC drugs are manufactured, tested, packaged, stored, or distributed for the U.S. market must comply with FDA cGMPs and U.S. Generic Prescription Pharmaceuticals - regulations promulgated by competent authorities in the countries, states and localities where the facilities are located. All of our drug products are manufactured, tested, packaged, stored, and distributed according to cGMP regulations. The FDA performs periodic audits to ensure that our facilities remain in compliance with all appropriate regulations.
Many of the Company’sour OTC pharmaceutical products are regulated under the OTC monograph system and subject to certain FDA regulations. OTC monographs have been established through the FDA’s OTC Review utilizing the notice-and-comment rulemaking
procedures. Under the OTC monographthis system, selected OTC drugs are generally recognized as safe and effective and do not require the submission and approval of an ANDA or NDA prior to marketing. The FDA OTC monographs include well-known ingredients and specify requirements for permitted indications, required warnings and precautions, allowable combinations of ingredients and dosage levels. Drug products marketed under the OTC monograph system must conform to specific quality, formula, and labeling requirements; however, these products can be developedrequirements, including permitted indications, required warnings and marketed without prior FDA approval unlike products requiring a submissionprecautions, allowable combinations of ingredients, and approval of an ANDA or NDA. In general, itdosage levels. It is generally less costly to develop and bring to market a product regulated under the OTC monograph system. From time to time, adequate information may become available to the FDA regarding certain ANDA or NDA drug products that will allow the reclassification of those products as no longer requiring the approval of an ANDA or NDA prior to marketing. For this reason, there may be increased competition and lower profitability related to a particular product should it be reclassified to the OTC monograph system. The FDA and USP have embarked on an initiative to modernize the monograph requirements of OTC drugs. The Company is monitoring the situation and will make appropriate adjustments to remain in compliance. In addition, regulations may change from time to time, requiring formulation, packaging or labeling changes for certain products. The Company cannot predict whether new legislation regulating the Company’s activities will be enacted, what effect any legislation would have on the Company’s business or how this may impact the competitive landscape.
The CompanyWe also marketsmarket generic prescription drugs and other products that have switched from prescription to OTC status through an application process initiated by the innovator company that holds the original clinical trial data. Thesestatus. Prior to commercial marketing, these products require approval by the FDA of an ANDA or NDA prior to commercial marketing. Based on current FDA regulations, ANDAs and NDAs providethat provides information on chemistry, manufacturing controls, clinical safety, efficacy and/or bioequivalence, packaging, and labeling. TheWhile the development process for a generic drug generally requires less time and expense than the development process for a new drug. The FDA requiresdrug, the ANDA or NDA sponsor to submit data demonstrating the product is bioequivalent to the reference listed drug. Bioequivalence studies for systematically absorbed products are typically performed using a small number of subjects in a controlled clinical environment. Products that are locally acting require end-point clinical studies, with a significant number of subjects, performed in patient populations, and are generally larger in study size and longer in duration.duration of required studies can vary greatly. The current average ANDA median approval time is approximately 3448 months from the date an ANDA is submitted. NDA approval timesapprovals are significantly shorter and typically are achieved in 16 months or less. Changes to a product marketed under an ANDA or NDA are governed by specific FDA regulations and guidelines that define when proposed changes can be implemented and whether prior FDA notice and/or approval is required.
Under the Drug Price Competition and Patent Term Restoration Act of 1984 (the Hatch-Waxman Amendments to the Federal Food, Drug and Cosmetic Act)Act ("FFDCA"), as amended, a company submitting an NDA can obtain a three-year period of marketing exclusivity for an Rx producta prescription or an Rx to OTC switch product if the companyit performs a clinical study that is essential to FDA approval. Longer periods of exclusivity are possible for new chemical entities, orphan drugs (those designated under section 526 of the FFDCA) and drugs under the Generating Antibiotic Incentives Now Act. While theDuring this exclusivity period, is in force, the FDA cannot approve any ANDAs for a similar or equivalent generic product. Where three years of exclusivity is granted to the innovator company, the Company will be unable to market theproduct, which can preclude us from marketing a similar product during this period unless the Company establishes a relationship with theperiod. A company having exclusive marketing rights. There can be no assurance that, in the event the Company applies for FDA approvals, the Company will obtain the approvals to market Rx, Rx to OTC switch products or OTC ANDA products or, alternatively, that the Company will be able to obtain these products from other manufacturers.
Under the Federal Food, Drug and Cosmetic Act ("FFDCA"), a manufacturer may obtain an additional six months (which, under certain circumstances, may be extended to one year) of exclusivity if the innovatorit conducts pediatric studies requested by the FDA on the product. This exclusivity will, in certain instances,can delay both the FDA approval and the sales by the Company of certain ANDA and other products.
If the Company is first to file its ANDA and meets certain requirements relating to the patents owned or licensed by the brandA company the Company may be entitled to a 180-day generic exclusivity period for that product. When a company submits an ANDA, the company is required to includecertain products. This exclusivity period often follows a patent certification to certain patents that are identified with the innovator product. If the ANDA applicant challenges the validity of the innovator’s patent or certifies that its product does not infringe the patent, thereby seeking to market its product prior to the patent expiry,and litigation process whereby the product innovator may sue for infringement. The legal action woulddoes not ordinarily result in material damages, but could prevent the Company from introducing the product if it is not successful in the legal action. The Company would, however, incur the cost of defending the legal action and that action could have the effect of triggeringgenerally triggers a statutorily mandated delay in FDA approval of the ANDA for a period of up to 30 months from when the innovator was notified of the patent challenge. In addition, if generic exclusivity is granted to the Company, there
can be no assurance that the Company will be able to market the product at the beginning of the exclusivity period or that the exclusivity will not be shared with other generic companies, including authorized generics. It is possible that more than one applicant files the first ANDA on the same day and exclusivity is shared. This may happen by chance, but more likely when there is a certain type of innovator exclusivity that prevents the filing of all ANDAs until a specific date. As a result of events that are outside of the Company’s control, the Company may forfeit its exclusivity. Finally, if the Company is not first to file its ANDA, the FDA may grant 180-day exclusivity to another company, thereby effectively delaying the launch of the Company’s product.
The Company’s prescription drug products that are marketed without approved applications must meet certain manufacturingFood and labeling standardsDrug Administration Safety and Innovation Act ("FDASIA") was signed into law on July 9, 2012. The law established, by the FDA. The FDA’s policy with respect to the continued marketing of unapproved products is stated in the FDA’s September 2011 compliance policy guide, titled "Marketed New Drugs without Approved NDAs or ANDAs." Under this policy, the FDA has stated that it will follow a risk-based approach with regard to enforcement against such unapproved products. The FDA evaluates whether to initiate enforcement action on a case-by-case basis, but gives higher priority to enforcement action against products in certain categories, such as those marketed as unapproved drugs with potential safety risks and that lack evidence of effectiveness. The FDA recognizes that certain unapproved products, based on the introduction date of their active ingredients and the lack of safety concerns, among other things, have been marketednew user fee statutes for many yearsgeneric drugs and at thisbiosimilars, FDA authority concerning drug shortages, changes to enhance the FDA's inspection authority of the drug supply chain, and a limited extension of the 30-month stay provision described above. The FDASIA also reduced the time might not be subjectrequired for FDA responses to immediate enforcement action. See further information relatedgeneric-blocking citizen petitions. We implemented new systems and processes to regulation bycomply with the FDAnew facility self-identification and user fee requirements of the FDASIA, and we monitor facility self-identification and fee payment compliance to mitigate the risk of potential supply chain interruptions or delays in Item 1A. Risk Factors.regulatory approval of new applications.
All facilities where RxInfant Formula and OTC drugs are manufactured, tested, packaged, stored or distributed must comply with FDA cGMPs and regulations promulgated by competent authorities in the countries where the facilities are located. All of the Company’s drug products are manufactured, tested, packaged, stored and distributed according to cGMP regulations. The FDA performs periodic audits to ensure that the Company’s facilities remain in compliance with all appropriate regulations. The failure of a facility to be in compliance may lead to a breach of representations made to store brand customers or to regulatory action against the Company related to the products made in that facility, including suspension of or delay in ANDA approvals, seizure, injunction or recall. Serious product quality concerns could also result in governmental actions against the Company that, among other things, could result in the suspension of production or distribution of the Company’s products, product seizures, loss of certain licenses or other governmental penalties, and could have a material adverse effect on the Company’s financial condition or operating results. In addition, several bills have been introduced in Congress that could, if enacted, affect the manufacture and marketing of Rx and OTC drugs. The Company cannot predict whether new legislation regulating the Company’s activities will be enacted or what effect any legislation would have on the Company’s business.Foods
The Company submits a Drug Master File ("DMF") for active pharmaceutical ingredients to be commercialized in the U.S. The DMF filings provide an efficient mechanism for FDA review while protecting the Company’s proprietary information related to the manufacturing process. The manufacturing facilities are inspected by the FDA to assess cGMP compliance. The manufacturing facilities and production procedures utilized must be cGMP compliant before API may be exported to the U.S. For European markets, the Company submits a European DMF and, where applicable, obtains a certificate of suitability from the European Directorate for the Quality of Medicines. The manufacturing facilities and production procedures for API marketed in Europe must meet EU-GMP and European Pharmacopeia standards.
Infant Formula - The FDA’s Center for Food Safety and Applied Nutrition ("CFSAN") is responsible for the regulation of infant formula. The Office of Nutrition, Labeling and Dietary Supplements ("ONLDS") has programlabeling responsibility for infant formula, while the Office of Food Additive Safety ("OFAS") has program responsibility for food ingredients and packaging. The ONLDS evaluates whether thean infant formula manufacturer has met the requirements under the
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Regulation
FFDCA and consults with the OFAS regarding the safety of ingredients in infant formula and of packaging materials for infant formula.
All manufacturers of pediatric nutrition products must begin with safe food ingredients, which are either generally recognized as safe or approved as food additives. The Infant Formula Act provides specific requirements for infant formula are governed by the Infant Formula Act. The purpose of the Infant Formula Act is to ensure the safety and nutrition of infant formulas, including minimum and, in some cases, maximum levels of specified nutrients.
Once anBefore marketing a particular infant formula, product is formulated, the manufacturer must provide regulatory agencies assurance of the nutritional quality of that particular formulation before marketingconsistent with the infant formula. The FDA has established requirements for certainFDA’s labeling, nutrient content, and manufacturer quality control procedures (to
assure the nutrient content of infant formulas), as well as for company records and reports.requirements. A manufacturer must notify the FDA 90 days before the marketing of any infant formula that differs fundamentally in processing or in composition from any previous formulation produced by the manufacturer. TheWe actively monitor this process and make the appropriate adjustments to remain in compliance with recent FDA recently issued a final rulerules regarding good manufacturing practices,cGMP, quality control procedures, quality factors, notification requirements, and reports and records for the production of infant formulas. The Company actively monitored this process and is making appropriate adjustments to remain in compliance.
In addition, as part of its responsibility to implement the provisions of the FFDCA, the FDA continuously monitors infant formula products. The FFDCA requires infant formula manufacturers to test product composition during production and shelf-life,shelf-life; to keep records on production, testing, and distribution of each batch of infant formula andformula; to use current good manufacturing practicescGMP and quality control procedures. In addition, the FFDCA requires infant formula manufacturersprocedures; and to maintain records of all complaints and adverse events, some of which are reviewed tomay reveal the possible existence of a health hazard. The FDA conducts yearly inspections of all facilities that manufacture infant formula. The FDA alsoformula, inspects new facilities during early production runs. As part of the inspection, the FDAruns, and collects and analyzes samples of infant formula.
Our infant and toddler foods are subject to the Food Safety Modernization Act ("FSMA"), which protects the safety of U.S. foods by mandating comprehensive, prevention-based controls within the food industry. Under FSMA, the FDA has mandatory recall authority for all food products and greater authority to inspect food producers and is taking steps toward product tracing to enable more efficient product source identification in the event of a safety issue.
Dietary Supplements - Manufactured in the U.S.
The Dietary Supplement Health and Education Act of 1994 ("DSHEA") amended the FFDCA to, among other things: (1) define
Define dietary supplements and dietary ingredients, (2) requireingredients;
Require ingredient and nutrition labeling for dietary supplements, (3) permitsupplements;
Permit "structure/function" statements for dietary supplements, (4) permitsupplements;
Permit the display of certain published literature where supplements are sold, (5) authorizesold;
Authorize the FDA to establish GMPs specifically for dietary supplements, which it did in 2007; and (6) require
Require the submission of New Dietary Ingredient notificationnotifications to the FDA.
TheUnder DSHEA, provides specific nutrition labeling requirements for dietary supplementsthe FDA specified that are slightly different than those for conventional foods. Allall supplements must bear a "Supplement Facts" box, which lists all of the supplement’s dietary ingredients using nomenclature as specified by FDA regulation.FDA-specified nomenclature. DSHEA also permits dietary supplements to bear statements (1) claimingstatements:
Claiming a benefit related to a classical nutrient deficiency disease, provided the prevalence of the disease in the U.S. is disclosed, (2) describingdisclosed;
Describing the role of a nutrient or dietary ingredient intended to affect the structure or function in humans, (3) characterizinghumans;
Characterizing the documented mechanism by which a nutrient or dietary ingredient acts to maintain such structure or function,function; and (4) describing
Describing general well-being from consumption of a nutrient or dietary ingredient. The Company is
We are subject to regulations published by the FDA clarifying the types of "structure function" statements permissible in dietary supplement labeling. Such statements cannot expressly or implicitly state that a dietary supplement has any effect on a "disease." As with foods in general, dietary supplement labeling may include a "health claim," which characterizes the role of a nutrient to a disease or health-related condition.
On June25, 2007, the FDA issued Final GMPRegulations specific to Dietary Supplements, which became effective as they relate to thePerrigo Company on June25, 2008.TheCompany continues to invest in its Dietary Supplement operations to ensure compliance with the regulations. The Company continuously monitors FDA activities, including publicly available inspection reports of other companiesplc '- Item 1 inspections, to ensure that its operations and quality systems are maintained in a state of compliance based on the current interpretation of the regulations. The Company has not yet been inspected and cannot determine with certainty what effects the FDA's future interpretations of the regulations will have on its business. The GMP regulations and FDA's future interpretations of these regulations could, among other things, require expanded documentation of the manufacturing processes for certain products or additional analytical testing for certain ingredients. In addition, several bills have been introduced in Congress that could, if enacted, affect the manufacture and marketing of dietary supplements. The Company cannot predict whether new legislation regulating the Company's activities will be enacted or what effect any legislation would have on the Company's business.
Regulation
The DSHEA requires that the FDA be notified at least 75 days in advance of the introduction of a dietary supplement that contains a new dietary ingredient that was introduced to market afternot marketed before October 15, 1994 or was present in the food supply in a form where the food had not been chemically altered.1994. The notification must provide information establishing that the dietary supplement containing the dietary ingredient will be reasonably be expected to be safe.
Food Safety Modernization Act - PortionsWe continue to invest in our dietary supplement operations and quality systems to ensure that we comply with current interpretation of the Nutritionals segment's businessregulations. Our U.S. dietary supplement facilities have been inspected by the FDA and are operating in compliance with dietary supplement cGMP’s.
Active Pharmaceutical Ingredients
We develop and manufacture active pharmaceutical ingredients in Israel and India for export to the U.S. and other global markets. Before active pharmaceutical ingredients can be commercialized in the U.S., we must submit a drug master file ("DMF") that provides the proprietary information related to the manufacturing process. The FDA inspects the manufacturing facilities to assess cGMP compliance, and the facilities and procedures must be cGMP compliant before API may be exported to the U.S.
The facilities and products are subject to regulation by the Food Safety Modernization Act ("FSMA"), which became law in 2011. The stated purpose of the FSMA is to ensure U.S. foods are safe by shifting the focus from containment of contamination to prevention. The law mandates
comprehensive, prevention-based controls within the food industry. It also gives the FDA mandatory recall authority for all food products and greater authority to inspect food producers. The FSMA impacts food and food ingredient imports through a supplier verification program. Under the FSMA, the FDA is also taking steps toward product tracing to enable more efficient product source identificationapplicable regulatory bodies in the eventplace of an outbreak.manufacture as well as the regulatory agency in the country from which the product is exported. Our Israeli facility has been approved by the U.S. FDA, Israel Ministry of Health ("IMOH"), Federal Commission for the Protection against Sanitary Risks of Mexico, Pharmaceutical and Medical Devices Agency of Japan, and the Korean Food and Drug Administration and has received GMP certification from IMOH. Our India facility has been inspected by the U.S. FDA and has received GMP certification from the Indian FDA.
For API exported to European markets, we submit a European DMF and, where applicable, obtain a certificate of suitability from the European Directorate for the Quality of Medicines. The FDA has yet to issue a complete set of regulations under the FSMA. Additional clarity is expected once the regulations are finalized.manufacturing facilities and production procedures for API marketed in Europe must meet EU-GMP and European Pharmacopeia standards.
U.S. Department of Agriculture
The Organic Foods Production Act enacted under Title 21 of the 1990 Farm Bill established uniform national standards for the production and handling of foods labeled as "organic". The Company's"organic." Our infant formula manufacturing sites in Vermont and Ohio adhere to the standards of the USDAU.S. Department of Agriculture ("USDA") National Organic Program for the production, handling, and processing to maintain the integrity of organic products. The Company'sOur infant formula manufacturing sites in Vermont and Ohio are USDA-certified, enabling them to produce and label organic products for U.S. and Canadian markets.
U.S. Environmental Protection Agency
Pet Care Products - The EPAU.S. Environmental Protection Agency ("EPA") is the main regulatory body in the United States for veterinary pesticides. The EPA's Office of Pesticide Programs is responsible for the regulation of companionpesticide products applied to animals. All manufacturers of animal flea and tickhealth pesticides must show that their products that are applied and act topically. The active ingredientswill not cause “unreasonable adverse effects to man or the environment” as stated in flea and tick products are pesticides that are regulated under the Federal Insecticide, Fungicide, and Rodenticide Act. Pesticides cannot be distributed or sold inWithin the U.S. unless theyUnited States, pesticide products that are registered with the EPA.
The EPA may grant a pesticide registration to an applicant after making a determination that the use of the pesticide product will meet the statutory requirement that it will not cause "unreasonable adverse effects on the environment", i.e., the product will not present an unreasonable risk. An applicant must demonstrate that a pesticide product meets the safety and efficacy standards required by EPA by submitting an extensive battery of toxicology and efficacy studies, or by providing reference to pre-existing data for the evaluation of possible risks to both humans and the animals that may be exposed to the pesticide product. The EPA will not approve a product if there is any reason to doubt that the product can be used safely and efficaciously.
When the EPA issues a registration for a pesticide product, the EPA approves the precise formula for the product and the language in the product labeling. It is a violation of U.S. law for a company to distribute or sell a pesticide product that deviates from the formulation composition and label language approved by the EPA. TheEPA must also be approved by individual state pesticide authorities before distribution in that state. Post-approval monitoring of products is required, with reports provided to the EPA and some state regulators conduct cooperative compliance programs to monitor pesticide products and if necessary, take appropriate enforcement actions.
In addition to the registration process, the EPA conducts a registration review program that periodically re-evaluates pesticides that the EPA has approved. New studies may be required, additional safety and use restrictions may be mandated, and, if the EPA decides that a product no longer meets the required safety and efficacy standards, the EPA can cancel the product registration.
Companies that hold pesticide product registrations must report any adverse events that may result from the use of the products. The EPA reviews these reports and may take action to modify or withdraw a registration if the EPA decides that such action is necessary to ensure that the pesticide products meet the stringent safety and efficacy standards mandated by law.regulatory agencies.
U.S. Drug Enforcement Administration
The DEAU.S. Drug Enforcement Administration ("DEA") regulates certain drug products containing controlled substances, such as morphine, hydromorphone, opium, and List I chemicals, such as pseudoephedrine, pursuant to the federal Controlled Substances Act ("CSA"). The CSA and DEA regulations impose specific requirements on manufacturersregistration, security, record keeping, reporting, storage, manufacturing, distribution, importation and other entities that handle these substances including registration, recordkeeping, reporting, storage, security and distribution. Recordkeeping requirements include accounting forupon legitimate handlers under the amountoversight of product received, manufactured, stored and distributed, as well as yield losses. Companies handling eitherthe DEA. The DEA categorizes controlled substances into Schedules I, II, III, IV, or V, with varying qualifications for listing in each schedule. We are subject to the requirements regarding the controlled substances in Schedules II - V and the List I chemicals are also required to maintain adequate security and to report suspicious orders, thefts and significant losses. chemicals. Our facilities that manufacture, distribute, import, or export any controlled substances must register annually with the DEA.
Perrigo Company plc - Item 1
Regulation
The DEA inspects all manufacturing facilities to review security, record keeping, reporting, and handling prior to issuing a controlled substance registration, and it also periodically inspects facilities for compliance with the CSA and its regulations. Failure to complymaintain compliance with current and future regulationsapplicable requirements, particularly as manifested in the loss or diversion of controlled substances, can result in enforcement action, such as civil penalties, refusal to renew necessary registration, or the DEAinitiation of proceedings to revoke those registrations. In certain circumstances, violations could lead to a variety of sanctions, including revocation or denial of renewal of DEA registrations, injunctions, or civil or criminal penalties.
The Company isprosecution. We are also subject to the requirements of the CSA and DEA regulations in the handling of any controlled substances in schedules II – V or any of the List I chemicals. Specifically, the Company is subject to regulation in the commercial manufacture and distribution of products containing the List I drug pseudoephedrine and products containing the schedule II drugs morphine, hydromorphone and opium. As a result of a series of amendments to the CSA, the DEA has imposed increased restrictions on the manufacture and distribution of pseudoephedrine products. For example, the Comprehensive Methamphetamine Control Act of 1996 was enacted to authorize the DEA to monitor transactions involving chemicals that may be used illegally in the production of methamphetamine. The Comprehensive Methamphetamine Control Act of 1996 establishes certain registration and recordkeeping requirements for manufacturers of OTC cold, allergy, asthma and diet medicines that contain ephedrine, pseudoephedrine or phenylpropanolamine ("PPA"). While certain of the Company’s OTC drug products contain pseudoephedrine, which is a common ingredient in nasal decongestant products, the Company’s U.S. products contain neither ephedrine nor PPA.
In addition, the Reauthorization Act of 2005, signed into law on March 9, 2006, prevented the existing provisions of the Patriot Act from expiring and also included the Combat Methamphetamine Epidemic Act. This law further amended the CSA and provided additional requirements with respect to the manufacture, distribution and sale of pseudoephedrine products. Among the various provisions, this national legislation places certain restrictions on the purchase and sale of all products that contain ephedrine, pseudoephedrine or PPA (List I chemical products). The CSA also imposed import and procurement quotas for List I chemicals, including pseudoephedrine.
The CSA, as amended, also imposed daily restrictions on the amount of List I chemical products a retailer may sell to a consumer (3.6 grams per day) and limitations on the amount of List I chemical products a consumer may purchase (9.0 grams) over a 30-day period. Further, effective September 30, 2006, the CSA requires that (a) retail sellers maintain a logbook that tracks the sales of List I chemical products to individuals, and (b) purchasers provide valid identification in order to purchase List I chemical products. Many states have also enactedstate legislation regulating the manufacture and distribution of pseudoephedrinecertain products. The Company is subject to these state requirements as well.
Medicaid Drug Rebate Program and Other Drug Pricing Programs
U.S. law requires that a pharmaceutical manufacturer, as a condition of having federal funds being made available to the states for the manufacturer’s drugs under Medicaid and Medicare Part B, must enter into a rebate agreement with the U.S. government to pay rebates to state Medicaid programs for the manufacturer’s covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program. A U.S. federal government agency, theWe have such a rebate agreement in effect. The Centers for Medicare and Medicaid Services ("CMS"), is responsible for administering the Medicaid rebate agreements between the U.S. government and pharmaceutical manufacturers. Rebates are dueagreements. We pay rebates on the utilization ofunder fee-for-service arrangements as well as through Medicaid managed care organizations, as well as under fee-for-service arrangements.organizations.
Drug manufacturers’A Medicaid rebate agreements, which are between each manufacturer and the Secretary of Health and Human Services, provideagreement provides that the drug manufacturer will remit rebates to each state Medicaid agency on a quarterly basis. Those rebates arebasis based on pricing data reported by manufacturersthe manufacturer to CMS, including Average Manufacturer Price ("AMP"), which is reported and, in the case of innovator products, Best Price ("BP"). We report AMP on a monthly and quarterly basis and in the case of innovator products, best price, which is reportedBest Price on a quarterly basis. Health reform legislation changed the definition of AMP effective the fourth quarter of calendar 2010. Pursuant to the same legislation, effective for rebate periods beginning with the first quarter of calendar 2010, the rebate formulas used to determine theThe minimum rebate amounts due are as follows: for noninnovator products, in general generic drugs marketed under ANDAs, the rebate amount is 13% of the AMP for the quarter; for innovator products, in general brand-name products marketed under NDAs, the rebate amount is the greater of 23.1% of the AMP for the quarter or the difference between such AMP and the Best Price for that same quarter. Manufacturers also pay an additional rebate on innovator drugs where price increases since launch have outpaced inflation.
The Company has a Medicaid rebate agreement in effect with the U.S. government. U.S. Federal and/or state governments have and are expected to continue to enact measures aimed at reducing the cost of drugs to such governmental payers as well as the public, including the enactment in December 2003 of Medicare legislation that expanded the scope of Medicare coverage to include outpatient drugs (Part D), starting in January 2006, as well as health reform legislation enacted in 2010. Management cannot predict the nature of such measures or their impact on the Company’s profitability. Various states have in recent years also adopted supplemental drug rebate programs that are intended to provide the individual states with additional manufacturer rebates on Medicaid
utilization over and above those required under a manufacturer’s U.S. federal Medicaid agreement. States also have created drug coverage and corresponding manufacturer rebate programs for non-Medicaid populations, known as state pharmaceutical assistance programs. These rebate programs are generally designed to mimic the U.S. federal drug rebate program in terms of how the manufacturer rebates are calculated. Although there are a number of supplemental and state pharmacy assistance rebate programs, for the Company they are insignificant in the aggregate compared to quarterly Medicaid drug rebate obligations.
As described herein, CMS rules require pharmaceutical companies to calculate and report the AMP to CMS on a monthly as well as a quarterly basis. In addition to using thisAMP information to calculate rebates, CMS is preparing to use AMPAMPs to calculate a type of U.S. federal ceiling on reimbursement rates to pharmacies for multiple source drugs to pharmacies under the Medicaid program, known as the federal upper limit ("FUL"). Prior to using AMP,, and has been publishing draft FULs based on reported AMPs. CMS typically used pricing data from third-party compendia, such as the Average Wholesaler Price ("AWP") or Wholesaler Acquisition Cost ("WAC"), in the calculation of FULs. Health reform legislation enacted in 2010 amended the statutory definition of AMP and also amended the definition of "multiple source drug" in a manner that materially affects the calculation of FULs.
CMS has begun posting draft AMP-based FUL reimbursement files on the CMS website that are calculated based on the requirements of the health reform legislation. Currently, the FUL reimbursement files are for reviewsurveying and comment only; however, CMS has announced that it plans to publish final FULs after a period of releasing them in draft format. CMS issued a proposed rule in February 2012 that provided guidance on the revised AMP definitionpublishing retail community pharmacy acquisition cost and calculation of FULs but has not issued a final rule. Separately, under existing statutory authority granted by the Deficit Reduction Act of 2005, CMS has begun collecting retail surveyconsumer price information from retail community pharmacies to generate publicly available pricing files. CMS expects that the pricing files will provide state Medicaid agencies with an array of covered outpatient drug prices and that state agencies can use this information to comparea basis for comparing their own reimbursement and pricing methodologies and rates to those derived from the surveys.
CMS has begun posting drafts of this retail survey price information on at least a monthly basis in the form of draft National Average Drug Acquisition Cost ("NADAC") files, which reflect retail community pharmacy invoice costs, and National Average Retail Price ("NARP") files, which reflect retail community pharmacy prices to consumers. In July 2013, CMS suspended the publication of draft NARP data, pending funding decisions. In November 2013, CMS moved to publishing final rather than draft NADAC data and has since made updated NADAC data publicly available on a weekly basis. The Company does not know how the new methodologies for calculating AMP and FULs or the retail survey price information will affect the Company's pharmacy customers or to what extent these customers will seek to pass on any decrease in Medicaid reimbursements to the Company. The Company cannot predict how the sharing of FUL data and retail survey prices may impact competition in the marketplace.
Manufacturers also must participate in the 340B drug pricing program for U.S. federal funds to be available to pay for their drugs under Medicaid and Medicare Part B. Participating manufacturers must agree to charge statutorily-defined covered entities no more than the 340B ceiling price for the manufacturer’s covered outpatient drugs. Sales made by the Company pursuant to the 340B program are not material to the Company as a whole.rates.
U.S. law also requires that a company that participates in the Medicaid rebate program report average sales price or ASP,("ASP") information to CMS for certain categories of drugs that are paid under Part B of the Medicare program. Manufacturers calculate ASP based on a statutorily defined formula and implementing regulations as to what should or should not be considered in computing ASP. An ASP for each National Drug Code for a product that is subject to the ASP reporting requirement must be submitted to CMS no later than 30 days after the end of each calendar quarter. CMS uses these submissions to determine payment rates for drugs under Medicare Part B. Statutory or regulatory changes or CMS binding guidance could affect the ASP calculations for the Company’s products and the resulting Medicare payment rate, and could negatively impact the Company’s results of operations.
Pricing and rebate calculations are governed by statutory and regulatory requirements that are complex, vary among products and programs. The calculations are complexprograms, can change over time, and are often subject to interpretation by the Company,us, governmental or regulatory agencies, and the courts. TheIn the case of the Medicaid rebate amount is computed each quarter based on the Company’sprogram, if we become aware of errors in our prior price submissions, or a prior Best Price ("BP") submission needs to CMS of the Company’s current average manufacturer prices and best prices for the quarter. If the Company becomes aware that its reporting for prior quarters was incorrect, or has changed as a result of recalculation of the pricingbe updated due to late arriving data, the Company is obligated towe must resubmit the correctedupdated data for a period not to exceed 12 quarters from the quarter in which the data originally werewas due. Such restatements and recalculations increase the Company’s costs for complyingour cost of compliance with the
laws and regulations governing the Medicaid rebate program. Anyprogram, and corrections to the Company’s rebate calculations couldcan result in an overage or underage in the Company’sof our rebate liability for past quarters, depending on the nature of the correction.
If the Company is found to have knowingly submitted false average manufacturer price, average sales price, or best price information to the government, the Company may be liable for civil monetary penalties in the amount of $100,000 per item of false information. If the Company is found to have made a misrepresentation in the reporting of its average sales price, the Medicare statute provides for civil monetary penalties of up to $10,000 for each misrepresentation for each day in which the misrepresentation was applied. The Company’s failure to submit monthly/quarterly average manufacturer price, average sales price, and best price data on a timely basis could result in a civil monetary penalty of $10,000 per day for each day the submission is late beyond the due date. Such failure also could be grounds for CMS to terminate the Company’s Medicaid drug rebate agreement, pursuant to which the Company participates in the Medicaid program. In the event that CMS terminates the Company’s rebate agreement, U.S. federal payments may not be available under Medicaid or Medicare Part B for the Company’s covered outpatient drugs.
U.S. law requires any company that participates in the Medicaid rebate program also participate in the Public Health Service’s 340B drug pricing program in order for a companyfederal funds to be eligible to have its products paidavailable for with federal fundsthe manufacturer’s drugs under the Medicaid and Medicare Part B programs,B. The 340B drug pricing program requires participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. The ceiling price is derived from the data the manufacturer reports under the Medicaid rebate program and therefore any changes to statutory or regulatory requirements applicable to the Medicaid price figures may impact the 340B ceiling price calculation as well. 340B covered entities include a variety of community
Perrigo Company plc - Item 1
Regulation
health clinics and other entities that receive health services grants from the Public Health Service, as well as to be purchasedhospitals that serve a disproportionate share of low-income patients.
U.S. law also requires any company that participates in the Medicaid rebate program and Medicare Part B and that wants its covered drugs paid for by certain federal agencies and grantees it also must participate in the Department of Veterans Affairs (VA)("VA") Federal Supply Schedule ("FSS"(“FSS”) pricing program. To participate, the Company is required toAccordingly, we must enter into an FSS contract with the VA, under which the Company must make itswhereby our "covered drugs" (i.e., innovators)are available to the U.S. "Big Four" federal agencies - the VA, the Department of Defense or DoD,("DoD"), the Public Health Service, and the Coast Guard -(collectively the “Big Four”) at pricing that is capped pursuant to a statutory federal ceiling price, or FCP, formula set forth in Section 603 ofFederal Ceiling Price(“FCP”).
In addition to the Veterans Health Care Act of 1992 or VHCA. The FCP is based on a weighted average wholesaler price known as the "non-federal average manufacturer price," or Non-FAMP, which manufacturers are required to report on a quarterly and annual basis to the VA. If a company misstates Non-FAMPs or FCPs it must restate these figures. Pursuant to the VHCA, knowing provision of false information in connection with a Non-FAMP filing can subject a manufacturer to penalties of $100,000 for each item of false information.
requirements, FSS contracts are federal procurement contracts that include extensive disclosure and certification requirements and standard government terms and conditions separate pricing for each product, and extensive disclosure and certification requirements. All items on FSS contracts are subject to a standard FSS contract clause that requires FSS contract price reductions under certain circumstances where pricing is reduced to an agreed "tracking customer." Further, in addition to the "Big Four" agencies, all other U.S. federal agencies and some U.S. non-federal entities are authorized to access FSS contracts. FSS contractors are permitted to charge FSS purchasers other than the Big Four agencies "negotiated pricing" for covered drugs that is not capped by the FCP; instead, such pricing is negotiated based on a mandatory disclosure of the contractor’s commercial "most favored customer" pricing. The Company offers one single FCP-based FSS contract price to all FSS purchasers.
In addition, pursuant to regulations issued by the DoD TRICARE Management Activity, or TMA (now the Defense Health Agency (DHA)), to implement Section 703 of the National Defense Authorization Act for Fiscal Year 2008, the Company has entered intowith which we must comply. We also have a Section 703 Agreement under which
the Company has agreed towe pay rebates on covered drug prescriptions dispensed to TRICARE beneficiaries by TRICARE network retail pharmacies.
Companies are requiredSee Item 1A. Risk Factors - Risks Related to list their innovator products on Section 703 Agreements in orderOperations for those productsrisks related to be eligible for DoD formulary inclusion. The formula for determining the rebate is established in the regulations and the Company’s Section 703 Agreement and is based on the difference between the Annual Non-FAMP and the FCP (as described above, these price points are required to be calculated by us under the VHCA).above-mentioned programs.
If the Company overcharges the government in connection with its FSS contract or Section 703 Agreement, whether due to a misstated FCP or otherwise, the Company is required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract overcharges can result in allegations against the Company under the Federal False Claims ActOther U.S. Regulations and other laws and regulations. Unexpected refunds to the government, and responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
Other RegulatoryOrganizations
Numerous U.S. federal and state laws, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use and disclosure of personal information. Other countries also have, or are developing, laws governing the collection, use and transmission of personal information. In addition, most healthcare providers who prescribe product and from whom we may obtain patient health informationWe are subject to privacyvarious other national, state, non-governmental, and security requirements under the Health Insurance Portabilitylocal agency rules and Accountability Act of 1996, or HIPAA. The Company is not a HIPAA covered entity and does not operate as a business associate to any covered entities. Therefore, these privacy and security requirements do not apply. However, the Company could be subject to criminal penalties if we knowingly obtain individually identifiable health information from a covered entity in a manner that is not authorized or permitted by HIPAA or for aiding and abetting the violation of HIPAA. The Company is unable to predict whether actions could be subject to prosecution in the event of an impermissible disclosure of health information to the Company. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issuesregulations. Compliance with the potential to affectlaws and regulations regarding the manufacture and sale of our current products and the discovery, development, and introduction of new products requires substantial effort, expense and capital investment. Other regulatory agencies, organizations and legislation that may impact our business including recently enacted laws in a majority of states requiring security breach notification.include, but are not limited to:
The U.S. Physician Payment Sunshine Act being implemented as the Open Payments Program, - This act requires certain pharmaceutical manufacturers to engage in extensive tracking of payments or transfers of value to physicians and teaching hospitals, maintenance of a paymentspayment database and public reporting of the payment data. Pharmaceutical manufacturers with products for which payment is available under Medicare, Medicaid or the State Children’s Health Insurance Program are required to track and report such payments. CMS issued a final rule implementing the Physician Payment Sunshine Act provisions and clarified the scope of the reporting obligations, as well as that applicable manufacturers must begin tracking on August 1, 2013 and report payment data to CMS by July 7, 2014 and annually thereafter.The Company has met the reporting requirements.
The U.S. Foreign Corrupt Practices Act of 1977 ("FCPA") - This act and other similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from providing money or anything of value to officials of foreign governments, foreign political parties or international organizations with the intent to obtain or retain business or seek a business advantage. Recently, there has been a substantial increase in anti-bribery law enforcement activity by U.S. regulators, with more frequent and aggressive investigations and enforcement proceedings by both the Department of Justice and the U.S. Securities and Exchange Commission. A determination that our operations or activities are not, or were not, in compliance with laws or regulations could result in the imposition of substantial fines, interruptions of business, loss of supplier, vendor or other third-party relationships, termination of necessary licenses and permits, and other legal or equitable sanctions. Other internal or government investigations or legal or regulatory proceedings, including lawsuits brought by private litigants, may also follow as a consequence.
Violation of any of the laws described above or any other governmental regulations that apply to the Company, may result in significant civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, like Medicare and Medicaid, and the curtailment or restructuring of the Company’s operations.
Consumer Product Safety Commission
Under the U.S. Poison Prevention Packaging Act ("PPPA"), the CPSC has authority to require that certain dietary supplements and certain pharmaceuticals have child-resistant packaging to help reduce the incidence of accidental poisonings. The CPSC has published regulations requiring iron-containing dietary supplements and various pharmaceuticals to have child resistant packaging, and has established rules for testing the effectiveness of child-resistant packaging and for ensuring senior adult effectiveness.
The U.S. Consumer Product Safety Improvement Act of 2008 ("CPSIA") amended the Consumer Product Safety Act ("CPSA") to require that the manufacturer of any product that is subject to any CPSC rule, ban, standard or regulation certify that based on a reasonable testing program the product complies with CPSC requirements. This certification applies to pharmaceuticals and dietary supplements that require child-resistant packaging under the PPPA. The CPSC lifted the stay of enforcement of the certification requirement and the regulation has been in effect since February 9, 2010.
Federal Trade Commission
The FTC exercises primary jurisdiction over ("FTC")- This agency oversees the advertising and other promotional practices of marketers of dietary supplements and OTC pharmaceuticals and often works with the FDA regarding these practices.consumer products marketers. The FTC considers whether a product’s claims are substantiated, truthful and not misleading. The FTC is also responsible for reviewingreviews mergers between and acquisitions of pharmaceutical companies exceeding specified thresholds and investigatinginvestigates certain business practices relevant to the healthcare industry. The FTC could challenge these business practices in administrative or judicial proceedings. For example, in accordance with the Medicare Prescription Drug Improvement and Modernization Act of 2003, agreements between NDA and ANDA holders relating to settlements of patent litigation involving Paragraph IV certifications under the Hatch-Waxman Act, as well as agreements between generic applicants that have submitted ANDAs containing Paragraph IV certifications where the agreement concerns either company’s 180-day exclusivity, must be submitted to the FTC (and the United States Department of Justice) for review.
U.S. State RegulationNSF International ("NSF") - The NSF is an independent, not-for-profit, non-governmental organization that provides risk management services for public health and safety. Many of our dietary supplement products are certified under NSF/ANSI Standard 173.
Most U.S. states regulateInternational Organization for Standardization ("ISO") - The ISO Standards specify requirements for a Quality Management System that demonstrates the ability to consistently provide products that meet customer and require approval of a licenseapplicable regulatory standards and includes processes to manufacture and distribute foods, drugs and pet care products under laws that generally parallel federal statutes. License requirements and fees vary by state. The Company is also subject to other state consumer health and safety regulations that could have a potential impact on the Company’s business if the Company is ever found to be non-compliant.ensure continuous improvement. Our infant formula manufacturing sites are ISO 9001-2008 Certified for Quality Management Systems. ISO inspections are conducted at least annually.
United States Pharmacopeial Convention,
Inc. ("USP") - The USP is a non-governmental, standard-setting organization. By reference, the Federal Food, Drug and Cosmetic ActFFDCA incorporates the USP quality and testing standards and monographs as the standard that must be met for the listed drugs, unless compliance with those standards is specifically disclaimed on the product’s labeling. USP standards exist for most Rx and OTC pharmaceuticals and many nutritional supplements. The FDA typically requires USP compliance as part of cGMP compliance.
Perrigo Company plc - Item 1
Regulation
Health Insurance Portability and Accountability Act ("HIPAA") - We could be subject to criminal penalties if we knowingly obtain individually identifiable health information from a covered entity in a manner that is not authorized or permitted by HIPAA or for aiding and abetting the violation of HIPAA.
NSF InternationalConsumer Product Safety Commission ("CPSC") - The CPSC has published regulations requiring child resistant packaging on certain products including pharmaceuticals and dietary supplements. The manufacturer of any product that is subject to any CPSC rule, ban, standard or regulation must certify that, based on a reasonable testing program, the product complies with CPSC requirements.
NSF is an independent, not-for-profit, non-governmental organization providing risk management services for public health and safety. Its services include standards development, product certification, safety audits, management systems registration and education programs. NSF is accredited by the American National Standards Institute ("ANSI"), the Occupational Safety and Health Administration and the Standards Council of Canada. These accreditations attest to the competency of services provided by NSF and compliance with established national and international standards for third-party certification.
The NSF Dietary Supplement Certification Program enables manufacturers to become independently registered by NSF as conforming to voluntary standards that provide a system of processes, procedures and documentation to assure the product produced has the strength, composition, quality and purity represented on the product label. The Company also has over 50 store brand products certified under NSF/ANSI Standard 173 for dietary supplement products.
International Organization for Standardization
ISO is an internationally recognized standard setting body.Other State Agencies The Company's infant formula manufacturing sites are ISO 9001-2008 Certified for Quality Management Systems. ISO inspections are conducted at least annually. This ISO Standard specifies requirements for a Quality Management System that demonstrates the ability to consistently provide product that meets customer and applicable regulatory standards and includes processes to ensure continuous improvement.
Non-U.S. Regulation
The Company, through its affiliates located in the U.K., manufactures, packages and distributes OTC and prescription pharmaceuticals and provides contract manufacturing and packaging services for major pharmaceutical and healthcare companies in the U.K. and for export to markets outside the U.K. The manufacturing, processing, formulation, packaging, testing, labeling, advertising and sale of these products- We are subject to regulation by one or more U.K.numerous other state health departments, insurance departments, boards of pharmacy, state controlled substance agencies, including the Medicinesstate consumer health and Healthcare Products Regulatory Agency, the Departmentsafety regulations, and other comparable state agencies, each of
Health, the Department of the Environment, Her Majesty’s Customs which have license requirements and Excise, the Department of Trade and Industry, the Health and Safety Executive and the Department of Transport.fees that vary by state.
The Company manufactures, packagesRegulation Outside the U.S.
We develop and distributes Rx pharmaceutical, OTC pharmaceutical and nutritionalmanufacture products in Mexico. The manufacturing, processing, formulation, packaging, labeling, testing, advertisinga number of countries outside the U.S., including many European countries, Israel, India, Mexico and saleAustralia,each of thesewhich has its own regulatory environment. Following the Omega acquisition, our business has expanded significantly into non-U.S. markets, subjecting us to increased regulation in those markets. In addition, we export many of our products are subject to regulation by one or more Mexican agencies, includingother countries. In the Health Ministry, the Commercial and Industrial Secretariat, the Federal Work’s Secretariat, the Environmental Natural Resources and Fishing Secretariat, the Federal Environmental Protection Ministry, and the Treasury and Public Credit Secretariat and its Customs Government department.
The Company manufacturers, packages and distributes hospital supplies and Rx pharmaceutical, OTC pharmaceutical and nutritional products in Australia. The manufacturing, processing, formulation, packaging, labeling, testing, advertising and sales of these products are subject to regulation by one or more Australian agencies, including the Therapeutic Goods Administration ("TGA").
The Company manufactures and markets certain of its products in accordance with standards set by organizations such as the European Directorate of Quality Medicine ("EDQM"). The Company believes that its policies, operations and products comply in all material respects with existing regulations.
The Company exports OTC pharmaceutical and nutritional products, including infant formula, to foreign countries. ExportingU.S., exporting requirements are regulated by the FDA and, where appropriate, DEA laws, as well aslaws. Outside the U.S., each individual country’scountry has its own requirements for the importation of such products. Each country requires approval of these products by that country's regulatory agencies through a registration process by that country’s regulatory agencies.process. Registration requirements include the manufacturing process, formula, packaging, testing, labeling, advertising, and marketing of the products. Each country regulates what is required and may be represented to the public on labeling and promotional material. Approval for the sale of the Company’sour products by foreignthese regulatory agencies may be subject to delays. We believe that our policies, operations and products comply in all material respects with existing regulations to which our operations are subject. See below for more information on regulation within the significant regions in which we operate.
European Union
The Company manufactures, packagesEuropean pharmaceutical industry is highly regulated and distributes infant formula productsmuch of the legislative and regulatory framework is driven by the European Parliament and the European Commission. This has many benefits, including the potential to harmonize standards across the complex European market, but it also has the potential to create difficulties affecting the whole European market.
Some elements of the European Falsified Medicines Directive (the “Directive”) were enacted into national laws during 2013. The provisions of the Directive are intended to reduce the risk of counterfeit medicines entering the supply chain and also to ensure the quality of API manufactured outside of the European Union ("EU").
The requirements deriving from European pharmacovigilance legislation are constantly expanding due to increasing guidance on good vigilance practices and increased communication on inspectors’ expectations. While these new requirements are in the U.S.,interest of patient safety and transparency, they are an increasing administrative burden, which drives our costs and headcount to be higher. Pharmacovigilance fee legislation was effective in late 2014. It includes (i) a per license fee that is intended for the maintenance of the European Pharmacovigilance System; and (ii) a per activity fee, for the assessment of pharmacovigilance safety evaluation reports, study protocols for post authorization safety studies and referrals.
Pharmaceutical manufacturers in the EU are exportedregulated by the EMA. We are required to customers in China. Thesesubmit medicinal products, including generic versions of previously approved products and new strengths, dosages and formulations of previously approved products, to the EMA and its member states for review and marketing authorization before such products are subject to regulation by multiple Chinese regulatory agencies. The regulations applicable to infant formula and imported infant formulas are evolving, and further regulatory revisions are expected to be implementedplaced on the market in the future. In April 2014,EU.
Marketing authorizations are granted to applicants after the Certificationrelevant health authority issues a positive assessment of quality, safety and Accreditation Administrationefficacy of the People’s Republicproduct. In order to receive such assessment, applicants must submit applications containing the results of China (CNCA)pre-clinical tests, pharmaceutical tests, and clinical trials with respect to original products, or originator data with respect to the generic versions of previously approved products. All of
Perrigo Company plc - Item 1
Regulation
these tests or trials must be conducted in accordance within European regulations and must allow the reviewing body to evaluate the quality, safety, and efficacy of the medicinal product.
The EU presents complex challenges from a regulatory perspective. There is over-arching legislation that is implemented at a local level by the 28 individual member states, Iceland, Liechtenstein, and Norway. Between 1995 and 1998, the legislation was revised in an assessment on registrationattempt to simplify and harmonize product registration. This revised legislation introduced the mutual recognition (“MR”) procedure, whereby after submission and approval by the authorities of infant formula dairy producers in the U.S. Asso-called reference member state (“RMS”), further applications can be submitted into the other chosen member states (known as concerned member states). Theoretically, the authorization of the RMS should be mutually recognized by the concerned member states. More typically, however, a resultdegree of re-evaluation is carried out by the concerned member states. In November 2005, this assessmentlegislation was further revised. In addition to the Company’s Vermont infant formula manufacturing siteMR procedure, the decentralized procedure (“DCP”) was introduced. The DCP is also led by the RMS, but applications are simultaneously submitted to all selected countries, provided that no national marketing authorization has been granted yet for the medicinal product in question. Beginning in 2005, the centralized procedure operated by the EMA became available for generic versions of innovator products approved through the centralized authorization procedure. The centralized procedure results in a single marketing authorization, which, once granted, can be used by CNCAthe marketing-authorization holder to export infant formula to China.
file for individual country reimbursement and make the medicine available in all the EU countries listed on the application.
In Europe and Israel,the EU, as well as many other locations around the world, the manufacture and sale of pharmaceutical products areis regulated in a manner substantially similar in many respects to NDA and ANDAs inthat of the U.S. Legal requirements, which generally prohibit the handling, manufacture, marketing, and importation of any pharmaceutical product unless it is properly registered in accordance with applicable law. The registration file relating to any particular product must contain medical data related to product efficacy and safety, including results of clinical testing and references to medical publications, as well as detailed information regarding production methods and quality control. Health ministries are authorized to cancel the registration of a product if it is found to be harmful or ineffective or if it is manufactured andor marketed other than in accordance with registration conditions.
In addition to obtaining marketing authorization for each product, all member states require that a manufacturer’s facilities obtain approval from the national authority. The EU has a code of GMP that each manufacturer must follow and comply with. Regulatory authorities in the EU may conduct inspections of the manufacturing facilities to review procedures, operating systems, and personnel qualifications.
In the EU, member states regulate the pricing of pharmaceutical products, and in some cases, the formulation and dosing of products. This regulation is handled by individual member state national health services. These individual regulatory bodies can result in considerable price differences and product availability among member states. The implementation of tendering systems for the pricing of pharmaceuticals in several countries generally impacts drug pricing for generics; generally “tendering” refers to a system that requires bids to be submitted to the government by competing manufacturers to be the exclusive, or one of a few, suppliers of a product in a particular country.
Data exclusivity provisions exist in many countries, including in the European Union,EU, where these provisions were recently extended, although the application is not uniform. Similar provisions may be adopted by additional countries, including Israel, where legislation has been proposed. In general, these exclusivity provisions prevent the approval and/or submission of generic drug applications to the health authorities for a fixed period of time following the first approval of the brand-name product in that country. As these exclusivity provisions operate independently of patent exclusivity, they may prevent the submission of generic drug applications for some products even after the patent protection has expired.
Further, faced with major budget constraints, many European countries have resorted to price cuts that affect both innovative and generic pharmaceuticals, although in some countries it has disproportionately affected generic products. In addition, some EU countries recently had to address statements and rumors claiming that generics are not as safe and effective as reference drugs, which may undermine efforts to increase generic utilization rates.
Perrigo Company plc - Item 1
Regulation
Other Countries
Israel: In Israel, the manufacture and sale of pharmaceutical products is regulated in a manner similar in many respects to U.S. or EU legal requirements, and laws generally prohibit the handling, manufacture, marketing and importation of any pharmaceutical product unless it is properly registered in accordance with applicable law. The Company developsregistration file relating to any particular product must contain medical data related to product efficacy and manufactures activesafety, including results of clinical testing and references to medical publications, as well as detailed information regarding production methods and quality control. The Israel Health Ministry is authorized to cancel the registration of a product if it is found to be harmful, ineffective, or manufactured and marketed other than in accordance with registration conditions.
Mexico: Pharmaceutical manufacturers and products in Mexico are regulated by the Federal Commission for Protection against Health Risks, which is a decentralized body of the Mexican Ministry of Health responsible for registering pharmaceutical ingredientsproducts, regulating research, development, production, storage and distribution of such products, and monitoring the quality, safety and efficacy of pharmaceutical products commercialized in IsraelMexico. The General Health Law, as well as a catalog of regulations regulate the conditions for the establishment, production, import, export, and Indiasale of products of the pharmaceutical industry in Mexico. There are also several Mexican Official Standards on specific subjects of the pharmaceutical market in Mexico to be observed, such as the labeling or good practices for export to the U.S.manufacture of pharmaceutical products.
Australia: Pharmaceutical manufacturers and products are regulated in Australia by the TGA, which oversees the quality, safety, and efficacy of pharmaceutical products and other global markets. Thetherapeutic goods. All manufacturing facilities and processes must comply with good manufacturing practices, and pharmaceutical products aremanufactured must be listed in the Australian Register of Therapeutic Goods, before they can be marketed or supplied for sale in Australia. The government regulates the pharmaceuticals market through the Pharmaceutical Benefits Scheme, which is a governmental healthcare program established to subsidize the cost of pharmaceuticals to Australian citizens.
China: The export of our infant formula to China is subject to regulation by themultiple Chinese regulatory agencies. The regulations applicable to infant formula and imported infant formulas are evolving, and further regulatory bodiesrevisions are expected to be implemented in the placefuture. In April 2014, the Certification and Accreditation Administration of the People’s Republic of China ("CNCA") conducted an assessment on registration of infant formula dairy producers in the U.S. As a result of this assessment, our Vermont infant formula manufacturing site was approved by CNCA to export infant formula to China.
Employees
As of June 27, 2015 we had approximately 13,500 full-time and temporary employees worldwide, of which approximately 3,000 were covered by collective bargaining agreements. As of June 28, 2014 we had approximately 10,200 full-time and temporary employees worldwide, of which approximately 1,500 were covered by collective bargaining agreements. The increase in both total employees and employees covered by collective bargaining agreements was due to the Omega acquisition. The majority of our employees covered by collective bargaining agreements are located in Europe, Mexico, and Israel. We consider our employee relations generally satisfactory.
Available Information
Our principal executive offices are located at the Treasury Building, Lower Grand Canal Street, Dublin 2, Ireland and our administrative offices are located at 515 Eastern Avenue, Allegan, Michigan 49010. Our telephone number is +353 1 7094000. Our website address is www.perrigo.com, where we make available free of charge our reports on Forms 10-K, 10-Q and 8-K, including any amendments to these reports, as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). These filings are also available to the public at www.sec.gov and www.isa.gov.il.
Perrigo Company plc- Item 1A
Risk Factors
Risks Related to Operations
If we do not continue to rapidly develop, manufacture and market innovative products that meet customer demands, we may lose market share and our net sales may be negatively impacted.
Our continued growth is due in large part to our ability to rapidly develop, manufacture, and market products that meet customer requirements for performance, safety, and cost effectiveness. Continuous introductions of new products and product categories are critical to our business. If we do not continue to develop, manufacture, and market new products, we could lose market share, and our net sales may be negatively impaired. See Item 1. Business - Research and Development for more information.
We maintain a diversified product line to function as wella primary supplier for our customers. Capital investments are driven by growth, technological advancements, cost improvement and the need for manufacturing flexibility. Our estimates of future capital expenditures could vary materially due to the uncertainty of these factors. In addition, if we fail to stay current with the latest manufacturing, information and packaging technology, we may be unable to competitively support the launch of new product introductions.
Our product margins may decline over time due to our products' aging life cycles, changes in consumer choice, or developments in new drug delivery technology; therefore, new product introductions are necessary to maintain our current financial condition. If we are unable to continue to create new products, we may lose market share and our net sales may be negatively impacted.
We must prove that the ANDA drug products our CHC and Rx Pharmaceuticals segments produce are bioequivalent to their branded counterparts, which requires bioequivalency studies, and in the case of topical products, even more extensive clinical trials to demonstrate the efficacy. The development and commercialization process, particularly with respect to innovative products, is both time consuming and costly and involves a high degree of business risk. Products currently under development, if and when fully developed and tested, may not perform as expected, may not pass required bioequivalence studies or may be the subject of intellectual property challenges. Necessary regulatory approvals may not be obtained in a timely manner, if at all, and we may not be able to successfully and profitably produce and market such products. This could negatively impact our net sales.
Our ability to attract and retain scientists proficient in emerging delivery forms and/or contracting with a third party in order to generate new products of this type is critical to our long-term plans. If we fail to attract and retain this talent, our long term sales growth and profit could be adversely impacted.
Even upon the successful development of a product, our customer's failure to launch a product successfully could adversely affect our operating results. In addition, the FDA or similar regulatory agency could impose higher standards and additional requirements, such as requiring more supporting data and clinical data than previously required, in order to gain regulatory clearance to launch new formulations into the market.
We contract with clinical research organizationss ("CROs") to conduct various studies that are used to support our new product development program. During the third quarter of fiscal year 2013, certain of these CROs began bankruptcy or receivership proceedings, including PRACS Institute, LLC, PRACS Institute Canada B.C. Ltd., Comprehensive Clinical Development, Inc., and their related entities. It is uncertain what impact these insolvency proceedings may have on their ability to deliver their study results to us or on our ability to rely on their research. To the extent these CROs cannot deliver their study results to us or we cannot rely, in whole or in part, on the research conducted by them, we may be required to delay the launch of new products, which could have a material adverse impact on our future operating results. The FDA may be limited in its ability to inspect CROs' study facilities or to gain access to source study documents, which may result in us having to repeat biostudies. If these scenarios occur, it could result in approval delays for new products, which could adversely impact our future net sales. These situations are unique, and we are unable to predict the FDA's position on the studies conducted by these now bankrupt CROs.
Perrigo Company plc- Item 1A
Risk Factors
Our CHC and BCH segments are impacted by changes in consumer preferences. If we are unable to adapt to these changes, we may lose market share and our net sales may be negatively impacted.
While the market for store brand products has grown in recent years, there can be no assurance that the growth will continue. Additionally, consumer preferences related to health and nutritional concerns may change, which could negatively impact demand for our CHC and BCH products or cause us to incur additional costs to change our products or product packaging.
The future growth and stability of U.S. store brand market share will be impacted, in part, by general economic conditions, which can influence consumers to switch to and from store brand products. Our CHC segment sales could be negatively affected if economic conditions improve and consumers return to purchasing higher-priced brand-name products. Conversely, while store brand products present an alternative to higher-priced branded products, if economic conditions deteriorate, our CHC segment sales could be negatively impacted if consumers forgo obtaining healthcare or reduce their healthcare spending.
Our BCH segment's success is due in large part to the continued growth in demand for its lifestyle products, which include weight-loss products and various dietary supplements. If demand for these products decreases, our BCH segment's results of operations would be negatively impacted.
Our CHC customers may request changes in packaging to meet consumer demands, which could cause us to incur inventory obsolescence charges and redesign costs, which would negatively impact the CHC segment's results of operations.
Our infant formula product category within our CHC segment is subject to changing consumer preferences and health and nutrition-related concerns. Our business depends, in part, on consumer preferences and choices, including the number of mothers who choose to use infant formula products rather than breastfeed their babies. To the extent that private, public, and government sources may promote the benefits of breastfeeding over the use of infant formula, there could be a reduced demand for infant formula products. We could also be adversely impacted by an increase in the number of families that are provided with infant formula by the U.S. federal government through the Women, Infants and Children program, as we do not participate in this program.
We face risks associated with the successful integration of our recently-acquired Omega business.
As described in Item 1. Business - Major Recent Developments, we closed on the Omega acquisition on March 30, 2015. In addition to the risks mentioned under "We may not realize the benefits of business acquisitions and divestitures we enter into, which could have a material adverse effect on our operating results", the Omega acquisition exposes us to a number of additional business, financial, and competitive risks, including:
The Omega acquisition represents a major shift in our business, both geographically, as our business is now more heavily concentrated in European markets than before, and operationally, as the regulatory agencyOmega business sells well-known branded products using a large sales force. These changes may present challenges and risks related to, among other things, our attempt to create synergies with Omega. There is no assurance that we will be able to successfully integrate Omega or otherwise realize the expected benefits of the Omega acquisition.
Our success in the European markets in which Omega operates will depend on a number of factors, such as:
our ability to commercialize new products;
our ability to adapt to changes in economic and political conditions;
fluctuations in the product is exported. The Company's Israeli facilityvalue of foreign currencies and interest rates;
compliance with differing regulatory and legal requirements, including tax laws, trade laws, labor, safety, local content, consumer protection regulation and import or export licensing requirements; and
consistency and transparency of foreign tax systems, transfer pricing stability across jurisdictions, and our ability to reinvest earnings and cash as appropriate.
Perrigo Company plc- Item 1A
Risk Factors
Many of these factors are beyond our control, and any one of them could result in increased costs, decreased net sales and diversion of management’s time and energy, any or all of which could materially impact our business, financial condition, and results of operations.
While Omega has not historically been subject to U.S. laws and regulations, such as the FCPA, it has been approved bysubject to a wide range of European laws and regulations, including the FDA, Israel MinistryU.K. Bribery Act of Health ("IMOH"2010. The comparable U.S. laws and regulations to which Omega is now subject may differ from those to which Omega was historically subject. Therefore, it is possible that certain Omega sales or other activities that were permitted while Omega was an independent company may no longer be permitted. While we are putting into place compliance processes and controls intended to ensure compliance with U.S. and global laws that now apply to Omega, if Omega’s operations fail to comply with such laws and regulations, we could be subject to governmental investigations, legal or regulatory proceedings, substantial fines, and/or other legal or equitable penalties.
We have been the subject of unsolicited interest from Mylan, which has been, and may continue to be, a distraction to our management and could have a material adverse impact on our business and operations.
The pharmaceutical industry has been intensely acquisitive over the past several years. Mylan has made several unsolicited offers to purchase all of our outstanding ordinary shares as described in detail below. The uncertainty regarding Mylan’s future actions or further pursuit of a revised proposal or offer may be disruptive to our business, which could have a negative effect on our operations, financial condition, or results of operations.
Since April 2015, Mylan has made several unsolicited offers to purchase all of our outstanding ordinary shares as described below:
April 6, 2015 - Mylan sent a letter containing an unsolicited proposal to acquire all of our outstanding ordinary shares for $205.00 per share (the "Proposal"), Federal Institutewhich Mylan made public on April 8, 2015. Following a comprehensive review, our Board of Directors unanimously rejected the Proposal, concluding that it substantially undervalued us and our future growth prospects and was not in the best interests of our shareholders.
Prior to making the Proposal, Mylan was the subject of market speculation related to a possible offer to purchase Mylan from Teva Pharmaceutical Industries Ltd. ("Teva"). On April 21, 2015, Teva announced an unsolicited proposal to acquire all of the outstanding shares of Mylan for Drugs$82.00 per share, with the consideration to be comprised of approximately 50% cash and Medical Devices ("BfArM")50% stock. On April 27, 2015, Mylan announced that its Board of Germany, Federal CommissionDirectors had rejected the proposal, following which Teva reiterated its commitment to its proposal.
April 24, 2015 - Mylan provided a firm offer to acquire all of our outstanding ordinary shares for a combination of $60.00 per share in cash and 2.2 Mylan ordinary shares for each of our ordinary shares (the “Offer”). That same day, we announced our Board of Directors' rejection of the Offer, for the Protection against Sanitary Risks ("COFEPRIS")same reasons we rejected the Proposal.
April 29, 2015 - Mylan announced a revised offer to acquire all of Mexico, Pharmaceuticalour outstanding ordinary shares for $75.00 per share in cash and Medical Devices Agency ("PMDA")2.3 Mylan ordinary shares for each of Japan, andour ordinary shares (the “Revised Offer”). That same day, we announced our Board of Directors' rejection of the Korean Food and Drug Administration ("KFDA") and has received GMP certificationRevised Offer. Since our rejection of the Revised Offer from each agency. The Company's India facility hasMylan, no further offers have been inspected bymade. However, Mylan reiterated its proposal to acquire us on the FDA and has received GMP certification.terms of the Revised Offer in its proxy statement filed on July 28, 2015. Additionally, on July 27, 2015, Mylan announced that it will hold an extraordinary general meeting of its shareholders on August 28, 2015 in connection with its proposed acquisition of us.
On July 27, 2015, Teva announced that it had withdrawn its proposal to acquire Mylan. Teva’s decision to terminate its proposal to acquire Mylan followed Teva’s announcement that it had entered into a definitive agreement with Allergan to acquire Allergan Generics.
Perrigo Company plc- Item 1A
Risk Factors
Employees
AsOn August 13, 2015, Mylan announced that it formally lowered the acceptance condition for its offer to acquire Perrigo from not less than 80% of June 28, 2014, the Company had approximately 10,220 full-time and temporary employees worldwide, located as follows:
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| | | | | | |
| Country | | Total Number of Employees | | Number of Employees Covered by Collective Bargaining Agreements |
| U.S. | | 6,500 |
| | 290 |
|
| Israel | | 1,300 |
| | 550 |
|
| Mexico | | 1,200 |
| | 700 |
|
| U.K. | | 800 |
| | — |
|
| Rest of the world | | 420 |
| | — |
|
Risks RelatedPerrigo ordinary shares to the Company's Businessgreater than 50% of Perrigo ordinary shares.
Risks RelatedResponding to the Company's ProductsProposal, Offer, and IndustryRevised Offer has been, and may continue to be, a distraction for certain of our management and employees, and has required, and may continue to require, us to incur additional expenses and costs. Since the announcement of the offer, we have incurred $13.4 million in related fees. Management and employee distraction related to Mylan's unsolicited interest also may adversely impact our ability to optimally conduct our business and pursue our strategic objectives. Further, we are deemed to be in an "offer period" for the purposes of the Irish Takeover Rules, which may restrict our ability to execute our strategy on a timely basis.
The Company operatesWe operate in a highly regulated industry. Anindustry, and any inability to timely meet current or future regulatory requirements could have a material adverse effect on the Company'sour business, financial position, and operating results.
SeveralWe are subject to the regulations of a variety of U.S. and non-U.S. agencies regulaterelated to the manufacturing, processing, formulation, packaging, labeling, testing, storing, distribution, advertising, and sale of our products as described in detail in Item 1. Business - Government Regulation and Pricing.Government regulation in the Company's products. Various statemarkets in which we operate could impact our business, and localour future results could be adversely affected by changes in such regulations or policies. Below are some of the ways in which government regulation could impact our business and/or financial results:
We must obtain approval from the appropriate regulatory agencies also regulate these activities. In addition, the Company manufacturesin order to manufacture and markets certain of itssell our products in accordance with the guidelines established by voluntary standards organizations. Should the Company or one of its third-party service providers usedregions in which we operate. Obtaining this approval can be time consuming and costly. There can be no assurance that, in the development or commercialization of products failevent we submit an application to adequately conform to these regulations and guidelines, there may be a material adverse impact on the operating results of the Company. Packaging, labeling or marketing changes mandated by the FDA or stateany other regulatory agency approval, we will obtain the approval to market a prescription or OTC product and/or that we will obtain it on a timely basis. If we are granted generic exclusivity, the exclusivity may be shared with other generic companies, including authorized generics; or it is possible that we may forfeit 180-day exclusivity if we do not obtain regulatory approval or begin marketing the product within the statutory requirements. Finally, if we are not the first to file our ANDA, the FDA may grant 180-day exclusivity to another company, thereby effectively delaying the launch of our product.
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| • | If the FDA reclassifies certain ANDA or NDA drug products to the OTC monograph system and no longer requires the approval of an ANDA or NDA prior to marketing, there may be increased competition and lower profitability related to such products. While we would make appropriate adjustments to remain in compliance with any changes and updates to the OTC monograph system, we cannot predict whether new legislation will be enacted, the effect of any such legislation on our business, or how it may impact the competitive landscape. See Item 1. Business - Consumer Healthcare for more information on the OTC monograph system. |
Regulatory agencies regularly inspect our manufacturing facilities and localthe facilities of our third-party suppliers. The failure of one of our facilities, or a facility of one of our third-party suppliers, to comply with applicable laws and regulations may lead to a breach of representations made to our customers, or to regulatory or government action against us related to the products made in that facility. Such action could include: suspension of or delay in regulatory approvals, product seizure, injunction, recall, suspension of production or distribution of our products, loss of certain licenses or other governmental penalties, civil or criminal prosecution. Additionally, the agency could make its concerns public, thereby impacting our reputation.
The FDA, and similar regulatory agencies, can have the authority to require new clinical or bioequivalence studies, limit distribution, or order label changes. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals if there are concerns over a material adverseproduct's safety or efficacy. The FDA also conducts non-prescription drug advisory committee meetings to evaluate the safety of introducing prescription products to the OTC market. The expansion of Rx-to-OTC switches is critical to our future growth. FDA reluctance to approve OTC switches in new product categories could impact on the results of operations of the Company. that growth.
Perrigo Company plc- Item 1A
Risk Factors
The U.S. government has enacted the Federal Drug Supply Chain Security Act ("DSCSA") that requires development of an electronic pedigree to track and trace each prescription drug at the salable unit level through the distribution system, which will be effective incrementally over a 10-year period. The serialization of all Rx products distributed in the U.S. needs to be completed by November 27, 2017, with the requirement for tracking the products commencing on November 27, 2023. Requirements for the tracing of products through the pharmaceutical distribution supply chain go into effect on January 1, 2015, for manufacturers, wholesale distributors, and re-packagers, and on July 1, 2015 for dispensers. Compliance with DSCSA and future U.S. federal or state electronic pedigree requirements may increase the Company'sour operational expenses and impose significant administrative burdens.
Required changesSeveral bills have been introduced in U.S. Congress that could, also be related to safety or efficacy issues. Similarly,if enacted, affect the failure by the Company or onemanufacture and marketing of its suppliers to comply with manufacturing, quality and testing guidelines and regulations could have a significant adverse impact on the Company's operating results. There is also the risk that the FDA could require the Company to audit or repeat prior bioequivalence or clinical studies or the FDA could change or withdraw the approval governing such products, which could have a material adverse impact on the results of the Company's operations. The Company believes that it generally has a good relationship with the FDA, which it intends to maintain. If these relationships should deteriorate, however, the Company's ability to bring new and current products to market could be impeded.
All U.S. facilities where Rx infant formula, dietary supplements and OTC drugs are manufactured, tested, packaged, stored or distributed must comply with FDA cGMPs. All of the Company's ANDA, NDAincluding labeling and OTC drug products are manufactured, tested, packaged, stored and distributed according to cGMP regulations. The FDA performs periodic audits to ensure that the Company's facilities remain in compliance with all applicable regulations. If it finds violations of cGMP,packaging. For example, the FDA could make its concerns public and could impose sanctions including, among others, fines, product recalls, total or partial suspension of production and/or distribution, suspension of the FDA's review of product applications, injunctions and civil or criminal prosecution. If imposed, enforcement actions could have a material adverse effect on the Company's operating results and financial condition. Under certain circumstances, the FDA also has the authorityis proposing to revoke previously grantedchange existing regulations to require generic drug approvals. Although the Company has internal compliance programs in placeapplication holders to revise their labeling so that it believes are adequate,differs from the FDA may conclude that these programs do not meet regulatory standards. If compliance is deemed deficient in any significant way, it could have a material adverse effect on the Company's business.
The FDA's policy regarding the awardcorresponding brand drug upon submission of a 180-day market exclusivity period to generic manufacturers who successfully challenge patents relating to specific products continues to be the subject of extensive litigation in the U.S. The FDA's current interpretation of Hatch-Waxman is to award 180 days of exclusivity"changes being effected" ("CBE-0") supplement to the first generic manufacturer who files a successful Paragraph IV certification under Hatch-Waxman challenging the patent(s) of the branded product, regardless of whether the manufacturer was sued for patent infringement. Although the FDA's interpretation may benefit some of the products in the Company's pipeline, it may adversely affect others. The Medicare Prescription Drug Improvement and Modernization Act of 2003 provides that the 180-day market exclusivity period provided under Hatch-Waxman is triggered by the commercial marketing of the product. However, the Medicare Prescription Drug Act also contains forfeiture provisions which, if met, will deprive the first Paragraph IV filer of exclusivity. Additionally, the manufacturer of the branded product may launch a generic version of its own drug, known as an authorized generic. Under certain circumstances, the Company may not be able to fully exploit its 180-day exclusivity period resulting from it being the first filer.
Under the Food and Drug Administration Amendments Act of 2007, the FDA has the power to restrict medications that raise serious safety concerns. This law requires, and provides funding for, the FDA to monitor drugs after they go on the market. In addition, this law requires companies to make public the results of many of their studies. Under this law, the FDA has the authority to require new studies, limit distribution or order label changes. Because of this law, the Company's ability to bring new and current products to market could be impeded, which could have a negative material impact on the Company's financial position or results of operations.
The Company's prescription drug products that are marketed without approved applications must meet certain manufacturing and labeling standards established by the FDA. The FDA's policy with respect to the continued marketing of unapproved products is stated in the FDA's September 2011 compliance policy guide, titled "Marketed New Drugs without Approved NDAs or ANDAs." Under this policy, the FDA has stated that it will follow a risk-based approach with regard to enforcement against such unapproved products. The FDA evaluates whether to initiate enforcement action on a case-by-case basis, but gives higher priority to enforcement action against products in certain categories, such as those marketed as unapproved drugs with potential safety risks or that lack evidence of effectiveness. The FDA recognizes that certain unapproved products, based on the introduction date of their active ingredients and the lack of safety concerns, among other things, have been marketed for many years and, at this time, might not be subject to immediate enforcement action. The Company believes that so long as it complies with applicable manufacturing and labeling standards, it will be in compliance with the FDA's current enforcement policy. There can be no assurance that the FDA will continue this policy or not take a contrary position with any individual product or group of products. If the FDA were to take a contrary position, the Company may be required to seek FDA approval for these products or withdraw such products from the market. For fiscal 2014, the Company's annual sales for such unapproved products were approximately $36 million.
The Nonprescription Drug Advisory Committee met in December 2007 to discuss the efficacy of phenylephrine, an active ingredient used in various cough and cold products as a nasal decongestant. The advisory committee vote recommended that available data is "supportive" of the efficacy of phenylephrine at 10 milligrams. In addition, the advisory committee recommended additional evidence to support the efficacy of a 10 milligram dose of phenylephrine. The recommendations by the advisory committee are not binding on the FDA. It is not known at this time what, if any, further action the FDA or industry will take in response to recommendations of the advisory committee. In fiscal 2014, products containing phenylephrine generated revenues of approximately $77.7 million.
In October 2007, the FDA convened a joint meeting of the Pediatric and Nonprescription Drugs Advisory committees to discuss the safety and efficacy of OTC cough and cold products for use in children. The advisory committees recommended that these products no longer be used in children under the age of six. On October 8, 2008, the FDA issued a statement supporting the voluntary action of the Consumer Healthcare Product Association ("CHPA"), of which the Company is a member, to modify product labels for consumers of OTC cough and cold medicines to state "do not use" in children under four years of age. The Company completed the CHPA recommended revisions to all OTC cough and cold products in April 2010. The FDA has not yet issued any further guidance abouta final rule on this issue. If this proposed regulatory change is adopted, it may eliminate the labelingpreemption of OTC cough and cold medicines in children two years of age and older. Sales of the Company's pediatric cough and cold products could be adversely affected should the FDA adopt the more restrictive recommendations of the advisory committee.
The Company's activitiescertain failure-to-warn claims, with respect to itsgeneric drugs, which could have an adverse impact on our future operating results. Regulatory bodies outside of the U.S. could enact similar legislation. We cannot predict whether further label restrictions may be required, or whether additional regulations in the U.S. or other countries in which we operate, may be passed.
Our infant formula products also may be subject to barriers or sanctions imposed by countries or international organizations limiting international trade and dictating the specific
content of infant formula products. In addition, regulatory changes or decisions that restrict the manufacture, labeling and availability of the Company's infant formula productsGovernments could affect the Company's results of operations. For example, certain governmental agencies, non-governmental organizations and consumer advocates have lobbied against the marketing and sale of some infant formula products. These efforts could result in increased regulatory restrictions or enforcement. The U.S. government will likely continue to enhance its regulations on the industry aimed to ensureat ensuring the safety and quality of dairy products, including, but not limited to, compulsory batch-by-batch inspection and testing for additional safety and quality issues. Such inspections and testing may increase the Company'sour operating costs related to its infant formula products. Additionally, the FDA isand other regulatory agencies are beginning to scrutinize claims on infant formula labels. LabelingAny labeling changes required for regulatory compliance could render our packaging inventories obsolete.
The Food and Drug Administration Safety and Innovation Act ("FDASIA") was signed into law on July 9, 2012. The law established, among other things, new user fee statutes for generic drugs and biosimilars, FDA authority concerning drug shortages, changes to enhance the FDA's inspection authority of the drug supply chain, and a limited extension of the generic drug paragraph IV 30-month stay provision. The FDASIA also reduced the time required for FDA responses to generic blocking citizen petitions. The Company implemented new systems and processes to comply with the new facility self-identification and user fee requirements of FDASIA. The Company monitors facility self-identification and fee payment compliance to mitigate the risk of potential supply chain interruptions or delays in regulatory approval of new applications.
On August 1, 2013, the FDA released a Drug Safety Communication notifying the public of an association between acetaminophen and the risk of rare, but serious, skin reactions (reddening of the skin, rash, blisters, detachment of the skin's upper surface). This resulted from a review of the FDA adverse event database (1969-2012) and reports in the medical literature. Other prescription and OTC drugs used to treat fever and pain/body aches (e.g., non-steroidal anti-inflammatory drugs, or NSAIDS, such as ibuprofen and naproxen) also carry the risk of causing serious skin reactions, which is already described in the warnings section of their drug labels. As a result of these findings, the FDA has required the addition of a warning addressing serious skin reactions to prescription drug products containing acetaminophen. The FDA has also requested that manufacturers of acetaminophen OTC products marketed under a new drug applicationor under the OTC monograph add a similar warning. The warning has not materialized or resulted in a change in product sales.
On June 10, 2014, the FDA published a final rule ("FR") entitled "Current Good Manufacturing Practices, Quality Control Procedures, Quality Factors, Notification Requirements, and Records and Reports, for Infant Formula." The FR includes, among other things, new or modified requirements related to infant formula manufacturing, quality controls, record-keeping, and clinical trials. While it is uncertain how the FDA will interpret and enforce the FR, the Company iswe are taking steps to comply with the provisions of the FR. Compliance with the FR may require significant expenditures.could be costly. To the extent the FDA believes that the Company haswe have not complied with the FR, itwe could lead toexperience potential supply chain disruptions and delays in commercialization of new infant formula products, which could impede the Company’s sales and revenue and adversely affect the Company’s financial position or results of operations.products.
The FDA conducts non-prescription drug advisory committee meetingsWe have expanded our pharmaceutical marketing to evaluateinclude direct interactions with healthcare professionals, which is known as “detailing.” This activity is subject to extensive regulation under a variety of U.S. laws and regulations, including anti-kickback, anti-bribery and false claims laws; the safety of introducingFFDCA with respect to claims and off-label promotions; and similar laws in non-U.S. jurisdictions. If our marketing activities are found to be improper, we could be subject to civil and governmental actions and penalties. These risks may increase as non-U.S. jurisdictions adopt new prescription categories to the OTC market. The expansion of category switches is critical to the future growth of the Company. FDA reluctance to approve OTC switches in new product categories could impact that growth.anti-bribery laws and regulations.
The Company manufacturesWe manufacture products that are safe and effective when used in accordance with label directions; however, certaindirections. Certain of our products contain ingredients that can be used for improper purposes. Additional legislation or regulation may be enacted to mitigate improper uses of these ingredients, which could have an adverseadversely impact on the Company'sour sales of such products and resulting income.
The Company's products are safe and effective when used in accordance with label directions. However, certain products contain ingredients that can be, and in some cases are, used for improper purposes. Pseudoephedrine and dextromethorphan are two of these ingredients, but others may exist. Increasingly, various efforts are employed by U.S. federal and state governments in an effort to curb this misuse, including the consideration of additional legislation or regulation that may result in further restrictive requirements for the manufacture or sale of products containing these ingredients. The Company cannot predict ifingredients and the corresponding income.
If we are unable to successfully obtain the necessary quota for controlled substances and List I chemicals, we risk having delayed product launches or when any additional legislationfailures to meet commercial supply obligations. If we are unable to comply with regulatory requirements for controlled substances and List I chemicals, the DEA, or regulation will be passed and any adverse impact itsimilar regulatory agency, may have ontake regulatory actions, resulting in temporary or permanent interruption of distribution of our products, withdrawal of our products from the Company's results of operations.market, or other penalties.
Perrigo Company plc- Item 1A
Risk Factors
Pseudoephedrine - The Company produces a number ofOur prescription products that containare marketed without approved applications must meet certain manufacturing and labeling standards established by the FDA. The FDA takes a risk-based approach to its enforcement and considers factors such as the introduction date of the product's active ingredient pseudoephedrine ("PSE"), which is indicated as a nasal decongestant. PSEingredients, lack of safety concerns, and how many years the product has been under scrutiny as an ingredient illegally usedmarketed. There can be no assurance that the FDA will continue this policy or not take a contrary position with respect to produce methamphetamine. To address this concern, legislation has been enacted atany individual product or group of products. If the FDA were to take a contrary position, we may be required to seek FDA approval for these products or withdraw the products from the market. Our annual sales for such unapproved products were approximately $46.5 million in fiscal year 2015.
In addition, our operations extend to numerous countries outside the U.S. federal level restrictingand are subject to the salesrisks inherent in conducting business globally and under the laws, regulations, and customs of PSE products (i.e., Combat Methamphetamine Epidemic Act)various jurisdictions. These risks include compliance with a variety of national and authorizing the DEA to place quotas on the amountslocal laws of PSE raw material that can be procured (i.e., the Controlled Substances Act). At the state level, a number of states have introduced or passed legislation placing additionalcountries in which we do business, such as restrictions on the saleimport and export of PSE products. In addition, the statescertain intermediates, drugs, and technologies. We must also comply with a variety of Oregon and Mississippi have moved PSE productsU.S. laws related to Rx status; many localities have passed similar legislation and a few other states have considered moving PSE products to Rx status. Additionally, certain retailers have voluntarily restricted sales of single active ingredient PSE-containing products in at least one state. Sales of PSE products could be adversely affected by action at the U.S. state or federal level to place additional restrictions on the sale of PSE products.
Dextromethorphan -The Company manufactures several products that contain the active ingredient dextromethorphan, which is indicated for cough suppression. Dextromethorphan has come under scrutiny because of its potential to be abused. Legislation has been unsuccessfully introduced at the U.S. federal level over the past few sessions of Congress that, if enacted, generally would have prohibited the bulk sale of dextromethorphan and would have imposed an age limit of 18 years old in order to purchase finished products containing dextromethorphan. Similarly, six U.S. states and a number of localities have passed legislation to prohibit the sale of dextromethorphan containing products to minors without a prescription. It is possible that other government entities could introduce and pass legislation imposing additional or different restrictions on the sale of dextromethorphan in finished dosage form, such as requiring a minimum age to purchase product. The Company cannot predict whether anydoing business outside of the proposed legislation will be passed or, if it is passed, its impact on future revenues attributableU.S., including Office of Foreign Asset Controls, United Nations and EU sanctions; the Iran Threat Reduction and Syria Human Rights Act of 2012; and rules relating to these products.
The FDA held a meeting of the Drug Safety and Risk Management Advisory Committee on September 14, 2010 to discuss the potential abuse of the drug dextromethorphan and the public health benefits and risks of dextromethorphan use as a cough suppressant in prescription and nonprescription drug products. In a 15-9 vote, an FDA advisory panel voted not to restrict dextromethorphan cough medications to prescription-only. It is possible the FDA could still recommend in the future that dextromethorphan containing products be considered a scheduled substance, which would remove their status as an OTC product. The Company cannot predict the likelihood of such activity by the FDA or any adverse impact such activity may have on the Company's results of operations. In fiscal 2014, products containing dextromethorphan generated revenues of approximately$131.3 million.
Acetaminophen - The Company manufactures several products that contain the active ingredient acetaminophen, which is indicated as an analgesic. In June 2009, the FDA held a public advisory committee meeting to discuss how to address the potential for liver injury related to the risk of overdose of acetaminophen in both OTC and Rx products. The FDA expressly stated that the risk of developing liver injury to the individual patient who uses the drug according to directions is extremely low and that it is not seeking to remove acetaminophen from the market. However, due to the extensive use of acetaminophen-containing products, the FDA sought guidance from several advisory committees regarding measures to reduce the potential for liver injury associated with acetaminophen use. Measures discussed include, but were not limited to, reducing the maximum single-dose and daily-dose, reducing packaging sizes, and increasing consumer educational efforts regarding such products. At a May 2011 meeting of the FDA's Nonprescription Drugs Advisory Committee and Pediatric Advisory Committee to review efforts to reduce medication errors around the use of single-ingredient pediatric acetaminophen, the FDA joint committees unanimously voted: (1) in supportcertain “conflict minerals” under Section 1502 of the addition toDodd-Frank Wall Street Reform and Consumer Protection Act. Further changes in laws, regulations, and practices affecting the labelpharmaceutical industry and the healthcare system, including imports, exports, manufacturing, quality, cost, pricing, reimbursement, approval, inspection, and delivery of weight-based dosing for children ages two to twelve; (2) that the pharmacokinetic ("PK"), safetyhealthcare may affect our business and efficacy data would be required to support the addition of new label directions for children six months to two years of age; and (3) that the new labeling for children six months to two years of age include the indication for fever reduction. The committees did not support an indication in labeling for children six months to two years of age for relief of pain; this indication is currently included for children over two years of age. The FDA is reviewing the input it received from the advisory committees and additional comments submitted through the docket. In fiscal 2014, products containing acetaminophen generated revenues of approximately $260.1 million for the Company. The Company cannot predict whether the FDA will adopt any recommendations of the advisory committees regarding the sale and use of acetaminophen or whether any such recommendations, if adopted by the FDA, would impact future revenues attributable to these products.operations.
U.S. federal and state healthcareHealthcare reform and related changes to reimbursement methods as well as measures in Israel and many European countries,outside of the United States may have an adverse effect on the Company'sour financial condition and results of operations.
Increasing healthcare expenditures for healthcare have been the subject ofreceived considerable public attention in North America, Israel and many European countries. Both private and governmental entities are seeking ways to reduce or contain healthcare costs. In manyof the countries where the Company currently operates, pharmaceutical prices are subject to regulation.in which we operate. In the U.S., numerous proposals that would effect changes in the U.S. healthcare systemgovernment programs such as Medicare and the pharmaceutical industry have been introduced or proposed in Congress and in some state legislatures that could include, but not be limited to, intellectual property, regulatory, antitrust, drug pricing and product liability issues. Similar activities are taking place throughout Europe. As a result of governmental budgetary constraints, the Israel Ministry of Health and the major Israeli health funds have sought to further reduce healthcare costs by, among other things, applying continuous pressure to reduce pharmaceutical prices and inventory levels. The Company cannot predict the nature of the measures that may be adopted, how they will be interpreted by the courts or the administrative agencies charged with enforcing them or their impact on the marketing, pricing and demand for its products.
The Company has a Medicaid, rebate agreement in effect with the U.S. federal government. U.S. federal and/or state governments have enacted and are expected to continue to enact measures aimed at reducing the cost of drugs to such governmental payers as well as private insurers have been focused on cost containment. In the public, including health reform legislation enacted in 2010. Management cannot predict the nature of such measures or their impact on the Company's profitability. Various U.S. states have in recent years also adopted supplemental drug rebate programs that are intended to provide the individual states with additional manufacturer rebates on Medicaid utilization overEU and above those required under a manufacturer's federal Medicaid agreement. States also have created drug coverage and corresponding manufacturer rebate programs for non-Medicaid populations, known as state pharmaceutical assistance programs. These rebate programs are generally designed to mimic the U.S. federal drug rebate program in terms of how the manufacturer rebates are calculated. Although there are a number of supplemental and state pharmacy assistance rebate programs, for the Company they are insignificant in the aggregate compared to its Medicaid drug rebate obligations.
As discussed under "Medicaid Drug Rebate Program and Other Drug Pricing Programs," the Company is required to report AMP data to CMS on a monthly as well as a quarterly basis. In addition to using AMP to calculate Medicaid rebates, CMS is preparing to use AMP to calculate a type of U.S. federal ceiling on reimbursement rates for multiple source drugs to pharmacies under the Medicaid program, known as the federal upper limit ("FUL"). Prior to using AMP, CMS typically used pricing data from third-party compendia, such as the AWP or WAC, in the calculation of FULs. Health reform legislation enacted in 2010 amended the statutory definition of AMP and also amended the definition of "multiple source drug" in a manner that materially affects the calculation of FULs. CMS has begun posting draft AMP-based FUL reimbursement files on the CMS website that are calculated based on the requirements of the health reform legislation. Currently, the FUL reimbursement files are for review and comment only; however, CMS has announced that it plans to publish final FULs after a period of releasing them in draft format. CMS issued a proposed rule in February 2012 that provided guidance on the revised AMP definition and calculation of FULs but has not issued a final rule. Separately, under existing statutory authority granted by the Deficit Reduction Act of 2005, CMS has begun collecting retail survey price information from retail community pharmacies to generate publicly available pricing files. CMS expects that the pricing files will provide state Medicaid agencies with an array of covered outpatient drug prices and that state agencies can use this information to compare their own reimbursement and pricing methodologies and rates to those derived from the surveys. CMS has begun posting drafts of this retail survey price information on at least a monthly basis in the form of draft NADAC files, which reflect retail community pharmacy invoice costs, and NARP files, which reflect retail community pharmacy prices to consumers. In July 2013, CMS suspended the publication of draft NARP data, pending funding decisions. In November 2013, CMS moved to publishing final rather than draft NADAC data and has since made updated NADAC data publicly available on a weekly basis. The Company does not know how the new methodologies for calculating AMP and FULs or the retail survey price information will affect the Company's pharmacy customers or to what extent these customers will seek to pass on any decrease in Medicaid reimbursements to the Company. The Company cannot predict how the sharing of FUL and retail survey prices may impact competition in the marketplace.
The Company encounters similar regulatory and legislative issuessome other markets outside the U.S., too. In the European Union and some other international markets, the government provides healthcare at low direct cost to consumers and regulates pharmaceutical prices or patient reimbursement levels to control costs for the government-sponsored
healthcare system. Many countriesBoth private and governmental entities are seeking ways to reduce their public expenditures on healthcare. These efforts may resultor contain healthcare costs.
Our Rx Pharmaceutical segment in patientparticular could be adversely impacted by measures taken by governmental entities or private insurers to restrict patients' access restrictions, increasedto our products or increase pressure on drug pricing, including denial of price increases, prospective and retrospective price decreases, and increased mandatory discounts or rebates. These actions may drive us and our competitors to decrease prices or may reduce the ability of customers to pay for our products, which could negatively impact the Rx Pharmaceutical segment's results of operations.
The Company's
If we fail to comply with the reporting and payment obligations under the Medicaid rebate program or other governmental purchasing and rebate programs, we could be subject to fines or penalties, which could have an adverse effect on our financial condition and results of operations.
As described in Item 1. Business - Medicaid Drug Rebate Programs, we have a Medicaid rebate agreement in effect with the U.S. government. There are inherent risks associated with participating in the Medicaid drug rebate program including the following:
We are required to report pricing data to CMS on a monthly basis. If we fail to submit required information, make misrepresentations, or knowingly submit false information to the government as to AMP, ASP, or BP, we may be liable for substantial civil monetary penalties or subject to other enforcement actions, such as under the False Claims Act, and CMS may terminate our Medicaid drug rebate agreement. In that event, U.S. federal payments may not be available under Medicaid or Medicare Part B for our covered outpatient drugs.
Health reform legislation enacted in 2010 requires the use of AMP data to calculate FULs and amends the statutory definitions of AMP and "multiple source drug" in a manner that materially affects the calculation of FULs. CMS also has begun surveying and publishing retail community pharmacy acquisition cost and consumer price information to provide state Medicaid agencies with a basis for comparing their own
Perrigo Company plc- Item 1A
Risk Factors
reimbursement and pricing methodologies and rates. We do not know how the new methodologies for calculating AMP and FULs or the retail survey acquisition cost and consumer price information will affect our pharmacy customers or to what extent these customers will seek to pass on any decrease in Medicaid reimbursements to us. We also cannot predict how the sharing of FUL data and retail survey prices may impact competition in the marketplace.
If we inadvertently overcharge the government in connection with our FSS contract or Section 703 Agreement, whether due to a misstated FCP or otherwise, we are required to refund the difference. Failure to make necessary disclosures and/or to identify contract overcharges can result in False Claims Act allegations or potential violations of other laws and regulations. Unexpected refunds to the government, and responses to a government investigation or enforcement action, are expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations, and growth prospects.
Our reporting and payment obligations under the Medicaid rebate program and other governmental purchasing and rebate programs are complex and may involve subjective decisions. Any determination that the Company has failed to comply with those obligations could subject it to penalties and sanctions, which could adversely affect the Company’s business and results of operations.
Pricing and rebate calculations vary among products and programs. The regulations regarding reporting and payment obligations with respect to Medicaid reimbursement and rebates and other governmental programs are complex and are often subject to interpretation by the Company, governmental or regulatory agencies and the courts. The Company'sOur calculations and methodologies are subject to review by the governmental agencies, and it is possible that suchthese reviews could result in challenges to the Company’sour submissions. If there is ambiguitywe do not comply with regard to how to properly calculatethose reporting and report payments, and even in the absence of any such ambiguity, a governmental authority may take a position contrary to a position that the Company has taken and may impose civil and/or criminal sanctions. In addition, because these calculations involve, and will continue to involve, subjective decisions and complex methodologies, they arepayment obligations, we could be subject to the risk of errors.
Any governmental agencies that have commenced or that may commence an investigation of the Company could impose civil and/or criminal sanctions, including fines, penalties, and possible exclusion from U.S. federal healthcare programs (including Medicaid and Medicare). Furthermore, should there
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| • | In June 2013, we received notices from the Office of the Attorney General for the State of Texas of civil investigative demands for two of our affiliates, Perrigo Pharmaceuticals Company and Paddock Laboratories, LLC ("Paddock"). The notices request information under the Texas Medicaid Fraud Prevention Act relating to the submission of prices to Texas Medicaid in claims for reimbursement for drugs. We have cooperated with requests for information and are in the process of evaluating this and other information. While we do not know the full extent of our potential liability at this time and intend to vigorously defend against any claims, we could be subject to material penalties and damages. See Item 8. Note 15 for further information. |
We face vigorous competition from other pharmaceutical companies that may threaten the commercial acceptance and pricing of our products.
We operate in a highly competitive environment. Our products compete against store brand, generic, and branded pharmaceutical companies. Competition is also impacted by changes in regulations and government pricing programs that may give competitors an advantage.
As a manufacturer of generic versions of brand-name drugs through our CHC and Rx segments, we experience competition from brand-name drug companies that may try to prevent, discourage or delay the use of generic versions through various measures, including introduction of new branded products, legislative initiatives, changing dosage forms or dosing regimens, regulatory processes, filing new patents or patent extensions, lawsuits, citizens’ petitions, and negative publicity prior to introduction of a generic product. In addition, brand-name competitors may lower their prices to compete with generic products, increase advertising, or launch, either through an affiliate or licensing arrangements with another company, or an authorized generic at or near the time the first generic product is launched, depriving the generic product market of the exclusivity intended by the Hatch-Waxman Act.
Our CHC and Rx Pharmaceuticals segments also experience competition from our generic competitors, some of whom are significantly larger than we are, may develop their products more rapidly or complete regulatory approval processes sooner, or may market their products earlier than we do. If we are not the first to file our ANDA, the FDA may grant 180-day exclusivity to another company, which would prevent us from selling the product during the exclusivity period. Even if we are the first to file, in certain circumstances, we may not be ambiguity with regardable to howfully exploit our 180-day exclusivity period.
Additionally, our CHC and Rx Pharmaceuticals segments may experience increased price competition as other generic companies produce the same product or introduce new drugs and/or drug delivery techniques that make our current products less desirable. A drug may be subject to properly calculatecompetition from alternative
Perrigo Company plc- Item 1A
Risk Factors
therapies during the period of patent protection or regulatory exclusivity, and report payments,thereafter we may be subject to further competition from generic products or biosimilars.
The pharmaceutical industry is consolidating. This creates larger competitors and evenplaces further pressure on prices, development activities, and customer retention. Our animal health category within the CHC segment also has seen a dramatic increase in direct to consumer advertising by several branded competitors, and our nutritionals category has experienced increased competition through alternative channels such as health food stores, direct mail, and direct sales.
We develop and distribute branded products through our BCH segment. We experience competition from other brand-name drug companies, many of which are larger and have more resources to devote to advertising and marketing. These direct competitors may be able to adapt more quickly to changes in customer requirements. Our current and future competitors may develop products comparable or superior to those offered by us at more competitive prices. If we are unable to compete successfully, our business will be harmed through loss of customers or increased negative pricing pressure that would adversely affect our ability to generate revenue and adversely affect our operating results.
Lack of availability, or significant increases in the absencecost, of any such ambiguity,raw materials used in manufacturing our products could adversely impact our profit margins and operating results.
Affordable high-quality raw materials and packaging components are essential to all of our business units due to the nature of the products we manufacture. In addition, maintaining good supply relationships is essential to our ongoing operations. See Item 1. Business - Materials Sourcing for more information.
We maintain several single-source supplier relationships, either because alternative sources are not available or the relationship is advantageous due to regulatory, performance, quality, support, or price considerations. Unavailability or delivery delays of single-source components or products could adversely affect our ability to ship the related product in a governmental authority may taketimely manner. The effect of unavailability or delivery delays would be more severe if associated with our higher-volume or more profitable products. Even where alternative sources of supply are available, qualifying the alternate suppliers and establishing reliable supplies could cost more or result in delays and a position contrary toloss of net sales. Additionally, FDA requirements for products approved through the ANDA or NDA process could substantially lengthen the approval of an alternate material source. As a position that we have taken and may impose civil and/or criminal sanctions on us, as disclosed above. Any such penalties, sanctions, or exclusion from U.S. federal healthcare programsresult, the loss of a single-source supplier could have a material adverse effect on our results of operations.
The rapid increase in cost of many raw materials from inflationary forces, such as increased energy costs, and our ability or inability to pass on these increases to our customers could have a negative material impact on our financial results.
Our infant formula products require certain key raw ingredients that are derived from raw milk, such as skim milk powder, whey protein powder, and lactose. Our supply of milk-based ingredients may be limited by the Company'sability of individual dairy farmers and cooperatives to provide raw milk in the amount and quality we deem necessary. Raw milk production is influenced by factors beyond our control including seasonal and environmental factors, governmental agricultural and environmental policy, and global demand. We cannot guarantee that there will be sufficient supplies of these key ingredients necessary to produce infant formula.
Our products, and the raw materials used to make those products, generally have limited shelf lives. Our inventory levels are based, in part, on expectations regarding future sales. We may experience build-ups in inventory if sales slow. Any significant shortfall in sales may result in higher inventory levels of raw materials and finished products, thereby increasing the risk of inventory spoilage and corresponding inventory write-downs and write-offs. Cargo thefts and/or diversions, and economically or maliciously motivated product tampering on store shelves may occur, causing unexpected shortages, which may have a material impact on our operations.
We rely on third parties to source many of our raw materials, as well as to manufacture sterile, injectable products that we distribute. We maintain a strict program of verification and product testing throughout the ingredient sourcing and manufacturing process to identify potential counterfeit ingredients, adulterants, and
Perrigo Company plc- Item 1A
Risk Factors
toxic substances. Nevertheless, discovery of previously unknown problems with the raw materials or product manufacturing processes, or new data suggesting an unacceptable safety risk associated therewith, could result in a voluntary or mandatory withdrawal of the contaminated product from the marketplace, either temporarily or permanently. Any future recall or removal would result in additional costs and lost revenue, harm our reputation, and may give rise to product liability litigation.
A disruption at any of our main manufacturing facilities could materially and adversely affect our business, financial position, and results of operations and could cause the market value of its common stock to decline.operations.
Our manufacturing operations are concentrated in a few locations. See Item 1. Business - Manufacturing and Distribution for more information on our significant operations. A significant disruption at one or more of these facilities, whether it be due to fire, natural disaster, power loss, intentional acts of vandalism, war, terrorism, insufficient quality, or pandemic could materially and adversely affect our business.
In June 2013,recent years, there has been increasing regulatory scrutiny of pharmaceutical manufacturers, resulting in product recalls, plant shutdowns and other required remedial actions. If any regulatory body were to require one or more of our significant manufacturing facilities to cease or limit production, our business could be adversely affected.
Any breach or disruption of our information systems could have a material adverse effect on our business.
Our systems, information, and operations, as well as our independent vendor relationships (where they support information technology and manufacturing infrastructure), are highly complex and vulnerable to disruption or damage from security breaches, hacking, data theft, denial of service attacks, human error, sabotage, industrial espionage, and computer viruses. Given our position in the pharmaceutical industry, we may be more likely to be a direct target, or an indirect casualty, of such events. While we continue to employ resources to monitor our systems and protect our infrastructure, these measures may prove insufficient depending upon the attack or threat posed. Risks include:
Breaches or disruptions could impair our ability to develop, meet regulatory approval efforts for, produce, and/or ship products on a timely basis;
Any system issue, whether as a result of an intentional breach or a natural disaster, could damage our reputation and cause us to lose customers, experience lower sales volume, and incur significant liabilities; and
We could incur significant expense in addressing a disruption and in addressing related data security and privacy concerns.
Because our business depends upon certain customers for a significant portion of our sales, our business would be adversely affected by a disruption of our relationship with these customers or any material adverse change in these customers' business.
Sales to our largest customer, Walmart, comprised approximately 15% of fiscal year 2015 net sales. While no other customer individually comprised more than 10% of total net sales, we do have other significant customers. If our relationship with one or more of these other customers, including the terms for doing business with the customers, changes significantly, it could have a material adverse impact on us. See Item 1. Business - Significant Customers for more information.
Many of our customers, which include chain drug stores, wholesalers, distributors, hospital systems, and group purchasing organizations, continue to merge or consolidate. Such consolidation has provided and may continue to provide them with additional purchasing leverage, and consequently may increase the pricing pressures we face. The emergence of large buying groups representing independent retail pharmacies enable those groups to extract price discounts on our products. In addition, a number of our customers have instituted sourcing programs limiting the number of suppliers of generic pharmaceutical products carried by that customer. These developments have resulted in heightened pricing pressure on our products, as well as competition among generic drug producers for business from a smaller and more selective customer base.
Perrigo Company plc- Item 1A
Risk Factors
Additionally, if we are unable to maintain adequately high levels of customer service over time, customers may choose to assess penalties, obtain alternate sources for products, and/or end their relationships with us.
Our Specialty Sciences segment generates revenue primarily from royalties on Tysabri®, and any negative developments related to Tysabri® could have a material adverse effect on our business.
We occasionally enter into arrangements that entitle us to potential royalties from third parties. Our most significant royalty is the Tysabri® royalty received noticesquarterly from Biogen Idec, which generated $338.4 million of pretax income in fiscal year 2015. See Item 1. Business - Specialty Sciences for more information on our Tysabri® royalty arrangement. Our pretax income could be adversely affected if the Officeroyalty streams decline in future periods. Factors that may have an adverse effect on our Tysabri® royalty stream are as follows:
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| • | Foreign currency movement, which could have a negative impact on Biogen Inc.'s Tysabri® sales, thereby reducing our royalties; |
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| • | Companies working to develop new therapies or alternative formulations of products for multiple sclerosis that, if successfully developed, would compete with and could gain greater acceptance than Tysabri® and damage our market share; |
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| • | Any negative developments relating to Tysabri®, such as safety, efficacy, or reimbursement issues, could reduce demand for Tysabri®; and |
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| • | Adverse regulatory or legislative developments could limit or prohibit the sale of Tysabri®, such as restrictions on the use of Tysabri® or safety-related label changes, including enhanced risk management programs, which may significantly reduce expected net sales and require significant expense and management time to address the associated legal and regulatory issues. |
Additionally, Tysabri® sales growth cannot be assured given the significant restrictions on its use and the significant safety warnings in the label, including the risk of developing Progressive Multifocal Leukoencephalopathy ("PML"), a serious brain infection. The risk of developing PML mayincrease with prior immunosuppressant use, longer treatment duration, or the Attorney General for the Statepresence of Texas,JC virus antibodies. Increased incidence of civil investigative demands to two of the Company’s affiliates, Perrigo Pharmaceuticals Company and Paddock Laboratories, LLC, for information under the Texas Medicaid Fraud Prevention Act relatingPML could limit sales growth, prompt regulatory review, require significant changes to the submissionlabel, or result in market withdrawal. In addition, the result of prices to Texas Medicaid in claims for reimbursement for drugs. The Company has cooperated with requests for information and is in the process of evaluating this and other information. While the Company does not know the full extent of its potential liability at this time and intends to vigorously defend against any claims, the Company could be subject to material penalties and damages. The Company established a contingency loss accrual of $15.0 million to cover potential settlement ongoing or future clinical trials involving Tysabri® or other outcomes.adverse events reported in association with the use of Tysabri® may have an adverse impact on prescribing behavior and reduce sales of Tysabri®.
We are dependent on the services of certain key executive and scientific employees. The Company cannot predict whether settlementfailure to attract and retain such employees may have a material adverse impact on terms acceptableour results of operations.
We are dependent on the services of certain key employees, and our future success will depend in large part upon our ability to it will occur,attract and retain highly skilled employees. In particular, key employees of acquired companies may perceive uncertainty about their future role until strategies regarding the combined business are fully executed, and the recent offers from Mylan may affect the recruitment and retention of our workforce. Key functions for us include executive managers, operational managers, R&D scientists, information technology specialists, financial and legal specialists, regulatory professionals, quality compliance specialists, and sales/marketing personnel. If we are unable to attract or that a settlement or potential liability for these claims will notretain key qualified employees, our future operating results may be greater than the amount recorded.adversely impacted.
Unfavorable publicity or consumer perception of the Company'ssafety, quality, and efficacy of our products and any similar products distributed by other companies could have a material adverse impact on the Company'sour business.
The Company isWe are dependent upon consumers' perception of the safety, quality, and qualityefficacy of its products.our products, and may be affected by changing consumer preferences. Negative consumer perception may arise from media reports, product liability claims, regulatory investigations, or recalls, regardless of whether such media reports, claims, investigationsthey involve us or recalls involve the Company or itsour products. The mere publication of information asserting defects in products or ingredients, or concerns about the Company'sour products or the raw materials used in the Company'sour products, could have a material adverse effect on the Company,discourage consumers from buying our products, regardless of whether such information is scientifically supported. For example, any major outbreak of illness or disease in cows could lead to a serious loss of consumer confidence in, and demand for, dairy products, including the Company's infant formula products. Adverse publicity about these types of concerns, whether valid or not, may negatively impact consumer perceptions and may discourage consumers from buying one or more of the Company's products, such that the Company's sales may decline and the
Perrigo Company may suffer losses in its business.plc- Item 1A
Risk Factors
The Company may incur liabilities or experience negative effects on its reputation as a result of any real or perceived quality issues with the Company's products. The Company'sOur products involve risks such as product contamination, spoilage, mislabeling, and tampering that could require the Companyus to recall one or more of itsour products. Serious product quality concerns could also result in governmental actions against the Companyus that, among other things, could result in the suspension of production or distribution of the Company'sour products, product
seizures, loss of certain licenses, delays in the issuance of governmental approvals for new products, or other governmental penalties. Adverse publicity or negative public perception regarding the qualitypenalties, all of the Company's products, particular ingredients, or the industries in which the Company competes could result in a substantial decrease inbe detrimental to our reputation and reduce demand for the Company'sour products.
The CompanyWe cannot guarantee that counterfeiting, imitation or other tampering with itsour products will not occur or that the Companywe will be able to detect and resolve it if it happens.it. Any occurrence of counterfeiting or contamination of any products could negatively impact our sales, of the Company's products, particularly if counterfeit or imitation products cause death or injury to consumersconsumers.
Many of those products.the brands we acquired from Omega have European recognition. This recognition is the result of the large investments Omega has made in its products over many years. The quality and safety of the products are critical to our business. If we are unable to effectively manage real or perceived issues, including concerns about safety, quality, efficacy, or similar matters, sentiments toward us and our products could be negatively impacted.
Additionally, powderedOur BCH segment's financial success is dependent on the success of its brands, and the success of these brands can suffer if marketing plans or product initiatives do not have the desired impact on a brand’s image or its ability to attract consumers. In addition, given the association of individual products within the commercial network of our BCH segment, an issue with one of our products could negatively affect the reputation of other products, thereby potentially hurting our financial results.
Powdered infant formula products are not sterile. All of the Company'sour infant formula products must be prepared and maintained according to label instruction to retain their flavor and nutritional value and avoid contamination or deterioration. Depending on the product, a risk of contamination or deterioration may exist at each stage of the production cycle, including the purchase and delivery of raw materials, the processing and packaging of food products, and the use and handling by consumers, hospital personnel, and health carehealthcare professionals. In the event that certain of the Company'sour infant formula products are found or alleged to have suffered contamination or deterioration, whether or not such products are under the Company'sour control, the Company'sour reputation and itsour infant formula product category sales could be materially adversely affected.
The Company's infant formula product category is subject to changing consumer preferencesScientific studies and health and nutrition-related concerns. The Company's results of operations depend, in part,media reports can have a negative impact on consumer preferences and choices, including the number of mothers who choose to use infant formula products rather than breastfeed their babies. To the extent that private, public and government sources may promote the benefits of breastfeeding over the use of infant formula, there could be a reduced demand for infant formulacertain of our products, andeven when they do not directly involve us. For instance, there have been recent reports questioning the Company's infant formula products business could be adversely affected. The Company's infant formula product category may also be affected by medical research relating to the healthfulnessefficacy of cow's milk in the human diet. For example, adverse research may raise concerns about the fat, cholesterol, calorie, sodium and lactose content or contamination of dairy products, including infant formula. Any significant shift in consumer preference away from the use of infant formula may materially and adversely affect the results of operations of the Company's infant formula product category. Additionally, the Company's infant formula product category could be adversely impacted by an increase in the number of families that are provided with infant formula by the U.S. federal government through the Women, Infants and Children program, as the Company does not participate in this program.
The Company believes that growth in the nutritional products business is based largely on national media attention regarding scientific research suggesting potential health benefits from regular consumption of certain vitaminvitamins and other nutritional products. There can be no assurance of future favorable scientific results and media attention, orsupplements. Additionally, the absence of unfavorable or inconsistent findings. In the event of future unfavorable scientific results or media attention, the Company'sNew York Attorney General has asked several major retailers to halt sales of nutritional productsherbal supplements. Our VMS sales have been negatively impacted by the media attention.
Increasing use of social media could be materially adversely impacted.give rise to liability, breaches of data security, or reputation damage.
The Company manufactures spot-on pesticidesand our employees increasingly utilize social media as a means of internal and external communication.
To the extent that we seek to use social media tools as a means to communicate about our products and/or business, there are uncertainties as to the rules that apply to such communications, or as to the interpretations that authorities will apply to the rules that exist. As a result, despite our efforts to monitor evolving social media communication guidelines and comply with applicable rules, there is risk that our use of social media for the monthly control of fleas, ticks, or other external parasites in dogs and cats. These products are safe and effective when used in accordance with label directions; however, pesticide ingredientssuch purposes may cause harmus to animals and humans if used improperly. Additional regulation may be enacted to mitigate improper usesfound in violation of these ingredients, which could have an adverse impact on the Company's salesthem. A violation of such products and resulting income.
In spring 2009, the EPA noticed an increase in pet incidents being reported involving spot-on pesticide products for pets. The EPA received a large amount of information on individual reported adverse pet incidents from the companies that hold registrations for these products (called the registrants). The EPA also reviewed other information that was submitted. The EPA formed an expert veterinarian team to thoroughly analyze the data. The EPA also partnered with the Food and Drug Administration's Center for Veterinary Medicine ("CVM") and Canada's Pest Management Regulatory Agency ("PMRA") on the review of this analysis. The team studied incidents involving cats and dogs, looked at both active and inert ingredients, studied product labeling, and discussed data needs for the future to improve analyses and regulation. The EPA found that the products could be used safely but that some additional restrictions are needed. The EPA's team of veterinarians learned that most incidents were minor, but unfortunately there were some pet deaths and "major incidents" reported. The EPA learned that the most commonly affected organ systems were dermal, gastrointestinal, and nervous. Recommendations to reduce harmful effects include addressing concerns about dosing, improving labeling to avoid confusion between dog and cat products, making labels more understandable with larger fonts and pictograms, addressing uncertainties about the inert ingredients in these products, imposing conditions of registration when granting amendments to existing products or
granting new registrations, requiring more standardized reporting on adverse effects and sales, changing data requirements for pre-market clinical trials and implementing a formal post-market surveillance program. Future pet spot-on pesticide registrations and amendments to new registrations will be restricted by appropriate conditions and time-limitations to allow the EPA to continue to ensure the safety of these products after they are available to the public.
The EPA mitigation efforts for educating consumers and reducing misuse are ongoing. The Company cannot predict whether further label restrictionsguidelines may be required, or whether additional regulations may be passed, or to the extent of the adverse impact additional restrictions or regulations may have on the Company's results of operations.
The manufacturing of sterile, injectable products is highly exacting and complex, and if the Company's suppliers encounter production problems, it could have an adverse effect on the Company's business, results of operations and financial condition.
The Company distributes sterile, injectable products that are manufactured by third parties. The manufacture of sterile, injectable products is highly complex and exacting in part due to strict regulatory and safety requirements and standards that govern both the manufacture and packaging of these types of projects. Failure of the third-party manufacturers to maintain strict controls or adherence to procedures may result in product recalls and liability claims, which could adversely affect the Company's results of operations and reputation.
Biogen Idec is directly responsible for the sales and distribution of Tysabri® anddamage our reputation as a result any change in strategy by Biogen Idec or negative developments relating to Tysabri® could have a material impact on the Company’s revenues, operating income and cash flows.
The Company acquired a significant revenue stream and a $5.8 billion intangible asset related to sales of the Multiple Sclerosis drug Tysabri® with the acquisition of Elan. The Company collects quarterly royalty payments from Biogen Idec, which is solely responsible for the sales and distribution of the drug. The Tysabri® royalty stream is expected to contribute significant revenues, operating income and cash flows to the Company’s results of operations. Any negative developments relating toTysabri®, suchwell as safety, efficacy or reimbursement issues, the introduction or greater acceptance of competing products, including biosimilars, or adverse regulatory or legislative developments may reduce the payments the Company receivescause potential lawsuits and adversely affect the results of operations. New competing products for use in the treatment of Multiple Sclerosis have (or will soon) entered the market, including Tecfidera for which Biogen Idec launched in the U.S. and Europe in fiscal 2014. If any of these competing products have a similar or more attractive profile in terms of efficacy, convenience or safety, future sales ofTysabri® could be limited, which would reduce royalties received.our operating activities.
Tysabri®'s sales growth cannotOur employees may knowingly or inadvertently make use of social media tools in ways that may not be assured given the significant restrictions on its usealigned with our social media strategy, and the significant safety warnings in the label, including the risk of developing Progressive Multifocal Leukoencephalopathy ("PML"), a serious brain infection. The risk of developing PML increases with prior immunosuppressant ("IS") use, whichthat may cause patients who have previously received ISgive rise to liability, or their physicians to refrain from using or prescribingTysabri®. The risk of developing PML also increases with longer treatment duration, with limited experience beyond four years. This may cause prescribing physicians or patients to suspend treatment withTysabri®. In addition, the risk of developing PML is heightened when a patient has anti-JC virus ("JCV") antibodies. In January 2012, the U.S. Food and Drug Administration approved a product label change forTysabri® that identifies anti-JCV antibody status as a risk factor for PML. This risk had already been incorporated into the European label forTysabri® in June 2011. Physicians have discontinued treatment and are likely to continue to discontinue treatment withTysabri® in patients who test positive for JCV antibodies. Increased incidence of PML could limit sales growth, prompt regulatory review, require significant changes to the label or result in market withdrawal. Additional regulatory restrictions on the use ofTysabri® or safety-related label changes, including enhanced risk management programs, whether as a result of additional cases of PML or otherwise, may significantly reduce expected revenues and require significant expense and management time to address the associated legal and regulatory issues. In addition, ongoing or future clinical trials involvingTysabri®, efforts at stratifying patients into groups with lower or higher risk for developing PML and the commercial availability of the JCV antibody assay may have an adverse impact on prescribing behavior and reduce sales ofTysabri®. Further, the utility of the JCV antibody assay may be diminished as a result of the assay’s false negative rate and because a patient who tests negative for JCV antibodies may be infected by the JCV after testing. Any or all of the above factors could lead to volatility in the numberloss of trade secrets or other intellectual property, or public exposure of personal information (including sensitive personal information) of our employees, clinical trial patients, who begin or continue to use Tysabri® or discontinue the use ofTysabri® in any period.customers, and others.
Perrigo Company plc- Item 1A
Risk Factors
The Company's success is dependent, in large part, on continuedNegative posts or comments about us, store brand growth for its OTC and Nutritionals products, which is influenced by factors outside management's control. There can be no assurance that store brand market share will continue to grow; failure to achieve continued growth may adversely impact the Company's sales and resulting financial condition.
The future growth of U.S. store brand products market share will be influenced, in part, by general economic conditions, which can influence consumers to switch to and from store brand products, consumer perception and acceptance of the quality of the products available, the development of new products and/brands or product delivery forms, the market exclusivity periods awarded on Rx to OTC switch products and the ongoinggeneric pharmaceuticals, or growing strength of the retailers' brands in the market. The OTC business does not advertise like the national brand companiesand thus is largely dependent on retailer promotional activities to drive sales volume and increase market share. Growth opportunities for theour products in which the Company currently has a significant store brand market share (cough/cold/flu/allergy, analgesic, smoking cessationsocial media could seriously damage our reputation and gastrointestinal products) will be driven by the ability to offer new products to existing U.S. customers. Branded pharmaceutical companies may use U.S. state and federal regulatory and legislative means to limit the availability of brand equivalent products. Should store brand growth be limited by any of these factors, there could be a significant adverse impact on the operating results of the Company.
If the Company is unable to maintain adequately high levels of customer service over time, it may lose market share, and its business and operating results may be materially adversely affected.
The Company understands that maintaining high levels of customer service requires the Company to be able to deliver high quality products to its customers on a timely basis. From time to time, the Company may experience interruptions and challenges to its customer service levels due to a variety of factors that may arise. If the Company is unable to deliver to expected customer service levels, customers may choose to assess penalties, obtain alternate sources for products, withhold new product introductions and/or end the relationship with the Company. If the Company is unable to maintain adequately high levels of customer service over time, due to these factors or otherwise, the Company may lose market share, and its business and operating results may be materially adversely affected.
Because the Company depends upon certain customers for a significant portion of its sales, the Company's sales and income would be adversely affected by a disruption of its relationship with these customers or any material adverse change in these customers' business.
The Company believes its primary customer base aligns with the concentration of large drug retailers in the current marketplace of the retail drug industry. Sales to the Company's largest customer, Walmart, comprised approximately 19% of fiscal 2014 net sales. Should Walmart's current relationship with the Company change adversely, the resulting loss of business could have a material adverse impact on the Company's financial position and results of operations. In addition, while no other customer individually comprises more than 10% of total net sales, the Company does have other significant customers. If the Company's relationship with one or more of these other customers, including the terms for doing business with the customers, changes significantly, it could have a material adverse impact on the Company's financial position and results of operations.
If the Company cannot continue to rapidly develop, manufacture and market innovative products that meet customer requirements for performance, safety and cost effectiveness, it may lose market share and its revenues may be negatively impacted.
The Company's future results of operations depend, to a significant degree, upon its ability to successfully commercialize additional OTC and generic prescription drugs and/or innovative pharmaceuticals, infant formulas and API. All pharmaceutical products must meet regulatory standards and/or receive regulatory approvals. The Company must prove that the ANDA or NDA drug products are bioequivalent to their branded counterparts, which typically requires bioequivalency studies or even more extensive clinical trials to demonstrate efficacy of topical products. The development and commercialization process, particularly with respect to innovative products, is both time consuming and costly and involves a high degree of business risk. Products currently under development, if and when fully developed and tested, may not perform as expected, may not pass required bioequivalence studies or may be the subject of intellectual property challenges, and necessary regulatory approvals may not be obtained in a timely manner, if at all, and the Company may not be able to successfully and profitably produce and market such products. Delays in any part of the process or the Company's inability to obtain regulatory approval of its products (including products developed by others to which the Company has exclusive marketing rights) could adversely affect operatingthe price of our securities. In addition, negative posts or comments about our products could result in increased pharmacovigilance reporting requirements, which may give rise to liability if we fail to fully comply with such requirements.
Our quarterly results are impacted by restricting or delaying its introductiona number of new products. Even uponfactors, some of which are beyond the
successful development control of a product, the Company's customer's failure to launch a product could adversely affect operating results. The FDA could impose higher standards and additional requirements, such as requiring more supporting data and clinical data than previously required, in order to gain FDA clearance to launch new formulations into the market. Continuous introductions of new products and product categories are critical to the Company's business. Product margins may decline over time due to the products' aging life cycles, changes in consumer choice or developments in new drug delivery technology. Therefore, new product introductions are necessary for maintenance of the Company's current financial condition, and if the Company fails to introduce and market new products, the effect on its financial results could be materially adverse.
The Company contracts with clinical research organizations ("CROs") to conduct various studiesour management, that are used to support the Company's new product development program. During the third quarter of fiscal 2013, certain of the CROs used by the Company began bankruptcy or receivership proceedings, including PRACS Institute, LLC, PRACS Institute Canada B.C. Ltd., Comprehensive Clinical Development, Inc., and their related entities. It is uncertain what, if any, impact these insolvency proceedings may have on the ability of those CROs to deliver their study results to the Company or on the Company's ability to rely on research performed by those CROs. To the extent those CROs cannot deliver their study results to the Company or the Company cannot rely, in whole or in part, on the research conducted by those CROs, it may delay the launch of new products, which could have a material adverse impact on the Company's future operating results.These situations are unique and therefore it is uncertain what the position of the FDA will be towards the studies conducted by these now bankrupt CROs. The FDA may be limited in its ability to inspect the study facilities or gain access to source study documents which may result in the Company having to repeat biostudies. If these scenarios occur, it would resultsignificant quarter-to-quarter fluctuations in approval delays.
The Company's investment in research and development is expected to increase above recent levels in dollar terms due to the Company's ongoing broadening of its OTC, ANDA or NDA, generic prescription and specialty API product portfolio, as well as several opportunities for new products that are switching or are anticipated to be switching from Rx to OTC status. The ability to attract scientists proficient in emerging delivery forms and/or contracting with a third party in order to generate new products of this type is a critical element of the Company's long-term plans. Should the Company fail to attract qualified employees, successfully develop products in a timely manner, or enter into reasonable agreements with third parties, long-term sales growth and profit would be adversely impacted.operating results.
Changes in supply relationships with the Company's customers, such as alternate sources for products, withholding new product introductions and/or development of customer store brand programs, could have a material adverse impact on the Company's financial position and results of operations.
Maintaining the supply relationships with the Company's customers is critical to its success. The success in recent years of private label marketing and branding programs has increased large retailers' attention to the importance of their store brand programs, and as a result, many are dedicating significant resources to auditing supplier compliance with their quality, ethical and service standards. Customers may limit the level of product sourcing with the Company in protection of the customer's own interests. Any or all of these factors could have a material adverse impact on the Company's financial position and results of operations.
The competitive markets in which the Company operates could lead to reduced demand for its products in favor of its competitors' products, which could negatively impact its sales, gross margin, and prospects.
The markets for OTC pharmaceutical, animal health, nutritional, infant formula, generic pharmaceutical and API products are highly competitive. Competition is based primarily on price, quality and assortment of products, customer service, marketing support and availability of new products. Competition also comes from national brand companies and branded pharmaceutical companies. That competition could be intensified should those companies lower prices or manufacture their own store brand or generic equivalent products. Due to the high degree of price competition, the Company has not always been able to fully pass on cost increases to its customers. The inability to pass on future cost increases, the impact of store brand competitors and the impact of national brand companies lowering prices of their products, offering special promotional discounts or operating in the store brand market could have a material adverse impact on financial results. The Company also sells nationally branded animal health products. The animal health segment has seen a dramatic increase in the direct to consumer advertising of several branded competitors. The Company may see an increase in competition as more competitors increase national advertising expenditures. As additional companies come to market with product registrations similar to the Company, pricing strategies or marketing support may need to become more competitive. In addition, since the Company sells its nutritional products through retail drug, supermarket and mass merchandise chains, it may
experience increased competition in its nutritional products business through alternative channels such as health food stores, direct mail and direct sales as more consumers obtain products through these channels. The Company has evaluated, and will continue to evaluate, the products and product categories in which it does business. Future product line extensions, or deletions, could have a material impact on the Company's financial position or results of operations.
Selling prices of generic drugs typically decline, sometimes dramatically, as competition intensifies due to additional companies receiving approvals for a given product or brands launching authorized generics. To the extent that the Company succeeds in being the first to market a generic version of a significant product, the Company's sales and profit can be substantially increased in the period following the introduction of such product and prior to a competitor's introduction of an equivalent product. The Company's ability to sustain its sales and profitability on any product over time is dependent on both the number of new competitors for such product, some of whom may be significantly larger than the Company, and the timing of their approvals.
Certain competitors are choosing to consolidate in the generic pharmaceutical and nutritional industries. These consolidations may create larger companies with which the Company must compete and provide further pressure on prices, development activities or customer retention. The impact of future consolidation in the industry could have a material impact on the Company's financial position or results of operations.
The Company's API business is subject to increased competition from other manufacturers of API located in Europe and developing countries, such as India and China. Such competition may result in loss of API customers and/or decreased profitability in this business segment.
Many companies are working to develop new therapies or alternative formulations of products for MS that, if successfully developed, would compete with Tysabri®. A drug may be subject to competition from alternative therapies during the period of patent protection or regulatory exclusivity and, thereafter, it may be subject to further competition from generic products or biosimilars.
The Company'sOur quarterly results are impacted by a number of factors, some of which are beyond the control of management, that may result in significant quarter-to-quarter fluctuations in operating results.
The Company's quarterly operating results depend on a variety Some of these factors including, but not limited to,include the severity, length and timing of the cough/cold/flu and allergy season, and flea and tick season, the timing of new product approvals and introductions by the Companyus and itsour competitors, price competition, changes in the regulatory environment, changes in accounting pronouncements, the magnitude and timing of research and developmentR&D investments, changes in the levels of inventories maintained by the Company'sour customers, and the timing of retailer promotional programs. Accordingly,
We may not realize the Company may be subject to significantbenefits of business acquisitions and unanticipated quarter-to-quarter fluctuations in itsdivestitures we enter into, which could have a material adverse effect on our operating results.
ChangesOne of our growth strategies is inorganic growth through the acquisition of products and companies that we expect will benefit the Company. This strategy comes with a number of financial, managerial, and operational risks. We may not realize the benefits of an acquisition because of integration and other challenges, including, but not limited to the following:
The difficulty involved with managing the expanded operations of a larger and more complex company;
Uncertainties involved in estimates regardingassessing the value, strengths, and potential profitability of, and identifying the extent of all weaknesses, risks, and contingent and other liabilities of the respective parties;
Unanticipated changes in the business, industry, market or general economic conditions different from the assumptions underlying our rationale for pursuing the transaction;
Potential inability to achieve identified operating and financial synergies, or return on investment, from an acquisition in the amounts or on the timeframe anticipated;
Substantial demands on our management, operational resources, technology, and financial and internal control systems, which could lead to dissatisfaction and potential loss of key customers, management or employees;
Integration activities may detract attention from our day-to-day business, and there might be substantial costs associated with the transaction process or other material adverse effects as a result of these integration efforts; and
We may undertake financing to complete an acquisition that impacts our liquidity, credit ratings and financial position, thereby making it more difficult, restrictive or expensive to raise future capital.
Actual results may differ from pro forma financial information of the combined companies due to changes in the fair value of goodwillassets acquired and liabilities assumed, changes in assumptions used to form estimates, differences in accounting policies between the companies, and completion of purchase accounting.
We have acquired significant assets that could become impaired or intangible assetssubject us to losses and may result in an adverse impact on the Company'sour results of operations.
The Company testsWe have recorded significant intangible assets and goodwill on our balance sheet as a result of previous acquisitions, which could become impaired and lead to material charges in the future. We regularly review our intangible assets and goodwill for impairment. Goodwill and indefinite life intangible assets are subject to impairment annually or more frequently if changes in circumstances or the occurrence of events suggestreview on an annual basis and whenever impairment exists. The test for impairment requires the Company to make several estimates about fair value, most of whichindicators are based on projected future cash flows. Changes in these estimates may result in the recognition ofpresent. We perform an impairment loss. The Company's testing in fiscal 2014 resulted in no impairment charges related to goodwill.
Other intangible assets consist of a portfolio of individual developed product technology/formulation and product rights, distribution and license agreements, customer relationships, non-compete agreements, in-process research and development ("IPR&D") and trade names and trademarks. Certain trade names and trademarks, as well as IPR&D assets, are determined to have an indefinite useful life and are not subject to amortization. Foranalysis on intangible assets subject to amortization when there is an impairment analysis is performed whenever events or changes in circumstances indicateindication that the carrying amount of any
Perrigo Company plc- Item 1A
Risk Factors
individual asset may not be recoverable. An impairment loss is recognized if the carrying amount of the asset is not recoverable and its carrying amount exceeds its fair value. Any significant change in market conditions, estimates or judgments used to determine expected future cash flows that indicateindicates a reduction in carrying value may give rise to impairment in the period that the change becomes known. Our annual goodwill impairment testing performed in the fourth fiscal year quarter resulted in a goodwill impairment charge of $6.8 million for fiscal year 2015. There were no intangible asset impairment charges recorded in fiscal year 2015. See Item 8. Note 3 of the Notes to Consolidated Financial Statements for further information regarding impairment of intangible assets.information.
LackGlobal Risks
Our business, financial condition, and results of availabilityoperations are subject to risks arising from the international scope of or significant increases in the cost of, raw materials used in manufacturing the Company's products could adversely impact its profit margins and operating results.our operations.
Affordable high qualityWe manufacture, source raw materials, and packaging componentssell our products in a number of countries. We are essentialsubject to allrisks associated with international manufacturing and sales, including:
Unexpected changes in regulatory requirements;
Problems related to markets with different cultural biases or political systems;
Possible difficulties in enforcing agreements;
Longer payment cycles and shipping lead-times;
Difficulties obtaining export or import licenses or changes in import/export regulations; and
Imposition of withholding or other taxes.
Additionally, we are subject to periodic reviews and audits by governmental authorities responsible for administering import/export regulations. To the extent that we are unable to successfully defend against an audit or review, we may be required to pay assessments, penalties and increased duties.
Certain of our facilities operate in a special purpose subzone established by the U.S. Department of Commerce Foreign Trade Zone Board, which allows us certain tax advantages on products and raw materials shipped through these facilities. If the Foreign Trade Zone Board were to revoke the subzone designation or limit its use by us, we could be subject to increased duties.
Although we believe that we conduct our business in compliance with applicable anti-corruption, anti-bribery and economic sanctions or other anti-corruption laws, if we are found to not be in compliance with such laws or other anti-corruption laws, we could be subject to governmental investigations, legal or regulatory proceedings, substantial fines, and/or other legal or equitable penalties. This risk increases in locations outside of the Company'sU.S., particularly in locations that have not previously had to comply with the FCPA, U.K. Bribery Act and similar laws.
Current and changing global economic conditions may adversely affect our business.
A number of non-U.S. jurisdictions in which we do business units duehave been negatively impacted by slowing growth rates or recessionary conditions and market volatility.
Several emerging market economies are particularly vulnerable to the natureimpact of the products the Company manufactures. Raw materialsrising interest rates, inflationary pressures, weaker oil and packaging componentsother commodity prices, and large external deficits. While some of these jurisdictions are generally available from multiple suppliers. Suppliesshowing signs of certain raw materials, bulk tablets and finished goods purchased by the Company are limited,stabilization or are available from one or only a few suppliers. In these situations, increased prices, rationing and shortages can occur. In response to these problems the Company tries to identify alternative materials or suppliers for such raw materials, bulk tablets and finished goods. FDA requirements for products approved through the ANDA or NDA process could substantially lengthen the approval of an alternate material source. Certain material shortages and approval of alternate sources could adversely affect financial results. The rapid increase in cost of many raw materials from inflationary forces,recovery, others, such as increased energy costs,Russia and the Company's abilityGreece, continue to experience increasing levels of stress and volatility. Risks in one country can limit our opportunities for portfolio growth and negatively affect our operations in another country or inability to pass on these increases to its customers,countries. As a result, any such unfavorable conditions or developments could have an adverse impact on our operations.
While the challenging global economic environment has not had a material impact on our liquidity or capital resources, there can be no assurance that possible future changes in global financial markets and global economic conditions will not affect our liquidity or capital resources, impact our ability to obtain financing in the Company'sfuture, or decrease the value of our assets.
Our customers could be adversely impacted if economic conditions worsen. Our CHC segment does not advertise its products like national brand companies and thus is largely dependent on retailer promotional activities to drive sales volume and increase market share.If our customers do not have the ability to invest in store brand promotional activities, our sales may suffer. Additionally, while we actively review the credit
Perrigo Company plc- Item 1A
Risk Factors
worthiness of our customers and suppliers, we cannot fully predict to what extent they may be negatively impacted by slowing economic growth.
The international scope of our business exposes us to risks associated with foreign exchange rates.
We report our financial results in U.S. dollars. However, a significant portion of our net sales, assets, indebtedness and other liabilities, and costs are denominated in foreign currencies. These currencies include among others the euro, Indian rupee, British pound, Canadian dollar, Israel shekel, Australian dollar, and Mexican peso. The addition of Omega, a euro-denominated business that will represent a significant portion of our future net sales and earnings and a substantial portion of our net assets, has significantly increased our exposure to changes in the euro/U.S. dollar exchange rate. In addition, approximately 25% of Omega’s sales are in other foreign currencies, with the majority of the product costs for these markets denominated in euros. Our results of operations and, in some cases, cash flows, have in the past been and may in the future be adversely affected by movements in exchange rates. In addition, we may also be exposed to credit risks in some of those markets. We may implement currency hedges or take other actions intended to reduce our exposure to changes in foreign currency exchange rates. If we are not successful in mitigating the effects of changes in exchange rates on our business, any such changes could materially impact our results.
The Company maintains several single-source supplier relationships, either because alternative sources are not available or the relationship is advantageous due to regulatory, performance, quality, support, or price considerations. Unavailability or delivery delays of single-source components or productsWe operate in jurisdictions that could adversely affect the Company's ability to ship the related product in a timely manner. The effect of unavailability or delivery delays would be more severe if associated with the Company's higher volume or more profitable products. Even where alternative sources of supply are available, qualifying the alternate suppliersaffected by economic and establishing reliable supplies could cost more or result in delays and a loss of revenues. As a result, the loss of a single-source supplier could have a material adverse effect on the Company's results of operations.
In addition, raw materials purchased from third parties, including those from foreign countries, may contain counterfeit ingredients or other adulterants. The Company maintains a strict program of verification and product testing throughout the ingredient sourcing and manufacturing process to identify potential counterfeit ingredients, adulterants and toxic substances. Nevertheless, discovery of previously unknown problems with the raw materials or product manufacturing processes or new data suggesting an unacceptable safety risk associated therewith, could result in a voluntary or mandatory withdrawal of the contaminated product from the marketplace, either temporarily or permanently. Any future recall or removal would result in additional costs to the Company and lost revenue and may give rise to product liability litigation, any ofpolitical instability, which could have a material adverse effect on our business.
Our operations outside the operating resultsU.S. could be affected by economic or political instability, embargoes, military hostilities, unstable governments and legal systems, and inter-governmental disputes. We have significant operations in Israel, which has experienced varying degrees of hostility in recent years. Doing business in Israel and certain other countries involves the Company.following risks:
The Company's infant formulaCertain countries and international organizations have refused to do business with Israel or with Israeli companies. We are also precluded from marketing our products requireto certain key raw ingredients thatcountries due to U.S. and Israeli regulatory restrictions. International economic sanctions and boycotts of our products could negatively impact our sales and ability to export our products.
Our facilities in Israel are derived from raw milk, such as skim milk powder, whey protein powder and lactose. The Company's supply of milk-based ingredients may be limited by the ability of individual dairy farmers and cooperativeswithin a conflict zone. If terrorist acts or military actions were to provide raw milk in the amount and quality necessary to meet the needs of the Company's infant formula product category. Raw milk production is influenced by factors beyond the Company's control, including: (1) seasonal factors, such as dairy cows producing more milk in temperate weather than hot or cold weather, drought and extended unseasonably hot or cold weather potentially leading to lower than expected supplies; (2) environmental factors, such as the volume and quality of milk produced by dairy cows being linked closely to the quality of nourishment provided by the surrounding environment; (3) governmental agricultural and environmental policy, such as government grants, subsidies, land provisions, technical assistance, and other agricultural and environmental policies having a direct effect on the viability of individual dairy farmers and dairy farmer cooperatives and the number of dairy cows and quantities of milk they are able to produce and (4) global demand for milk and key ingredients derived from milk. The Company cannot guarantee that there will be sufficient supplies of these key ingredients derived from raw milk. Any disruption in the supply of these key ingredients derived from raw milk could adversely and materially impact the Company's infant formula product category.
The Company's products, and the raw materials used to make those products, generally have limited shelf lives. The Company's inventory levels are based, in part, on expectations regarding future sales. The Company may experience build-ups in inventory if sales slow. Any significant shortfall in sales may result in higher inventory levels of raw materials and finishedsubstantial damage to our facilities, our business activities would be disrupted since, with respect to most products, thereby increasing the risk of inventory spoilage and corresponding inventory write-downs and write-offs, which may materially and adversely affect the Company's results of operations. Cargo thefts and/or diversions and economically or maliciously motivated product tampering on store shelves may be experienced from timewe would need to time, causing unexpected shortages.
If the Company is unable to successfully obtain the necessary quotaprior FDA approval for controlled substances and List 1 chemicals, there is risk of delayed product launches or failure to meet commercial supply obligations. If the Company is unable to comply with regulatory requirements for controlled substances and List 1 chemicals, the DEA may take regulatory actions, resultinga change in temporary or permanent interruption of distribution, withdrawal of products from the market or other penalties.
Controlled substances and List 1 chemicals are subject to DEA regulation under the Controlled Substances Act. DEA quota requirements can limit the amount of controlled substances and List 1 chemicals a manufacturer may produce, the amount of API it may use to manufacture those products and the amount of controlled substance products and List 1 chemicals a packager may package. If the Company is unable to successfully obtain the quota amounts, there is the risk of delayed launches or failure to meet commercial supply obligations.manufacturing site. In addition, failure to comply with the above lawsour insurance may not adequately compensate us for losses that may occur, and requirements can result in enforcement action thatany losses or damages incurred by us could have a material adverse effect on our business.
Certain of our customers or suppliers may decline to travel to Israel, which would force us to make alternative arrangements where necessary. The United States Department of State has at times issued an advisory regarding travel to these countries. As a result of the Company's business, resultsState Department's advisories, the FDA has at various times curtailed or prohibited its inspectors from traveling to inspect facilities. If these inspectors are unable to inspect our facilities, the FDA could withhold approval for new products intended to be produced at those facilities.
Risks Related to Litigation and Insurance
We are or may become involved in lawsuits and may experience unfavorable outcomes of operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations or initiate proceedings to revoke those registrations. In certain circumstances, violations could result in criminalsuch proceedings.
The costs, both financially and in regard to management attention, of combating legal proceedings could have an adverse impact on the Company's business, financial condition and results of operations.
From time to time, the Company and/or its subsidiariesWe may become involved in lawsuits arising from various commercial matters, including, but not limited to, competitive issues, contract issues, intellectual property matters, false advertising/unfair competition, taxation matters, workers' compensation, product liability,quality/recall issues, environmental remediation issues, and U.S. state or federal regulatory issues. See Note 14 of the Notes to the Company's Consolidated Financial Statements. Litigation is unpredictable and can be costly. No assurance can be made that litigation will not have a material adverse effect on the Company'sour financial position or results of operations in the future. Similarly, judicial decisionsSee Item 8. Note 14 for more information.
Perrigo Company plc- Item 1A
Risk Factors
We may be subject to liability if our products violate applicable laws or regulations in proceedings to which the Company is not a party mayjurisdictions where our products are distributed. The successful assertion of product liability or other product-related claims against us could result in the setting ofpotentially significant monetary damages and incur substantial legal precedent that could affect the future operation of the Company's business. In addition, the Companyexpenses. Even if a product liability or consumer fraud claim is unsuccessful, not merited, or not fully pursued, we may still incur substantial legal expenses defending against such a claim, and our reputation may suffer.
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| • | We are a defendant in product liability lawsuits arising out of serious adverse events, including deaths, which occurred in patients taking Tysabri®. We expect additional product liability lawsuits related to Tysabri® usage to be filed. Tysabri®'s distributor, Biogen Idec, and Perrigo will each be responsible for 50% of losses and expenses arising out of any Tysabri® product liability claims. Along with Biogen Idec, we intend to vigorously defend these lawsuits, however, we cannot predict how these cases will be resolved. Adverse results in one or more of these cases could result in substantial monetary judgments. |
We may face environmental exposures including, for example, those relating to discharges from and materials handled as part of itsour operations, the remediation of soil and groundwater contaminated by hazardous substances or wastes, and the health and safety of itsour employees. While the Company doeswe do not have any material remediation liabilities currently outstanding, the Companywe may in the future face liability for the costs of investigation, removal or remediation of certain hazardous substances or petroleum products on, under or in itsour currently or formerly owned property, or from a third-party disposal facility that itwe may have used, without regard to whether the Companywe knew of, or caused, the presence of the contaminants. The actual or alleged presence of these substances, or the failure to remediate properly, these substancesthem, could have adverse effects, including, for example, substantial investigative or remedial obligations and limitations on theour ability to sell or rent affected property or to borrow funds using affected property as collateral. There can be no assurance that environmental liabilities and costs will not have a material adverse effect on the Company's financial position, results of operations or cash flows.us.
The Company may also be subject to liability ifOur BCH segment regularly makes advertising claims regarding the effectiveness of its products, violate orwhich we are alleged to violate applicable laws or regulations in the jurisdictions where such products are distributed or in the event that its products cause or are alleged to cause injury, illness, or death. The successful assertionresponsible for defending. An unsuccessful defense of product liabilityproduct-related claims against the Company could result in potentially significant monetary damages and diversion of management resources, and require the Company to make significant payments and incur substantial legal expenses. Even if a product liability or consumer fraud claim is unsuccessful, not merited, or not fully pursued, the Companywe may still incur substantial legal expenses defending against such a claim, and the Company'sour reputation maycould suffer.
With regard to Tysabri®, the Company’s subsidiary Elan is a defendant in product liability lawsuits arising out of serious adverse events, including deaths, which occurred in patients taking Tysabri®. The Company expects additional product liability lawsuits related to Tysabri® usage to be filed. While the Company or Biogen Idec intend to vigorously defend these lawsuits, the Company cannot predict how these cases will be resolved. The Company and Biogen Idec will each be responsible for 50% of losses and expenses arising out of any Tysabri® product liability claims. Adverse results in one or more of these cases could result in substantial monetary judgments.
Court rulings limiting the application of U.S. Federal preemption may have an adverse effect on the Company's operations as a result of a potential increase in litigation exposure.
On November 13, 2013, the FDA issued a proposed rule captioned, “Supplemental Applications Proposing Labeling Changes for Approved Drugs and Biologics.” Pursuant to the proposed rule, the FDA is proposing to change existing regulations to expressly provide that generic drug application holders may distribute revised labeling that differs from the corresponding brand drug upon submission of a "changes being effected" ("CBE-0") supplement to FDA. FDA states that the proposed revisions to its regulations would create parity between branded drug application holders and generic drug application holders with respect to submission of CBE-0 supplements for safety-related labeling changes based on newly acquired information. This proposal is also intended to ensure that generic drug companies actively participate with FDA in ensuring the timeliness, accuracy, and completeness of drug safety labeling in accordance with current regulatory requirements. The FDA received comments on the proposed rule until March 13, 2014. The FDA has not yet issued a final rule on this issue. If this proposed regulatory change is adopted, it may eliminate the preemption of certain failure-to-warn claims, with respect to generic drugs, which could have an adverse impact on the future operating results of the Company.
Third-party patents and other intellectual property rights may limit the Company'sour ability to bring new products to market and may subject the Companyus to potential legal liability. The failureliability, causing us to bring new products to market in a timely manner without incurring legal liability could cause the Company to lose market share and its operating results may suffer.incur significant costs.
The Company's ability to bring new products to market is limited by certain patent, trademark and trade dress factors including, but not limited to, the existence of patents protecting brand products for all business segments and the regulatory exclusivity periods awarded on products. The cost and time to develop these prescription and switch products is significantly greater than the rest of the new products that the Company seeks to introduce. Moreover, the manufacture, use and sale of new products that are the subject of conflicting patent rights have been the subject of substantial litigation in the pharmaceutical industry. These lawsuits relate
As a manufacturer of generic pharmaceutical products, the ability of our CHC and Rx Pharmaceutical segments to the validity and infringement ofbring new products to market is often limited by third-party patents or proprietary rights and regulatory exclusivity periods awarded on products. The cost and time for us to develop prescription and Rx-to-OTC switch products is significantly greater than the rest of third parties. The Company maythe new products that we introduce. Any failure to bring new products to market in a timely manner without incurring legal liability could cause us to lose market share, and our operating results could suffer.
We could have to defend against charges that itwe violated patents or proprietary rights of third parties. The Company's defense against charges that it infringed third-party patents or proprietary rightsThis could require the Companyus to incur substantial expense and tocould divert significant effort of itsour technical and management personnel. If the Company iswe are found to have infringed on the rights of others, itwe could lose itsour right to develop or manufacture some products or could be required to pay monetary damages or royalties to license proprietary rights from third parties.
Although the parties Additionally, if we choose to patent and intellectual property disputes in the pharmaceutical industry have often settled their disputessettle a dispute through licensing or similar arrangements, the costs associated with these arrangements may be substantial and could include ongoing royalties. Furthermore, the Company cannotroyalties that may not be certain that the necessary licenses would be available to it on terms it believeswe believe to be acceptable. As a result, anAn adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent the Companyus from manufacturing and selling a number of itsour products.
At times, the Companyour CHC or Rx Pharmaceuticals segments may seek approval to market NDA or ANDA products before the expiration of patents for those products, based upon itsour belief that such patents are invalid, unenforceable or would not be infringed by itsour products. As a result, the CompanyIn these cases we may face significant patent
Perrigo Company plc- Item 1A
Risk Factors
litigation. Depending upon a complex analysis of a variety of legal and commercial factors, the Companywe may, in certain circumstances, elect to market a generic pharmaceutical product while litigation is pending, before any court decision, or while an appeal of a lower court decision is pending. This is referred to in the pharmaceutical industrypending, known as an "at risk" launch. The risk involved in an "at risk" launch can be substantial because, if a patent holder ultimately prevails, the remedies available to the patent holder may include, among other things, damages measured by the profits lost by the holder, which are often significantly higher than the profits the Company makeswe make from selling the generic version of the product. By electing to proceed in this manner, the Companywe could face substantial damages if awe receive an adverse final court decision is adverse to the Company.decision. In the case where a patent holder is able to prove that the Company'sour infringement was "willful" or "exceptional","exceptional," under applicable law, the patent holder may be awarded up to three times the amount of its actual damages or the Companywe may be required to pay attorneys’ fees. In May 2014, the Company launched azelastine hydrochloride nasal spray prior to a court decision. The litigation was settled in June 2014.
The success of certain of the Company'sour products depends on the effectiveness of measures it takeswe take to protect itsour intellectual property rights and patents.
The Company's success with certain of its products depends, in part, on its ability to protect and defend its intellectual property rights. If the Company failswe fail to adequately protect itsour intellectual property, competitors may manufacture and market similar products. The Company has
We have been issued patents covering certain of itsour products, and haswe have filed, and expectsexpect to continue to file, patent applications seeking to protect newly developed technologies and products in various countries, including the U.S. Any existing or future patents issued to or licensed by the
Companyus may not provide itus with any significant competitive advantages for itsour products or may even be challenged, invalidated or circumvented by competitors. In addition, such patent rights may not prevent the Company'sour competitors from developing, using or commercializing non-infringing products that are similar or functionally equivalent to itsour products.
The CompanyWe also reliesrely on trade secrets, unpatented proprietary know-how, and continuing technological innovation that it seekswe seek to protect, in part by confidentiality agreements with licensees, suppliers, employees, and consultants. If these agreements are breached, the Companywe may not have adequate remedies for any such breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Furthermore, trade secrets and proprietary technology may otherwise become known or be independently developed by competitors or, if patents are not issued with respect to products arising from research, the Companywe may not be able to maintain the value of such intellectual property rights. The Company is also increasing its research and development efforts in countries where risks of improper disclosure of trade secrets and proprietary technology are higher than in the U.S. and Israel.
A significant disruption at any of the Company's main manufacturing facilities could materially and adversely affect the Company's business, financial position and results of operations.
The Company's U.S. manufacturing operations are concentrated in Michigan, Minnesota, South Carolina, New York, Vermont, Ohio, and Nebraska. The primary non-U.S. operations are in Israel. Approximately 80% of the Company's fiscal 2014 revenues are related to these world-wide manufacturing facilities. A significant disruption resulting from, but not limited to, fire, tornado, storm, flood, cyber attacks, material supply, insufficient quality, or pandemic at any of the Company's facilities could impair its ability to develop, produce and/or ship products on a timely basis, which could have a material adverse effect on the Company's business, financial position and operating results.
The Company is dependent on the services of certain key executive and scientific employees. The failure to attract and retain such employees may have a material adverse impact on the Company's results of operations.
The Company's future success will depend in large part upon its ability to attract and retain highly skilled employees. Key functions for the Company include executive managers, operational managers, research and development scientists, information technology specialists, financial and legal specialists, regulatory professionals, quality compliance specialists and sales/marketing personnel. Should the Company be unable to attract or retain key qualified employees, future operating results may be adversely impacted.
Increasing use of social media could give rise to liability, breaches of data security or reputation damage.
The Company and its employees are increasingly utilizing social media tools as a means of communication both internally and externally. To the extent that the Company seeks to use these tools as a means to communicate about its products and/or business, there are uncertainties as to either the rules that apply to such communications, or as to the interpretations that authorities will apply to the rules that exist. As a result, despite the Company's efforts to monitor evolving social media communication guidelines and comply with applicable rules, there is risk that the Company's use of social media for such purposes may cause it to be found in violation of them. In addition, because of the availability of social media tools globally, the Company's employees may knowingly or inadvertently make use of them in ways that may not be aligned with the Company's social media strategy, and that may give rise to liability, or could lead to the loss of trade secrets or other intellectual property, or public exposure of personal information (including sensitive personal information) of the Company's employees, clinical trial patients, customers and others. In either case, such uses of social media could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, negative posts or comments about the Company,
store brands or generic pharmaceuticals, or its products in social media could seriously damage its reputation and could adversely affect the price of its securities.
To protect itself against various potential liabilities, the Company maintains a variety of insurance programs. Significant increases in the cost or decreases in the availability of suchthe insurance we maintain could adversely impact the Company'sour financial condition.
TheTo protect the Company maintainsagainst various potential liabilities, we maintain a variety of insurance programs, including property, general and product, liability, and directors' and officers' liability to protect itself against potential loss exposures. The Company cannot predict whether deductibleliability. We may reevaluate and change the types and levels of insurance coverage that we purchase. We are self-insured when insurance is not available or not available at reasonable premiums. Risks associated with insurance plans include:
Insurance costs could increase significantly, or the availability of insurance may decrease, either of which could adversely impact our financial condition;
Deductible or retention amounts willcould increase or whetherour coverage willcould be reduced in the future. Tofuture and to the extent that losses occur, there could be an adverse effect on the Company'sour financial results depending on the nature of the loss and the level of insurance coverage maintained by the Company. From timewe maintained;
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| • | Product liability insurance may not be available to us at an economically reasonable cost (or at all for certain specific products) or our insurance may not adequately cover our liability in connection with product liability claims (see Item 8. Note 14 for further information related to legal proceedings); and |
As our business inherently exposes us to time, the Company may reevaluate and change the types and levels of insurance coverage that it purchases. We are self-insured when insurance is not available, retain certain self-insured retentions and have risk management strategies where insurance is not available at reasonable premium levels.
The Company, like retailers and other distributors and manufacturers of products, is exposed to product liability claims in the event that, among other things,for injuries allegedly resulting from the use of itsour products, results in injury. There is no assurance that product liability insurance will continuewe may become subject to be available to the Company at an economically reasonable cost(or at allclaims for certain specific products)or that the Company's insurance will be adequate to cover liability that the Company incurs in connection with product liability claims. See Note 14which we are not adequately insured. Unanticipated payment of the Notes to Consolidated Financial Statements for further information related to Legal Proceedings.
Risks Related to Acquisitions
Although the Company only enters into business acquisitions and divestitures that it expects will result in benefits to the Company, the Companya large claim may not realize those benefits because of integration and other challenges, which could have a material adverse effect on the Company's stock price or operating results.
As part of the Company's strategy, it evaluates potential acquisitions in the ordinary course of business, some of which could be and have been material. Potential acquisition targets are evaluated on whether they have the capacity to deliver a return on invested capital ("ROIC") in excess of 200 basis points over the Company’s weighted average cost of capital ("WACC") within three years. Acquisitions involve a number of risks and present financial, managerial and operational challenges, including:
uncertainties in assessing the value, strengths, and potential profitability of, and identifying the extent of all weaknesses, risks, contingent and other liabilities of, the respective parties;
the potential loss of key customers, management and employees of an acquired business;
the consummation of financing transactions, acquisitions or dispositions and the related effects on the Company's business;
the ability to achieve identified operating and financial synergies from an acquisition in the amounts and on the timeframe;
problems that could arise from the integration of the respective businesses, including the application of internal control processes to the acquired business; and
unanticipated changes in business, industry, market, or general economic conditions that differ from the assumptions underlying the Company's rationale for pursuing the transaction.
Any one or more of these factors could cause the Company not to realize the benefits anticipated from a transaction. Moreover, any acquisition opportunities the Company pursues could materially affect its liquidity and capital resources and may require the Company to incur indebtedness, seek equity capital or both. Future acquisitions could also result in the Company assuming more long-term liabilities relative to the value of the acquired assets than it has assumed in its previous acquisitions. Further, acquisition accounting rules require evaluation of certain assumptions, estimates or determination of financial statement classifications, which are completed during the measurement period as defined in current accounting standards. Accounting policies of the Company and acquisition accounting rules may materially vary from those of the acquired company. Any changes in assumptions, estimates or financial statement classifications may be material and have a material adverse effect on the assets, liabilities or future earnings of the new combined consolidated company.
our business.
Perrigo Company plc- Item 1A
Risk Factors
In addition, integration activities may place substantial demands on the Company's management, operational resources and financial and internal control systems. Customer dissatisfaction or performance problems with an acquired business, technology, service or product could also have a material adverse effect on the Company's reputation and business. The Company's failure to successfully integrate acquisitions could have a negative effect on its operations. Integration risks and synergies associated with the Company's acquisitions are likely to include, but are not limited to, sales force, sales channel or product portfolio rationalization; manufacturing, distribution and supply chain integration and purchasing savings; quality and regulatory process standardization; and information technology and administration shared service implementations. The dedication of management resources to such integration may detract attention from the Company's day-to-day business, and there can be no assurance that there will not be substantial costs associated with the transaction process or other material adverse effects as a result of these integration efforts. In addition, a lack of performance of acquisitions could cause financial difficulties.
The Company also evaluates the performance of all operating business units against an ROIC threshold. Underperforming assets typically have a specific period to improve performance before other strategic alternatives are considered. The Company's inability to successfully divest or sell assets in a timely manner could have a negative effect on its operations. In addition, the process of divestitures could cause strains on the ongoing operations of the Company.
The Company's actual financial positions and results of operations may differ materially from the unaudited pro forma financial data included in Note 2 of the Notes to Consolidated Financial Statements.
The pro forma financial information contained in Note 2 of the Notes to Consolidated Financial Statements is presented for illustrative purposes only and may not be an indication of what the Company's financial position or results of operations would have been had the acquisitions been completed on the dates indicated. The pro forma financial information has been derived from the historical financial information of Perrigo Company, Elan and the acquired Fera and Aspen assets, and certain adjustments and assumptions have been made regarding the combined company after giving effect to the transactions. The acquired assets and assumed liabilities have been measured at fair value based on various preliminary estimates using assumptions that the Company's management believes are reasonable utilizing information currently available. The process for estimating the fair value of acquired assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. These estimates may be revised as additional information becomes available and as additional analyses are performed. The pro forma financial data is based on a preliminary purchase price allocation, and the actual allocation of the purchase price will be performed only after all purchase price adjustments have been completed. Accordingly, the actual financial condition and results of operations of the combined company may not be consistent with, or evident from, this pro forma financial information.In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect the Company's financial condition or results of operations. Acquisition accounting rules require evaluation of certain assumptions, estimates or determination of financial statement classifications that are completed during the measurement period as defined in current accounting standards. The Company's accounting policies and acquisition accounting rules may materially vary from those of its acquired companies. Any changes in assumptions, estimates, or financial statement classifications may be material and have a material adverse effect on the assets, liabilities or future earnings of the new combined consolidated company. Any potential decline in the Company's financial condition or results of operations may cause significant variations in the Company's share price.
The Company's results of operations and cash flow needs could be materially impacted by acquisitions.
The Company's senior credit facilities, the agreements governing its senior notes and agreements governing its other indebtedness contain a number of restrictions and covenants that limit the Company's ability to make distributions or other payments to its investors and creditors unless certain financial tests or other criteria are satisfied. The Company also must comply with certain specified financial ratios and tests. These restrictions could affect the Company's ability to operate its business and may limit its ability to take advantage of potential business opportunities, such as acquisitions. If the Company does not comply with the covenants and restrictions contained in its senior credit facilities, agreements governing its senior notes and agreements governing its other indebtedness, the Company could be in default under those agreements, and the debt, together with accrued interest, could then be declared immediately due and payable. Any default under the Company's senior credit facilities or agreements governing its senior notes or other indebtedness could lead to an acceleration of debt under
other debt instruments that contain cross-acceleration or cross-default provisions. If the Company's indebtedness is accelerated, there can be no assurance that it would be able to repay or refinance its debt or obtain sufficient new financing.
The Company has various maturity dates associated with its credit facilities, senior notes and other debt facilities. There is no assurance that cash, future borrowings or equity financing will be available for the payment or refinancing of its indebtedness. Further, there is no assurance that future refinancing or renegotiation of the Company's senior credit facilities, senior notes or other debt facilities, or additional agreements will not have materially different or more stringent terms.
The Company has acquired significant assets that could become impaired or subject the Company to losses and may result in an adverse impact on the Company's results of operations.
In addition to the $5.8 billion Tysabri® distribution and license agreement recorded as an intangible asset and described above, the Company also acquired investment securities and equity method investments, and recorded $2.3 billion of goodwill in connection with the Elan acquisition. All of these assets are subject to impairment, which would adversely impact the Company's results of operations.
For intangible assets subject to amortization such as Tysabri®, an impairment analysis is performed whenever events or changes in circumstances indicate that the carrying amount of any individual asset may not be recoverable. An impairment loss is recognized if the carrying amount of the asset is not recoverable and its carrying amount exceeds its fair value. Any significant change in market conditions, estimates or judgments used to determine expected future cash flows that indicate a reduction in carrying value may give rise to impairment in the period that the change becomes known. See Note 3 of the Notes to the Consolidated Financial Statements for further information.
If the Company determines that a loss in the value of its equity method investments is other than temporary, the investment is written down to its estimated fair value. Any such losses are recorded to other expense (income), net. Evaluations of recoverability are based primarily on projected cash flows. Due to uncertainties in the estimation process, actual results could differ from such estimates. Additionally, the equity method of accounting requires the Company to record a proportionate share of the profits and losses of its equity method investments. If the entities accounted for as equity method investments experience significant losses, the Company will have to record a proportionate share of those losses, which could significantly impact the Company's results of operations.
RisksTax Related to Doing Business Internationally
A substantial portion of the sources of raw materials and an increasing volume of sales of the Company are outside the U.S. Additional legislation or regulation concerning importing/exporting may be enacted, which could have an adverse impact on the Company's net sales and resulting income.
The Company imports and exports products and raw materials from/to several jurisdictions around the world. This process involves Company subsidiaries and third parties operating in a number of jurisdictions with different customs and import/export regulations. The regulations are subject to change from time to time and the Company cannot predict the nature, scope or impact of these changes upon the Company's operations. The Company is subject to periodic reviews and audits by governmental authorities responsible for administering these regulations. To the extent that the Company is unable to successfully defend itself against an audit or review, the Company may be required to pay assessments, penalties and increased duties, which may, individually or in the aggregate, negatively impact the Company's gross margins and operating results. Certain of the Company's facilities operate in a special purpose subzone established by the U.S. Department of Commerce Foreign Trade Zone Board, which allows the Company certain tax advantages on products and raw materials shipped through these facilities. If the U.S. Department of Commerce Foreign Trade Zone Board were to revoke the subzone designation or limit its use by the Company, the Company could be subject to increased duties, which may negatively impact the Company's gross margins and operating results.
Conducting business in international markets involves risks and uncertainties such as foreign exchange rate exposure and social, political and economic instability that could lead to increased prices for raw materials, reduced international sales and reduced profitability associated with such sales, which could have an adverse impact on the Company's net sales and resulting income.
The Company sources certain key raw materials and finished products from foreign suppliers in countries that include, but are not limited to, Australia, Canada, China, Denmark, India and Mexico. The Company's primary markets for the sale of its products outside the U.S. are Canada, Germany, Israel, Mexico, the U.K., China and Australia. The Company may have difficulty in international markets due, for example, to regulatory barriers, the necessity of adapting to new regulatory systems and problems related to markets with different cultural biases and political systems and strict adherence to all anti-corruption laws including the U.S. Foreign Corrupt Practices Act. Violence and crime in Mexico could adversely affect the Company's manufacturing activities and ability to recruit and retain employees there. Sales to customers outside the U.S. and foreign raw material purchases expose the Company to a number of risks, including unexpected changes in regulatory requirements, possible difficulties in enforcing agreements, longer payment cycles, longer shipping lead-times, inefficient port operations, exchange rate fluctuations, difficulties obtaining export or import licenses, the imposition of withholding or other taxes, economic or political instability, embargoes, military hostilities or exchange controls. Should any of these risks occur, they may have a material adverse impact on the operating results of the Company.
Conditions in Israel affect the Company's operations and may limit its ability to produce and sell its products.
The Company has significant manufacturing and research and development facilities in Israel. Political, economic and military conditions in Israel directly affect the Company's operations, and the Company could be adversely affected by current or future hostilities involving Israel or a significant recession or downturn in the economic or financial condition of Israel.
Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. A state of hostility, varying in degree and intensity, has led to security and economic problems for Israel in recent years. These hostilities can adversely affect Israel's relationship with a number of countries in the region and elsewhere, as well as its relationship with international organizations.
While none of the Company's facilities in Israel have been directly affected by hostile operations, there can be no assurance that a further escalation of hostilities will not impact the Company's facilities. Currently there is conflict in Gaza, and Perrigo facilities are within the ranges of the rockets fired at Israel from Gaza. Furthermore, the Company's employees in Israel include members of the Israeli military reserves, some of whom have been called up for active duty. If a significant number of the Company's employees in Israel are called up for active duty in the military, the Company's operations in Israel may be materially adversely affected. Finally, travel, including FDA travel, has been disrupted or halted during the recent hostilities.
Escalations of hostilities have disruptive effects on Israel's economy, and any international economic sanctions against Israel could further harm Israel's economy. These economic developments could have an adverse effect on the Company's Israel Pharmaceutical and Diagnostic Products business.
Furthermore, certain parties with whom the Company does business may decline to travel to Israel, which would force the Company to make alternative arrangements where necessary. The United States Department of State has at times issued an advisory regarding travel to various sections of Israel. As a result of the State Department's advisories, the FDA has at various times curtailed or prohibited its inspectors from traveling to Israel to inspect the facilities of Israeli companies, and should this occur with respect to the Company's Israeli facilities, the FDA could withhold approval for new products intended to be produced at those facilities.
Although it has not yet occurred, the political and security situation in Israel may result in certain parties with whom the Company has contracts claiming that they are not obligated to perform their commitments pursuant to force majeure provisions of those contracts.
The Company could experience disruption of its manufacturing and research and development facilities due to terrorist acts or military actions. If terrorist acts or military actions were to result in substantial damage to the Company's facilities, business activities would be disrupted since, with respect to most products, the Company would need to obtain prior FDA approval for a change in manufacturing site. The Company's insurance may not
adequately compensate it for losses that may occur and any losses or damages incurred by the Company could have a material adverse effect on its business.
Some neighboring countries, as well as certain companies and organizations, continue to participate in a boycott of Israeli firms and others doing business with Israel or with Israeli companies. The Company is also precluded from marketing its products to certain of these countries due to U.S. and Israeli regulatory restrictions. Because an immaterial amount of the Company's revenue is currently derived from sales to these countries, the Company believes that the boycott has not had a material adverse effect on its current operations. However, continuation or extension of the boycott or implementation of additional restrictive laws, policies or practices directed towards Israel or Israeli businesses could have an adverse impact on the expansion of the Company's business.
Risks Related to the Company's Liquidity and Capital Resources
The Company's business requires continuous capital investments and there can be no assurance that financial capital will always be available on favorable terms or at all. In some instances, the Company may determine to issue additional shares of capital stock in order to meet its capital needs, which would dilute existing shareholders' ownership.
The Company maintains a broad product line to function as a primary supplier for its customers. Capital investments are driven by growth, technological advancements, cost improvement and the need for manufacturing flexibility. Estimation of future capital expenditures could vary materially due to the uncertainty of these factors. If the Company fails to stay current with the latest manufacturing, information and packaging technology, it may be unable to competitively support the launch of new product introductions.
The Company anticipates that cash, cash equivalents, cash flows from operations and borrowings available under its credit facilities will substantially fund working capital and capital expenditures. The Company has historically evaluated acquisition opportunities and anticipates that acquisition opportunities will continue to be identified and evaluated in the future. The historical growth of sales and profits has been positively influenced by acquisitions. There is no assurance that future sales and profits will, or will not, be impacted by acquisition activities.
If the Company decides to seek additional capital through the issuance of additional ordinary shares, existing shareholders' ownership may be diluted.
Changes in the Company's credit ratings may limit its access to capital and materially increase borrowing costs.
The Company has received ratings from Moody's Investor Service and Standard and Poor's Rating Services. Any changes or downgrades to the Company's credit ratings and outlook could negatively impact the Company's access to capital markets and the perception of the Company's credit risk by lenders and other third parties. The Company's credit ratings are based upon information furnished by the Company or obtained by a rating agency from its own sources and are subject to revision, suspension or withdrawal by one or more rating agencies at any time. Rating agencies may review the ratings assigned to the Company due to developments that are beyond the Company's control, including the introduction of new standards requiring the agencies to re-assess rating practices and methodologies.
Any downgrade to the ratings of the Company's debt securities may result in higher interest costs for certain of the Company's credit facilities and other debt financings, and could result in higher interest costs on future financings. Further, downgrades may impact the Company's ability to obtain adequate financing, including via trade payables with vendors. Customers' inclination to purchase goods from the Company may also be affected by the publicity associated with deterioration of the Company's credit ratings.
Customer channel consolidation, including retailers and buyers, can increase the Company's credit risk, which may adversely affect the Company's financial position or results of operations.
Retailer and buyer consolidation continues to increase the size of the Company's customers. If a large customer should encounter financial difficulties, the Company's exposure with respect to uncollectible receivables
and unusable inventory, as well as the potential loss of future sales, could result in a material adverse impact on the Company's financial position or results of operations.
The Company's results are impacted by global economic conditions; weaknesses or downturns in the global economy could adversely impact the Company's liquidity and financial condition.
The Company’s business is impacted by economic conditions in the U.S. and in other countries in which the Company produces and markets its products. Slower economic growth, geopolitical issues, sovereign debt issues, and the state of global real estate markets may contribute to increased market volatility. Although economic conditions have improved over the last few years, there continues to be uncertainty as to whether this improvement is sustainable. Continued market volatility could adversely affect the Company's stock price, liquidity and overall financial condition.
The Company's customers and suppliers may be adversely affected if the current economic conditions worsen. Although the Company actively reviews the credit worthiness of its customers and suppliers, the Company cannot fully predict to what extent its customers and suppliers may be negatively impacted and thus to what extent the Company's operations would be affected.
The Company invests cash and cash equivalents primarily in demand deposits and other short-term instruments with maturities of three months or less at the date of purchase. The Company typically maintains a balance between objectives of safety of principal, liquidity and return by investing primarily in U.S., federal, state and local government obligations, direct obligations of local sovereign governments and in bank obligations of the Company's credit banks meeting a minimum third-party credit rating standard. The value of the Company's assets may be adversely affected if economic conditions worsen.
Although the Company's lenders have made commitments to make funds available to the Company in a timely fashion, if economic conditions worsen or new information becomes publicly available impacting these lenders' credit ratings or capital ratios, the Company's lenders may be unable or unwilling to lend money pursuant to the Company's existing credit facilities. In addition, if the Company determines that it is appropriate or necessary to raise capital in the future, the cost of raising funds through the debt or equity markets may be more expensive or those markets may be unavailable. If the Company is unable to use its existing credit facilities or raise funds through debt or equity markets, the Company's liquidity or ability to follow its key growth strategies could be materially and adversely affected.
Additionally, decreases in personal incomes may have caused consumers to look for and purchase lower priced products, such as generic and store brand products manufactured by the Company, as an alternative to higher priced brand-name products. To the extent that this trend has occurred, the Company's sales could be negatively affected if economic conditions improve and if consumers were enticed to go back to purchasing higher-priced brand-name products.
Tax-Related Risks
The U.S. Internal Revenue Service ("IRS") may not agree with the conclusion that the Company iswe are treated as a foreign corporation for U.S. federal tax purposes.
Although the Company iswe are incorporated in Ireland, the IRS may assert that itwe should be treated as a U.S. corporation (and, therefore, a U.S. tax resident) for U.S. federal tax purposes pursuant to section 7874 of the U.S. Internal Revenue Code of 1986, as amended ("Code"). For U.S. federal tax purposes, a corporation generally is considered a tax resident in the jurisdiction of its organization or incorporation. Because the Company iswe are an Irish incorporated entity, itwe would generally be classified as a foreign corporation (and, therefore, a non-U.S. tax resident) under these rules. Section 7874 of the Code provides an exception under which a foreign incorporated entity may, in certain circumstances, be treated as a U.S. corporation for U.S. federal tax purposes.
For thePerrigo Company plc to be treated as a foreign corporation for U.S. federal tax purposes under section 7874 of the Code, either (i) the former stockholders of Perrigo Company must own (within the meaning of section 7874 of the Code) less than 80% (by both vote and value) of the Company'sour stock by reason of holding shares in Perrigo Company (the "ownership test") as of the closing of the acquisition or (ii) the Companywe must have substantial business activities in Ireland after the Elan acquisition (taking into account the activities of the Company’sour expanded affiliated group). As
Upon our acquisition of the acquisition date,Elan, Perrigo Company stockholders held 71% (by both vote and value) of the shares in the Company.
our shares. As a result, the Company believeswe believe that under current law, itwe should be treated as a foreign corporation for U.S. federal tax purposes. However, the Companywe cannot assure that the IRS will agree with theour position that the ownership test is satisfied. There is limited guidance regarding the section 7874 provisions, including the application of the ownership test.
Based on the limited guidance available, we currently expect that Section 7874 of the Code likely will limit the Company'sour and itsour U.S. affiliates’ ability to utilizeuse their U.S. tax attributes such as net operating losses to offset certain U.S. taxable income, if any, generated by the Elan acquisition or certain specified transactions for a period of time following the Elan acquisition.
Following the acquisition of a U.S. corporation by a foreign corporation, section 7874 of the Code can limit the ability of the acquired U.S. corporation and its U.S. affiliatesChanges to utilize U.S. tax attributes such as net operating losses to offset U.S. taxable income resulting from certain transactions. Based on the limited guidance available, the Company currently expects this limitation will apply, and as a result, the Company currently does not expect that it or its U.S. affiliates will be able to utilize their U.S. tax attributes to offset their U.S. taxable income, if any, resulting from certain specified taxable transactions.
Changes in tax laws or income tax rates could have a material adverse effect on the Company'sour results of operations and the ability to utilize cash in a tax efficient manner.
The Company believesWe believe that under current law, itwe should be treated as a foreign corporation for U.S. federal tax purposes. However, changesany of the following could adversely affect our status as a foreign corporation for U.S. federal tax purposes:
Changes to the inversion rules in section 7874 of the Code, or the IRS Treasury regulations promulgated thereunder, or other IRS guidance could adversely affect the Company's status as a foreign corporation for U.S. federal tax purposes, and any such changes could have prospective or retroactive application to the Company, Perrigo Company, and/or their respective stockholders, shareholders and affiliates. In addition, recent legislative
Legislative proposals have aimed to expandat expanding the scope of U.S. corporate tax residence, and such legislation, if passed, could have an adverse effect on the Company.residence.
Moreover, theThe Office of the Revenue Commissioners, U.S. Congress, the OrganisationOrganization for Economic Co-operation and Development, and other Government agencies in jurisdictions where the Companywe and itsour affiliates do business have had an extended focus on issues related to the taxation of multinational corporations. One example is in the area of "base erosion and profit shifting", where payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. AsThis focus could lead to a result, thechange in tax laws in the U.S. and other countries in which the Companywe and itsour affiliates do businessbusiness.
Any of these changes could change onhave a prospective or retroactive basis,application to us, our shareholders, and any such changesaffiliates, and could adversely affect the Company.us by limiting our ability to utilize cash in a tax efficient manner.
Our effective tax rate may change in the future, which could adversely impact our future results from operations.
A number of factors may adversely impact the Company'sour future effective tax rates, such as incomewhich may impact our future results from operations. These factors include, but are not limited to:
Perrigo Company plc- Item 1A
Risk Factors
Income tax rate changes by governments; the
The jurisdictions in which the Company'sour profits are determined to be earned and taxed; changes
Changes in the valuation of the Company'sour deferred tax assets and liabilities; adjustments
Adjustments to estimated taxes upon finalization of various tax returns; adjustments
Adjustments to the Company'sour interpretation of transfer pricing standards, changes in available tax credits, grants and other incentives; changes
Changes in stock-based compensation expense; changes in tax laws or the interpretation of such tax laws (e.g.,(such as proposals for fundamental U.S. international tax reform); changes
Changes in U.S. generally accepted accounting principles; expiration
Expiration or the inability to renew tax rulings or tax holiday incentives; and the repatriation
Repatriation of non-U.S. earnings with respect to which the Company haswe have not previously provided for U.S. taxes. A change in the Company's effective
The resolution of uncertain tax rate due to any of these factors may adversely impact the Company's future results from operations. Also, changes in tax lawspositions could be unfavorable, which could have a materialan adverse effect on the Company's ability to utilize cash in a tax efficient manner.our business.
Although we believe that our tax estimates are reasonable and that we prepare our tax filings are prepared in accordance with all applicable tax laws, the final determination with respect to any tax audit, and any related litigation, could be materially different from our estimates or from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties and/or interest assessments.
46The IRS audit of fiscal years 2009 and 2010 had previously concluded with the issuance of a statutory notice of deficiency on August 27, 2014. While we had previously agreed on certain adjustments and made associated payments of $8.0 million inclusive of interest in November 2014, the statutory notice of deficiency asserted various additional positions, including transfer pricing, relative to the same fiscal 2009 and 2010 audit. The statutory notice asserted an incremental tax obligation of approximately $68.9 million, inclusive of interest and penalties. We disagree with the IRS’s positions asserted in the notice of deficiency. In January 2015, we paid this amount, a prerequisite to being able to contest the IRS’s positions in U.S. Federal court, and in June 2015 we filed a request for a refund. In the event that the IRS denies our request for a refund, we intend to contest the IRS’s asserted positions in U.S. Federal court. An unfavorable resolution of this matter could have a material impact on our consolidated financial statements in future periods.
The IRS is auditing fiscal years 2011 and 2012, and the Israel Tax Authorities are auditing the same period. There are numerous other income tax jurisdictions for which tax returns are not yet settled, none of which are individually significant. At this time, we cannot predict the outcome of any audit or related litigation.
The government programs in Israel in which the Company participateswe participate and the tax benefits the Company receiveswe receive require the Companyus to meet several conditions and may be terminated or reduced in the future, which would increase the Company'sour costs and tax expenses.
The Company has receivedWe receive grants for research and development from the Office of the Chief Scientist in Israel's Ministry of Industry and Trade. To continue to be eligible for these grants, the Company'sour development projects must be approved by the Chief Scientist on a case-by-case basis. If the Company'sour development projects are not approved by the Chief Scientist, the Companywe will not receive grants to fund these projects, which would increase research and development costs. The receipt of such grants subjects the Companyus to certain restrictions and pre-approval requirements, which may be conditioned on additional royalty payments with rights to transfer intellectual property and/or production abroad. The CompanyWe also receivesreceive tax benefits, in particular exemptions and reductions, as a result of the Privileged Enterprise status of certain existing operations in Israel. To be eligible for these tax benefits, the Companywe must maintain itsour Privileged Enterprise status by meeting conditions, including making specified investments in fixed assets located in specific regions in Israel and investing additional equity in itself and its Israeli subsidiaries and by meeting projections provided to the regulatory agencies. If the Company failswe fail to meet these conditions in the future, the tax benefits would be canceled, and the Companywe could be required to refund the tax benefits already received. These tax benefits may not be continued in the future at their current levels or at any level. If such benefits are reduced or eliminated in the future, the Company'sour results of operations will be adversely impacted.
Perrigo Company plc- Item 1A
Risk Factors
In fiscal year 2011, Israel enacted new tax legislation that reduced the effective tax rate to 10% for 2011 and 2012, 7% for 2013 and 2014, and 6% thereafter for certain qualifying entities that elect to be taxed under the new legislation. This legislation was rescinded as announced in the Official Gazette on August 5, 2013. The new legislation enacted a 9% rate for certain qualifying entities that elect to be taxed under the new legislation. The Company hasWe have two entities that hadhave previously elected the new tax legislation for years after fiscal 2011. Therefore, the above risk is only applicable for the Companyto us for fiscal year 2011 as statutes remain open for this year.
Risks Related to Ownership of the Company's Ordinary SharesCapital and Liquidity
The Company is incorporated in Ireland, and Irish law differs from the laws in effect in the United States and may afford less protection to, or otherwiseOur indebtedness could adversely affect our shareholders.ability to operate our business.
The Company’s shareholders may have more difficulty protecting their interests than would shareholders of a corporation incorporated in a jurisdiction of the United States. As an Irish company, we are governed by the Irish Companies Acts 1963-2013 (the Act). The Act differs in some material respectsWe anticipate that cash, cash equivalents, cash flows from laws generally applicable to U.S. corporationsoperations, and shareholders, including the provisions relating to interested directors, mergers, amalgamations and acquisitions, takeovers, shareholder lawsuits and indemnification of directors. For example,borrowings available under Irish law, the duties of directors and officers of a company are generally owed to the company only. As a result, shareholders of Irish companies do not have the right to bring an action against the directors or officers of a company, except in limited circumstances. In addition, depending on the circumstances, shareholders may be subject to different or additional tax consequences under Irish law as a result of the acquisition, ownership and/or disposition of ordinary shares, including, but not limited to, Irish stamp duty, dividend withholding taxour credit facilities will substantially fund working capital and capital acquisitions tax.
The Company is incorporated in Ireland,expenditures. Our business requires continuous capital investments, and it maythere can be difficult to enforce judgments against the Companyno assurance that financial capital will always be available on favorable terms or certain of the Company's officersat all. Additionally, our leverage and directors.
The Company is incorporated in Ireland and a substantial portion of assets are located in jurisdictions outside the U.S. In addition, some of the officers and directors reside outside the U.S., and some or all of their respective assets are or may be located in jurisdictions outside of the U.S. Therefore, it may be difficult for investors to enforce against the Company any judgments of U.S. courts predicated upon civil liability provisions of the U.S. federal securities laws.
There is no treaty between Ireland and the U.S. providing for the reciprocal enforcement of foreign judgments. Before a foreign judgment would be deemed enforceable in Ireland, the judgment must be provided by a court of competent jurisdiction and be for a final and conclusive sum. An Irish court may also exercise its right to refuse judgment if the foreign judgment was obtained by fraud, if the judgment violated Irish public policy, if the judgment is in breach of natural justice or if it is irreconcilable with an earlier judgment. Further, an Irish court may stay proceedings if concurrent proceedings are being brought elsewhere. Judgments of U.S. courts of
liabilities predicated upon U.S. federal securities laws may not be enforced by Irish courts if deemed to be contrary to public policy in Ireland.
In certain limited circumstances, dividends paid by the Company may be subject to Irish dividend withholding tax.
In certain limited circumstances, dividend withholding tax (currently at a rate of 20%) may arise in respect of dividends, if any, paid on Perrigo ordinary shares. A number of exemptions from dividend withholding tax exist such that shareholders resident in the U.S. and shareholders resident in certain other countries may be entitled to exemptions from dividend withholding tax (the "Relevant Territories").
Shareholders resident in the U.S. that hold their shares through the Depository Trust Company ("DTC") will not be subject to dividend withholding tax provided the addresses of the beneficial owners of such shares in the records of the brokers holding such shares are recorded as being in the U.S. (and such brokers have further transmitted the relevant information to a qualifying intermediary appointed by Perrigo). All U.S. resident shareholders in the Company that hold their shares outside of DTC and shareholders resident in other Relevant Territories will not be subject to dividend withholding tax provided the beneficial owners of such shares have furnished completed and valid dividend withholding tax forms and an IRS Form 6166, as appropriate, to the Company's transfer agent or their brokers (and such brokers have further transmitted the relevant information to the Company's transfer agent). However, other shareholders may be subject to dividend withholding tax, thatdebt service obligations could adversely affect the Company's share price.business.
Dividends receivedDowngrades to our credit ratings may limit our access to capital and materially increase borrowing costs on current or future financing, including via trade payables with vendors. Customers' inclination to purchase goods from us may also be affected by Irish residents and certain other shareholders may be subject to Irish income tax.the publicity associated with deterioration of our credit ratings.
Most Irish tax residentOur senior credit facilities, the agreements governing our senior notes, and agreements governing our other indebtedness contain a number of restrictions and covenants that limit our ability to make distributions or ordinarily resident shareholders (other than Irish resident companies that have completedother payments to our investors and creditors unless certain financial tests or other criteria are satisfied.
We also must comply with certain specified financial ratios and tests. These restrictions could affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities, such as acquisitions. If we do not comply with the appropriate dividend withholding tax ("DWT" forms)) willcovenants and restrictions contained in our senior credit facilities, agreements governing our senior notes, and agreements governing our other indebtedness, we could be subject to DWT in respect of dividends received fromdefault under those agreements, and the Company. Shareholders that are residents of Ireland, but are entitled to received dividends without DWT, must complete the appropriate DWT formsdebt, together with accrued interest, could then be declared immediately due and provide them to their brokers before the record date for the dividend,payable.
Any default under our senior credit facilities or to the Company’s transfer agent at least seven business days before the record date for the dividend.
Shareholders who are not resident nor ordinarily resident in Ireland but who are not entitledagreements governing our senior notes or other indebtedness could lead to an exemption from Irish dividend withholding tax will generally have no further liability to Irish income tax on those dividends which suffer dividend withholding tax.
Perrigo ordinary shares received by meansacceleration of a giftdebt under other debt instruments that contain cross-acceleration or inheritance could be subject to Irish capital acquisitions tax.
Irish capital acquisitions tax ("CAT") could apply to a gift or inheritance of Perrigo ordinary shares irrespective of the place of residence, ordinary residence or domicile of the parties. Thiscross-default provisions. If our indebtedness is because Perrigo ordinary shares will be regarded as property situated in Ireland. The person who receives the gift or inheritance has primary liability for CAT. Gifts and inheritances passing between spouses are exempt from CAT. Children have a tax-free threshold of €225,000 in respect of taxable gifts or inheritances received from their parents.
Risks Related to the Company's Corporate Structure
A number of factors may limit the Company’s ability to pay dividends in the future.
The Company recently created distributable reserves by means of a reduction of share capital that was approved by the shareholders of the Company and the Irish High Court. In the event the Company chooses to seek to create further distributable reserves by means of a capital reduction, this will also require Irish High Court approval and shareholder approval. The Company is not aware of any reason why the Irish High Court would not approve the further creation of additional distributable reserves by means of a further capital reduction; however the issuance of the required order is a matter for the discretion of the Irish High Court. There alsoaccelerated, there can be no guaranteeassurance that shareholder approvalwe would be able to repay or refinance our debt or obtain sufficient new financing.
There are various maturity dates associated with our credit facilities, senior notes, and other debt facilities. There is no assurance that cash, future borrowings or equity financing will be obtained.
The Company’s ability to pay dividends will be limited byavailable for the availabilitypayment or refinancing of distributable reserves. Although distributable reserves can be created by meansour indebtedness. Further, there is no assurance that future refinancing or renegotiation of a reduction in capital, the ongoing availability of distributable reserves will depend on whether the Company has, on an individual entity basis, "profits available for
distribution" (within the meaning of the Irish Companies Acts); however, the future generation of additional distributable reserves cannot be guaranteed. The Company is a holding company that does not expect to conduct any business operations of its own. As a result, the Company will be dependent on cash dividends and distributions and other transfers from its subsidiaries in order to pay dividends to its shareholders. Any future determination to declare dividends will be made at the discretion of the Company’s board of directors, subject to compliance with applicable laws (including the Irish Companies Acts) and covenants under current or futureour senior credit facilities, whichsenior notes or other debt facilities, or additional agreements will not have materially different or more stringent terms.
Any additional shares we may restrict or limit the Company’s ability to pay dividends. The determination also will depend on the Company’s financial condition, results of operations, capital requirements, general business conditions and other factors that the Company’s board of directors may deem relevant.
Irish shareholder voting requirements may limit the Company's flexibility with respect to certain aspects of capital management.issue could dilute your ownership in us.
Under Irish law, theour authorized share capital of the Company can be increased by an ordinary resolution of itsour shareholders, and the directors may issue new ordinary or preferred shares up to a maximum amount equal to the authorized but unissued share capital, without shareholder approval, once authorized to do so by the articles of association of the Company or by an ordinary resolution of the Company'sour shareholders. Additionally, subject
Subject to specified exceptions, Irish law grants statutory preemption rights to existing shareholders to subscribe for new issuances of shares for cash, but allows shareholders to authorize the waiver of the statutory preemption rights by way of special resolution with respect to any particular allotment of shares. Accordingly, the Company's
Our articles of association contain, as permitted by Irish company law, a provision authorizing the board to issue new shares for cash without offering preemption rights. The authorization of the directors to issue shares and the authorization of the waiver of the statutory preemption rights must both be renewed by the shareholders at least every five years, and the Companywe cannot provide any assurance that these authorizations will
Perrigo Company plc- Item 1A
Risk Factors
always be approved, which could limit the Company'sour ability to issue equity and thereby adversely affect the holders of our securities.
We are incorporated in Ireland, and Irish law differs from the Company's securities.laws in effect in the United States and may afford less protection to, or otherwise adversely affect, our shareholders.
As an Irish company, we are governed by the Irish Companies Act 2014 (the "Act"). The Act differs in some material respects from laws generally applicable to U.S. corporations and shareholders, including the provisions relating to interested directors, mergers, amalgamations and acquisitions, takeovers, shareholder lawsuits, and indemnification of directors.
Under Irish law, the duties of directors and officers of a company are generally owed to the company only. As a result, shareholders of Irish companies do not have the right to bring an action against the directors or officers of a company, except in limited circumstances.
Depending on the circumstances, shareholders may be subject to different or additional tax consequences under Irish law as a result of the acquisition, ownership and/or disposition of ordinary shares, including, but not limited to, Irish stamp duty, dividend withholding tax, and capital acquisitions tax.
There is no treaty between Ireland and the U.S. providing for the reciprocal enforcement of foreign judgments. Before a foreign judgment would be deemed enforceable in Ireland, the judgment must be provided by a court of competent jurisdiction and be for a final and conclusive sum. An Irish court may exercise its right to refuse to recognize and enforce a foreign judgment if the foreign judgment was obtained by fraud, if the judgment violated Irish public policy, if the judgment is in breach of natural justice, or if it is irreconcilable with an earlier judgment.
An Irish court may stay proceedings if concurrent proceedings are being brought elsewhere. Judgments of U.S. courts of liabilities predicated upon U.S. federal securities laws may not be enforced by Irish courts if deemed to be contrary to public policy in Ireland.
We are subject to Irish takeover rules under which our Board of Directors is not permitted to take any action without Irish Takeover Panelapproval that might frustrate an offer for our ordinary shares once we have received an approach that may lead to an offer, or have reason to believe an offer is imminent. Further, it could be more difficult for us to obtain shareholder approval for a merger or negotiated transaction than if we were a U.S. company because the shareholder approval requirements for certain types of transactions differ, and in some cases are greater, under Irish law.
We may be limited in our ability to pay dividends in the future.
A number of factors may limit our ability to pay dividends in the future, including:
The availability of distributable reserves, as approved by our shareholders and the Irish High Court;
Our ability to receive cash dividends and distributions from our subsidiaries;
Compliance with applicable laws and covenants; and
Our financial condition, results of operations, capital requirements, general business conditions, and other factors that the Board of Directors may deem relevant.
| |
ItemITEM 1B. | Unresolved Staff Comments.
UNRESOLVED STAFF COMMENTS |
Not applicable.
| |
ItemITEM 2. | Properties.PROPERTIES |
The followingOur world headquarters is a listlocated in Dublin, Ireland, and our main administrative offices are located in Allegan, Michigan. We manufacture products at 30 worldwide locations and have R&D, logistics, and office support facilities in many of the regions in which we operate. We own approximately 60% of our facilities and lease the remainder. Our primary facilities owned or leased by the Company and the segment(s) that are generally supported by the facilitygeographic area were as offollows at June 28, 2014:27, 2015:
|
| | | | | | | | | | | |
| Location | | No. of Facilities | | Approx. Square Footage | | Segment(s) |
| | Owned | | Leased | |
| Dublin, Ireland | | 1 |
| | — |
| | 20,000 |
| | Specialty Sciences |
| Michigan | | 38 |
| | 2,330,000 |
| | 1,514,000 |
| | Consumer Healthcare, Nutritionals, Rx Pharmaceuticals |
| New York | | 4 |
| | — |
| | 282,000 |
| | Consumer Healthcare, Nutritionals, Rx Pharmaceuticals |
| South Carolina | | 3 |
| | 200,000 |
| | 460,000 |
| | Consumer Healthcare, Nutritionals, Rx Pharmaceuticals |
| Ohio | | 1 |
| | 97,000 |
| | — |
| | Nutritionals |
| Vermont | | 4 |
| | 215,000 |
| | 101,000 |
| | Nutritionals |
| Virginia | | 10 |
| | — |
| | 40,000 |
| | Nutritionals |
| Minnesota | | 2 |
| | 200,000 |
| | 97,000 |
| | Rx Pharmaceuticals |
| Nebraska | | 1 |
| | 130,000 |
| | — |
| | Consumer Healthcare |
| Kansas | | 2 |
| | 87,000 |
| | 25,000 |
| | Consumer Healthcare |
| Tennessee | | 2 |
| | — |
| | 300,000 |
| | Consumer Healthcare |
| California | | 1 |
| | — |
| | 55,000 |
| | Specialty Sciences |
| Pennsylvania | | 2 |
| | — |
| | 113,000 |
| | Specialty Sciences |
| Barnsley, U.K. | | 1 |
| | — |
| | 155,000 |
| | Consumer Healthcare |
| Braunton, U.K. | | 1 |
| | 223,000 |
| | — |
| | Consumer Healthcare |
| Leeds, U.K. | | 5 |
| | — |
| | 103,000 |
| | Rx Pharmaceuticals |
| Ramos Arizpe, Mexico | | 5 |
| | 327,000 |
| | 165,000 |
| | Consumer Healthcare, Nutritionals |
| Guadalajara Jalisco, Mexico | | 4 |
| | 59,000 |
| | 25,000 |
| | Consumer Healthcare |
| Toluca, Mexico | | 1 |
| | — |
| | 23,000 |
| | Consumer Healthcare |
| Balcatta, Western Australia | | 1 |
| | 37,000 |
| | — |
| | Consumer Healthcare |
| Baulkham Hills, New South Wales | | 1 |
| | — |
| | 18,000 |
| | Consumer Healthcare |
| Maharashtra, India | | 1 |
| | 240,000 |
| | — |
| | Consumer Healthcare, API |
| Yeruham, Israel | | 1 |
| | 270,000 |
| | — |
| | Rx Pharmaceuticals |
| B’nei-Brak, Israel | | 3 |
| | — |
| | 106,000 |
| | Rx Pharmaceuticals, Israel Pharmaceuticals and Diagnostic Products(1), API |
| Neot Hovav, Israel | | 1 |
| | 750,000 |
| | — |
| | API |
|
| | | | | |
(1)
Country | Represents operating segment in | Number of Facilities | | Segment(s) Supported |
|
| Ireland | | 1 |
| | CHC, Rx Pharmaceuticals, Specialty Sciences |
| United States | | 59 |
| | CHC, Rx Pharmaceuticals |
| Mexico | | 9 |
| | CHC |
| Israel | | 5 |
| | CHC, Rx Pharmaceuticals, Other category |
| Germany | | 3 |
| | BCH |
| France | | 4 |
| | BCH |
| Belgium | | 4 |
| | BCH |
| Australia | | 3 |
| | CHC |
| United Kingdom | | 2 |
| | CHC, Rx Pharmaceuticals |
| Netherlands | | 2 |
| | BCH |
| Austria | | 1 |
| | BCH |
| Poland | | 1 |
| | BCH |
| Switzerland | | 1 |
| | BCH |
| Greece | | 1 |
| | BCH |
| India | | 1 |
| | Other |
All of theWe believe that our production facilities above provide manufacturing, logistics and officesare adequate to support the respective segment and/or location. The Company leases other minor propertiesbusiness, and our property and equipment are well maintained. Plants for logistics and offices in the U.S., Israel, Mexico, India and China. The Company considers allmanufacture of its properties to be well-maintained andproducts are suitable for thetheir intended purposepurposes and have capacities and projected capacities adequate for current and projected needs of the facility.our existing products.
| |
ItemITEM 3. | Legal Proceedings.LEGAL PROCEEDINGS |
Information regarding the Company'sour current legal proceedings is presented in Item 8. Note 14 of the Notes to the Consolidated Financial Statements..
| |
ItemITEM 4. | Mine Safety Disclosures.MINE SAFETY DISCLOSURES |
Not applicable.
Perrigo Company plc - Additional Item
Executive Officers
| |
Additional Item.ADDITIONAL ITEM. | Executive Officers of the Registrant.
EXECUTIVE OFFICERS OF THE REGISTRANT |
TheOur executive officers of the Company and their ages and positions as of August 8, 20147, 2015 were:
|
| | | | |
| Name | | Age | | Position |
| Douglas S. Boothe | | 5051 | | Executive Vice President, General Manager, Rx Pharmaceuticals
|
| Judy L. Brown | | 4647 | | Executive Vice President, Chief Financial Officer |
Marc Coucke (1) | | 51 | | Executive Vice President, General Manager, Branded Consumer Healthcare |
| Thomas M. Farrington | | 5758 | | Senior Vice President, Chief Information Officer |
| John T. Hendrickson | | 5152 | | Executive Vice President, Global Operations and Supply Chain |
| Scott F. Jamison | | 5859 | | Executive Vice President, General Manager, Nutritionals |
| Todd W. Kingma | | 5455 | | Executive Vice President, General Counsel and Secretary |
| Sharon Kochan | | 4647 | | Executive Vice President, General Manager, International |
| Jeffrey R. Needham | | 5859 | | Executive Vice President, General Manager, Consumer Healthcare |
| Joseph C. Papa | | 5859 | | Chairman, President and Chief Executive Officer |
| Jatin Shah, Ph.D. | | 6162 | | Senior Vice President, Chief Scientific Officer |
| Michael R. Stewart | | 6263 | | Senior Vice President, Global Human Resources |
| Louis W. Yu, Ph.D. | | 6465 | | Executive Vice President, Global Quality |
(1)Employed by Mylecke Management, Art & Invest N.V.
Mr. Boothe was named Executive Vice President, General Manager, Rx Pharmaceuticals in January 2013. Prior to joining the Company,us, Mr. Boothe was Chief Executive Officer of Actavis Inc. from August 2008 to December 2012, where he was responsible for all aspects of its generics business in North America and Latin America, and Chief Operating Officer of Actavis Inc. from 2006 to 2008. He also has held a series of leadership roles at Alpharma Inc., Pharmacia Corporation, and Xerox Corporation.Corporation.
Ms. Brown was named Executive Vice President, Chief Financial Officer in July 2006. She served as Vice President and Corporate Controller from September 2004 to July 2006. Previously, Ms. Brown held various senior positions in finance and operations at Whirlpool Corporation from 1998 to August 2004 and prior to that worked for Ernst & Young LLP in the U.S. and Germany. Ms. Brown is a director of Belden Corporation, an NYSE traded company, that is a global leader in high quality,high-quality, end-to-end signal transmission solutions and network infrastructure needs for industrial, enterprise, and broadcast markets.
Mr. Coucke was named Executive Vice President, General Manager, Branded Consumer Healthcare in March 2015. He served as Omega's Chairman and Chief Executive Officer since 1987 until we acquired Omega in March 2015. Omega was founded in 1987 by Mr. Coucke and two other Belgian pharmacists and focused on the production and sales of various shampoos. Under Mr. Coucke’s leadership, the company grew and expanded geographically into a world player of consumer healthcare products, with affiliates in 36 countries. He is a qualified pharmacist (RUG). Mr. Coucke is acting as permanent representative of Mylecke Management, Art & Invest N.V.
Mr. Farrington was named Senior Vice President, Chief Information Officer in October 2006. He formerly served as Chief Information Officer for F. Dohmen Co. in addition to serving as a division President for JASCORP LLC from 2003 to October 2006. Prior to that position, Mr. Farrington held various senior positions in information technology and finance at Dell, Inc. from 1999 to 2003.
Mr. Hendrickson was named Executive Vice President, Global Operations and Supply Chain in October 2009. He served as Executive Vice President and General Manager, Perrigo Consumer Healthcare from March 2007 to October 2009. He served as Executive Vice President of Operations from 1999 to 2007. Mr. Hendrickson began his employment with the Companyus in 1989.
Mr. Jamison was named Executive Vice President, General Manager, Nutritionals in January 2011. Before the Companywe acquired PBM Holdings, Inc. in fiscal year 2010, Mr. Jamison had served as PBM's Executive Vice President and General Counsel since the formation of PBM in 1997 and was a key member of the executive team throughout
Perrigo Company plc - Additional Item
Executive Officers
the evolution and growth of PBM. In addition to his legal responsibilities, Mr. Jamison has held senior leadership responsibilities in operations and sales, as well as in new business and product development.
Mr. Kingma was named Executive Vice President, General Counsel and Secretary in May 2006. He served as Vice President, General Counsel and Secretary from 2003 to May 2006. Previously, Mr. Kingma held various positions at Pharmacia Corporation from 1991 through 2003. His last position with Pharmacia Corporation was Vice President and Associate General Counsel, Global Specialty Operations.
Mr. Kochan was named Executive Vice President, General Manager, International in August 2012. He served as Executive Vice President, General Manager of Rx Pharmaceuticals from March 2007 to July 2012 and as Senior Vice President of Business Development and Strategy from 2005 to March 2007. Mr. Kochan was Vice
President, Business Development of Agis Industries (1983) Ltd. from 2001 until the Companywe acquired Agis in 2005.
Mr. Needham was named Executive Vice President, General Manager, Consumer Healthcare in October 2009. He served as Senior Vice President of Commercial Business Development from 2005 through October 2009. Previously, he served as Senior Vice President of International from 2004 to 2005. He served as Managing Director of the Company’sour U.K. operations from 2002 to 2004 and as Vice President of Marketing from 1993 to 2002.
Mr. Papa joined the Companyus in October 2006 as President and Chief Executive Officer. Mr. Papa was elected as a director in November 2006 and, subsequently, was appointed as Chairman of the Board of Directors in October 2007. Previously, Mr. Papa served from 2004 to October 2006 as Chairman and Chief Executive Officer of the Pharmaceutical and Technologies Services segment of Cardinal Health, Inc. Prior to that position, he served as President and Chief Operating Officer of Watson Pharmaceuticals, Inc. from 2001 to 2004. Additionally, Mr. Papa has held management positions at DuPont Pharmaceuticals, Pharmacia Corporation, G.D. Searle & Company and Novartis AG. Mr. Papa is a director of Smith & Nephew, a developer of advanced orthopedic medical devices.
Dr. Shah was named Senior Vice President, Chief Scientific Officer in June 2005. He served as Vice President of Research and Development for Rx products from 2004 to June 2005. Previously, Dr. Shah held various senior positions in Research and Development at Mayne Pharma (known previously as Faulding Pharmaceuticals) from 1996 to 2004. Prior to that, Mr.Dr. Shah held positions of increasing responsibility at Eon Labs, Inc., Warner-Lambert (acquired by Pfizer), and Hoffman-La Roche.
Mr. Stewart was named Senior Vice President, Global Human Resources in September 2004. He served as Vice President, Human Resources from 1993 to September 2004. Mr. Stewart began his employment with the Companyus in 1981.
Dr. Yu was named Executive Vice President, Global Quality in July 2013. He served as Senior Vice President, Global Quality from November 2006 to June 2013. Previously, Dr. Yu served from 2005 to October 2006 as Vice President, Quality at CV Therapeutics Inc. Prior to that position, he served as Global Head of Quality & Compliance for Forest Laboratories, Inc. from 1999 to 2005. He served as the Vice President, Quality & Compliance for Solvay Pharmaceuticals between 1996 and 1999. Currently, he is associated with the University of Wisconsin, serving as Adjunct Professor, Extension Services in Pharmacy, School of Pharmacy. In addition, Dr. Yu is a director of the Product Quality Research Institute, a non-profit consortium. In addition, Dr. Yu is an Adjunct Professor in the School of Pharmacy, University of Wisconsin.
Perrigo Company plc - Item 5
PART II.
| |
ItemITEM 5. | Market for Registrant's Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCK HOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES. |
On and prior to December 18, 2013, our common stock consisted of shares of Perrigo Company, a Michigan Corporation, and since December 19, 2013, our common equity consists of ordinary shares of Perrigo Company plc, (formerly known as Perrigo Company Limited, and prior thereto, Blisfont Limited) was incorporated under the laws of Ireland on June 28, 2013 and became the successor registrant to Perrigo Company on December 18, 2013 in connection with the consummation of the acquisition of Elan. Perrigo Company shares were canceled and exchanged for Perrigo Company plc shares on a one-for-one basis (together with the payment of $0.01 in cash per Perrigo Company share). All the remaining unsold shares of Perrigo Company were deregistered. Perrigo Company plc began trading on the New York Stock Exchange ("NYSE") on December 19, 2013 and the Tel Aviv Stock Exchange ("TASE") on December 22, 2013 under the same symbol used by Perrigo Company ("PRGO") prior to December 18, 2013. See Note 2 of the Notes to the Consolidated Financial Statements for additional information about the acquisition of Elan.Ireland.
Prior to June 6, 2013, the Company'sour common stockequity traded on the NASDAQ Global Select Market ("NASDAQ") under the symbol PRGO. OnSince June 6, 2013, the Company'sour common stock began tradingequity has traded on the NYSENew York Stock Exchange ("NYSE") under the symbol PRGO. In association with the acquisition of Agis Industries (1983) Ltd., the Company’sour common stock also beganequity has been trading on the TASE onTel Aviv Stock Exchange ("TASE") since March 16, 2005. The numberAs of August 7, 2015, there were 2,746 record holders of the Company’s common stock as of August 8, 2014 was 2,940.our ordinary shares.
Set forth below are the high and low prices for our ordinary shares by the Company’s common stock as reportedNYSE at closing for the periods indicated as reported on NASDAQ through June 5, 2013, and the NYSE thereafter:indicated:
| | | | Fiscal Year Ended | Fiscal Year Ended |
| | June 28, 2014 | | June 29, 2013 | June 27, 2015 | | June 28, 2014 |
| | High | | Low | | High | | Low | High | | Low | | High | | Low |
| First Quarter | $ | 134.31 |
| | $ | 115.94 |
| | $ | 119.29 |
| | $ | 104.86 |
| $ | 160.65 |
| | $ | 135.00 |
| | $ | 134.31 |
| | $ | 115.94 |
|
| Second Quarter | $ | 157.47 |
| | $ | 122.56 |
| | $ | 120.78 |
| | $ | 99.93 |
| $ | 171.57 |
| | $ | 142.38 |
| | $ | 157.47 |
| | $ | 122.56 |
|
| Third Quarter | $ | 168.39 |
| | $ | 144.46 |
| | $ | 118.86 |
| | $ | 98.79 |
| $ | 174.65 |
| | $ | 147.21 |
| | $ | 168.39 |
| | $ | 144.46 |
|
| Fourth Quarter | $ | 158.99 |
| | $ | 125.37 |
| | $ | 122.04 |
| | $ | 112.05 |
| $ | 205.72 |
| | $ | 161.86 |
| | $ | 158.99 |
| | $ | 125.37 |
|
The graph below shows a five-year comparison of our cumulative total return for the Company with the cumulative total returns for the S&P 500 Index and the S&P Pharmaceuticals Index. DataOur data points are for the Company, the last day of each fiscal year and, for the indexes, June 30 of each year. The last day of the Company’sour fiscal year for fiscal years 20092010 through 20142015 is noted in each of the columns below. The graph assumes an investment of $100 at the beginning of the period and the reinvestment of any dividends.
Perrigo Company plc - Item 5
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG PERRIGO COMPANY PLC**, THE S&P 500 INDEX, AND THE S&P PHARMACEUTICALS INDEX
|
| | | | | | |
| | 6/27/2009 | 6/26/2010 | 6/25/2011 | 6/30/2012 | 6/29/2013 | 6/28/2014 |
| Perrigo Company plc** | $100 | $214 | $312 | $430 | $442 | $535 |
| S&P 500 | $100 | $114 | $150 | $158 | $190 | $237 |
| S&P Pharmaceuticals | $100 | $110 | $136 | $157 | $195 | $250 |
* $100 invested on June 27, 2009 in stock or index - including reinvestment of dividends. Indexes calculated on month-end basis.
** Perrigo Company prior to December 18, 2013. Perrigo Company plc beginning December 18, 2013. |
| | | | | | |
| | 6/26/2010 | 6/25/2011 | 6/30/2012 | 6/29/2013 | 6/28/2014 | 6/27/2015 |
| Perrigo Company, plc | $100 | $146 | $201 | $207 | $250 | $327 |
| S&P 500 | $100 | $114 | $150 | $158 | $190 | $237 |
| S&P Pharmaceuticals | $100 | $110 | $136 | $157 | $195 | $250 |
| |
| * | $100 invested on June 26, 2010 in stock or index - including reinvestment of dividends. Indexes calculated on month-end basis. |
| |
| ** | Perrigo Company prior to December 18, 2013. Perrigo Company plc beginning December 18, 2013. |
In January 2003, the Board of Directors adopted a policy of paying quarterly dividends. The CompanyWe paid dividends of $46.1$64.8 million,, $33.0 $46.1 million, and $29.0$33.0 million, or $0.39, $0.35$0.46, $0.39, and $0.31$0.35 per share, during fiscal years 2015, 2014,, 2013 and 2012,2013, respectively. The declaration and payment of dividends and the amount paid, if any, are subject to the discretion of the Board of Directors and will depend on theour earnings, financial condition, capital and surplus requirements of the Company and other factors the Board of Directors may consider relevant.
We did not repurchase any ordinary shares during fiscal year 2015.
Perrigo Company plc - Item 6
The Company does not currently have an ordinary share repurchase program, but may repurchase shares in private party transactions from time to time. Private party transactions are shares repurchased in connection with the vesting of restricted stock awards to satisfy employees' minimum statutory tax withholding obligations. All ordinary shares repurchased by the Company will either be canceled or held as treasury shares available for reissuance in the future for general corporate purposes.
The table below lists the Company’s repurchases of shares of common stock during its most recently completed quarter (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | |
| Fiscal 2014 | | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans | | Value of Shares Available for Purchase |
| | | | | | | | | $ | — |
|
| March 30 to May 3 | | 81 |
| | $ | 153.16 |
| | — |
| | $ | — |
|
| May 4 to May 31 | | — |
| | $ | — |
| | — |
| | $ | — |
|
| June 1 to June 28 | | 311 |
| | $ | 138.95 |
| | — |
| | $ | — |
|
| Total | | 392 |
| | | | — |
| | |
| |
(1)
| Private party transactions accounted for all of the shares repurchased in the period from March 30 to June 28. |
| |
ItemITEM 6. | Selected Financial Data.SELECTED FINANCIAL DATA |
The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and the notes to these statements included in Item 8Consolidated Statement of this report. For all years presented, the consolidated statements of income and consolidated balance sheet data set forth in this Form 10-K for the fiscal year ended June 26, 2010 have been adjusted for the retrospective application of the voluntary change in accounting principle to eliminate the one-month reporting lag for the Company's non-U.S. subsidiaries. The consolidated statement of incomeOperations data set forth below with respect to the fiscal years ended June 27, 2015, June 28, 2014, and June 29, 2013 and June 30, 2012 and the consolidated balance sheetConsolidated Balance Sheet data at June 28, 201427, 2015 and June 29, 201328, 2014, are derived from and are qualified by reference to the audited consolidated financial statements included in Item 8 of this report and should be read in conjunction with those financial statements and notes. The consolidated statementConsolidated Statement of income data for the CompanyOperations set forth below with respect to the fiscal years ended June 25, 201130, 2012 and June 26, 2010,25, 2011, and the consolidated balance sheetConsolidated Balance Sheet data for the Company at June 29, 2013, June 30, 2012,, and June 25, 2011, and June 26, 2010, are derived from our audited consolidated financial statements of the Company not included in this report. For all years presented, the Consolidated Balance Sheet data has been adjusted for the retrospective application of the change in accounting policy to reclassify deferred financing fees from Other non-current assets to Long-term debt, as further described in Item 8. Note 1.
| | | | Fiscal Year | Fiscal Year |
| (in millions, except per share amounts) | 2014(1)(2) | | 2013(1)(3) | | 2012(1)(4) | | 2011 | | 2010(5)(6) | 2015(1)(2) | | 2014(1)(3) | | 2013(1)(4) | | 2012(5) | | 2011 |
| Statement of Income Data | | | | | | | | | | |
| Statement of Operations Data | | | | | | | | | | |
| Net sales | $ | 4,060.8 |
| | $ | 3,539.8 |
| | $ | 3,173.2 |
| | $ | 2,755.0 |
| | $ | 2,268.2 |
| $ | 4,603.9 |
| | $ | 4,060.8 |
| | $ | 3,539.8 |
| | $ | 3,173.2 |
| | $ | 2,755.0 |
|
| Cost of sales | 2,613.1 |
| | 2,259.8 |
| | 2,077.7 |
| | 1,810.2 |
| | 1,521.9 |
| 2,891.4 |
| | 2,613.1 |
| | 2,259.8 |
| | 2,077.7 |
| | 1,810.2 |
|
| Gross profit | 1,447.7 |
| | 1,280.0 |
| | 1,095.6 |
| | 944.9 |
| | 746.2 |
| 1,712.5 |
| | 1,447.7 |
| | 1,280.0 |
| | 1,095.6 |
| | 944.9 |
|
| Operating expenses | | | | | | | | | | | | | | | | | | |
| Distribution | 55.3 |
| | 47.5 |
| | 39.1 |
| | 34.7 |
| | 28.3 |
| 67.7 |
| | 55.3 |
| | 47.5 |
| | 39.1 |
| | 34.7 |
|
| Research and development | 152.5 |
| | 115.2 |
| | 105.8 |
| | 89.3 |
| | 83.5 |
| 187.8 |
| | 152.5 |
| | 115.2 |
| | 105.8 |
| | 89.3 |
|
| Selling | 208.6 |
| | 186.1 |
| | 148.3 |
| | 132.4 |
| | 91.5 |
| 319.0 |
| | 208.6 |
| | 186.1 |
| | 148.3 |
| | 132.4 |
|
| Administration | 411.3 |
| | 240.2 |
| | 224.4 |
| | 197.3 |
| | 178.5 |
| 385.2 |
| | 411.3 |
| | 240.2 |
| | 224.4 |
| | 197.3 |
|
| Write-off of in-process research and development | 6.0 |
| | 9.0 |
| | — |
| | — |
| | 19.0 |
| — |
| | 6.0 |
| | 9.0 |
| | — |
| | — |
|
| Restructuring | 47.0 |
| | 2.9 |
| | 8.8 |
| | 1.0 |
| | 9.5 |
| 5.1 |
| | 47.0 |
| | 2.9 |
| | 8.8 |
| | 1.0 |
|
| Total | 880.7 |
| | 600.9 |
| | 526.4 |
| | 454.7 |
| | 410.3 |
| |
| Total operating expenses | | 964.8 |
| | 880.7 |
| | 600.9 |
| | 526.4 |
| | 454.7 |
|
| Operating income | 567.0 |
| | 679.1 |
| | 569.2 |
| | 490.2 |
| | 335.9 |
| 747.7 |
| | 567.0 |
| | 679.1 |
| | 569.2 |
| | 490.2 |
|
| Interest, net | 103.5 |
| | 65.8 |
| | 60.7 |
| | 42.3 |
| | 28.4 |
| |
| Interest expense, net | | 146.0 |
| | 103.5 |
| | 65.8 |
| | 60.7 |
| | 42.3 |
|
| Other expense (income), net | 12.4 |
| | 0.9 |
| | (3.5 | ) | | (2.7 | ) | | (1.2 | ) | 343.2 |
| | 25.1 |
| | 5.6 |
| | (3.5 | ) | | (2.7 | ) |
| Losses on sales of investments | 12.7 |
| | 4.7 |
| | — |
| | — |
| | — |
| |
| Loss on extinguishment of debt | 165.8 |
| | — |
| | — |
| | — |
| | — |
| 10.5 |
| | 165.8 |
| | — |
| | — |
| | — |
|
| Income from continuing operations before income taxes | 272.6 |
| | 607.7 |
| | 512.0 |
| | 450.5 |
| | 308.7 |
| |
| Income before income taxes | | 248.0 |
| | 272.6 |
| | 607.7 |
| | 512.0 |
| | 450.5 |
|
| Income tax expense | 67.3 |
| | 165.8 |
| | 119.0 |
| | 110.0 |
| | 84.2 |
| 120.0 |
| | 67.3 |
| | 165.8 |
| | 119.0 |
| | 110.0 |
|
| Income from continuing operations | 205.3 |
| | 441.9 |
| | 393.0 |
| | 340.6 |
| | 224.4 |
| 128.0 |
| | 205.3 |
| | 441.9 |
| | 393.0 |
| | 340.6 |
|
| Income (loss) from discontinued operations, net of tax | — |
| | — |
| | 8.6 |
| | (1.4 | ) | | (0.6 | ) | — |
| | — |
| | — |
| | 8.6 |
| | (1.4 | ) |
| Net income | $ | 205.3 |
| | $ | 441.9 |
| | $ | 401.6 |
| | $ | 339.2 |
| | $ | 223.8 |
| $ | 128.0 |
| | $ | 205.3 |
| | $ | 441.9 |
| | $ | 401.6 |
| | $ | 339.2 |
|
| Basic earnings from continuing operations per share | $ | 1.78 |
| | $ | 4.71 |
| | $ | 4.22 |
| | $ | 3.69 |
| | $ | 2.46 |
| $ | 0.92 |
| | $ | 1.78 |
| | $ | 4.71 |
| | $ | 4.22 |
| | $ | 3.69 |
|
| Diluted earnings from continuing operations per share | $ | 1.77 |
| | $ | 4.68 |
| | $ | 4.18 |
| | $ | 3.64 |
| | $ | 2.42 |
| $ | 0.92 |
| | $ | 1.77 |
| | $ | 4.68 |
| | $ | 4.18 |
| | $ | 3.64 |
|
| Basic earnings per share | $ | 1.78 |
| | $ | 4.71 |
| | $ | 4.31 |
| | $ | 3.67 |
| | $ | 2.45 |
| $ | 0.92 |
| | $ | 1.78 |
| | $ | 4.71 |
| | $ | 4.31 |
| | $ | 3.67 |
|
| Diluted earnings per share | $ | 1.77 |
| | $ | 4.68 |
| | $ | 4.27 |
| | $ | 3.63 |
| | $ | 2.41 |
| $ | 0.92 |
| | $ | 1.77 |
| | $ | 4.68 |
| | $ | 4.27 |
| | $ | 3.63 |
|
| Weighted average shares outstanding: | | | | | | | | | | |
| Weighted-average shares outstanding | | | | | | | | | | |
| Basic | 115.1 |
| | 93.9 |
| | 93.2 |
| | 92.3 |
| | 91.4 |
| 139.3 |
| | 115.1 |
| | 93.9 |
| | 93.2 |
| | 92.3 |
|
| Diluted | 115.6 |
| | 94.5 |
| | 94.1 |
| | 93.5 |
| | 92.8 |
| 139.8 |
| | 115.6 |
| | 94.5 |
| | 94.1 |
| | 93.5 |
|
| Dividends declared per share | $ | 0.39 |
| | $ | 0.35 |
| | $ | 0.31 |
| | $ | 0.2725 |
| | $ | 0.2425 |
| $ | 0.46 |
| | $ | 0.39 |
| | $ | 0.35 |
| | $ | 0.31 |
| | $ | 0.27 |
|
| |
(1) | See Item 7 for our Management's Discussion and Analysis of Financial Condition and Results of Operations. |
| |
(2) | Includes the results of operations for Elan, Fera (Methazolomide),assets acquired from Lumara Health, Inc. and Aspenthe results of operations of Omega Pharma Invest N.V. and Gelcaps Exportadora de Mexico, S.A. de C.V. for the six, fiveeight, three, and fourtwo months ended June 28, 2014,27, 2015, respectively. |
| |
(3) | Includes the results of operations for Elan Corporation, plc and results of operations for assets acquired from Fera Pharmaceuticals, LLC (Methazolomide) and Aspen Global Inc. for the six, five and four months ended June 28, 2014, respectively. |
Perrigo Company plc - Item 6
| |
(4) | Includes the results of operations for assets acquired from Fera Pharmaceuticals, LLC, and results of operations for Velcera, Inc., Rosemont Pharmaceuticals Ltd., Cobrek Pharmaceuticals, Inc., and Sergeant's Pet Care Products, Inc. for the two weeks, and three, five, six and nine months ended June 29, 2013, respectively. |
| |
(4)(5)
| Includes the results of operations for Paddock and CanAm for the eleven and six months ended June 30, 2012, respectively. |
| |
(5)
| Financial data has been retrospectively adjusted due to the voluntary change in accounting principle to eliminate a one-month reporting lag for the Company's non-U.S. subsidiaries. |
| |
(6)
| Includes the results of operations for Orion and PBM for the four and two months ended June 26, 2010, respectively. |
| | | (in millions) | June 28, 2014 | | June 29, 2013 | | June 30, 2012 | | June 25, 2011 | | June 26, 2010(1) | June 27, 2015 | | June 28, 2014(1) | | June 29, 2013(1) | | June 30, 2012(1) | | June 25, 2011(1) |
| Balance Sheet Data | | | | | | | | | | | | | | | | | | |
| Cash, cash equivalents, and current portion of investment securities | $ | 805.4 |
| | $ | 779.9 |
| | $ | 602.5 |
| | $ | 310.1 |
| | $ | 110.3 |
| |
| Restricted cash | — |
| | — |
| | — |
| | — |
| | 400.0 |
| |
| Working capital, excluding cash and current portion of investment securities | 670.8 |
| | 707.6 |
| | 540.7 |
| | 462.7 |
| | 367.9 |
| |
| Cash and cash equivalents | | $ | 785.6 |
| | $ | 799.5 |
| | $ | 779.9 |
| | $ | 602.5 |
| | $ | 310.1 |
|
| Working capital, excluding cash | | 703.6 |
| | 676.7 |
| | 707.6 |
| | 540.7 |
| | 462.7 |
|
| Property and equipment, net | 779.9 |
| | 681.4 |
| | 578.4 |
| | 507.3 |
| | 448.6 |
| 932.4 |
| | 779.9 |
| | 681.4 |
| | 578.4 |
| | 507.3 |
|
| Goodwill and other indefinite-lived intangible assets | 3,543.8 |
| | 1,174.1 |
| | 820.1 |
| | 644.9 |
| | 618.0 |
| 7,235.0 |
| | 3,543.8 |
| | 1,174.1 |
| | 820.1 |
| | 644.9 |
|
| Other intangible assets, net | 6,787.0 |
| | 1,157.6 |
| | 729.3 |
| | 567.6 |
| | 587.0 |
| 8,105.6 |
| | 6,787.0 |
| | 1,157.6 |
| | 729.3 |
| | 567.6 |
|
| Total assets | 13,880.2 |
| | 5,350.8 |
| | 4,024.0 |
| | 3,189.2 |
| | 3,109.0 |
| 19,720.6 |
| | 13,852.8 |
| | 5,336.9 |
| | 4,013.6 |
| | 3,181.5 |
|
| Long-term debt, less current portion | 3,090.5 |
| | 1,927.8 |
| | 1,329.2 |
| | 875.0 |
| | 935.0 |
| |
| Long-term debt | | 5,305.1 |
| | 3,204.7 |
| | 1,955.1 |
| | 1,358.8 |
| | 882.3 |
|
| Shareholders’ equity | 8,693.7 |
| | 2,332.6 |
| | 1,852.6 |
| | 1,531.0 |
| | 1,093.9 |
| 10,662.8 |
| | 8,693.7 |
| | 2,332.6 |
| | 1,852.6 |
| | 1,531.0 |
|
| |
(1) | Financial data has been retrospectively adjusted due tofor the voluntary change in accounting principlepolicy to eliminate a one-month reporting lag for the Company's foreign subsidiaries.reclassify deferred financing fees from Other non-current assets to Long-term debt, as further described in Item 8. Note 1. |
| |
ItemITEM 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND REPORTS OF OPERATIONS |
The following Management's Discussion and Analysis ("MD&A") is intended to provide readers with an understanding of our financial condition, results of operations, and cash flows by focusing on changes in certain key measures from year to year. This MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and accompanying Notes found in Item 8 of this report.
EXECUTIVE OVERVIEW
Perrigo Company plc (formerly known as Perrigo Company Limited, and prior thereto, Blisfont Limited) ("Perrigo" or "the Company"), was incorporated under the laws of Ireland on June 28, 2013, and2013. We became the successor registrant of Perrigo Company, a Michigan corporation, on December 18, 2013 in connection with the consummation of the acquisition of Elan Corporation, plc ("Elan"), which is discussed further in Item 8. Note 2. Unless the context requires otherwise, the terms "Perrigo", the "Company", "we," "our," "us," and similar pronouns used herein refer to Perrigo Company plc, its subsidiaries, and all predecessors of Perrigo Company plc and its subsidiaries.
With the Notes to the Consolidated Statements. From its beginnings as a small local proprietor selling medicinals to regional grocers in 1887, Perrigo has evolved intoacquisition of Omega Pharma Invest N.V. ("Omega"), we are a leading global over-the-counter ("OTC") consumer goods and specialty pharmaceutical company, that manufacturesoffering patients and distributes more than 47 billion oral solid dosescustomers high quality products at affordable prices. From our beginning in 1887 as a packager of home remedies, we have grown to become the world's largest manufacturer of OTC healthcare products and more than two billion liquid doses, as well as dozenssupplier of other product dosage forms, each year. The Company’s mission is to offer "Qualityinfant formulas for the store brand market. We are also a leading provider of generic extended topical prescription products, and we receive royalties from sales of the multiple sclerosis drug Tysabri®. We provide “Quality Affordable Healthcare Products®", and it does soProducts®” across a wide variety of product categories and geographies, primarily in the U.S., United Kingdom, Mexico, IsraelNorth America, Europe, and Australia, as well as manyin other key markets, worldwide, including Canada, ChinaIsrael and Latin America.China.
In conjunction with the Omega acquisition, we changed our reporting segments to better align with our new organizational structure. These organizational changes were made to optimize our structure to better serve our customers and to reflect the way in which our chief operating decision maker reviews our operating results and allocates resources. Our new reporting segments are as follows:
The Company’s fiscal year is a 52- or 53-week period,Consumer Healthcare ("CHC"), which ends the Saturday on or about June 30. An extra week is required approximately every six years in order to re-align the Company's fiscal reporting dates with the actual calendar months. Fiscal years 2014 and 2013 were comprised of 52 weeks and ended on June 28, 2014 and June 29, 2013, respectively. Fiscal year 2012 was 53 weeks and ended June 30, 2012. Using a weekly average, the extra week of operations in fiscal 2012 is estimated to have contributed approximately 2% in net sales. This factor should be considered when comparing the Company's fiscal 2014 and 2013 financial results with the Company's fiscal 2012 financial results.
Segments – The Company has five reportable segments, aligned primarily by type of product:includes our former Consumer Healthcare segment, former Nutritionals Rxsegment, and our former Israel Pharmaceuticals API, and Specialty Sciences. In addition,Diagnostics business, which was previously reported in our “Other” segment. CHC is focused primarily on the Company has an Other category that consists of the Israel Pharmaceutical and Diagnostic Products operating segment, which does not individually meet the quantitative thresholds required to be a separately reportable segment.
The Consumer Healthcare ("CHC") segment is the world’s largest store brand marketer and manufacturer of over-the-counter ("OTC") pharmaceutical products. Major product categories include analgesics, cough/cold/allergy/sinus, gastrointestinal, smoking cessation, animal health, and secondary product categories include feminine hygiene, diabetes care and dermatological care.
The CHC business markets products that are comparable in quality and effectiveness to national brand products. The cost to the retailer of a store brand product is significantly lower than that of a comparable nationally advertised brand-name product. Generally, the retailers’ dollar profit per unit of store brand product is greater than the dollar profit per unit of the comparable national brand product. The retailer,
therefore, can price a store brand product below the competing national brand product and realize a greater profit margin. The consumer benefits by receiving a high quality product at a price below the comparable national brand product. Therefore, the Company's business model saves consumers on their healthcare spending. The Company, one of the original architects of private label pharmaceuticals, is the market leader for consumer healthcare products in many of the geographies where it currently competes – the U.S., U.K., and Mexico – and is developing its position in Australia. The Company's market shareglobal sale of OTC store brand products has grown in recent years as newincluding cough, cold, and allergy products, retailer efforts to increase consumer educationgastrointestinal products, analgesics, Vitamins,
Perrigo Company plc - Item 7
Executive Overview
Minerals and awareness,Supplements ("VMS"), animal health products, infant formula and economic conditions have directed consumers tofoods, and diagnostic products.
Branded Consumer Healthcare ("BCH"), which consists of the value of store brand product offerings.
newly acquired Omega business. The Nutritionals segment develops, manufactures, markets and distributes store brand infant and toddler formula products, infant and toddler foods, and vitamin, mineral and dietary supplement ("VMS") products to retailers, distributors and consumers primarilysome of Europe's most well-known OTC brands in the U.S., Canada, Mexiconatural health and China. Similar to the Consumer Healthcare segment, this business markets store brand products that are comparable in qualityVMS, cough, cold and formulation to the national brand products. The cost to the retailer of a store brand product is significantly lower than that of a comparable nationally advertised brand-name product. The retailer, therefore, can price a store brand product below the competing national brand product yet realize a greater profit margin. All infant formulas sold in the U.S. are subject to the same regulations governing manufacturingallergy, personal care and ingredients under the Infant Formula Act of 1980, as amended. Store brands, which offer substantial savings to consumers, must meet the same U.S. Foodderma-therapeutics, lifestyle, and Drug Administration ("FDA") requirements as the national brands. Substantially all products are developed using ingredients and formulas comparable to those of national brand products. In most instances, packaging is designed to increase visibility of store brand products and to invite and reinforce comparison to national brand products in order to communicate store brand value to the consumer.anti-parasite categories.
ThePrescription Pharmaceuticals("Rx Pharmaceuticals"), which continues to include the Rx Pharmaceuticals segmentbusiness and develops, manufactures and markets a portfolio of generic and specialty pharmaceutical prescription ("Rx") drugs primarily for the U.S. market. The Company defines this portfolio as predominantly "extended topical" and "specialty" as it encompasses a broad array of topical dosage forms such as creams, ointments, lotions, gels, shampoos, foams, suppositories, sprays, liquids, suspensions, solutions and powders. The portfolio also includes select controlled substances, injectables, hormones, oral solid dosage forms and oral liquid formulations. The strategy in the Rx Pharmaceuticals segment is to be the first to market with those new products that are exposed to less competition because they have formulations that are more difficult and costly to develop and launch (e.g., extended topicals, specialty solutions or products containing controlled substances). In addition, the Rx Pharmaceuticals segment offers OTC products through the prescription channel (referred to as "ORx®" marketing). ORx® products are OTC products available for pharmacy fulfillment and healthcare reimbursement when prescribed by a physician. The Company offers over 100 ORx® products that are reimbursable through many health plans and Medicaid and Medicare programs.U.K. markets.
| |
| • | Specialty Sciences: which is comprised primarily of assets focused on the treatment of multiple sclerosis (Tysabri®). |
The API
We also have an "Other" segment comprised of our active pharmaceutical ingredient ("API") business, which develops, manufactures, and markets active pharmaceutical ingredients ("API")API used worldwide by theboth generic drug industry and branded pharmaceutical companies. The API business identifies APIs critical to its pharmaceutical customers’ future product launches and then works closely with these customers on the development processes. API development is focused on the synthesis of less common molecules for the U.S., European and other international markets. The Company is also focusing development activities on the synthesis of molecules for use in its own OTC and Rx pipeline products. This segment is undergoing a strategic platform transformation, moving certain production from Israel to the acquired API manufacturing facility in India to allow for lower cost production and to create space for other, more complex production in Israel.
As a result of the Elan acquisition, the Company expanded its operating segments to include the Specialty Sciences segment, which is comprised of assets focused on the treatment of Multiple Sclerosis (Tysabri®). The Company is entitled to royalty payments from Biogen Idec Inc. ("Biogen") based on its Tysabri® revenues in all indications and geographies.
In additionFor more information on each segment, refer to general managementItem 1. Business - Our Segments. For results by segment see below "Segment Results" and strategic leadership, eachItem 8. Note 17. See Item 1. Business for information on our business segment has its own salesenvironment and marketing teams focused on servicing the specific requirements of its customer base. Each of these business segments share Research & Development, Supply Chain, Information Technology, Finance, Human Resources, Legal and Quality services.
Principles of Consolidation – The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.competitive landscape.
Consolidated
|
| | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended | | Percentage Change |
| ($ in millions) | June 28, 2014 |
| June 29, 2013 |
| June 30, 2012 | | 2014/2013 | | 2013/2012 |
| Net sales | $ | 4,060.8 |
| | $ | 3,539.8 |
| | $ | 3,173.2 |
| | 15 | % | | 12 | % |
| Gross profit | $ | 1,447.7 |
| | $ | 1,280.0 |
| | $ | 1,095.6 |
| | 13 | % | | 17 | % |
| Gross profit % | 35.7 | % | | 36.2 | % | | 34.5 | % | |
| |
|
| Operating expenses | $ | 880.7 |
| | $ | 600.9 |
| | $ | 526.4 |
| | 47 | % | | 14 | % |
| Operating expenses % | 21.7 | % | | 17.0 | % | | 16.6 | % | |
| |
|
| Operating income | $ | 567.0 |
| | $ | 679.1 |
| | $ | 569.2 |
| | (17 | )% | | 19 | % |
| Operating income % | 14.0 | % | | 19.2 | % | | 17.9 | % | |
| |
|
| Interest and other, net | $ | 294.4 |
| | $ | 71.4 |
| | $ | 57.2 |
| | 312 | % | | 25 | % |
| Income taxes | $ | 67.3 |
| | $ | 165.8 |
| | $ | 119.0 |
| | (59 | )% | | 39 | % |
| Income from continuing operations | $ | 205.3 |
| | $ | 441.9 |
| | $ | 393.0 |
| | (54 | )% | | 12 | % |
| Net income | $ | 205.3 |
| | $ | 441.9 |
| | $ | 401.6 |
| | (54 | )% | | 10 | % |
Net sales
Fiscal 2014 net sales increased $521.0 million over fiscal 2013 due primarilySubsequent to $288.0 millionJune 27, 2015, we will continue to close our books on the Saturday closest to end of net sales attributable to acquisitionsthe quarter, with the last quarter ending on December 31. This practice will only affect the quarterly reporting periods and new product sales of $231.4 million.
Fiscal 2013 net sales increased$366.6 million over fiscal 2012 due primarily to $184.7 million of net sales attributable to acquisitions and new product sales of $122.3 million.
not the annual reporting periods.
Gross profit
Fiscal 2014 gross profit increased $167.7 million over fiscal 2013 in line with the net sales increase. As a percent of sales, gross profit decreased due primarily to increased amortization expense associated with the Tysabri® intangible asset acquired during fiscal 2014.
Fiscal 2013 gross profit increased $184.4 million over fiscal 2012 in line with the net sales increase. Fiscal 2013 gross profit was negatively impacted by charges of $10.9 million as a result of step-ups in values of inventory acquired and sold during the year in connection with acquisitions.
Strategy
Operating expenses
Fiscal 2014 operating expenses increased over fiscal 2013 due primarily to $108.9 million of transaction costs incurred in connection with the Elan acquisition, $47.0 million of restructuring expense and an increase of $37.3 million related to research and development expenses incurred in accordance with the Company's strategy.
Fiscal 2013 operating expenses increased over fiscal 2012 due to incremental expenses attributable to acquisitions, charges of $12.4 million related to acquisition and other integration-related costs, and a $9.0 million impairment charge related to an in-process research and development asset ("IPR&D").
Interest and other, net
Fiscal 2014 interest and other, net increased over fiscal 2013 due primarily to the $165.8 million loss in connection with the retirement of former debt arrangements and issuing new debt.
Fiscal 2013 interest and other, net increased over fiscal 2012 due to incremental interest expense on new debt issuances and a $4.7 million loss on the sale of investment securities.
Further details related to current year results, including results by segment, are included below under Results of Operations.
Performance Evaluation Criteria
The Company's management evaluates business performance using a Return on Invested Capital ("ROIC") metric. This includes evaluating performance of business segments, manufacturing locations, product categories and capital projects. Business segment performanceOur strategy is expected to meet or exceed the Company's weighted average cost of capital ("WACC") each year. Capital expenditures and large projects are required to demonstrate that they will contribute positively to ROIC in excess of the Company's WACC. Likewise, potential acquisition targets are evaluated on whether they have the capacity to deliver a ROIC in excess of 200 basis points over the Company's WACC within three years. In addition, improvement in return on capital is incorporated into management's Long-Term Incentive ("LTI") Plan. In orderQuality Affordable Healthcare Products® by leveraging our global infrastructure to make the overall ROIC metric more actionable for the broader operating management team, the metric used in the LTI award calculation is based on Return on Tangible Capital, which eliminates the direct effect of goodwill and acquired intangibles, and to incentivize management to focus on the critical business elements that they can directly impact. Both management and the Board of Directors regularly review corporate and business segment ROIC calculations as well as the return on tangible capital performance by segmentexpand our product offerings, thereby providing new innovative products and product categoryline extensions to track year-over year-improvements and/or the actions to achieve performance at or better than the required threshold.
Growth Strategyexisting consumers and Strategic Evaluation
Over recent years, the Company has been executing a strategy designed to expand its product offerings through both R&D and acquisitions and to reachservicing new healthcare consumers through entry into adjacent or new markets. ThisWe accomplish this strategy is accomplished by investing in and continually improving all aspects of the Company'sour five strategic pillars: high quality, superior
High quality;
Superior customer service, leading innovation, best costservice;
Leading innovation;
Best cost; and empowered
Empowered people.
The concentration of common shared service activities around the world and development of centers of excellence in Research and Development ("R&D&D") have played an important role in ensuring the consistency and quality of the Company’sour five strategic pillars.
Management plans to continue on its strategic path of growing the Company organically as well as inorganically. The CompanyWe have grown rapidly in recent years both through organic growth and targeted acquisitions. We continually reinvestsreinvest in its ownour R&D pipeline and at the same time also workswork with partners as necessary to strive to be first to marketfirst-to-market with new products. In recent years, the CompanyOur organic growth has grown organicallybeen driven by launching a series of successful new productsproduct launches in the Consumer HealthcareCHC and Rx Pharmaceuticals segments. Management expectsWe expect to continue to growgrowing inorganically through continued expansion into adjacent products, product categories and channels, as well as through entry into new geographic markets. Acquisition opportunitiesWe evaluate potential acquisition targets based on whether they have the capacity to deliver a return on invested capital ("ROIC") in excess of 200 basis points over our weighted-average cost of capital ("WACC").
Perrigo Company plc - Item 7
Executive Overview
Competitive Advantage
Our consumer facing business model is unique in that it combines the required competencies of a fast-moving consumer goods company and a pharmaceutical manufacturing company, with the supply chain breadth necessary to support customers in the markets we serve. The durable business model competencies align with our five strategic pillars and provide us a competitive advantage in the marketplace. We maintain fully integrated quality in our operational systems across all products. Our ability to manage our supply chain complexity in dosage form, number of formulations, stock-keeping units ("SKU's"), acquisitions, integration, and global partners provides value to our customers. Product development and life cycle management are evaluatedat the core of our operational investments. Globally we have 30plants that are all in good regulatory compliance standing and have systems and structures in place to guide our continued success. Our leadership team is fully engaged in aligning all our metrics and objectives around sustainable compliance with industry associations and regulatory agencies.
Among other things, we believe the following give us a competitive advantage and provide value to our customers:
Leadership in first-to-market product development and product life cycle management;
Turn-key regulatory and promotional capabilities;
Management of supply chain complexity and utilizing economies of scale; and
Quality and cost effectiveness throughout the supply chain creating a sustainable, low-cost network.
Unsolicited Offer from Mylan N.V.
| |
| • | Since April 2015, Mylan N.V. ("Mylan") has made several unsolicited offers to purchase all of our outstanding ordinary shares, as explained in detail in Item 1A. Risk Factors. |
While we have rejected Mylan's offers, Mylan continues to pursue a takeover. Mylan reiterated its proposal to acquire us in its proxy statement filed on July 28, 2015. Additionally, on July 27, 2015, Mylan announced that it will hold an extraordinary general meeting of its shareholders on August 28, 2015 in connection with its proposed acquisition of us.
Highlights
Fiscal Year 2015
We realized record growth in the basisfollowing areas:
Net sales of $4.6 billion primarily due to current year acquisitions and new products;
Gross profit percentage of 37.2%; and
Operating cash flows of $1.2 billion.
We significantly expanded our geographic footprint and product portfolio through the acquisition of Omega, one of Europe's largest healthcare companies, which closed on March 30, 2015.
The Omega acquisition has provided us with a significantly larger product portfolio, increasing our SKU count to 26,600; broader global reach through access to 34 new countries; and enhanced scale. We are currently integrating Omega into our operations and plan to realize efficiencies as we bring some of their abilityR&D and manufacturing in-house.
Perrigo Company plc - Item 7
Executive Overview
We have already begun utilizing the global platform established through the Omega acquisition, entering into an agreement to deliver long-term ROICacquire a portfolio of well-established OTC brands in Europe from GlaxoSmithKline Consumer Healthcare (“GSK”) on June 2, 2015, and an agreement to acquire Naturwohl Pharma, GmbH ("Naturwohl") with its leading German dietary supplement brand, Yokebe, on July 22, 2015. Both pending acquisitions are expected to close in the third quarter of calendar year 2015.
| |
| • | Our future results will be impacted by a variety of factors related to the Omega acquisition, some of which may be material. These factors include increased net sales, operating expense, and operating cash flow. Selling expenses as a percent of sales are expected to be higher than for our legacy business given the increased advertising and sales force used to sell our BCH products. Additionally, we may incur expenses including, but not limited to, costs associated with the integration of Omega into our operations, amortization of acquired intangible assets, and restructuring charges. See "Cautionary Statement Regarding Forward-Looking Statements" and Item 1A. Risk Factors. |
We expanded our product offerings through targeted acquisitions including:
The Lumara Health Inc. ("Lumara") product acquisition, which expanded our women's health offerings; and
The acquisition of Patheon Inc.'s Mexican operations, Gelcaps Exportadora de Mexico, S.A. de C.V., ("Gelcaps"), which provided us with gelcap manufacturing capabilities and expanded our presence in the Mexican OTC market.
Fiscal Year 2014
We established a differentiated platform for international expansion through the Elan acquisition.
The Elan acquisition led to the creation of our new parent company, Perrigo Company plc, incorporated in Ireland. Our new corporate structure has allowed us to continue to grow in core markets and further expand outside of the U.S. with the parent company serving as a business hub and providing the scale and resources to drive our strategic initiatives and investments.
| |
| • | The acquisition also provided us with our Tysabri® royalty stream, enhancing our operating cash flows and diversifying our revenues. See Item 1. Business for more information on Tysabri®. |
Due to our new corporate structure, we had a lower effective tax rate in fiscal year 2014 than in fiscal year 2013. Fiscal year 2015 would have been lower than fiscal year 2014 if not for the Company.valuation allowance impact on deferred taxes and Omega acquisition costs. Our effective tax rate has been impacted by changes to our estimated jurisdictional mix of income. We are subject to changes in tax laws or income tax rates. See "Income Taxes" below for more information.
During fiscal 2014,We increased our presence in the Company continued its strategic growthAustralian market through the following product line expansions and acquisitions:acquisition of a basket of OTC products from Aspen Global Inc. ("Aspen").
Product Launches:
In partnershipWe further developed our opthalmic capabilities with Teva Pharmaceutical Industries Ltd., U.S. launchthe acquisition of temozolomide, generic equivalent of Temodar® in August 2013.
Nitroglycerin lingual spray, 400 mcg/spray, the generic equivalent to Nitrolingual® pumpspray in September 2013.
Fluocinonide cream 0.1%, the generic equivalent to Vanos® cream 0.1% in January 2014.
Repaglinide tablets 1 mg and 2 mg, the generic equivalent to Prandin® tablets in January 2014.
Sergeant's SENTRY Clean Up™ stain and odor remover product line in February 2014.
Calcipotriene 0.005% / betamethasone dipropionate 0.064%, the authorized generic version of Taclonex® ointment in April 2014.
Azelastine hydrochloride nasal spray (0.15%), the generic version of Astepro® nasal spray in May 2014.
Acquisitions:
Acquisition in December 2013 of Elan, headquartered in Dublin, Ireland. The acquisition provides the Company with assets focused on the treatment of Multiple Sclerosis (Tysabri®).
Acquisition in February 2014 of a distribution and license agreement for the marketing and sale of methazolomideMethazolomide from Fera Pharmaceuticals, LLC ("Fera").
Acquisition in February 2014 of a basket of value-brand OTC products sold in Australia and New Zealand from Aspen Global Inc. ("Aspen"). The acquisition of this product portfolio broadens the Company's product
offering in Australia and New Zealand and furthers the Company's strategy to expand the Consumer Healthcare portfolio internationally.Fiscal Year 2013
CapitalWe entered the Pet Health category with acquisitions of Velcera Inc. ("Velcera") and LiquiditySergeant's Pet Care Products, Inc. ("Sergeant's").
The Company’s goal in managing its capital structure is to provide sufficient liquidity to enable it to pursue its business goalsWe expanded our ophthalmic offerings and objectives while optimizing long-term flexibility. Over its recent history,position within the Company has increasingly focused on the importance of funding a majority of its core organic objectives through cash flows from operations. Management is incented to achieve improved cash flows from operations through individual segment operating income and working capital targets and strives to achieve annual cash flows from operations greater than net income. Capital expenditures for the last three fiscal years were at higher levels to allow for capacity expansion, quality and technology investments, API strategic transformations and integration of acquisitions. Capital expenditures for fiscal 2015 are expected to be at or slightly above fiscal 2014 levels to allow for continued manufacturing productivity and capacity projects, quality and technology investments and investments at newly acquired entities. To support its inorganic acquisition strategies, the Company seeks to maintain access to a broad range of debt capital markets to optimize cost, flexibility and liquidity. The Company has historically provided shareholder return of capital through its dividend policy, payments under which have increased steadily over recent years. Share repurchases authorized by the Company’s Board of Directors are evaluated against alternative uses of cash, such as acquisitions and debt repayments, and when approved are typically made at levels to help offset the dilutive effects of share-based compensation awards. Refer to the Financial Condition, Liquidity and Capital Resources and Results of Operations sections below for a more detailed discussion of the Company’s capital and liquidity.
Events Impacting Future Results
As discussed in Note 2 of the Notes to the Consolidated Financial Statements, the Company's subsidiary Elan has the rights to receive royalties from Biogen Idec Inc. The amount of royalties received under this agreement is expected to be material to the future results of operations and cash flows. For the six-month period ending June 28, 2014, Elan recorded $146.7 million in royalties associated with this agreement. Further, Elan incurs costs associated with the ongoing business operations, and, as outlined in Note 5 of the Notes to the Consolidated Financial Statements, maintains investments in various equity interests. In addition, the Company expects to realize approximately $291.1 million of amortization expense annually associated with the intangible assets acquiredRx extended topical space with the acquisition of Elan discusseda product portfolio from Fera.
Perrigo Company plc - Item 7
Executive Overview
We broadened our Rx pharmaceutical offerings in the U.K. through the Rosemont Pharmaceuticals Inc. ("Rosemont") acquisition.
We strengthened our position in foam-based technologies for our U.S. Rx products through our purchase of the controlling interest of Cobrek Pharmaceuticals Inc. ("Cobrek").
See Item 8. Note 2 for more information on all of the Notes to the Consolidated Financial Statements.above-mentioned acquisitions.
RESULTS OF OPERATIONS
The Company expects to realize recurring annual operating expense and tax savings associated with the acquisition of Elan. Certain of these savings result from the elimination of redundant public company costs while optimizing back-office support. Additionally, in
CONSOLIDATED
|
| | | | | | | | | | | | | | | | | |
| ($ in millions) | Fiscal Year | | Percentage Change |
| | 2013 | | 2014 | | 2015 | | 2014 / 2013 | | 2015 / 2014 |
| Net sales | $ | 3,539.8 |
| | $ | 4,060.8 |
| | $ | 4,603.9 |
| | 15 | % | | 13 | % |
| Gross profit | $ | 1,280.0 |
| | $ | 1,447.7 |
| | $ | 1,712.5 |
| | 13 | % | | 18 | % |
| Gross profit % | 36.2 | % | | 35.7 | % | | 37.2 | % | | | | |
| Operating expenses | $ | 600.9 |
| | $ | 880.7 |
| | $ | 964.8 |
| | 47 | % | | 10 | % |
| Operating expenses % | 17.0 | % | | 21.7 | % | | 21.0 | % | | | | |
| Operating income | $ | 679.1 |
| | $ | 567.0 |
| | $ | 747.7 |
| | (17 | )% | | 32 | % |
| Operating income % | 19.2 | % | | 14.0 | % | | 16.2 | % | | | | |
| Interest and other, net | $ | 71.4 |
| | $ | 294.4 |
| | $ | 499.7 |
| | 312 | % | | 70 | % |
| Income taxes | $ | 165.8 |
| | $ | 67.3 |
| | $ | 120.0 |
| | (59 | )% | | 78 | % |
| Net income | $ | 441.9 |
| | $ | 205.3 |
| | $ | 128.0 |
| | (54 | )% | | (38 | )% |
| |
| * | Net sales by geography is derived from the location of the entity that sells to a third party. For geographic information for fiscal years 2014 and 2013, refer to Item 8. Note 17. Only includes Omega activity from March 30, 2015 to June 27, 2015. |
During fiscal 2015, the Company expects to have a lower annual effective tax rate due to changes to the estimated jurisdictional mix60% of income and the new corporate structureour consolidated net sales were attributable to the acquisitionCHC and 72% of Elan.
The Company isconsolidated net sales originated in the process of transitioning its long-term strategy for its API business from primarily third-party to a dual focus on third-party business, including products to be manufactured in India, and vertical integration of high value and more difficult-to-manufacture inputs to the Consumer Healthcare and Rx businesses in an effort to gain efficiencies and lower costs, thus increasing margins. With a limited pipeline of products in development for future third-party customer new product introductions, the API segment revenues will likely decrease inU.S. In the future, while intercompany vertical integration revenues (which will be eliminated in consolidation) will potentially increase. The Company planswe expect BCH and sales outside of the U.S. to continue to seek and execute upon niche, complex differentiated new product APIs opportunistically for its overall portfolio, commence production in the Company's new API site in India, and strive to develop unique collaborations and profit sharing agreements between the Company's API business and pharmaceutical companies globally.represent a larger portion of our consolidated net sales.
BeginningFurther details and analysis of our financial results for fiscal years 2015, 2014, and 2013 are described below by reporting segment and line item.
Perrigo Company plc - Item 7
Consumer Healthcare
CONSUMER HEALTHCARE (CHC)
Significant Trends and Developments
In the fourth quarter of fiscal year 2015, we acquired Patheon's Mexican operations for $35.8 million. The acquisition added softgel manufacturing technology to our supply chain capabilities and broadened our presence, product portfolio, and customer network in Mexico.
Given a branded competitor's manufacturing interruptions since the third quarter of fiscal 2010, a branded competitor in the OTC market began to experience periodic interruptions of distribution of certain of its products in the adult and pediatric analgesic categories. These interruptions have included periods of time where supply of certain products has been suspended altogether. Due to this situation, which continued through fiscal 2013, the Companywe experienced an increase inincreased demand for certain adult and pediatric analgesic products. This increased demand hasproducts in previous fiscal years, which generally had a positive impact on the Consumer Healthcare segment’sCHC segment's net sales over that period of time. At present, thesales. The branded competitor continues its progress to re-enterre-entered the market in fiscal year 2014 and the Company believescontinues to gain market position. We believe that this re-entry shouldis largely be complete over the
next six to 12 months. The Company is considering the impact of this ongoing development in its forward-looking sales forecast, but itcomplete. We cannot fully predict the extent of consumers' re-acceptance of the branded products, the full extent of the branded competitor's marketing activities, or the ultimate market share this competitor can be expected to achieve.will recapture.
| |
| • | We filed a breach of contract litigation against a third party that we believe wrongfully enabled a competitor against us on a new product line in the animal health category. We also had a supply agreement with this third party that expired at the end of calendar year 2014 and has not been renewed. We will continue to monitor and assess these assets for potential impairment at least annually or sooner, should further impairment indicators arise. Refer to Item 8. Note 3 for additional information. |
RESULTS OF OPERATIONS
Segment Results
|
| | | | | | | | | | | |
| ($ in millions) | Fiscal Year |
| | 2013 | | 2014 | | 2015 |
| Net sales | $ | 2,671.0 |
| | $ | 2,849.4 |
| | $ | 2,750.0 |
|
| Gross profit | $ | 834.7 |
| | $ | 886.8 |
| | $ | 870.3 |
|
| Gross profit % | 31.2 | % | | 31.1 | % | | 31.6 | % |
| Operating income | $ | 401.8 |
| | $ | 413.1 |
| | $ | 405.6 |
|
| Operating income % | 15.0 | % | | 14.5 | % | | 14.7 | % |
FY 2015 vs FY 2014
Segment operating income decreased $7.5 million, or 2%, as a result of:
The Company’s consolidated statements of income, expressed as a percent ofA decrease in net sales are presented below:of $99.4 million, or 3%, due primarily to:
|
| | | | | | | | |
| | Fiscal Year Ended |
| | June 28, 2014 | | June 29, 2013 | | June 30, 2012 |
| Net sales | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Cost of sales | 64.3 |
| | 63.8 |
| | 65.5 |
|
| Gross profit | 35.7 |
| | 36.2 |
| | 34.5 |
|
| Operating expenses | | | | | |
| Distribution | 1.4 |
| | 1.3 |
| | 1.2 |
|
| Research and development | 3.8 |
| | 3.3 |
| | 3.3 |
|
| Selling | 5.1 |
| | 5.3 |
| | 4.7 |
|
| Administration | 10.1 |
| | 6.8 |
| | 7.1 |
|
| Write-off of in-process research and development | 0.1 |
| | 0.3 |
| | — |
|
| Restructuring | 1.2 |
| | 0.1 |
| | 0.3 |
|
| Total | 21.7 |
| | 17.0 |
| | 16.6 |
|
| Operating income | 14.0 |
| | 19.2 |
| | 17.9 |
|
| Interest, net | 2.5 |
| | 1.9 |
| | 1.9 |
|
| Other expense (income), net | 0.3 |
| | — |
| | (0.1 | ) |
| Loss on sales of investments | 0.3 |
| | 0.1 |
| | — |
|
| Loss on extinguishment of debt | 4.1 |
| | — |
| | — |
|
| Income from continuing operations before income taxes | 6.7 |
| | 17.2 |
| | 16.1 |
|
| Income tax expense | 1.7 |
| | 4.7 |
| | 3.8 |
|
| Income from continuing operations | 5.1 |
| | 12.5 |
| | 12.4 |
|
| Income from discontinued operations, net of tax | — |
| | — |
| | 0.3 |
|
| Net income | 5.1 | % | | 12.5 | % | | 12.7 | % |
Consumer Healthcare
|
| | | | | | | | | | | | | | | | | |
| | Fiscal Year | | Percentage Change |
| ($ in millions) | 2014 | | 2013 | | 2012 | | 2014/2013 | | 2013/2012 |
| Net sales | $ | 2,219.0 |
| | $ | 2,089.0 |
| | $ | 1,815.8 |
| | 6 | % | | 15 | % |
| Gross profit | $ | 719.8 |
| | $ | 683.8 |
| | $ | 571.8 |
| | 5 | % | | 20 | % |
| Gross profit % | 32.4 | % | | 32.7 | % | | 31.5 | % | |
| |
|
| Operating expenses | $ | 351.2 |
| | $ | 320.6 |
| | $ | 256.5 |
| | 10 | % | | 25 | % |
| Operating expenses % | 15.8 | % | | 15.3 | % | | 14.1 | % | |
| |
|
| Operating income | $ | 368.6 |
| | $ | 363.2 |
| | $ | 315.3 |
| | 1 | % | | 15 | % |
| Operating income % | 16.6 | % | | 17.4 | % | | 17.4 | % | |
| |
|
Net Sales
Fiscal 2014 | |
| • | New product sales of $155.2 million related primarily to the launches of Fipronil (a generic version of Frontline® Plus), and certain new infant formula products; |
Incremental net sales increased $130.0attributable to the Aspen and Gelcaps acquisitions of $19.3 million; and
Increased volumes of sales of smoking cessation products totaling $46.9 million compareddue in part to fiscal 2013.certain national brand products not being available to consumers due to manufacturing and supply issues; more than offset by
A decline of $193.8 million in sales of existing products, primarily in contract manufacturing, as well as in sales of VMS, cough/cold, analgesics, gastrointestinal, and animal health products. The increasedecline in contract manufacturing and analgesics was driven by a branded competitor's return to the market. The decline in VMS sales was due primarily to newincreased competition in the marketplace and pricing pressures;
Discontinued products of $104.1 million related primarily to animal health and nutritional products; and
Unfavorable foreign currency movement of $22.7 million.
Perrigo Company plc - Item 7
Consumer Healthcare
A decrease of $16.5 million in gross profit due to:
Lower segment sales and incremental amortization expense attributable to the Aspen acquisition; offset partially by
Improved purchase prices and efficiencies in manufacturing facilities.
Partially offset by a $9.0 million decrease in operating expenses due to:
Decreased animal health advertising expenses; offset primarily by
| |
| • | A $10.0 million option payment related to a collaboration agreement made in fiscal 2015 (refer to Item 8. Note 15). |
FY 2014 vs FY 2013
Segment operating income increased $11.3 million, or 3%, as a result of:
An increase in net sales of $178.4 million, or 7%, due primarily to:
New product sales of $60.9 million, $57.6 million of net$83.4 million;
Net sales attributable to the Sergeant's, Velcera, and Aspen acquisitions and an increase intotaling $57.6 million;
Increased sales volumes of existing products of $99.6totaling $137.7 million, primarily in the smoking cessation, gastrointestinal, dermalogic and dermalogic categories. These increases were partiallyinfant formula;
Favorable changes in foreign currency rates of $2.9 million; offset by a
A decline of
$87.3 $91.8 million in sales of existing products, primarily in the contract manufacturing category, due to certain national brands re-entering the retail marketplace as further described above in "Events Impacting Future Results", along with $6.2 million"Significant Trends and Developments"; and
Discontinued products of discontinued products. New product sales were ledby the cough and cold category, as well as the smoking cessation and animal health categories.$16.9 million.
Fiscal 2013 net sales increased $273.2An increase of $52.1 million compared to fiscal 2012. The increase wasin gross profit due primarily to an increase in U.S. sales of existing products of $110.6 million, primarily in the contract manufacturing, smoking cessation and cough/cold categories, $141.5 million of net sales attributable to the Sergeant's, Velcera, and CanAm acquisitions and new product sales of $53.0 million, mainly in the cough/cold, smoking cessation and gastrointestinal product categories. The Company's international locations, primarily the U.K., also experienced an increase of $18.0 million in their existing product sales due primarily to smoking cessation and contract manufacturing sales growth in European markets. These increases were partially offset by a decline of $32.2 million in sales of existing products, primarily in the gastrointestinal and analgesics product categories and $16.0 million in discontinued products.to:
Gross Profit
Fiscal 2014 gross profit increased $36.0 million compared to fiscal 2013 consistent with the increase in net sales. The increase was due primarily to incrementalIncrementally higher gross profit attributable to the Sergeant's, Velcera, and Aspen acquisitions and gross profit contribution fromacquisitions;
Increased new product sales, partially offset by the net decrease insales; and
Increased sales of the contract manufacturing category. The largest contributors to the increase in gross profit were products in the smoking cessation, gastrointestinal, and gastrointestinal product categories. The gross profit percentage for fiscal 2014 fell slightly compared to fiscal 2013 due to under-absorption of fixed production costs relative to increased capacity, particularly due to the reductioninfant formula products; offset primarily by decreased sales in contract manufacturing and a soft cough/cold season.manufacturing.
Fiscal 2013 gross profit increased $112.1 million compared to fiscal 2012. The increase was due primarily to gross profit attributable to the net increase in sales of existing products, incremental gross profit attributable to the Sergeant's, Velcera, and CanAm acquisitions and contribution from new product sales. These increases were partiallyPartially offset by a one-time charge of $7.7$40.8 million to cost of sales as a result of the step-up of inventory acquired and sold during fiscal 2013 related to the Sergeant's acquisition. This one-time charge also negatively impacted the gross profit percentage for fiscal 2013, but was entirely offset by favorable product mix.
Operating Expenses
Fiscal 2014increase in operating expenses increased $30.6 million compared to fiscal 2013due primarily toto:
Incremental operating expenses of $22.8 million of incremental operating expenses from the Sergeant's and Velcera and Aspen acquisitions. In addition, research and development expenses increased $6.4acquisitions;
Increased R&D of $14.5 million due primarily to higher spending on new product development projects than in the prior year.year;
Fiscal 2013 operating expenses increased $64.1 million compared to fiscal 2012 due primarily to $54.1 million of incremental operating expenses from the acquisitions of Sergeant's, Velcera, and CanAm. In addition to the increase due to acquisitions, selling and distribution expenses increased $8.7 million on higher sales volume.
Nutritionals
|
| | | | | | | | | | | | | | | | | |
| | Fiscal Year | | Percentage Change |
| ($ in millions) | 2014 | | 2013 | | 2012 | | 2014/2013 | | 2013/2012 |
| Net sales | $ | 551.7 |
| | $ | 508.4 |
| | $ | 501.0 |
| | 9 | % | | 1 | % |
| Gross profit | $ | 141.6 |
| | $ | 127.1 |
| | $ | 125.3 |
| | 11 | % | | 1 | % |
| Gross profit % | 25.7 | % | | 25.0 | % | | 25.0 | % | |
| |
|
| Operating expenses | $ | 101.1 |
| | $ | 91.9 |
| | $ | 99.9 |
| | 10 | % | | (8 | )% |
| Operating expenses % | 18.3 | % | | 18.1 | % | | 19.9 | % | |
| |
|
| Operating income | $ | 40.5 |
| | $ | 35.2 |
| | $ | 25.4 |
| | 15 | % | | 39 | % |
| Operating income % | 7.3 | % | | 6.9 | % | | 5.1 | % | |
| |
|
Net Sales
Fiscal 2014 net sales increased $43.3 million compared to fiscal 2013 due primarily to a net increase in sales of existing products of $23.0 million across all major product categories and new product sales of $22.5 million. The increase in new product sales was primarily led by sales of Insync® probiotic. Sales in the infant nutritionals category increased due primarily to higher infant formula sales as compared to last year. Fiscal 2013 infant formula sales were negatively impacted by a production conversion and ramp up at the Company's Vermont manufacturing facility following the installation of a new plastic container powder infant formula packaging line. As of June 2013, the Company had successfully transitioned 100% of its core items at U.S. retailer customers to the new plastic container.
Fiscal 2013 net sales increased $7.4 million compared to fiscal 2012 due primarily to new product sales of $18.6 million and a $4.0 million increase in existing product sales within the VMS product category. These increases were partially offset by a decline in sales of existing products of $15.0 million, primarily in the infant formula category. As noted above, fiscal 2013 infant formula sales were negatively impacted by the product conversion at the Company's Vermont manufacturing facility. In the fourth quarter of fiscal 2012, retailers increased purchases in advance of the installation of the new plastic container packaging line and the conversion of the Company's ERP system on July 1, 2012.
Gross Profit
Fiscal 2014 gross profit increased $14.5 million compared to fiscal 2013 due primarily to the increase in sales of existing products, mainly in the infant formula category, and contribution from new product sales, primarily Insync® probiotic. The increase in the gross profit percentage for fiscal 2014 was due to improved operational efficiencies compared to last year.
Fiscal 2013 gross profit increased $1.7 million in line with the net sales increase and remained flat as a percentage of sales.
Operating Expenses
Fiscal 2014 operating expenses increased $9.2 million compared to fiscal 2013 due primarily to higherIncreased distribution and selling expenses as a result of higher sales volume, as well as highervolume;
| |
| • | Higher selling expenses related to marketing insync® probiotic as a branded product; and |
Unfavorable changes in foreign currency exchange rates.
Perrigo Company plc - Item 7
Branded CHC
BRANDED CONSUMER HEALTHCARE
Significant Trends and Developments
Subsequent to year end, we agreed to acquire Naturwohl Pharma, GmbH with its leading German dietary supplement brand, Yokebe. Our acquisition of the brand continues to build on the segment's leading OTC product portfolio and European commercial infrastructure. The transaction has been unanimously approved by Boards of Directors of Perrigo and Naturwohl Pharma, and is expected to close in the third quarter of calendar year 2015.
In the fourth quarter we agreed to acquire a portfolio of well-established OTC brands from GlaxoSmithKline Consumer Healthcare (“GSK”), in connection with GSK’s commitments to the European Commission and other regulators to divest these businesses. The acquisition of this portfolio builds upon the global platform we established through the Omega acquisition and expands our share of the European OTC market. The transaction is expected to close in the third quarter of calendar year 2015.
Segment Results
|
| | | |
| ($ in millions) | Fiscal Year (1) |
| | 2015 |
| Net sales | $ | 401.1 |
|
| Gross profit | $ | 190.1 |
|
| Gross profit % | 47.4 | % |
| Operating income | $ | 26.6 |
|
| Operating income % | 6.6 | % |
(1) Includes results from March 30, 2015 to June 27, 2015.
In fiscal year 2015, we recognized net sales of $401.1 million related to the marketingOmega acquisition, which closed on March 30, 2015 (see Item 8. Note 2 for additional information on the acquisition). BCH sales were impacted positively by seasonality, new products, and strong distribution sales. In the fourth quarter of Insync® probiotic as a branded product.fiscal year 2015, there were $32.9 million of sales attributable to new products.
Fiscal 2013year 2015 operating expenses decreased $8.0included primarily selling, general and administrative expenses of $118.3 million, compared toR&D expenses of $7.4 million, and distribution expenses of $9.5 million.
Perrigo Company plc- Item 7
Rx Pharmaceuticals
PRESCRIPTION PHARMACUETICALS
Significant Trends and Developments
In the second quarter of fiscal 2012year 2015, we acquired a portfolio of women's healthcare products from Lumara Health, Inc. for $83.0 million. The acquisition of this portfolio further expanded our women's healthcare product offerings.
Segment Results
|
| | | | | | | | | | | |
| ($ in millions) | Fiscal Year |
| | 2013 | | 2014 | | 2015 |
| Net sales | $ | 709.5 |
| | $ | 927.1 |
| | $ | 1,001.1 |
|
| Gross profit | $ | 361.5 |
| | $ | 489.9 |
| | $ | 548.9 |
|
| Gross profit % | 51.0 | % | | 52.8 | % | | 54.8 | % |
| Operating income | $ | 263.2 |
| | $ | 349.8 |
| | $ | 373.9 |
|
| Operating income % | 37.1 | % | | 37.7 | % | | 37.3 | % |
FY 2015 vs FY 2014
Segment operating income increased $24.1 million, or 7%, as a result of:
An increase in net sales of $74 million, or 8%, due primarily to:
New product sales of $119.0 million related primarily to the absencelaunches of $7.1Clobetasol Propionate 0.05% Spray, Tacrolimus 0.1% Ointment, and Testosterone Gel 1%; and
Net sales attributable to the Lumara product acquisition of $18.1 million; offset partially by
Discontinued products of $28.5 million;
Decrease in volumes of certain existing products; and
Unfavorable foreign exchange movement of $3.8 million for products manufactured in Israel.
An increase of restructuring charges incurred$59.0 million in gross profit due primarily to:
Higher net sales and an improved gross profit percentage; and
Favorable product mix and pricing initiatives taken in the first fiscal 2012year quarter.
Partially offset by a $35.0 million increase in operating expenses due to:
An R&D payment of $18.0 million made in connection with an R&D contractual arrangement;
Increased selling and administration expense related to the closure of the Company's Florida location.specialty pharmaceuticals sales force; and
Rx Pharmaceuticals
|
| | | | | | | | | | | | | | | | | |
| | Fiscal Year | | Percentage Change |
| ($ in millions) | 2014 | | 2013 | | 2012 | | 2014/2013 | | 2013/2012 |
| Net sales | $ | 927.1 |
| | $ | 709.5 |
| | $ | 617.4 |
| | 31 | % | | 15 | % |
| Gross profit | $ | 489.9 |
| | $ | 361.5 |
| | $ | 288.6 |
| | 36 | % | | 25 | % |
| Gross profit % | 52.8 | % | | 51.0 | % | | 46.7 | % | |
| |
|
| Operating expenses | $ | 140.1 |
| | $ | 98.3 |
| | $ | 75.1 |
| | 43 | % | | 31 | % |
| Operating expenses % | 15.1 | % | | 13.9 | % | | 12.2 | % | |
| |
|
| Operating income | $ | 349.8 |
| | $ | 263.2 |
| | $ | 213.5 |
| | 33 | % | | 23 | % |
| Operating income % | 37.7 | % | | 37.1 | % | | 34.6 | % | |
| |
|
Net SalesHigher research and development expenses resulting from planned higher spending on new product development.
Fiscal FY 2014 vs FY 20132014
Segment operating income increased $86.6 million, or 33%, as a result of:
An increase in net sales increasedof $217.6 million, compared to fiscal 2013or 31%, due primarily to newto:
New product sales of $106.4$106.4 million and $83.7 million of net sales from related primarily to the Rosemont and Fera acquisitions, as well as product mix for
sales of existing products. New product sales were led by saleslaunches of Fenofibrate, Fluocinonide cream, Nitroglycerine spray, Repaglinide, and Azelastine nasal spray.spray;
Fiscal 2013 net sales increased $92.2 million compared to fiscal 2012.The increase was due primarily to new product sales of $48.6 million, $24.1 million of netNet sales attributable to the Rosemont acquisition and Fera acquisitions, an additional month of netproduct acquisition totaling $83.7 million; and
Improved product mix for sales of $19.1 million from the July 26, 2011 Paddock acquisition and improved pricing on select products as compared to the prior year. These increases were partially offset by decreased volume in existing products and decreased pricing on one particular product.products.
Perrigo Company plc- Item 7
Rx Pharmaceuticals
Gross Profit
Fiscal 2014An increase of $128.4 million in gross profit increased $128.4 million compared to fiscal 2013due primarily to incrementalto:
Incremental gross profit attributable to the Rosemont and Fera acquisitions, grossacquisitions;
Gross profit contribution from new products,products; and
Improved product mix for sales of existing products. Gross profit as a percent of sales increased due to the Rosemont and Fera acquisitions, as well as favorable pricing dynamics.
Fiscal 2013 gross profit increased $72.9 million compared to fiscal 2012. The increase was due primarily to the absence of the one-time charge of $27.2 million to cost of sales as a result of the step-up of inventory acquired and sold during the first quarter of fiscal 2012 related to the Paddock acquisition, partiallyPartially offset by the charge of $3.2a $41.8 million to cost of sales as a result of the step-up of inventory acquired and sold during the last half of fiscal 2013 related to the Rosemont acquisition. The fiscal 2013 gross profit increase was also due to an additional month of gross profit contribution from the Paddock acquisition, gross profit from new product sales, incremental gross profit attributable to the Rosemont and Fera acquisitions, and favorable pricing dynamics on select products as compared to the prior year. These increases were partially offset by lower gross profit contribution due to decreased volume and pricing on certain existing products. The fiscal 2013 gross profit percentage increase was due primarily to gross profit from new product sales and the absence of the inventory step-up charge related to the Paddock acquisition discussed above.
Operating Expenses
Fiscal 2014in operating expenses increased $41.8 million compared to fiscal 2013due primarily to $15.1 million of incrementalto:
Incremental operating expenses from the Rosemont and Fera acquisitions of $15.1 million, including $3.0 million for the start up of a branded ophthalmic sales force; a
| |
| • | A $15.0 million loss accrual related to the Texas Medicaid contingency discussed in Note 14 of the Notes to the Consolidated Financial Statements; and a $6.0 million charge related to the Texas Medicaid contingency discussed in Item 8. Note 14; and |
A write-off of IPR&D acquired through the Rosemont and Paddock acquisitions. We expect certain sales force related operating expenses to continue to increase as the Company pursues a strategy of further expanding its specialty brand. acquisitions totaling $6.0 million.
SPECIALTY SCIENCES
Significant Trends and Developments
| |
| • | Biogen Inc. has stated publicly that it expects to release Phase III results of Tysabri® for secondary progressive multiple sclerosis within the next six months. We anticipate that if successful, this could positively impact our future royalties. |
Segment Results
Fiscal 2013 operating expenses increased $23.2 million compared to fiscal 2012 due primarily to $6.8 million of incremental operating expenses from the Rosemont acquisition and an additional month of operating expenses of $2.8 million attributable to the Paddock acquisition. The Company also recorded a $9.0 million impairment charge related to the write-off of certain IPR&D intangible assets that were acquired as part of the Paddock acquisition due to changes in the projected development and regulatory timelines for various projects.
API
| | | | Fiscal Year | | Percentage Change | | | | | | | |
| ($ in millions) | 2014 | | 2013 | | 2012 | | 2014/2013 | | 2013/2012 | Fiscal Year |
| | | 2014(1) | | 2015 |
| Net sales | $ | 137.6 |
| | $ | 159.3 |
| | $ | 165.8 |
| | (14 | )% | | (4 | )% | $ | 146.7 |
| | $ | 344.0 |
|
| Gross profit | $ | 77.1 |
| | $ | 83.8 |
| | $ | 86.1 |
| | (8 | )% | | (3 | )% | $ | (6.1 | ) | | $ | 54.0 |
|
| Gross profit % | 56.0 | % | | 52.6 | % | | 51.9 | % | |
| |
| (4.1 | )% | | 15.7 | % |
| Operating expenses | $ | 31.0 |
| | $ | 35.0 |
| | $ | 32.2 |
| | (11 | )% | | 9 | % | |
| Operating expenses % | 22.5 | % | | 22.0 | % | | 19.4 | % | |
| |
| |
| Operating income | $ | 46.1 |
| | $ | 48.9 |
| | $ | 53.9 |
| | (6 | )% | | (9 | )% | |
| Operating income % | 33.5 | % | | 30.7 | % | | 32.5 | % | |
| |
| |
| Operating (loss) income | | $ | (68.6 | ) | | $ | 36.3 |
|
| Operating (loss) income % | | (46.7 | )% | | 10.6 | % |
(1) Includes operations from December 18, 2013 to June 28, 2014.
FY 2015 vs FY 2014
Segment operating income increased $104.9 million, or 153%, as a result of:
An increase in net sales of $197.3 million due to:
Fiscal year 2015 including 12 months of royalties compared to six months in fiscal year 2014;
| |
| • | Tysabri® royalty percentage increasing from 12% for most of fiscal year 2014 to 18% for fiscal year 2015; offset partially by |
| |
| • | A negative foreign currency impact on Biogen Inc.'s Tysabri® sales, which decreased our royalties by $13.0 million. |
An increase in gross profit of $60.1 million due to:
The royalty percentage increase and additional months of royalties noted above and
Amortization expense on the intangible assets remaining flat.
A decrease of $44.9 million in operating expenses due to:
The divestiture of a product development program and
The absence of restructuring expense in fiscal year 2015, which totaled $38.7 million in fiscal year 2014.
Perrigo Company plc - Item 7
Other
Net SalesOTHER
Segment Results
|
| | | | | | | | | | | |
| ($ in millions) | Fiscal Year |
| | 2013 | | 2014 | | 2015 |
| Net sales | $ | 159.3 |
| | $ | 137.6 |
| | $ | 107.7 |
|
| Gross profit | $ | 83.8 |
| | $ | 77.1 |
| | $ | 49.2 |
|
| Gross profit % | 52.6 | % | | 56.0 | % | | 45.7 | % |
| Operating income | $ | 48.9 |
| | $ | 46.1 |
| | $ | 26.8 |
|
| Operating income % | 30.7 | % | | 33.5 | % | | 24.9 | % |
FY 2015 vs FY 2014
Operating income decreased $19.3 million, or 42%, as a result of:
A decrease in net sales of $29.9 million, or 22%, due primarily to:
Decrease in U.S. sales of Temozolomide, which had a 180-day exclusivity period that was in effect during the first half of fiscal year 2014;
Competition on certain products; and
Unfavorable changes in foreign currency exchange rates.
A decrease of $27.9 million in gross profit due primarily to:
The decrease in the sales of existing products discussed above.
Partially offset by a $8.6 million decrease in operating expenses due to:
Proactive cost controls, including headcount reduction and certain decreases in R&D spending.
NetFY 2014 vs FY 2013
Operating income decreased $2.8 million, or 6%, as a result of:
A decrease in net sales for fiscal 2014 decreasedof $21.7 million, compared to fiscal 2013or 14%, due primarily to a decrease into:
Decreased sales of existing products of $63.6$63.6 million, partially offset by $39.6 million of new product sales, which relates primarily to the U.S. launch of temozolomide, and $2.4 million due to favorable changes in foreign currency exchange rates. The decrease in existing product sales was due primarily to increased competition on certain products, along with lower sales related to the post-exclusivity status of a customer's generic finished dosage pharmaceutical product ("API Agreement"). The Company'sOur customer launched its product with 180-day exclusivity status in the fourth quarter of fiscal 2012.year 2012; offset in part by
NetNew product sales for fiscal 2013 decreased $6.5of $39.6 million, compared to fiscal 2012. This decrease was duewhich relates primarily to a decreasethe U.S. launch of sales of existing products of $20.0 million, along with a $1.2 million decrease related to unfavorableTemozolomide; and
Favorable changes in foreign currency exchange rates partially offset by an increase of $15.0 million over fiscal 2012 related to the API Agreement.$2.4 million.
Gross Profit
Gross profit for fiscal 2014 decreasedA decrease of $6.7 million compared to fiscal 2013in gross profit due to the decreaseprimarily to:
Decrease in the sales of existing products discussed above,above;
Operational inefficiencies experienced during the year; offset partially offset by the favorable
Favorable contribution from the U.S. launch of temozolomide. The gross profit percentage for fiscal 2014 increasedTemozolomide.
A decrease of $4.0 million in operating expenses due primarily to the U.S. launch of temozolomide as well as favorable vertical integration activity, partially offset by operational inefficiencies experienced during the year.to:
Gross profit for fiscal 2013 decreased $2.3 million compared to fiscal 2012. This decrease was due primarily to decreased profit of $5.7 million related to the demand in the U.S. for one specific product, along with decreased profit related to the decrease in sales of other existing products, partially offset by an increase of $7.7 million from the API Agreement over fiscal 2012. The increase in the gross profit percentage was due primarily to the API Agreement.
Operating Expenses
Operating expenses for fiscal 2014 decreased $4.0 million compared to fiscal 2013 due primarily to lowerLower administrative costs driven by lower legal expenses and lower employee-related expenses.
Operating expenses for fiscalPerrigo Company plc 2013 increased $2.7 million compared to fiscal 2012 due primarily to higher administrative costs driven by higher legal expenses.- Item 7
Unallocated, Interest, Other, and Taxes
SPECIALTY SCIENCES
|
| | | |
| ($ in millions) | Fiscal 2014(1) |
| Net sales | $ | 146.7 |
|
| Gross profit | $ | (6.1 | ) |
| Gross profit % | (4.1 | )% |
| Operating expenses | $ | 62.5 |
|
| Operating expenses % | 42.6 | % |
| Operating loss | $ | (68.6 | ) |
| Operating loss % | (46.7 | )% |
(1) Includes operations from December 18, 2013 to June 28, 2014.
In fiscal 2014, the Company recognized revenue of $146.7 million related to royalties received from Biogen Idec Inc.'s global sales of the Multiple Sclerosis drug Tysabri®, which is manufactured and distributed by Biogen Idec Inc. The Company recognized intangible asset amortization of $152.8 million for fiscal 2014. Fiscal 2014 operating expenses included $38.7 million of restructuring charges related primarily to employee termination benefits. See Note 16 of the Notes to the Consolidated Financial Statements for additional information on these restructuring charges. Operating expenses also included $10.4 million of research and development expenses, which related to the ELND005 Phase 2 clinical program in collaboration with Transition. As mentioned in Note 5 of the Notes to the Consolidated Financial Statements, the Company ended its collaboration with Transition during the third quarter of fiscal 2014. Transition is now solely responsible for all ongoing development activities and costs associated with ELND005.
Other
The Other category consists of the Company’s Israel Pharmaceutical and Diagnostic Products operating segment, which does not individually meet the quantitative thresholds required to be a reportable segment.
|
| | | | | | | | | | | | | | | | | |
| | Fiscal Year | | Percentage Change |
| ($ in millions) | 2014 | | 2013 | | 2012 | | 2014/2013 | | 2013/2012 |
| Net sales | $ | 78.7 |
| | $ | 73.6 |
| | $ | 73.3 |
| | 7 | % | | — | % |
| Gross profit | $ | 25.4 |
| | $ | 23.8 |
| | $ | 23.8 |
| | 7 | % | | — | % |
| Gross profit % | 32.4 | % | | 32.3 | % | | 32.5 | % | |
| |
|
| Operating expenses | $ | 21.4 |
| | $ | 20.3 |
| | $ | 21.7 |
| | 5 | % | | (6 | )% |
| Operating expenses % | 27.2 | % | | 27.6 | % | | 29.6 | % | |
| |
|
| Operating income | $ | 4.0 |
| | $ | 3.4 |
| | $ | 2.0 |
| | 18 | % | | 69 | % |
| Operating income % | 5.2 | % | | 4.6 | % | | 2.7 | % | |
| |
|
Net Sales
Fiscal 2014 net sales increased $5.1 million compared to fiscal 2013 due primarily to $3.5 million attributable to favorable changes in foreign currency rates and new product sales of $2.0 million.
Fiscal 2013 net sales were relatively flat compared to fiscal 2012. The slight increase was due to new product sales of $2.1 million, offset by unfavorable changes of $1.6 million in foreign currency exchange rates.
Gross Profit
Fiscal 2014 gross profit dollars increased in line with the increase in net sales. Gross profit as a percent of sales was relatively flat as compared to fiscal 2013.
Fiscal 2013 gross profit was flat compared to fiscal 2012 and as a percent of sales decreased slightly.
OperatingUnallocated Expenses
Fiscal 2014 operatingUnallocated expenses increased $1.1 million comparedare comprised of certain corporate services not allocated to fiscal 2013 due primarily to unfavorable changes in foreign currency exchange rates.
Fiscal 2013 operating expenses decreased $1.4 million compared to fiscal 2012 due primarily to decreased legal expenses compared to fiscal 2012.
Unallocated Expensesour reporting segments and are recorded above Operating income on the Consolidated Statements of Operations.
Unallocated expenses were comprised of certain corporate services that were not allocated to the segments. Fiscal 2014 unallocated expenses were$121.5 million, $173.4 million, compared toand $34.7 million in fiscal years 2015, 2014, and 2013,, an respectively. The $51.9 million decrease in fiscal year 2015 compared to fiscal year 2014 was due primarily to incurring fewer acquisition-related costs in Administration expense for the Omega acquisition compared to the Elan acquisition, offset partially by expenses we incurred in fiscal year 2015 related to our defense against Mylan's bids. Acquisition-related costs recorded in Administration expense consist primarily of general transaction costs (legal, banking, and other professional fees). The $138.7 million increase of $138.7 millionin fiscal year 2014 compared to fiscal year 2013 was due primarily to acquisition-related costs incurred in connection with the Elan transaction. Acquisition-related costs consist primarily of general transaction costs (legal, banking, and other professional fees),
financing fees, and debt extinguishment. See Item 8. Note 2 of the Notes to the Consolidated Financial Statements for details by line itemmore information on the Consolidated Statements of Operations.
Fiscal 2013 unallocated expenses were $34.7 million compared to $40.9 million in fiscal 2012, a decrease of $6.2 million or 15% due primarily to lower corporate development and variable incentive-relatedacquisition-related expenses.
Interest and Other (Consolidated)
Fiscal Interest Expense, Net
Interest expense was $147.1 million, $105.6 million, and $70.0 million for fiscal years 2015, 2014, and 2013, respectively. Interest income was $1.1 million, $2.1 million, and $4.2 million for fiscal years 2015, 2014, and 2013. We expect future interest expense was $105.6to be comparable to our fiscal 2015 expense.
The $41.5 million increase in fiscal year 2015 compared to $70.0 million for fiscal 2013. The increaseyear 2014 was due primarily to the interest on the incremental increase in partborrowings resulting from the issuance of $1.6 billion of debt in the second quarter of fiscal year 2015 to finance the Omega acquisition, as well as the debt we assumed from Omega in the fourth quarter of fiscal year 2015 and did not repay, which totaled $820.9 million at June 27, 2015.
The $35.6 million increase in fiscal 2014 compared to fiscal year 2013 was due primarily to increased borrowings related to the issuance of $600.0$600.0 million of debt in a public offering, which was completed during the fourth quarter of fiscal 2013, andwhich was paid off during the second quarter of fiscal year 2014 in conjunction with the Elan transaction.acquisition. Interest expense also increased due to an incremental increase in borrowings resulting from the issuance of $2.3$2.3 billion of debt in a private placement to finance the Elan transaction,acquisition, as well as a new $1.0$1.0 billion bank term loan, both of which were completed during the second quarter of fiscal year 2014. See Item 8. Note 8 for more information on the above-mentioned debt.
Other Expense, Net
Other expense, net was $343.2 million, $25.1 million, and $5.6 million for fiscal years 2015, 2014, and 2013, respectively. The Company simultaneously retired its former debt arrangements, resulting$318.1 million increase in fiscal year 2015 compared to fiscal year 2014 was due primarily to $324.8 million in aggregate losses we incurred hedging the euro-denominated purchase prices of Omega and GSK, as well as a $6.8 million goodwill impairment, offset partially by a gain of $12.5 million from the transfer of a rights agreement. The $19.5 million increase in Other expense, net in fiscal year 2014 compared to fiscal year 2013 was due primarily to the sale of investments acquired from Elan totaling $12.7 million and losses on equity method investments totaling $8.6 million. See Item 8. Note 7 for more information on the derivatives, Item 8. Note 6 for information on the investments, and Item 8. Note 3 for information on the goodwill impairment charge.
Loss on Extinguishment of Debt
We recorded a loss on extinguishment of $165.8debt totaling $10.5 million during and $165.8 million in fiscal year 2015 and 2014, whichrespectively. In fiscal year 2015, the loss consisted of mainly interest on the bridge agreement associated with financing the Omega acquisition. In fiscal year 2014, it consisted of make-whole payments, write-off of unamortized discounts, write-off of deferred financing fees, and interest on the bridge agreements. As a result ofagreements associated with financing the debt issuances, the Company expects interest expense to be approximatelyElan acquisition. See $100.0 millionItem 8. Note 2 on an annual basis based on the current Libor interest rate. Fiscaland 2014 interest income was $2.1 million compared to $4.2 millionItem 1. Note 8 for fiscal 2013.more information.
ThePerrigo Company recognized a loss on sales of investments of $12.7 million during fiscalplc 2014- Item 7. The loss consisted of $9.9 million
Unallocated, Interest, Other, and $2.8 million on the sales of the Company's investments in Prothena and Janssen AI, respectively.Taxes
Fiscal 2013 interest expense was $70.0 million compared to $64.7 million for fiscal 2012. The increase in interest expense was due to a full year of interest on the Company's previous private placement notes and the increased borrowings related to the $600.0 million public offering discussed above. Fiscal 2013 interest income was $4.2 million compared to $4.0 million for fiscal 2012.
During fiscal 2013, in conjunction with the Cobrek acquisition, the Company remeasured the fair value of its 18.5% noncontrolling interest, which was valued at $9.5 million, and recognized a loss of $3.0 million in other expense (income), net. Also during fiscal 2013, the Company sold its auction rate securities ("ARS") for $8.6 million and recognized a loss of $1.6 million in other expense (income), net.
Income Taxes (Consolidated)
The effective tax rate on continuing operations was 24.7%48.4%, 27.3%24.7% and 23.2%%27.3% for fiscal years 2015, 2014,, 2013 and 2012,2013, respectively. The effective tax rate for fiscal year 2015 was significantly higher due mainly to the impact of a valuation allowance on deferred taxes and as a result of the Omega transaction costs. Similarly, the effective tax rate for fiscal year 2014 was impacted by the transaction costs, changes to the estimated jurisdictional mix of income and the new corporate structure attributable to the Elan transaction. Additionally, the effective tax rate for fiscal year 2014 was unfavorably impacted by Israel tax rate changes in the amount of $1.8$1.8 million and favorably impacted by United Kingdom tax rate changes in the amount of $4.7$4.7 million, as discussed further below. The effective tax rate was favorably affected by a reduction in the reserves for uncertain tax liabilities, recorded in accordance with ASC Topic 740 "Income Taxes", in the amount of $7.5 million for fiscal 2013 related to various audit resolutions and statute expirations.
In fiscal year 2011, Israel enacted new tax legislation that reduced the effective tax rate to 10% for 2011 and 2012, 7% for 2013 and 2014, and 6% thereafter for certain qualifying entities that elect to be taxed under the new legislation. This legislation was rescinded as announced in the Official Gazette on August 5, 2013.The new legislation enacted a 9% rate for certain qualifying entities that elect to be taxed under the new legislation. The Company hasWe have two entities that had previously elected the new tax legislation for years after fiscal year 2011. For all other entities that do not qualify for this reduced rate, the tax rate has been increased from 25% to 26.5%. These rates wereare applicable to Perrigo as of June 30, 2013 and have unfavorably impacted the effective tax rate in the amount of $1.8$1.8 million. in fiscal year 2014.
In July 2013, the United Kingdom passed legislation reducing the statutory rate to 21% and 20% effective April 1, 2014 and April 1, 2015, respectively. These rates are applicable to Perrigo as of June 30, 2013 and have favorably impacted the effective tax rate in the amount of $4.7$4.7 million. in fiscal year 2014.
In December 2013, Mexico enacted legislation to rescind the scheduled rate reductions and maintain the 30% corporate tax rate for 2014 and future years. This rate was applicable to Perrigo as of June 30, 2013.
Financial Condition, Liquidity and Capital ResourcesFINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
The Company finances itsWe finance our operations with internally-generatedinternally generated funds, supplemented by credit arrangements with third parties and capital marketmarkets financing. The CompanyWe routinely monitorsmonitor current and expected operational requirements and financial market conditions to evaluate accessing other available financing sources including revolving bank credit and securities offerings. Based on the Company’sour current financial condition and credit relationships, management believes that the Company’sour operations and borrowing resources are sufficient to provide for the Company’sour current and foreseeable capital requirements. However, the Company continueswe continue to evaluate the impact of commercial and capital market conditions on liquidity and may determine that modifications to the Company’sour capital structure are appropriate if market conditions deteriorate or if favorable capital market opportunities become available.
Cash and Cash Equivalents
Cash and cash equivalents increased *$25.5 million to $805.4 million at June 28, 2014 from $779.9 million at June 29, 2013. Working capital including cash, atrepresents current assets less current liabilities.
Perrigo Company plc June 28, 2014- Item 7 was consistent with June 29, 2013 at $1.5 billion. In addition to the cash
Financial Condition, Liquidity and cash equivalents balance of $805.4 million at June 28, 2014, the Company had approximately $600.0 million available under its revolving loan commitment and $200.0 million available under its accounts receivable securitization program described below.Capital Resources
Cash, cash equivalents, cash flows from operations and borrowings available under the Company’sour credit facilities are expected to be sufficient to finance the known and/or foreseeable liquidity, capital expenditures, dividends, acquisitions and, to the extent authorized, our share repurchases of the Company.repurchases. Although the Company’sour lenders have made commitments to make funds available to itus in a timely fashion under our revolving credit agreements and overdraft facilities, if economic conditions worsen or new information becomes publicly available impacting the institutions’ credit rating or capital ratios, these lenders may be unable or unwilling to lend money pursuant to the Company’sour existing credit facilities.
|
| | | | | | | | | | | |
| | Fiscal Year Ended |
| ($ in millions) | June 28, 2014 | | June 29, 2013 | | June 30, 2012 |
| Net cash from operating activities | $ | 693.5 |
| | $ | 553.8 |
| | $ | 513.4 |
|
| | | | | | |
| Net cash for investing activities | $ | (1,704.8 | ) | | $ | (947.8 | ) | | $ | (684.1 | ) |
| | | | | | |
| Net cash from financing activities | $ | 1,028.0 |
| | $ | 577.2 |
| | $ | 458.7 |
|
Operating
In fiscal 2014,year 2015, net cash provided from operating activities increased $139.7$504.8 million or 25% to $693.5 million compared to $553.8 millionfiscal year 2014 due to increased earnings after adding back non-cash expenses and changes in fiscal 2013,working capital due primarily to the Omega acquisition. Accounts receivable impacted cash flow from operations by $81.7 million compared to $226.7 million in the prior year, an improvement of $145.0 million. The improvement was largely due to sales timing in the quarter compared to the prior year. The primary improvement in working capital was in accounts payable, which benefited operating cash flow by $140.6 million compared to a use of $24.9 million in the prior year. The change is largely attributable to the addition of Omega in the second calendar quarter which has structured terms with suppliers based on seasonality of the business. Generally, Omega has seasonally stronger sales in the second and fourth quarters of the calendar year. Accordingly, accounts payable terms with suppliers are structured to favorably contribute to cash flow in these quarters which require investments in inventory and accounts receivable. Given the working capital structure of Omega, the business experiences strong cash inflow in the second and fourth calendar quarters and comparably lower cash flow in the first and third calendar quarters. These cash increases were offset partially by decreased inventory levels.
In addition, our operating cash flow increased earnindue to the increase in Tysabrigs. ® royalties we received in fiscal year 2015 compared to fiscal year 2014. Our royalties were 18% of Biogen's worldwide sales of Tysabri® in fiscal year 2015 compared to 12% through April 30 in fiscal year 2014.
In fiscal2013, year 2014, net cash provided from operating activities increased $40.4 million or 8% to $553.8$139.7 million compared to $513.4 million for fiscal 2012,year 2013, due primarily to increased earnings for fiscal 2013 comparedafter adding back non-cash expenses, primarily loss on extinguishment of debt and depreciation and amortization expenses. There was also a slight increase due to fiscal 2012.changes in working capital.
NetPerrigo Company plc - Item 7
Financial Condition, Liquidity and Capital Resources
Investing
Fiscal year 2015 net cash used for investing activities increased $757.0$942.1 million to $1.7 billion for fiscal 2014 compared to $947.8 million for fiscal 2013. This increase wasyear 2014 due primarily to increased acquisition activity. During fiscal year 2015, we used $2.2 billion, net of cash received, to purchase Omega, Gelcaps, and the Lumara products. During fiscal year 2014, we used $1.6 billion, net of cash received, to acquire Elan as well as increased capital expenditures, partially offset by proceedsand products from Aspen and Fera. Fiscal year 2015 investing activities also included $329.9 million of cash outflow related to the salecash settlement of non-designated foreign currency derivatives we used to hedge the Company's investments in Prothenaeuro-denominated Omega and Janssen AI. NetGSK purchase prices. See Item 8. Note 2 and Item 8. Note 7 for more information on the above-mentioned acquisitions and derivatives, respectively.
Fiscal year 2014 net cash used for investing activities increased $263.6$757.0 million to $947.8 million forcompared fiscal year 2013, compared to $684.1 million for fiscal 2012, due primarily to increased fundingacquisition activity. During fiscal year 2013, we used for acquisitions$852.3 million, net of cash received, to purchase Velcera, Rosemont, Sergeant's, products from Fera, and the non-controlling interest of Cobrek. There was also a $67.5 million increase in capital expenditures to support various infrastructure projects, partially offset by $81.4 million of proceeds from sales of investments in fiscal 2013 compared to fiscal 2012.year 2014.
Cash used for capital expenditures for facilities and equipment during fiscal 2014year 2015 totaled $171.6$137.0 million, which includes accounts payable accruals. Capital expenditures were incurred for manufacturing productivity and capacity projects and investments at newly acquired entities. Capital expenditures for fiscal 2015the next twelve months are anticipated to be between $130$160 million to $170$195 million related primarily to manufacturing productivity capacity and quality/regulatory projects. The Company expectsWe expect to fund these estimated capital expenditures with funds from operational cash flows or revolving credit facilities. Capital expenditures were $132.2$171.6 million and $120.2$132.2 million for fiscal years 2014 and 2013, respectively. The decrease in fiscal year 2015 compared to fiscal year 2014 was due to several large infrastructure projects nearing completion.
Financing
Net cash provided from financing activities increased $495.9 million in fiscal year 2015 compared to fiscal year 2014 due primarily to financing we undertook to purchase Omega in fiscal year 2015. The Omega financing
Perrigo Company plc 2013- Item 7
Financial Condition, Liquidity and 2012, respectively.Capital Resources
included raising $1.6 billion of debt, net of discount and issuance costs, and issuing $6.8 million ordinary shares, which brought in $999.3 million, net of issuance costs. In addition, we refinanced certain of our debt totaling $907.6 million. This increase in cash was offset partially by repayments of short- and long-term debt totaling $1.9 billion. In fiscal year 2014 we issued $3.2 billion of debt net of issuance costs and repaid $2.2 billion of debt, including premium on early debt retirement, primarily in connection with the Elan acquisition. The increase in cash from financing activities in fiscal year 2015 was also offset partially by an increase of $18.7 million in dividend payments over fiscal year 2014.
Net cash provided from financing activities was $1.0 billion forincreased $450.8 million in fiscal year 2014 compared to $577.2 million for fiscal year 2013. The increase in cash provided from financing activities was due primarily to net borrowings of long-term
debt under the Company's term loan and revolver as well asElan financing activity described above. In fiscal year 2013, we issued $600.0 million in public bonds. See the issuance of senior unsecured notes associated with the acquisition of Elan.
The Company does not currently have an ordinary share repurchase program, but may repurchase shares in private party transactions from time to time. Private party transactions are shares repurchased in connection with the vesting of restricted stock awards to satisfy employees' minimum statutory tax withholding obligations. During fiscal below "2014Long-Term Debt, the Company repurchased 60 thousand shares of common stock for $7.5 million in private party transactions. During fiscal 2013" section and Item 8. Note 82012, for more information on the Company repurchased 112 thousand and 90 thousand shares of common stock for $12.4 million and $8.2 million, respectively, in private party transactions. All ordinary shares repurchased by the Company will either be canceled or held as treasury shares available for reissuance in the future for general corporate purposes.above-mentioned debt activity.
In January 2003, the Board of Directors adopted a policy of paying quarterly dividends. The CompanyWe paid dividends of $46.164.8 million, $33.046.1 million, and $29.033.0 million, or $0.390.46, $0.350.39, and $0.310.35 per share, during fiscal years 2015, 2014, 2013and 20122013, respectively. The declaration and payment of dividends and the amount paid, if any, are subject to the discretion of the Board of Directors and depend on the earnings, financial condition, capital and surplus requirements of the Company and other factors the Board of Directors may consider relevant.
Dividends paid for thefiscal years ended June 28,2015 and 2014 and June 29, 2013 were as follows:
|
| | | | | | |
| Declaration Date | Record Date | Payable | Dividend Declared | |
| | | | | |
| Fiscal 2014 | | | | |
| April 28, 2014 | May 30, 2014 | June 17, 2014 | | $ | 0.105 |
|
| January 29, 2014 | February 28, 2014 | March 18, 2014 | | $ | 0.105 |
|
| November 6, 2013 | November 29, 2013 | December 17, 2013 | | $ | 0.09 |
|
| August 14, 2013 | August 30, 2013 | September 17, 2013 | | $ | 0.09 |
|
| | | | | |
| Fiscal 2013 | | | | |
| May 2, 2013 | May 31, 2013 | June 18, 2013 | | $ | 0.09 |
|
| January 31, 2013 | March 1, 2013 | March 19, 2013 | | $ | 0.09 |
|
| November 6, 2012 | November 29, 2012 | December 17, 2012 | | $ | 0.09 |
|
| August 15, 2012 | August 31, 2012 | September 18, 2012 | | $ | 0.08 |
|
|
| | | | | | | | |
| Declaration Date | | Record Date | | Payable | | Dividend Declared |
| | | | | | | |
| Fiscal Year 2015 | | | | | | |
| April 28, 2015 | | May 29, 2015 | | June 16, 2015 | | $ | 0.125 |
|
| January 27, 2015 | | February 27, 2015 | | March 17, 2015 | | $ | 0.125 |
|
| November 3, 2014 | | November 28, 2014 | | December 16, 2014 | | $ | 0.105 |
|
| August 13, 2014 | | August 29, 2014 | | September 16, 2014 | | $ | 0.105 |
|
| | | | | | | |
| Fiscal Year 2014 | | | | | | |
| April 28, 2014 | | May 30, 2014 | | June 17, 2014 | | $ | 0.105 |
|
| January 29, 2014 | | February 28, 2014 | | March 18, 2014 | | $ | 0.105 |
|
| November 6, 2013 | | November 29, 2013 | | December 17, 2013 | | $ | 0.090 |
|
| August 14, 2013 | | August 30, 2013 | | September 17, 2013 | | $ | 0.090 |
|
Capital Resources
Overdraft Facilities
We acquired overdraft facilities from Omega with outstanding balances totaling €51.4 million ($56.0 million)at March 30, 2015 and repaid prior to June 27, 2015. The repayments are shown on the Consolidated Statements of Cash Flows in Borrowings (repayments) of short-term debt, net.
Accounts Receivable Factoring
As a result of the Omega acquisition, we assumed multiple accounts receivable factoring arrangements with non-related third-party financial institutions (the “Factors”) during fiscal year 2015. Pursuant to the terms of the arrangements, we sell to the Factors certain of our accounts receivable balances on a non-recourse basis for credit approved accounts. The total amount of accounts receivable factored and excluded from our accounts receivable was $171.6 million at June 27, 2015, a $23.9 million increase since the acquisition date. See Item 8. Note 1 for more information.
Perrigo Company plc - Item 7
Financial Condition, Liquidity and Capital Resources
Accounts Receivable Securitization
On July 23, 2009, the Company entered into anWe previously had a $200.0 million accounts receivable securitization program. This program (the "Securitization Program") with several of its wholly owned subsidiariesexpired June 12, 2015, and Bank of America Securities, LLC. The program was most recently renewed for one year on June 13, 2014 with Wells Fargo Bank, National Association ("Wells Fargo") as sole agent.
The Securitization Program is a one-year program, expiring June 13, 2015. Under the terms of the Securitization Program, the subsidiaries sell certain eligible trade accounts receivableswe chose not to a wholly owned bankruptcy-remote special purpose entity ("SPE"), Perrigo Receivables, LLC. The Company has retained servicing responsibility for those receivables. The SPE will then transfer an interest in the receivables to the Committed Investors. Under the terms of the Securitization Program, Wells Fargo has committed $200.0 million, effectively allowing the Company to borrow up to that amount, subject to a Maximum Net Investment calculation as defined in the agreement. At June 28, 2014, the entire $200.0 million committed amount of the Securitization Program was available under this calculation. The annual interest rate on any borrowing is equal to thirty-day LIBOR plus 0.375%. In addition, an annual facility fee of 0.375% is applied to the entire $200.0 million commitment whether borrowed or undrawn. Under the terms of the Securitization Program, the Company may elect to have the entire amount or any portion of the facility unutilized.
Any borrowing made pursuant to the Securitization Program will be classified as short-term debt in the Company’s Consolidated Balance Sheets. The amount of the eligible receivables will vary during the year based on seasonality of the business and could, at times, limit the amount available to the Company from the sale of these
interests. At June 28, 2014 and June 29, 2013, thererenew it. There were no borrowings outstanding under the Securitization Program.securitization program at June 28, 2014.
Revolving Credit Agreements
We have a Revolving Credit Agreement (the "2014 Revolver") that had a $600.0 million borrowing capacity until the closing of the Omega transaction in the fourth quarter of fiscal year 2015, at which time, in accordance with the agreement, it increased to $1.0 billion. The 2014 Revolver was issued as a replacement for our previous revolving credit facility entered into on September 6, 2013 (the "2013 Revolver"), which also had a $600.0 million borrowing capacity. There were no borrowings outstanding under the 2014 Revolver as of June 27, 2015 or our 2013 Revolver as of June 28, 2014.
We also assumed a €500.0 million ($544.5 million) revolving credit facility in connection with the Omega acquisition. We repaid the $539.1 million outstanding under the facility and terminated it on April 8, 2015. See Item 8. Note 8 for more information on our revolving credit agreements and related transactions.
IndebtednessLong-Term Debt
BankFiscal Year 2015
On September 2, 2014, we offered to exchange what were previously private placement senior notes for public bonds registered with the Securities and Exchange Commission. Substantially all of the private placement senior notes have been exchanged.
On December 2, 2014, Perrigo Finance plc, our 100% owned finance subsidiary ("Perrigo Finance") issued $500.0 million in aggregate principal amount of 3.50% senior notes due 2021, $700.0 million in aggregate principal amount of 3.90% senior notes due 2024, and $400.0 million in aggregate principal amount of 4.90% senior notes due 2044 (collectively, the "2014 Bonds").
The 2014 Bonds are fully and unconditionally guaranteed on a senior unsecured basis by Perrigo Company plc, and no other subsidiary of Perrigo Company plc guarantees the 2014 Bonds. We may redeem the 2014 Bonds at any time under the terms of the applicable indenture, subject to the payment of a make-whole premium.
On December 5, 2014, Perrigo Finance entered into a term loan agreement consisting of a €500.0 million ($614.3 million) tranche maturing December 5, 2019, and Perrigo Company plc entered into a $300.0 million term loan tranche maturing December 18, 2015 ("2014 Term Loan").
On December 5, 2014, we repaid the remaining $895.0 million outstanding under our 2013 Term Loan Facilitiesdescribed below, then terminated it.
On June 24, 2015, we repaid the $300.0 million portion of the 2014 Term Loan.
On March 30, 2015, we assumed $20.0 million in aggregate principal amount of 6.19% senior notes due 2016 (the "2016 Notes"), €135.0 million ($147.0 million) aggregate principal amount of 5.1045% senior notes due 2023, €300.0 million ($326.7 million) in aggregate principal amount of 5.125% retail bonds due 2017, €180.0 million ($196.0 million) in aggregate principal amount of 4.500% retail bonds due 2017, and €120.0 million ($130.7 million) in aggregate principal amount of 5.000% retail bonds due 2019 (collectively, the "Retail Bonds") in connection with the Omega acquisition.
The fair value of the 2023 Notes and Retail Bondsexceeded par value by €93.6 million($101.9 million) on the date of the acquisition. As a result, a fair value adjustment was recorded as part of the carrying value of the underlying debt and will be amortized as a reduction of interest expense over the remaining terms of the respective debt instruments. The adjustment does not affect cash interest payments.
On May 29, 2015, we repaid the $20.0 million in aggregate principal amount of the 2016 Notes.
Perrigo Company plc - Item 7
Financial Condition, Liquidity and Capital Resources
Fiscal Year 2014
On September 6, 2013, thePerrigo Company entered into a $1.0 billion Term Loan Agreementterm loan agreement (the "Term"2013 Term Loan") and a $600.0 million Revolving Credit Agreement (the "Revolver") with Barclays Bank PLC as Administrative Agent, HSBC Bank USA, N.A. as Syndication Agent, Bank of America, N.A., JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A. as Documentation Agents and certain other participant banks (together, the "Permanent Credit Agreements"). The Term Loan consistsconsisting of a $300.0 million tranche maturing December 18, 2015 and a $700.0 million tranche maturing December 18, 2018. Both tranches were drawn in full on December 18, 2013. No amounts were outstanding under the Revolver as of June 28, 2014. Obligations of the Company under the Permanent Credit Agreements are guaranteed by Perrigo Company plc, certain U.S. subsidiaries of Perrigo Company plc, Elan, and certain Irish subsidiaries of Elan. Amounts outstanding under each of the Permanent Credit Agreements will bear interest at the Company’s option (a) at the alternative base rate or (b) the eurodollar rate plus, in either case, applicable margins as set forth in the Permanent Credit Agreements.
Senior Notes
On November 8, 2013, thePerrigo Company issued $500.0 million in aggregate principal amount of its 1.30% Senior Notessenior notes due 2016, (the "2016 Notes"), $600.0 million in aggregate principal amount of its 2.30% Senior Notessenior notes due 2018, (the "2018 Notes"), $800.0 million in aggregate principal amount of its 4.00% Senior Notessenior notes due 2023, (the "2023 Notes") and $400.0 million in aggregate principal amount of its 5.30% Senior Notessenior notes due 2043 (the "2043 Notes" and, together with the 2016 Notes, the 2018 Notes and the 2023 Notes, the "Bonds") in a private placementplacement.
On December 18, 2013, we repaid the remaining principal balance with registration rights. Interest onaccrued interest and fees of $360.0 million outstanding under our credit agreement dated as of October 26, 2011, then terminated the Bonds is payable semiannually in arrears inagreement.
On November 20, 2013, we priced a tender offer and consent solicitation with regard to our 2.95% notes which were issued pursuant to the indenture dated as of May and November16, 2013. The total tender consideration was $578.3 million. On December 27, 2013, we redeemed the remaining notes for a total payment of each year, beginning in May 2014. The Bonds are governed by a Base Indenture and a First Supplemental Indenture between the Company and Wells Fargo Bank N.A., as trustee (collectively the "2013 Indenture"). The Bonds are the Company’s unsecured and unsubordinated obligations, ranking equally in right of payment to all$28.5 million. Upon completion of the Company’s existing and future unsecured and unsubordinated indebtedness and are guaranteed on an unsubordinated, unsecured basis byredemption, the Company's subsidiaries that guaranteeindenture was terminated.
On December 23, 2013, we completed the Permanent Credit Agreements. The Company received net proceedsprepayment of $2.3 billion from issuanceall obligations under our private placement senior notes outstanding under the master note purchase agreement dated May 29, 2008 (the "Note Agreement") for $1.1 billion. Upon completion of the Bonds after deduction of issuance costs of $14.6 million and a market discount of $6.3 million. The Bonds are not entitled to mandatory redemption or sinking fund payments. The Company may redeemprepayment, the Bonds in whole or in part at any time and from time to time for cash at the redemption prices described in the 2013 Indenture.Note Agreement was terminated.
The Company wasWe were in compliance with all covenants under itsour various debt agreements as of June 27, 2015.See Item 8. Note 8 for more information on all of the above debt facilities and transactions.
Bridge Financing
In connection with the Omega acquisition, on November 6, 2014, we entered into a €1.75 billion ($2.2 billion) senior unsecured 364-day bridge loan facility (the "Bridge Loan Facility"). Upon issuance of our permanent debt financing described below, the Bridge Loan Facility was terminated on December 3, 2014. At no time did we draw upon the Bridge Loan Facility.
In connection with the Elan acquisition, on July 28, 20142013, we entered into a $2.65 billion debt bridge credit agreement (the "Debt Bridge") and a $1.7 billion cash bridge credit agreement (the "Cash Bridge") (together, the "Bridge Credit Agreements"). The commitments under the Debt Bridge and the Cash Bridge agreements were terminated on November 8, 2013 and December 24, 2013, respectively. At no time did we draw under the Bridge Credit Agreements.
Credit Ratings
The Company'sOur credit ratings on June 28, 201427, 2015 were Baa3 (stable) and BBB (negative)(watch negative) by Moody's Investors Service and Standard and Poor's ("S&P") Rating Services, respectively. On April 9, 2015, after the announcement of Mylan’s unsolicited proposal to acquire all of our outstanding ordinary shares, S&P placed our BBB credit rating on CreditWatch with negative implications.
Credit rating agencies review their ratings periodically and, therefore, the credit rating assigned to the Companyus by each agency may be subject to revision at any time. Accordingly, the Company iswe are not able to predict whether current credit ratings will remain as disclosed above. Factors that can affect the Company'sour credit ratings include changes in operating performance, the economic environment, the Company'sour financial position, and changes in business strategy. If changes in the Company'sour credit ratings were to occur, they could impact, among other things, future borrowing costs, access to capital markets, and vendor financing terms.
Perrigo Company plc - Item 7
Financial Condition, Liquidity and Capital Resources
Contractual Obligations
The Company’sOur enforceable and legally binding obligations as of June 28, 201427, 2015 are set forth in the following table. Some of the amounts included in this table are based on management’s estimates and assumptions about these obligations, including the duration, the possibility of renewal, anticipated actions by third parties and other factors. Because these estimates and assumptions are necessarily subjective, the enforceable and legally binding obligations actually paid in future periods may vary from the amounts reflected in the table.table (in millions).
|
| | | | | | | | | | | | | | | | | | | |
| | Payment Due by Period |
| (in millions) | 2015 | | 2016-2017 | | 2018-2019 | | After 2019 | | Total |
Short and long-term debt(1) | $ | 218.1 |
| | $ | 1,228.7 |
| | $ | 935.1 |
| | $ | 1,857.1 |
| | $ | 4,239.0 |
|
Purchase obligations(2) | 535.1 |
| | 2.2 |
| | 1.0 |
| | — |
| | 538.3 |
|
Operating leases(3) | 31.9 |
| | 39.2 |
| | 27.0 |
| | 21.1 |
| | 119.2 |
|
| Other non-current contractual liabilities reflected on the consolidated balance sheet: | | | | | | | | | |
Deferred compensation and benefits(4) | — |
| | — |
| | — |
| | 90.7 |
| | 90.7 |
|
Other (5) | 36.3 |
| | 6.7 |
| | 0.4 |
| | — |
| | 43.4 |
|
| Total | $ | 821.4 |
| | $ | 1,276.8 |
| | $ | 963.5 |
| | $ | 1,968.9 |
| | $ | 5,030.6 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Payment Due |
| | < 1 year | | 1-3 years | | 3-5 years | | > 5 years | | Total |
Short and long-term debt (1) | $ | 247.3 |
| | $ | 1,503.1 |
| | $ | 1,358.0 |
| | $ | 4,205.7 |
| | $ | 7,314.1 |
|
| Capital lease obligations | 2.6 |
| | 2.9 |
| | 0.8 |
| | — |
| | 6.3 |
|
Purchase obligations (2) | 429.9 |
| | — |
| | — |
| | — |
| | 429.9 |
|
Pending acquisition (3) | 223.4 |
| | — |
| | — |
| | — |
| | 223.4 |
|
Operating leases (4) | 45.6 |
| | 70.0 |
| | 36.6 |
| | 20.3 |
| | 172.5 |
|
| Other contractual liabilities reflected on the consolidated balance sheets: | | | | | | | | | |
Deferred compensation and benefits (5) | — |
| | — |
| | — |
| | 102.8 |
| | 102.8 |
|
Other (6) | 42.3 |
| | 11.7 |
| | 9.4 |
| | 14.3 |
| | 77.7 |
|
| Total | $ | 991.1 |
| | $ | 1,587.7 |
| | $ | 1,404.8 |
| | $ | 4,343.1 |
| | $ | 8,326.7 |
|
| |
(1) | ShortShort- and long-term debt includes interest payments, which were calculated using the effective interest rate at June 28, 2014, as well as capital lease obligations.
27, 2015. |
| |
(2) | Consists of commitments for both materials and services. |
| |
(3) | Purchase price of pending GSK acquisition. Excludes purchase price of the pending Naturwohl acquisition in the amount of $145.2 million, which was signed subsequent to June 27, 2015. |
| |
(4) | Used in normal course of business, principally for warehouse facilities and computer equipment. |
| |
(4)(5)
| Includes amounts associated with non-qualified plans related to deferred compensation, executive retention and post employment benefits. Of this amount, $47.8we have funded $50.5 million, has been funded by the Company and which is recorded in otherOther non-current assets on the balance sheet. These amounts are assumed payable after five years, although certain circumstances, such as termination, would require earlier payment. |
| |
(5)(6)
| Includes Fera contingent consideration of $17.4 million as discussed in Note 4 of the NotesPrimarily includes consulting fees related to the Consolidated Financial StatementsMylan defense, and an electrical purchase contract, terminations totaling $4.0 million as discussedwhich were accrued in Note 16 of the Notes to the Consolidated Financial Statements. Both were recorded in otherOther current liabilities and Other noncurrent liabilities, respectively, at June 28, 2014. |
The Company funds itsWe fund our U.S. qualified profit-sharing and investment plan in accordance with the Employee Retirement Income Security Act of 1974 regulations for the minimum annual required contribution and Internal Revenue Service regulations for the maximum annual allowable tax deduction. The Company isWe are committed to making the required minimum contributions, which the Company expectswe expect to be approximately $12.3$13.9 million during fiscal 2015.over the next 12 months. Future contributions are dependent upon various factors, including employees’ eligible compensation, plan participation and changes, if any, to current funding requirements. Therefore, no amounts were included in the Contractual Obligations table above. The CompanyWe generally expectsexpect to fund all future contributions with cash flows from operating activities.
As of June 28, 201427, 2015, the Companywe had approximately $205.4384.3 million of liabilities for uncertain tax positions. These unrecognized tax benefits have been excluded from the Contractual Obligations table above due to uncertainty as to the amounts and timing of settlement with taxing authorities.
Net deferred income tax liabilities were $642.6 million$1.7 billion as of June 28, 201427, 2015. This amount is not included in the Contractual Obligations table above because the Company believeswe believe this presentation would not be meaningful. Net deferred income tax liabilities are calculated based on temporary differences between the tax basis of assets and liabilities and their book basis, which will result in taxable amounts in future years when the book basis is settled. The results of these calculations do not have a direct connection with the amount of cash taxes to be paid in any future periods. As a result, scheduling net deferred income tax liabilities as payments due by period could be misleading because this scheduling would not relate to liquidity needs.
Perrigo Company plc - Item 7
Critical Accounting Estimates
Critical Accounting Estimates
DeterminationThe determination of certain amounts in the Company’sour financial statements requires the use of estimates. These estimates are based upon the Company’sour historical experiences combined with management’s understanding of current facts and circumstances. Although the estimates are considered reasonable based on the currently available information, actual results could differ from the estimates. Theestimates we have used. Management considers the below accounting estimates discussed below, are considered by management to require the most judgment and areto be the most critical in the preparation of theour financial statements. These estimates are reviewed by the Audit Committee.
Revenue Recognition and Customer-Related Accruals and Allowances -
The CompanyWe generally records
record revenues from product sales when the goods are shipped to the customer. For customers with Free on Board
("FOB") destination terms, a provision is recorded to exclude shipments estimated to be in-transit to these
customers at the end of the reporting period. A sales allowance is recorded and accounts receivable are reduced as
revenues are recognized for estimated losses on credit sales due to customer claims for discounts, price
discrepancies, returned goods, and other items. Revenue is also reduced for any contractual customer program
arrangements and related liabilities are recorded concurrently. Distribution fees (commission) we receive when acting as a principal in a distribution agreement are recognized as a reduction of cost of sales.
The Company maintainsWe maintain customer-related accruals and allowances that consist primarily of chargebacks, rebates, sales returns, shelf stock allowances, administrative fees, and other incentive programs. Some of these adjustments relate specifically to the Rx Pharmaceuticals segment while others relate only to the Consumer Healthcare ("CHC")CHC and NutritionalsBCH segments. Typically, the aggregate gross-to-net adjustments related to Rx Pharmaceuticals can exceed 50% of the segment's gross sales. In contrast, the aggregate gross-to-net adjustments related to CHC and Nutritionals typically do not exceed 10% of the segment's gross sales. Certain of these accruals and allowances are recorded inon the balance sheet as current liabilities, and others are recorded as a reduction in accounts receivable.
Chargebacks - The Company markets
We market and sellssell products directly to wholesalers, distributors, warehousing pharmacy chains, and other direct purchasing groups. The CompanyWe also marketsmarket products indirectly to independent pharmacies, non-warehousing chains, managed care organizations, and group purchasing organizations, collectively referred to as "indirect customers." In addition, the Company enterswe enter into agreements with some indirect customers to establish contract pricing for certain products. These indirect customers then independently select a wholesaler from which to purchase the products at these contracted prices. Alternatively, the Companywe may pre-authorize wholesalers to offer specified contract pricing to other indirect customers. Under either arrangement, the Company provideswe provide chargeback credit to the wholesaler for any difference between the contracted price with the indirect customer and the wholesaler's invoice price. The accrual for chargebacks is based on historical chargeback experience and confirmed wholesaler inventory levels, as well as estimated sell-through levels by wholesalers to retailers. We regularly assess current pricing dynamics and wholesaler inventory levels to ensure the liability for future chargebacks is fairly stated.
Medicaid Rebates - The Company participates
We participate in certain qualifying U.S. federal and state government programs whereby discounts and rebates are provided to participating government entities. Medicaid rebates are amounts owed based upon contractual agreements or legal requirements with public sector (Medicaid) benefit providers, after the final dispensing of the product by a pharmacy to a benefit plan participant. Medicaid reserves are based on expected payments, which are driven by patient usage, contract performance, as well asand field inventory that will be subject to a Medicaid rebate. Medicaid rebates are typically billed up to 180 days after the product is shipped, but can be billed as many as 270 days after the quarter in which the product is dispensed to the Medicaid participant. As a result, the Company'sour Medicaid rebate provision includes an estimate of outstanding claims for end-customer sales that occurred but for which the related claim has not been billed, and an estimate for future claims that will be made when inventory in the distribution channel is sold through to plan participants. The Company'sOur calculation also requires other estimates, such as estimates of sales mix, to determine which sales are subject to rebates and the amount of such rebates. Our rebates are reviewed on a quarterly basis against actual claims data to ensure the liability is fairly stated.
Perrigo Company plc - Item 7
Critical Accounting Estimates
Returns and Shelf Stock Allowances -
Consistent with industry practice, the Company maintainswe maintain a return policy that allows itsour customers to return product within a specified period prior to and subsequent to the expiration date. Generally, product may be returned for a period beginning six months prior to its expiration date to up to one year after its expiration date. The majority of the Company'sour product returns are the result of product dating, which falls within the range set by the Company'sour policy, and are settled through the issuance of a credit to the customer. The Company'sOur estimate of the provision for returns is based upon itsour historical experience with actual returns, which is applied to the level of sales for the period that corresponds to the period during which the Company'sour customers may return product. ThisThe period is known by the Company based on the shelf life of itsthe products at the time of shipment. Additionally, when establishing itsour reserves, the Company considerswe consider factors such as levels of inventory in the distribution channel, product dating and expiration period, size and maturity of the market prior to a product launch, entrance into the market of additional competition, and changes in formularies.
Shelf stock allowances are credits issued to reflect changes in the selling price of a product and are based upon estimates of the amount of product remaining in a customer's inventory at the time of the anticipated price change. In many cases, the customer is contractually entitled to such a credit. The allowances for shelf stock adjustments are based on specified terms with certain customers, estimated launch dates of competing products, and estimated changes in market price.
Rx Administrative Fees and Other Rebates - Rebates
Consistent with pharmaceutical industry practice, rebates or administrative fees are offered to certain wholesale customers, group purchasing organizations, and end-user customers, consistent with pharmaceutical industry practice.customers. Settlement of rebates and fees generally may generally occur from one to 15 months from the date of sale. The Company providesWe provide a provision for rebates at the time of sale based on contracted rates and historical redemption rates. Assumptions used to establish the provision include level of wholesaler inventories, contract sales volumes, and average contract pricing.
CHC/NutritionalsCHC and BCH Rebates and Other Allowances -
In the CHC and NutritionalsBCH segments, the Company offerswe offer certain customers a volume incentive rebate if specific levels of product purchases are made during a specified period. The accrual for rebates is based on contractual agreements and estimated levels of purchasing. In addition, the Company haswe have a reserve for product returns, primarily related to damaged and unsaleable products. The CompanyWe also hashave agreements with certain customers to cover promotional activities related to the Company's products. These activities includeour products such as coupon programs, new store allowances, and product displays and other various activities.displays. The accrual for these activities is based on customer agreements and is established at the time product revenue is recognized.
Allowances for customer-related programs are generally recorded at the time of sale based on the estimates and methodologies described above. The CompanyWe continually monitorsmonitor product sales provisions and re-evaluatesre-evaluate these estimates as additional information becomes available, which includes, among other things, an assessment of current market conditions, trade inventory levels, and customer product mix. The Company makesWe make adjustments to these provisions at the end of each reporting period to reflect any such updates to the relevant facts and circumstances. Current reporting period adjustments to allowance amounts established in prior reporting periods have not historically been material.
Perrigo Company plc - Item 7
Critical Accounting Estimates
The following table summarizes the activity in our customer-related accrual and allowance accounts on the Consolidated Balance Sheets for the fiscal years ended June 28, 2014 and June 29, 2013 in the balance sheet for customer-related accruals and allowances:2015:
| | Customer-Related Accruals and Allowances | | | Rx Pharmaceuticals | | CHC/Nutritionals/Specialty Sciences | | | Rx Pharmaceuticals | | All Other Segments * | | |
| (in millions) | Chargebacks | | Medicaid Rebates | | Returns and Shelf Stock Allowances | | Admin. Fees and Other Rebates | | Rebates and Other Allowances | | Total | Chargebacks | | Medicaid
Rebates | | Returns and Shelf Stock Allowances | | Admin. Fees and Other Rebates | | Rebates and Other Allowances | | Total |
| Balance at June 30, 2012 | $ | 63.5 |
| | $ | 10.6 |
| | $ | 34.7 |
| | $ | 17.1 |
| | $ | 25.0 |
| | $ | 150.9 |
| |
| Balances Acquired in Business Acquisitions | — |
| | — |
| | — |
| | 1.0 |
| | 1.9 |
| | 2.9 |
| |
| Provisions/Adjustments | 591.0 |
| | 22.0 |
| | 22.0 |
| | 93.0 |
| | 92.5 |
| | 820.5 |
| |
| Credits/Payments | (587.2 | ) | | (23.2 | ) | | (19.5 | ) | | (91.8 | ) | | (81.8 | ) | | (803.5 | ) | |
| Balance at June 29, 2013 | 67.4 |
| | 9.3 |
| | 37.2 |
| | 19.3 |
| | 37.6 |
| | 170.8 |
| $ | 67.4 |
| | $ | 9.3 |
| | $ | 37.2 |
| | $ | 19.3 |
| | $ | 37.6 |
| | $ | 170.8 |
|
| Balances Acquired in Business Acquisitions | — |
| | — |
| | — |
| | — |
| | 17.1 |
| | 17.1 |
| — |
| | — |
| | — |
| | — |
| | 17.1 |
| | 17.1 |
|
| Provisions/Adjustments | 885.4 |
| | 52.5 |
| | 46.9 |
| | 116.4 |
| | 117.4 |
| | 1,218.6 |
| |
| Credits/Payments | (804.9 | ) | | (37.4 | ) | | (30.5 | ) | | (110.4 | ) | | (105.3 | ) | | (1,088.5 | ) | |
| Provisions / Adjustments | | 885.4 |
| | 52.5 |
| | 46.9 |
| | 116.4 |
| | 117.4 |
| | 1,218.6 |
|
| Credits / Payments | | (804.9 | ) | | (37.4 | ) | | (30.5 | ) | | (110.4 | ) | | (105.3 | ) | | (1,088.5 | ) |
| Balance at June 28, 2014 | $ | 147.9 |
| | $ | 24.4 |
| | $ | 53.6 |
| | $ | 25.3 |
| | $ | 66.8 |
| | $ | 318.0 |
| $ | 147.9 |
| | $ | 24.4 |
| | $ | 53.6 |
| | $ | 25.3 |
| | $ | 66.8 |
| | $ | 318.0 |
|
| Balances Acquired in Business Acquisitions | | — |
| | — |
| | — |
| | — |
| | 43.8 |
| | 43.8 |
|
| Provisions / Adjustments | | 1,123.1 |
| | 46.8 |
| | 35.3 |
| | 133.5 |
| | 155.8 |
| | 1,494.5 |
|
| Credits / Payments | | (1,079.6 | ) | | (39.6 | ) | | (26.8 | ) | | (113.3 | ) | | (162.1 | ) | | (1,421.4 | ) |
| Balance at June 27, 2015 | | $ | 191.4 |
| | $ | 31.6 |
| | $ | 62.1 |
| | $ | 45.5 |
| | $ | 104.3 |
| | $ | 434.9 |
|
| |
| * | CHC, BCH, and Specialty Sciences |
Revenues from service and royalty arrangements, including revenues from collaborative agreements, consist primarily of royalty payments, payments for research and development services, up-front fees and milestone payments. If an arrangement requires the delivery or performance of multiple deliverables or service elements, the Company determineswe determine whether the individual elements represent "separate units of accounting". If the separate elements meet the requirements, the Company recognizeswe recognize the revenue associated with each element separately and revenue is allocated among elements based on their relative selling prices. If the elements within a multiple deliverable arrangement are not considered separate units of accounting, the delivery of an individual element is considered not to have occurred if there are undelivered elements that are considered essential to the arrangement. To the extent such arrangements contain refund clauses triggered by non-performance or other adverse circumstances, revenue is not recognized until all contractual obligations are satisfied.
Non-refundable up-front fees are deferred and amortized to revenue over the related performance period. The Company estimatesWe estimate the performance period based on the specific terms of each collaborative agreement. Revenue associated with research and development services is recognized on a proportional performance basis over the period that the
Company performswe perform the related activities under the terms of the agreement. Revenue resulting from the achievement of contingent milestone events stipulated in the agreements is recognized when the milestone is achieved. Milestones are based upon the occurrence of a substantive element specified in the contract.
Inventory Reserves – The Company maintains
We maintain reserves for estimated obsolete or unmarketable inventory based on the difference between the cost of the inventory and its estimated market value. In estimating the reserves, management considers factors such as excess or slow-moving inventories, product expiration dating, products on quality hold, current and future customer demand, and market conditions. Changes in these conditions may result in additional reserves.
Income Taxes– The Company’s
Our tax rate is subject to adjustment over the balance of the fiscal year due to, among other things, income tax rate changes by governments; the jurisdictions in which the Company’sour profits are determined to be earned and taxed; changes in the valuation of the Company’sour deferred tax assets and liabilities; adjustments to estimated taxes upon finalization of various tax returns; adjustments to the Company’sour interpretation of transfer pricing standards, changes in available tax credits, grants and other incentives; changes in stock-based compensation expense; changes in tax laws or the interpretation of such tax laws (for example, proposals for fundamental U.S. international tax reform); changes in
Perrigo Company plc - Item 7
Critical Accounting Estimates
U.S. generally accepted accounting principles; expiration of or the inability to renew tax rulings or tax holiday incentives; and the repatriation of earnings with respect to which the Company haswe have not previously provided taxes.
Although we believe that our tax estimates are reasonable and that we prepare our tax filings in accordance with all applicable tax laws, the final determination with respect to any tax audit, and any related litigation, could be materially different from our estimates or from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, and/or interest assessments.
Legal Contingencies
– The Company isWe are involved in product liability, patent, commercial, regulatory and other legal proceedings that arise in the normal course of business. Refer to Note 14 of the Notes to the Consolidated Financial Statements for further information. The Company recordsWe record a liability when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range and no amount within that range is a better estimate, the minimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. The Company hasWe have established reserves for certain of itsour legal matters, as described in Item 8. Note 14. The CompanyWe also separately recordsrecord any insurance recoveries that are probable of occurring.
Acquisition Accounting
–The Company accountsWe account for acquired businesses using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at fair value, with limited exceptions. Any excess of the purchase price over the fair value of the specifically identified net assets acquired is recorded as goodwill. Amounts allocated to acquired In Process Research and Development ("IPR&D&D") are recognized at fair value and initially characterized as indefinite-lived intangible assets, irrespective of whether the acquired IPR&D has an alternative future use. If the acquired net assets do not constitute a business, the transaction is accounted for as an asset acquisition and no goodwill is recognized. In an asset acquisition, acquired IPR&D with no alternative future use is charged to expense at the acquisition date.
The judgments made by management in determining the estimated fair value assigned to each class of asset acquired and liability assumed can materially impact the Company'sour results of operations. As part of the valuation procedures, the Companywe typically consultsconsult an independent advisor. There are several methods that can be used to determine fair value. The CompanyWe typically usesuse an income approach for valuing itsour specifically identifiable intangible assets by employing either a relief from royalty or multi-period excess earnings methodology. The relief from royalty method assumes that, if the acquired company did not own the intangible asset or intellectual property, it would be willing to pay a royalty for its use. The benefit of ownership of the intellectual property is valued as the relief from the royalty expense that would otherwise be incurred. ThisTypically we use this method is typically used by the Company for valuing readily transferable intangible assets that have licensing appeal, such as trade names and trademarks and certain technology assets.
The multi-period excess earnings approach starts with a forecast of the net cash flows expected to be generated by the asset over its estimated useful life. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. ThisWe typically use this method is typically used by the Company for valuing intangible assets such as developed
product technology, customer relationships, product formulations, and IPR&D. Some of the more significant estimates and assumptions inherent in one or both of these income approaches include:
the amount and timing of projected future cash flows, adjusted for the probability of technical and marketing success;
the amount and timing of projected costs to develop IPR&D into commercially viable products;
the discount rate selected to measure the risks inherent in the future cash flows;
the estimate of an appropriate market royalty rate; and
an assessment of the asset's life cycle and the competitive trends impacting the asset, including consideration of any technical, legal, regulatory, or economic barriers to entry.
Perrigo Company believesplc - Item 7
Critical Accounting Estimates
We believe the fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions; however, unanticipated events and circumstances may occur that may affect the accuracy and validity of such assumptions, estimates or actual results.
While the Company uses itswe use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the Company'sour estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, the Company recordswe record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company'sour consolidated statements of operations.
Determining the useful life of an intangible asset also requires judgment, as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives. Useful life is the period over which the intangible asset is expected to contribute directly or indirectly to the company'sour future cash flows. The Company determinesWe determine the useful lives of intangible assets based on a number of factors, such as legal, regulatory, or contractual provisions that may limit the useful life, and the effects of obsolescence, anticipated demand, existence or absence of competition, and other economic factors on useful life.
Goodwill
– Goodwill is tested for impairment annually or more frequently if changes in circumstances or the occurrence of events suggest impairment exists. The test for impairment requires the Companyus to make several estimates about fair value, most of which are based on projected future cash flows and market valuation multiples. The estimates associated with the goodwill impairment tests are considered critical due to the judgments required in determining fair value amounts, including projected future cash flows. Changes in these estimates may result in the recognition of an impairment loss. The Company performs itsWe perform our annual goodwill and indefinite-lived intangible assets impairment testing for all of itsour reporting units in the fourth quarter of the fiscal year. See Item 8. Note 3 for additional information regarding goodwill testing results.
Other Intangible Assets –
Other intangible assets consist of a portfolio of individual developed product technology/formulation and product rights, distribution and license agreements, customer relationships, non-compete agreements, IPR&D, and trade names and trademarks. The assets categorized as developed product technology/formulation and product rights, certain distribution and license agreements and non-compete agreements are amortized over their estimated useful economic lives using the straight-line method. Customer relationships and certain distribution agreements are amortized on a proportionate basis consistent with the economic benefits derived from those relationships and agreements.
Certain trade names and trademarks, as well as IPR&D assets, are determined to have an indefinite useful life and are not subject to amortization. The Company, however, reviewsWe review them for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that any individual asset might be impaired, and adjustsadjust the carrying value of the asset as necessary. IPR&D assets are initially recognized at fair value and classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. For intangible assets subject to amortization, an impairment analysis is performed whenever events or changes in circumstances indicate that the carrying amount of any individual asset may not be recoverable. The carrying amount of an intangible asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. An impairment loss is recognized if the carrying amount of the asset is not recoverable and its carrying amount exceeds its fair value.
Recently Issued Accounting Standards
See Item 8. Note 1 of the Notes to Consolidated Financial Statements for information regarding recently issued accounting standards.
Perrigo Company plc - Item 7A
| |
ItemITEM 7A. | Quantitative and Qualitative Disclosures About Market Risk.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company is exposed to market risks due to changes in interest rates and currency exchange rates.Foreign Exchange Risk
Interest Rate Risk – The Company is exposed to interest rate changes primarily asWe are a result of interest income earned on its investment of cash on handglobal company with operations throughout North America, Europe, Australia, and interest expense on borrowings used to finance acquisitions and working capital requirements.
The Company enters into certain derivative financial instruments, when available on a cost-effective basis, to hedge its underlying economic exposure, related to the management of interest rate risk. See Note 6 of the Notes to Consolidated Financial Statements for further information regarding the Company’s derivative and hedging activities. Because of the use of certain derivative financial instruments and the significant amount of fixed rate debt, the Company believes that a fluctuation in interest rates in the near future will not have a material impact on the Company’s consolidated financial statements. These instruments are managed on a consolidated basis to efficiently net exposures and thus take advantage of any natural offsets. Derivative financial instruments are not used for speculative purposes. Gains and losses on hedging transactions are offset by gains and losses on the underlying exposures being hedged.
Foreign Exchange Risk – The Company has operations in the U.S., U.K., Israel, Mexico and Australia. These operationsIsrael. We transact business in theireach location's local currency and in foreign currencies, thereby creating exposures to changes in exchange rates. A large portionOur largest exposure is the movement of the sales ofU.S. dollar relative to the Company’s Israeli operations is in foreign currencies, primarily U.S. dollars and euros, while these operations incur costs in their local currency. Further, a portion of Biogen Idec’s global sales of Tysabri® is denominated in local currencies creating exposures to changes in exchange rates and thereby impactingeuro, which has increased significantly since the amount of royalties received by the Company.Omega acquisition. In addition, the Company'sour U.S. operations continue to expand itstheir export business, primarily in Canada, China, and Europe, and are subject to fluctuations in the respective currency exchange rates relative to the U.S. dollar. A large portion of the sales of our Israeli operations is in foreign currencies, primarily U.S. dollars and euros, while these operations largely incur costs in their local currency. Further, a portion of Biogen Idec’s global sales of Tysabri® are denominated in local currencies creating exposures to changes in exchange rates relative to the U.S. dollar and thereby impacting the amount of U.S. dollar royalties we receive.
Due to different sales and cost structures, certain segments experience a negative impact and certain segments a positive impact as a result of the changes in exchange rates while other segments experiencerates. We estimate a positive impact related to foreign currency exchange. The Company estimates an additional ten percent devaluation of the U.S. dollar relative to the other foreign currencies it transactsin which we transact business in would have increased operating income of itsour non-U.S. operating units by approximately $4.5$33.8 million for fiscal year 20142015. This sensitivity analysis has inherent limitations. The analysis disregards the possibility that rates of multiple foreign currencies will not always move in the same direction relative to the value of the U.S. dollar over time and does not account for foreign exchange forward contractsderivatives that the Company enters intowe utilize to mitigate fluctuations in foreign currencies.exchange rates.
In addition, the Company enterswe enter into certain purchase commitments for materials which,that, although denominated in U.S. dollars, are linked to foreign currency valuations. These commitments generally contain a range for which the price of materials may fluctuate over time given the value of a foreign currency.
The translation of the assets and liabilities of the Company’sour non-U.S. dollar denominated operations is made using their foreignlocal currency exchange rates as of the end of the year. Translation adjustments are not included in determining net income but are disclosed in accumulated other comprehensive incomeAccumulated Other Comprehensive Income ("AOCI") within shareholders’ equity on the Consolidated Balance Sheets until a sale or substantially complete liquidation of the net investment in the international subsidiary takes place. In certain markets, the Companywe could recognize a significant gain or loss related to unrealized cumulative translation adjustments if itwe were to exit the market and liquidate itsour net investment. As of June 28, 201427, 2015, the cumulative net currency translation adjustments increased shareholders’ equity by $164.4$130.9 million.
Foreign currency transaction gains and losses arise from monetary assets and liabilities denominated in currencies other than an operating unit’s functional currency. For fiscal 2014,Our net transaction gains were $2.2 million.$8.6 million for fiscal year 2015.
The Company monitorsWe monitor and strivesstrive to manage risk related to foreign currency exchange rates. Exposures that cannot be naturally offset within a local entity to an immaterial amount are often hedged with foreign currency
exchange derivatives or netted with offsetting exposures at other entities. See Item 8. Note 67 of the Notes to Consolidated Financial Statements for further information regarding the Company’sour derivative and hedging activities. The CompanyWe cannot predict future changes in foreign currency exposure. Unfavorablemovements and fluctuations could adverselymaterially impact earnings.
Interest Rate Risk
We are exposed to interest rate changes primarily as a result of interest income earned on our investment of cash on hand and interest expense on borrowings used to finance acquisitions and working capital requirements.
We have in the past and may in the future enter into certain derivative financial instruments related to the management of interest rate risk, when available on a cost-effective basis. See Item 8. Note 7 for further information regarding our derivative and hedging activities. These instruments are managed on a consolidated basis to efficiently net exposures and thus take advantage of any natural offsets. We do not use derivative financial instruments for speculative purposes. Gains and losses on hedging transactions are offset by gains and losses on the underlying exposures being hedged. Because of our significant amount of fixed rate debt, we do not believe that a fluctuation in interest rates in the near future will have a material impact on our consolidated financial statements.
Perrigo Company plc - Item 8
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ItemITEM 8. | Financial Statements and Supplementary Data.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
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Perrigo Company plc - Item 8
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Perrigo Company plc is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’sour principal executive and principal financial officers and effected by the Company’sour Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;our assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that our receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors of the Company;directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’sour assets that could have a material effect on the financial statements.
Because of itsour inherent limitations, the Company’sour internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
The CompanyWe acquired Elan Corporation plcOmega Pharma Invest N.V. ("Elan"Omega") and Gelcaps Exportadora de Mexico, S.A. de C.V. ("Gelcaps") during the the secondfourth quarter of fiscal 20142015 (see Item 8. Note 2 - Acquisitions for additional information). As permitted by Securities and Exchange Commission Staff interpretive guidance for newly acquired businesses, management excluded ElanOmega and Gelcaps from its evaluation of internal control over financial reporting as of June 28, 2014,27, 2015, other than goodwill and intangible asset controls that have been incorporated into the Company'sour existing control environment. The Company isWe are in the process of documenting and testing Elan'sOmega's and Gelcap's internal controls over financial reporting. The CompanyWe will incorporate ElanOmega and Gelcaps into itsour annual report on internal control over financial reporting for its fiscal year-endour period ending December 31, 2015. AssetsAs of June 27, 2015, assets excluded from management's assessment totaled $237.6$1,049.2 million, and contributed $146.7$407.9 million of net sales and $77.2$27.1 million of net lossoperating income to the Company'sour consolidated statement of incomefinancial statements for the fiscal year ended June 28, 2014.27, 2015.The Company’sOur management assessed the effectiveness of the Company’sour internal control over financial reporting as of June 28, 2014.27, 2015. The framework used in carrying out our evaluation was the Internal Control – Integrated Framework published by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission. In evaluating our information technology controls, we also used components of the framework contained in the Control Objectives for Information and related Technology ("COBIT"), which was developed by the Information Systems Audit and Control Association’s IT Governance Institute, as a complement to the COSO internal control framework.
Based on the evaluation under these frameworks, management has concluded that internal controls over financial reporting were effective as of June 28, 201427, 2015. The results of management’s assessment have been reviewed with the Company’sour Audit Committee.
Ernst & Young LLP, the independent registered certified public accounting firm that audited the Company’sour financial statements included in this Annual Report on Form 10-K, also audited the effectiveness of the Company'sour internal control over financial reporting, as stated in their report which is included herein.
Perrigo Company plc - Item 8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
Board of Directors and Shareholders
Perrigo Company plc
We have audited Perrigo Company plc'splc’s internal control over financial reporting as of June 28, 2014,27, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 framework) (the COSO criteria). Perrigo Company plc'splc’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management'sManagement’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company'scompany’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Management'sManagement’s Report on Internal Control over Financial Reporting, management'smanagement’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Elan Corporation plc ("Elan")Omega Pharma Invest N.V. or Gelcaps Exportadora de Mexico, S.A. de C.V., which isare included in the fiscal 20142015 consolidated financial statements of Perrigo Company plc and constituted $237.6$1,049.2 million of assets as of June 28, 201427, 2015 and $146.7$407.9 million of net sales and $77.2$27.1 million of net lossesoperating income for the fiscal year then ended. Our audit of internal control over financial reporting of Perrigo Company plc also did not include an evaluation of the internal control over financial reporting of Elan Corporation plc.Omega Pharma Invest N.V. or Gelcaps Exportadora de Mexico, S.A. de C.V.
In our opinion, Perrigo Company plc maintained, in all material respects, effective internal control over financial reporting as of June 28, 2014,27, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Perrigo Company plc as of June 28, 201427, 2015 and June 29, 2013,28, 2014, and the related consolidated statements of income,operations, comprehensive income, shareholders'shareholders’ equity, and cash flows for each of the three fiscal years in the period ended June 28, 201427, 2015 of Perrigo Company plc, and our report dated August 14, 201413, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
August 14, 201413, 2015
Perrigo Company plc - Item 8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENTS
Board of Directors and Shareholders
Perrigo Company plc
We have audited the accompanying consolidated balance sheets of Perrigo Company plc as of June 28, 201427, 2015 and June 29, 2013,28, 2014, and the related consolidated statements of income,operations, comprehensive income, shareholders' equity, and comprehensive income, and cash flows for each of the three fiscal years in the period ended June 28, 2014.27, 2015. Our audits also included the financial statement schedule listed in Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Perrigo Company plc at June 28, 201427, 2015 and June 29, 2013,28, 2014, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended June 28, 2014,27, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Perrigo Company plc's internal control over financial reporting as of June 28, 2014,27, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 framework) and our report dated August 14, 201413, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
August 14, 201413, 2015
Perrigo Company plc - Item 8
PERRIGO COMPANY PLC
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(in millions, except per share amounts)
| | | | Fiscal Year Ended | Fiscal Year Ended |
| | June 28, 2014 | | June 29, 2013 | | June 30, 2012 | June 27, 2015 | | June 28, 2014 | | June 29, 2013 |
| Net sales | $ | 4,060.8 |
| | $ | 3,539.8 |
| | $ | 3,173.2 |
| $ | 4,603.9 |
| | $ | 4,060.8 |
| | $ | 3,539.8 |
|
| Cost of sales | 2,613.1 |
| | 2,259.8 |
| | 2,077.7 |
| 2,891.4 |
| | 2,613.1 |
| | 2,259.8 |
|
| Gross profit | 1,447.7 |
| | 1,280.0 |
| | 1,095.6 |
| 1,712.5 |
| | 1,447.7 |
| | 1,280.0 |
|
| | | | | | | | | | | |
| Operating expenses | | | | | | | | | | |
| Distribution | 55.3 |
| | 47.5 |
| | 39.1 |
| 67.7 |
| | 55.3 |
| | 47.5 |
|
| Research and development | 152.5 |
| | 115.2 |
| | 105.8 |
| 187.8 |
| | 152.5 |
| | 115.2 |
|
| Selling | 208.6 |
| | 186.1 |
| | 148.3 |
| 319.0 |
| | 208.6 |
| | 186.1 |
|
| Administration | 411.3 |
| | 240.2 |
| | 224.4 |
| 385.2 |
| | 411.3 |
| | 240.2 |
|
| Write-off of in-process research and development | 6.0 |
| | 9.0 |
| | — |
| — |
| | 6.0 |
| | 9.0 |
|
| Restructuring | 47.0 |
| | 2.9 |
| | 8.8 |
| 5.1 |
| | 47.0 |
| | 2.9 |
|
| Total | 880.7 |
| | 600.9 |
| | 526.4 |
| |
| Total operating expenses | | 964.8 |
| | 880.7 |
| | 600.9 |
|
| | | | | | | | | | | |
| Operating income | 567.0 |
| | 679.1 |
| | 569.2 |
| 747.7 |
| | 567.0 |
| | 679.1 |
|
| | | | | | | | | | | |
| Interest, net | 103.5 |
| | 65.8 |
| | 60.7 |
| |
| Other expense (income), net | 12.4 |
| | 0.9 |
| | (3.5 | ) | |
| Loss on sales of investments | 12.7 |
| | 4.7 |
| | — |
| |
| Interest expense, net | | 146.0 |
| | 103.5 |
| | 65.8 |
|
| Other expense, net | | 343.2 |
| | 25.1 |
| | 5.6 |
|
| Loss on extinguishment of debt | 165.8 |
| | — |
| | — |
| 10.5 |
| | 165.8 |
| | — |
|
| Income from continuing operations before income taxes | 272.6 |
| | 607.7 |
| | 512.0 |
| |
| Income before income taxes | | 248.0 |
| | 272.6 |
| | 607.7 |
|
| Income tax expense | 67.3 |
| | 165.8 |
| | 119.0 |
| 120.0 |
| | 67.3 |
| | 165.8 |
|
| Income from continuing operations | 205.3 |
| | 441.9 |
| | 393.0 |
| |
| Income from discontinued operations, net of tax | — |
| | — |
| | 8.6 |
| |
| Net income | $ | 205.3 |
| | $ | 441.9 |
| | $ | 401.6 |
| $ | 128.0 |
| | $ | 205.3 |
| | $ | 441.9 |
|
| | | | | | | | | | | |
| Earnings per share | | | | | | | | | | |
| Basic | | | | | | $ | 0.92 |
| | $ | 1.78 |
| | $ | 4.71 |
|
| Continuing operations | $ | 1.78 |
| | $ | 4.71 |
| | $ | 4.22 |
| |
| Discontinued operations | — |
| | — |
| | 0.09 |
| |
| Basic earnings per share | $ | 1.78 |
| | $ | 4.71 |
| | $ | 4.31 |
| |
| Diluted | | | | | | $ | 0.92 |
| | $ | 1.77 |
| | $ | 4.68 |
|
| Continuing operations | $ | 1.77 |
| | $ | 4.68 |
| | $ | 4.18 |
| |
| Discontinued operations | — |
| | — |
| | 0.09 |
| |
| Diluted earnings per share | $ | 1.77 |
| | $ | 4.68 |
| | $ | 4.27 |
| |
| Weighted average shares outstanding | | | | | | |
| | | | | | | |
| Weighted-average shares outstanding | | | | | | |
| Basic | 115.1 |
| | 93.9 |
| | 93.2 |
| 139.3 |
| | 115.1 |
| | 93.9 |
|
| Diluted | 115.6 |
| | 94.5 |
| | 94.1 |
| 139.8 |
| | 115.6 |
| | 94.5 |
|
| | | | | | | |
| Dividends declared per share | $ | 0.39 |
| | $ | 0.35 |
| | $ | 0.31 |
| $ | 0.46 |
| | $ | 0.39 |
| | $ | 0.35 |
|
See accompanying Notes to Consolidated Financial Statements.
Perrigo Company plc - Item 8
PERRIGO COMPANY PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
| | | | Fiscal Year Ended | Fiscal Year Ended |
| | June 28, 2014 | | June 29, 2013 | | June 30, 2012 | June 27, 2015 | | June 28, 2014 | | June 29, 2013 |
| | | | | | | | | | | |
| Net income | $ | 205.3 |
| | $ | 441.9 |
| | $ | 401.6 |
| $ | 128.0 |
| | $ | 205.3 |
| | $ | 441.9 |
|
| Other comprehensive income (loss): | | | | | | | | | | |
| Foreign currency translation adjustments | 83.8 |
| | 26.9 |
| | (76.7 | ) | (33.5 | ) | | 83.8 |
| | 26.9 |
|
Change in fair value of derivative financial instruments, net of tax of $(1.2) million, $3.2 million, and $5.1 million, respectively | (11.6 | ) | | 6.0 |
| | (9.4 | ) | |
Change in fair value of investment securities, net of tax of $1.2 million, $0.0 million, and $0.1 million, respectively | 2.4 |
| | 4.4 |
| | (1.0 | ) | |
Post-retirement liability adjustments, net of tax of $0.0 million, $0.2 million, and $0.3 million, respectively | (12.0 | ) | | 0.3 |
| | (0.6 | ) | |
| Other comprehensive income (loss), net of tax | 62.6 |
| | 37.6 |
| | (87.6 | ) | |
Change in fair value of derivative financial instruments (1) | | (0.2 | ) | | (11.6 | ) | | 6.0 |
|
Change in fair value of investment securities (2) | | (5.4 | ) | | 2.4 |
| | 4.4 |
|
Change in post-retirement and pension liability (3) | | 1.9 |
| | (12.0 | ) | | 0.3 |
|
| Other comprehensive income (loss) | | (37.2 | ) | | 62.6 |
| | 37.6 |
|
| Comprehensive income | $ | 267.9 |
| | $ | 479.6 |
| | $ | 314.0 |
| $ | 90.8 |
| | $ | 267.9 |
| | $ | 479.6 |
|
(1)Includes tax effect of $5.7 million, $(1.2) million, $3.2 million, for fiscal years 2015, 2014, and 2013, respectively.
(2) Includes tax effect of $2.7 million, $1.2 million, $0.0 million, for fiscal years 2015, 2014, and 2013, respectively.
(3) Includes tax effect of $0.6 million, $0.0 million, $0.2 million, for fiscal years 2015, 2014, and 2013, respectively.
See accompanying Notes to Consolidated Financial Statements.
Perrigo Company plc - Item 8
PERRIGO COMPANY PLC
CONSOLIDATED BALANCE SHEETS
(in millions)
| | | | June 28,
2014 | | June 29,
2013 | June 27,
2015 | | June 28,
2014 |
| Assets | | | | | | |
| Current assets | | | | |
| Cash and cash equivalents | $ | 799.5 |
| | $ | 779.9 |
| $ | 785.6 |
| | $ | 799.5 |
|
| Investment securities | 5.9 |
| | — |
| 12.7 |
| | 5.9 |
|
| Accounts receivable, net of allowance for doubtful accounts of $2.7 million and $2.1 million, respectively | 935.1 |
| | 651.9 |
| |
| Accounts receivable, net of allowance for doubtful accounts of $2.4 million and $2.7 million, respectively | | 1,282.1 |
| | 935.1 |
|
| Inventories | 631.6 |
| | 703.9 |
| 838.9 |
| | 631.6 |
|
| Current deferred income taxes | 62.8 |
| | 47.1 |
| 122.3 |
| | 62.8 |
|
| Prepaid expenses and other current assets | 116.0 |
| | 54.1 |
| 141.3 |
| | 116.0 |
|
| Total current assets | 2,550.9 |
| | 2,236.9 |
| 3,182.9 |
| | 2,550.9 |
|
| Non-current assets | | | | |
| Fixed assets, net | 779.9 |
| | 681.4 |
| |
| Property and equipment, net | | 932.4 |
| | 779.9 |
|
| Goodwill and other indefinite-lived intangible assets | 3,543.8 |
| | 1,174.1 |
| 7,235.0 |
| | 3,543.8 |
|
| Other intangible assets, net | 6,787.0 |
| | 1,157.6 |
| 8,105.6 |
| | 6,787.0 |
|
| Non-current deferred income taxes | 23.6 |
| | 20.3 |
| 39.6 |
| | 23.6 |
|
| Other non-current assets | 195.0 |
| | 80.6 |
| 225.1 |
| | 167.6 |
|
| Total non-current assets | 11,329.3 |
| | 3,114.0 |
| 16,537.7 |
| | 11,301.9 |
|
| Total assets | 13,880.2 |
| | 5,350.8 |
| $ | 19,720.6 |
| | $ | 13,852.8 |
|
| Liabilities and shareholders’ equity | | | | |
| Current liabilities | | | | |
| Liabilities and Shareholders’ Equity | | | | |
| Accounts payable | $ | 364.3 |
| | $ | 382.0 |
| $ | 747.5 |
| | $ | 364.3 |
|
| Short-term debt | 2.1 |
| | 5.0 |
| 6.4 |
| | 2.1 |
|
| Payroll and related taxes | 112.3 |
| | 82.1 |
| 133.9 |
| | 112.3 |
|
| Accrued customer programs | 256.5 |
| | 131.7 |
| 368.1 |
| | 256.5 |
|
| Accrued liabilities | 179.4 |
| | 95.7 |
| 246.4 |
| | 179.4 |
|
| Accrued income taxes | 17.4 |
| | 11.6 |
| 52.6 |
| | 17.4 |
|
| Current deferred income taxes | 1.1 |
| | 0.2 |
| 80.6 |
| | 1.1 |
|
| Current portion of long-term debt | 141.6 |
| | 41.2 |
| 58.2 |
| | 141.6 |
|
| Total current liabilities | 1,074.7 |
| | 749.4 |
| 1,693.7 |
| | 1,074.7 |
|
| Non-current liabilities | | | | |
| Long-term debt, less current portion | 3,090.5 |
| | 1,927.8 |
| 5,246.9 |
| | 3,063.1 |
|
| Non-current deferred income taxes | 727.9 |
| | 127.8 |
| 1,745.1 |
| | 727.9 |
|
| Other non-current liabilities | 293.4 |
| | 213.2 |
| 372.1 |
| | 293.4 |
|
| Total non-current liabilities | 4,111.8 |
| | 2,268.8 |
| 7,364.1 |
| | 4,084.4 |
|
| Total liabilities | 5,186.5 |
| | 3,018.2 |
| 9,057.8 |
| | 5,159.1 |
|
| Commitments and Contingencies - Note 14 | | | | |
| Shareholders’ equity | | | | |
| Controlling interest: | | | | |
| Commitments and contingencies - Note 14 | | | | |
| Preferred shares, $0.0001 par value, 10 million shares authorized | — |
| | — |
| — |
| | — |
|
| Ordinary shares, €0.001 par value, 10 billion shares authorized | 6,678.2 |
| | 538.5 |
| 8,621.9 |
| | 6,678.2 |
|
| Accumulated other comprehensive income | 139.6 |
| | 77.0 |
| 102.4 |
| | 139.6 |
|
| Retained earnings | 1,875.1 |
| | 1,715.9 |
| 1,938.3 |
| | 1,875.1 |
|
| | 8,692.9 |
| | 2,331.4 |
| |
| Total controlling interest | | 10,662.6 |
| | 8,692.9 |
|
| Noncontrolling interest | 0.8 |
| | 1.2 |
| 0.2 |
| | 0.8 |
|
| Total shareholders’ equity | 8,693.7 |
| | 2,332.6 |
| 10,662.8 |
| | 8,693.7 |
|
| Total liabilities and shareholders' equity | $ | 13,880.2 |
| | $ | 5,350.8 |
| $ | 19,720.6 |
| | $ | 13,852.8 |
|
| | | | | | | |
| Supplemental Disclosures of Balance Sheet Information | | | | | | |
| Preferred shares, issued and outstanding | — |
| | — |
| — |
| | — |
|
| Ordinary shares, issued and outstanding | 133.8 |
| | 94.1 |
| 146.3 |
| | 133.8 |
|
See accompanying Notes to Consolidated Financial Statements.
Perrigo Company plc - Item 8
PERRIGO COMPANY PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions) |
| | | | | | | | | | | |
| | Fiscal Year Ended |
| | June 27, 2015 |
| June 28, 2014 |
| June 29, 2013 |
| Cash Flows From (For) Operating Activities |
|
|
|
|
|
| Net income | $ | 128.0 |
|
| $ | 205.3 |
|
| $ | 441.9 |
|
| Adjustments to derive cash flows |
|
|
|
|
|
| Depreciation and amortization | 548.8 |
|
| 358.9 |
|
| 160.2 |
|
| Loss on acquisition-related foreign currency derivatives | 326.4 |
| | — |
| | — |
|
| Share-based compensation | 31.6 |
|
| 24.6 |
|
| 18.4 |
|
| Loss on extinguishment of debt | 10.5 |
|
| 165.8 |
|
| — |
|
| Non-cash restructuring charges | 5.1 |
|
| 47.0 |
|
| 2.9 |
|
| Deferred income taxes | (16.4 | ) |
| (53.8 | ) |
| 5.7 |
|
| Other non-cash adjustments | 17.0 |
| | 10.5 |
| | (3.4 | ) |
| Subtotal | 1,051.0 |
|
| 758.3 |
|
| 625.6 |
|
| Increase (decrease) in cash due to: |
|
|
|
|
|
| Accounts receivable | (81.7 | ) |
| (226.7 | ) |
| (37.0 | ) |
| Inventories | 10.7 |
|
| 83.0 |
|
| (94.6 | ) |
| Accounts payable | 140.6 |
|
| (24.9 | ) |
| 6.5 |
|
| Payroll and related taxes | (30.2 | ) |
| (55.5 | ) |
| (11.9 | ) |
| Accrued customer programs | 69.9 |
|
| 113.1 |
|
| 12.6 |
|
| Accrued liabilities | 37.3 |
|
| 23.0 |
|
| 8.4 |
|
| Accrued income taxes | 17.5 |
|
| (10.7 | ) |
| 28.9 |
|
| Other | (16.8 | ) |
| 33.9 |
|
| 15.3 |
|
| Subtotal | 147.3 |
|
| (64.8 | ) |
| (71.8 | ) |
| Net cash from (for) operating activities | 1,198.3 |
|
| 693.5 |
|
| 553.8 |
|
| Cash Flows (For) From Investing Activities |
|
|
|
|
|
| Acquisitions of businesses, net of cash acquired | (2,181.8 | ) |
| (1,605.8 | ) |
| (852.3 | ) |
| Settlement of acquisition-related foreign currency derivatives | (329.9 | ) | | — |
| | — |
|
| Proceeds from sales of securities | — |
|
| 81.4 |
|
| 8.6 |
|
| Additions to property and equipment | (137.0 | ) |
| (171.6 | ) |
| (104.1 | ) |
| Other investing | 1.8 |
| | (8.8 | ) | | — |
|
| Net cash for investing activities | (2,646.9 | ) |
| (1,704.8 | ) |
| (947.8 | ) |
| Cash Flows (For) From Financing Activities |
|
|
|
|
|
| Borrowings (repayments) of short term debt, net | (52.5 | ) |
| (3.0 | ) |
| 5.0 |
|
| Net proceeds from issuances of debt | 2,504.3 |
|
| 3,293.6 |
|
| 637.3 |
|
| Repayments of long-term debt | (1,823.5 | ) |
| (2,035.0 | ) |
| (40.0 | ) |
| Premium on early debt retirement | — |
|
| (133.5 | ) |
| — |
|
| Deferred financing fees | (28.1 | ) |
| (48.8 | ) |
| (6.0 | ) |
| Issuance of ordinary shares | 1,043.4 |
|
| 9.8 |
|
| 10.7 |
|
| Equity issuance costs | (35.7 | ) |
| — |
|
| — |
|
| Cash dividends | (64.8 | ) |
| (46.1 | ) |
| (33.0 | ) |
| Other financing | (19.2 | ) | | (9.0 | ) | | 3.3 |
|
| Net cash from (for) financing activities | 1,523.9 |
|
| 1,028.0 |
|
| 577.2 |
|
| Effect of exchange rate changes on cash | (89.2 | ) |
| 2.9 |
|
| (5.8 | ) |
| Net increase (decrease) in cash and cash equivalents | (13.9 | ) |
| 19.6 |
|
| 177.4 |
|
| Cash and cash equivalents, beginning of period | 799.5 |
|
| 779.9 |
|
| 602.5 |
|
| Cash and cash equivalents, end of period | $ | 785.6 |
|
| $ | 799.5 |
|
| $ | 779.9 |
|
|
| | | | | | | | | | | |
| | Fiscal Year Ended |
| | June 28, 2014 | | June 29, 2013 | | June 30, 2012 |
| Cash Flows From (For) Operating Activities | | | | | |
| Net income | $ | 205.3 |
| | $ | 441.9 |
| | $ | 401.6 |
|
| Adjustments to derive cash flows | | | | | |
| Loss on extinguishment of debt | 165.8 |
| | — |
| | — |
|
| Write-off of in-process research and development | 6.0 |
| | 9.0 |
| | — |
|
| Gain on sale of pipeline development projects | — |
| | — |
| | (3.5 | ) |
| Losses on sales of investments | 12.7 |
| | 4.7 |
| | — |
|
| Gain on sale of business | — |
| | — |
| | (8.6 | ) |
| Restructuring and asset impairment | 47.0 |
| | 2.9 |
| | 8.7 |
|
| Depreciation and amortization | 358.9 |
| | 160.2 |
| | 135.3 |
|
| Share-based compensation | 24.6 |
| | 18.4 |
| | 19.0 |
|
| Income tax benefit from exercise of stock options | (2.5 | ) | | (1.4 | ) | | (1.8 | ) |
| Excess tax benefit of stock transactions | (5.7 | ) | | (15.7 | ) | | (12.9 | ) |
| Deferred income taxes | (53.8 | ) | | 5.7 |
| | 27.5 |
|
| Subtotal | 758.3 |
| | 625.6 |
| | 565.2 |
|
| Changes in operating assets and liabilities, net of asset and business acquisitions and disposition | | | | | |
| Accounts receivable | (226.7 | ) | | (37.0 | ) | | (49.3 | ) |
| Inventories | 83.0 |
| | (94.6 | ) | | 5.4 |
|
| Accounts payable | (24.9 | ) | | 6.5 |
| | (23.6 | ) |
| Payroll and related taxes | (55.5 | ) | | (11.9 | ) | | 5.0 |
|
| Accrued customer programs | 113.1 |
| | 12.6 |
| | (1.6 | ) |
| Accrued liabilities | 23.0 |
| | 8.4 |
| | 4.2 |
|
| Accrued income taxes | (10.7 | ) | | 28.9 |
| | 13.7 |
|
| Other | 33.9 |
| | 15.3 |
| | (5.7 | ) |
| Subtotal | (64.8 | ) | | (71.8 | ) | | (51.8 | ) |
| Net cash from operating activities | 693.5 |
| | 553.8 |
| | 513.4 |
|
| Cash Flows (For) From Investing Activities | | | | | |
| Acquisitions of businesses, net of cash acquired | (1,605.8 | ) | | (852.3 | ) | | (582.3 | ) |
| Purchase of securities | (15.0 | ) | | — |
| | — |
|
| Proceeds from sale of securities | 81.4 |
| | 8.6 |
| | — |
|
| Additions to property and equipment | (171.6 | ) | | (104.1 | ) | | (120.2 | ) |
| Proceeds from sales of property and equipment | 6.2 |
| | — |
| | — |
|
| Proceeds from sale of intangible assets and pipeline development projects | — |
| | — |
| | 10.5 |
|
| Proceeds from sale of business | — |
| | — |
| | 8.6 |
|
| Acquisitions of assets | — |
| | — |
| | (0.8 | ) |
| Net cash for investing activities | (1,704.8 | ) | | (947.8 | ) | | (684.1 | ) |
| Cash Flows (For) From Financing Activities | | | | | |
| Purchase of noncontrolling interest | (7.2 | ) | | — |
| | — |
|
| Borrowings (repayments) of short-term debt, net | (3.0 | ) | | 5.0 |
| | (2.7 | ) |
| Premium on early retirement of debt | (133.5 | ) | | — |
| | — |
|
| Net proceeds from debt issuances | 3,293.6 |
| | 637.3 |
| | 1,089.2 |
|
| Repayments of long-term debt | (2,035.0 | ) | | (40.0 | ) | | (610.0 | ) |
| Deferred financing fees | (48.8 | ) | | (6.0 | ) | | (5.1 | ) |
| Excess tax benefit of stock transactions | 5.7 |
| | 15.7 |
| | 12.9 |
|
| Issuance of common stock | 9.8 |
| | 10.7 |
| | 11.6 |
|
| Repurchase of common stock | (7.5 | ) | | (12.4 | ) | | (8.2 | ) |
| Cash dividends | (46.1 | ) | | (33.0 | ) | | (29.0 | ) |
| Net cash from financing activities | 1,028.0 |
| | 577.2 |
| | 458.7 |
|
| Effect of exchange rate changes on cash | 2.9 |
| | (5.8 | ) | | 4.4 |
|
| Net increase in cash and cash equivalents | 19.6 |
| | 177.4 |
| | 292.4 |
|
| Cash and cash equivalents, beginning of period | 779.9 |
| | 602.5 |
| | 310.1 |
|
| Cash and cash equivalents, end of period | $ | 799.5 |
| | $ | 779.9 |
| | $ | 602.5 |
|
|
| | | | | | | | | | | |
| Supplemental Disclosures of Cash Flow Information | | | | | |
| Cash paid/received during the year for: | | | | | |
| Interest paid | $ | 143.2 |
| | $ | 98.4 |
| | $ | 58.5 |
|
| Interest received | $ | 1.1 |
| | $ | 2.4 |
| | $ | 3.9 |
|
| Income taxes paid | $ | 131.0 |
| | $ | 93.2 |
| | $ | 133.2 |
|
| Income taxes refunded | $ | 9.6 |
| | $ | 4.3 |
| | $ | 1.3 |
|
|
| | | | | | | | | | | |
| | Fiscal Year Ended |
| | June 28, 2014 | | June 29, 2013 | | June 30, 2012 |
| Supplemental Disclosures of Cash Flow Information | | | | | |
| Cash paid/received during the year for: | | | | | |
| Interest paid | $ | 98.4 |
| | $ | 58.5 |
| | $ | 53.7 |
|
| Interest received | $ | 2.4 |
| | $ | 3.9 |
| | $ | 4.0 |
|
| Income taxes paid | $ | 93.2 |
| | $ | 133.2 |
| | $ | 82.3 |
|
| Income taxes refunded | $ | 4.3 |
| | $ | 1.3 |
| | $ | 0.9 |
|
See accompanying Notes to Consolidated Financial Statements.
Perrigo Company plc - Item 8
PERRIGO COMPANY PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions, except per share amounts)
| | | | Common Stock Issued | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total | Ordinary Shares
Issued | | Accumulated
Other
Comprehensive
Income | | Retained
Earnings | | Total |
| | Shares | | Amount | | Shares | | Amount | |
| Balance at June 25, 2011 | 92.8 |
| | $ | 467.7 |
| | $ | 127.1 |
| | $ | 934.3 |
| | $ | 1,529.1 |
| |
| | | | | | | | | | | |
| Net income | — |
| | — |
| | — |
| | 401.6 |
| | 401.6 |
| |
| Other comprehensive loss | — |
| | — |
| | (87.6 | ) | | — |
| | (87.6 | ) | |
| Issuance of common stock under: | | | | | | | | | | |
| Stock options | 0.5 |
| | 11.6 |
| | — |
| | — |
| | 11.6 |
| |
| Restricted stock plan | 0.3 |
| | — |
| | — |
| | — |
| | — |
| |
| Compensation for stock options | — |
| | 5.0 |
| | — |
| | — |
| | 5.0 |
| |
| Compensation for restricted stock | — |
| | 14.0 |
| | — |
| | — |
| | 14.0 |
| |
| Cash dividends, $0.31 per share | — |
| | — |
| | — |
| | (29.0 | ) | | (29.0 | ) | |
| Tax effect from stock transactions | — |
| | 14.7 |
| | — |
| | — |
| | 14.7 |
| |
| Repurchases of common stock | (0.1 | ) | | (8.2 | ) | | — |
| | — |
| | (8.2 | ) | |
| Balance at June 30, 2012 | 93.5 |
| | 504.7 |
| | 39.4 |
| | 1,306.9 |
| | 1,851.0 |
| 93.5 |
| | $ | 504.7 |
| | $ | 39.4 |
| | $ | 1,306.9 |
| | $ | 1,851.0 |
|
| | | | | | | | | | | | | | | | |
|
| | |
| Net income | — |
| | — |
| | — |
| | 441.9 |
| | 441.9 |
| — |
| | — |
| | — |
| | 441.9 |
| | 441.9 |
|
| Other comprehensive income | — |
| | — |
| | 37.6 |
| | — |
| | 37.6 |
| — |
| | — |
| | 37.6 |
| | — |
| | 37.6 |
|
| Issuance of common stock under: | | | | | | | | | — |
| | | | | | | | | |
| Stock options | 0.4 |
| | 10.7 |
| | — |
| | — |
| | 10.7 |
| 0.4 |
| | 10.7 |
| | — |
| | — |
| | 10.7 |
|
| Restricted stock plan | 0.4 |
| | — |
| | — |
| | — |
| | — |
| 0.4 |
| | — |
| | — |
| | — |
| | — |
|
| Compensation for stock options | — |
| | 6.1 |
| | — |
| | — |
| | 6.1 |
| — |
| | 6.1 |
| | — |
| | — |
| | 6.1 |
|
| Compensation for restricted stock | — |
| | 12.3 |
| | — |
| | — |
| | 12.3 |
| — |
| | 12.3 |
| | — |
| | — |
| | 12.3 |
|
| Cash dividends, $0.35 per share | — |
| | — |
| | — |
| | (33.0 | ) | | (33.0 | ) | — |
| | — |
| | — |
| | (33.0 | ) | | (33.0 | ) |
| Tax effect from stock transactions | — |
| | 17.1 |
| | — |
| | — |
| | 17.1 |
| — |
| | 17.1 |
| | — |
| | — |
| | 17.1 |
|
| Repurchases of common stock | (0.1 | ) | | (12.4 | ) | | — |
| | — |
| | (12.4 | ) | |
| Repurchase of common stock | | (0.1 | ) | | (12.4 | ) | | — |
| | — |
| | (12.4 | ) |
| Balance at June 29, 2013 | 94.1 |
| | 538.5 |
| | 77.0 |
| | 1,715.9 |
| | 2,331.4 |
| 94.1 |
| | 538.5 |
| | 77.0 |
| | 1,715.9 |
| | 2,331.4 |
|
| | | | | | | | | | |
|
| |
|
| | | | | |
|
|
| Net income | — |
| | — |
| | — |
| | 205.3 |
| | 205.3 |
| — |
| | — |
| | — |
| | 205.3 |
| | 205.3 |
|
| Other comprehensive income | — |
| | — |
| | 62.6 |
| | — |
| | 62.6 |
| — |
| | — |
| | 62.6 |
| | — |
| | 62.6 |
|
| Issuance of common stock under: | | | | | | | | | | | | | | | | | | |
| Elan acquisition | 39.4 |
| | 6,117.2 |
| | — |
| | — |
| | 6,117.2 |
| 39.4 |
|
| 6,117.2 |
|
| — |
|
| — |
|
| 6,117.2 |
|
| Stock options | 0.2 |
| | 9.8 |
| | — |
| | — |
| | 9.8 |
| 0.2 |
| | 9.8 |
| | — |
| | — |
| | 9.8 |
|
| Restricted stock plan | 0.2 |
| | — |
| | — |
| | — |
| | — |
| 0.2 |
| | — |
| | — |
| | — |
| | — |
|
| Compensation for stock options | — |
| | 6.5 |
| | — |
| | — |
| | 6.5 |
| — |
| | 6.5 |
| | — |
| | — |
| | 6.5 |
|
| Compensation for restricted stock | — |
| | 18.1 |
| | — |
| | — |
| | 18.1 |
| — |
| | 18.1 |
| | — |
| | — |
| | 18.1 |
|
| Cash dividends, $0.39 per share | — |
| | — |
| | — |
| | (46.1 | ) | | (46.1 | ) | — |
| | — |
| | — |
| | (46.1 | ) | | (46.1 | ) |
| Tax effect from stock transactions | — |
| | 8.2 |
| | — |
| | — |
| | 8.2 |
| — |
| | 8.2 |
| | — |
| | — |
| | 8.2 |
|
| Repurchases of common stock | (0.1 | ) | | (7.5 | ) | | — |
| | — |
| | (7.5 | ) | (0.1 | ) | | (7.5 | ) | | — |
| | — |
| | (7.5 | ) |
| Registration of ordinary shares | — |
| | (5.4 | ) | | — |
| | — |
| | (5.4 | ) | — |
|
| (5.4 | ) |
| — |
|
| — |
|
| (5.4 | ) |
| Purchase of noncontrolling interest | — |
| | (7.2 | ) | | — |
| | — |
| | (7.2 | ) | — |
|
| (7.2 | ) |
| — |
|
| — |
|
| (7.2 | ) |
| Balance at June 28, 2014 | 133.8 |
| | $ | 6,678.2 |
| | $ | 139.6 |
| | $ | 1,875.1 |
| | $ | 8,692.9 |
| 133.8 |
| | 6,678.2 |
| | 139.6 |
| | 1,875.1 |
| | 8,692.9 |
|
| | | | | | | | | | | |
| Net income | | — |
| | — |
| | — |
| | 128.0 |
| | 128.0 |
|
| Other comprehensive income | | — |
| | — |
| | (37.2 | ) | | — |
| | (37.2 | ) |
| Issuance of ordinary shares under: | | | | | | | | | | |
| Equity offering | | 6.8 |
| | 1,035.0 |
| | — |
| | — |
| | 1,035.0 |
|
| Omega acquisition | | 5.4 |
| | 904.9 |
| | — |
| | — |
| | 904.9 |
|
| Stock options | | 0.2 |
| | 8.5 |
| | — |
| | — |
| | 8.5 |
|
| Restricted stock plan | | 0.2 |
| | — |
| | — |
| | — |
| | — |
|
| Compensation for stock options | | — |
| | 6.9 |
| | — |
| | — |
| | 6.9 |
|
| Compensation for restricted stock | | — |
| | 24.7 |
| | — |
| | — |
| | 24.7 |
|
| Cash dividends, $0.46 per share | | — |
| | — |
| | — |
| | (64.8 | ) | | (64.8 | ) |
| Tax effect from stock transactions | | — |
| | 7.0 |
| | — |
| | — |
| | 7.0 |
|
| Shares withheld for payment of employee's withholding tax liability | | (0.1 | ) | | (7.6 | ) | | — |
| | — |
| | (7.6 | ) |
| Equity issuance costs | | — |
| | (35.7 | ) | | — |
| | — |
| | (35.7 | ) |
| Balance at June 27, 2015 | | 146.3 |
| | $ | 8,621.9 |
| | $ | 102.4 |
| | $ | 1,938.3 |
| | $ | 10,662.6 |
|
See accompanying Notes to Consolidated Financial Statements.
PERRIGO COMPANY PLCPerrigo Company plc - Item 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Perrigo Company plc (formerly known as Perrigo Company Limited, and prior thereto, Blisfont Limited) ("Perrigo" or "the Company"), was incorporated under the laws of Ireland on June 28, 2013, and2013. We became the successor registrant of Perrigo Company, a Michigan corporation, on December 18, 2013 in connection with the consummation of the acquisition of Elan Corporation, plc ("Elan"), which is discussed further in Note 2. From its beginnings as a packager of home remedies in 1887, Perrigo has grown to become a leading global healthcare supplier. Perrigo, through several wholly owned subsidiaries, develops, manufacturesUnless the context requires otherwise, the terms "Perrigo", the "Company", "we," "our," "us," and distributes over-the-counter ("OTC") and generic prescription ("Rx") pharmaceuticals, nutritional products and active pharmaceutical ingredients ("API"), and has a specialty sciences business comprised of assets focused predominantly on the treatment of Multiple Sclerosis (Tysabri®). The Company is the world's largest manufacturer of OTC healthcare products for the store brand market. Perrigo's mission is to offer uncompromised "Quality Affordable Healthcare Products®", and it does so across a wide variety of product categories primarily in the U.S., United Kingdom, Mexico, Israel and Australia, as well as many other key markets worldwide, including Canada, China and Latin America. U.S. subsidiaries include L. Perrigo Company, Perrigo Company of South Carolina, Inc., Perrigo New York, Inc., PBM Products, LLC, PBM Nutritionals, LLC, Paddock Laboratories, LLC, Perrigo Diabetes Care, LLC, Sergeant's Pet Care Products, Inc. and Fidopharm, Inc. Outside the U.S., subsidiaries include Elan Pharma International Limited, Perrigo Israel Pharmaceuticals Ltd., Chemagis Ltd., Quimica y Farmacia S.A. de C.V., Laboratorios Diba, S.A., Wrafton Laboratories Limited, Galpharm Healthcare Ltd., Orion Laboratories Pty Ltd and Rosemont Pharmaceuticals Ltd. Assimilar pronouns used herein the "Company" meansrefer to Perrigo Company plc, its subsidiaries, and all predecessors of Perrigo Company plc and its subsidiaries. With the acquisition of Omega Pharma Invest N.V. ("Omega"), we are an over-the-counter ("OTC") consumer goods and leading specialty pharmaceutical company, offering patients and customers high-quality products at affordable prices. From our beginning in 1887 as a packager of home remedies, we have grown to become the world's largest manufacturer of OTC healthcare products and supplier of infant formulas for the store brand market. We are also a leading provider of generic extended topical prescription products, and we receive royalties from sales of the multiple sclerosis drug Tysabri®. We provide “Quality Affordable Healthcare Products®” across a wide variety of product categories and geographies, primarily in North America, Europe and Australia, as well as in other markets, including Israel and China.
Basis of Presentation
The Company’sOur current fiscal year is a 52 or 53 week period, which ends the Saturday on or about June 30. Fiscal years 2015, 2014, and 2013 were comprised of 52 weeks and ended on June 27, 2015, June 28, 2014, and June 29, 2013,, respectively. Fiscal year 2012 was comprised of 53 weeks and ended on June 30, 2012. In the event that the Company has discontinued operations or changes to purchase accounting during the measurement period for business combinations, prior year financial statements are adjusted accordingly to conform with current financial reporting requirements.
The Company has five reportable segments, aligned primarilyIn fiscal year 2015, we announced that our fiscal year-end will begin on January 1 and end on December 31 of each year, starting on January 1, 2016. Fiscal year 2015, which ended on June 27, 2015, will be followed by typea transition period from June 28, 2015 to December 31, 2015. We plan to disclose the results of product: Consumer Healthcare ("CHC"), Nutritionals, Rx Pharmaceuticals, API,the transition period on a Form 10-KT transition report.
Subsequent to June 27, 2015, we will continue to close our books on the Saturday closest to end of the quarter, with the last quarter ending on December 31. This practice will only affect the quarterly reporting periods and Specialty Sciences. not the annual reporting periods.
Segment Reporting Change
In conjunction with the Omega acquisition, we changed our reporting segments to better align with our new organizational structure. These organizational changes were made to optimize our structure to better serve our customers and to reflect the way in which our chief operating decision maker reviews our operating results and allocates resources. The changes in our reporting segments are as follows:
Consumer Healthcare ("CHC"), which includes our former Consumer Healthcare segment, former Nutritionals segment, and our former Israel Pharmaceuticals and Diagnostics business, which was previously reported in our “Other” segment;
Branded Consumer Healthcare ("BCH"), which consists of Elan, the Company expanded its operating segmentsnewly acquired Omega business;
Prescription Pharmaceuticals("Rx Pharmaceuticals"), which continues to include the Specialty Sciences segment, which is comprised of assets focused predominantly on the treatment of Multiple Sclerosis (Tysabri®).Rx Pharmaceuticals business;
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| • | Specialty Sciences, which is comprised primarily of assets focused on the treatment of multiple sclerosis(Tysabri®). |
In addition, the Company haswe have an Other categoryreporting segment that consists of the Israelour Active Pharmaceutical and Diagnostic Products operating segment,Ingredients ("API") business, which does not individually meet the quantitative thresholdsthreshold required to be a separately reportable segment. ThisAll historical segment structure is consistent with the way management makes operating decisions, allocates resourcesinformation has been reclassified to conform to this new reporting segment presentation. Financial information related to our business segments and manages the growth and profitability of the Company’s business. geographic locations can be found in Item 8. Note 17.
Perrigo Company plc - Item 8
Note 1
Principles of Consolidation
The consolidated financial statements include theour accounts and accounts of the Company and all majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Unconsolidated Variable Interest Entities
We have R&D arrangements with certain biotechnology companies that we determined to be variable interest entities ("VIEs"). We did not consolidate the VIEs in our financial statements because we lack the power to direct the activities that most significantly impact their economic performance and thus are not considered the primary beneficiaries of these entities. These arrangements provide us with certain rights and obligations to purchase product candidates from the VIEs, dependent upon the outcome of the development activities.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions, which affect the reported earnings, financial position and various disclosures. Although the estimates are considered reasonable, actual results could differ from the estimates.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-U.S. Operations
The Company translates itsWe translate our non-U.S. dollar-denominated operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in the cumulative translation account, a component of accumulated other comprehensive income.Accumulated Other Comprehensive Income ("AOCI"). Gains or losses from foreign currency transactions are included in otherOther expense, (income), net.
b. Revenues
The CompanyWe generally recordsrecord revenues from product sales when the goods are shipped to the customer. For customers with Free on Board ("FOB") destination terms, a provision is recorded to exclude shipments estimated to be in-transit to these customers at the end of the reporting period. A sales allowance is recorded and accounts receivable are reduced as revenues are recognized for estimated losses on credit sales due to customer claims for discounts, price discrepancies, returned goods and other items. Revenue is also reduced for any contractual customer program arrangements and related liabilities are recorded concurrently.
The Company maintainsWe maintain customer-related accruals and allowances that consist primarily of chargebacks, rebates, sales returns, shelf stock allowances, administrative fees and other incentive programs. Some of these adjustments relate specifically to the Rx Pharmaceuticals segment while others relate only to the CHC and NutritionalsBCH segments. Certain of these accruals and allowances are recorded in the balance sheet as current liabilities and others are recorded as a reduction in accounts receivable. Changes in these estimates and assumptions related to customer programs may result in additional accruals or allowances. Customer-related accruals and allowances were $434.9 million at $318.0June 27, 2015 and $318.0 million at June 28, 2014 and $170.8 million at June 29, 2013.
Revenues from service and royalty arrangements, including revenues from collaborative agreements, consist primarily of royalty payments, payments for research and development services, up-front fees and milestone payments. If an arrangement requires the delivery or performance of multiple deliverables or service elements, the Company determineswe determine whether the individual elements represent separate units of accounting. If the separate elements represent separate units of accounting, the Company recognizeswe recognize the revenue associated with each element separately and revenue is allocated among elements based on their relative selling prices. If the elements within a multiple deliverable arrangement are not considered separate units of accounting, the delivery of an individual element is considered not to have occurred if there are undelivered elements that are considered essential to the arrangement.
To the extent such arrangements contain refund clauses triggered by non-performance or other adverse circumstances, revenue is not recognized until all contractual obligations are satisfied. Non-refundable up-front fees are deferred and amortized to revenue over the related performance period. The Company estimatesWe estimate the performance period
Perrigo Company plc - Item 8
Note 1
based on the specific terms of each collaborative agreement. Revenue associated with research and development services is recognized on a proportional performance basis over the period that the Company performswe perform the related activities under the terms of the agreement. Revenue resulting from the achievement of contingent milestone events stipulated in the agreements is recognized when the milestone is achieved. Milestones are based upon the occurrence of a substantive element specified in the contract. Tysabri® represents 92%Tysabri® represented 96% of totalour fiscal year 2015 royalty revenue.
Shipping and handling costs billed to customers are included in net sales. Conversely, shipping and handling expenses incurred by the Companywe incur are included in cost of sales.
c. Cash and Cash Equivalents
Cash and cash equivalents consist primarily of demand deposits and other short-term investments with maturities of three months or less at the date of purchase. The carrying amount of cash and cash equivalents approximates its fair value.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
d. Investments
Available for Sale Investments
The Company determinesWe determine the appropriate classification of securities as held-to-maturity, available-for-sale, or trading. The classification depends on the purpose for which the financial assets were acquired. Marketable equity securities are classified as available-for-sale. These securities are carried at fair value with unrealized gains and losses included in Accumulated Other Comprehensive Income ("AOCI").AOCI. The assessment for impairment of marketable securities classified as available-for-sale is based on established financial methodologies, including quoted market prices for publicly traded securities. If the Company determineswe determine that a loss in the value of thean investment is other than temporary, the investment is written down to its estimated fair value. Any such losses are recorded in otherOther expense, (income), net. Non-current investment securities are recorded in other non-current assets on the Consolidated Balance Sheets. See Note 56 for more information on the Company's investment securities.our available for sale investments.
Cost Method Investments
Non-marketable equity securities are carried at cost, less write-down-for-impairments,any write down for impairments, and are adjusted for impairment based on methodologies, including the valuation achieved in the most recent private placement by an investee, an assessment of the impact of general private equity market conditions, and discounted projected future cash flows. Non-marketable equity securities are recorded in otherOther non-current assets on the Consolidated Balance Sheets. See Note 56 for more information on the Company's investment securities.our cost method investments.
Equity Method Investments
The equity method of accounting is used for unconsolidated entities over which the Company haswe have significant influence; generally this represents ownership interests of at least 20% and not more than 50%. Under the equity method of accounting, the Company recordswe record the investments at carrying value adjustedand adjust for a proportionate share of the profits and losses of these entities. The Company evaluates itsentities each period. We evaluate our equity method investments for recoverability. If the Company determineswe determine that a loss in the value of thean investment is other than temporary, the investment is written down to its estimated fair value. Any such losses are recorded in otherOther expense, (income), net. Evaluations of recoverability are based primarily on projected cash flows. Due to uncertainties in the estimation process, actual results could differ from such estimates. Equity method investments are recorded in otherOther non-current assets on the Consolidated Balance Sheets. See Note 56 for more information on the Company'sour equity method investments.
Perrigo Company plc - Item 8
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e. Derivative Instruments
The Company recordsWe record derivative instruments (including certain derivative instruments embedded in other contracts) on the balance sheet on a gross basis as either an asset or liability measured at fair value. See Note 67 for a table indicating where each component is recorded on the Consolidated Balance Sheets. Additionally, changes in thea derivative's fair value, which are measured at the end of each period, areis recognized in earnings unless specific hedge accounting criteria are met. If hedge accounting criteria are met for cash flow hedges, the changes in a derivative’s fair value are recorded in shareholders’ equity as a component of other comprehensive income ("OCI"), net of tax. These deferred gains and losses are recognized in income in the period in which the hedged item and hedging instrument affect earnings. Any ineffective portion of the change in fair value is immediately recognized in earnings.
The Company isWe are exposed to credit loss in the event of nonperformance by the counterparties on derivative contracts. It is the Company’sour policy to manage itsour credit risk on these transactions by dealing only with financial institutions having a long-term credit rating of "A" or better and by distributing the contracts among several financial institutions to diversify credit concentration risk. Should a counterparty default, the Company'sour maximum exposure to loss is the asset balance of the instrument. The maximum term of the forward currency exchange contracts at June 28, 201427, 2015 and June 29, 201328, 2014 was 15 months.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSf. Accounts Receivable and Factoring
Accounts Receivable
The Company maintainsWe maintain an allowance for doubtful accounts that reduces our receivables to amounts that are expected to be collected. In estimating the allowance, management considers factors such as current overall and industry-specific economic conditions, statutory requirements, historical and anticipated customer performance, historical experience with write-offs and the level of past-due amounts. Changes in these conditions may result in additional allowances. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.
As a result of the Omega acquisition, we assumed multiple accounts receivable factoring arrangements with non-related third-party financial institutions (the “Factors”). Pursuant to the terms of the arrangements, we sell to the Factors certain of our accounts receivable balances on a non-recourse basis for credit approved accounts. An administrative fee ranging from 0.14% to 0.15% per diem is charged on the gross amount of accounts receivables assigned to the Factors, plus interest is calculated at the applicable EUR LIBOR rate plus 70 basis points. The total amount factored and excluded from accounts receivable on our Consolidated Balance Sheets was $171.6 million at June 27, 2015, a $23.9 million increase since we acquired Omega.
g. Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in first-out ("FIFO") method. Inventory related to research and development is expensed at the point when it is determined the materials have no alternative future use.
The Company maintainsWe maintain reserves for estimated obsolete or unmarketable inventory based on the difference between the cost of the inventory and its estimated net realizable value. In estimating the reserves, management considers factors such as excess or slow-moving inventories, product expiration dating, products on quality hold, current and future customer demand and market conditions. Changes in these conditions may result in additional reserves. Major components of inventory at June 28, 2014,See Note 4 for additional information on our inventory.h. Property, Plant and June 29, 2013, were as follows (in millions):
|
| | | | | | | |
| | June 28,
2014 | | June 29,
2013 |
| Finished goods | $ | 307.0 |
| | $ | 333.9 |
|
| Work in process | 146.7 |
| | 182.4 |
|
| Raw materials | 177.9 |
| | 187.6 |
|
| Total inventories | $ | 631.6 |
| | $ | 703.9 |
|
Fixed AssetsEquipment, net
Property, plant and equipment, net are recorded at cost and are depreciated using the straight-line method. Useful lives for financial reporting range from 52 to 15 years for machinery and equipment and 10 to 45 years for buildings.Maintenance and repair costs are charged to earnings, while expenditures that increase asset lives are capitalized. Depreciation expense was $77.984.3 million, $66.277.9 million, and $58.266.2 million for fiscal years 2015, 2014, and 2013, respectively, and 2012, respectively.includes amortization of assets recorded under capital leases.
ThePerrigo Company plc - Item 8
Note 1
We held the following fixed assetsproperty, plant and equipment, net at June 28, 201427, 2015 and June 29, 201328, 2014 (in millions):
| | | | June 28,
2014 | | June 29,
2013 | June 27,
2015 | | June 28,
2014 |
| Land | $ | 36.1 |
| | $ | 36.0 |
| $ | 48.7 |
| | $ | 36.1 |
|
| Buildings | 430.3 | | 390.7 |
| 528.3 |
| | 430.3 |
|
| Machinery and equipment | 1,001.4 |
| | 863.7 |
| 1,094.0 |
| | 1,001.4 |
|
| Gross property and equipment | 1,467.8 |
| | 1,290.4 |
| 1,671.0 |
| | 1,467.8 |
|
| Less accumulated depreciation | (687.9 | ) | | (608.9 | ) | (738.6 | ) | | (687.9 | ) |
| Property and equipment, net | $ | 779.9 |
| | $ | 681.4 |
| $ | 932.4 |
| | $ | 779.9 |
|
i. Goodwill and Intangible Assets
Goodwill represents the cost of acquired companiesamounts paid for an acquisition in excess of the fair value of the net assets of such companies at the acquisition date.received. Goodwill is tested for impairment annually in the Company'sour fourth quarter, or more frequently if changes in circumstances or the occurrence of events suggest impairment exists. The test for impairment requires the Companyus to make several estimates about fair value, most of which are based on projected future cash flows and market valuation multiples. The estimates associated with the goodwill impairment tests are
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
considered critical due to the judgments required in determining fair value amounts, including projected discounted future cash flows. Changes in these estimates may result in the recognition of an impairment loss.
IntangibleWe have intangible assets that we have been acquired through various business acquisitions and that include trademarks, and trade names and brands, in-process research and development (IPR&D)("IPR&D"), developed product technology/formulation and product rights, distribution and license agreements, customer relationships and distribution networks, and non-compete agreements. The assets are typically initially valued using either the:
Relief from royalty method: This method assumes that if the acquired company did not own the intangible asset or intellectual property, it would be willing to pay a royalty for its use. The benefit of ownership of the intellectual property is valued as the relief from the royalty expense that would otherwise be incurred. ThisWe typically use this method is typically used by the Company for valuing readily transferable intangible assets that have licensing appeal, such as trade names and trademarks and certain technology assets.
Multi-period excess earnings method: This method starts with a forecast of the net cash flows expected to be generated by the asset over its estimated useful life. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. ThisWe typically use this method is typically used by the Company for valuing intangible assets such as developed product technology, customer relationships, product formulations and IPR&D.
Indefinite-lived intangible assets include IPR&D and certain trademarks, trade names and trade names.brands. IPR&D assets are recognized at fair value and are classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. If the associated research and development is completed, the IPR&D asset becomes a definite-lived intangible asset and is amortized over the asset's assigned useful life. If it is abandoned, an impairment loss is recorded.
Indefinite-lived trademarks, and trade names and brands are tested for impairment annually during the Company'sour fourth quarter, or more frequently if changes in circumstances or the occurrence of events suggest impairment exists, by comparing the carrying value of the assets to their estimated fair values. An impairment loss is recognized if the carrying amount of the asset is not recoverable and its carrying amount exceeds its fair value.
Definite-lived intangible assets consist of a portfolio of developed product technology/formulation and product rights, distribution and license agreements, customer relationships, non-compete agreements, and certain trademarks and trade names. The assets are amortized on either a straight-line basis or proportionately to the benefits derived from those relationships or agreements. Useful lives vary by asset type and are determined based on the period over which the intangible asset is expected to contribute directly or indirectly to the company'sour future cash flows. The CompanyWe also reviewsreview all other long-lived assets that have finite lives and that are not held for sale for impairment when
Perrigo Company plc - Item 8
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indicators of impairment are evident by comparing the carrying value of the assets to their estimated future undiscounted cash flows.
See Note 3 for further information on the Company'sour goodwill and intangible assets.
j. Debt
Debt issuance costs are recorded in other non-current assets and are being amortizedWe elected to interest expense over the lifeearly adopt new accounting guidance related to deferred financing fees (as further described below under "Recent Accounting Standard Pronouncements") as of theJune 27, 2015. As a result, we changed our accounting policy to record deferred financing fees as a reduction of Long-term debt using the effective interest method.rather than as a Non-current asset. The balance sheet has been adjusted to reflect this change for all years presented.
k. Share-Based Awards
The Company measuresWe measure and recordsrecord compensation expense for all share-based awards based on estimated grant date fair values, and net of any estimated forfeitures over the vesting period of the awards. Forfeiture rates are estimated at the grant date based on historical experience and adjusted in subsequent periods for any differences in actual forfeitures from those estimates.
The Company estimatesWe estimate the fair value of stock option awards granted based on the Black-Scholes option pricing model, which requires the use of subjective and complex assumptions. These assumptions include estimating the expected term that awards granted are expected to be outstanding, the expected volatility of the
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company'sour stock price for a period commensurate with the expected term of the related options, and the risk-free rate with a maturity closest to the expected term of the related awards. Restricted stock and restricted stock units are valued based on the Company'sour stock price on the day the awards are granted. See Note 10 for further information on our share-based awards.
l. Income Taxes
Deferred income tax assets and liabilities are recorded based upon the difference between the financial reporting and the tax reporting basis of assets and liabilities using the enacted tax rates. To the extent that available evidence raises doubt about the realization of a deferred income tax asset, a valuation allowance is established.
Provision hasWe have not been made a provision for U.S. or additional non-U.S. taxes on undistributed post-acquisition earnings of non-U.S. subsidiaries because those earnings are considered permanently reinvested in the operations of those subsidiaries.
The Company recordsWe record reserves for uncertain tax positions to the extent it is more likely than not that the tax position will be sustained on audit, based on the technical merits of the position. Periodic changes in reserves for uncertain tax positions are reflected in the provision for income taxes. The Company includesWe include interest and penalties attributable to uncertain tax positions and income taxes as a component of itsour income tax provision.
m. Legal Contingencies
The Company isWe are involved in product liability, patent, commercial, regulatory and other legal proceedings that arise in the normal course of business. Refer to Note 14 of the Notes to the Consolidated Financial Statements for further information. The Company recordsWe record a liability when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range and no amount within that range is a better estimate, the minimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. The Company hasWe have established reserves for certain of itsour legal matters, as described in Note 14. The CompanyWe also separately recordsrecord any insurance recoveries that are probable of occurring.
n. Research and Development
All research and development costs, including payments related to products under development and research consulting agreements, are expensed as incurred. The CompanyWe may continue to make non-refundable payments to third parties for new technologies and for research and development work that has been completed. These payments may be expensed at the time of payment depending on the nature of the payment made. Research and
Perrigo Company plc - Item 8
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development spending was $187.8 million, $152.5 million, and $115.2 million for fiscal years 2015, 2014, $115.2 million for fiscaland 2013 and $105.8 million for fiscal 2012., respectively.
Fiscal year 2015 included incremental research and development expenses related to the collaboration agreement entered into as a result of the Omega acquisition. Fiscal year 2014 included incremental research and development expenses due to the Sergeant's, Velcera, and Aspen acquisitions, as well as research and development expenses related to the ELND005novel therapeutic agent for Alzheimer's disease ("ELND005") Phase 2 clinical program in collaboration with Transition Therapeutics Inc. ("Transition") as a result ofthat we acquired in the Elan acquisition. The CompanyWe ended itsour collaboration with Transition during the third quarter of fiscal 2014 and isare no longer responsible for ongoing development activities and costs associated with ELND005. See Note 515 for further information.additional information on collaboration agreements. Fiscal year 2013 included incremental research and development expenses attributable to the acquisitions of Sergeant's, Rosemont, and Velcera. Fiscal 2012 included incremental research and development expenses attributable to the Paddock acquisition. While the Company conducts a significant amount of its own research and development, it also enters into strategic alliance agreements to obtain the rights to manufacture and/or distribute new products.Velcera acquisitions.
The CompanyWe actively collaboratescollaborate with other pharmaceutical companies to develop, manufacture and market certain products or groups of products. The CompanyWe may choose to enter into these types of agreements to, among other things, leverage itsour or others’ scientific research and development expertise or utilize itsour extensive marketing and distribution resources. The Company'sOur policy on accounting for costs of strategic collaborations determines the timing of the recognition of certain development costs. In addition, this policy determines whether the cost is classified as development expense or capitalized as an asset. Management is required to form judgments with respect to the commercial status of such products in determining whether development costs meet
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the criteria for immediate expense or capitalization. For example, when the Company acquireswe acquire certain products for which there is already an ANDAAbbreviated New Drug Application ("ANDA") or NDANew Drug Application ("NDA") approval directly related to the product, and there is net realizable value based on projected sales for these products, the Company capitalizeswe capitalize the amount paid as an intangible asset. If the Company acquireswe acquire product rights that are in the development phase and as to which the Company haswe have no assurance that the third-party will successfully complete its development milestones, the Company expenseswe expense the amount paid. See Note 15 for more information on the Company’sour current collaboration agreements.
o. Advertising Costs
The Company expensesWe expense advertising costs as incurred. Advertising costs were $41.455.7 million, $26.141.4 million, and $12.226.1 million in fiscal years 2015, 2014, 2013and 20122013, respectively. The Company's advertisingAdvertising costs relate primarily to print advertising, direct mail, and on-line advertising and social media communications for its consumer OTC, infant nutritionalsprimarily in our CHC and animal health businesses.BCH segments.
p. Earnings per Share ("EPS")
Basic EPS is calculated using the weighted averageweighted-average number of ordinary shares of common stock outstanding during each period. It excludes both the dilutive effects of additional common shares that would have been outstanding if the shares issued under stock incentive plans had been exercised and the dilutive effect of restricted shares and restricted share units, to the extent those shares and units have not vested. Diluted EPS is calculated including the effects of shares and potential shares issued under stock incentive plans, following the treasury stock method.
q. Defined Benefit Plans
As part of the Omega acquisition in fiscal year 2015, we assumed the liabilities under a number of defined benefit plans for employees based primarily in the Netherlands, Germany, France and Norway. Omega companies operate various pension plans across each country. As part of the Elan acquisition the Companyin fiscal year 2014, we assumed responsibility for the funding of two Irish defined benefit plans. plans, which subsequently have been combined.
Two significant assumptions, the discount rate and the expected rate of return on plan assets, are important elements of expense and liability measurement. The Company evaluatesWe evaluate these assumptions on an annual basis.annually. Other assumptions involve employee demographic factors, such as retirement patterns, mortality, turnover, and the rate of compensation increase.
The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The defined benefit obligation is calculated periodically by independent actuaries using the projected unit credit method. The present
Perrigo Company plc - Item 8
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value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability.
Actuarial gains and losses are recognized using the corridor method. Under the corridor method, to the extent that any cumulative unrecognized net actuarial gain or loss exceeds 10% of the greater of the present value of the defined benefit obligation and the fair value of the plan assets, that portion is recognized over the expected average remaining working lives of the plan participants. Otherwise, the net actuarial gain or loss is recorded in OCI. The Company recognizesWe recognize the funded status of benefit plans on the Consolidated Balance Sheets. In addition, the Company recognizeswe recognize the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic pension cost of the period as a component of OCI. See Note 13 for further information on the Company'sour defined benefit plans.
Recently Adoptedr. Recent Accounting StandardsStandard PronouncementsIn February 2013, the FASB issued Accounting Standards Update (ASU) 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ("ASU 2013-02"). Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of AOCI by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. ASU 2013-02 was effective for the Company in the first quarter of fiscal 2014. The additional disclosures required by this ASU have been included in Note 11. Because this standard only impacts presentation and disclosure requirements, its adoption did not impact the Company's Consolidated Results of Operations or financial condition.In July 2012, the FASB issued ASU 2012-02, "Intangibles-Goodwill and Other (ASC Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment." This amendment was made to simplify the asset impairment test. It allows an organization the option to first assess the qualitative factors to determine whether it is necessary |
| | | | | | |
| Recently Adopted Accounting Standards |
| Accounting Standard Update | | Description | | Date of Adoption | | Effect on the Financial Statements or Other Significant Matters |
| Interest- Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs | | These amendments require debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset. | | June 27, 2015 | | As of June 27, 2015 and June 28, 2014 we reclassified $40.5 million and $27.4 million, respectively, of deferred financing fees from Other non-current assets to Long-term debt. |
| | | | | | |
| Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists | | These amendments provide guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. | | July 1, 2014 | | In first quarter fiscal year 2015 we presented $90.2 million as a reclassification from Non-current deferred income taxes to Other non-current liabilities upon adoption. |
PERRIGO COMPANY PLCPerrigo Company plc - Item 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1
perform the quantitative impairment test. An organization that elects to perform a qualitative assessment is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines, based on a qualitative assessment, that it is "more likely than not" that the asset is impaired. This guidance was effective for the Company in the first quarter of fiscal 2014 and did not have an effect on the Company's Consolidated Results of Operations or financial condition.
In December 2011, the FASB issued ASU 2011-11 "Disclosures about Offsetting Assets and Liabilities" ("ASU 2011-11"), as clarified with ASU 2013-01 "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities" ("ASU 2013-01") issued in January 2013. These common disclosure requirements are intended to help investors and other financial statement users better assess the effect or potential effect of offsetting arrangements on a portfolio’s financial position. They also improve transparency in the reporting of how companies mitigate credit risk, including disclosure of related collateral pledged or received. In addition, ASU 2011-11 facilitates comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards. ASU 2011-11 requires entities to disclose both gross and net information about both instruments and transactions eligible for offset in the statement of financial position, and disclose instruments and transactions subject to an agreement similar to a master netting agreement. Both ASU 2011-11 and ASU 2013-01 were effective for the Company in the first quarter of fiscal 2014. Because this standard only impacts presentation and disclosure requirements, its adoption did not impact the Company's Consolidated Results of Operations or financial condition.
In June 2011, the FASB issued ASU 2011-05, "Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income." The amendments in this ASU improve the prominence of other comprehensive income items and align the presentation of OCI with IFRS. These changes allow an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single statement of comprehensive income or in two separate and consecutive statements. Both methods must still report each component of net income with total income, each component of other comprehensive income with a total amount of other comprehensive income, and a total amount of comprehensive income. This guidance was effective for the Company in the first quarter of fiscal 2013 and as noted above, the adopted disclosures are presented in the Consolidated Statements of Comprehensive Income.
Recently Issued Accounting Standards Not Yet Adopted
In July 2013, the FASB issued ASU 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists"("ASU 2013-11"). The amendments in ASU 2013-11 provide guidance on the financial statement presentation of unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. This guidance will be effective for the Company beginning in the first quarter of fiscal 2015. The Company does not expect this ASU to have a material impact on its disclosures or the presentation of its consolidated financial statements.
In April 2014, the FASB issued ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" ("ASU 2014-08"). The amendments in ASU 2014-08 raise the threshold for a disposal to qualify as a discontinued operation and require new disclosures of both discontinued operations and certain other disposals that do not currently meet the definition of a discontinued operation. Additional disclosures will include an entity’s continuing involvement with a discontinued operation following the disposal date and retained equity method investments in a discontinued operation. ASU 2014-08 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014 with early adoption permitted. This guidance will be effective for the Company beginning in the first quarter of fiscal 2016. The Company does not anticipate the adoption will have a material effect on its Consolidated Results of Operations or financial condition.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASC Topic 606) which replaces existing revenue recognition accounting. The core principle of the guidance is that 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. To achieve that core principle, an entity should apply the following steps: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
obligation. This guidance allows for two adoption methods, full retrospective approach or modified retrospective approach and will be effective for the Company beginning in the first quarter of fiscal 2018. The Company is evaluating the possible adoption methodologies and the implications of adoption on its |
| | | | | | |
| Recently Issued Accounting Standards Not Yet Adopted |
| Standard | | Description | | Effective Date | | Effect on the Financial Statements or Other Significant Matters |
| Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity | | These amendments raise the threshold for a disposal to qualify as a discontinued operation and require new disclosures of both discontinued operations and certain other disposals that do not currently meet the definition of a discontinued operation. Additional disclosures will include an entity's continuing involvement with a discontinued operation following the disposal date and retained equity method investments in a discontinued operation. | | July 1, 2015 | | Adoption of this guidance will not have a material effect on our Consolidated Results of Operations or financial condition. |
| | | | | | |
| Revenue from Contracts with Customers | | The core principle of the guidance is that 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. To achieve that core principle, an entity should apply the following steps: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation. This guidance allows for two adoption methods, full retrospective approach or modified retrospective approach. | | January 1, 2018 | | We are currently evaluating the possible adoption methodologies and the implications of adoption on our consolidated financial statements. |
NOTE 2 – ACQUISITIONS
All of the below acquisitions, with the exception of the Vedants equity transaction, have been accounted for under the acquisition method of accounting, and the related assets acquired and liabilities assumed were recorded at fair value as of the acquisition date. For valuations that are indicated as preliminary, the allocationThe effects of all of the acquisitions described below were included in the Consolidated Financial Statements prospectively from the date of acquisition. Unless otherwise indicated, acquisition costs incurred were immaterial and were recorded in administration expense.
Pending Acquisitions
Naturwohl Pharma GmbH
On July 22, 2015, we announced that we agreed to acquire Naturwohl Pharma, GmbH with its leading German dietary supplement brand, Yokebe. Our acquisition of the brand continues to build on our BCH segment's leading OTC product portfolio and European commercial infrastructure. The transaction has been unanimously approved by the Boards of Directors of Perrigo and Naturwohl Pharma and is expected to close in the third calendar quarter, pending German regulatory approval and the satisfaction of customary closing conditions. These assets will be purchased through an all-cash transaction valued at €130.0 million ($145.2 million).
GlaxoSmithKlineConsumer Healthcare
On June 2, 2015, we announced that we had entered into an agreement to acquire a portfolio of well-established OTC brands from GlaxoSmithKline Consumer Healthcare (“GSK”), in connection with GSK’s commitments to the European Commission and other regulators to divest these businesses in the context of the formation of a consumer health joint venture between GSK and Novartis International AG (“Novartis”). The acquisition of this portfolio builds upon the global platform we established through the Omega acquisition to help us expand our share in the European OTC market. These assets will be purchased through an all-cash transaction valued at €200.0 million ($223.4 million). The transaction is expected to close in the third calendar quarter.
Perrigo Company plc - Item 8
Note 2
Fiscal Year 2015 Acquisitions
Gelcaps Exportadora de Mexico, S.A. de C.V.
On May 12, 2015, we acquired 100% of Gelcaps Exportadora de Mexico, S.A. de C.V. ("Gelcaps"), the Mexican operations of Durham, North Carolina-based Patheon Inc. for $35.8 million in cash. The acquisition adds softgel manufacturing technology to our supply chain capabilities and broadens our presence, product portfolio and customer network in Mexico. Operating results attributable to Gelcaps are included in the CHC segment. The intangible assets acquired included a trademark with a 25 year useful life and customer relationships with a 20 year useful life. We utilized the relief from royalty method for valuing the trademark and the multi-period excess earnings method for valuing the customer relationships.
Based on valuation estimates utilizing the comparative sales method, a step-up in the value of inventory of $0.6 million was recorded in the opening balance sheet, which will be charged to cost of goods sold by the end of next quarter. In addition, property, plant and equipment were written up by $0.9 million to their estimated fair market value based on a valuation method that included both the cost and market approaches. This additional step-up in value is being depreciated over the estimated remaining useful lives of the assets. The goodwill recorded is not deductible for tax purposes.
Omega Pharma Invest N.V.
On March 30, 2015, we completed our acquisition of Omega, a limited liability company incorporated under the laws of Belgium. Omega was a leading European OTC company, and we expect it to provide us several key benefits, including advancing our growth strategy outside the U.S. by providing access across a larger global platform with critical mass in key European countries, establishing commercial infrastructure in the high-barrier to entry European OTC marketplace, strengthening our product portfolio while enhancing scale and distribution, enhancing our financial profile, and expanding our international management capabilities.
We purchased95.77% of the issued and outstanding share capital of Omega (685,348,257 shares) from Alychlo N.V. (“Alychlo”) and Holdco I BE N.V. (“Holdco” and, together with Alychlo, the “Sellers”), limited liability companies incorporated under the laws of Belgium under the terms of the Share Purchase Agreement dated November 6, 2014 (the "Share Purchase Agreement"). Omega holds the remaining 30,243,983 shares as treasury shares.
The acquisition was a cash and stock transaction made up of the following consideration (in millions except per share data):
|
| | | | |
| Perrigo ordinary shares issued | | 5.4 |
|
| Perrigo share price at transaction close on March 30, 2015 | | $ | 167.64 |
|
| Total value of Perrigo ordinary shares issued | | $ | 904.9 |
|
| Cash consideration | | 2,078.3 |
|
| Total consideration | | $ | 2,983.2 |
|
The cash consideration shown in the above table was financed by a combination of debt and equity. We issued $1.6 billion of debt as described in Note 8, and issued 6.8 million ordinary shares, which raised $999.3 million net of issuance costs.
The Sellers have agreed to indemnify us for certain potential future losses. The Sellers’ indemnification and other obligations to us under the Share Purchase Agreement are secured up to €248.0 million ($277.0 million). Under the terms of the Share Purchase Agreement, Alychlo and its affiliates are subject to a three-year non-compete in Europe, and the Sellers are subject to a two-year non-solicit, in each case subject to certain exceptions. The Share Purchase Agreement contains other customary representations, warranties, and covenants of the parties thereto.
Perrigo Company plc - Item 8
Note 2
The operating results attributable to Omega are included in the BCH segment. We incurred costs in connection with the Omega acquisition related to general transaction costs (legal, banking and other professional fees), financing fees, and debt extinguishment. The amounts recorded were not allocated to a reporting segment. The table below details the acquisition costs, as well as losses on hedging activities associated with the acquisition purchase price, and where they were recorded (in millions):
|
| | | | |
| | | Fiscal Year |
| Line item | | 2015 |
| Administration | | $ | 29.7 |
|
| Interest expense, net | | 23.7 |
|
| Other expense, net | | 324.0 |
|
| Loss on extinguishment of debt | | 9.6 |
|
| Total acquisition-related costs | | $ | 387.0 |
|
See Note 7 for further details on losses on Omega-related hedging activities shown above in Other expense, net, and Note 8 for details on the loss on extinguishment of debt.
We acquired the following intangible assets: indefinite-lived trademarks and brands; definite-lived trademarks and trade names with useful lives ranging from 8 to 20 years; customer relationships and distribution networks with useful lives ranging from 7to 21 years; and developed product technology with useful lives ranging from 4to 13 years. We also recorded goodwill, which is not deductible for tax purposes and represents the value we assigned to the expected synergies described above. We utilized the multi-period excess earnings method for the indefinite-lived trademarks and brands, the definite-lived brands, and customer relationships and distribution networks. We utilized the relief from royalty method for the developed product technology and definite-lived trade names.
Based on valuation estimates utilizing the comparative sales method, a step-up in the value of inventory of $15.1 million was recorded in the opening balance sheet and was charged to cost of goods sold during the fourth quarter of fiscal year 2015. In addition, property, plant and equipment were written up $41.5 million to their estimated fair market value based on a valuation method that included both the cost and market approaches. This additional step-up in value is being depreciated over the estimated remaining useful lives of the assets. Additionally, the fair value of the debt assumedon the date of acquisition exceeded par value by $101.9 million, which was recorded as part of the carrying value of the underlying debt and will be amortized as a reduction of interest expense over the remaining terms of the respective debt instruments. For more information on the debt we assumed from Omega and our subsequent payments on the debt, see Note 8.
Lumara Health, Inc.
On October 31, 2014, we acquired a portfolio of women's healthcare products from Lumara Health, Inc., ("Lumara") a privately-held, Chesterfield, Missouri-based specialty pharmaceutical company, for cash consideration of $83.0 million. The acquisition of this portfolio further expanded our women's healthcare product offerings. Operating results attributable to the acquired Lumara products are included in the Rx Pharmaceuticals segment. The intangible assets acquired consisted of three product formulations with useful lives ranging from 8 to 12 years. The assets were valued utilizing the multi-period excess earnings method.
Perrigo Company plc - Item 8
Note 2
Purchase Price Allocation of Fiscal Year 2015 Acquisitions
The measurement period related to the Lumara acquisition is now closed. As a result, the Lumara opening balance sheet is final. The Omega and Gelcaps opening balance sheets are still preliminary and are based on valuation information, estimates and assumptions available at June 28, 2014.27, 2015. As the Company finalizeswe finalize the fair value estimates of assets acquired and liabilities assumed, any additional purchase price adjustments willmay be recorded during the measurement period. Tax accounts as well as certain tangible and intangible assets have not yet been finalized. Fair value estimates are based on a complex series of judgments about future events and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets and liabilities assumed, as well as asset lives, can materially impact the Company'sour results of operations. The finalization ofAs we continue to arrange and obtain the information to finalize our purchase accounting assessment may result inassessment. We expect that there will be changes in the valuation of assets acquired and liabilities assumed, andthat may have a material impact on the Company'sour results of operations and financial position.
The effects of allbelow table indicates the purchase price allocation for our fiscal year 2015 acquisitions described below were included in the Consolidated Financial Statements prospectively from the date of acquisition. Unless otherwise indicated, acquisition costs incurred were immaterial and were recorded in administration expense.(in millions):
|
| | | | | | | |
| | Omega * | | All Other (1)* |
| Total purchase consideration | $ | 2,983.2 |
| | $ | 118.8 |
|
| Assets acquired: | | | |
| Cash and cash equivalents | $ | 14.7 |
| | $ | 4.6 |
|
| Accounts receivable | 264.7 |
| | 11.4 |
|
| Inventories | 214.4 |
| | 8.7 |
|
| Current net deferred tax assets | 6.4 |
| | 0.6 |
|
| Prepaid expenses and other current assets | 39.2 |
| | 2.7 |
|
| Property and equipment | 121.2 |
| | 6.1 |
|
| Goodwill | 1,513.1 |
| | 4.8 |
|
| Intangible assets: | | | |
| Trademarks, trade names and brands | 2,427.2 |
| | 4.4 |
|
| Customer relationships and distribution networks | 1,342.7 |
| | 6.6 |
|
| Formulations | — |
| | 82.0 |
|
| Developed product technology | 32.7 |
| | — |
|
| Other intangible assets | 3,802.6 |
| | 93.0 |
|
| Other non-current assets | 2.4 |
| | 0.4 |
|
| Total assets | 5,978.7 |
| | 132.3 |
|
| Liabilities assumed: | | | |
| Accounts payable | 243.1 |
| | 4.6 |
|
| Short-term debt | 24.6 |
| | — |
|
| Accrued liabilities | 44.5 |
| | 5.5 |
|
| Payroll and related taxes | 51.3 |
| | — |
|
| Accrued customer programs | 39.8 |
| | — |
|
| Long-term debt | 1,471.0 |
| | — |
|
| Non-current net deferred income tax liabilities | 1,038.7 |
| | 3.3 |
|
| Other non-current liabilities | 82.5 |
| | 0.1 |
|
| Total liabilities | 2,995.5 |
| | 13.5 |
|
| Net assets acquired | $ | 2,983.2 |
| | $ | 118.8 |
|
| |
(1) | Includes opening balance sheets for the Gelcaps acquisition and Lumara product acquisition. |
| |
| * | Omega and Gelcaps opening balance sheets are preliminary. |
Perrigo Company plc - Item 8
Note 2
Fiscal Year 2014 Acquisitions
Aspen Global Inc.–
On February 28, 2014, the Companywe acquired a basket of value-brand OTC products sold in Australia and New Zealand from Aspen Global Inc. ("Aspen"). The acquisition of this product portfolio broadens the Company'sbroadened our product offering in Australia and New Zealand and furthers the Company'sfurthered our strategy to expand the Consumer HealthcareCHC portfolio internationally. Operating results attributable to the acquired Aspen products are included in the Consumer HealthcareCHC segment.
The intangible assets acquired consisted of trademarks and trade names, customer relationships, and non-compete agreements. Customer relationships were assigned a 15-year useful life. Trademarks and trade names were assigned a 25-year useful life and non-compete agreements were assigned a 5-year useful life. Goodwill is deductible for tax purposes.
Fera Pharmaceuticals, LLC–
On February 18, 2014, the Companywe acquired a distribution and license agreement for the marketing and sale of methazolomideMethazolomide from Fera Pharmaceuticals, LLC ("Fera"), a privately-held specialty pharmaceutical company. The acquisition of this agreement further expands the Company'sexpanded our ophthalmic offerings. Operating results attributable to this agreement are included in the Rx Pharmaceuticals segment. The intangible asset acquired was assigned a 15-year useful life.
Elan Corporation, plc -
On December 18, 2013, the Companywe acquired Elan, which led to our new corporate structure headquartered in Dublin, Ireland. We have utilized this new structure to continue to grow in our core markets and further expand outside of the U.S. The acquisition also provided us with our Tysabri® royalty stream, enhancing our operating cash flows and diversifying our revenues, and recurring annual operational synergies, related cost reductions, and tax savings. Certain of these synergies resulted from the elimination of redundant public company costs while optimizing back-office support. The jurisdictional mix of income and the new corporate structure are expected to provide tax benefits to the worldwide structure.
The acquisition was a cash and stock transaction as follows (in millions except per share data):
|
| | | | |
| Elan shares outstanding as of December 18, 2013 | | 515.7 |
|
| Exchange ratio per share | | 0.07636 |
|
| Total Perrigo shares issued to Elan shareholders | | 39.4 |
|
| Perrigo per share value at transaction close on December 18, 2013 | | $ | 155.34 |
|
| Total value of Perrigo shares issued to Elan shareholders | | $ | 6,117.2 |
|
| Cash consideration paid at $6.25 per Elan share | | 3,223.2 |
|
| Cash consideration paid for vested Elan stock options and share awards | | 111.5 |
|
| Total consideration | | $ | 9,451.9 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, the Companywe paid cash consideration of $16.1 million to the Elan stock option and share award holders for the unvested portion of their awards, whichawards. This amount was charged to earnings during fiscal year 2014.
At the completion of the transaction, the holder of each Elan ordinary share and each Elan American Depositary Share received from Perrigo $6.25 in cash and 0.07636 of a Perrigo ordinary share. As a result of the transaction, based on the number of outstanding shares of Perrigo and Elan as of December 18, 2013, former Perrigo and Elan shareholders held approximately 71% and 29%, respectively, of Perrigo's ordinary shares immediately after giving effect to the acquisition.
Elan, headquartered in Dublin, Ireland, provides the Company with assets focused on the treatment of Multiple Sclerosis (Tysabri®). The Company's management believes the acquisition of Elan will provide recurring annual operational synergies, related cost reductions and tax savings. Certain of these synergies result from the elimination of redundant public company costs while optimizing back-office support. The jurisdictional mix of income and the new corporate structure have resulted in a lower world-wide effective tax rate.
The operating results for Elan are included in the Specialty Sciences segment. See Note 17 for further information on this new reportable segment. During fiscal year 2014, the Companywe incurred one-timeand expensed acquisition-related costs, of $284.9 million, which were expensed as incurred. Thesenot allocated to a reporting segment. The costs were recorded in unallocated expenses and related primarily to general transaction costs (legal, banking and other professional fees), financing fees, and debt extinguishment. See Note 78 for further details on the loss on extinguishment of debt.
Perrigo Company plc - Item 8
Note 2
The table below details these transaction costs and where they were recorded in the Consolidated Statement of Income for fiscal 2014 (in millions).:
| | | | | | | Fiscal Year |
| Line item | | Fiscal 2014 | | 2014 |
| Administration expense | | $ | 108.9 |
| | $ | 108.9 |
|
| Interest, net | | 10.0 |
| | 10.0 |
|
| Other expense (income), net | | 0.2 |
| |
| Other expense, net | | | 0.2 |
|
| Loss on extinguishment of debt | | 165.8 |
| | 165.8 |
|
| Total acquisition-related costs | | $ | 284.9 |
| | $ | 284.9 |
|
The CompanyWe acquired two definite-lived intangible assets in the acquisition, both of which are exclusive technology agreements:
Tysabri®Tysabri®: The Company isWe are entitled to royalty payments from Biogen Idec Inc. ("Biogen") based on its Tysabri®Tysabri® revenues in all indications and geographies. The royalty was 12% for the 12 month12-month period ended May 1, 2014. Subsequent to May 1, 2014, the Company iswe are entitled to 18% royalty payments on annual sales up to $2.0 billion and 25% royalty payments on annual sales above $2.0 billion. The asset'sasset was assigned a value isof $5.8 billion which is being amortized over itsand a useful life of 20 years.
Prialt: The Company isPrialt®: We are also entitled to royalty payments based on Prialt® revenues. The royalty rates range from 7% to 17.5% based on specific levels of annual U.S. sales. The asset was assigned a value of the intangible asset is $11.0$11.0 million, which is being amortized over its and a useful life of 10 years.
Additionally, the Companywe recorded $2.3 billion of goodwill which is not deductible for tax purposes, that represents the expected synergies of the combined company, as described above. The goodwill is not deductible for tax purposes. The following table reflects the allocation by reportable segment (in millions):
|
| | | | |
| Segment | | Goodwill |
| Consumer Healthcare | | $ | 1,116.1 |
|
| Rx Pharmaceuticals | | 849.8 |
|
| Nutritionals | | 178.4 |
|
| Specialty Sciences | | 201.7 |
|
| Total | | $ | 2,346.0 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| | | | |
| Segment | | Goodwill |
| CHC | | $ | 1,287.4 |
|
| Rx Pharmaceuticals | | 845.1 |
|
| Specialty Sciences | | 200.6 |
|
| Total | | $ | 2,333.1 |
|
Purchase Price Allocation of Fiscal Year 2014 Acquisitions
The Company finalized the purchase price allocations for Aspen and Fera (methazolomide) duringall fiscal year 2014 acquisitions are now final. We finalized the fourth quarter of fiscal 2014. There were no adjustments for Aspen. For Fera (methazolomide), the final valuation resulted in an increase in the intangible asset of $0.8 million and a corresponding increase to the purchase in the form of contingent consideration.
The purchase price allocation for Elan is final other than the verification of the valuation and recording of tax accounts and the resulting effects on the value of goodwill. The Company expects to finalize these matters during the measurement period as final asset and liability valuations are completed.fiscal year 2015. Since the initial valuation,June 28, 2014, revisions to the initial Elan allocation have included a $300.0$13.0 million reduction in intangible assets due to the attribution of specifically identified expenses, an additional $28.8 million in accrued expenses, an additional $8.8 million in non-current liabilities related to tax accruals, and a $67.7 million reductiondecrease in net deferred taxtax-related liabilities, resulting in a net increasecorresponding decrease in goodwill of $269.4 million. Additionally, $0.5 million that was initially included in the purchase price has been expensed since the initial valuation.goodwill.
Perrigo Company plc - Item 8
Note 2
The below table indicates the purchase price allocation(1)for our fiscal year 2014 acquisitions (in millions):
| | | | Aspen | | Fera | | Elan | Elan | | All Other (1) |
| Purchase price paid | $ | 53.7 |
| | $ | 17.3 |
| | $ | 9,451.9 |
| $ | 9,451.9 |
| | $ | 71.0 |
|
| Contingent consideration | — |
| | 0.8 |
| | — |
| — |
| | 0.8 |
|
| Total purchase consideration | $ | 53.7 |
| | $ | 18.1 |
| | $ | 9,451.9 |
| $ | 9,451.9 |
| | $ | 71.8 |
|
| | | | | | | |
| Assets acquired: | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 1,807.3 |
| $ | 1,807.3 |
| | $ | — |
|
| Investment securities | — |
| | — |
| | 100.0 |
| 100.0 |
| | — |
|
| Accounts receivable | — |
| | — |
| | 44.2 |
| 44.2 |
| | — |
|
| Inventories | 2.7 |
| | 0.3 |
| | — |
| — |
| | 3.0 |
|
| Prepaid expenses and other current assets | — |
| | — |
| | 27.1 |
| 27.1 |
| | — |
|
| Property and equipment | — |
| | — |
| | 9.2 |
| 9.2 |
| | — |
|
| Goodwill | 4.6 |
| | — |
| | 2,346.0 |
| 2,333.1 |
| | 4.6 |
|
| Intangible assets: | | | | | | | | |
| Trade names and trademarks | 34.8 |
| | — |
| | — |
| |
| Trademarks, trade names and brands | | — |
| | 34.8 |
|
| Customer relationships | 9.8 |
| | — |
| | — |
| — |
| | 9.8 |
|
| Non-competition agreements | 1.8 |
| | — |
| | — |
| — |
| | 1.8 |
|
| Distribution and license agreements | — |
| | 17.8 |
| | 5,811.0 |
| 5,811.0 |
| | 17.8 |
|
| Intangible assets | 46.4 |
| | 17.8 |
| | 5,811.0 |
| |
| Other intangible assets, net | | 5,811.0 |
| | 64.2 |
|
| Other non-current assets | — |
| | — |
| | 93.4 |
| 93.4 |
| | — |
|
| Total assets | 53.7 |
| | 18.1 |
| | 10,238.2 |
| 10,225.3 |
| | 71.8 |
|
| Liabilities assumed: | | | | | | | | |
| Accounts payable | — |
| | — |
| | 2.0 |
| 2.0 |
| | — |
|
| Accrued liabilities | — |
| | — |
| | 118.6 |
| 120.8 |
| | — |
|
| Deferred tax liabilities | — |
| | — |
| | 634.5 |
| 631.8 |
| | — |
|
| Other non-current liabilities | — |
| | — |
| | 31.2 |
| 18.8 |
| | — |
|
| Total liabilities | — |
| | — |
| | 786.3 |
| 773.4 |
| | — |
|
| Net assets acquired | $ | 53.7 |
| | $ | 18.1 |
| | $ | 9,451.9 |
| $ | 9,451.9 |
| | $ | 71.8 |
|
| |
(1) | Includes opening balance sheet of the Aspen and Fera (Methazolomide) product acquisitions. |
Vedants Drug & Fine Chemicals Private Limited
(1) AspenTo further improve the long-term cost position of its API business, on August 6, 2009, we acquired an 85% stake in Vedants Drug & Fine Chemicals Private Limited ("Vedants"), an API manufacturing facility in India, for $11.5 million in cash. We purchased the remaining 15% stake in Vedants during fiscal year 2014 for $7.2 million in cash. The transaction was accounted for as an equity transaction and Fera valuations are final. The Elan valuation is final other thanresulted in the verificationelimination of information related to the tax accounts and the resulting effects on the value of goodwill.noncontrolling interest.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Actual and Pro Forma Impact of Fiscal Year 2015 and 2014 Acquisitions
The Company'sOur Consolidated Financial Statements include operating results from the Aspen, Fera (methazolomide),Omega, Gelcaps, and Elan acquisitions, and the Lumara, Aspen, and Fera (Methazolomide) product acquisitions, from the date of each acquisition through June 28, 2014.27, 2015. Net sales and operating income attributable to the Omega, Gelcaps, and Lumara acquisitions included in our fiscal year 2015 financial statements totaled $418.2 million and $18.9 million, respectively. Net sales and operating loss attributable to the Elan, Aspen, and Fera (Methazolomide) acquisitions during this period and included in the Company'sour fiscal 2014 financial statements for fiscal 2014 totaled $168.5 million and $53.9 million, respectively. The $53.9 million operating loss includes $152.8 million of intangible asset amortization expense and $41.2 million of restructuring charges, both of which relate to the Elan acquisition. See
Note 16 for additional information on the restructuring charges.2
The following unaudited pro forma information gives effect to the Company'sOmega, Gelcaps, and Elan acquisitions, and Lumara, Aspen, and Fera (methazolomide), and Elan(Methazolomide) product acquisitions, as if the acquisitions had occurred on July 1, 2012June 30, 2013 and had been included in the Company's Consolidatedour Results of Operations for fiscal 2014years 2015 and 20132014 (in millions):
| | | (Unaudited) | Fiscal 2014 | | Fiscal 2013 | Fiscal 2015 | | Fiscal 2014 |
| Net sales | $ | 4,192.6 |
| | $ | 3,669.0 |
| $ | 5,671.3 |
| | $ | 5,816.3 |
|
| Net income (loss) | $ | 270.1 |
| | $ | (616.3 | ) | |
| Net income | | $ | 122.5 |
| | $ | 212.8 |
|
The historical consolidated financial information of the Company,Perrigo, Omega, Gelcaps, and Elan, and the acquired FeraLumara, Aspen, and AspenFera assets, has been adjusted in the pro forma information to give effect to pro forma events that are (1) directly attributable to the transactions, (2) factually supportable and (3) expected to have a continuing impact on combined results. In order to reflect the occurrence of the acquisitions on July 1, 2012June 30, 2013 as required, the unaudited pro forma results include adjustments to reflect the incremental amortization expense to be incurred based on the current preliminary values of each acquisition's identifiable intangible and tangible assets, along with the reclassification of acquisition-related costs from the period ended June 28, 201427, 2015 to the period ended June 29, 2013.28, 2014. The unaudited pro forma results do not reflect future events that have occurred or may occur after the acquisitions, including but not limited to, the anticipated realization of ongoing savings from operating synergies and tax savings in subsequent periods.
Vedants Drug & Fine Chemicals Private Limited - To further improve the long-term cost position of its API business, on August 6, 2009, the Company acquired an 85% stake in Vedants Drug & Fine Chemicals Private Limited ("Vedants"), an API manufacturing facility in India, for $11.5 million in cash. The Company purchased the remaining 15% stake in Vedants during the second quarter of fiscal 2014 for $7.2 million in cash. The transaction was accounted for as an equity transaction and resulteddecline in the elimination ofEuro relative to the noncontrolling interest.U.S. dollar negatively impacted fiscal year 2015 pro forma net sales attributed to Omega. If the Euro to U.S. dollar exchange rate had remained constant from fiscal year 2014 to fiscal year 2015, pro forma net sales attributed to Omega would have increased in fiscal year 2015 by an estimated $189.3 million.
Fiscal Year 2013 Acquisitions
Fera Pharmaceuticals, LLC–
On June 17, 2013, the Companywe acquired an ophthalmic sterile ointment and solution product portfolio from Fera. The acquisition of this product portfolio expanded the Company'sour ophthalmic offerings and position within the Rx extended topical space. Operating results attributable to this agreement are included in the Rx Pharmaceuticals segment. The intangible assets were assigned a 15-year useful life. Goodwill is deductible for tax purposes.
Velcera, Inc.
Velcera, Inc.– On April 1, 2013, the Companywe completed the acquisition of 100% of the shares of privately-held Velcera, Inc. ("Velcera"). Velcera, through its FidoPharm subsidiary, was a leading companion pet health product company committed to providing consumers with best-in-class companion pet health products that contain the same active ingredients as branded veterinary products, but at a significantly lower cost. FidoPharm products, including the PetArmor®PetArmor® flea and tick products, are available at major retailers nationwide, offering consumers the benefits of convenience and cost savings to ensure the highest quality care for their pets. The acquisition complemented the Sergeant's business, which was acquired in October 2012, and further expanded the Company's Consumer Healthcarehelped establish our animal health category.
During fiscal 2013, the Company incurred restructuring and integration-related costs of $2.9 million and $2.7 million, respectively. During fiscal 2014 the Company incurred an additional $1.4 million of restructuring costs. See Note 16 for more information on the restructuring costs.category as described below. The operating results for Velcera are included in the Consumer HealthcareCHC segment.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The intangible assets acquired consisted of a distribution and license agreement, customer relationships, trade name and trademarks, and non-compete agreements. The distribution and license agreement was assigned a 10-year useful life. The customer relationships were assigned a 20-year useful life, the trademarks and trade names were assigned a 25-year useful life, and the non-compete agreements were assigned a 3-year useful life. Goodwill is not deductible for tax purposes.
Rosemont Pharmaceuticals Ltd.–
On February 11, 2013, the Companywe acquired 100% of the shares of privately-held Rosemont Pharmaceuticals Ltd. ("Rosemont"). Based in Leeds, U.K., Rosemont iswas a specialty and generic prescription pharmaceutical company focused on the manufacturing and marketing of oral liquid formulations. The acquisition expanded the global presence of the Company'sour Rx product offering into the U.K. and Europe. The operating results for Rosemont are included in the Rx Pharmaceuticals segment.
Perrigo Company plc - Item 8
Note 2
The intangible assets acquired consisted of developed product technology, IPR&D, trademarks and trade names, distribution and license agreements, and non-compete agreements. The developed product technology has a useful life of 7 years. IPR&D is considered to have an indefinite life until such time as the research is completed (at which time it becomes a definite-lived intangible asset) or is determined to have no future use (at which time it is impaired). The distribution and license agreements were assigned a 14-year useful life and the non-compete agreements were assigned a 3-year useful life. Goodwill is not deductible for tax purposes.
At the time of the acquisition, a step-up in the value of inventory of $3.2 million was recorded in the opening balance sheet as assets acquired and was based on valuation estimates. The step-up in inventory value was charged to cost of sales as the acquired inventory was sold during fiscal 2013. In addition, fixed assets were written up by $4.9 million to their estimated fair market value based on a valuation method that included both the cost and market approaches. This additional step-up in value is being depreciated over the estimated remaining useful lives of the assets.Cobrek Pharmaceuticals, Inc.
Cobrek Pharmaceuticals, Inc.–On December 28, 2012, the Companywe acquired the remaining 81.5% interest of Cobrek Pharmaceuticals, Inc. ("Cobrek"), a privately-held drug development company, for $42.0 million in cash. In May 2008, the Companywe acquired the initial 18.5% minority stake in Cobrek for $12.6 million in conjunction with entering into a product development collaborative partnership agreement focused on generic pharmaceutical foam dosage form products. As of the acquisition date, the partnership had successfully yielded two commercialized foam-based products and had an additional two U.S. Food and Drug Administration ("FDA") approved foam-based products, both of which were launched during fiscal year 2013. Cobrek derived its earnings stream primarily from exclusive technology agreements, which were assigned useful lives of 12 years. The Cobrek acquisition of Cobrek further strengthened the Company'sour position in foam-based technologies for existing and future U.S. Rx products. Goodwill is not deductible for tax purposes.
In conjunction with the acquisition, the Company adjusted the fair value of its 18.5% noncontrolling interest, which was valued at $9.5 million, and recognized a loss of $3.0 million in other expense, net. Also in conjunction with the acquisition, the Company incurred $1.5 million of severance costs during fiscal 2013.
Sergeant's Pet Care Products, Inc.
– On October 1, 2012, the Companywe completed the acquisition of substantially all of the assets of privately-held Sergeant's. Headquartered in Omaha, Nebraska, Sergeant's was a leading supplier of animal health products, including flea and tick remedies, health and well-being products, natural and formulated treats, and consumable products. The acquisition expanded the Company's Consumer Healthcareour CHC product portfolio into the animal health category.
The intangible assets acquired include developed product technology, trademarks and trade names, favorable supply agreements, customer relationships, and non-compete agreements. The developed product technology was assigned a 10-year useful life. Trademarkslife; trademarks and trade names have an indefinite useful life. Thelife; the favorable supply agreements were assigned a 7-year useful life. Customerlife; customer relationships were assigned a 20-year useful life. Non-competelife; and non-compete agreements were assigned useful lives ranging from 1one to 3three years. Goodwill is not deductible for tax purposes.
At the time of the acquisition, a step-up in the value of inventory of $7.7 million was recorded in the opening balance sheet as assets acquired and was based on valuation estimates all of whichand was charged to cost of sales during fiscal year 2013 as the acquired inventory was sold. In addition, fixed assetsproperty, plant and equipment were written up by $6.1 million to
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
their estimated fair market value based on a valuation method that included both the cost and market approaches. This additional step-up in value is being depreciated over the estimated remaining useful lives of the assets.
Perrigo Company plc - Item 8
Note 2
Purchase Price Allocation of Fiscal Year 2013 Acquisitions
The purchase price allocations for all of our fiscal year 2013 acquisitions are final. During fiscal 2014, the Company revised the initial estimate for Velcera, increasing intangible assets by $3.0 million and recording a corresponding decrease in goodwill. During fiscal 2013, the Company revised the initial estimate for Cobrek, increasing deferred tax assets by $3.6 million and recording a corresponding decrease in goodwill. The Company also finalized the Sergeant's valuation during fiscal 2013, which resulted in a $12.0 million decrease in other intangible assets and a corresponding increase in goodwill. Adjustments to the initial Fera and Rosemont valuations were immaterial. During fiscal 2014, the Company made a $6.7 million payment on the initial $22.2 million contingent consideration.
The below table indicates the final purchase price allocation for fiscal year 2013 acquisitions (in millions):
| | | | Fera | | Velcera | | Rosemont | | Cobrek | | Sergeant's | Sergeant's | | Rosemont | | Velcera | | All Other (1) |
| Purchase price paid | $ | 88.4 |
| | $ | 175.1 |
| | $ | 282.9 |
| | $ | 51.5 |
| | $ | 285.0 |
| $ | 285.0 |
| | $ | 282.9 |
| | $ | 175.1 |
| | $ | 139.9 |
|
| Contingent consideration | 22.2 |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | 22.2 |
|
| Total purchase consideration | $ | 110.6 |
| | $ | 175.1 |
| | $ | 282.9 |
| | $ | 51.5 |
| | $ | 285.0 |
| $ | 285.0 |
| | $ | 282.9 |
| | $ | 175.1 |
| | $ | 162.1 |
|
| | | | | | | | | | | | | | | | | |
| Assets acquired: | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | 18.9 |
| | $ | 2.1 |
| | $ | — |
| | $ | — |
| $ | — |
| | $ | 2.1 |
| | $ | 18.9 |
| | $ | — |
|
| Accounts receivable | — |
| | 6.3 |
| | 10.6 |
| | — |
| | 19.7 |
| 19.7 |
| | 10.6 |
| | 6.3 |
| | — |
|
| Inventories | 1.3 |
| | 9.7 |
| | 9.6 |
| | — |
| | 37.7 |
| 37.7 |
| | 9.6 |
| | 9.7 |
| | 1.3 |
|
| Property and equipment | — |
| | 0.6 |
| | 13.1 |
| | — |
| | 25.4 |
| 25.4 |
| | 13.1 |
| | 0.6 |
| | — |
|
| Goodwill | 2.8 |
| | 62.5 |
| | 147.0 |
| | 15.3 |
| | 80.2 |
| 80.2 |
| | 147.0 |
| | 62.5 |
| | 18.1 |
|
| Intangible assets: | | | | | | | | | | | | | | | | |
| Developed product technology | 107.0 |
| | — |
| | 114.6 |
| | 51.1 |
| | 66.1 |
| 66.1 |
| | 114.6 |
| | — |
| | 158.1 |
|
| Distribution and license agreements | — |
| | 116.0 |
| | 3.6 |
| | — |
| | 1.3 |
| 1.3 |
| | 3.6 |
| | 116.0 |
| | — |
|
| Customer relationships | — |
| | 8.7 |
| | — |
| | — |
| | 10.0 |
| 10.0 |
| | — |
| | 8.7 |
| | — |
|
| Trade names and trademarks | — |
| | 7.6 |
| | 17.3 |
| | — |
| | 33.0 |
| |
| Trademarks, trade names and brands | | 33.0 |
| | 17.3 |
| | 7.6 |
| | — |
|
| Non-competition agreements | — |
| | 3.0 |
| | 1.5 |
| | — |
| | — |
| — |
| | 1.5 |
| | 3.0 |
| | — |
|
| IPR&D | — |
| | — |
| | 11.2 |
| | — |
| | — |
| — |
| | 11.2 |
| | — |
| | — |
|
| Favorable supply agreement | — |
| | — |
| | — |
| | — |
| | 25.0 |
| 25.0 |
| | — |
| | — |
| | — |
|
| Intangible assets | 107.0 |
| | 135.3 |
| | 148.2 |
| | 51.1 |
| | 135.4 |
| 135.4 |
| | 148.2 |
| | 135.3 |
| | 158.1 |
|
| Deferred tax assets | — |
| | 7.9 |
| | 0.2 |
| | 3.6 |
| | 1.5 |
| 1.5 |
| | 0.2 |
| | 7.9 |
| | 3.6 |
|
| Other non-current assets | — |
| | 0.4 |
| | 0.8 |
| | 0.3 |
| | 3.0 |
| 3.0 |
| | 0.8 |
| | 0.4 |
| | 0.3 |
|
| Total assets | 111.1 |
| | 241.6 |
| | 331.6 |
| | 70.3 |
| | 302.9 |
| 302.9 |
| | 331.6 |
| | 241.6 |
| | 181.4 |
|
| Liabilities assumed: | | | | | | | | | | | | | | | | |
| Accounts payable | — |
| | 6.5 |
| | 2.6 |
| | — |
| | 13.7 |
| 13.7 |
| | 2.6 |
| | 6.5 |
| | — |
|
| Accrued liabilities | 0.5 |
| | 4.8 |
| | 7.6 |
| | — |
| | 4.2 |
| 4.2 |
| | 7.6 |
| | 4.8 |
| | 0.5 |
|
| Deferred tax liabilities | — |
| | 48.2 |
| | 36.0 |
| | 18.8 |
| | — |
| — |
| | 36.0 |
| | 48.2 |
| | 18.8 |
|
| Other non-current liabilities | — |
| | 7.0 |
| | 2.5 |
| | — |
| | — |
| — |
| | 2.5 |
| | 7.0 |
| | — |
|
| Total liabilities | 0.5 |
| | 66.5 |
| | 48.7 |
| | 18.8 |
| | 17.9 |
| 17.9 |
| | 48.7 |
| | 66.5 |
| | 19.3 |
|
| Net assets acquired | $ | 110.6 |
| | $ | 175.1 |
| | $ | 282.9 |
| | $ | 51.5 |
| | $ | 285.0 |
| $ | 285.0 |
| | $ | 282.9 |
| | $ | 175.1 |
| | $ | 162.1 |
|
| |
(1) | Includes opening balance sheet of the Cobrek acquisition and Fera product acquisition. |
We have completed our obligation under the contingent portion of the Fera purchase price shown above as of June 27, 2015. Payments towards the contingent consideration totaled $18.3 million in fiscal year 2015 and $6.7 million in fiscal year 2014. The difference between the initial contingent consideration recorded as part of the purchase price and the payments represents the change in the fair value of the contingent consideration, which was recorded to Other expense, net each quarter.
PERRIGO COMPANY PLCPerrigo Company plc - Item 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3
NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Changes in the carrying amount of goodwill, by reportable segment, were as follows (in millions):
| | | | Consumer Healthcare | | Nutritionals | | Rx Pharma- ceuticals | | API | | Specialty Sciences | | Total | CHC | | BCH | | Rx Pharma-
ceuticals | | Specialty Sciences | | Other | | Total |
| Balance as of June 30, 2012 | $ | 138.9 |
| | $ | 331.7 |
| | $ | 220.8 |
| | $ | 86.3 |
| | $ | — |
| | $ | 777.8 |
| |
| Balance at June 29, 2013 | | $ | 611.6 |
| | $ | — |
| | $ | 385.4 |
| | $ | — |
| | $ | 92.2 |
| | $ | 1,089.2 |
|
| Business acquisitions | 144.7 |
| | — |
| | 163.9 |
| | — |
| | — |
| | 308.6 |
| 1,297.2 |
| | — |
| | 851.0 |
| | 201.8 |
| | — |
| | 2,350.0 |
|
| Currency translation adjustment | (3.7 | ) | | — |
| | 0.7 |
| | 5.9 |
| | — |
| | 2.9 |
| 7.6 |
| | — |
| | 21.9 |
| | — |
| | 5.4 |
| | 34.9 |
|
| Balance as of June 29, 2013 | 279.9 |
| | 331.7 |
| | 385.4 |
| | 92.2 |
| | — |
| | 1,089.2 |
| |
| Balance at June 28, 2014 | | 1,916.4 |
| | — |
| | 1,258.3 |
| | 201.8 |
| | 97.6 |
| | 3,474.1 |
|
| Business acquisitions | 1,118.8 |
| | 178.4 |
| | 851.0 |
| | — |
| | 201.8 |
| | 2,350.0 |
| 4.8 |
| | 1,513.1 |
| | — |
| | — |
| | — |
| | 1,517.9 |
|
| Impairments | | (6.8 | ) | | — |
| | — |
| | — |
| | — |
| | (6.8 | ) |
| Currency translation adjustment | 7.6 |
| | — |
| | 21.9 |
| | 5.4 |
| |
|
| | 34.9 |
| (9.7 | ) | | 38.8 |
| | (20.0 | ) | | — |
| | (9.4 | ) | | (0.3 | ) |
| Balance as of June 28, 2014 | $ | 1,406.3 |
| | $ | 510.1 |
| | $ | 1,258.3 |
| | $ | 97.6 |
| | $ | 201.8 |
| | $ | 3,474.1 |
| |
| Purchase accounting adjustments | | (7.2 | ) | | — |
| | (4.7 | ) | | (1.1 | ) | | — |
| | (13.0 | ) |
| Balance at June 27, 2015 | | $ | 1,897.5 |
| | $ | 1,551.9 |
| | $ | 1,233.6 |
| | $ | 200.7 |
| | $ | 88.2 |
| | $ | 4,971.9 |
|
The increase in goodwill in fiscal year 2015 was due primarily to the Omega acquisition. Additionally we recorded $4.8 million of goodwill in the CHC segment due to the Gelcaps acquisition. The increase in goodwill in fiscal year 2014 was due primarily to goodwill associated with the acquisition of Elan, which totaledcontributed $2.3 billion. The Companybillion of goodwill. We allocated $2.1 billion of goodwill to the reporting units that are expected to benefit from the synergies related to the Elan transaction. See Note 2 for additional information. Additionally, the CompanyWe also recorded $4.6 million of goodwill to the Consumer HealthcareCHC segment due to the acquisition of the Aspen product portfolio.
DuringStep one of our fiscal 2013, additions toyear 2015 annual goodwill inimpairment testing indicated that our CHC Mexico reporting unit's goodwill fair value was below its net book value as of March 28, 2015. As a result, we initiated the Consumer Healthcare segment related to the Sergeant's and Velcera acquisitions and in the Rx Pharmaceuticals segment related to the Cobrek and Rosemont acquisitions, and the acquisitionsecond step of the Fera product portfolio.
goodwill impairment test to measure the amount of impairment. Refer to Note 1 for our impairment process. We concluded that the goodwill was fully impaired and recorded an impairment of $6.8 million in our CHC segment during the quarter ended June 27, 2015 in Other expense, net. No other segments were affected by this impairment charges. No impairment charges werecharge was recorded as a result of the annual goodwill impairment testing during fiscal years 2014 fiscal 2013, or fiscal 2012.2013.
During the third quarter we identified indicators of potential impairment of our Animal Health reporting unit's intangible assets, which include goodwill, indefinite-lived intangible assets, and definite-lived intangible assets. We performed impairment testing for all of our Animal Health intangible assets as of March 29, 2015, and none were determined to be impaired. Additionally, goodwill and indefinite-lived intangible assets were tested again in conjunction with our annual fourth quarter testing and resulted in no impairment. We will continue to monitor and assess our Animal Health intangible assets for potential impairment should further impairment indicators arise and test at least annually as applicable.
Perrigo Company plc - Item 8
Note 3
Intangible Assets
Other intangible assets and the related accumulated amortization consisted of the following (in millions):
| | | | June 28, 2014 | | June 29, 2013 | June 27, 2015 | | June 28, 2014 |
| | Gross | | Accumulated Amortization | | Gross | | Accumulated Amortization | Gross | | Accumulated Amortization | | Gross | | Accumulated Amortization |
Amortizable intangibles: | | | | | | | | | | | | | | |
| Distribution and license agreements | $ | 6,027.3 |
| | $ | 192.1 |
| | $ | 192.7 |
| | $ | 28.9 |
| $ | 6,029.9 |
| | $ | 502.3 |
| | $ | 6,027.3 |
| | $ | 192.1 |
|
| Developed product technology/formulation and product rights | 931.7 |
| | 302.5 |
| | 896.8 |
| | 204.6 |
| 1,025.3 |
| | 383.1 |
| | 931.7 |
| | 302.5 |
|
| Customer relationships | 372.0 |
| | 97.5 |
| | 358.2 |
| | 72.4 |
| |
| Trade names and trademarks | 47.8 |
| | 5.6 |
| | 12.7 |
| | 4.2 |
| |
| Customer relationships and distribution networks | | 1,749.9 |
| | 146.2 |
| | 372.0 |
| | 97.5 |
|
| Trademarks, trade names and brands | | 340.8 |
| | 11.5 |
| | 47.8 |
| | 5.6 |
|
| Non-compete agreements | 15.3 |
| | 9.4 |
| | 13.3 |
| | 6.0 |
| 14.7 |
| | 11.9 |
| | 15.3 |
| | 9.4 |
|
| Total | $ | 7,394.1 |
| | $ | 607.1 |
| | $ | 1,473.7 |
| | $ | 316.1 |
| |
| Total amortizable intangibles | | $ | 9,160.6 |
| | $ | 1,055.0 |
| | $ | 7,394.1 |
| | $ | 607.1 |
|
Non-amortizable intangibles: | | | | | | | | | | | | | | |
| Trade names and trademarks | $ | 59.5 |
| | $ | — |
| | $ | 57.0 |
| | $ | — |
| |
| Trademarks, trade names and brands | | $ | 2,257.3 |
| | $ | — |
| | $ | 59.5 |
| | $ | — |
|
| In-process research and development | 10.2 |
| | — |
| | 27.8 |
| | — |
| 5.8 |
| | — |
| | 10.2 |
| | — |
|
| Total | 69.7 |
| | — |
| | 84.8 |
| | — |
| |
| Total non-amortizable intangibles | | 2,263.1 |
| | — |
| | 69.7 |
| | — |
|
| Total other intangible assets | $ | 7,463.8 |
| | $ | 607.1 |
| | $ | 1,558.5 |
| | $ | 316.1 |
| $ | 11,423.7 |
| | $ | 1,055.0 |
| | $ | 7,463.8 |
| | $ | 607.1 |
|
Certain intangible assets are denominated in currencies other than the U.S. dollar;dollars; therefore, their gross and net carrying values are subject to foreign currency movements.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The increase in gross amortizable intangible assets during fiscal 2014year 2015 was due primarily to the ElanOmega acquisition, and the Aspen and Fera product acquisitions, as discussed in Note 2. No material impairment charges were recorded as a result of the annual intangible asset impairment testing during fiscal years 2015, 2014 or fiscal 2013. However, the Company recordedWe did record an impairment charge on certain IPR&D assets during bothfiscal years 2014 and 2013 due to changes in the projected development and regulatory timelines for various projects. These impairments totaled $6.0 million and $9.0 million for fiscal years 2014 and fiscal 2013, respectively.
Also duringDuring fiscal year 2014, the remaining $13.0 million of IPR&D assets acquired as part of the Paddock acquisition was reclassified to a definite-lived developed product technology intangible asset and is being amortized on a proportionate basis consistent with the economic benefits derived therefrom over an estimated useful life of 12 years. During fiscal 2013, $10.0 million was reclassified from IPR&D to a definite-lived developed product technology intangible asset and is being amortized on a straight-line basis over an estimated
The weighted-average useful life of 12 years.for our amortizable intangible assets by asset class at June 27, 2015 was as follows:
|
| | |
| Amortizable Intangible Asset Category | | Weighted-Average Useful Life (Years) |
| Distribution and license agreements | | 20 |
| Developed product technology/formulation and product rights | | 12 |
| Customer relationships and distribution networks | | 20 |
| Trademarks, trade names and brands | | 19 |
| Non-compete agreements | | 2 |
The CompanyWe recorded amortization expense of $281.0$464.5 million, $94.0$281.0 million and $74.894.0 million during fiscal years 2015, 2014, 2013and 20122013, respectively. The increase in amortization expense in fiscal 2014year 2015 was due primarily to the incremental amortization expense incurred on the amortizable intangible assets acquired from Elan as partwell the inclusion of one quarter of amortization expense related to the Elan acquisition.intangible assets acquired from Omega.
Perrigo Company plc - Item 8
Note 3
Estimated future amortization expense includes the additional amortization related to recently acquired intangible assets subject to amortization. TheOur estimated future amortization expense for each of the following years is as follows (in millions):
|
| | | | |
| Fiscal Year | | Amount |
| 2015 | | $ | 427.0 |
|
| 2016 | | 438.0 |
|
| 2017 | | 434.0 |
|
| 2018 | | 427.0 |
|
| 2019 | | 416.0 |
|
| Thereafter | | 4,645.0 |
|
|
| | | | |
| Time Period | | Amount |
| < 1 year | | $ | 589.1 |
|
| 1-2 years | | 582.7 |
|
| 2-3 years | | 569.3 |
|
| 3-4 years | | 551.8 |
|
| 4-5 years | | 521.6 |
|
| > 5 years | | 5,291.1 |
|
NOTE 4 – INVENTORIES
Major components of inventory at June 27, 2015, and June 28, 2014, were as follows (in millions):
|
| | | | | | | |
| | June 27,
2015 | | June 28,
2014 |
| Finished goods | $ | 468.9 |
| | $ | 307.0 |
|
| Work in process | 158.2 |
| | 146.7 |
|
| Raw materials | 211.8 |
| | 177.9 |
|
| Total inventories | $ | 838.9 |
| | $ | 631.6 |
|
NOTE 45 – FAIR VALUE MEASUREMENTS
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.
| |
| Level 1: | Quoted prices for identical instruments in active markets. |
| |
| Level 2: | Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets. |
| |
| Level 3: | Valuations derived from valuation techniques in which one or more significant inputs are not observable. |
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables summarize the valuation of the Company’sour financial instruments carried at fair value by the above pricing categories as of June 28, 201427, 2015 and June 29, 201328, 2014 (in millions):
|
| | | | | | | | | | | | | | | |
| | June 28, 2014 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
| Investment securities | $ | 20.7 |
| | $ | — |
| | $ | — |
| | $ | 20.7 |
|
| Foreign currency forward contracts | — |
| | 3.1 |
| | — |
| | 3.1 |
|
| Funds associated with Israeli post employment benefits | — |
| | 19.3 |
| | — |
| | 19.3 |
|
| Total | $ | 20.7 |
| | $ | 22.4 |
| | $ | — |
| | $ | 43.1 |
|
| Liabilities: | | | | | | | |
| Contingent consideration | $ | — |
| | $ | — |
| | $ | 17.4 |
| | $ | 17.4 |
|
| Interest rate swap agreements | — |
| | 8.3 |
| | — |
| | 8.3 |
|
| Foreign currency forward contracts | — |
| | 0.8 |
| | — |
| | 0.8 |
|
| Total | $ | — |
| | $ | 9.1 |
| | $ | 17.4 |
| | $ | 26.5 |
|
|
| | | | | | | | | | | | | | | |
| | June 29, 2013 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
| Foreign currency forward contracts | $ | — |
| | $ | 8.0 |
| | $ | — |
| | $ | 8.0 |
|
| Funds associated with Israeli post-employment benefits | — |
| | 16.1 |
| | — |
| | 16.1 |
|
| Total | $ | — |
| | $ | 24.1 |
| | $ | — |
| | $ | 24.1 |
|
| Liabilities: | | | | | | | |
| Contingent consideration | $ | — |
| | $ | — |
| | $ | 22.2 |
| | $ | 22.2 |
|
| Interest rate swap agreements | — |
| | 10.8 |
| | — |
| | 10.8 |
|
| Foreign currency forward contracts | — |
| | 0.4 |
| | — |
| | 0.4 |
|
| Total | $ | — |
| | $ | 11.2 |
| | $ | 22.2 |
| | $ | 33.4 |
|
|
| | | | | | | | | | | | | | | |
| | June 27, 2015 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
| Investment securities | $ | 12.7 |
| | $ | — |
| | $ | — |
| | $ | 12.7 |
|
| Foreign currency forward contracts | — |
| | 12.4 |
| | — |
| | 12.4 |
|
| Funds associated with Israeli post-employment benefits | — |
| | 17.3 |
| | — |
| | 17.3 |
|
| Total assets | $ | 12.7 |
| | $ | 29.7 |
| | $ | — |
| | $ | 42.4 |
|
| Liabilities: | | | | | | | |
| Foreign currency forward contracts | — |
| | 4.6 |
| | — |
| | 4.6 |
|
| Total liabilities | $ | — |
| | $ | 4.6 |
| | $ | — |
| | $ | 4.6 |
|
Perrigo Company plc - Item 8
Note 5
|
| | | | | | | | | | | | | | | |
| | June 28, 2014 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
| Investment securities | $ | 20.7 |
| | $ | — |
| | $ | — |
| | $ | 20.7 |
|
| Foreign currency forward contracts | — |
| | 3.1 |
| | — |
| | 3.1 |
|
| Funds associated with Israeli post-employment benefits | — |
| | 19.3 |
| | — |
| | 19.3 |
|
| Total assets | $ | 20.7 |
| | $ | 22.4 |
| | $ | — |
| | $ | 43.1 |
|
| Liabilities: | | | | | | | |
| Contingent consideration | $ | — |
| | $ | — |
| | $ | 17.4 |
| | $ | 17.4 |
|
| Interest rate swap agreements | — |
| | 8.3 |
| | — |
| | 8.3 |
|
| Foreign currency forward contracts | — |
| | 0.8 |
| | — |
| | 0.8 |
|
| Total liabilities | $ | — |
| | $ | 9.1 |
| | $ | 17.4 |
| | $ | 26.5 |
|
The tablestable below presentpresents a reconciliation for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for fiscal years ended June 28,2015 and 2014 and June 29, 2013 (in millions).
|
| | | | | | | | | | | | | | | | | | | | | |
| | Balance at June 29, 2013 | Net realized investment gains (losses) and net change in unrealized appreciation (depreciation) included in net income (loss) | Net change in unrealized appreciation (depreciation) included in other comprehensive income (loss) | Purchases or Additions | Sales | Settlements | Balance at June 28, 2014 |
| Liabilities: | | | | | | | |
| Contingent Consideration | $ | 22.2 |
| $ | 1.1 |
| $ | — |
| $ | 0.8 |
| $ | — |
| $ | (6.7 | ) | $ | 17.4 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | | | |
| | Balance at June 30, 2012 | Net realized investment gains (losses) and net change in unrealized appreciation (depreciation) included in net income (loss) | Net change in unrealized appreciation (depreciation) included in other comprehensive income (loss) | Purchases or Additions | Sales | Settlements | Balance at June 29, 2013 |
| Assets: | | | | | | | |
| Investment securities | $ | 6.5 |
| $ | — |
| $ | 2.2 |
| $ | — |
| $ | (8.6 | ) | $ | — |
| $ | — |
|
| Liabilities: | | | | | | | |
| Contingent Consideration | 2.9 |
| (0.9 | ) | — |
| 22.2 |
| — |
| (2.0 | ) | 22.2 |
|
|
| | | | | | | |
| | Fiscal Year |
| | 2015 | | 2014 |
| Contingent Consideration | | | |
| Beginning balance: | $ | 17.4 |
| | $ | 22.2 |
|
| Net realized losses | 0.9 |
| | 1.1 |
|
| Purchases or additions | — |
| | 0.8 |
|
| Settlements | (18.3 | ) | | (6.7 | ) |
| Ending balance: | $ | — |
| | $ | 17.4 |
|
Net realized gains (losses) in the tablestable above were recorded in other expense, net in the Consolidated Statements of Operations.Administrative expense. There were no transfers between Level 1, 2, and 3 during the years endedJune 27, 2015 and June 28, 2014 and June 29, 2013. The Company’sOur policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period. See Note 56 for information on the Company'sour investment securities. See Note 67 for a discussion of derivatives.
Israeli post-employment benefits represent amounts the Company haswe have deposited in funds managed by financial institutions that are designated by management to cover post-employment benefits for its Israeli employees that areas required by Israeli law. The funds are recorded in otherOther non-current assets and values are determined using prices for recently traded financial instruments with similar underlying terms, as well as directly or indirectly observable inputs, such as interest rates and yield curves, that are observable at commonly quoted intervals.
Contingent consideration representsrepresented milestone payment obligations obtained through product acquisitions and arewas valued using estimates that utilizebased on probability-weighted outcomes, sensitivity analysis, and discount rates reflective of the risk involved. The estimates arewere updated quarterly and the liabilities arewere adjusted to fair value depending on a number of assumptions, including the competitive landscape and regulatory approvals that may impact the future sales of a product.
Level 3 investment securities represented auction rate securities the Company sold during fiscal 2013. The fair value measurements for the investment securities were valued using Level 3 inputs, which included discount rates reflective of the illiquidity of the instruments.
As of June 28, 2014, the carrying value of the Company’s27, 2015, our fixed rate long-term debt was $2.3 billionconsisted of public bonds and retail bonds that were assumed with the fair value was $2.4 billion. As of June 29, 2013, theOmega acquisition. The public bonds had a carrying value and fair value of the Company’s fixed rate long-term debt were $1.6$3.9 billion based on quoted market prices (Level 1). The retail bonds had a carrying value of $820.9 million and $1.5 billion, respectively. Ata fair value of $902.4 million based on interest rates offered for borrowings of a similar nature and remaining maturities (Level 2). As of June 28, 2014, the Company'sour fixed rate long-term debt consisted of private placement senior notes with registration rights.rights with a carrying value of $2.3 billion and a fair value of $2.4 billion. The fair value at June 28, 2014 was determined by discounting the future cash flows of the financial instruments to their present value, using interest rates currently offered for borrowings and deposits of a similar nature and remaining maturities (Level 2). At June 29, 2013, the fixed rate long-term debt consisted of private placement senior notes and public bonds. The private placement senior notes' fair value was calculated similarly to the private placement senior notes with registration rights mentioned above (Level 2), while the public bonds' fair value was determined by quoted market prices (Level 1).
The carrying amounts of the Company’sour other financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable, short-term debt and variable rate long-term debt, approximate their fair value.
PERRIGO COMPANY PLCPerrigo Company plc - Item 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6
NOTE 56 – INVESTMENTS
Available for Sale Securities
As a resultOur available for sale securities totaled $12.7 million at June 27, 2015 and were reported in Investment securities. At June 28, 2014, available for sale securities totaled $20.7 million, of the Elan acquisition, the Company acquired equity investment securities. The investments primarily included a 14.6% sharewhich $5.9 million was reported in Prothena Corporation plc ("Prothena"), a drug discovery business incorporatedInvestment securities and $14.8 million was reported in Ireland and traded on the NASDAQ Global Market. The investments also included a number of smaller interests in both public and privately-held emerging pharmaceutical and biotechnology companies. The Company sold its ownership stake in Prothena during fiscal 2014 for $79.4 million and recognized a loss on the sale of $9.9 million.
The Company also entered into a series of agreements with former collaboration partner Transition Therapeutics Inc. ("Transition") to progress the clinical development of ELND005 (Scyllo-inositol) in a number of important indications including Alzheimer's disease, Bipolar Disorder and Down Syndrome during fiscal 2014. As part of the agreement, Transition acquired all of the shares of a wholly owned, indirect Irish subsidiary of the Company, and is now solely responsible for all ongoing development activities and costs associated with ELND005. The Company made a $15.0 million investment in return for 2,255,640 common shares of Transition. The investment is carried at fair value and is included in otherOther non-current assets on the Consolidated Balance Sheets.assets.
Net unrealized investment gains (losses) on available for sale securities were as follows (in millions):
| | | | Fiscal Year | Fiscal Year |
| | 2014 | | 2013 | | 2012 | 2015 | | 2014 |
| Net unrealized investment gains (losses): | | | | | | | | |
| Equity securities, at cost less impairments | $ | 17.1 |
| | $ | — |
| | $ | 7.6 |
| $ | 17.1 |
| | $ | 17.1 |
|
| Gross unrealized gains | 3.8 |
| | — |
| | $ | — |
| 5.7 |
| | 3.8 |
|
| Gross unrealized losses | (0.2 | ) | | — |
| | (1.1 | ) | (10.1 | ) | | (0.2 | ) |
| Estimated fair value of equity securities | $ | 20.7 |
| | $ | — |
| | $ | 6.5 |
| $ | 12.7 |
| | $ | 20.7 |
|
The equity securities in a gross unrealized loss position at June 28, 2014 were in that position for less than 12 months. The activity duringDuring fiscal year 2012 related to the Company's auction rate2014, we sold one of our investment securities which were sold during fiscal 2013.and recorded a loss of $9.9 million. The loss was reclassified out of AOCI and into earnings.
The factors affecting the assessment of impairments include both general financial market conditions and factors specific to a particular company. InThe equity securities in a gross unrealized loss position at June 27, 2015 were in that position for less than 12 months. We have evaluated the case of equity classified as available-for-sale, a significant and prolonged decline in the fair valuenear-term prospects of the security below its carrying amount is consideredequity securities in determining whetherrelation to the security is impaired. If any such evidence exists, an impairment loss is recognizedseverity and duration of the unrealized impairments, and based on that evaluation, we have the ability and intent to hold the investments until a recovery of fair value.
Cost Method Investments
Our cost method investments totaled $6.8 million and $9.0 million at June 27, 2015 and June 28, 2014, respectively, and were included in earnings.Other non-current assets.
Equity Method Investments
The Company'sOur equity method investments totaled $57.4$48.9 million and $4.4$57.4 million at June 28, 201427, 2015 and June 29, 2013,28, 2014, respectively, and are included in otherOther non-current assets on the Consolidated Balance Sheets. During fiscal 2014, the Company acquired the following equity method investments with the Elan acquisition:
Janssen AI: A subsidiary of Johnson & Johnson, which in 2009, acquired all of the assets and liabilities related to Elan's Alzheimer’s Immunotherapy Program collaboration with Wyeth (which has since been acquired by Pfizer). During fiscal 2014, the Company sold its 49.9% equity interest for $2.0 million, recording a loss on the sale of $2.8 million. Additionally, the Companyassets. We recorded net losses of $1.6$9.9 million and $8.7 million during fiscal years 2015 and 2014, related to the Company'srespectively, for our proportionate share of Janssen AI's losses before it was sold.
Proteostasis Therapeutics, Inc. ("Proteostasis"): Proteostasis is focused on the discovery and development of disease modifying small molecule drugs and diagnostics for the treatment of neurodegenerative disorders and dementia-related diseases. The Company has a 22% equity interest in Proteostasis with a carrying value of $18.5 million at June 28, 2014. The Company recorded net losses of $1.5 millionmethod investment earnings or losses. In addition, during fiscal year 2014 related to the Company's sharewe sold one of Proteostasis losses during the period.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Newbridge Pharmaceutical Limited ("Newbridge"): Newbridge isour equity method investments and recorded a Dubai-based pharmaceuticals company specializing in in-licensing, acquiring, registering and commercializing drugs approved by the U.S. Food and Drug Administration ("FDA"), the European Medicines Agency and Japanese Pharmaceuticals and Medical Devices Agency to treat diseases with high regional prevalence in the Middle East, Africa, Turkey and the Caspian region. The Company has a 48% equity stake in Newbridge with a carrying valueloss of $34.4 million at June 28, 2014. The Company has an option to acquire the majority$2.8 million. All of the remaining equity for approximately $243.0 million until March 2015. The Companylosses noted above were recorded net losses of $5.6 million during fiscal 2014 related to the Company's share of Newbridge losses during the period.
The Company also has an investment in a joint venture in Xinghua, China, which the Company utilizes to source ibuprofen. The joint venturehad a carrying value of $4.5 million and $4.4 million at June 28, 2014 and June 29, 2013, respectively.Other expense, net.
NOTE 67 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company entersWe enter into certain derivative financial instruments, when available on a cost-effective basis, to mitigate itsour risk associated with changes in interest rates and foreign currency exchange rates as follows:
Interest rate risk management - The Company isWe are exposed to the impact of interest rate changes. The Company's objective ischanges through our cash investments and borrowings. We utilize a variety of strategies to manage the impact of changes in interest rate changes on cash flows and the market value of the Company's borrowings. The Company utilizesrates including using a mix of debt maturities along with both fixed-rate and variable-rate debt to manage changes in interest rates.debt. In addition, the Companywe may enter into treasury-lock agreements ("T-Locks") and interest rate swap agreements on certain investing and borrowing transactions to manage itsour exposure to interest rate changes and to reduce itsour overall cost of borrowing.
Foreign currency exchange risk management - The Company conductsWe conduct business in several major international currencies other than the U.S. dollar and isare subject to risks associated with changing foreign exchange rates. The Company'sOur objective is to reduce cash flow volatility associated with foreign exchange rate changes on a consolidated basis to allow management to focus its attention on business operations. Accordingly, the Company enterswe enter into various contracts that
Perrigo Company plc - Item 8
Note 7
change in value as foreign exchange rates change to protect the value of existing foreign currency assets and liabilities, commitments, and anticipated foreign currency revenuesales and expenses.
All derivative instruments are managed on a consolidated basis to efficiently net exposures and thus take advantage of any natural offsets. Gains and losses related to the derivative instruments are expected to be offset largely offset by gains and losses on the original underlying asset or liability. The Company doesWe do not use derivative financial instruments for speculative purposes. The notional amount of all derivatives outstanding was $468.5 million and $494.9 million at June 28, 2014 and June 29, 2013, respectively.
Derivatives Instruments Designated as Hedges
AsAll of June 28, 2014 and June 29, 2013, all of the Company'sour designated hedging instrumentsderivatives were classified as cash flow hedges. As noted in Note 1, for cash flow hedges thatas of June 27, 2015 and June 28, 2014. Designated derivatives meet hedge accounting criteria, which means the fair value of the hedge is recorded in shareholders’ equity as a component of OCI, net of tax. TheseThe deferred gains and losses are recognized in income in the period in which the hedged item and hedging instrument affectaffects earnings. Any ineffective portion of the change in fair value of the derivative is immediately recognized in earnings, recorded in Other expense, net. All of our designated derivatives are assessed for hedge effectiveness quarterly.
We also have economic non-designated derivatives that do not meet hedge accounting criteria. These derivative instruments are adjusted to current market value at the end of each period through earnings. Gains or losses on these instruments are offset substantially by the remeasurement adjustment on the hedged item.
Interest rate swapsRate Swaps and Treasury Locks
Interest rate swap agreements are contracts to exchange floating rate for fixed rate payments (or vice versa) over the life of the agreement without the exchange of the underlying notional amounts. The notional amounts of the interest rate swap agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap agreements is recognized as an adjustment to interest expense. All of our interest rate swaps qualify for hedge accounting treatment.
During fiscal 2014, the Company entered intoWe had a $1.0 billion Term Loan Agreement$300.0 million term loan with floating interest rates priced off the LIBOR yield curve, (seewhich was repaid during fiscal year 2015, as described in Note 78 for further information). The Company had preexistingAs a result of the term loan repayment on June 24, 2015, the forward interest rate swap agreements with a notional amount totaling $240.0 million that were in place to hedge the change in the LIBOR rate were terminated as well. We recorded a loss of its$3.6 million in Other expense, net for the amount remaining in AOCI when the hedge was terminated.
In connection with the Omega acquisition, we assumed a $20.0 million private placement note. We also assumed an interest rate swap agreement with a notional amount totaling $20.0 million that was in place to hedge the cross currency exchange differences between the U.S. dollar and the euro on the above-mentioned debt. On May 29, 2015, we repaid the loan and the interest rate swap. Because the interest rate swap was recorded at fair market value on the date of termination, no gain or loss was recorded. For more information on the acquired debt and termination, see Note 8.
Also in connection with the Omega acquisition, we assumed €500.0 million ($544.5 million) of debt under Omega's revolving credit facility, as well as an interest rate swap agreement with a notional amount totaling €135.0 million ($147.0 million) that was in place to hedge the change in the floating rate on that credit facility. On April 8, 2015, we repaid the loan and terminated the interest rate swap. Because the interest rate swap was recorded at fair market value on the date of termination, no gain or loss was recorded. For more information on the acquired debt and termination, see Note 8.
During the second quarter of fiscal year 2015, we entered into forward interest rate swaps and treasury locks (together "Rate Locks") to hedge against changes in the interest rates between the date the Rate Locks were entered into and the date of the issuance of our 2014 Bonds, discussed in Note 8. These Rate Locks were designated as cash flow hedges of expected future debt issuances with a notional amount totaling $750.0 million. The Rate Locks were settled upon the issuance of an aggregate $1.6 billion principal amount of our 2014 Bonds on December 2, 2014 for a cumulative after-tax loss of $5.8 million in OCI after recording $1.1 million of ineffectiveness to Other Expense, net.
PERRIGO COMPANY PLCPerrigo Company plc - Item 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 7
previous term loans, that were used to hedgeDuring the new Term Loan. At June 28,first quarter of fiscal year 2014, the after-tax loss for the effective portion of the hedge remaining in OCI totaled $5.0 million and is being amortized to earnings over the life of the debt.
During fiscal 2014, the Companywe entered into forward interest rate swap agreements to hedge against changes in the benchmark interest rates that could impactrate between the Company's new senior notes (discussed collectivelydate the swap agreements were entered into and the date of the issuance of our 2013 Bonds, discussed in Note 78 as the "Bonds"). These swaps were designated as cash flow hedges of expected future debt issuances with a notional amount totaling $725.0 million. The agreements hedged the variability in future probable interest payments due to changes in the benchmark interest rate between the date the swap agreements were entered into and the date of future debt issuances. The interest rate swaps were settled upon the issuance of an aggregate of $2.3 billion principal amount of our 2013 Bonds on December 18, 2013 for a cumulative after-tax gainloss of $12.8 million which was recorded in OCI and is being amortized to earnings over the life of the debt. Additionally,after recording $0.5 million for the ineffective portion of the hedge was recordedineffectiveness to other expense (income),Other Expense, net. The effective portion remains in OCI at June 28, 2014 and is being amortized to earnings over the life of the debt.
During fiscal 2013, the Company entered into forward interest rate swap agreements with a notional amount totaling $300.0 million to hedge the exposureIn addition, due to the possible rise in the benchmark interest rate prior to the issuanceretirement of the 2.95% Unsecured Senior Notes due May 15, 2023 discussed in Note 7. The interest rate swaps were settled upon the issuance of an aggregate of $600.0 million principal amount for a cumulative after-tax loss of $2.6 million, which was recorded in OCI and was amortized to earnings to interest expense until its termination discussed further below.
During fiscal 2012, the Company entered into interest rate swap agreements with a notional value of $175.0 million to hedge the exposure to the possible rise in the benchmark interest rate prior to the issuance of the 4.52% Unsecured Senior Notes due December 15, 2023. The interest rate swaps were settled upon the issuance of an aggregate of $175.0 million principal amount for a cumulative after-tax loss of $0.8 million, which was recorded in OCI and was amortized to earnings as a reduction in interest expense until its termination discussed further below.
As further discussed in Note 7, the Company retired itsunderlying private placement senior notes and redeemed its public bonds. Upon repayment of(described in Note 8 as "the Private Placement Notes")on December 23, 2013, we wrote off the underlying debt, the Company terminatedamounts remaining in AOCI associated with the cash flow hedges related to the debt,Private Placement Notes, resulting in aan after-tax loss of $2.6 million recorded to otherOther expense, (income), net during fiscal 2014.net.
Foreign currency forward contractsCurrency Derivatives
The Company entersWe enter into foreign currency forward contracts, both designated and non-designated, in order to hedgemanage the impact of fluctuations of foreign exchange fluctuations on expected future purchases and related payables denominated in a foreign currency, andas well as to hedge the impact of fluctuations of foreign exchange fluctuations on expected future sales and related receivables denominated in a foreign currency. Both types of forward contracts have a maximum maturity date of 15 months. The total notional amount for these contracts was $452.3 million and $228.5 million as of June 27, 2015 and June 28, 2014, respectively.
DuringIn June 2015, in order to economically hedge the foreign currency exposure associated with the planned payment of the euro-denominated purchase price of the GSK product acquisition discussed in Note 2, we entered into a non-designated option contract to protect against a strengthening of the euro relative to the U.S. dollar. We recorded losses of $1.9 million for the change in fair value of the option contract during fiscal year 2015 in Other expense, net. Because these derivatives were economically hedging a future acquisition, the cash outflow associated with their settlement is shown as an investing activity on the Consolidated Statements of Cash Flows.
In November 2014, in order to economically hedge the Company reclassified $0.1foreign currency exposure associated with the planned payment of the euro-denominated purchase price of Omega, we entered into non-designated option contracts with a total notional amount of €2.0 billion. The option contracts settled in December 2014, resulting in a loss of $26.4 million. The option contracts were replaced with non-designated forward contracts that matured during the third quarter of fiscal year 2015. We recorded losses of $298.1 million from AOCI to earningsduring fiscal year 2015 related to the discontinuance of certain cash flow hedges, as the Company no longer considered it probable that the original forecasted transactions would occur.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative Instruments Not Designated as Hedges
The Company also has forward foreign currency contracts that are not designated as hedging instruments. Accordingly, these derivative instruments are adjusted to current market value at the end of each period through earnings. The gains or losses on these instruments are substantially offset by the remeasurement adjustment on the foreign currency denominated asset or liability. The settlement of the derivative instrument and the remeasurement adjustmentforward contracts.Both losses were recorded primarily in Other expense, net. The losses on the foreign currency denominated asset or liability are both recordedderivatives due to changes in other expense (income), netthe euro to U.S. dollar exchange rates were economically offset at closing in the endfinal settlement of each period. The Company recordedthe euro-denominated Omega purchase price. Because these derivatives were economically hedging a lossfuture acquisition, the cash outflow associated with their settlement is shown as an investing activity on the Consolidated Statements of $0.1 million, a gain of $4.7 million, and a loss of $2.7 million related to these contracts during fiscal 2014, 2013, and 2012, respectively.Cash Flows.
Fair Value Hedges
During the first quarter of fiscal year 2014, the Companywe entered into three pay-floating interest rate swaps with a total notional amount of $425.0 million to hedge changes in the fair value of the Company's senior notesour Private Placement Notes from fluctuations in interest rates. These swaps were designated and qualified as fair value hedges of the Company'sour fixed rate debt. Accordingly, the gain or loss recorded on the pay-floating interest rate swaps was directly offset by the change in fair value of the underlying debt. Both the derivative instrument and the underlying debt were adjusted to market value at the end of each period with any resulting gain or loss recorded in otherOther expense, (income), net. As a result,The hedge was terminated in the Company recorded a net hedge losssecond quarter of $3.2 million in other expense (income), net during fiscal 2014.
Dueyear 2014 due to the retirement of the underlying senior notes described in Note 7, the Company terminated its fair value hedges by settling the swap contracts, resulting in net proceedsnotes.
Effects of $0.9 million. In addition, a loss of $4.1 million was recognizedDerivatives on the change in the fair value of the underlying debt and was recorded in other expense (income), net, during fiscal 2014.Financial Statements
The below tables indicate the effects of all of our derivative instruments on our consolidated financial statements at June 27, 2015 and June 28, 2014. All amounts exclude income tax effects and are presented in millions.
PERRIGO COMPANY PLCPerrigo Company plc - Item 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 7
The balance sheet location and gross fair value of the Company'sour outstanding derivative instruments were as follows:
|
| | | | | | | | | |
| | Asset Derivatives |
| | | | Fair Value |
| | Balance Sheet Location | | June 27,
2015 | | June 28,
2014 |
| Designated derivatives: | | | | | |
| Foreign currency forward contracts | Other current assets | | $ | 3.3 |
| | $ | 2.8 |
|
| Total designated derivatives | | | $ | 3.3 |
| | $ | 2.8 |
|
| Non-designated derivatives: | | | | | |
| Foreign currency forward contracts | Other current assets | | $ | 9.1 |
| | $ | 0.3 |
|
| Total non-designated derivatives | | | $ | 9.1 |
| | $ | 0.3 |
|
|
| | | | | | | | | |
| | Liability Derivatives |
| | | | Fair Value |
| | Balance Sheet Location | | June 27,
2015 | | June 28,
2014 |
| Designated derivatives: | | | | | |
| Foreign currency forward contracts | Accrued liabilities | | $ | 2.0 |
| | $ | 0.7 |
|
| Interest rate swap agreements | Other non-current liabilities | | — |
| | 8.3 |
|
| Total designated derivatives | | | $ | 2.0 |
| | $ | 9.0 |
|
| Non-designated derivatives: | | | | | |
| Foreign currency forward contracts | Accrued liabilities | | $ | 2.6 |
| | $ | 0.1 |
|
| Total non-designated derivatives | | | $ | 2.6 |
| | $ | 0.1 |
|
The gains (losses) recognized in OCI for the effective portion of our designated cash flow hedges were as follows:
|
| | | | | | | | |
| | | Amount of Gain/(Loss) Recorded in OCI
(Effective Portion) |
| Designated Cash Flow Hedges | | June 27,
2015 | | June 28,
2014 |
| Treasury locks | | $ | (2.7 | ) | | $ | — |
|
| Interest rate swap agreements | | (10.1 | ) | | 7.2 |
|
| Foreign currency forward contracts | | (7.7 | ) | | 15.1 |
|
| | | $ | (20.5 | ) | | $ | 22.3 |
|
Perrigo Company plc - Item 8
Note 7
The gains (losses) reclassified from AOCI into earnings for the effective portion of our designated cash flow hedges were as follows:
|
| | | | | | | | | | |
| | | | | Amount of Gain/(Loss) Reclassified from AOCI to Income
(Effective Portion) |
| Designated Cash Flow Hedges | | Income Statement Location | | June 27,
2015 | | June 28,
2014 |
| Treasury locks | | Interest expense, net | | $ | (0.1 | ) | | $ | 0.2 |
|
| Interest rate swap agreements | | Interest expense, net | | (16.4 | ) | | 3.9 |
|
| Foreign currency forward contracts | | Net sales | | 2.0 |
| | (2.5 | ) |
| | | Cost of sales | | (4.2 | ) | | (6.3 | ) |
| | | Interest expense, net | | — |
| | (0.2 | ) |
| | | Other expense, net | | (4.5 | ) | | (2.2 | ) |
| | | | | $ | (23.2 | ) | | $ | (7.1 | ) |
We expect to reclassify a $1.2 million loss out of AOCI into earnings during the next 12 months.
The gains (losses) recognized against earnings for the ineffective portion of our designated cash flow hedges were as follows:
|
| | | | | | | | | | |
| | | | | Amount of Gain/(Loss) Recognized in Income
(Ineffective Portion) |
| Designated Cash Flow Hedges | | Income Statement Location | | June 27,
2015 | | June 28,
2014 |
| Treasury locks | | Other expense, net | | $ | (0.4 | ) | | $ | 2.3 |
|
| Interest rate swap agreements | | Other expense, net | | (0.7 | ) | | (5.4 | ) |
| Foreign currency forward contracts | | Net sales | | (0.1 | ) | | (0.1 | ) |
| | | Cost of sales | | 0.2 |
| | 0.3 |
|
| Total | | | | $ | (1.0 | ) | | $ | (2.9 | ) |
The effects of our fair value hedges on the Consolidated Statements of Operations were as follows:
|
| | | | | | | | | | |
| | | | | Amount of Gain/(Loss) Recognized in Income |
| Designated Fair Value Hedges | | Income Statement Location | | June 27,
2015 | | June 28,
2014 |
| Interest rate swap agreements | | Other expense, net | | $ | — |
| | $ | 0.9 |
|
| Fixed-rate debt | | Other expense, net | | — |
| | (4.1 | ) |
| Net hedge | | | | $ | — |
| | $ | (3.2 | ) |
The effects of our non-designated derivatives on the Consolidated Statements of Operations were as follows:
|
| | | | | | | | | | |
| | | | | Amount of Gain/(Loss) Recognized in Income |
| Non-Designated Derivatives | | Income Statement Location | | June 27,
2015 | | June 28,
2014 |
| Foreign currency forward contracts | | Other expense, net | | $ | (295.4 | ) | | $ | (0.1 | ) |
| | | Interest expense, net | | (3.4 | ) | | — |
|
| Foreign exchange option contracts | | Other expense, net | | (26.4 | ) | | — |
|
| Total | | | | $ | (325.2 | ) | | $ | (0.1 | ) |
Perrigo Company plc - Item 8
Note 8
NOTE 8 – INDEBTEDNESS
Debt
Total borrowings outstanding at June 27, 2015 and June 28, 2014 and June 29, 2013 wereare summarized as follows (in millions):
|
| | | | | | | | | |
| | Asset Derivatives |
| | Balance Sheet Location | | Fair Value |
| | | | June 28, 2014 | | June 29, 2013 |
| Hedging derivatives: | | | | | |
| Foreign currency forward contracts | Other current assets | | $ | 2.8 |
| | $ | 7.2 |
|
| Total hedging derivatives | | | $ | 2.8 |
| | $ | 7.2 |
|
| Non-hedging derivatives: | | | | | |
| Foreign currency forward contracts | Other current assets | | $ | 0.3 |
| | $ | 0.8 |
|
| Total non-hedging derivatives | | | $ | 0.3 |
| | $ | 0.8 |
|
|
| | | | | | | | | |
| | Liability Derivatives |
| | Balance Sheet Location | | Fair Value |
| | | | June 28, 2014 | | June 29, 2013 |
| Hedging derivatives: | | | | | |
| Foreign currency forward contracts | Accrued liabilities | | $ | 0.7 |
| | $ | 0.2 |
|
| Interest rate swap agreements | Other non-current liabilities | | 8.3 |
| | 10.8 |
|
| Total hedging derivatives | | | $ | 9.0 |
| | $ | 11.0 |
|
| Non-hedging derivatives: | | | | | |
| Foreign currency forward contracts | Accrued liabilities | | $ | 0.1 |
| | $ | 0.2 |
|
| Total non-hedging derivatives | | | $ | 0.1 |
| | $ | 0.2 |
|
The effects (gross of tax) of the Company's cash flow hedges on the Statements of Operations and Statements of Other Comprehensive Income (Loss) at June 28, 2014 and June 29, 2013 were as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives Qualifying for Cash Flow Hedging | | Amount of (Gain)/ Loss Recognized in OCI on Derivative (Effective Portion) | | Location and Amount of (Gain)/Loss Reclassified from Accumulated OCI into Income (Effective Portion) | | Location and Amount of (Gain)/Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
| | | June 28, 2014 | | June 29, 2013 | | | | June 28, 2014 | | June 29, 2013 | | | | June 28, 2014 | | June 29, 2013 |
| T-Locks | | $ | — |
| | $ | — |
| | Interest, net | | $ | (0.2 | ) | | $ | 0.4 |
| | Interest, net | | $ | (2.3 | ) | | $ | — |
|
| Interest rate swap agreements | | (7.2 | ) | | 1.3 |
| | Interest, net | | (3.9 | ) | | (5.0 | ) | | Interest, net | | 5.4 |
| | — |
|
| Foreign currency forward contracts | | (15.1 | ) | | 10.6 |
| | Net sales | | 2.5 |
| | 2.9 |
| | Net sales | | 0.1 |
| | — |
|
| | | | | | | Cost of sales | | 6.3 |
| | (4.3 | ) | | Cost of sales | | (0.3 | ) | | (0.2 | ) |
| | | | | | | Interest, net | | 0.2 |
| | 0.1 |
| | | | | | |
| | | | | | | Other (income)expense, net | | 2.2 |
| | 3.2 |
| | | | | | |
| Total | | $ | (22.3 | ) | | $ | 11.9 |
| | | | $ | 7.1 |
| | $ | (2.7 | ) | | | | $ | 2.9 |
| | $ | (0.2 | ) |
The Company expects $5.1 million to be reclassified from AOCI into earnings over the next 12 months. This reclassification is due to the sale of inventory that includes previously hedged purchases and the amortization of the gain or loss recognized on the settlement of the Company's interest rate swaps.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The effects (gross of tax) of the Company's fair value hedges on the Statements of Operations at June 28, 2014 and June 29, 2013 were as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | |
| Fair Value Hedges | | Location and Amount of (Gain)/Loss Recognized into Income | | Related Hedged Item | | Location and Amount of (Gain)/Loss Recognized in Income on Related Hedged Item |
| | | | June 28, 2014 | | June 29, 2013 | | | | | June 28, 2014 | | June 29, 2013 |
| Interest rate swap agreements | | Other expense (income), net | $ | (0.9 | ) | | $ | — |
| | Fixed-rate debt | | Other expense (income), net | $ | 4.1 |
| | $ | — |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – INDEBTEDNESS
Total borrowing outstanding are summarized as follows (in millions):
|
| | | | | | | |
| | June 28,
2014 | | June 29,
2013 |
| Short term debt | $ | 2.1 |
| | $ | 5.0 |
|
| | | | |
| Term loans | | | |
| 2011 Term Loan due October 26, 2016 | — |
| | 400.0 |
|
| 2013 Term Loan due December 18, 2015 | 300.0 |
| | — |
|
| 2013 Term Loan due December 18, 2018 | 630.0 |
| | — |
|
| | 930.0 |
| | 400.0 |
|
| Senior notes | | | |
5.97% Unsecured Senior Notes due May 29, 2015(1) | — |
| | 75.0 |
|
4.91% Unsecured Senior Notes due April 30, 2017(1) | — |
| | 115.0 |
|
6.37% Unsecured Senior Notes due May 29, 2018(1) | — |
| | 125.0 |
|
5.45% Unsecured Senior Notes due April 30, 2020(1) | — |
| | 150.0 |
|
4.27% Unsecured Senior Notes due September 30, 2021(1) | — |
| | 75.0 |
|
5.55% Unsecured Senior Notes due April 30, 2022(1) | — |
| | 150.0 |
|
2.95% Unsecured Senior Notes due May 15, 2023, net of unamortized discount of $3.1 million | — |
| | 596.9 |
|
4.52% Unsecured Senior Notes due December 15, 2023(1) | — |
| | 175.0 |
|
4.67% Unsecured Senior Notes due September 30, 2026(1) | — |
| | 100.0 |
|
1.30% Unsecured Senior Notes due November 8, 2016, net of unamortized discount of $0.4 million(2) | 499.6 |
| | — |
|
2.30% Unsecured Senior Notes due November 8, 2018, net of unamortized discount of $0.7 million(2) | 599.3 |
| | — |
|
4.00% Unsecured Senior Notes due November 15, 2023, net of unamortized discount of $3.2 million(2) | 796.8 |
| | — |
|
5.30% Unsecured Senior Notes due November 15, 2043, net of unamortized discount of $1.7 million(2) | 398.3 |
| | — |
|
| | 2,294.0 |
| | 1,561.9 |
|
| | | | |
| Other financing | 8.1 |
| | 7.1 |
|
| | | | |
| Total borrowings outstanding | 3,234.2 |
| | 1,974.1 |
|
| Less short-term debt and current portion of long-term debt | (143.7 | ) | | (46.2 | ) |
| Total long-term debt, less current portion | $ | 3,090.5 |
| | $ | 1,927.8 |
|
|
| | | | | | | | | | | |
| | | | | | June 27,
2015 | | June 28,
2014 |
| Short term debt | | | $ | 6.4 |
| | $ | 2.1 |
|
| Term loans | | | | | |
| | 2013 Term loan due December 18, 2015 | — |
| | 300.0 |
|
| | 2013 Term loan due December 18, 2018 | — |
| | 630.0 |
|
| * | 2014 Term loan due December 5, 2019 | 530.5 |
| | — |
|
| | Total term loans | | | 530.5 |
| | 930.0 |
|
| Public bonds | | | | | |
| | Coupon | Due | | | | | |
| | 1.300% | November 8, 2016 | (2) | | 500.0 |
| | 500.0 |
|
| * | 4.500% | May 23, 2017 | (3) | | 201.0 |
| | — |
|
| * | 5.125% | December 12, 2017 | (3) | | 335.0 |
| | — |
|
| | 2.300% | November 8, 2018 | (2) | | 600.0 |
| | 600.0 |
|
| * | 5.000% | May 23, 2019 | (3) | | 134.1 |
| | — |
|
| | 3.500% | December 15, 2021 | (1) | | 500.0 |
| | — |
|
| * | 5.105% | July 19, 2023 | (3) | | 150.8 |
| | — |
|
| | 4.000% | November 15, 2023 | (2) | | 800.0 |
| | 800.0 |
|
| | 3.900% | December 15, 2024 | (1) | | 700.0 |
| | — |
|
| | 5.300% | November 15, 2043 | (2) | | 400.0 |
| | 400.0 |
|
| | 4.900% | December 15, 2044 | (1) | | 400.0 |
| | — |
|
| | Total public bonds | | | 4,720.9 |
| | 2,300.0 |
|
| Other financing | 6.6 |
| | 8.1 |
|
| Unamortized premium (discount), net | 87.5 |
| | (6.0 | ) |
| Deferred financing fees | (40.5 | ) | | (27.4 | ) |
| Total borrowings outstanding | 5,311.4 |
| | 3,206.8 |
|
| | Less short-term debt and current portion of long-term debt | (64.6 | ) | | (143.7 | ) |
| Total long-term debt less current portion | $ | 5,246.8 |
| | $ | 3,063.1 |
|
| |
(1) | Private placement unsecured senior notes under Master Note Purchase AgreementPublic bonds issued on December 2, 2014, discussed below collectively as the "2014 Bonds." |
collectively as the "Notes".
| |
(2) | Private placement unsecured senior notes with registration rights as of June 28, 2014 and public bonds as of October 1, 2014, discussed below collectively as the "Bonds"."2013 Bonds." |
| |
(3) | Debt assumed from Omega. |
| |
| * | Debt denominated in euros subject to fluctuations in the euro to U.S. dollar exchange rate. |
UnamortizedWe were in compliance with all covenants under our various debt agreements as of June 27, 2015 and June 28, 2014.
Omega Financing
Bridge Agreement
In connection with the Omega acquisition, on November 6, 2014, we entered into a €1.75 billion ($2.2 billion) senior unsecured 364-day bridge loan facility (the "Bridge Loan Facility"). Upon issuance of our permanent debt financing described below, the Bridge Loan Facility was terminated on December 3, 2014. At no time did we draw upon the Bridge Loan Facility.
Perrigo Company plc - Item 8
Note 8
Debt Issuance
On December 2, 2014, Perrigo Finance plc, our 100% owned finance subsidiary ("Perrigo Finance"), issued $500.0 million in aggregate principal amount of 3.50% senior notes due 2021 (the "2021 Notes”), $700.0 million in aggregate principal amount of 3.90% senior notes due 2024 (the “2024 Notes”), and $400.0 million in aggregate principal amount of 4.90% senior notes due 2044 (the “2044 Notes” and, together with the 2021 Notes and the 2024 Notes, the “2014 Bonds”). Interest on the 2014 Bonds is payable semiannually in arrears in June and December of each year, beginning in June 2015. The 2014 Bonds are governed by a base indenture and a first supplemental indenture (collectively the "2014 Indenture"). The 2014 Bonds are fully and unconditionally guaranteed on a senior unsecured basis by Perrigo Company plc, and no other subsidiary of Perrigo Company plc guarantees the 2014 Bonds. There are no restrictions under the 2014 Bonds on our ability to obtain funds from our subsidiaries. Perrigo Finance received net proceeds of approximately $1.6 billion from issuance of the 2014 Bonds after fees and market discount. Perrigo Finance may redeem the 2014 Bonds in whole or in part at any time for cash at the make-whole redemption prices described in the 2014 Indenture.
On December 5, 2014, Perrigo Finance entered into a term loan agreement consisting of a €500.0 million ($614.3 million) tranche, with the ability to draw an additional €300.0 million ($368.6 million) tranche, maturing December 5, 2019, and a $600.0 million revolving credit agreement which stepped up to $1.0 billion upon the closing of the Omega acquisition (the "2014 Revolver") (together, the "2014 Credit Agreements"), and Perrigo Company plc ("Perrigo Company") entered into a $300.0 million term loan tranche maturing December 18, 2015. There were no borrowings outstanding under the 2014 Revolver as of June 27, 2015.
Debt Extinguishment
On December 5, 2014, we repaid the remaining $895.0 million outstanding under our 2013 Term Loan, then terminated both the 2013 Term Loan and 2013 Revolver described below in "Elan Financing." On June 25, 2015, we repaid the $300.0 million 2014 Term Loan. We recorded a $10.5 million loss on extinguishment of debt during fiscal year 2015, which consisted of the Bridge Loan Facility interest expense and deferred financing fees totaled $27.4 million as of June 28,related to the 2013 Term Loan, 2013 Revolver and 2014 and $13.9 million as of June 29, 2013.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSTerm Loan.
Assumed Debt and Repayment
Bridge Agreements In connection with the Omega acquisition, we assumed $20.0 million in aggregate principal amount of 6.19% senior notes due 2016 ("2016 Notes"), €135.0 million ($147.0 million) in aggregate principal amount of 5.1045% senior notes due 2023 ("2023 Notes"), €300.0 million ($326.7 million) in aggregate principal amount of 5.125% retail bonds due 2017, €180.0 million ($196.0 million) in aggregate principal amount of 4.500% retail bonds due 2017, €120.0 million ($130.7 million) in aggregate principal amount of 5.000% retail bonds due 2019 (collectively, the "Retail Bonds"), a revolving credit facility with €500.0 million ($544.5 million) outstanding, and certain overdraft facilities totaling €51.4 million ($56.0 million). The fair value of the 2023 Notes and Retail Bondsexceeded par value by €93.6 million($101.9 million) on the date of the acquisition. As a result, a fair value adjustment was recorded as part of the carrying value of the underlying debt and will be amortized as a reduction of interest expense over the remaining terms of the respective debt instruments. The adjustment does not affect cash interest payments.
On April 8, 2015, we repaid the €500.0 million ($539.1 million) outstanding under the assumed Omega's revolving credit facility and terminated the facility. On May 29, 2015, we repaid the $20.0 million 2016 Notes.
Elan Financing
Bridge Agreement
In connection with the Elan acquisition, on July 28, 2013, the Companywe entered into a $2.65 billion Debt Bridge Credit Agreementdebt bridge credit agreement (the "Debt Bridge") and a $1.7 billion Cash Bridge Credit Agreementcash bridge credit agreement (the "Cash Bridge") with HSBC Bank USA, N.A. as Syndication Agent, Barclays Bank PLC as Administrative Agent and certain other participant banks (together, the "Bridge Credit Agreements"). The termination of commitments under such Bridge Credit Agreements was contingent on various factors, but not to be later than July 29, 2014. The funding commitment under the Debt Bridge was reduced by $1.0 billion on September 6, 2013 upon completion ofand the Company’s Term Loan Agreement (see below) and by an additional $1.65 billionCash Bridge agreements were terminated on November 8, 2013 upon funding into escrow of the Company’s public bond offering (see below), at which time the Debt Bridge was terminated. The commitments under the Cash Bridge were terminated onand December 24, 2013.2013, respectively. At no time did the Companywe draw under the Bridge Credit Agreements. The
Perrigo Company incurred commitment fees under the Bridge Credit Agreements at a per annum rate of 0.175% from July 28, 2013 to termination of the Bridge Credit Agreements totaling $0.7 million for fiscal 2014. In addition, fees paid in relation to entering into the Bridge Credit Agreements totaled $19.0 million and were included in loss on debt extinguishment on the Company's Consolidated Statements of Operations for fiscal 2014.plc - Item 8
Extinguishment of Old Note 8
Debt Issuance
In NovemberOn September 6, 2013, Perrigo Company entered into a wholly owned subsidiary$1.0 billion term loan agreement (the "2013 Term Loan") and a $600.0 million revolving credit agreement (the "2013 Revolver") (together, the "2013 Credit Agreements"). The 2013 Term Loan consisted of a $300.0 million tranche maturing December 18, 2015 and a $700.0 million tranche maturing December 18, 2018. Both tranches were drawn in full on December 18, 2013. Amounts outstanding under the 2013 Credit Agreements bore interest at our option (a) at the alternative base rate or (b) the eurodollar rate plus, in either case, applicable margins as set forth in the 2013 Credit Agreements. Our obligations under the 2013 Credit Agreements were guaranteed by Perrigo Company plc, certain U.S. subsidiaries of Perrigo Company plc, Elan, and certain Irish subsidiaries of Elan until November 21, 2014, at which time the terms of the 2013 Credit Agreements were amended to remove all guarantors.
On November 8, 2013, Perrigo Company made scheduled payments totaling $40.0issued $500.0 million againstaggregate principal amount of its 2011 term loan. 1.30% senior notes due 2016 (the "2016 Notes"), $600.0 million aggregate principal amount of its 2.30% senior notes due 2018 (the "2018 Notes"), $800.0 million aggregate principal amount of its 4.00% senior notes due 2023 (the "2023 Notes") and $400.0 million aggregate principal amount of its 5.30% senior notes due 2043 (the "2043 Notes" and, together with the 2016 Notes, the 2018 Notes and the 2023 Notes, the "2013 Bonds") in a private placement with registration rights. Interest on the 2013 Bonds is payable semiannually in arrears in May and November of each year, beginning in May 2014. The 2013 Bonds are governed by a base indenture and a first supplemental indenture (collectively, the "2013 Indenture"). The 2013 Bonds are the Company's unsecured and unsubordinated obligations, ranking equally in right of payment to all of Perrigo Company existing and future unsecured and unsubordinated indebtedness. Perrigo Company received net proceeds of $2.3 billion from issuance of the 2013 Bonds after fees and market discount. The 2013 Bonds are not entitled to mandatory redemption or sinking fund payments. We may redeem the 2013 Bonds in whole or in part at any time for cash at the make-whole redemption prices described in the 2013 Indenture. The 2013 Bonds were guaranteed on an unsubordinated, unsecured basis by the same entities that guaranteed the 2013 Credit Agreement until November 21, 2014, at which time the 2013 Indenture was amended to remove all guarantors.
On September 2, 2014, we offered to exchange our private placement senior notes with public bonds (the "Exchange Offer"). The Exchange Offer expired on October 1, 2014, at which time substantially all of the private placement notes had been exchanged for bonds registered with the Securities and Exchange Commission. As a result of the changes in the guarantor structure noted above, we are no longer required to present guarantor financial statements.
Debt Extinguishment
On December 18, 2013, the Companywe repaid the remaining principal balance of $360.0 million, together with accrued interest and fees of $0.4$360.0 million then outstanding under itsour credit agreement dated as of October 26, 2011, with JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Morgan Stanley Senior Funding, Inc., as Syndication Agents and certain other participant banks (the "2011 Credit Agreement"). Upon completion of such payment,then terminated the 2011 Credit Agreement was terminated in its entirety.agreement.
On November 20, 2013, Perrigo Companywe priced a Tender Offertender offer and Consent Solicitation inconsent solicitation with regard to theour 2.95% Notes, which were issued pursuant to the Indentureindenture dated as of May 16, 2013 between Perrigo Company and Wells Fargo Bank, National Association (the "Indenture"). Total2013. The total tender consideration ofwas $578.3 million was comprised of an aggregate principal amount of $571.6 million, a make-whole premium of $4.9 million, and accrued interest of $1.8 million. On December 26, 2013, pursuant to the Indenture, notice was given to holders that the remaining notes not duly tendered would be redeemed on December 27, 2013 at a redemption price of par plus accrued interest. On December 27, 2013, the redemption was completed for a total payment of $28.5 million comprised of aggregate principal of $28.4 million and accrued interest of $0.1 million. Upon completion of the redemption, the Indentureindenture was terminated.
On December 23, 2013, Perrigo Companywe completed the prepayment of all obligations under its private placement senior notes (the "Notes").our Private Placement Notes. All of the Notes were outstanding under the Master Note Purchase Agreementmaster note purchase agreement dated May 29, 2008 with various institutional investors (the "Note Agreement"). The terms of the Note Agreement provided for prepayment at any time at Perrigo Company’sour option together with applicable make-whole premiums and accrued interest. The total payment of $1,099.6 million was comprised of $965.0 million for the face amount of the Notes, $128.5 million for the make-whole premium, and $6.1 million for accrued interest.interest, which totaled $1.1 billion. Upon completion of the prepayment, the Note Agreement was terminated.
Perrigo Company plc - Item 8
Note 8
As a result of the debt retirements, the Companywe recorded a loss of $165.8 million during fiscal year 2014 as follows (in millions):
|
| | | | |
| | | Fiscal 2014 |
| Make-whole payments | | $ | 133.5 |
|
| Write-off of financing fees on Bridge Agreements | | 19.0 |
|
| Write-off of deferred financing fees on old debt | | 10.5 |
|
| Write-off of unamortized discount | | 2.8 |
|
| Total loss on extinguishment of debt | | $ | 165.8 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Issuance of New Debt
On September 6, 2013, the Company entered into a $1.0 billion Term Loan Agreement (the "Term Loan") and a $600.0 million Revolving Credit Agreement (the "Revolver") with Barclays Bank PLC as Administrative Agent, HSBC Bank USA, N.A. as Syndication Agent, Bank of America, N.A., JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A. as Documentation Agents and certain other participant banks (together, the "Permanent Credit Agreements"). The Term Loan consists of a $300.0 million tranche maturing December 18, 2015 and a $700.0 million tranche maturing December 18, 2018. Both tranches were drawn in full on December 18, 2013. No amounts were outstanding under the Revolver as of June 28, 2014. Obligations of the Company under the Permanent Credit Agreements are guaranteed by Perrigo Company, certain U.S. subsidiaries of Perrigo Company, Elan, and certain Irish subsidiaries of Elan. Amounts outstanding under each of the Permanent Credit Agreements will bear interest at the Company’s option (a) at the alternative base rate or (b) the eurodollar rate plus, in either case, applicable margins as set forth in the Permanent Credit Agreements.
On November 8, 2013, the Company issued $500.0 million aggregate principal amount of its 1.30% Senior Notes due 2016 (the "2016 Notes"), $600.0 million aggregate principal amount of its 2.30% Senior Notes due 2018 (the "2018 Notes"), $800.0 million aggregate principal amount of its 4.00% Senior Notes due 2023 (the "2023 Notes") and $400.0 million aggregate principal amount of its 5.30% Senior Notes due 2043 (the "2043 Notes" and, together with the 2016 Notes, the 2018 Notes and the 2023 Notes, the "Bonds") in a private placement with registration rights. Interest on the Bonds is payable semiannually in arrears in May and November of each year, beginning in May 2014. The Bonds are governed by a Base Indenture and a First Supplemental Indenture between the Company and Wells Fargo Bank N.A., as trustee (collectively the "2013 Indenture"). The Bonds are the Company’s unsecured and unsubordinated obligations, ranking equally in right of payment to all of the Company’s existing and future unsecured and unsubordinated indebtedness and are guaranteed on an unsubordinated, unsecured basis by the Company's subsidiaries that guarantee the Permanent Credit Agreements. The Company received net proceeds of $2.3 billion from issuance of the Bonds after deduction of issuance costs of $14.6 million and a market discount of $6.3 million. The Bonds are not entitled to mandatory redemption or sinking fund payments. The Company may redeem the Bonds in whole or in part at any time and from time to time for cash at the redemption prices described in the 2013 Indenture. |
| | | | |
| Make-whole payments | | $ | 133.5 |
|
| Write-off of financing fees on Bridge Credit Agreements | | 19.0 |
|
| Write-off of deferred financing fees | | 10.5 |
|
| Write-off of unamortized discount | | 2.8 |
|
| Total loss on extinguishment of debt | | $ | 165.8 |
|
The Company was in compliance with all covenants under its various debt agreements as of Future MaturitiesJune 28, 2014.
The annual future maturities of our short-term and long-term debt, including capitalized leases, are as follows (in millions):
|
| | | |
| Fiscal Year | Amount |
| 2015 | $ | 144.9 |
|
| 2016 | 443.4 |
|
| 2017 | 641.7 |
|
| 2018 | 140.2 |
|
| 2019 | 670.0 |
|
| Thereafter | 1,200.0 |
|
NOTE 8 – ACCOUNTS RECEIVABLE SECURITIZATION |
| | | | |
| Payment Due | | Amount |
| < 1 year | | $ | 65.0 |
|
| 1-2 years | | 758.5 |
|
| 2-3 years | | 399.1 |
|
| 3-4 years | | 811.3 |
|
| 4-5 years | | 279.5 |
|
| > 5 years | | 2,950.8 |
|
On July 23, 2009, the Company entered into anAccounts Receivable Securitization
We previously had a $200.0 million accounts receivable securitization program. This program (the "Securitization Program") with several of its wholly owned subsidiariesexpired June 12, 2015, and Bank of America Securities, LLC. The program was most recently renewed for one year on June 13, 2014 with Wells Fargo Bank, National Association ("Wells Fargo") as sole agent.
The Securitization Program is a one-year program, expiring June 13, 2015. Under the terms of the Securitization Program, the subsidiaries sell certain eligible trade accounts receivableswe chose not to a wholly owned bankruptcy-remote special purpose entity ("SPE"), Perrigo Receivables, LLC. The Company has retained servicing responsibility for those receivables. The SPE will then transfer an interest in the receivables to the Committed Investors. Under the terms of the Securitization Program, Wells Fargo has committed $200.0 million, effectively
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
allowing the Company to borrow up to that amount, subject to a Maximum Net Investment calculation as defined in the agreement. At June 28, 2014, the entire $200.0 million committed amount of the Securitization Program was available under this calculation. The annual interest rate on any borrowing is equal to thirty-day LIBOR plus 0.375%. In addition, an annual facility fee of 0.375% is applied to the entire $200.0 million commitment whether borrowed or undrawn. Under the terms of the Securitization Program, the Company may elect to have the entire amount or any portion of the facility unutilized.
Any borrowing made pursuant to the Securitization Program will be classified as short-term debt in the Company’s Consolidated Balance Sheets. The amount of the eligible receivables will vary during the year based on seasonality of the business and could, at times, limit the amount available to the Company from the sale of these interests. At June 28, 2014 and June 29, 2013, thererenew it. There were no borrowings outstanding under the Securitization Program.securitization program at June 28, 2014.
NOTE 9 – EARNINGS PER SHARE AND SHAREHOLDERS' EQUITY
Earnings per Share
A reconciliation of the numerators and denominators used in theour basic and diluted EPS calculation is as follows (in millions):
|
| | | | | | | | | | | |
| | Fiscal Year |
| | 2014 | | 2013 | | 2012 |
| Numerator: | | | | | |
| Income from continuing operations | $ | 205.3 |
| | $ | 441.9 |
| | $ | 393.0 |
|
| Income from discontinued operations, net of tax | — |
| | — |
| | 8.6 |
|
| Net income used for both basic and diluted EPS | $ | 205.3 |
| | $ | 441.9 |
| | $ | 401.6 |
|
| Denominator: | | | | | |
| Weighted average shares outstanding for basic EPS | 115.1 |
| | 93.9 |
| | 93.2 |
|
| Dilutive effect of share-based awards | 0.5 |
| | 0.6 |
| | 0.8 |
|
| Weighted average shares outstanding for diluted EPS | 115.6 |
| | 94.5 |
| | 94.1 |
|
Share-based awards outstanding that were anti-dilutive totaled 0.1 million, 0.2 million, and 0.2 million for fiscal 2014, 2013 and 2012, respectively. Share-based awards that were anti-dilutive were excluded from the diluted EPS calculation.
NOTE 10 – SHAREHOLDERS’ EQUITY |
| | | | | | | | | | | |
| | Fiscal Year |
| | 2015 | | 2014 | | 2013 |
| Numerator: | | | | | |
| Net income | $ | 128.0 |
| | $ | 205.3 |
| | $ | 441.9 |
|
| | | | | | |
| Denominator: | | | | | |
| Weighted average shares outstanding for basic EPS | 139.3 |
| | 115.1 |
| | 93.9 |
|
| Dilutive effect of share-based awards | 0.5 |
| | 0.5 |
| | 0.6 |
|
| Weighted average shares outstanding for diluted EPS | 139.8 |
| | 115.6 |
| | 94.5 |
|
| | | | | | |
| Anti-dilutive share-based awards excluded from computation of diluted EPS | 0.1 |
| | 0.1 |
| | 0.2 |
|
Shareholder's Equity
On and prior to December 18, 2013, our common stock consisted of common stock of Perrigo Company, a Michigan Corporation, and since December 19, 2013, our common stock has consisted of ordinary shares of Perrigo Company plc, incorporated under the laws of Ireland.
Perrigo Company plc - Item 8
Note 9
Prior to June 6, 2013, our common stock traded on the NASDAQ Global Select Market ("NASDAQ") under the symbol PRGO. Since June 6, 2013, our ordinary shares have traded on the New York Stock Exchange ("NYSE") under the symbol PRGO. In association with the acquisition of Agis Industries (1983) Ltd., our ordinary shares have been trading on the Tel Aviv Stock Exchange ("TASE") since March 16, 2005.
In January 2003, the Board of Directors adopted a policy of paying quarterly dividends. The CompanyWe paid dividends of $46.1$64.8 million,, $33.0 $46.1 million, and $29.0$33.0 million,, or $0.39, $0.35$0.46, $0.39, and $0.31$0.35 per share, during fiscal years 2015, 2014,, 2013 and 2012,2013, respectively. The declaration and payment of dividends and the amount paid, if any, are subject to the discretion of the Board of Directors and depend on theour earnings, financial condition, capital and surplus requirements of the Company and other factors the Board of Directors may consider relevant.
The Company does not currently have a common stock repurchase program, but does repurchase shares in private party transactions from time to time. Private party transactions are shares repurchased in connection with the vesting of restricted stock awards to satisfy employees' minimum statutory tax withholding obligations. During fiscal 2014, the Company repurchased 60 thousand shares of common stock for $7.5 million in private party transactions. During fiscal 2013 and 2012, the Company repurchased 112 thousand and 90 thousand shares of common stock for $12.4 million and $8.2 million, respectively, in private party transactions. All ordinary shares repurchased by the Company will either be canceled or held as treasury shares available for reissuance in the future for general corporate purposes.
Share-Based Compensation PlansNOTE 10 – SHARE-BASED COMPENSATION PLANS
All share-based compensation for employees and directors is granted under the 20082013 Long-Term Incentive Plan (the "Plan"), as amended. The planPlan has been approved by the Company’sour shareholders and provides for the granting of awards to itsour employees and directors. As of June 28, 201427, 2015, there were 5.55.1 million shares available to be granted.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The purpose of the planPlan is to attract and retain individuals of exceptional managerial talent and encourage these individuals to acquire a vested interest in the Company’sCompany's success and prosperity. The awards that are granted under this program include non-qualified stock options, restricted shares, and restricted share units. Restricted shares are generally service-based, requiring a certain length of service before vesting occurs, while restricted share units can be either service-based or performance-based. Performance-based restricted share units require a certain length of service until vesting; however, they contain an additional performance feature, which can vary the amount of shares ultimately paid out based on certain performance criteria specified in the plan.Plan. Awards granted under the planPlan vest and may be exercised and/or sold from one to ten years after the date of grant based on a vesting schedule.
Share-based compensation expense was $31.6 million for fiscal year 2015, $24.6 million for fiscal year 2014, and $18.4 million for fiscal year 2013, and $19.0 million for fiscal 2012. As of June 28, 201427, 2015, unrecognized share-based compensation expense was $23.435.3 million, and the weighted averageweighted-average period over which the expense is expected to be recognized was approximately 1.91.7 years. Proceeds from the exercise of stock options and excess income tax benefits attributable to stock options exercised are credited to common stock.ordinary shares.
Stock Options
A summary of activity related to stock options is presented below (in thousands, except per share amounts)(options in thousands):
| | | | Fiscal Year Ended June 28, 2014 | Fiscal Year Ended June 27, 2015 |
| | Number of Options | | Weighted Average Exercise Price Per Share | | Weighted Average Remaining Term in Years | | Aggregate Intrinsic Value | Number of Options | | Weighted-Average Exercise Price Per Share | | Weighted- Average Remaining Term in Years | | Aggregate Intrinsic Value |
| Beginning options outstanding | 891 |
| | $ | 63.24 |
| | | | | 850 |
| | $ | 77.26 |
| | | | |
| Granted | 165 |
| | $ | 119.87 |
| | | | | 181 |
| | $ | 147.75 |
| | |
| Exercised | (200 | ) | | $ | 48.94 |
| | | | | (170 | ) | | $ | 49.26 |
| | |
| Forfeited or expired | (6 | ) | | $ | 110.53 |
| | | | | (4 | ) | | $ | 128.76 |
| | |
| Ending options outstanding | 850 |
| | $ | 77.26 |
| | 6.4 |
| | $ | 58.4 |
| 857 |
| | $ | 97.49 |
| | 6.6 | | $ | 79.8 |
|
| | | | | | | | | | | | | |
| Options exercisable | 491 |
| | $ | 53.06 |
| | 4.9 |
| | $ | 45.6 |
| 515 |
| | $ | 74.16 |
| | 5.4 | | $ | 59.9 |
|
| Options expected to vest | 351 |
| | $ | 110.15 |
| | 8.3 |
| | $ | 12.6 |
| 334 |
| | $ | 132.47 |
| | 8.4 | | $ | 19.4 |
|
The aggregate intrinsic value for options exercised during the year was $20.7 million for fiscal year 2015, $17.8 million for fiscal year 2014, and $29.5 million for fiscal year 2013 and $38.9 million for fiscal 2012. The weighted averageweighted-average fair value per share at the grant date for options granted during the year was $39.96 for fiscal year 2015, $38.28 for fiscal year 2014, and $34.24 for fiscal year 2013 and $28.68 for fiscal 2012. The fair values were estimated using the Black-Scholes option pricing model with the following weighted averageweighted-average assumptions:
Perrigo Company plc - Item 8
Note 10
| | | | Fiscal Year | Fiscal Year |
| | 2014 | | 2013 | | 2012 | 2015 | | 2014 | | 2013 |
| Dividend yield | 0.3 | % | | 0.3 | % | | 0.4 | % | 0.3 | % | | 0.3 | % | | 0.3 | % |
| Volatility, as a percent | 32.7 | % | | 34.9 | % | | 34.7 | % | 27.1 | % | | 32.7 | % | | 34.9 | % |
| Risk-free interest rate | 1.8 | % | | 0.8 | % | | 1.0 | % | 1.7 | % | | 1.8 | % | | 0.8 | % |
| Expected life in years | 5.3 |
| | 5.4 |
| | 5.4 |
| 5.3 |
| | 5.3 |
| | 5.4 |
|
The valuation model utilizes historical volatility. The risk-free interest rate is based on the yield of U.S. government securities with a maturity date that coincides with the expected term of the option. The expected life in years is estimated based on past exercise behavior of employees.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NonvestedNon-Vested Restricted Shares
A summary of activity related to nonvested restricted shares is presented below (in thousands, except per share amounts)(shares in thousands):
| | | | Fiscal Year Ended June 28, 2014 | Fiscal Year Ended June 27, 2015 |
| | Number of Nonvested Shares | | Weighted Average Grant Date Fair Value Per Share | | Weighted Average Remaining Term in Years | | Aggregate Intrinsic Value | Number of Shares | | Weighted- Average Grant Date Fair Value Per Share | | Weighted- Average Remaining Term in Years | | Aggregate Intrinsic Value |
| Beginning nonvested restricted shares outstanding | 9 |
| | $ | 100.84 |
| | | | | |
| Beginning non-vested restricted shares outstanding | | 9 |
| | $ | 100.84 |
| | | | |
| Granted | 16 |
| | $ | 145.19 |
| | | — |
| | $ | — |
| | |
| Vested | (16 | ) | | $ | 145.19 |
| | | (9 | ) | | $ | 100.84 |
| | |
| Forfeited | — |
| | $ | — |
| | | — |
| | $ | — |
| | |
| Ending nonvested restricted shares outstanding | 9 |
| | $ | 100.84 |
| | 0.4 | | $ | 1,267 |
| |
| Ending non-vested restricted shares outstanding | | — |
| | $ | — |
| | 0.0 | | $ | — |
|
There were no shares granted in fiscal year 2015. The weighted averageweighted-average fair value per share at the date of grant for restricted shares granted during the year was $145.19 for fiscal year 2014, and $100.84 for fiscal year 2013 and $89.42 for fiscal 2012. The total fair value of restricted shares that vested during the year was $0.9 million for fiscal year 2015, $2.3 million for fiscal year 2014, and $0.6 million for fiscal year 2013 and $0.7 million for fiscal 2012.
NonvestedNon-vested Service-Based Restricted Share Units
A summary of activity related to nonvestednon-vested service-based restricted share units is presented below (in thousands, except per share amounts)(units in thousands):
| | | | Fiscal Year Ended June 28, 2014 | Fiscal Year Ended June 27, 2015 |
| | Number of Nonvested Service- Based Share Units | | Weighted Average Grant Date Fair Value Per Share | | Weighted Average Remaining Term in Years | | Aggregate Intrinsic Value | Number of Non-vested Service- Based Share Units | | Weighted- Average Grant Date Fair Value Per Share | | Weighted- Average Remaining Term in Years | | Aggregate Intrinsic Value |
| Beginning nonvested service-based share units outstanding | 260 |
| | $ | 83.60 |
| | | |
| Beginning non-vested service-based share units outstanding | | 247 |
| | $ | 112.89 |
| | |
| Granted | 115 |
| | $ | 133.08 |
| | | 135 |
| | $ | 153.99 |
| | |
| Vested | (109 | ) | | $ | 61.89 |
| | | (91 | ) | | $ | 99.54 |
| | |
| Forfeited | (19 | ) | | $ | 130.83 |
| | | (8 | ) | | $ | 126.13 |
| | |
| Ending non-vested service-based share units outstanding | 247 |
| | $ | 112.89 |
| | 1.1 | | $ | 36,087 |
| 283 |
| | $ | 136.48 |
| | 1.2 | | $ | 53.9 |
|
The weighted average fair value per share at the date of grant for service-based restricted share units granted during the year was $153.99 for fiscal year 2015, $133.08 for fiscal year 2014, and $109.20 for fiscal year 2013 and $90.99 for fiscal 2012. The total fair value of service-based restricted share units that vested during the year was $9.1 million for fiscal year 2015, $6.8 million for fiscal year 2014,$5.7 million for fiscal 2013 and $5.7 million for fiscal year 20122013.
PERRIGO COMPANY PLCPerrigo Company plc - Item 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10
NonvestedNon-Vested Performance-Based Restricted Share Units
A summary of activity related to nonvestednon-vested performance-based restricted share units is presented below (in thousands, except per share amounts)(units in thousands):
| | | | Fiscal Year Ended June 28, 2014 | Fiscal Year Ended June 27, 2015 |
| | Number of Nonvested Performance- Based Share Units | | Weighted Average Grant Date Fair Value Per Share | | Weighted Average Remaining Term in Years | | Aggregate Intrinsic Value | Number of Performance- Based Share Units | | Weighted- Average Grant Date Fair Value Per Share | | Weighted- Average Remaining Term in Years | | Aggregate Intrinsic Value |
| Beginning nonvested performance-based share units outstanding | 158 |
| | $ | 84.85 |
| | | |
| Beginning non-vested performance-based share units outstanding | | 182 |
| | $ | 109.63 |
| | |
| Granted | 107 |
| | $ | 119.85 |
| | | 106 |
| | $ | 150.14 |
| | |
| Vested | (78 | ) | | $ | 59.22 |
| | | (56 | ) | | $ | 91.14 |
| | |
| Forfeited | (5 | ) | | $ | 11.59 |
| | | (3 | ) | | $ | 126.96 |
| | |
| Ending nonvested performance-based share units outstanding | 182 |
| | $ | 109.63 |
| | 1.4 | | $ | 26,552 |
| |
| Ending non-vested performance-based share units outstanding | | 229 |
| | $ | 129.77 |
| | 1.38 | | $ | 43.6 |
|
The weighted averageweighted-average fair value per share at the date of grant for performance-based restricted share units granted during the year was $150.14 for fiscal year 2015, $119.85 for fiscal year 2014, and $108.60108.6 for fiscal year 2013 and $90.72 for fiscal 2012. The weighted averageweighted-average fair value of performance-based restricted share units can fluctuate depending upon the success or failure of the achievement of performance criteria as set forth in the plan.Plan. The total fair value of performance-based restricted share units that vested during the year was $5.1 million for fiscal year 2015, $4.6 million for fiscal year 2014, and $5.0 million for fiscal year 2013 and $4.3 million for fiscal 2012.
NOTE 11 – ACCUMULATED OTHER COMPREHENSIVE INCOME
Changes in the Company'sour AOCI balances, net of tax, for fiscal years 20142015 and 2014 were as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | |
| | Fair value of derivative financial instruments, net of tax | | Foreign currency translation adjustments | | Fair value of
investment
securities,
net of tax | | Post-
retirement and pension
liability
adjustments,
net of tax | | Total AOCI |
| Balance as of June 30, 2012 | $ | (10.5 | ) | | $ | 53.7 |
| | $ | (4.4 | ) | | $ | 0.6 |
| | $ | 39.4 |
|
| Other comprehensive income | 6.0 |
| | 26.9 |
| | 4.4 |
| | 0.3 |
| | 37.6 |
|
| Balance as of June 29, 2013 | (4.5 | ) | | 80.6 |
| | — |
| | 0.9 |
| | 77.0 |
|
| OCI before reclassifications | (18.2 | ) | | 83.8 |
| | (4.3 | ) | | (12.0 | ) | | 49.3 |
|
| Amounts reclassified from AOCI | 6.6 |
| | — |
| | 6.7 |
| | — |
| | 13.3 |
|
| Other comprehensive income | (11.6 | ) | | 83.8 |
| | 2.4 |
| | (12.0 | ) | | 62.6 |
|
| Balance as of June 28, 2014 | $ | (16.1 | ) | | $ | 164.4 |
| | $ | 2.4 |
| | $ | (11.1 | ) | | $ | 139.6 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Fair value of derivative financial instruments, net of tax | | Foreign currency translation adjustments | | Fair value of investment securities, net of tax | | Post-retirement and pension liability adjustments, net of tax | | Total AOCI |
| Balance at June 29, 2013 | $ | (4.5 | ) | | $ | 80.6 |
| | $ | — |
| | $ | 0.9 |
| | $ | 77.0 |
|
| OCI before reclassifications | (18.2 | ) | | 83.8 |
| | (4.3 | ) | | (12.0 | ) | | 49.3 |
|
| Amounts reclassified from AOCI | 6.6 |
| | — |
| | 6.7 |
| | — |
| | 13.3 |
|
| Other comprehensive income (loss) | (11.6 | ) | | 83.8 |
| | 2.4 |
| | (12.0 | ) | | 62.6 |
|
| Balance at June 28, 2014 | (16.1 | ) | | 164.4 |
| | 2.4 |
| | (11.1 | ) | | 139.6 |
|
| OCI before reclassifications | (15.1 | ) | | (33.5 | ) | | (5.4 | ) | | 1.9 |
| | (52.1 | ) |
| Amounts reclassified from AOCI | 14.9 |
| | — |
| | — |
| | — |
| | 14.9 |
|
| Other comprehensive income (loss) | (0.2 | ) | | (33.5 | ) | | (5.4 | ) | | 1.9 |
| | (37.2 | ) |
| Balance at June 27, 2015 | $ | (16.3 | ) | | $ | 130.9 |
| | $ | (3.0 | ) | | $ | (9.2 | ) | | $ | 102.4 |
|
PERRIGO COMPANY PLCPerrigo Company plc - Item 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12
NOTE 12 – INCOME TAXES
Pre-tax income and the provision for income taxes from continuing operations are summarized as follows (in millions):
| | | | Fiscal Year | Fiscal Year |
| | 2014 | | 2013 | | 2012 | 2015 | | 2014 | | 2013 |
| Pre-tax income: | | | | | | |
| Pre-tax income (loss): | | | | | | |
| Ireland | (369.3 | ) | | — |
| | — |
| (821.2 | ) | | (369.3 | ) | | — |
|
| Other | 641.9 |
| | 607.7 |
| | 512.0 |
| 1,069.2 |
| | 641.9 |
| | 607.7 |
|
| Total | 272.6 |
| | 607.7 |
| | 512.0 |
| 248.0 |
| | 272.6 |
| | 607.7 |
|
| Provision for income taxes: | | | | | | | | | | |
| Current: | | | | | | | | | | |
| Ireland | 2.2 |
| | — |
| | — |
| (2.0 | ) | | 2.2 |
| | — |
|
| United States - Federal | 44.0 |
| | 125.0 |
| | 74.9 |
| 77.0 |
| | 44.0 |
| | 125.0 |
|
| United States - State | 9.3 |
| | 10.7 |
| | 7.5 |
| 6.9 |
| | 9.3 |
| | 10.7 |
|
| Other Foreign | 49.1 |
| | 24.3 |
| | 9.1 |
| 54.1 |
| | 49.1 |
| | 24.3 |
|
| Subtotal | 104.6 |
| | 160.1 |
| | 91.5 |
| 136.0 |
| | 104.6 |
| | 160.1 |
|
| Deferred (credit): | | | | | | | | | | |
| Ireland | (24.2 | ) | | — |
| | — |
| 7.5 |
| | (24.2 | ) | | — |
|
| United States - Federal | 7.8 |
| | 16.6 |
| | 32.6 |
| (17.5 | ) | | 7.8 |
| | 16.6 |
|
| United States - State | (5.8 | ) | | — |
| | 1.4 |
| (0.8 | ) | | (5.8 | ) | | — |
|
| Other Foreign | (15.1 | ) | | (10.9 | ) | | (6.6 | ) | (5.2 | ) | | (15.1 | ) | | (10.9 | ) |
| Subtotal | (37.3 | ) | | 5.7 |
| | 27.5 |
| (16.0 | ) | | (37.3 | ) | | 5.7 |
|
| Total | 67.3 |
| | 165.8 |
| | 119.0 |
| 120.0 |
| | 67.3 |
| | 165.8 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the provision based on the Federal statutory income tax rate to the Company’sour effective income tax rate is as follows:
| | | | Fiscal Year | Fiscal Year |
| | 2014 | | 2013 | | 2012 | 2015 | | 2014 | | 2013 |
| | | | | | | | | | | |
| Provision at statutory rate | 12.5 | % | | 35.0 | % | | 35.0 | % | 12.5 | % | | 12.5 | % | | 35.0 | % |
| Ireland tax on non-trading differences | 2.8 |
| | — |
| | — |
| (10.3 | ) | | 2.8 |
| | — |
|
| Expenses not deductible for tax purposes/ deductions not expensed for book, net | 12.1 |
| | (0.6 | ) | | (0.9 | ) | 15.5 |
| | 12.1 |
| | (0.6 | ) |
| U.S. Operations: | | | | | | | | | | |
| State income taxes, net of Federal benefit | (0.2 | ) | | 1.1 |
| | 1.1 |
| |
| State income taxes, net of federal benefit | | (1.0 | ) | | (0.2 | ) | | 1.1 |
|
| Foreign tax credit | 0.2 |
| | (0.1 | ) | | (0.1 | ) | — |
| | 0.2 |
| | (0.1 | ) |
| Research and development credit | (0.5 | ) | | (0.5 | ) | | (0.3 | ) | (0.8 | ) | | (0.5 | ) | | (0.5 | ) |
| Other | (0.8 | ) | | (1.0 | ) | | (0.9 | ) | 5.6 |
| | (0.8 | ) | | (1.0 | ) |
| Other foreign differences (earnings taxed at other than applicable statutory rate) | (16.0 | ) | | (8.7 | ) | | (9.5 | ) | (16.6 | ) | | (16.0 | ) | | (8.7 | ) |
| Worldwide Operations: | | | | | | |
| Worldwide operations: | | | | | | |
| Valuation allowance changes | 2.9 |
| | — |
| | — |
| 25.0 |
| | 2.9 |
| | — |
|
| Audit impacts | — |
| | (1.2 | ) | | (5.1 | ) | — |
| | — |
| | (1.2 | ) |
| Change in unrecognized taxes | 15.0 |
| | 3.3 |
| | 3.9 |
| 18.5 |
| | 15.0 |
| | 3.3 |
|
| Rate change impacts | (3.3 | ) | | — |
| | — |
| — |
| | (3.3 | ) | | — |
|
| Effective income tax rate | 24.7 | % | | 27.3 | % | | 23.2 | % | 48.4 | % | | 24.7 | % | | 27.3 | % |
We have provided a provision for income taxes through opening balance sheet accounting on a portion of pre-acquisition earnings of the Omega group of companies. No further provision has been made for income taxes
Perrigo Company plc - Item 8
Note 12
on remaining undistributed earnings of foreign subsidiaries, of approximately $2.3$3.4 billion at June 28, 2014,27, 2015, since it is Perrigo’sour intention to indefinitely reinvest undistributed earnings of itsour foreign subsidiaries. Due to the number of legal entities and taxing jurisdictions involved and the complexity of the legal entity structure, the complexity of tax laws in the various jurisdictions, including, but not limited to the rules pertaining to the utilization of foreign tax credits in the U.S. and the impact of income projections to calculations, Perrigo believeswe believe it is not practicable to estimate, within any reasonable range, the additional income taxes may be payable on the remittance of such undistributed earnings.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes arise from temporary differences between the financial reporting and the tax reporting basis of assets and liabilities and operating loss and tax credit carry forwardscarryforwards for tax purposes. The components of theour net deferred income tax asset (liability) arewas as follows:
| | | | Fiscal Year | Fiscal Year |
| | 2014 | | 2013 | 2015 | | 2014 |
| Deferred income tax asset (liability): | | | | | | |
| Depreciation and amortization | $ | (982.6 | ) | | $ | (203.3 | ) | $ | (1,889.0 | ) | | $ | (982.6 | ) |
| Inventory basis differences | 43.9 |
| | 35.6 |
| 30.2 |
| | 43.9 |
|
| Accrued liabilities | 84.3 |
| | 43.4 |
| 67.2 |
| | 84.3 |
|
| Allowance for doubtful accounts | 0.9 |
| | 0.5 |
| 0.9 |
| | 0.9 |
|
| Research and development | 3.7 |
| | 4.0 |
| 62.8 |
| | 3.7 |
|
| Loss carryforwards | 300.4 |
| | 31.3 |
| 502.4 |
| | 300.4 |
|
| Share-based compensation | 14.3 |
| | 13.2 |
| 14.3 |
| | 14.3 |
|
| Foreign Tax Credit | 10.6 |
| | 13.7 |
| |
| Foreign tax credit | | 10.6 |
| | 10.6 |
|
| Federal benefit of unrecognized tax positions | 20.7 |
| | — |
| 26.3 |
| | 20.7 |
|
| Other, net | 59.6 |
| | 19.6 |
| 29.7 |
| | 59.6 |
|
| Subtotal | (444.2 | ) | | (41.9 | ) | (1,144.6 | ) | | (444.2 | ) |
| Valuation allowance for loss and credit carryforwards | (198.4 | ) | | (18.8 | ) | (519.2 | ) | | (198.4 | ) |
| Net deferred income tax (liability) asset: | $ | (642.6 | ) | | $ | (60.7 | ) | |
| Net deferred income tax asset (liability): | | $ | (1,663.8 | ) | | $ | (642.6 | ) |
The above amounts are classified inon the consolidated balance sheetConsolidated Balance Sheets as follows (in millions):
| | | | June 28,
2014 | | June 29,
2013 | June 27,
2015 | | June 28,
2014 |
| Assets | $ | 86.4 |
| | $ | 67.3 |
| $ | 161.9 |
| | $ | 86.4 |
|
| Liabilities | (729.0 | ) | | (128.0 | ) | (1,825.7 | ) | | (729.0 | ) |
| Net deferred income tax (liability) asset | $ | (642.6 | ) | | $ | (60.7 | ) | $ | (1,663.8 | ) | | $ | (642.6 | ) |
At At June 28, 2014, the Company27, 2015, we had gross carryforwards as follows: worldwide federal net operating losses, excluding U.S. states, of $2.9 billion, U.S. state net operating losses of $238.4$459.0 million,, worldwide federal capital losses of $29.4 million, U.S. state credits of $12.8 million, non U.S. net operating losses of $2.1$1.5 billion, and U.S. federal net operating losses of $33.9 million, U.S. capital losses of $10.1 million, U.S. credits of $30.2 million and non-U.S. capital losses of $21.2 million.$269.1 million. At June 28, 2014,27, 2015, gross valuation allowances had been provided for worldwide federal net operating loss carryforwards, excluding U.S. states, in the amount of $2.4 billion, $416.0 million for U.S. state net operating loss carry forwards in the amount of $197.1carryforwards, $29.4 million, $8.2 million for worldwide federal capital loss carryforwards, $1.5 billion for U.S. state credit carryforwards $1.3 billion for non-U.S. net operating loss carryforwards, $16.3 million for U.S. federal net operating loss carryforwards, $10.1 million for U.S. federal capital loss carryforwards, $30.2and $198.2 million for U.S. federal credit carryforward and $21.2 million for non-U.S. capital loss carryforwards as utilization of such carryforwards within the applicable statutory periods is uncertain. The U.S. federal net operating loss carryforwards expire through 2035, U.S. capital loss carryforward expires through 2017 and U.S. federal credit carryforwards of $37.2 million and $167.8 million expire through 2025 and through 2027, respectively, with the remaining U.S. credits having no expiration. U.S. state net operating loss carryforwards expire through 2034. $17.4 million of2035, and U.S. state credit carryforwards expire through 2030. Of the non-U.S. net operating loss carryforwards, $4.4 million, $32.0 million, $0.1 million, $1.2 million and $4.5 million expire through 2017, 2020, 2022, 2023, and 2025, respectively, while the remaining amountamounts of non U.S. net operating loss carryforwards and non-U.S. capital loss carryforwards have no expiration. The valuation allowances for these net operating loss carryforwards are adjusted annually, as necessary. After application of the valuation allowances described above, the Company anticipateswe anticipate no limitations will apply with respect to the realization of itsour net deferred income tax assets.
PERRIGO COMPANY PLCPerrigo Company plc - Item 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12
The following table summarizes the activity related to amounts recorded for uncertain tax positions, excluding interest and penalties, for the years ended June 28, 201427, 2015 and June 29, 201328, 2014 (in millions):
| | | | Unrecognized Tax Benefits | Unrecognized Tax Benefits |
| Balance at June 30, 2012 | $ | 99.2 |
| |
| Additions: | | |
| Positions related to the current year | 18.1 |
| |
| Positions related to prior years | 1.9 |
| |
| Reductions: | | |
| Positions related to the current year | — |
| |
| Positions related to prior years | — |
| |
| Settlements with taxing authorities | (7.5 | ) | |
| Lapse of statutes of limitation | (1.6 | ) | |
| Balance at June 29, 2013 | 110.1 |
| $ | 110.1 |
|
| Additions: | | |
| Positions related to the current year | 28.8 |
| 28.8 |
|
| Positions related to prior years | 22.7 |
| 22.7 |
|
| Reductions: | | |
| Positions related to the current year | — |
| — |
|
| Positions related to prior years | — |
| — |
|
| Settlements with taxing authorities | — |
| — |
|
| Lapse of statutes of limitation | (1.5 | ) | (1.5 | ) |
| Balance at June 28, 2014 | $ | 160.1 |
| 160.1 |
|
| Additions: | | |
| Positions related to the current year | | 38.9 |
|
| Positions related to prior years | | 122.7 |
|
| Reductions: | | |
| Positions related to the current year | | — |
|
| Positions related to prior years | | — |
|
| Settlements with taxing authorities | | (1.4 | ) |
| Lapse of statutes of limitation | | (1.7 | ) |
| Balance at June 27, 2015 | | $ | 318.6 |
|
The Company recognizesWe recognize interest and penalties related to uncertain tax positions as a component of income tax expense. The total amount accrued for interest and penalties in the liability for uncertain tax positions was $45.365.7 million and $24.345.3 million as of June 28, 201427, 2015 and June 29, 201328, 2014, respectively.
The total liability for uncertain tax positions was $205.4384.3 million and $122.3205.4 million as of June 28, 201427, 2015 and June 29, 201328, 2014, respectively, after considering the federal tax benefit of certain state and local items, of which $170.2217.6 million and $107.1170.2 million, respectively, would impact the effective tax rate in future periods, if recognized. This increase is due primarily to acquisitions and the current year impact related to prior year positions.
The Company filesWe file income tax returns in Ireland, the U.S., including various state and local jurisdictions, Israel and numerous other jurisdictions and isare therefore subject to audits by tax authorities. ItsOur primary income tax jurisdictions are Ireland, the U.S., Israel, Belgium, France, and Israel.the United Kingdom.
Although we believe that our tax estimates are reasonable and that we prepare our tax filings in accordance with all applicable tax laws, the final determination with respect to any tax audit and any related litigation could be materially different from our estimates or from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, and/or interest assessments.
Currently, theThe IRS is auditingaudit of fiscal years 2009 and 2010 andhad previously concluded with the Israel Tax Authority is auditing fiscal years 2011 and 2012. In regards to the audit for fiscal years 2009 and 2010,issuance of a statutory notice of deficiency on August 27, 2014. While we havehad previously agreed on certain adjustments and made associated payments of $8.0 million, inclusive of interest. Other issues exist for whichinterest in November, 2014, the Company disagreesstatutory notice of deficiency asserted various additional positions, including transfer pricing, relative to the same fiscal 2009 and 2010 audit. The statutory notice asserted an incremental tax obligation of approximately $68.9 million, inclusive of interest and penalties. We disagree with the IRS’s positions asserted. Although we have not received aasserted in the notice of proposed adjustment ordeficiency. In January 2015, we paid this amount, a statutory notice relatedprerequisite to thesebeing able to contest the IRS’s positions ifin U.S. Federal court, and in June 2015, we filed a request for a refund. In the event that the IRS were to issuedenies our request for a notice of proposed adjustment or a statutory notice in relation these positions,refund, we expectintend to contest thesethe IRS’s asserted positions through applicable IRS and judicial procedures,in U.S. Federal court. The payment was recorded in the third fiscal quarter as appropriate.a deferred charge
Perrigo Company plc - Item 8
Note 12
on the balance sheet given our anticipated action to recover this amount. An unfavorable resolution of this matter could have a material impact on our consolidated financial statements in future periods. There are numerous other income tax jurisdictions for which tax returns are not yet settled, none of which are individually significant. At this time, the Companywe cannot predict the outcome of any audit or related litigation.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Based on the final resolution of tax examinations, judicial or administrative proceedings, changes in facts or law, expirations of statute of limitations in specific jurisdictions or other resolutions of, or changes in, tax positions, it is reasonably possible that unrecognized tax benefits for certain tax positions taken on previously filed tax returns may change materially from those represented on the financial statements as of June 28, 2014.27, 2015. During the next 12 months, it is reasonably possible that such circumstances may occur that would have a material effect on previously unrecognized tax benefits. As a result, the total net amount of unrecognized tax benefits may decrease, which would reduce the provision for taxes on earnings by a range estimated at $2.0$2.0 million to $15.0 million.$15.0 million.
Tax Rate Changes and Exemptions in Israel
Prior to fiscal year 2011, certain of the Company'sour Israel subsidiaries had been granted Privileged Enterprise status under the Law for the Encouragement of Capital Investments (1959). Income derived from such entities was entitled to various tax benefits beginning in the year the subsidiary first generated taxable income. These benefits applied to an entity depending on certain elections.
These benefits were generally granted with the understanding that cash dividends would not be distributed from the affected income. Should dividends be distributed out of tax exempt income, the subsidiary would be required to pay a 10% to 25% tax on the distribution. The Company doesWe do not currently intend to cause distribution of a dividend, which would involve additional tax liability in the foreseeable future; therefore, no provision has been made for such tax on post-acquisition earnings.
In fiscal year 2011, Israel enacted new tax legislation that reduced the effective tax rate to 10% for 2011 and 2012, 7% for 2013 and 2014, and 6% thereafter for certain qualifying entities that elect to be taxed under the new legislation. This legislation was rescinded as announced in the Official Gazette on August 5, 2013. The new legislation enacted a 9% rate for certain qualifying entities that elect to be taxed under the new legislation. The Company hasWe have two entities that had previously elected the new tax legislation for years after fiscal 2011. For all other entities that do not qualify for this reduced rate, the tax rate has been increased from 25% to 26.5%. These rates were applicable to the Companyus as of June 30, 2013.
In addition to the above benefits, the Companywe periodically appliesapply for grants to assist them with development projects. The grants are received from the Office of the Chief Scientist in Israel's Ministry of Industry and Trade. To continueTrade to be eligible for these grants, the Company'sassist us with development projects must be approved by the Chief Scientist on a case-by-case basis. If the Company's development projects are not approved by the Chief Scientist, the Company will not receive grants to fund these projects, which would increase research and development costs.projects. The receipt of suchthese grants subjects the Companyus to certain restrictions and pre-approval requirements, which may be conditioned by additional royalty payments with rights to transfer intellectual property and/or production abroad. All affected subsidiaries are currently in compliance with these conditions.
NOTE 13 – POST EMPLOYMENT PLANS
Qualified Profit-Sharing and InvestmentDefined Contribution Plans
The Company hasWe have a qualified profit-sharing and investment plan under Section 401(k) of the IRS, which covers substantially all U.S. employees. The Company’sOur contributions to the plan include an annual nondiscretionary contribution of 3% of an employee’semployee's eligible compensation and a discretionary contribution at the option of the Board of Directors. Additionally, the Company matcheswe match a portion of employees’employees' contributions. The Company’sOur contributions to the plan were $25.6$24.6 million,, $23.0 $25.6 million, and $25.5$23.0 million in fiscal years 2015, 2014,, 2013 and 2012,2013, respectively.
We also have a defined contribution plan that covers Ireland employees. We contribute up to 18% of each participating employee’s annual eligible salary on a monthly basis. In connection with matching contributions under the Irish defined contribution plan, we recorded $0.7 million and $0.5 million of expense in fiscal year 2015 and from December 18, 2013 to June 28, 2014, respectively.
PERRIGO COMPANY PLCPerrigo Company plc - Item 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13
Israeli Post Employment BenefitsFor the defined contribution plans associated with the Omega acquisition, we pay contributions to pension insurance plans. From March 30, 2015 to June 27, 2015, we recorded $0.6 million in connection with matching contributions to the defined contribution plans.
Pension and Postretirement Healthcare Benefit Plans
We assumed the liability of two defined benefit plans (staff and executive plan) for employees based in Ireland with the Elan acquisition in 2013. These plans were closed to new entrants from March 31, 2009, and a defined contribution plan was established for employees in Ireland hired after this date. In January 2013, Elan ceased the future accrual of benefits to the active members of the defined benefit pension plans. Active members became deferred members of the defined benefit plans on January 31, 2013 and became members of the defined contribution plan on February 1, 2013.
As of March 11, 2015, both plans (staff and executive plan) were merged and all plan assets and liabilities were transferred from the executive scheme to the staff scheme as a result of a plan combination. The value of plan assets and liabilities transferred were derived by reference to market conditions and assumptions as at March 11, 2015.
Israeli labor laws and agreements requireIn general, upon retirement, eligible Ireland employees in the Companystaff plan are entitled to pay benefitsa pension calculated at 1/60th (1/52nd for the executive plan) of their final salary for each year of service, subject to employees dismissed or retiring under certain circumstances. Severance pay is calculated on the basisa maximum of 40 years. The investments of the most recent employee salary levels and the lengthplans at June 27, 2015 consisted of employee service. The Company’s Israeli subsidiaries also provide retirement bonuses to certain managerial employees. The Company makes regular deposits to retirement funds and purchases insurance policies to partially fund these liabilities. The deposited funds may be withdrawn only upon the fulfillment of requirements pursuant to Israeli labor laws. The liability related to these post employment benefits, which is recordedunits held in other non-current liabilities, was $24.0 million at June 28, 2014. The Company funded $19.3 million of this amount, which is recorded in other non-current assets, as of June 28, 2014. As of June 29, 2013, the liability and corresponding asset related to these post employment benefits were $21.1 million and $16.1 million, respectively. The Company’s contributions to the above plans were $0.4 million, $0.9 million and $0.9 million for fiscal 2014, 2013 and 2012, respectively.independently administered funds.
Deferred Compensation PlansIn connection with the Omega acquisition, we also assumed the liability of a number of defined benefit plans as well as a postretirement healthcare plan. The defined benefit plans cover employees based primarily in the Netherlands, Germany, France, and Norway. Omega companies operate various pension plans across each country.
The Company has non-qualified plans related to deferred compensation and executive retention that allow certain employees and directors to defer compensation subject to specific requirements. Although the plans are not formally funded, the Company owns insurance policies with a cash surrender value of $28.0 million at June 28, 2014 and $22.5 million at June 29, 2013 that are intended as a long-term funding source for these plans. The assets, which are recorded in other non-current assets, are not a committed funding source and may, under certain circumstances, be subject to claims from creditors. The deferred compensation liability of $28.1 million at June 28, 2014 and $22.6 million at June 29, 2013 was recorded in other non-current liabilities.
Post-Retirement Medical Benefits
The Company providesFinally, we provide certain healthcare benefits to eligible U.S. employees and their dependents who meet certain age and service requirements when they retire. Generally, benefits are provided to eligible retirees after age 65 and to their dependents. Increases in the Companyour contribution for benefits are limited to increases in the Consumer Price Index. Additional healthcare cost increases are paid through participant contributions. The Company accruesWe accrue the expected costs of such benefits during a portion of the employees’ years of service. The plan is not funded. Under current plan provisions, the plan is not eligible for any U.S. federal subsidy related to the Medicare Modernization Act of 2003 Part D Subsidy. The unfunded accumulated projected benefit obligation was $4.6 million at June 28, 2014 and $3.9 million at June 29, 2013. The Company records unrecognized actuarial gains and losses as a component of AOCI (also see Note 11). As of June 28, 2014 and June 29, 2013, an unrecognized actuarial loss of $0.1 million and an actuarial gain of $0.3 million, respectively, were included in OCI net of tax. Net periodic benefit costs of $0.2 million and $0.1 million were recognized in fiscal 2014 and 2013, respectively, and a net periodic benefit gain of $0.5 million was recognized in fiscal 2012.
Irish Defined Benefit and Defined Contribution Plans
The Company assumed the liability of two defined benefit plans (staff and executive plan) for employees based in Ireland with the acquisition of Elan. These plans were closed to new entrants from March 31, 2009, and a defined contribution plan was established for employees in Ireland hired after this date. In January 2013, the Company ceased the future accrual of benefits to the active members of the defined benefit pension plans. Active members became deferred members of the defined benefit plans on January 31, 2013 and became members of the Irish defined contribution plan on February 1, 2013.Under the plan, the Company contributes up to 18% of each participating employee’s annual eligible salary on a monthly basis. From December 18, 2013 to June 28, 2014, we recorded $0.5 million of expense in connection with the matching contributions under the Irish defined contribution plan.
In general, on retirement, eligible employees in the staff plan are entitled to a pension calculated at 1/60th (1/52nd for the executive plan) of their final salary for each year of service, subject to a maximum of 40 years. The investments of the plans at June 28, 2014 consisted of units held in independently administered funds.
PERRIGO COMPANY PLCPerrigo Company plc - Item 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13
The change in the projected benefit obligation and plan assets at June 27, 2015 and June 28, 2014 from the acquisition date of Elan as of December 18, 2013 consistsconsisted of the following (in millions):
| | | | Fiscal 2014 | Pension Benefits | | Other Benefits |
| Projected benefit obligation at December 18, 2013 | $ | 84.4 |
| |
| | | Fiscal Year |
| | | 2015 * | | 2014 ** | | 2015 * | | 2014 |
| Projected benefit obligation at beginning of period | | $ | 89.0 |
| | $ | — |
| | $ | 4.6 |
| | $ | 3.9 |
|
| Acquisitions | | 70.4 |
| | 84.4 |
| | 1.0 |
| | — |
|
| Service costs | | 0.9 |
| | — |
| | 0.3 |
| | 0.5 |
|
| Interest cost | 1.4 |
| 2.4 |
| | 1.4 |
| | 0.2 |
| | 0.3 |
|
| Actuarial loss | 12.1 |
| (6.8 | ) | | 12.1 |
| | — |
| | — |
|
| Benefits paid | (0.2 | ) | (0.9 | ) | | (0.2 | ) | | (0.1 | ) | | (0.1 | ) |
| Settlements | (8.0 | ) | — |
| | (8.0 | ) | | — |
| | — |
|
| Foreign currency translation | (0.7 | ) | (14.7 | ) | | (0.7 | ) | | — |
| | — |
|
| Benefit obligation at June 28, 2014 | $ | 89.0 |
| |
| Fair value of plan assets at December 18, 2013 | 107.3 |
| |
| Benefit obligation at end of period | | $ | 140.3 |
| | $ | 89.0 |
| | $ | 6.0 |
| | $ | 4.6 |
|
| Fair value of plan assets at beginning of period | | 99.6 |
| | — |
| | — |
| | — |
|
| Acquisitions | | 49.9 |
| | 107.3 |
| | — |
| | — |
|
| Actual return on plan assets | 5.4 |
| (1.0 | ) | | 5.4 |
| | — |
| | — |
|
| Benefits paid | (0.2 | ) | (0.1 | ) | | (0.2 | ) | | — |
| | — |
|
| Settlements | (12.1 | ) | — |
| | (12.1 | ) | | — |
| | — |
|
| Employer contributions | | 2.4 |
| | — |
| | — |
| | — |
|
| Foreign currency translation | (0.8 | ) | (17.5 | ) | | (0.8 | ) | | — |
| | — |
|
| Fair value of plan assets at June 28, 2014 | $ | 99.6 |
| |
| Funded status recognized in Other Assets | $ | 10.6 |
| |
| Fair value of plan assets at end of period | | $ | 133.3 |
| | $ | 99.6 |
| | $ | — |
| | $ | — |
|
| Funded (unfunded) status recognized in other assets | | $ | (7.0 | ) | | $ | 10.6 |
| | $ | (6.0 | ) | | $ | (4.6 | ) |
| |
| * | Includes Omega activity from March 30, 2015 to June 27, 2015. |
| |
| ** | Includes Elan activity from December 18, 2013 to June 28, 2014. |
Total defined benefit pension asset of $12.8 million is recorded in Other Assets and total defined benefit pension liability of $19.8 million is recorded in Other long term liabilities. The total accumulated benefit obligation for the defined benefit pension plans was $136.6 million and $89.0 million at June 27, 2015 and June 28, 2014.
The2014, respectively. As of June 27, 2015 and June 28, 2014, the unamortized net actuarial loss in AOCI for defined benefit pension was $9.2 million and $11.9 million.million, respectively. The estimated amount to be recognized from accumulated other comprehensive incomeAOCI into net periodic cost during fiscal 2015the next twelve months is $0.8 million.
AtTotal other benefits liability of $6.0 million is recorded in Other long term liabilities. The unfunded accumulated projected benefit obligation related to other benefits was $6.0 million and $4.6 million at June 27, 2015 and June 28, 2014, respectively. As of June 27, 2015 and June 28, 2014, an unrecognized actuarial gain of $0.1 million was included in OCI, net of tax.
Perrigo Company plc - Item 8
Note 13
At June 27, 2015, the total estimated future benefit payments to be paid by the plans for the fiscal periods 2015 - 2019 isnext five years was approximately $0.6$6.5 million paid outfor pension benefits and $1.0 million for other benefits as follows:follows (in millions):
|
| | | | |
| Fiscal year | | Pension Benefits |
| 2015 | | $ | — |
|
| 2016 | | 0.1 |
|
| 2017 | | 0.1 |
|
| 2018 | | 0.1 |
|
| 2019 | | 0.3 |
|
| 2020 - 2024 | | 4.5 |
|
|
| | | | | | | | |
| Payment Due | | Pension Benefits | | Other Benefits |
| < 1 year | | $ | 0.8 |
| | $ | 0.1 |
|
| 1 - 2 years | | 1.1 |
| | 0.2 |
|
| 3 - 4 years | | 1.2 |
| | 0.2 |
|
| 4 - 5 years | | 1.5 |
| | 0.2 |
|
| 5 - 6 years | | 1.9 |
| | 0.3 |
|
| > 6 years | | 13.4 |
| | 1.8 |
|
The expected benefits to be paid are based on the same assumptions used to measure our benefit obligation at June 28, 2014,27, 2015, including the expected future employee service.
In fiscal 2015, the Company expects We expect to contribute $2.6$2.0 million to the defined benefit plans.plans within the next year.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net periodic pension cost for the period from December 18, 2013 to June 28,fiscal years 2015 and 2014 consisted of the following (in millions):
| | | | Fiscal 2014 | Pension Benefits | | Other Benefits |
| | | Fiscal Year |
| | | 2015 * | | 2014 ** | | 2015 * | | 2014 |
| Service cost | | $ | 0.9 |
| | $ | — |
| | $ | 0.3 |
| | $ | 0.5 |
|
| Interest cost | $ | 1.4 |
| 2.4 |
| | 1.4 |
| | 0.2 |
| | 0.3 |
|
| Expected return on plan assets | (1.9 | ) | (2.7 | ) | | (1.9 | ) | | — |
| | 0.6 |
|
| Net actuarial (gain)/loss | 0.7 |
| |
| Net actuarial loss | | 1.0 |
| | 0.7 |
| | 0.1 |
| | |
| Net periodic pension cost | $ | 0.2 |
| $ | 1.6 |
| | $ | 0.2 |
| | $ | 0.6 |
| | $ | 1.4 |
|
| |
| * | Includes Omega activity from March 30, 2015 to June 27, 2015. |
| |
| ** | Includes Elan activity from December 18, 2013 to June 28, 2014. |
The weighted-average assumptions used to determine net periodic pension cost and benefit obligation as of June 27, 2015 and June 28, 2014 were:
|
| | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | Fiscal Year |
| | 2015 * | | 2014 ** | | 2015 * | | 2014 |
| Discount rate | 2.11 | % | | 2.90 | % | | 4.25 | % | | 4.25 | % |
| Inflation | 1.93 | % | | 2.00 | % | | | | |
| Expected return on assets | 2.85 | % | | 2.92 | % | | | | |
|
| | |
| * | 2014Includes Omega activity from March 30, 2015 to June 27, 2015. |
| |
Discount Rate** | 2.90 | % |
Inflation | 2.00 | % |
Expected Return on Assets | 2.92 | %Includes Elan activity from December 18, 2013 to June 28, 2014. |
The discount rate is based on market yields at the valuation date and chosen with reference to the yields available on AA-ratedhigh-quality corporate bonds, having regard to the duration of the plan's liabilities. With regard to inflation, the difference in the fixed interest bonds and the index-linked bonds issued by the British government, generally considered low risk, offers a guide to the market view of future price inflation.
Perrigo Company plc - Item 8
Note 13
As of June 28, 2014,27, 2015, the expected weighted-average long-term rate of return on assets of 2.92%2.85% was calculated based on the assumptions of the following returns for each asset class:
|
| | |
| 2014 |
| Equities | 6.3 | % |
Property | 5.35.8 | % |
| Bonds | 2.3 | % |
Cash | 2.01.2 | % |
| Absolute return fund | 4.03.5 | % |
| Insurance contracts | 2.3 | % |
| Property | 4.8 | % |
The investment mix of the pension plans' assets is a blended asset allocation, with a diversified portfolio of shares listed and traded on recognized exchanges.
TheAs of June 27, 2015, the current long-term asset allocation ranges of the trusts are as follows:
|
| |
| Equities | 60%-80%10% - 20% |
| Bonds | 10%-40%30% - 40% |
| Absolute return | 20% - 30% |
| Insurance contracts | 20% - 30% |
| Property | 0%-10% - 10% |
| Other | 0%-10% - 10% |
The purpose of the pension fundfunds is to provide a flow of income for members in retirement. A flow of income delivered through fixed interest bonds provides a costly but close match to this objective. Equities are held within the portfolio as a means of reducing this cost, but holding equities creates a strategic risk because they give a very different pattern of return. Property investments are held to help diversify the portfolio. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies, and investment portfolio reviews.
The following table sets forth the fair value of the pension plan assets, as of June 27, 2015 (in millions):
|
| | | | | | | | | | | | | | | |
| | Quoted Prices in Active Markets | | Other Observable Inputs | | Unobservable Inputs | | |
| | (Level 1) | | (Level 2) | | (Level 3) | | Total |
| Equities | $ | 16.7 |
| | $ | — |
| | $ | — |
| | $ | 16.7 |
|
| Bonds | 49.7 |
| | — |
| | — |
| | 49.7 |
|
| Absolute return fund | 34.8 |
| | — |
| | — |
| | 34.8 |
|
| Insurance contracts | — |
| | — |
| | 31.5 |
| | 31.5 |
|
| Property | — |
| | — |
| | 0.4 |
| | 0.4 |
|
| Other | 0.2 |
| | — |
| | — |
| | 0.2 |
|
| Total | $ | 101.4 |
| | $ | — |
| | $ | 31.9 |
| | $ | 133.3 |
|
PERRIGO COMPANY PLCPerrigo Company plc - Item 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13
The following table sets forth the fair value of the pension plan assets, as of June 28, 2014 (in millions):
| | | | Quoted
Prices in
Active
Markets | Other
Observable
Inputs | Unobservable
Inputs | | Quoted Prices in Active Markets | | Other Observable Inputs | | Unobservable Inputs | | |
| | (Level 1) | (Level 2) | (Level 3) | Total | (Level 1) | | (Level 2) | | (Level 3) | | Total |
| Equities | $ | 20.8 |
| $ | — |
| $ | — |
| $ | 20.8 |
| $ | 20.8 |
| | $ | — |
| | $ | — |
| | $ | 20.8 |
|
| Bonds | 48.3 |
| — |
| — |
| 48.3 |
| 48.3 |
| | — |
| | — |
| | 48.3 |
|
| Property | — |
| — |
| 0.8 |
| 0.8 |
| — |
| | — |
| | 0.8 |
| | 0.8 |
|
| Cash | 0.1 |
| — |
| — |
| 0.1 |
| |
| Other | | 0.1 |
| | — |
| | — |
| | 0.1 |
|
| Absolute return fund | 29.6 |
| — |
| — |
| 29.6 |
| 29.6 |
| | — |
| | — |
| | 29.6 |
|
| Total | $ | 98.8 |
| $ | — |
| $ | 0.8 |
| $ | 99.6 |
| $ | 98.8 |
| | $ | — |
| | $ | 0.8 |
| | $ | 99.6 |
|
For a discussion of the fair value levels and the valuation methodologies used to measure equities, bonds, and the absolute return fund, see Note 45.
The following table sets forth a summary of the changes in the fair value of the Level 3 pension plan assets, which were measured at fair value on a recurring basis for the fiscal period ended June 28,years 2015 and 2014 (in millions):
|
| | | |
| | Fiscal 2014 |
| Level 3 assets held at December 18, 2013 | $ | 0.7 |
|
| Unrealized gains | 0.1 |
|
| Level 3 assets held at June 28, 2014 | $ | 0.8 |
|
|
| | | | | | | |
| | Fiscal Year |
| | 2015 * | | 2014 ** |
| Level 3 assets held at beginning of year | $ | 0.8 |
| | $ | — |
|
| Acquisitions | 31.5 |
| | 0.7 |
|
| Unrealized gains | (0.4 | ) | | 0.1 |
|
| Level 3 assets held at end of year | $ | 31.9 |
| | $ | 0.8 |
|
| |
| * | Includes Omega activity from March 30, 2015 to June 27, 2015. |
| |
| ** | Includes Elan activity from December 18, 2013 to June 28, 2014. |
All properties in the fund are valued by independent valuation experts in accordance with the Royal Institute of Chartered Surveyors Valuation Standards by forecasting the returns of the market at regular intervals. The inputs to the forecasts include gross national product growth, interest rates and inflation. Management reviews
The fair value of the valuation model including inputsinsurance contracts is an estimate of the amount that would be received in an orderly sale to a market participant at the measurement date. The amount the plan would receive from the contract holder if the contracts were terminated is the primary input and outputs.is unobservable. The insurance contracts are therefore classified as Level 3 investments.
Deferred Compensation Plans
We have non-qualified plans related to deferred compensation and executive retention that allow certain employees and directors to defer compensation subject to specific requirements. Although the plans are not formally funded, we own insurance policies that had a cash surrender value of $32.7 million and $28.0 million at June 27, 2015 and June 28, 2014, respectively, that are intended as a long-term funding source for these plans. The assets, which are recorded in Other non-current assets, are not a committed funding source and may, under certain circumstances, be subject to claims from creditors. The deferred compensation liability of $32.3 million and $28.1 million at June 27, 2015 and June 28, 2014, respectively, was recorded in Other non-current liabilities.
Perrigo Company plc - Item 8
Note 13
Israeli Post Employment Benefits
Israeli labor laws and agreements require us to pay benefits to employees dismissed or retiring under certain circumstances. Severance pay is calculated on the basis of the most recent employee salary levels and the length of employee service. Our Israeli subsidiaries also provide retirement bonuses to certain managerial employees. We make regular deposits to retirement funds and purchase insurance policies to partially fund these liabilities. The deposited funds may be withdrawn only upon the fulfillment of requirements pursuant to Israeli labor laws. The liability related to these post employment benefits, which is recorded in Other non-current liabilities, was $21.3 million and $24.0 million at June 27, 2015 and June 28, 2014, respectively. We funded $17.3 million and $19.3 million of this amount, which is recorded in Other non-current assets, as of June 27, 2015 and June 28, 2014, respectively. Our contributions to the above plans were $1.0 million, $0.4 million, and $0.9 million for fiscal years 2015, 2014, and 2013, respectively.
NOTE 14 – COMMITMENTS AND CONTINGENCIES
The Company leasesWe lease certain assets, principally warehouse facilities and computer equipment, under agreements that expire at various dates through calendar 2024. Certain leases contain provisions for renewal and purchase options and require the Companyus to pay various related expenses. Future non-cancelable minimum operating lease commitments are as follows: follows (in millions):
|
| | | | |
| Due | | Amount |
| < 1 year | | $ | 45.6 |
|
| 1-2 years | | 37.7 |
|
| 2-3 years | | 32.3 |
|
| 3-4 years | | 21.2 |
|
| 5-6 years | | 15.4 |
|
| > 6 years | | 20.3 |
|
2015 – $31.9 million; 2016 – $21.9 million; 2017 – $17.3 million; 2018 – $14.0 million; 2019 – $13.0 million and thereafter – $21.1 million. Rent expense under all leases was $39.2 million, $34.5 million, and $27.6 million andfor fiscal years $23.6 million2015 for fiscal, 2014, 2013and 20122013, respectively.
At June 27, 2015 we had non-cancelable purchase obligations totaling $429.9 million consisting of contractual commitments to purchase materials and services to support operations. The obligations are expected to be paid within one year.
In addition to the discussions below, the Company haswe have pending certain other legal actions and claims incurred in the normal course of business. The Company recordsWe record accruals for such contingencies when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. As of June 28, 2014, the Company has27, 2015, we have determined that the liabilities associated with certain litigation matters are probable and can be reasonably estimated. The Company hasWe have accrued for these matters and will continue to monitor each related legal issue and adjust accruals for new information and further development. Other than what is disclosed below, we consider the Company considers the remainder of litigation matters to be immaterial individually and in the aggregate.
Texas Medicaid
In June 2013, the Companywe received notices from the Office of the Attorney General for the State of Texas, of civil investigative demands to two of the Company’sour affiliates, Perrigo Pharmaceuticals Company and Paddock Laboratories, LLC, for information under the Texas Medicaid Fraud Prevention Act relating to the submission of prices to Texas Medicaid in claims for reimbursement for drugs. The Company hasWe have cooperated with requests for information and isare in the process of evaluating this and other information. While the Company doeswe do not know the
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
full extent of itsour potential liability at this time and intendsintend to vigorously defend against any claims, the Companywe could be subject to material penalties and damages. The CompanyWe established a contingency loss accrual of $15.0 million to cover potential settlement or other outcomes. TheDue to changes in circumstances, during the third quarter of fiscal year 2015, we accrued an additional $9.0 million. In addition, we recorded a receivable of $7.0 million representing the amount we expect to collect from the previous
Perrigo Company plc - Item 8
Note 14
owners of Paddock Laboratories, LLC. We cannot predict whether we will obtain a settlement on terms we deem acceptable, to it will occur, or thatwhether a settlement or potential liability for these claims will not be higher than the amount recorded.
Eltroxin
During October and November 2011, nine applications to certify a class action lawsuit were filed in various courts in Israel related to Eltroxin, a prescription thyroid medication manufactured by a third party and distributed in Israel by Perrigo Israel Agencies Ltd. The respondents include Perrigo Israel Pharmaceuticals Ltd. and/or Perrigo Israel Agencies Ltd., the manufacturers of the product, and various health carehealthcare providers who provide health carehealthcare services as part of the compulsory health carehealthcare system in Israel.
One of the applications was dismissed and the remaining eight applications were consolidated into one application. The nine applications arose from the 2011 launch of a reformulated version of Eltroxin in Israel. The applicationsconsolidated application generally allegedalleges that the respondents (a) failed to timely inform patients, pharmacists and physicians about the change in the formulation; and (b) failed to inform physicians about the need to monitor patients taking the new formulation in order to confirm patients were receiving the appropriate dose of the drug. As a result, claimants allege they incurred the following damages: (a) purchases of product that otherwise would not have been made by patients had they been aware of the reformulation; (b) adverse events to some patients resulting from an imbalance of thyroid functions that could have been avoided; and (c) harm resulting from the patients' lack of informed consent prior to the use of the reformulation.
All nine applications were transferred to one court in order to determine whether to consolidate any of the nine applications. On July 19, 2012, the court dismissed one of the applications and ordered that the remaining eight applications be consolidated into one application. On September 19, 2012, a consolidated motion to certify the eight individual motions was filed by lead counsel for the claimants. Generally, the allegations in the consolidated motion are the same as those set forth in the individual motions; however, the consolidated motion excluded the manufacturer of the reformulated Eltroxin as a respondent. Several hearings on whether or not to certify the consolidated application took place in December 2013 and January 2014.As On May 17, 2015, the District Court certified the motion against Perrigo Israel Agencies Ltd. and dismissed it against the remaining respondents, including Perrigo Israel Pharmaceuticals Ltd.
On June 16, 2015, Perrigo submitted a motion for permission to appeal the decision to certify to the Israeli Supreme Court together with a motion to stay the proceedings of the class action until the motion for permission to appeal is adjudicated. The decision whether to allow Perrigo to file an appeal has been transferred to a panel of three justices. Other than requiring Perrigo to file its statement of defense to the underlying proceedings, the underlying proceedings have been stayed pending a decision on the motion to appeal.
At this matter is in its early stages, the Companystage, we cannot reasonably predict at this time the outcome or the liability, if any, associated with these claims.
Neot Hovav
In March and June of 2007, lawsuits were filed by three separate groups against both the State of Israel and the Council of Neot Hovav in connection with waste disposal and pollution from several companies, including the Company,ours, that have operations in the Neot Hovav region of Israel. These lawsuits were subsequently consolidated into a single proceeding in the District Court of Beer-Sheva. The Council of Neot Hovav, in June 2008, and the State of Israel, in November 2008, asserted third-party claims against several companies, including the Company.ours. The pleadings allege a variety of personal injuries arising out of the alleged environmental pollution. Neither the plaintiffs nor the third-party claimants were required to specify a maximum amount of damages, but the pleadings allegealleged damages in excess of $72.5 million, subject to foreign currency fluctuations between the Israeli shekel and the U.S. dollar. On January 9, 2013, the District Court of Beer-Sheva ruled in favor of the Company.our favor. On February 20, 2013, the plaintiffs filed an appeal toSeptember 29, 2014, the Supreme Court which has scheduledof Israel affirmed the ruling of the District Court in our favor and as a hearing on thisresult, the matter on September 29, 2014. While the Company intends to vigorously defend against these claims, the Company cannot reasonably predict at this time the outcome or the liability, if any, associated with these claims.is now closed.
Tysabri®Tysabri® Product Liability Lawsuits
ThePerrigo Company plc and collaborator Biogen Idec are co-defendants in product liability lawsuits arising out of the occurrence of Progressive Multifocal Leukoencephalopathy ("PML"), a serious brain infection, and serious adverse events, including deaths, which occurred in patients taking Tysabri®Tysabri®. ThePerrigo Company plc and Biogen Idec will each be responsible for 50% of losses and expenses arising out of any Tysabri®Tysabri® product liability claims. While these lawsuits will be vigorously defended, management cannot predict how these cases will be resolved. Adverse results in one or more of these lawsuits could result in substantial judgments against the Company.us.
PERRIGO COMPANY PLCPerrigo Company plc - Item 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15
NOTE 15 – COLLABORATION AGREEMENTS AND OTHER CONTRACTUAL ARRANGEMENTS
The CompanyWe actively collaboratescollaborate with other pharmaceutical companies to develop, manufacture and market certain products or groups of products. These types of agreements are not uncommoncommon in the pharmaceutical industry. The CompanyWe may choose to enter into these types of agreements to, among other things, leverage itsour or others’ scientific research and development expertise or utilize itsour extensive marketing and distribution resources. Terms of the various collaboration agreements may require the Companyus to make or receive milestone payments upon the achievement of certain product research and development objectives and pay or receive royalties on the future sale, if any, of commercial products resulting from the collaboration. Milestone payments and up-front payments made are generally recorded asin research and development expensesexpense if the payments relate to drug candidates that have not yet received regulatory approval. Milestone payments and up-front payments made related to approved drugs will generally be capitalized and amortized to cost of goods sold over the economic life of the product. Royalties received are generally reflected as revenues, and royalties paid are generally reflected as cost of goods sold. The Company has enteredWe enter into a number of collaboration agreements in the ordinary course of business. Although the Company doeswe do not consider these arrangements to be material, the following is a brief description of notable agreements entered into during fiscal years 2015, 2014, and 2013.
Fiscal 2014Year 2015
WithIn May 2015, we entered into a development agreement wherein we transferred the ownership rights to two pharmaceutical products to a clinical stage development company to fund and conduct development activities for the products. We do not expect to incur any expense related to the development of either product. If the products are approved by the FDA, we will execute a buy-back agreement to purchase each product for a multiple of the development costs incurred. Based on the initial development budget for each product, the estimated purchase price for both products is approximately $78.0 million. If development costs exceed the initial budgeted amounts, the purchase price will increase but will not exceed approximately $105.0 million. If the products are approved by the FDA and we purchase the products, we estimate the acquisitions will occur in 2019 and 2020.
In May 2015, we entered into an agreement with a clinical stage biotechnology company for the development of two specialty pharmaceutical products. We paid $18.0 million for an option to acquire the two products after the completion of Phase 3 clinical trials for one of the products. The $18.0 million fee is reported in research and development expense. If we exercise the purchase option to acquire both products, we would expect to make contingent payments if we obtain regulatory approval and achieve certain sales milestones. The contingent milestone payments could total $30.0 million in aggregate. If we do not exercise the purchase option for the first product, we may elect to acquire only the second product and would be subject to potential milestone payments up to $17.5 million. We will also be obligated to make certain royalty payments over periods ranging from seven to ten years from the launch of each product.
In December 2014, we entered into a collaboration agreement with a clinical stage biotechnology company, pursuant to which the parties will collaborate in the ongoing development of a topical OTC drug product. We will provide assistance including non-clinical, clinical, and manufacturing activities in support of an NDA submission to the FDA. As part of the agreement, we paid $10.0 million for an exclusive option to purchase and license certain assets as specified in separate asset purchase and license agreements. The $10.0 million fee is reported in Research and development expense. If the product is successful in Phase 3 clinical trials, we are required to make an additional option payment of $5.0 million. If we exercise our purchase option, we will be required to pay a purchase price of $10.0 million as well as certain contingent milestone payments, which could total $50.0 million in aggregate.
Perrigo Company plc - Item 8
Note 15
Fiscal Year 2014
As a result of the Elan acquisition,
of Elan on December 18, 2013, the Company inheritedwe acquired a collaborative arrangement with Transition related to the joint development and commercialization of
a novel therapeutic agent for Alzheimer’s disease (ELND005)ELND005 (Scyllo-inositol).
As discussed in Note 5, duringDuring the third quarter of fiscal year 2014, the Companywe announced that itwe had entered into an agreement with Transition to progress the clinical development of ELND005 (Scyllo-inositol) in a number of important indications including Alzheimer's disease, Bipolar Disorderbipolar disorder and Down Syndrome.syndrome. As part of the agreement, Transition acquired all of the shares of a wholly owned, indirect Irish subsidiary of thePerrigo Company plc, which had previously been responsible for carrying out all development activities associated with ELND005, and uponELND005. Upon closing on February 28, 2014, Transition is now solely responsible for all ongoing development activities and costs associated with ELND005. The Company isWe are eligible to receive milestone payments which rangeranging from $10.0 million to $15.0 million should ELND005 achieve approval of the ANDA as well as specific worldwide net sales hurdles. If commercializationa product were to occur, the Companybe commercialized, we would be entitled to receive a royalty of 6.5% of net sales for the life of the product.
Fiscal Year 2013
In November 2012, the Companywe entered into a joint development agreement with another generic pharmaceutical company pursuant to which the Company iswe are to provide research and development and future manufacturing services for a generic version of a specified prescription pharmaceutical. The Company isWe are entitled to receive various milestone payments throughout the development period, which will be recognized in accordance with the milestone method. During fiscal year 2013, the Companywe recognized revenue of $0.8 million upon completion of a milestone under this agreement. The Company isWe are entitled to receive additional individual milestone payments ranging from $0.5 million to $2.0 million for achieving other specified milestones, including but not limited to completion of bioequivalence studies, FDA acceptance of the ANDA, and FDA approval of the ANDA. If the product is approved, the Companywe may receive combined total milestone payments ranging from $3.8 million to $5.5 million depending upon various market conditions at the time of generic market formation. Also in accordance with the agreement, the parties will share in development costs and future profits associated with the manufacture and sale of the generic prescription pharmaceutical product.
Additional future milestone payments and receipts related to agreements not specifically discussed above are not material.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – RESTRUCTURING CHARGES
The CompanyWe periodically takes actionstake action to reduce redundant expenses and improve operating efficiencies, typically in connection with its business acquisitions. The following is a summary of the Company'sreflects our restructuring activity for the fiscal years ended June 28,2015, 2014,, June 29, and 2013, and June 30, 2012 (in millions):
| | | | Severance | | Contract Terminations | | Asset Impairments | | Total | |
| Balance at June 25, 2011 | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
| Additional charges | 1.8 |
| | — |
| | 7.0 |
| | 8.8 |
| |
| Payments | (0.1 | ) | | — |
| | — |
| | (0.1 | ) | |
| Non-cash adjustments | — |
| | — |
| | (7.0 | ) | | (7.0 | ) | |
| Balance at June 30, 2012 | 1.7 |
| | — |
| | — |
| | 1.7 |
| $ | 1.7 |
|
| Additional charges | 2.9 |
| | — |
| | — |
| | 2.9 |
| 2.9 |
|
| Payments | (1.7 | ) | | — |
| | — |
| | (1.7 | ) | (1.7 | ) |
| Non-cash adjustments | — |
| | — |
| | — |
| | — |
| |
| Balance at June 29, 2013 | 2.9 |
| | — |
| | — |
| | 2.9 |
| 2.9 |
|
| Additional charges | 36.8 |
| | 5.4 |
| | 4.8 |
| | 47.0 |
| 47.0 |
|
| Payments | (27.3 | ) | | (1.4 | ) | | — |
| | (28.7 | ) | (28.7 | ) |
| Non-cash adjustments | — |
| | — |
| | (4.8 | ) | | (4.8 | ) | (4.8 | ) |
| Balance at June 28, 2014 | $ | 12.4 |
| | $ | 4.0 |
| | $ | — |
| | $ | 16.4 |
| 16.4 |
|
| Additional charges | | 5.1 |
|
| Payments | | (18.5 | ) |
| Non-cash adjustments | | (1.4 | ) |
| Balance at June 27, 2015 | | $ | 1.6 |
|
DuringRestructuring activity includes severance, lease exit costs, and asset impairments. The charges during fiscal year 2014, $41.2 million of the restructuring expense recorded was were due primarily to the Elan acquisition, and of this amount, $38.7 million was recorded in the Specialty Sciences segment.Elan. There were no other material restructuring programs in any of the years
Perrigo Company plc - Item 8
Note 16
presented, and the remaining charges did not materially impact any one reportable segment. All charges are shown in restructuring expense on the Company'sour Consolidated Statements of Income. Substantially allOperations. All of the remaining liability for employee severance benefits will be paid within the next year, while cash expenditures related to the remaining liability for lease exit costs will be incurred over the remaining terms of the applicable leases. Asset impairments are non-cash charges recorded when the carrying amount of a discontinued fixed asset exceeds its fair value.
In March 2009, the Company committed to a plan to sell its Israel Consumer Products business, which primarily sold consumer products to the Israeli market, including cosmetics, toiletries and detergents, and was previously reported as part of the Company’s Other category. The sale to Emilia Group was completed in fiscal 2010, resulting in a pre-tax gain on the sale of $0.8 million, excluding contingent consideration. During fiscal 2012, upon satisfaction of the contingency factors specified in the agreement, the Company recorded additional consideration of $8.6 million, which was included in discontinued operations.
The Company has reflected the results of this business as discontinued operations in the consolidated statements of income for fiscal 2012. There was no activity related to discontinued operations in fiscal 2013 or 2014.
NOTE 17 – SEGMENT AND GEOGRAPHIC INFORMATION
The Company has five reportable segments, aligned primarily by type of product: Consumer Healthcare, Nutritionals, Rx Pharmaceuticals, API, and Specialty Sciences, along with an Other category. As noteddiscussed in Note 21, in conjunction with the Omega acquisition, of Elan on December 18, 2013, the Company expanded its operatingwe changed our reporting segments to includebetter align with our new organizational structure. This structure is consistent with the Specialty Sciences segment, which is comprisedway our chief operating decision maker makes operating decisions, allocates resources and manages the growth and profitability of assets focused on the treatmentbusiness. Operating segments with similar economic characteristics, including long-term profitability, nature of Multiple Sclerosis (Tysabri®). The accounting policiesthe products sold and production processes, distribution methods, and classes of each segmentcustomers, are the sameaggregated as those described in the summary of significant accounting policies set forth in Note 1. The majority of corporate expenses, which generally represent shared services, are charged to operating segments as part of a corporate allocation. Unallocated expenses relate to certain corporate services that are not allocated to thereportable segments.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The CompanyWe generated third-party revenuesnet sales in the following geographic locations(1) during each of the fiscal years presented (in millions):
| | | | 2014 | | 2013 | | 2012 | 2015 | | 2014 | | 2013 |
| Ireland | $ | 146.7 |
| | $ | — |
| | $ | — |
| $ | 344.0 |
| | $ | 146.7 |
| | $ | — |
|
| U.S. | 3,291.6 |
| | 2,978.1 |
| | 2,693.6 |
| 3,303.6 |
| | 3,291.6 |
| | 2,978.1 |
|
| Europe | | 613.6 |
| | 217.2 |
| | 164.0 |
|
All other countries(2) | 622.5 |
| | 561.7 |
| | 479.6 |
| 342.7 |
| | 405.3 |
| | 397.7 |
|
| | $ | 4,060.8 |
| | $ | 3,539.8 |
| | $ | 3,173.2 |
| $ | 4,603.9 |
| | $ | 4,060.8 |
| | $ | 3,539.8 |
|
(1) The Company attributes revenuesWe attribute net sales to countries based on sales location.
(2) Includes sales generated primarily in Israel, U.K., Mexico, Australia, and Canada.
The net book value of property and equipment at June 27, 2015 and June 28, 2014 and June 29, 2013 was as follows (in millions):
| | | | June 28, 2014 | | June 29, 2013 | June 27,
2015 | | June 28,
2014 |
| Ireland | $ | 2.0 |
| | $ | — |
| $ | 1.4 |
| | $ | 2.0 |
|
| U.S. | 530.7 |
| | 468.4 |
| 558.6 |
| | 530.7 |
|
| Europe | | 153.8 |
| | 31.7 |
|
| Israel | 119.6 |
| | 98.0 |
| 119.8 |
| | 119.6 |
|
| All other countries | 127.6 |
| | 115.0 |
| 98.8 |
| | 95.9 |
|
| | $ | 779.9 |
| | $ | 681.4 |
| $ | 932.4 |
| | $ | 779.9 |
|
One customer in the Consumer Healthcare and Nutritionals segmentsSales to Walmart accounted for 19%15% of consolidated net sales in fiscal year 2015 and 19% in both fiscal year 2014 and fiscal year 2013. Sales to Walmart are reported primarily in our CHC segment.
Perrigo Company plc - Item 8
Note 17
Below is a summary of our results by reporting segment for fiscal years 2015, 2014, and 2013. Prior periods have been restated to conform to our new reporting segments (in millions).
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | CHC | | BCH (1) | | Rx Pharmaceut-icals | | Specialty Sciences (2) | | Other | | Unallocated expenses | | Total (3) |
| Fiscal Year 2015 | | | | | | | | | | | | | |
| Net sales | $ | 2,750.0 |
| | $ | 401.1 |
| | $ | 1,001.1 |
| | $ | 344.0 |
| | $ | 107.7 |
| | $ | — |
| | $ | 4,603.9 |
|
| Operating income (loss) | $ | 405.6 |
| | $ | 26.6 |
| | $ | 373.9 |
| | $ | 36.3 |
| | $ | 26.8 |
| | $ | (121.5 | ) | | $ | 747.7 |
|
| Operating income % | 14.7 | % | | 6.6 | % | | 37.3 | % | | 10.6 | % | | 24.9 | % | | — | % | | 16.2 | % |
| Total assets | $ | 4,381.6 |
| | $ | 6,441.1 |
| | $ | 2,667.9 |
| | $ | 5,979.0 |
| | $ | 251.0 |
| | $ | — |
| | $ | 19,720.6 |
|
| Capital expenditures | $ | 80.5 |
| | $ | 3.6 |
| | $ | 42.9 |
| | $ | 0.5 |
| | $ | 6.4 |
| | $ | 3.1 |
| | $ | 137.0 |
|
| Property and equip, net | $ | 600.0 |
| | $ | 122.5 |
| | $ | 124.1 |
| | $ | — |
| | $ | 85.8 |
| | $ | — |
| | $ | 932.4 |
|
| Depreciation/amortization | $ | 123.2 |
| | $ | 38.3 |
| | $ | 85.1 |
| | $ | 291.6 |
| | $ | 10.6 |
| | $ | — |
| | $ | 548.8 |
|
| | | | | | | | | | | | | | |
| Fiscal Year 2014 | | | | | | | | | | | | | |
| Net sales | $ | 2,849.4 |
| | $ | — |
| | $ | 927.1 |
| | $ | 146.7 |
| | $ | 137.6 |
| | $ | — |
| | $ | 4,060.8 |
|
| Operating income (loss) | $ | 413.1 |
| | $ | — |
| | $ | 349.8 |
| | $ | (68.6 | ) | | $ | 46.1 |
| | $ | (173.4 | ) | | $ | 567.0 |
|
| Operating income (loss) % | 14.5 | % | | — | % | | 37.7 | % | | (46.7 | )% | | 33.5 | % | | — | % | | 14.0 | % |
| Total assets | $ | 4,931.0 |
| | $ | — |
| | $ | 2,537.2 |
| | $ | 6,096.6 |
| | $ | 288.0 |
| | $ | — |
| | $ | 13,852.8 |
|
| Capital expenditures | $ | 128.3 |
| | $ | — |
| | $ | 32.9 |
| | $ | — |
| | $ | 10.4 |
| | $ | — |
| | $ | 171.6 |
|
| Property and equip, net | $ | 577.3 |
| | $ | — |
| | $ | 104.8 |
| | $ | 2.1 |
| | $ | 95.7 |
| | $ | — |
| | $ | 779.9 |
|
| Depreciation/amortization | $ | 106.6 |
| | $ | — |
| | $ | 86.5 |
| | 154.4 |
| | $ | 11.4 |
| | $ | — |
| | $ | 358.9 |
|
| | | | | | | | | | | | | | |
| Fiscal Year 2013 | | | | | | | | | | | | | |
| Net sales | $ | 2,671.0 |
| | $ | — |
| | $ | 709.5 |
| | — |
| | $ | 159.3 |
| | $ | — |
| | $ | 3,539.8 |
|
| Operating income (loss) | $ | 401.8 |
| | $ | — |
| | $ | 263.2 |
| | — |
| | $ | 48.9 |
| �� | $ | (34.7 | ) | | $ | 679.1 |
|
| Operating income % | 15.0 | % | | — | % | | 37.1 | % | | — | % | | 30.7 | % | | — | % | | 19.2 | % |
| Total assets | $ | 3,447.5 |
| | $ | — |
| | $ | 1,604.9 |
| | — |
| | $ | 284.5 |
| | $ | — |
| | $ | 5,336.9 |
|
| Capital expenditures | $ | 97.1 |
| | $ | — |
| | $ | 17.7 |
| | — |
| | $ | 17.3 |
| | $ | — |
| | $ | 132.2 |
|
| Property and equip, net | $ | 508.0 |
| | $ | — |
| | $ | 80.8 |
| | — |
| | $ | 92.7 |
| | $ | — |
| | $ | 681.4 |
|
| Depreciation/amortization | $ | 96.1 |
| | $ | — |
| | $ | 54.9 |
| | — |
| | $ | 9.1 |
| | $ | — |
| | $ | 160.2 |
|
(1) , BCH only includes activity from March 30, 2015 to June 27, 2015.
(2) 19% inSpecialty Sciences only includes activity from December 18, 2013 to June 28, 2014 for fiscal year 2014.
2013(3), and 20% in fiscal 2012.Amounts may not cross-foot due to rounding.
PERRIGO COMPANY PLCPerrigo Company plc - Item 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Consumer Healthcare | | Nutritionals | | Rx Pharma-ceuticals | | API | | Specialty Sciences | | Other | | Unallocated expenses | | Total |
| Fiscal 2014 | | | | | | | | | | | | | | | |
| Net sales | $ | 2,219.0 |
| | $ | 551.7 |
| | $ | 927.1 |
| | $ | 137.6 |
| | $ | 146.7 |
| | $ | 78.7 |
| | $ | — |
| | $ | 4,060.8 |
|
| Operating income | $ | 368.6 |
| | $ | 40.5 |
| | $ | 349.8 |
| | $ | 46.1 |
| | $ | (68.6 | ) | | $ | 4.0 |
| | $ | (173.4 | ) | | $ | 567.0 |
|
| Operating income % | 16.6 | % | | 7.3 | % | | 37.7 | % | | 33.5 | % | | (46.7 | )% | | 5.2 | % | | — | % | | 14.0 | % |
| Total assets | $ | 3,774.5 |
| | $ | 1,077.2 |
| | $ | 2,537.2 |
| | $ | 288.0 |
| | $ | 6,096.6 |
| | $ | 106.7 |
| | $ | — |
| | $ | 13,880.2 |
|
| Capital expenditures | $ | 115.9 |
| | $ | 7.3 |
| | $ | 32.9 |
| | $ | 10.4 |
| | $ | — |
| | $ | 5.1 |
| | $ | — |
| | $ | 171.6 |
|
| Fixed assets, net | $ | 475.7 |
| | $ | 88.6 |
| | $ | 104.8 |
| | $ | 95.7 |
| | $ | 2.1 |
| | $ | 13.0 |
| | $ | — |
| | $ | 779.9 |
|
| Depreciation/amortization | $ | 63.8 |
| | $ | 38.5 |
| | $ | 86.5 |
| | $ | 11.4 |
| | $ | 154.4 |
| | $ | 4.3 |
| | $ | — |
| | $ | 358.9 |
|
| | | | | | | | | | | | | | | | |
| Fiscal 2013 | | | | | | | | | | | | | | | |
| Net sales | $ | 2,089.0 |
| | $ | 508.4 |
| | $ | 709.5 |
| | $ | 159.3 |
| | — |
| | $ | 73.6 |
| | $ | — |
| | $ | 3,539.8 |
|
| Operating income | $ | 363.2 |
| | $ | 35.2 |
| | $ | 263.2 |
| | $ | 48.9 |
| | — |
| | $ | 3.4 |
| | $ | (34.7 | ) | | $ | 679.1 |
|
| Operating income % | 17.4 | % | | 6.9 | % | | 37.1 | % | | 30.7 | % | | — | % | | 4.6 | % | | — | % | | 19.2 | % |
| Total assets | $ | 2,409.0 |
| | $ | 949.7 |
| | $ | 1,604.9 |
| | $ | 284.5 |
| | — |
| | $ | 102.7 |
| | $ | — |
| | $ | 5,350.8 |
|
| Capital expenditures | $ | 85.5 |
| | $ | 7.8 |
| | $ | 17.7 |
| | $ | 17.3 |
| | — |
| | $ | 3.8 |
| | $ | — |
| | $ | 132.2 |
|
| Fixed assets, net | $ | 404.1 |
| | $ | 92.8 |
| | $ | 80.8 |
| | $ | 92.7 |
| | — |
| | $ | 11.1 |
| | $ | — |
| | $ | 681.4 |
|
| Depreciation/amortization | $ | 53.8 |
| | $ | 38.3 |
| | $ | 54.9 |
| | $ | 9.1 |
| | — |
| | $ | 4.0 |
| | $ | — |
| | $ | 160.2 |
|
| | | | | | | | | | | | | | | | |
| Fiscal 2012 | | | | | | | | | | | | | | | |
| Net sales | $ | 1,815.8 |
| | $ | 501.0 |
| | $ | 617.4 |
| | $ | 165.8 |
| | — |
| | $ | 73.3 |
| | $ | — |
| | $ | 3,173.2 |
|
| Operating income | $ | 315.3 |
| | $ | 25.4 |
| | $ | 213.5 |
| | $ | 53.9 |
| | — |
| | $ | 2.0 |
| | $ | (40.9 | ) | | $ | 569.2 |
|
| Operating income % | 17.4 | % | | 5.1 | % | | 34.6 | % | | 32.5 | % | | — | % | | 2.7 | % | | — | % | | 17.9 | % |
| Total assets | $ | 1,651.4 |
| | $ | 951.0 |
| | $ | 1,072.6 |
| | $ | 258.4 |
| | — |
| | $ | 90.7 |
| | $ | — |
| | $ | 4,024.0 |
|
| Capital expenditures | $ | 76.3 |
| | $ | 14.4 |
| | $ | 8.0 |
| | $ | 18.5 |
| | — |
| | $ | 3.0 |
| | $ | — |
| | $ | 120.2 |
|
| Fixed assets, net | $ | 328.0 |
| | $ | 94.5 |
| | $ | 67.6 |
| | $ | 79.6 |
| | — |
| | $ | 8.7 |
| | $ | — |
| | $ | 578.4 |
|
| Depreciation/amortization | $ | 41.0 |
| | $ | 39.0 |
| | $ | 42.2 |
| | $ | 9.3 |
| | — |
| | $ | 3.8 |
| | $ | — |
| | $ | 135.3 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17
The following is a summary of the Company'sour net sales by major product category by fiscal year (in millions):
|
| | | | | | | | | | | |
| Fiscal 2014 | | Fiscal 2013 | | Fiscal 2012 |
| Consumer Healthcare (CHC) |
| |
| |
|
Cough/Cold (1) | $ | 510.1 |
| | $ | 500.6 |
| | $ | 447.2 |
|
Analgesics (1) | 504.0 |
| | 536.0 |
| | 452.3 |
|
Gastrointestinal (1) | 400.1 |
| | 388.8 |
| | 402.4 |
|
| Smoking Cessation | 236.8 |
| | 193.2 |
| | 170.6 |
|
| Animal Health | 178.0 |
| | 123.2 |
| | — |
|
Other CHC (1,2) | 390.0 |
| | 347.3 |
| | 343.3 |
|
| Total CHC | 2,219.0 |
| | 2,089.0 |
| | 1,815.8 |
|
| Nutritionals |
|
| |
| |
|
| Infant nutritionals | 374.8 |
| | 350.1 |
| | 352.7 |
|
| Vitamins, minerals and dietary supplements | 176.9 |
| | 158.3 |
| | 148.3 |
|
| Total Nutritionals | 551.7 |
| | 508.4 |
| | 501.0 |
|
| Generic prescription drugs | 927.1 |
| | 709.5 |
| | 617.4 |
|
| Active pharmaceutical ingredients | 137.6 |
| | 159.3 |
| | 165.8 |
|
| Specialty sciences - Tysabri® | 146.7 |
| | — |
| | — |
|
| Pharmaceutical and medical diagnostic products | 78.7 |
| | 73.6 |
| | 73.3 |
|
| Total Net Sales | $ | 4,060.8 |
| | $ | 3,539.8 |
| | $ | 3,173.2 |
|
|
| | | | | | | | | | | |
| 2015 | | 2014 | | 2013 |
| CHC |
| |
| |
|
Cough/Cold/Allergy/Sinus (1) | $ | 486.2 |
| | $ | 510.1 |
| | $ | 500.6 |
|
Analgesics (1) | 441.7 |
| | 504.0 |
| | 536.0 |
|
Gastrointestinal (1) | 395.3 |
| | 400.1 |
| | 388.8 |
|
| Infant nutritionals | 383.9 |
| | 374.8 |
| | 350.1 |
|
| Smoking cessation | 299.4 |
| | 236.8 |
| | 193.2 |
|
| Vitamins, minerals and dietary supplements | 185.6 |
| | 176.9 |
| | 158.3 |
|
| Animal health | 156.9 |
| | 178.0 |
| | 123.2 |
|
Other CHC (1), (2) | 335.9 |
| | 468.7 |
| | 420.9 |
|
| Total CHC | 2,684.9 |
| | 2,849.4 |
| | 2,671.1 |
|
| BCH branded OTC products | 401.2 |
| | — |
| | — |
|
| Generic prescription drugs | 1,066.1 |
| | 927.1 |
| | 709.5 |
|
Tysabri® royalties | 344.0 |
| | 146.7 |
| | — |
|
| Active pharmaceutical ingredients | 107.7 |
| | 137.6 |
| | 159.3 |
|
| Total net sales | $ | 4,603.9 |
| | $ | 4,060.8 |
| | $ | 3,539.8 |
|
(1)Includes sales from the Company'sour OTC contract manufacturing business.
(2) Consists primarily of feminine hygiene, diabetes care, dermatological care and other miscellaneous or otherwise uncategorized product lines and markets. | |
(2) | Consists primarily of feminine hygiene, diabetes care, dermatological care, diagnostic products, and other miscellaneous or otherwise uncategorized product lines and markets none of which is greater than 10% of the CHC segment. |
NOTE 18 – QUARTERLY FINANCIAL DATA (unaudited)
The following table presents unaudited quarterly consolidated operating results for each of the Company’sour last eight fiscal quarters. ThisThe information below has been prepared on a basis consistent with the Company’sour audited consolidated financial statements.statements (in millions, except per share amounts).
| | | (in millions, except per share amounts) | | | | | | | | |
| Fiscal 2014 | First Quarter(2) | | Second Quarter(3) | | Third Quarter(4) | | Fourth Quarter(5) | |
| Fiscal Year 2015 | | First Quarter (2) | | Second Quarter (3) | | Third Quarter (4) | | Fourth Quarter (5) |
Net sales | $ | 933.4 |
| | $ | 979.0 |
| | $ | 1,004.2 |
| | $ | 1,144.2 |
| $ | 951.5 |
| | $ | 1,071.7 |
| | $ | 1,049.1 |
| | $ | 1,531.6 |
|
| Gross profit | $ | 356.3 |
| | $ | 360.7 |
| | $ | 315.0 |
| | $ | 415.7 |
| $ | 321.8 |
| | $ | 383.8 |
| | $ | 378.8 |
| | $ | 628.1 |
|
| Net income (loss) | $ | 111.4 |
| | $ | (86.0 | ) | | $ | 48.1 |
| | $ | 131.7 |
| $ | 96.3 |
| | $ | 70.2 |
| | $ | (94.9 | ) | | $ | 56.4 |
|
Earnings (loss) per share(1): | | | | | | | | | | | | | | |
| Basic | $ | 1.18 |
| | $ | (0.87 | ) | | $ | 0.36 |
| | $ | 0.98 |
| $ | 0.72 |
| | $ | 0.52 |
| | $ | (0.67 | ) | | $ | 0.39 |
|
| Diluted | $ | 1.18 |
| | $ | (0.87 | ) | | $ | 0.36 |
| | $ | 0.98 |
| $ | 0.72 |
| | $ | 0.51 |
| | $ | (0.67 | ) | | $ | 0.38 |
|
| Weighted average shares outstanding | | | | | | | | | | | | | | |
| Basic | 94.2 |
| | 98.7 |
| | 133.7 |
| | 133.8 |
| 133.9 |
| | 136.3 |
| | 140.8 |
| | 146.3 |
|
| Diluted | 94.7 |
| | 98.7 |
| | 134.3 |
| | 134.3 |
| 134.4 |
| | 136.8 |
| | 140.8 |
| | 146.8 |
|
(1) The sum of individual per share amounts may not equal due to rounding.
| |
(2) | Includes acquisition costs of $1.1 million, restructuring charges of $1.7 million, equity method investment losses of $3.1 million, and a $1.2 million investment distribution. |
| |
(3) | Includes restructuring charges of $2.4 million, an R&D payment made in connection with a collaborative agreement of $10.0 million, Omega transaction expenses of $17.8 million, losses on derivatives associated with the Omega acquisition of $64.7 million, equity method investment losses of $3.0 million, income from transfer of rights agreement of $12.5 million, and $9.6 million loss on extinguishment of debt. |
| |
(4) | Includes acquisition costs totaling $2.0 million, an increase in litigation accrual of $2.0 million, restructuring charges of $1.1 million, Omega financing fees of $18.6 million, and losses on derivatives associated with the Omega acquisition of $258.2 million. |
| |
(5) | Includes legal and consulting fees related to our defense against Mylan N.V. of $13.4 million, acquisition costs of $18.5 million, goodwill impairment of $6.8 million, losses on derivatives terminated with extinguishment of associated debt and associated with hedging the pending GSK acquisition of $5.5 million, losses on equity method investments of $3.5 million, an inventory step up related to the Omega acquisition totaling $15.6 million, and an initial payment made in connection with an R&D agreement of $18.0 million. |
PERRIGO COMPANY PLCPerrigo Company plc - Item 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18
|
| | | | | | | | | | | | | | | |
| (in millions, except per share amounts) | | | | | | | |
| Fiscal 2013 | First Quarter(6) | | Second Quarter(7) | | Third Quarter(8) | | Fourth Quarter(9) |
Net sales (1) | $ | 769.8 |
| | $ | 883.0 |
| | $ | 919.8 |
| | $ | 967.2 |
|
Gross profit (1) | $ | 285.3 |
| | $ | 307.2 |
| | $ | 331.4 |
| | $ | 356.2 |
|
| Net income | $ | 105.6 |
| | $ | 106.0 |
| | $ | 111.9 |
| | $ | 118.5 |
|
Earnings per share(1): | | | | | | | |
| Basic | $ | 1.13 |
| | $ | 1.13 |
| | $ | 1.19 |
| | $ | 1.26 |
|
| Diluted | $ | 1.12 |
| | $ | 1.12 |
| | $ | 1.18 |
| | $ | 1.25 |
|
| Weighted average shares outstanding | | | | | | | |
| Basic | 93.6 |
| | 93.9 |
| | 94.0 |
| | 94.0 |
|
| Diluted | 94.3 |
| | 94.5 |
| | 94.5 |
| | 94.6 |
|
|
| | | | | | | | | | | | | | | |
| Fiscal Year 2014 | First Quarter (2) | | Second Quarter (3) | | Third Quarter (4) | | Fourth Quarter (5) |
| Net sales | $ | 933.4 |
| | $ | 979.0 |
| | $ | 1,004.2 |
| | $ | 1,144.2 |
|
| Gross profit | $ | 356.3 |
| | $ | 360.7 |
| | $ | 315.0 |
| | $ | 415.7 |
|
| Net income (loss) | $ | 111.4 |
| | $ | (86.0 | ) | | $ | 48.1 |
| | $ | 131.7 |
|
Earnings (loss) per share(1): | | | | | | | |
| Basic | $ | 1.18 |
| | $ | (0.87 | ) | | $ | 0.36 |
| | $ | 0.98 |
|
| Diluted | $ | 1.18 |
| | $ | (0.87 | ) | | $ | 0.36 |
| | $ | 0.98 |
|
| Weighted average shares outstanding | | | | | | | |
| Basic | 94.2 |
| | 98.7 |
| | 133.7 |
| | 133.8 |
|
| Diluted | 94.7 |
| | 98.7 |
| | 134.3 |
| | 134.3 |
|
| |
(1) | The sum of quarterly financial data may vary from the annual data due to rounding. The sum of individual per share amounts may not equal due to rounding. |
| |
(2) | Includes Elan transactiontransactions costs of $12.0 million, litigation settlement of $2.5 million, and acquisition costs of $1.9 million. |
| |
(3) | Includes loss on extinguishment of debt of $165.8 million, Elan transaction costs of $103.2 million, restructuring charges totaling $14.9 million, write-off of contingent consideration of $4.9 million related to Fera, and write-off of IPR&D oftotaling $6.0 million related to Paddock and Rosemont. |
| |
(4) | Includes restructuring charges totaling $19.5 million, write-up of contingent consideration of $5.8 million related to Fera, and $3.2 million of Elan transaction costs. |
| |
(5) | Includes restructuring charges totaling $10.5 million and a loss contingency of $15.0 million related to Texas Medicaid. |
| |
(6) | Includes a pre-tax charge of approximately $1.9 million of acquisition costs associated with the Sergeant's acquisition.
|
| |
(7) | Includes a pre-tax charge to cost of sales of $7.7 million associated with the step-up in value of inventory related to the Sergeant's acquisition, $1.5 million of severance costs associated with the Cobrek acquisition and a $3.0 million loss on the sale of investment related to Cobrek. |
| |
(8) | Includes a pre-tax charge to cost of sales of $1.9 million associated with the step-up in value of inventory related to the Rosemont acquisition, approximately $3.1 million of acquisition costs associated with the Rosemont and Velcera acquisitions and a $1.6 million loss related to the sale of the Company's investment securities.
|
| |
(9) | Includes a pre-tax charge to cost of sales of $1.2 million associated with the step-up in value of inventory related to the Rosemont acquisition, $5.6 million of restructuring and other integration-related costs associated with the Velcera acquisition and a $9.0 million impairment charge related to the write-off of IPR&D.
|
NOTE 19 – GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
On November 8, 2013, the Company issued senior notes (the "Bonds") totaling $2.3 billion to finance part of the cash portion of the acquisition of Elan. See Note 7 for additional information related to these Bonds. The Company and certain other of its principal 100% owned subsidiaries (the "Guarantors") fully and unconditionally guaranteed, on a joint and several basis, the Bonds. The following tables present consolidated condensed financial information for (a) the Company (for purposes of this discussion and table, "Parent"); (b) the guarantors of the Bonds, which include substantially all of the U.S., 100% owned subsidiaries of the Parent and specific Elan subsidiaries ("Subsidiary Guarantors"); and (c) the wholly- and partially-owned non-U.S. subsidiaries of the Parent, which do not guarantee the Notes ("Non-Guarantor Subsidiaries"). Separate financial statements of the Subsidiary Guarantors are not presented because they are fully and unconditionally, jointly and severally liable under the guarantees. The consolidating adjustments primarily relate to eliminations of investments in subsidiaries and intercompany balances and transactions. The condensed consolidating financial statements present investments in subsidiaries using the equity method of accounting.
Perrigo Company plc, which was formed on December 18, 2013, is the Parent Company. For periods prior to December 18, 2013, the Parent entity is Perrigo Company, which is a guarantor, therefore no Parent column is presented for fiscal years 2013 and 2012.
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended June 28, 2014
(in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Unconsolidated | | | | |
| | Perrigo Company plc | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminating Entries | | Consolidated |
| | | | | | | | | | |
| Net sales | $ | — |
| | $ | 3,592.2 |
| | $ | 1,068.9 |
| | $ | (600.3 | ) | | $ | 4,060.8 |
|
| Cost of sales | — |
| | 2,535.2 |
| | 641.1 |
| | (563.2 | ) | | 2,613.1 |
|
| Gross profit | — |
| | 1,057.0 |
| | 427.8 |
| | (37.1 | ) | | 1,447.7 |
|
| | | | | | | | | | |
| Operating expenses | | | | | | | | | |
| Distribution | — |
| | 44.3 |
| | 11.0 |
| | — |
| | 55.3 |
|
| Research and development | — |
| | 124.1 |
| | 57.0 |
| | (28.6 | ) | | 152.5 |
|
| Selling | — |
| | 171.2 |
| | 42.5 |
| | (5.1 | ) | | 208.6 |
|
| Administration | 56.3 |
| | 313.6 |
| | 44.1 |
| | (2.7 | ) | | 411.3 |
|
| Write-off of in-process research and development | — |
| | 4.0 |
| | 2.0 |
| | — |
| | 6.0 |
|
| Restructuring | — |
| | 29.7 |
| | 17.3 |
| | — |
| | 47.0 |
|
| Total | 56.3 |
| | 686.9 |
| | 173.9 |
| | (36.4 | ) | | 880.7 |
|
| | | | | | | | | | |
| Operating income (loss) | (56.3 | ) | | 370.1 |
| | 253.9 |
| | (0.7 | ) | | 567.0 |
|
| | | | | | | | | | |
| Interest, net | 62.9 |
| | 439.1 |
| | (398.5 | ) | | — |
| | 103.5 |
|
| Other expense (income), net | 0.5 |
| | (359.9 | ) | | 371.5 |
| | 0.3 |
| | 12.4 |
|
| Loss on sales of investments | — |
| | — |
| | 12.7 |
| | — |
| | 12.7 |
|
| Loss on extinguishment of debt | 19.0 |
| | 146.8 |
| | — |
| | — |
| | 165.8 |
|
| Income (loss) before income taxes and equity in net income (loss) of subsidiaries | (138.7 | ) | | 144.1 |
| | 268.2 |
| | (1.0 | ) | | 272.6 |
|
| Income tax expense | (2.4 | ) | | 35.5 |
| | 34.2 |
| | — |
| | 67.3 |
|
| Income (loss) before equity in net income (loss) of subsidiaries | (136.3 | ) | | 108.6 |
| | 234.0 |
| | (1.0 | ) | | 205.3 |
|
| Equity in net income (loss) of subsidiaries | 341.6 |
| | (241.0 | ) | | 98.7 |
| | (199.3 | ) | | — |
|
| Net income (loss) | $ | 205.3 |
| | $ | (132.4 | ) | | $ | 332.7 |
| | $ | (200.3 | ) | | $ | 205.3 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the year ended June 28, 2014
(in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Unconsolidated | | | | |
| | Perrigo Company plc | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminating Entries | | Consolidated |
| | | | | | | | | | |
| Net income | $ | 205.3 |
| | $ | (132.4 | ) | | $ | 332.7 |
| | $ | (200.3 | ) | | $ | 205.3 |
|
| Other comprehensive income: | | | | | | | | | |
| Foreign currency translation adjustments, net of tax | 83.8 |
| | (0.1 | ) | | 84.4 |
| | (84.3 | ) | | 83.8 |
|
| Change in fair value of derivative financial instruments, net of tax | (11.6 | ) | | 1.2 |
| | 0.7 |
| | (1.9 | ) | | (11.6 | ) |
| Change in fair value of investment securities, net of tax | 2.4 |
| | 2.4 |
| | 2.5 |
| | (4.9 | ) | | 2.4 |
|
| Post-retirement liability adjustments, net of tax | (12.0 | ) | | (12.0 | ) | | — |
| | 12.0 |
| | (12.0 | ) |
| Other comprehensive income, net of tax | 62.6 |
| | (8.5 | ) | | 87.6 |
| | (79.1 | ) | | 62.6 |
|
| Comprehensive income | $ | 267.9 |
| | $ | (140.9 | ) | | $ | 420.3 |
| | $ | (279.4 | ) | | $ | 267.9 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended June 29, 2013
(in millions)
|
| | | | | | | | | | | | | | | |
| | Unconsolidated | | | | |
| | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminating Entries | | Consolidated |
| | | | | | | | |
| Net sales | $ | 2,986.9 |
| | $ | 1,089.3 |
| | $ | (536.4 | ) | | $ | 3,539.8 |
|
| Cost of sales | 2,057.9 |
| | 738.3 |
| | (536.4 | ) | | 2,259.8 |
|
| Gross profit | 929.0 |
| | 351.0 |
| | — |
| | 1,280.0 |
|
| | | | | | | | |
| Operating expenses | | | | | | | |
| Distribution | 37.7 |
| | 9.8 |
| | — |
| | 47.5 |
|
| Research and development | 76.5 |
| | 38.7 |
| | — |
| | 115.2 |
|
| Selling | 145.8 |
| | 40.3 |
| | — |
| | 186.1 |
|
| Administration | 207.5 |
| | 32.7 |
| | — |
| | 240.2 |
|
| Write-off of in-process research and development | 9.0 |
| | — |
| | — |
| | 9.0 |
|
| Restructuring | 2.9 |
| | — |
| | — |
| | 2.9 |
|
| Total | 479.3 |
| | 121.5 |
| | — |
| | 600.9 |
|
| | | | | | | | |
| Operating income | 449.7 |
| | 229.5 |
| | — |
| | 679.1 |
|
| | | | | | | | |
| Interest, net | 64.6 |
| | 1.2 |
| | — |
| | 65.8 |
|
| Other expense (income), net | 291.4 |
| | (290.5 | ) | | — |
| | 0.9 |
|
| Loss on sales of investments | 3.1 |
| | 1.6 |
| | — |
| | 4.7 |
|
| Income (loss) before income taxes and equity in net income (loss) of subsidiaries | 90.6 |
| | 517.2 |
| | — |
| | 607.7 |
|
| Income tax expense | 147.9 |
| | 17.9 |
| | — |
| | 165.8 |
|
| Income (loss) before equity in net income (loss) of subsidiaries | (57.3 | ) | | 499.2 |
| | — |
| | 441.9 |
|
| Equity in net income (loss) of subsidiaries | 499.2 |
| | (311.4 | ) | | (187.8 | ) | | — |
|
| Net income | $ | 441.9 |
| | $ | 187.8 |
| | $ | (187.8 | ) | | $ | 441.9 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the year ended June 29, 2013
(in millions)
|
| | | | | | | | | | | | | | | |
| | Unconsolidated | | | | |
| | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminating Entries | | Consolidated |
| | | | | | | | |
| Net income | $ | 441.9 |
| | $ | 187.8 |
| | $ | (187.8 | ) | | $ | 441.9 |
|
| Other comprehensive income: | | | | | | | |
| Foreign currency translation adjustments | 30.0 |
| | 30.0 |
| | (33.1 | ) | | 26.9 |
|
| Change in fair value of derivative financial instruments, net of tax | 6.0 |
| | 1.9 |
| | (1.9 | ) | | 6.0 |
|
| Change in fair value of investment securities, net of tax | 1.4 |
| | 4.7 |
| | (1.6 | ) | | 4.4 |
|
| Post-retirement liability adjustments, net of tax | 0.3 |
| | — |
| | — |
| | 0.3 |
|
| Other comprehensive income, net of tax | 37.6 |
| | 36.7 |
| | (36.7 | ) | | 37.6 |
|
| Comprehensive income | $ | 479.6 |
| | $ | 224.5 |
| | $ | (224.5 | ) | | $ | 479.6 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended June 30, 2012
(in millions)
|
| | | | | | | | | | | | | | | |
| | Unconsolidated | | | | |
| | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminating Entries | | Consolidated |
| | | | | | | | |
| Net sales | $ | 2,715.1 |
| | $ | 931.4 |
| | $ | (473.2 | ) | | $ | 3,173.2 |
|
| Cost of sales | 1,945.5 |
| | 605.4 |
| | (473.2 | ) | | 2,077.7 |
|
| Gross profit | 769.6 |
| | 326.0 |
| | — |
| | 1,095.6 |
|
| | | | | | | | |
| Operating expenses | | | | | | | |
| Distribution | 29.2 |
| | 9.9 |
| | — |
| | 39.1 |
|
| Research and development | 67.7 |
| | 38.1 |
| | — |
| | 105.8 |
|
| Selling | 110.3 |
| | 38.0 |
| | — |
| | 148.3 |
|
| Administration | 180.5 |
| | 44.2 |
| | (0.3 | ) | | 224.4 |
|
| Restructuring | 8.8 |
| | — |
| | — |
| | 8.8 |
|
| Total | 396.5 |
| | 130.2 |
| | (0.3 | ) | | 526.4 |
|
| | | | | | | | |
| Operating income | 373.1 |
| | 195.8 |
| | 0.3 |
| | 569.2 |
|
| | | | | | | | |
| Interest, net | 27.6 |
| | 33.1 |
| | — |
| | 60.7 |
|
| Other expense (income), net | 219.0 |
| | (222.8 | ) | | 0.3 |
| | (3.5 | ) |
| Income from continuing operations before income taxes and equity in net income of subsidiaries | 126.5 |
| | 385.5 |
| | — |
| | 512.0 |
|
| Income tax expense | 115.8 |
| | 3.2 |
| | — |
| | 119.0 |
|
| Income from continuing operations before equity in net income of subsidiaries | 10.7 |
| | 382.3 |
| | — |
| | 393.0 |
|
| Equity in net income (loss) of subsidiaries | 382.3 |
| | (266.2 | ) | | (116.1 | ) | | — |
|
| Income from continuing operations | $ | 393.0 |
| | $ | 116.1 |
| | $ | (116.1 | ) | | $ | 393.0 |
|
| Income from discontinued operations, net of tax | 8.6 |
| | 8.6 |
| | (8.6 | ) | | 8.6 |
|
| Net income (loss) | $ | 401.6 |
| | $ | 124.7 |
| | $ | (124.7 | ) | | $ | 401.6 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the year ended June 30, 2012
(in millions)
|
| | | | | | | | | | | | | | | |
| | Unconsolidated | | | | |
| | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminating Entries | | Consolidated |
| | | | | | | | |
| Net income | $ | 401.6 |
| | $ | 124.7 |
| | $ | (124.7 | ) | | $ | 401.6 |
|
| Other comprehensive income (loss): | | | | | | | |
| Foreign currency translation adjustments | (76.7 | ) | | (76.2 | ) | | 76.2 |
| | (76.7 | ) |
| Change in fair value of derivative financial instruments, net of tax | (9.4 | ) | | (2.5 | ) | | 2.5 |
| | (9.4 | ) |
| Change in fair value of investment securities, net of tax | (1.0 | ) | | (1.3 | ) | | 1.3 |
| | (1.0 | ) |
| Post-retirement liability adjustments, net of tax | (0.6 | ) | | — |
| | — |
| | (0.6 | ) |
| Other comprehensive income (loss), net of tax | (87.6 | ) | | (80.0 | ) | | 80.0 |
| | (87.6 | ) |
| Comprehensive income | $ | 314.0 |
| | $ | 44.7 |
| | $ | (44.7 | ) | | $ | 314.0 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
June 28, 2014
(in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Unconsolidated | | | | |
| | Perrigo Company plc | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminating Entries | | Consolidated |
| Assets | | | | | | | | | |
| Cash and cash equivalents | $ | 323.4 |
| | $ | 245.2 |
| | $ | 230.9 |
| | $ | — |
| | $ | 799.5 |
|
| Investment securities | — |
| | — |
| | 5.9 |
| | — |
| | 5.9 |
|
| Accounts receivable, net | 1.4 |
| | 463.9 |
| | 4,495.7 |
| | (4,025.9 | ) | | 935.1 |
|
| Inventories | — |
| | 613.9 |
| | 148.1 |
| | (130.4 | ) | | 631.6 |
|
| Current deferred income taxes | — |
| | 59.8 |
| | 3.0 |
| | — |
| | 62.8 |
|
| Prepaid expenses and other current assets | 9.9 |
| | 62.7 |
| | 43.4 |
| | — |
| | 116.0 |
|
| Total current assets | 334.7 |
| | 1,445.5 |
| | 4,927.0 |
| | (4,156.3 | ) | | 2,550.9 |
|
| Property and equipment, net | — |
| | 532.4 |
| | 247.5 |
| | — |
| | 779.9 |
|
| Goodwill and other indefinite-lived intangible assets | — |
| | 3,078.3 |
| | 465.5 |
| | — |
| | 3,543.8 |
|
| Other intangible assets, net | — |
| | 6,583.8 |
| | 203.2 |
| | — |
| | 6,787.0 |
|
| Non-current deferred income taxes | 16.0 |
| | — |
| | 23.6 |
| | (16.0 | ) | | 23.6 |
|
| Other non-current assets | 23.8 |
| | 84.5 |
| | 86.7 |
| | — |
| | 195.0 |
|
| Intercompany loans receivable | 7,300.0 |
| | 2,145.7 |
| | 11,444.1 |
| | (20,889.8 | ) | | — |
|
| Investments in subsidiaries | 6,218.9 |
| | 7,826.9 |
| | 325.2 |
| | (14,371.0 | ) | | — |
|
| Total non-current assets | 13,558.7 |
| | 20,251.6 |
| | 12,795.8 |
| | (35,276.8 | ) | | 11,329.3 |
|
| Total assets | $ | 13,893.4 |
| | $ | 21,697.1 |
| | $ | 17,722.8 |
| | $ | (39,433.1 | ) | | $ | 13,880.2 |
|
| Liabilities and shareholders’ equity | | | | | | | | |
|
|
| Accounts payable | $ | 35.2 |
| | $ | 3,998.0 |
| | $ | 487.3 |
| | $ | (4,156.2 | ) | | $ | 364.3 |
|
| Short-term debt | — |
| | — |
| | 2.1 |
| | — |
| | 2.1 |
|
| Payroll and related taxes | 0.1 |
| | 79.9 |
| | 32.3 |
| | — |
| | 112.3 |
|
| Accrued customer programs | — |
| | 65.6 |
| | 190.9 |
| | — |
| | 256.5 |
|
| Accrued liabilities | 11.4 |
| | 121.8 |
| | 46.7 |
| | (0.5 | ) | | 179.4 |
|
| Accrued income taxes | — |
| | 3.4 |
| | 14.0 |
| | — |
| | 17.4 |
|
| Current deferred income taxes | — |
| | 1.1 |
| | — |
| | — |
| | 1.1 |
|
| Current portion of long-term debt | 140.0 |
| | 1.6 |
| | — |
| | — |
| | 141.6 |
|
| Total current liabilities | 186.7 |
| | 4,271.4 |
| | 773.3 |
| | (4,156.7 | ) | | 1,074.7 |
|
| Long-term debt, less current portion | 3,084.0 |
| | 1.9 |
| | 4.6 |
| | — |
| | 3,090.5 |
|
| Non-current deferred income taxes | — |
| | 709.6 |
| | 34.3 |
| | (16.0 | ) | | 727.9 |
|
| Other non-current liabilities | — |
| | 182.6 |
| | 110.8 |
| | — |
| | 293.4 |
|
| Intercompany loans payable | 1,929.0 |
| | 11,291.5 |
| | 7,667.8 |
| | (20,888.3 | ) | | — |
|
| Total non-current liabilities | 5,013.0 |
| | 12,185.6 |
| | 7,817.5 |
| | (20,904.3 | ) | | 4,111.8 |
|
| Total liabilities | 5,199.7 |
| | 16,457.0 |
| | 8,590.8 |
| | (25,061.0 | ) | | 5,186.5 |
|
| Controlling interest | 8,693.7 |
| | 5,240.1 |
| | 9,131.2 |
| | (14,372.1 | ) | | 8,692.9 |
|
| Non-controlling interest | — |
| | — |
| | 0.8 |
| | — |
| | 0.8 |
|
| Shareholders’ equity | 8,693.7 |
| | 5,240.1 |
| | 9,132.0 |
| | (14,372.1 | ) | | 8,693.7 |
|
| Total liabilities and shareholders' equity | $ | 13,893.4 |
| | $ | 21,697.1 |
| | $ | 17,722.8 |
| | $ | (39,433.1 | ) | | $ | 13,880.2 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
June 29, 2013
(in millions)
|
| | | | | | | | | | | | | | | |
| | Unconsolidated | | | | |
| | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminating Entries | | Consolidated |
| Assets | | | | | | | |
| Cash and cash equivalents | $ | 519.6 |
| | $ | 260.3 |
| | $ | — |
| | $ | 779.9 |
|
| Accounts receivable, net | 409.4 |
| | 1,515.9 |
| | (1,273.4 | ) | | 651.9 |
|
| Inventories | 682.9 |
| | 147.3 |
| | (126.3 | ) | | 703.9 |
|
| Current deferred income taxes | 39.8 |
| | 7.3 |
| | — |
| | 47.1 |
|
| Prepaid expenses and other current assets | 23.7 |
| | 30.4 |
| | — |
| | 54.1 |
|
| Total current assets | 1,675.4 |
| | 1,961.2 |
| | (1,399.7 | ) | | 2,236.9 |
|
| Property and equipment, net | 468.4 |
| | 213.0 |
| | — |
| | 681.4 |
|
| Goodwill and other indefinite-lived intangible assets | 746.5 |
| | 427.6 |
| | — |
| | 1,174.1 |
|
| Other intangible assets, net | 938.9 |
| | 218.7 |
| | — |
| | 1,157.6 |
|
| Non-current deferred income taxes | — |
| | 20.3 |
| | — |
| | 20.3 |
|
| Other non-current assets | 56.9 |
| | 23.7 |
| | — |
| | 80.6 |
|
| Intercompany loans receivable | 2.2 |
| | — |
| | (2.2 | ) | | — |
|
| Investments in subsidiaries | 2,045.1 |
| | 2,872.8 |
| | (4,917.9 | ) | | — |
|
| Total non-current assets | 4,258.0 |
| | 3,776.1 |
| | (4,920.1 | ) | | 3,114.0 |
|
| Total assets | $ | 5,933.4 |
| | $ | 5,737.3 |
| | $ | (6,319.8 | ) | | $ | 5,350.8 |
|
| Liabilities and shareholders’ equity | | | | | | | |
| Accounts payable | $ | 1,220.8 |
| | $ | 560.8 |
| | $ | (1,399.6 | ) | | $ | 382.0 |
|
| Short-term debt | — |
| | 5.0 |
| | — |
| | 5.0 |
|
| Payroll and related taxes | 55.1 |
| | 27.0 |
| | — |
| | 82.1 |
|
| Accrued customer programs | 43.0 |
| | 88.7 |
| | — |
| | 131.7 |
|
| Accrued liabilities | 74.0 |
| | 21.7 |
| | — |
| | 95.7 |
|
| Accrued income taxes | 7.3 |
| | 4.3 |
| | — |
| | 11.6 |
|
| Current deferred income taxes | — |
| | 0.2 |
| | — |
| | 0.2 |
|
| Current portion of long-term debt | 41.2 |
| | — |
| | — |
| | 41.2 |
|
| Total current liabilities | 1,441.4 |
| | 707.7 |
| | (1,399.6 | ) | | 749.4 |
|
| Long-term debt, less current portion | 1,923.3 |
| | 4.6 |
| | — |
| | 1,927.8 |
|
| Non-current deferred income taxes | 88.2 |
| | 39.6 |
| | — |
| | 127.8 |
|
| Other non-current liabilities | 149.1 |
| | 64.0 |
| | — |
| | 213.2 |
|
| Intercompany loan payable | — |
| | 2.2 |
| | (2.2 | ) | | — |
|
| Total non-current liabilities | 2,160.6 |
| | 110.3 |
| | (2.2 | ) | | 2,268.8 |
|
| Total liabilities | 3,602.0 |
| | 818.0 |
| | (1,401.8 | ) | | 3,018.2 |
|
| Controlling interest | 2,331.4 |
| | 4,918.1 |
| | (4,918.1 | ) | | 2,331.4 |
|
| Non-controlling interest | — |
| | 1.2 |
| | — |
| | 1.2 |
|
| Shareholders’ equity | 2,331.4 |
| | 4,919.3 |
| | (4,918.1 | ) | | 2,332.6 |
|
| Total liabilities and shareholders' equity | $ | 5,933.4 |
| | $ | 5,737.3 |
| | $ | (6,319.8 | ) | | $ | 5,350.8 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended June 28, 2014
(in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Unconsolidated | | | | |
| | Perrigo Company plc | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminating Entries | | Consolidated |
| | | | | | | | | | |
| Net cash (for) from operating activities | $ | (126.5 | ) | | $ | 385.6 |
| | $ | 434.4 |
| | $ | — |
| | $ | 693.5 |
|
| Cash Flows (For) From Investing Activities | | | | | | | | | |
| Acquisitions of businesses, net of cash acquired | (3,334.0 | ) | | 1,728.2 |
| | — |
| | — |
| | (1,605.8 | ) |
| Purchases of securities | — |
| | (15.0 | ) | | — |
| | — |
| | (15.0 | ) |
| Proceeds from sales of securities | — |
| | 2.0 |
| | 79.4 |
| | — |
| | 81.4 |
|
| Additions to property and equipment | — |
| | (123.4 | ) | | (48.2 | ) | | — |
| | (171.6 | ) |
| Proceeds from sales of property and equipment | — |
| | 1.6 |
| | 4.6 |
| | | | 6.2 |
|
| Intercompany notes issued | (1,510.0 | ) | | (1,908.0 | ) | | (692.3 | ) | | 4,110.3 |
| | — |
|
| Net cash (for) from investing activities | (4,844.0 | ) | | (314.6 | ) | | (656.5 | ) | | 4,110.3 |
| | (1,704.8 | ) |
| Cash Flows (For) From Financing Activities | | | | | | | | | |
| Purchase of noncontrolling interest | — |
| | — |
| | (7.2 | ) | | — |
| | (7.2 | ) |
| Borrowings of short-term debt, net | — |
| | — |
| | (3.0 | ) | | — |
| | (3.0 | ) |
| Premium on early retirement of debt | — |
| | (133.5 | ) | | — |
| | — |
| | (133.5 | ) |
| Net proceeds from debt issuances | 3,293.6 |
| | — |
| | — |
| | — |
| | 3,293.6 |
|
| Repayments of long-term debt | (70.0 | ) | | (1,965.0 | ) | | — |
| | — |
| | (2,035.0 | ) |
| Deferred financing fees | (48.8 | ) | | — |
| | — |
| | — |
| | (48.8 | ) |
| Excess tax benefit of stock transactions | 5.7 |
| | — |
| | — |
| | — |
| | 5.7 |
|
| Issuance of common stock | 9.8 |
| | — |
| | — |
| | — |
| | 9.8 |
|
| Repurchase of common stock | (7.5 | ) | | — |
| | — |
| | — |
| | (7.5 | ) |
| Cash dividends | (28.1 | ) | | (18.0 | ) | | — |
| | — |
| | (46.1 | ) |
| Intercompany notes borrowed | 2,139.2 |
| | 1,771.1 |
| | 200.0 |
| | (4,110.3 | ) | | — |
|
| Net cash from financing activities | 5,293.9 |
| | (345.4 | ) | | 189.8 |
| | (4,110.3 | ) | | 1,028.0 |
|
| Effect of exchange rate changes on cash | — |
| | — |
| | 2.9 |
| | | | 2.9 |
|
| Net increase (decrease) in cash and cash equivalents | 323.4 |
| | (274.4 | ) | | (29.4 | ) | | — |
| | 19.6 |
|
| Cash and cash equivalents of continuing operations, beginning of period | — |
| | 519.6 |
| | 260.3 |
| | — |
| | 779.9 |
|
| Cash and cash equivalents, end of period | $ | 323.4 |
| | $ | 245.2 |
| | $ | 230.9 |
| | $ | — |
| | $ | 799.5 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended June 29, 2013
(in millions)
|
| | | | | | | | | | | | | | | |
| | Unconsolidated | | | | |
| | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminating Entries | | Consolidated |
| | | | | | | | |
| Net cash from operating activities | $ | 216.1 |
| | $ | 337.7 |
| | $ | — |
| | $ | 553.8 |
|
| Cash Flows (For) From Investing Activities | | | | | | | |
| Acquisitions of businesses, net of cash acquired | (571.5 | ) | | (280.8 | ) | | — |
| | (852.3 | ) |
| Proceeds from sales of securities | — |
| | 8.6 |
| | — |
| | 8.6 |
|
| Additions to property and equipment | (71.3 | ) | | (32.8 | ) | | — |
| | (104.1 | ) |
| Intercompany notes issued | 6.9 |
| | — |
| | (6.9 | ) | | — |
|
| Net cash (for) from investing activities | (635.9 | ) | | (305.0 | ) | | (6.9 | ) | | (947.8 | ) |
| Cash Flows (For) From Financing Activities | | | | | | | |
| Borrowings of short-term debt, net | — |
| | 5.0 |
| | — |
| | 5.0 |
|
| Net proceeds from debt issuances | 636.9 |
| | 0.3 |
| | — |
| | 637.3 |
|
| Repayments of long-term debt | (40.0 | ) | | — |
| | — |
| | (40.0 | ) |
| Deferred financing fees | (6.0 | ) | | — |
| | — |
| | (6.0 | ) |
| Excess tax benefit of stock transactions | 15.7 |
| | — |
| | — |
| | 15.7 |
|
| Issuance of common stock | 10.7 |
| | — |
| | — |
| | 10.7 |
|
| Repurchase of common stock | (12.4 | ) | | — |
| | — |
| | (12.4 | ) |
| Cash dividends | (33.0 | ) | | — |
| | — |
| | (33.0 | ) |
| Intercompany notes borrowed | — |
| | (6.9 | ) | | 6.9 |
| | — |
|
| Net cash (for) from financing activities | 571.9 |
| | (1.6 | ) | | 6.9 |
| | 577.2 |
|
| Effect of exchange rate changes on cash | — |
| | (5.8 | ) | | — |
| | (5.8 | ) |
| Net increase in cash and cash equivalents | 152.1 |
| | 25.3 |
| | — |
| | 177.4 |
|
| Cash and cash equivalents, beginning of period | 367.5 |
| | 235.0 |
| | — |
| | 602.5 |
|
| Cash and cash equivalents, end of period | $ | 519.6 |
| | $ | 260.3 |
| | $ | — |
| | $ | 779.9 |
|
PERRIGO COMPANY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended June 30, 2012
(in millions)
|
| | | | | | | | | | | | | | | |
| | Unconsolidated | | | | |
| | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminating Entries | | Consolidated |
| | | | | | | | |
| Net cash from operating activities | $ | (1,272.7 | ) | | $ | 1,786.1 |
| | $ | — |
| | $ | 513.4 |
|
| Cash Flows (For) From Investing Activities | | | | | | | |
| Acquisitions of businesses, net of cash acquired | (582.3 | ) | | — |
| | — |
| | (582.3 | ) |
| Additions to property and equipment | (81.7 | ) | | (38.5 | ) | | — |
| | (120.2 | ) |
| Proceeds from sale of intangible assets and pipeline development projects | 7.0 |
| | 3.5 |
| | — |
| | 10.5 |
|
| Proceeds from sale of business | — |
| | 8.6 |
| | — |
| | 8.6 |
|
| Acquisitions of assets | (0.3 | ) | | (0.5 | ) | | — |
| | (0.8 | ) |
| Intercompany notes issued | 1,604.9 |
| | — |
| | (1,604.9 | ) | | — |
|
| Net cash (for) from investing activities | 947.6 |
| | (26.8 | ) | | (1,604.9 | ) | | (684.1 | ) |
| Cash Flows (For) From Financing Activities | | | | | | | |
| Repayments of short-term debt, net | — |
| | (2.7 | ) | | — |
| | (2.7 | ) |
| Net proceeds from debt issuances | 1,085.0 |
| | 4.2 |
| | — |
| | 1,089.2 |
|
| Repayments of long-term debt | (610.0 | ) | | — |
| | — |
| | (610.0 | ) |
| Deferred financing fees | (5.1 | ) | | — |
| | — |
| | (5.1 | ) |
| Excess tax benefit of stock transactions | 12.9 |
| | — |
| | — |
| | 12.9 |
|
| Issuance of common stock | 11.6 |
| | — |
| | — |
| | 11.6 |
|
| Repurchase of common stock | (8.2 | ) | | — |
| | — |
| | (8.2 | ) |
| Cash dividends | (29.0 | ) | | — |
| | — |
| | (29.0 | ) |
| Intercompany notes borrowed | — |
| | (1,604.9 | ) | | 1,604.9 |
| | — |
|
| Net cash from financing activities | 457.2 |
| | (1,603.4 | ) | | 1,604.9 |
| | 458.7 |
|
| Effect of exchange rate changes on cash | — |
| | 4.4 |
| | — |
| | 4.4 |
|
| Net increase in cash and cash equivalents | 132.1 |
| | 160.3 |
| | — |
| | 292.4 |
|
| Cash and cash equivalents, beginning of period | 235.4 |
| | 74.7 |
| | — |
| | 310.1 |
|
| Cash and cash equivalents, end of period | $ | 367.5 |
| | $ | 235.0 |
| | $ | — |
| | $ | 602.5 |
|
| |
ItemITEM 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
| |
ItemITEM 9A. | Controls and Procedures.CONTROLS AND PROCEDURES |
| |
(a) | Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures |
(a)Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As of June 28, 201427, 2015, the Company’sour management, including its Chief Executive Officer and itsour Chief Financial Officer, carried out an evaluation of the effectiveness of the Company’sour disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’sour disclosure controls and procedures are effective in ensuring that all material information relating to the Companyus and itsour consolidated subsidiaries required to be included in the Company’sour periodic SEC filings would be made known to them by others within those entities in a timely manner and that no changes are required at this time.
| |
(b) | Management’s Annual Report on Internal Control Over Financial Reporting |
(b)Management’s Annual Report on Internal Control Over Financial Reporting
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company haswe have included a report of management’s assessment of the design and effectiveness of its internal control as part of this Form 10-K. The independent registered public accounting firm of Ernst & Young LLP also attested to, and reported on, the effectiveness of the Company’sour internal control over financial reporting. Management’s report and the independent registered public accounting firm’s attestation report are included in this Form 10-K under the captions entitled "Management’s Report on Internal Control over Financial Reporting" and "Report of Independent Registered Public Accounting Firm" and are incorporated herein by reference.
In connection with the evaluation by the Company’sour management, including its Chief Executive Officer and Chief Financial Officer, of the Company’sour internal control over financial reporting pursuant to Rule 13a-15(d) of the Securities Exchange Act of 1934, no changes during the quarter ended June 28, 201427, 2015 were identified that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting except as noted below:
Perrigo Company plc - Item 9A
Changes in Internal Control Over Financial Reporting
The CompanyWe acquired Elan Corporation plcOmega Pharma Invest N.V. ("Elan"Omega") and Gelcaps Exportadora de Mexico, S.A. de C.V. ("Gelcaps") during the the secondfourth quarter of fiscal 2014year 2015 (see Item 8. Note 2 of the Notes to the Consolidated Financial Statements)for additional information). As permitted by Securities and Exchange Commission Staff interpretive guidance for newly acquired businesses, management excluded ElanOmega, and Gelcaps from its evaluation of internal control over financial reporting as of June 28, 2014. The Company is27, 2015, other than goodwill and intangible asset controls that have been incorporated into our existing control environment. We are in the process of documenting and testing Elan'sOmega's, and Gelcap's internal controls over financial reporting. The CompanyWe will incorporate ElanOmega, and Gelcaps into itsour annual report on internal control over financial reporting for its fiscal year-endour six-month transition period ending December 31, 2015. As of June 28, 2014,27, 2015, assets excluded from management's assessment totaled 237.6$1,049.2 million and contributed $146.7$407.9 million of net sales and 77.2$27.1 million of net lossoperating income to the Company'sour consolidated net sales and operating incomefinancial statements for the fiscal year ended June 28, 2014.27, 2015.
| |
ItemITEM 9B. | Other Information.OTHER INFORMATION |
Not applicable.
Perrigo Company plc - Item 10
PART III.
| |
ItemITEM 10. | Directors, Executive Officers and Corporate Governance.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
| |
(a) | Directors of the Company. |
(a)Directors of Perrigo Company plc.
This information is incorporated by reference to the Company’sour Proxy Statement for the 2014Fiscal 2015 Annual Meeting under the heading "Election of Directors" or will be included in an amendment to this annual report on Form 10-K.
| |
(b) | Executive Officers of the Company. |
(b)Executive Officers of Perrigo Company plc.
See Part I, Additional Item of this Form 10-K.
| |
(c) | Audit Committee Financial Expert. |
(c)Audit Committee Financial Expert.
This information is incorporated by reference to the Company’sour Proxy Statement for the 2014Fiscal 2015 Annual Meeting under the heading "Audit Committee" or will be included in an amendment to this annual report on Form 10-K.
| |
(d) | Identification and Composition of the Audit Committee. |
(d)Identification and Composition of the Audit Committee.
This information is incorporated by reference to the Company’sour Proxy Statement for the 2014Fiscal 2015 Annual Meeting under the heading "Audit Committee" or will be included in an amendment to this annual report on Form 10-K.
| |
(e) | Compliance with Section 16(a) of the Exchange Act. |
(e)Compliance with Section 16(a) of the Exchange Act.
This information is incorporated by reference to the Company’sour Proxy Statement for the 2014Fiscal 2015 Annual Meeting under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" or will be included in an amendment to this annual report on Form 10-K.
(f)Code of Ethics.
This information is incorporated by reference to the Company’sour Proxy Statement for the 2014Fiscal 2015 Annual Meeting under the heading "Corporate Governance" or will be included in an amendment to this annual report on Form 10-K.
| |
ItemITEM 11. | Executive Compensation.EXECUTIVE COMPENSATION |
This information is incorporated by reference to the Company’sour Proxy Statement for the Fiscal 20142015 Annual Meeting under the headings "Executive Compensation", "Compensation Committee Report", "Potential Payments Upon Termination or Change in Control" and "Director Compensation" or will be included in an amendment to this annual report on Form 10-K.
| |
ItemITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
This information is incorporated by reference to the Company’sour Proxy Statement for the Fiscal 20142015 Annual Meeting under the heading "Ownership of Perrigo Common Stock"Ordinary Shares". Information concerning equity compensation plans is incorporated by reference to the Company’sour Proxy Statement for the Fiscal 20142015 Annual Meeting under the heading "Equity Compensation Plan Information" or will be included in an amendment to this annual report on Form 10-K.
| |
ItemITEM 13. | Certain Relationships and Related Transactions, and Director Independence.CERTAIN RELATIONSHIPS AND RELATED TRANSACTION, AND DIRECTOR INDEPENDENCE |
This information is incorporated by reference to the Company’sour Proxy Statement for the Fiscal 20142015 Annual Meeting under the heading "Certain Relationships and Related Party Transactions" and "Corporate Governance" or will be included in an amendment to this annual report on Form 10-K.
| |
| Item 14. | Principal Accounting Fees and Services.PRINCIPAL ACCOUNTING FEES AND SERVICES |
This information is incorporated by reference to the Company’sour Proxy Statement for the Fiscal 20142015 Annual Meeting under the heading "Ratification of Our Independent Registered Public Accounting Firm" or will be included in an amendment to this annual report on Form 10-K.
Perrigo Company plc - Item 15
Exhibits
PART IV.
| |
| Item 15. | Exhibits and Financial Statement Schedules. |
| |
| (a) | The following documents are filed or incorporated by reference as part of this Form 10-K: |
| |
| 1. | All financial statements. See Index to Consolidated Financial Statements. |
Schedule II – Valuation and Qualifying Accounts.
Schedules other than the one listed are omitted because the required information is included in the footnotes, immaterial or not applicable.
|
| |
| 2.1 | Purchase Agreement, dated as of January 20, 2011, among Perrigo Company, Paddock Laboratories, Inc., Paddock Properties Limited Partnership, and, solely for the purposes of Section 11.15, certain Guarantors listed on Exhibit A, incorporated by reference from Exhibit 2.1 to Perrigo Company’s Current Report on Form 8-K filed on January 26, 2011 (File No. 000-19725). |
| |
2.2 | Transaction Agreement, dated as of July 28, 2013, among Perrigo Company, Elan Corporation, plc, thePerrigo Company plc, Habsont Limited and Leopard Company, incorporated by reference from Annex A to the joint proxy statement/prospectus included in the Company’sour Registration Statement on Form S-4/A filed on October 8, 2013 (File No. 333-190859).
|
| | |
2.32.2 | Part A of Appendix I to Rule 2.5 Announcement (Conditions to the Implementation of the Scheme and the Acquisition), incorporated by reference from Annex B to the joint proxy statement/prospectus included in the Company’sour Registration Statement on Form S-4/A filed on October 8, 2013 (File No. 333-190859). |
| | |
2.4 | Expenses Reimbursement Agreement, dated as of July 28, 2013, between Perrigo Company and Elan Corporation, plc, incorporated by reference from Annex C to the joint proxy statement/prospectus included in the Company’s Registration Statement on Form S-4/A filed on October 8, 2013 (File No. 333-190859). |
| |
2.5 | Expenses Reimbursement Agreement, dated as of July 28, 2013, between Perrigo and Elan, incorporated by reference from Exhibit 2.3 to the Registrant's Current Report on Form 8-K filed on July 29, 2013. |
| |
2.6 | Asset Purchase Agreement, dated as of February 5, 2013, by and among Elan Pharma International Limited, Elan Pharmaceuticals, Inc. and Biogen Idec International Holding Ltd, incorporated by reference from Exhibit 4(c)(31) of Elan Corporation, plc’s Annual Report on Form 20-F for the fiscal year ended December 31, 2012 (File No. 001-13896). |
| | |
| 2.4 | Agreement for the Sale and Purchase of 685,348,257 Shares Of Omega Pharma Invest N.V., dated as of November 6, 2014, by and among the Company, Alychlo N.V. and Holdco I BE N.V., incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on November 12, 2014. |
| |
| 2.5 | Amendment Agreement dated March 27, 2015 to the Agreement for the Sale and Purchase of 685,348,257 Shares Of Omega Pharma Invest N.V., dated as of November 6, 2014, by and among the Company, Alychlo N.V. and Holdco I BE N.V., incorporated by reference from Exhibit 2.3 to the Company’s Quarterly Report on Form 10-Q filed on April 29, 2015. |
| |
| 2.6 | Assignment Letter dated March 17, 2015 regarding the Agreement for the Sale and Purchase of 685,348,257 Shares Of Omega Pharma Invest N.V., dated as of November 6, 2014, by and among the Company, Alychlo N.V. and Holdco I BE N.V., incorporated by reference from Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q filed on April 29, 2015. |
| |
| 2.7 | Closing Letter dated March 17, 2015 regarding the Agreement for the Sale and Purchase of 685,348,257 Shares Of Omega Pharma Invest N.V., dated as of November 6, 2014, by and among the Company, Alychlo N.V. and Holdco I BE N.V., incorporated by reference from Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q filed on April 29, 2015. |
| |
| 3.1 | Certificate of Incorporation of Perrigo Company plc (formerly known as Perrigo Company Limited), incorporated by reference from Exhibit 4.1 of the Company’sour Registration Statement on Form S-8 filed December 19, 2013. |
| | |
| 3.2 | Amended and Restated Memorandum and Articles of Association of Perrigo Company plc (formerly known as Perrigo Company Limited), incorporated by reference from Exhibit 4.2 of the Company’sour Registration Statement on Form S-8 filed December 19, 2013. |
| | |
Perrigo Company plc - Item 15
Exhibits
|
| |
| 4.1 | Indenture dated as of November 8, 2013, among the Company,us, the guarantors named therein and Wells Fargo Bank, N.A., as Trustee, incorporated by reference from Exhibit 4.1 to the Company’sour Current Report on Form 8-K filed on November 12, 2013. |
| | |
| 4.2 | First Supplemental Indenture, dated December 18, 2013 to the Indenture dated as of November 8, 2013, among the Company,us, the guarantors named therein and Wells Fargo Bank, N.A., as Trustee, incorporated by reference from Exhibit 4.1 to the Company’sour Current Report on Form 8-K filed on December 19, 2013. |
| | |
|
| |
| 4.3 | Registration Rights Agreement dated as of November 8, 2013, among the Company, the guarantors named therein, Barclays Capital Inc. and HSBC Securities (USA) Inc., acting as representatives of the several initial purchasers named therein, incorporated by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on November 12, 2013. |
| |
4.4 | Registration Rights Agreement, dated as of November 14, 2004, between Perrigo Company and Moshe Arkin, incorporated by reference from Appendix H to Perrigo Company’s Proxy Statement/Prospectus included in Perrigo Company’s Registration Statement on Form S-4 filed on February 11, 2005 (No. 333-121574). |
| | |
4.54.4 | Base Indenture, dated as of May 16, 2013, between Perrigo Company and Wells Fargo Bank, National Association, as trustee, incorporated by reference from Exhibit 4.1 to Perrigo Company's Current Report on Form 8-K filed on May 16, 2013 (File No. 000-19725). |
| | |
4.64.5 | First Supplemental Indenture dated as of May 16, 2013, between Perrigo Company and Wells Fargo Bank, National Association, as trustee, incorporated by reference from Exhibit 4.2 to the Perrigo Company's Current Report on Form 8-K filed on May 16, 2013 (File No. 000-19725). |
| | |
10.14.6 | Debt Bridge Credit Agreement,Base Indenture dated as of July 28, 2013,December 2, 2014, between Perrigo Finance plc, the Company and Wells Fargo Bank, National Association, as trustee, incorporated by reference from Exhibit 4.1 to the Company's Current Report on Form 8-K filed on December 2, 2014.
|
| |
| 4.7 | First Supplemental Indenture dated as of December 2, 2014, between Perrigo Finance plc, the Company and Wells Fargo Bank, National Association, as trustee, incorporated by reference from Exhibit 4.2 to the Company's Current Report on Form 8-K filed on December 2, 2014. |
| |
| 4.8 | Form of 3.500% Senior Notes due 2021 (included as Exhibit A-1 to the First Supplemental Indenture dated as of December 2, 2014, between Perrigo Finance plc, the Company and Wells Fargo Bank, National Association, as trustee), incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on December 2, 2014. |
| |
| 4.9 | Form of 3.900% Senior Notes due 2024 (included as Exhibit A-2 to the First Supplemental Indenture dated as of December 2, 2014, between Perrigo Finance plc, the Company and Wells Fargo Bank, National Association, as trustee), incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on December 2, 2014. |
| |
| 4.10 | Form of 4.900% Senior Notes due 2044 (included as Exhibit A-3 to the First Supplemental Indenture dated as of December 2, 2014, between Perrigo Finance plc, the Company and Wells Fargo Bank, National Association, as trustee), incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on December 2, 2014. |
| |
| 4.11 | Note Purchase Agreement, between Omega Pharma Invest N.V. and the Prudential Insurance Company of America, dated May 19, 2011, in connection with the issuance and sale of EUR 135,043,889 aggregate principal amount of Omega’s 5.1045% senior notes due 2023, incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on April 3, 2015. |
| |
| 4.12 | Prospectus, dated November 27, 2012, in connection with the public offering of Omega Pharma Invest N.V. of EUR 300,000,000 of 5.125% retail bonds due 2017, incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on April 3, 2015. |
| |
| 4.13 | Prospectus, dated April 23, 2012, in connection with the public offering of Omega Pharma Invest N.V. of EUR 180,000,000 of 4.500% retail bonds due 2017 and EUR 120,000,000 of 5.000% retail bonds due 2019, incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K filed on April 3, 2015. |
| |
Perrigo Company plc - Item 15
Exhibits
|
| |
| 10.1 | Senior Unsecured 364-Day Bridge Facility Commitment Letter by and among the Company, J.P. Morgan Securities LLC, JPMorgan Chase Bank, N.A. and Barclays Bank PLC dated as of November 6, 2014, incorporated by reference from Exhibit 10.2 to the lendersCurrent Report on Form 8-K filed by the Company on November 12, 2014. |
| |
| 10.2 | Senior Unsecured Credit Facilities Commitment Letter by and among the Company, J.P. Morgan Securities LLC, JPMorgan Chase Bank, N.A. and Barclays Bank PLC dated as of November 6, 2014, incorporated by reference from timeExhibit 10.3 to time party thereto,the Current Report on Form 8-K filed by the Company on November 12, 2014. |
| |
| 10.3 | Amendment to the Revolving Credit Agreement (dated September 6, 2013) by and among the Company, Barclays Bank PLC, HSBC Bank USA, N.A., and the other lenders party thereto, dated as Syndication Agent, and Barclays Bank plc, as Administrative Agent,of November 19, 2014, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by Perrigothe Company on July 29, 2013 (File No. 001-09689).November 20, 2014. |
| | |
10.210.4 | Cash BridgeAmendment to the Term Loan Credit Agreement dated as of July 28, 2013, by and among the Company, the lenders from time to time party thereto,Barclays Bank PLC, HSBC Bank USA, N.A., and the other lenders party thereto, dated as Syndication Agent,of November 19, 2014, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K filed by the Company on November 20, 2014. |
| |
| 10.5 | Revolving Credit Agreement by and among Perrigo Finance plc, Perrigo Company plc, JP Morgan Chase Bank, N.A., Barclays Bank plc,PLC, and the other lenders party thereto, dated as Administrative Agent,of December 5, 2014, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed by Perrigothe Company on July 29, 2013 (File No. 001-09689). |
| |
10.3 | Cash Bridge Credit Agreement, dated as of July 28, 2013 (as amended and restated as of December 17, 2013), by and among the Company, the lenders from time to time party thereto, HSBC Bank USA, N.A., as Syndication Agent, and Barclays Bank plc, as Administrative Agent, incorporated by reference from Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q filed on February 6,9, 2014. |
| | |
10.410.6 | Term Loan Credit Agreement by and among Perrigo Finance plc, Perrigo Company plc, JP Morgan Chase Bank, N.A., Barclays Bank PLC, and the other lenders party thereto, dated as of December 5, 2014, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K filed by the Company on December 9, 2014. |
| |
| 10.7 | Term Loan Credit Agreement, dated as of September 6, 2013, by and among Perrigo Company Limited (formerly known as Blisfont Limited), the lenders from time to time party thereto, Barclays Bank PLC, as Administrative Agent, and HSBC Bank USA, N.A., as Syndication Agent, incorporated by reference from Exhibit 10.3 to the Company’s Registration Statement on Form S-4/A, filed on October 8, 2013 (File No. 333-190859). |
| | |
10.510.8 | Revolving Credit Agreement, dated as of September 6, 2013, by and among Perrigo Company Limited (formerly known as Blisfont Limited), the lenders from time to time party thereto, Barclays Bank PLC, as Administrative Agent, and HSBC Bank USA, N.A., as Syndication Agent, incorporated by reference from Exhibit 10.4 to the Company’s Registration Statement on Form S-4/A, filed on October 8, 2013 (File No. 333-190859). |
| | |
10.6*10.9* | Annual Incentive Plan, adopted November 4, 2008, incorporated by reference from Perrigo Company’s Proxy Statement for its 2008 Annual Meeting of Shareholders filed on October 1, 2008 (File No. 000-19725). |
| | |
10.7*10.10* | Amendment No. 1 to Annual Incentive Plan, effective as of June 22, 2015 (filed herewith). |
| |
| 10.11* | 2003 Long-Term Incentive Plan, effective October 29, 2003, as amended, incorporated by reference from the Appendix to Perrigo Company’s Proxy Statement for its 2003 Annual Meeting of Shareholders filed on September 26, 2003 (File No. 000-19725). |
| | |
10.8*10.12* | Amendment to the 2003 Long-Term Incentive Plan, effective as of October 28, 2005, incorporated by reference from Exhibit 10(a) to Perrigo Company’s Current Report on Form 8-K filed on November 3, 2005 (File No. 000-19725). |
| | |
10.9*10.13* | 2003 Long-Term Incentive Plan, as amended as of February 7, 2007, incorporated by reference from Exhibit 10(a) to Perrigo Company’s Quarterly Report on Form 10-Q filed on May 8, 2007 (File No. 000-19725). |
| | |
10.10*10.14* | 2008 Long-Term Incentive Plan, adopted November 4, 2008, incorporated by reference from Exhibit 10(b) to the Registrant’s Quarterly Report on Form 10-Q (No. 000-19725) filed on February 3, 2009. |
| | |
Perrigo Company plc - Item 15
Exhibits
10.11* |
| |
| 10.15* | 2013 Long-Term Incentive Plan, incorporated by reference from Annex J of the Company’s Registration Statement on Form S-4, as amended, filed on October 8, 2013. |
|
| |
| | |
10.12*10.16* | Amendment No. 1 to the 2013 Long-Term Incentive Plan, dated as of January 29, 2014, incorporated by reference from Exhibit 10.910.12 to the Company’s Quarterly Report on Form 10-Q filed on February 6, 2014. |
| | |
10.13*10.17* | Amendment No. 2 to 2013 Long-Term Incentive Plan, effective as of July 9, 2015 (filed herewith). |
| |
| 10.18* | Nonqualified Deferred Compensation Plan, as amended as of October 10, 2007 and effective January 1, 2007, incorporated by reference from Exhibit 10.1 to Perrigo Company’s Current Report on Form 8-K filed on October 11, 2007 (File No. 000-19725). |
| | |
10.14*10.19* | Amendment One to the nonqualified Deferred Compensation Plan, dated December 3, 2009, to the Nonqualified Deferred Compensation Plan, (filed herewith).incorporated by reference from Exhibit 10.14 to the Company's Annual Report on form 10-K filed on August 8, 2014. |
| | |
10.15*10.20* | Amendment Two to the nonqualified Deferred Compensation Plan, dated as of October 10, 2012, to the Nonqualified Deferred Compensation Plan, incorporated by reference from Exhibit 10.1 to Perrigo Company’s Quarterly Report on Form 10-Q filed on February 1, 2013 (File No. 000-19725). |
| | |
10.16*10.21* | Amendment Three to the Nonqualified Deferred Compensation Plan, dated as of November 13, 2013, incorporated by reference from Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q filed on February 6, 2014. |
| | |
10.17*10.22* | Amendment Four to the Nonqualified Deferred Compensation Plan, dated as of January 31, 2014, incorporated by reference from Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q filed on February 6, 2014. |
| | |
10.18*10.23* | Forms of Non-Qualified Stock Option Agreement pursuant to Perrigo Company’s 2008 Long-Term Incentive Plan, incorporated by reference from Exhibit 10.49 to Perrigo Company’s Annual Report on Form 10-K filed on August 18, 2009 (File No. 000-19725). |
| | |
10.19*10.24* | Form of Non-Qualified Stock Option Agreement, incorporated by reference from Exhibit 10(a) to Perrigo Company’s Quarterly Report on Form 10-Q filed on February 2, 2005 (File No. 000-19725). |
| | |
10.20*10.25* | Forms of Non-Qualified Stock Option Agreement pursuant to Perrigo Company’s 2008 Long-Term Incentive Plan, incorporated by reference from Exhibit 10(c) to Perrigo Company’s Quarterly Report on Form 10-Q filed on February 3, 2009 (File No. 000-19725). |
| | |
10.21*10.26* | Form of Long-Term Incentive Award Agreement, incorporated by reference from Exhibit 10.1 to Perrigo Company’s Current Report on Form 8-K filed on August 22, 2006 (File No. 000-19725). |
| | |
10.22*10.27* | Form of Long-Term Incentive Award Agreement, incorporated by reference from Exhibit 10(a) to Perrigo Company’s Quarterly Report on Form 10-Q filed on February 1, 2007 (File No. 000-19725). |
| | |
10.23*10.28* | Form of Long-Term Incentive Award Agreement under Perrigo Company’s 2003 Long-Term Incentive Plan, incorporated by reference from Exhibit 10(d) to Perrigo Company’s Quarterly Report on Form 10-Q filed on May 8, 2007 (File No. 000-19725). |
| | |
10.24*10.29* | Form of 2006 Long-Term Incentive Award Agreement, for Approved Section 102 Awards under Perrigo Company’s 2003 Long-Term Incentive Plan, incorporated by reference from Exhibit 10(f) to Perrigo Company’s Quarterly Report on Form 10-Q filed on May 8, 2007 (File No. 000-19725). |
| | |
10.25*10.30* | Form of 2006 Long-Term Incentive Award Agreement under Perrigo Company’s 2003 Long-Term Incentive Plan, incorporated by reference from Exhibit 10(g) to Perrigo Company’s Quarterly Report on Form 10-Q filed on May 8, 2007 (File No. 000-19725). |
| | |
10.26*10.31* | Forms of Restricted Stock Unit Award Agreement pursuant to Perrigo Company’s 2008 Long-Term Incentive Plan, incorporated by reference from Exhibit 10.50 to Perrigo Company’s Annual Report on Form 10-K filed on August 18, 2009 (File No. 000-19725). |
| | |
Perrigo Company plc - Item 15
Exhibits
10.27* |
| |
| 10.32* | Forms of Restricted Stock Unit Award Agreement pursuant to Perrigo Company’s 2008 Long-Term Incentive Plan, incorporated by reference from Exhibit 10.52 to Perrigo Company's Annual Report on Form 10-K filed on August 16, 2011 (File No. 000-19725). |
| | |
10.28*10.33* | Forms of Grant Agreement under the 2013 Long-Term Incentive Plan, incorporated by reference from Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q filed on February 6, 2014. |
| |
| 10.34* | Forms of Restricted Stock Unit Award Agreement (Service-Based) under the Company’s 2013 Long-Term Incentive Plan, incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed on November 12, 2014. |
| | |
10.29*10.35* | Forms of Service-Based and Performance-Based Restricted Stock Unit Award Agreements under the Perrigo Company plc 2013 Long-Term Incentive Plan, incorporated by reference from Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on June 22, 2015. |
| |
| 10.36* | Forms of Amendments to Performance-Based Restricted Stock Unit Award Agreements under the Perrigo Company plc 2013 Long-Term Incentive Plan, incorporated by reference from Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on June 26, 2015. |
| |
| 10.37* | Employment Agreement, dated as of September 8, 2006, by and between Perrigo Company and Joseph C. Papa, incorporated by reference from Exhibit 10.1 to Perrigo Company’s Current Report on Form 8-K, filed on September 12, 2006 (File No. 000-19725). |
| | |
10.30*10.38* | Employment Agreement, dated as of November 14, 2004, by and between Perrigo Company, Agis Industries (1983) Ltd. and Sharon Kochan, incorporated by reference from Exhibit 10(xx) to Perrigo Company’s Annual Report on Form 10-K filed on August 18, 2008 (File No. 000-19725). |
| | |
10.31*10.39* | Amendment to Employment Agreement, dated as of March 17, 2005, by and between Perrigo Company, Agis Industries (1983) Ltd. and Sharon Kochan, incorporated by reference from Exhibit 10(yy) to Perrigo Company’s Annual Report on Form 10-K filed on August 18, 2008 (File No. 000-19725). |
| | |
10.32*10.40* | Addendum to Employment Agreement between Sharon Kochan, Perrigo Company and Agis Industries (1983) Ltd., dated as of July 16, 2007, by and between Perrigo Company and Sharon Kochan, incorporated by reference from Exhibit 10(zz) to Perrigo Company’s Annual Report on Form 10-K filed on August 18, 2008 (File No. 000-19725). |
| | |
10.33*10.41* | Consultancy Agreement, between Omega Pharma Invest N.V. and Mylecke Management, Art & Invest N.V., represented by Marc Coucke, dated November 5, 2014, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on April 3, 2015. |
| |
| 10.42* | Perrigo Company U.S. Severance Policy, incorporated by reference from Exhibit 10.3 of Perrigo Company's Current Report on Form 8-K filed on November 18, 2013 (File No. 001-09689). |
| |
| 10.43* | Form of Perrigo Company plc Director Indemnity Agreement, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 19, 2013. |
| | |
10.34*10.44* | Form of Perrigo Company plc Officer Indemnity Agreement, incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 19, 2013. |
| | |
10.35*10.45* | Form of Perrigo Company Indemnity Agreement, incorporated by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 19, 2013. |
| | |
10.3610.46* | Corporate Integrity Agreement between the Office of Inspector General of the Department of Health and Human Services and Elan Corporation, plc, incorporated by reference from Exhibit 4(a)(8) of Elan Corporation, plc’s Annual Report on Form 20-F for the year ended December 31, 2010) (File No. 001-13896). |
| | |
| 21 | Subsidiaries of the Registrant. |
| | |
| 23 | Consent of Ernst & Young LLP. |
| | |
Perrigo Company plc - Item 15
Exhibits
|
| |
| 24 | Power of Attorney (see signature page). |
| | |
| 31 | Rule 13a-14(a) Certifications. |
| | |
| 32 | Section 1350 Certifications. |
| | |
| 101.INS | XBRL Instance Document. |
| | |
| 101.SCH | XBRL Taxonomy Extension Schema Document. |
| | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. |
| | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
| | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. |
| | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
| |
| * | Denotes management contract or compensatory plan or arrangement. |
The response to this portion of Item 15 is submitted as a separate section of this Report. See Item 15(a)(3) above.
| |
| (c) | Financial Statement Schedules. |
The response to this portion of Item 15 is submitted as a separate section of this Report. See Item 15(a)(2) above.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
PERRIGO COMPANY PLC
(in millions)
|
| | | | | | | | | | | | | | | |
| Description | Balance at Beginning of Period | | Net Bad Debt Expenses | | Additions/(Deductions)(1) | | Balance at End of Period |
| Year Ended June 30, 2012: | | | | | | | |
| Allowances deducted from asset accounts: | | | | | | | |
| Allowances for doubtful accounts | $ | 7.8 |
| | $ | (6.6 | ) | | $ | 1.3 |
| | $ | 2.6 |
|
| Year Ended June 29, 2013: | | | | | | | |
| Allowances deducted from asset accounts: | | | | | | | |
| Allowances for doubtful accounts | $ | 2.6 |
| | $ | — |
| | $ | (0.4 | ) | | $ | 2.1 |
|
| Year Ended June 28, 2014: | | | | | | | |
| Allowances deducted from asset accounts: | | | | | | | |
| Allowances for doubtful accounts | $ | 2.1 |
| | $ | (0.5 | ) | | $ | 1.1 |
| | $ | 2.7 |
|
|
| | | | | | | | | | | |
| | Fiscal Year |
| | 2015 | | 2014 | | 2013 |
| Balance at beginning of period | $ | 2.7 |
| | $ | 2.1 |
| | $ | 2.6 |
|
| Net bad debt expenses | 0.6 |
| | (0.5 | ) | | — |
|
Additions/(deductions)(1) | (0.9 | ) | | 1.1 |
| | (0.4 | ) |
| Balance at end of period | $ | 2.4 |
| | $ | 2.7 |
| | $ | 2.1 |
|
| |
(1) | Uncollectible accounts chargedwritten off, net of recoveries. Also includes effects of changes in foreign exchange rates. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K for the fiscal year ended June 28, 201427, 2015 to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Dublin, Ireland on the 14th of August 2014.13, 2015.
|
| |
| PERRIGO COMPANY PLC |
| | |
| By: | /s/ Joseph C. Papa |
| | Joseph C. Papa |
| | Chairman, President and Chief Executive Officer |
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Joseph C. Papa, Judy L. Brown and Todd W. Kingma and each of them severally, acting alone and without the other, his true and lawful attorney-in-fact with authority to execute in the name of each such person, and to file with the Securities and Exchange Commission, together with any exhibits thereto and other documents therewith, any and all amendments to this Annual Report on Form 10-K for the fiscal year ended June 28, 201427, 2015 necessary or advisable to enable Perrigo Company plc to comply with the Securities Exchange Act of 1934, or any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, which amendments may make such other changes in the report as the aforesaid attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K for the fiscal year ended June 28, 201427, 2015 has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on August 14, 201413, 2015.
|
| | |
| Signature | | Title |
| | | |
| /s/ Joseph C. Papa | | President and Chief Executive Officer |
| Joseph C. Papa | | (Principal Executive Officer and Chairman of the Board) |
| | | |
| /s/ Judy L. Brown | | Executive Vice President and Chief Financial Officer |
| Judy L. Brown | | (Principal Accounting and Financial Officer) |
| | | |
| /s/ Laurie Brlas | | Director |
| Laurie Brlas | | |
| | | |
| /s/ Gary M. Cohen | | Director |
| Gary M. Cohen | | |
| | | |
| /s/ Jacqualyn A. Fouse | | Director |
| Jacqualyn A. Fouse | | |
| | | |
| /s/ David T. Gibbons | | Director |
| David T. Gibbons | | |
| | | |
| /s/ Ran Gottfried | | Director |
| Ran Gottfried | | |
| | | |
| /s/ Ellen R. Hoffing | | Director |
| Ellen R. Hoffing | | |
| | | |
| /s/ Michael J. Jandernoa | | Director |
| Michael J. Jandernoa | | |
| | | |
| /s/ Gary K. Kunkle, Jr. | | Director |
| Gary K. Kunkle, Jr. | | |
| | | |
| /s/ Herman Morris, Jr. | | Director |
| Herman Morris, Jr. | | |
| | | |
/s/ Ben-Zion ZilberfarbDonal O'Connor | | Director |
Ben-Zion ZilberfarbDonal O'Connor | | |
EXHIBIT INDEX
|
| | |
| Exhibit | | Document |
| | |
10.1410.10 | | Amendment One, dated December 3, 2009,No.1 to the Nonqualified Deferred Compensation Plan.Annual Incentive Plan, effective as of June 22, 2015. |
| | |
| 10.17 | | Amendment No. 2 to 2013 Long-Term Incentive Plan, effective as of July 9, 2015. |
| | | |
| 21 | | Subsidiaries of the Registrant. |
| | |
| 23 | | Consent of Ernst & Young LLP. |
| |
| 24 | | Power of Attorney (see signature page). |
| | |
| 31 | | Rule 13a-14(a) Certifications. |
| | |
| 32 | | Section 1350 Certifications. |
| | | |
| 101.INS | | XBRL Instance Document. |
| | | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document. |
| | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| | | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
| | | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
| | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
| | | |
