UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X]☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2017October 2, 2021

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)

IrelandNot Applicable
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
Treasury Building, Lower Grand Canal Street, Dublin 2, Ireland-
(Address of principal executive offices)(Zip Code)

The Sharp Building, Hogan Place, Dublin 2, Ireland D02 TY74
+353 1 7094000
(Registrant’sAddress, including zip code, and telephone number, including
area code)code, of registrant’s principal executive offices)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
________________________________________ Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Ordinary sharesPRGONew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report)reports), and (2) has been subject to such filing requirements for the past 90 days.    YES [X]    NO  [ ]Yes  ☒    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 [ ]Yes  ☒   No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
Large accelerated filer[X]Accelerated filer[ ]Non-accelerated filer[ ](Do not check if smaller reporting company)
Smaller reporting company[ ]Emerging growth company[ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.[ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   [ ]  YES  [X] NO
☐  Yes  ☒ No
As of November 3, 2017,5, 2021, there were 140,840,721133,773,881 ordinary shares outstanding.




PERRIGO COMPANY PLC
FORM 10-Q
INDEX
PAGE
NUMBER
1
PART I. FINANCIAL INFORMATION
Condensed Consolidated Statements of Operations
2
Condensed Consolidated Statements of Comprehensive Income
3
Condensed Consolidated Balance Sheets
4
Condensed Consolidated Statements of Shareholders' Equity
5
Condensed Consolidated Statements of Cash Flows
7
Notes to the Condensed Consolidated Financial Statements
1
8
2
9
3
11
4
14
5
15
6
15
7
17
8
17
9
20
10
21
11
28
12
30
13
32
14
32
15
33
16
37
17
51
18
52
52
73
73
PART II. OTHER INFORMATION
74
74
75
76

 
PAGE
NUMBER
Cautionary Note Regarding Forward-Looking Statements
1
  
PART I. FINANCIAL INFORMATION 
   
Item 1. Financial Statements (Unaudited)
 
   
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and October 1, 2016
2
   
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2017 and October 1, 2016
3
   
Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016
4
   
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and October 1, 2016
5
   
Notes to the Condensed Consolidated Financial Statements
 
   
1
Summary of Significant Accounting Policies
6
   
2
Divestitures
10
   
3
Goodwill and Other Intangible Assets
10
   
4
Accounts Receivable Factoring
12
   
5
Inventories
12
   
6
Fair Value Measurements
12
   
7
Investments
17
   
8
Derivative Instruments and Hedging Activities
18
   
9
Assets Held For Sale
21
   
10
Indebtedness
22
   
11
Earnings per Share and Shareholders' Equity
24
   
12
Accumulated Other Comprehensive Income (Loss)
25
   
13
Income Taxes
25
   
14
Commitments and Contingencies
26
   
15
Restructuring Charges
30
   
16
Segment Information
30
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
31
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk
52
   
Item 4. Controls and Procedures
52
   
PART II. OTHER INFORMATION 
   
Item 1. Legal Proceedings
55
   
Item 1A. Risk Factors
55
   
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
57
   
Item 5. Other Information
57
   
Item 6. Exhibits
58
   
SIGNATURES
59


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report are “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 our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our, or our industry’s actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. In particular, statements about our expectations, beliefs, plans, objectives, assumptions, future events or future performance contained in this report, including certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of 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,” "forecast," “predict,” “potential” or the negative of those terms or other comparable terminology.


Please see Item 1A of our Form 10-K for the year ended December 31, 2016 for a discussion of certain important risk factors that relate to forward-looking statements contained in this report and Part II, Item 1A of this Form 10-Q. We haveThe Company has based these forward-looking statements on ourits current expectations, assumptions, estimates and projections. While we believethe Company believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond ourthe Company’s control, including: the timing, amounteffect of the novel coronavirus (COVID-19) pandemic and cost of any share repurchases;the associated supply chain impacts on the Company’s business; general economic, credit, and market conditions; future impairment charges; the success of management transition; customer acceptance of new products; competition from other industry participants, some of whom have greater marketing resources or larger market shares in certain product categories than we do;the Company does; pricing pressures from customers and consumers; resolution of uncertain tax positions, including the Company’s appeal of the draft and final Notices of Proposed Assessment (“NOPAs”) issued by the U.S. Internal Revenue Service and the impact that an adverse result in any such proceedings would have on operating results, cash flows, and liquidity; pending and potential third-party claims and litigation, including litigation relating to ourthe Company’s restatement of previously-filed financial information;information and litigation relating to uncertain tax positions, including the NOPAs; potential impacts of ongoing or future government investigations and regulatory initiatives; resolutionpotential costs and reputational impact of uncertain tax positions;product recalls or sales halts; the impact of U.S. tax reform legislation; general economic conditions;legislation and healthcare policy; the timing, amount and cost of any share repurchases; fluctuations in currency exchange rates and interest rates; the Company’s ability to achieve the benefits expected from the sale of its Rx business and the risk that potential costs or liabilities incurred or retained in connection with the transaction may exceed the Company’s estimates or adversely affect the Company’s business or operations; the consummation and success of the proposed acquisition of HRA and the ability to achieve the expected benefits thereof, including the risk that the parties fail to obtain the required regulatory approvals or to fulfill the other conditions to closing on the expected timeframe or at all, the occurrence of any other event, change or circumstance that could delay the transaction or result in the termination of the securities sale agreement or the risks that the Company’s synergy estimates are inaccurate or that the Company faces higher than anticipated integration or other costs in connection with the proposed acquisition; the consummation and success of other announced acquisitions or dispositions, and ourthe Company’s ability to realize the desired benefits thereof; and the Company’s ability to execute and achieve the desired benefits of announced cost-reduction efforts and strategic and other initiatives. In addition, we may identify and be unableAn adverse result with respect to remediate one or more material weaknesses in our internal control over financial reporting. Furthermore, we and/or our subsidiaries may incur additional tax liabilities in respect of 2016 and prior years as a resultthe Company’s appeal of any restatementmaterial outstanding tax assessments or may be foundpending litigation, including securities or drug pricing matters, could ultimately require the use of corporate assets to have breached certain provisionspay such assessments, damages from third-party claims, and related interest and/or penalties, and any such use of Irish company legislation in respect of prior financial statements and if so may incur additional expenses and penalties.corporate assets would limit the assets available for other corporate purposes. These and other important factors, including those discussed in our Form 10-K for the year ended December 31, 2016, in2020, this report under “Risk Factors” and in any subsequent filings with the United States Securities and Exchange Commission, 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, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.


TRADEMARKS, TRADE NAMES AND SERVICE MARKS


This report contains trademarks, trade names and service marks that are the property of Perrigo Company plc, as well as, for informational purposes, trademarks, trade names, and service marks that are the property of other organizations. Solely for convenience, certain trademarks, trade names, and service marks referred to in this report appear without the ®,™ and SM 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.

1
Perrigo Company plc - Item 1

PART I.     FINANCIAL INFORMATION


ITEM 1.        FINANCIAL STATEMENTS (UNAUDITED)


PERRIGO COMPANY PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(unaudited)
 Three Months EndedNine Months Ended
 October 2,
2021		September 26,
2020		October 2,
2021		September 26,
2020
Net sales$1,042.7 $1,003.0 $3,033.8 $3,035.0 
Cost of sales706.3 633.3 1,980.0 1,924.5 
Gross profit336.4 369.7 1,053.8 1,110.5 
Operating expenses
Distribution23.3 22.5 69.0 62.4 
Research and development27.6 30.4 91.7 88.7 
Selling129.7 130.1 405.0 389.0 
Administration130.6 111.3 368.1 345.2 
Impairment charges3.5 — 162.1 — 
Restructuring1.0 0.8 11.8 1.5 
Other operating expense (income)(417.6)(3.9)(417.6)(3.9)
Total operating expenses(101.9)291.2 690.1 882.9 
Operating income438.3 78.5 363.7 227.6 
Change in financial assets— (22.2)— (25.9)
Interest expense, net30.9 33.3 94.5 94.3 
Other (income) expense, net18.5 (1.0)20.4 17.9 
Loss on extinguishment of debt— 20.0 — 20.0 
Income (loss) from continuing operations before income taxes388.9 48.4 248.8 121.3 
Income tax expense (benefit)442.8 22.0 411.8 24.9 
Income (loss) from continuing operations(53.9)26.4 (163.0)96.4 
Income (loss) from discontinued operations, net of tax(5.0)(181.0)84.5 (84.0)
Net income (loss)$(58.9)$(154.6)$(78.5)$12.4 
Earnings (loss) per share
Basic
Continuing operations$(0.40)$0.19 $(1.22)$0.71 
Discontinued operations(0.04)(1.32)0.63 (0.62)
Basic earnings per share$(0.44)$(1.13)$(0.59)$0.09 
Diluted
Continuing operations$(0.40)$0.19 $(1.22)$0.70 
Discontinued operations(0.04)(1.31)0.63 (0.61)
Diluted earnings per share$(0.44)$(1.12)$(0.59)$0.09 
Weighted-average shares outstanding
Basic133.8 136.5 133.5 136.3 
Diluted133.8 137.6 133.5 137.5 
 Three Months Ended Nine Months Ended
 September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Net sales$1,231.3
 $1,261.6
 $3,663.1
 $3,949.3
Cost of sales733.5
 777.1
 2,196.4
 2,385.2
Gross profit497.8
 484.5
 1,466.7
 1,564.1
        
Operating expenses       
Distribution21.5
 21.6
 64.2
 65.9
Research and development38.4
 50.2
 120.8
 142.5
Selling143.5
 154.6
 454.1
 506.9
Administration123.3
 105.4
 326.9
 317.2
Impairment charges7.8
 1,614.4
 47.4
 2,028.8
Restructuring3.8
 6.6
 54.7
 17.9
Other operating income(2.9) —
 (41.0) —
Total operating expenses335.4
 1,952.8
 1,027.1
 3,079.2
        
Operating income (loss)162.4
 (1,468.3) 439.6
 (1,515.1)
        
Change in financial assets2.6
 377.4
 24.2
 1,492.6
Interest expense, net34.7
 54.6
 133.1
 163.2
Other (income) expense, net(3.6) 1.0
 (1.1) 32.4
Loss on extinguishment of debt—
 0.7
 135.2
 1.1
Income (loss) before income taxes128.7
 (1,902.0) 148.2
 (3,204.4)
Income tax expense (benefit)84.2
 (311.8) 101.8
 (550.7)
Net income (loss)$44.5
 $(1,590.2) $46.4
 $(2,653.7)
        
Earnings (loss) per share       
Basic0.31
 (11.10) $0.33
 $(18.53)
Diluted$0.31
 $(11.10) $0.32
 $(18.53)
        
Weighted-average shares outstanding       
Basic141.3
 143.3
 142.5
 143.2
Diluted141.7
 143.3
 142.8
 143.2
        
Dividends declared per share$0.160
 $0.145
 $0.480
 $0.435


See accompanying Notes to the Condensed Consolidated Financial StatementsStatements.
2
Perrigo Company plc - Item 1

PERRIGO COMPANY PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(unaudited)
Three Months Ended Nine Months EndedThree Months EndedNine Months Ended
September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016		October 2,
2021		September 26,
2020		October 2,
2021		September 26,
2020
Net income (loss)$44.5
 $(1,590.2) $46.4
 $(2,653.7)Net income (loss)$(58.9)$(154.6)$(78.5)$12.4 
Other comprehensive income:       
Other comprehensive income (loss):Other comprehensive income (loss):
Foreign currency translation adjustments69.9
 27.5
 289.9
 71.5
Foreign currency translation adjustments(228.3)86.5 (307.5)81.0 
Change in fair value of derivative financial instruments, net of tax0.1
 3.6
 8.7
 (3.5)Change in fair value of derivative financial instruments, net of tax(23.8)(2.3)(31.1)(12.4)
Change in fair value of investment securities, net of tax(8.1) 9.8
 (24.4) 18.4
Change in post-retirement and pension liability, net of tax(1.2) (0.2) (1.2) 0.4
Change in post-retirement and pension liability, net of tax(0.8)(1.2)(2.2)(4.3)
Other comprehensive income, net of tax60.7
 40.7
 273.0
 86.8
Other comprehensive income (loss), net of taxOther comprehensive income (loss), net of tax(252.9)83.0 (340.8)64.3 
Comprehensive income (loss)$105.2
 $(1,549.5) $319.4
 $(2,566.9)Comprehensive income (loss)$(311.8)$(71.6)$(419.3)$76.7 
See accompanying Notes to the Condensed Consolidated Financial StatementsStatements.


3
Perrigo Company plc - Item 1

PERRIGO COMPANY PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share amounts)
(unaudited)

September 30,
2017		 December 31,
2016		October 2,
2021		December 31,
2020
Assets   Assets
Cash and cash equivalents$775.9
 $622.3
Cash and cash equivalents$2,078.1 $631.5 
Accounts receivable, net of allowance for doubtful accounts of $6.2 million and $6.3 million, respectively1,076.6
 1,176.0
Accounts receivable, net of allowance for credit losses of $7.6 and $6.5, respectivelyAccounts receivable, net of allowance for credit losses of $7.6 and $6.5, respectively686.2 593.5 
Inventories821.9
 795.0
Inventories1,092.5 1,059.4 
Prepaid expenses and other current assets297.4
 212.0
Prepaid expenses and other current assets355.7 182.2 
Current assets held for saleCurrent assets held for sale13.4 666.9 
Total current assets2,971.8
 2,805.3
Total current assets4,225.9 3,133.5 
Property, plant and equipment, net822.3
 870.1
Property, plant and equipment, net842.8 864.6 
Financial assets—
 2,350.0
Goodwill and other indefinite-lived intangible assets4,255.4
 4,163.9
Other intangible assets, net3,347.4
 3,396.8
Non-current deferred income taxes22.4
 72.1
Operating lease assetsOperating lease assets170.6 154.7 
Goodwill and indefinite-lived intangible assetsGoodwill and indefinite-lived intangible assets3,036.9 3,102.7 
Definite-lived intangible assets, netDefinite-lived intangible assets, net2,226.2 2,481.5 
Deferred income taxesDeferred income taxes40.2 40.6 
Non-current assets held for saleNon-current assets held for sale— 1,364.0 
Other non-current assets423.3
 211.9
Other non-current assets373.3 346.8 
Total non-current assets8,870.8
 11,064.8
Total non-current assets6,690.0 8,354.9 
Total assets$11,842.6
 $13,870.1
Total assets$10,915.9 $11,488.4 
Liabilities and Shareholders’ Equity   Liabilities and Shareholders’ Equity
Accounts payable$477.1
 $471.7
Accounts payable$405.6 $451.6 
Payroll and related taxes133.4
 115.8
Payroll and related taxes106.6 152.9 
Accrued customer programs368.8
 380.3
Accrued customer programs140.1 128.5 
Accrued liabilities274.6
 263.3
Other accrued liabilitiesOther accrued liabilities339.9 183.1 
Accrued income taxes61.5
 32.4
Accrued income taxes353.0 9.0 
Current indebtedness417.1
 572.8
Current indebtedness629.4 37.3 
Current liabilities held for saleCurrent liabilities held for sale29.2 419.6 
Total current liabilities1,732.5
 1,836.3
Total current liabilities2,003.8 1,382.0 
Long-term debt, less current portion3,275.7
 5,224.5
Long-term debt, less current portion2,920.9 3,527.6 
Non-current deferred income taxes357.7
 389.9
Deferred income taxesDeferred income taxes243.0 276.2 
Non-current liabilities held for saleNon-current liabilities held for sale— 108.3 
Other non-current liabilities434.9
 461.8
Other non-current liabilities565.8 539.2 
Total non-current liabilities4,068.3
 6,076.2
Total non-current liabilities3,729.7 4,451.3 
Total liabilities5,800.8
 7,912.5
Total liabilities5,733.5 5,833.3 
Commitments and contingencies - Note 14   
Commitments and contingencies - Refer to Note 16Commitments and contingencies - Refer to Note 1600
Shareholders’ equity   Shareholders’ equity
Controlling interest:   
Preferred shares, $0.0001 par value, 10 million shares authorized—
 —
Ordinary shares, €0.001 par value, 10 billion shares authorized7,900.1
 8,135.0
Accumulated other comprehensive income (loss)191.2
 (81.8)
Controlling interests:Controlling interests:
Preferred shares, $0.0001 par value per share, 10 shares authorizedPreferred shares, $0.0001 par value per share, 10 shares authorized— — 
Ordinary shares, €0.001 par value per share, 10,000 shares authorizedOrdinary shares, €0.001 par value per share, 10,000 shares authorized7,064.8 7,118.2 
Accumulated other comprehensive incomeAccumulated other comprehensive income54.2 395.0 
Retained earnings (accumulated deficit)(2,049.6) (2,095.1)Retained earnings (accumulated deficit)(1,936.6)(1,858.1)
Total controlling interest6,041.7
 5,958.1
Noncontrolling interest0.1
 (0.5)
Total shareholders’ equity6,041.8
 5,957.6
Total shareholders’ equity5,182.4 5,655.1 
Total liabilities and shareholders' equity$11,842.6
 $13,870.1
Total liabilities and shareholders' equity$10,915.9 $11,488.4 
   
Supplemental Disclosures of Balance Sheet Information   Supplemental Disclosures of Balance Sheet Information
Ordinary shares, issued and outstanding (in millions)140.8
 143.4
Preferred shares, issued and outstandingPreferred shares, issued and outstanding— — 
Ordinary shares, issued and outstandingOrdinary shares, issued and outstanding133.7 133.1 


See accompanying Notes to the Condensed Consolidated Financial StatementsStatements.
4
Perrigo Company plc - Item 1

PERRIGO COMPANY PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions, except per share amounts)
(unaudited)
 Ordinary Shares
Issued		Accumulated
Other
Comprehensive
Income		Retained
Earnings
(Accumulated Deficit)		Total
 SharesAmount
Balance at December 31, 2019136.1 $7,359.9 $139.4 $(1,695.5)$5,803.8 
Net income— — — 106.4 106.4 
Other comprehensive loss— — (103.5)— (103.5)
Restricted stock plan0.3 — — — — 
Compensation for stock options— 0.8 — — 0.8 
Compensation for restricted stock— 15.4 — — 15.4 
Cash dividends, $0.23 per share— (30.9)— — (30.9)
Shares withheld for payment of employees' withholding tax liability(0.1)(5.6)— — (5.6)
Balance at March 28, 2020136.3 $7,339.6 $35.9 $(1,589.1)$5,786.4 
Net income— — — 60.6 60.6 
Other comprehensive income— — 84.8 — 84.8 
Restricted stock plan0.3 — — — — 
Compensation for stock options— 0.4 — — 0.4 
Compensation for restricted stock— 13.1 — — 13.1 
Cash dividends, $0.23 per share— (31.0)— — (31.0)
Shares withheld for payment of employees' withholding tax liability(0.1)(3.9)— — (3.9)
Balance at June 27, 2020136.5 $7,318.2 $120.7 $(1,528.5)$5,910.4 
Net loss— — — (154.6)(154.6)
Other comprehensive income— — 83.0 — 83.0 
Compensation for stock options— 0.4 — — 0.4 
Compensation for restricted stock— 13.8 — — 13.8 
Cash dividends, $0.23 per share— (31.1)— — (31.1)
Shares withheld for payment of employees' withholding tax liability— (0.5)— — (0.5)
Minority share purchase— (1.1)— — (1.1)
Balance at September 26, 2020136.5 $7,299.7 $203.7 $(1,683.1)$5,820.3 
















5
Perrigo Company plc - Item 1
PERRIGO COMPANY PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (CONTINUED)
(in millions, except per share amounts)
(unaudited)

 Ordinary Shares
Issued		Accumulated
Other
Comprehensive
Income		Retained
Earnings
(Accumulated Deficit)		Total
 SharesAmount
Balance at December 31, 2020133.1 $7,118.2 $395.0 $(1,858.1)$5,655.1 
Net income— — — 38.1 38.1 
Other comprehensive loss— — (118.3)— (118.3)
Restricted stock plan0.6 — — — — 
Compensation for stock options— 0.4 — — 0.4 
Compensation for restricted stock— 24.6 — — 24.6 
Cash dividends, $0.24 per share— (32.6)— — (32.6)
Shares withheld for payment of employees' withholding tax liability(0.2)(9.3)— — (9.3)
Balance at April 3, 2021133.5 $7,101.3 $276.7 $(1,820.0)$5,558.0 
Net loss— — — (57.7)(57.7)
Other comprehensive income— — 30.4 — 30.4 
Restricted stock plan0.1 — — — — 
Compensation for stock options— 0.2 — — 0.2 
Compensation for restricted stock— 13.9 — — 13.9 
Cash dividends, $0.24 per share— (32.5)— — (32.5)
Shares withheld for payment of employees' withholding tax liability— (1.2)— — (1.2)
Balance at July 3, 2021133.6 $7,081.7 $307.1 $(1,877.7)$5,511.1 
Net loss— — — (58.9)(58.9)
Other comprehensive loss— — (252.9)— (252.9)
Restricted stock plan0.2 — — — — 
Compensation for stock options— 0.2 — — 0.2 
Compensation for restricted stock— 18.5 — — 18.5 
Cash dividends, $0.24 per share— (32.7)— — (32.7)
Shares withheld for payment of employees' withholding tax liability(0.1)(2.9)— — (2.9)
Balance at October 2, 2021133.7 $7,064.8 $54.2 $(1,936.6)$5,182.4 

See accompanying Notes to the Condensed Consolidated Financial Statements.
6
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PERRIGO COMPANY PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Nine Months Ended
 October 2,
2021		September 26,
2020
Cash Flows From (For) Operating Activities
Net income (loss)$(78.5)$12.4 
Adjustments to derive cash flows:
Depreciation and amortization238.8 284.7 
Loss (Gain) on sale of business(63.9)18.6 
Share-based compensation50.2 43.9 
Impairment charges162.1 202.4 
Change in financial assets— (25.9)
Loss on extinguishment of debt— 20.0 
Restructuring charges11.8 1.9 
Deferred income taxes(24.0)25.7 
Amortization of debt premium(2.7)(1.7)
Other non-cash adjustments, net9.2 (12.0)
Subtotal303.0 570.0 
Increase (decrease) in cash due to:
Accounts receivable(182.3)106.4 
Inventories(70.2)(93.2)
Prepaid expenses(1.8)(23.8)
Accounts payable(10.4)15.2 
Payroll and related taxes(60.6)(2.2)
Accrued customer programs13.4 (35.5)
Accrued liabilities(5.8)(16.0)
Accrued income taxes313.2 (9.0)
Other, net(36.8)13.9 
Subtotal(41.3)(44.2)
Net cash from (for) operating activities261.7 525.8 
Cash Flows From (For) Investing Activities
Proceeds from royalty rights2.8 3.2 
Purchase of equity method investment— (15.0)
Acquisitions of businesses, net of cash acquired— (106.0)
Asset acquisitions(70.6)(34.1)
Additions to property, plant and equipment(110.4)(104.3)
Net proceeds from sale of business1,493.1 187.8 
Other investing, net2.8 8.1 
Net cash from (for) investing activities1,317.7 (60.3)
Cash Flows From (For) Financing Activities
Issuances of long-term debt— 743.8 
Payments on long-term debt— (590.0)
Borrowings (repayments) of revolving credit agreements and other financing, net(5.8)0.1 
Deferred financing fees— (6.7)
Premiums on early debt retirement— (19.0)
Cash dividends(97.8)(93.0)
Other financing, net(17.1)(14.9)
Net cash from (for) financing activities(120.7)20.3 
Effect of exchange rate changes on cash and cash equivalents(12.0)9.3 
Net increase (decrease) in cash and cash equivalents1,446.7 495.1 
Cash and cash equivalents of continuing operations, beginning of period631.5 344.5 
Cash and cash equivalents held for sale, beginning of period10.0 9.8 
Less cash and cash equivalents held for sale, end of period(10.1)(9.2)
Cash and cash equivalents of continuing operations, end of period$2,078.1 $840.2 
 Nine Months Ended
 September 30,
2017		 October 1,
2016
Cash Flows From (For) Operating Activities   
Net income (loss)$46.4
 $(2,653.7)
Adjustments to derive cash flows   
Depreciation and amortization333.1
 338.4
Share-based compensation28.1
 15.3
Impairment charges47.4
 2,028.8
Change in financial assets24.2
 1,492.6
Loss on extinguishment of debt135.2
 1.1
Restructuring charges54.7
 17.9
Deferred income taxes(16.3) (674.1)
Amortization of debt premium(18.4) (24.6)
Other non-cash adjustments, net(27.2) 34.5
Subtotal607.2
 576.2
Increase (decrease) in cash due to:   
Accounts receivable38.4
 113.0
Inventories(28.3) 25.1
Accounts payable(6.0) (57.7)
Payroll and related taxes(36.7) (40.0)
Accrued customer programs(15.8) (73.7)
Accrued liabilities(18.8) (90.0)
Accrued income taxes(61.5) 5.2
Other, net3.5
 (9.4)
Subtotal(125.2) (127.5)
Net cash from operating activities482.0
 448.7
Cash Flows From (For) Investing Activities   
Proceeds from royalty rights86.4
 259.5
Acquisitions of businesses, net of cash acquired—
 (436.8)
Asset acquisitions—
 (65.1)
Additions to property, plant and equipment(55.2) (84.6)
Net proceeds from sale of business and other assets46.7
 58.5
Proceeds from sale of the Tysabri® financial asset
2,200.0
 —
Other investing, net(5.8) (1.0)
Net cash from (for) investing activities2,272.1
 (269.5)
Cash Flows From (For) Financing Activities   
Issuances of long-term debt—
 1,190.3
Payments on long-term debt(2,243.7) (545.8)
Borrowings (repayments) of revolving credit agreements and other financing, net—
 (803.6)
Deferred financing fees(4.2) (2.8)
Premium on early debt retirement(116.1) (0.6)
Issuance of ordinary shares0.5
 8.2
Repurchase of ordinary shares(191.5) —
Cash dividends(68.7) (62.4)
Other financing2.7
 (17.4)
Net cash (for) financing activities(2,621.0) (234.1)
Effect of exchange rate changes on cash and cash equivalents20.5
 (0.2)
Net increase (decrease) in cash and cash equivalents153.6
 (55.1)
Cash and cash equivalents, beginning of period622.3
 417.8
Cash and cash equivalents, end of period$775.9
 $362.7


See accompanying Notes to the Condensed Consolidated Financial StatementsStatements.

7
Perrigo Company plc - Item 1
Note 1





NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


General Information


The Company


Perrigo Company plc was incorporated under the laws of Ireland on June 28, 2013 and became the successor registrant of Perrigo Company, a Michigan corporation, on December 18, 2013 in connection with the acquisition of Elan Corporation, plc ("Elan"). 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.


We are a leading global healthcare company, delivering value Our vision is to our customers and consumersmake lives better by providingbringing Quality, Affordable HealthcareSelf-Care Products® that consumers trust everywhere they are sold. Founded in 1887 as a packager of home remedies, we have built a unique business model that is best described as the convergence of a fast-moving consumer goods company, a high-quality pharmaceutical manufacturing organization and a world-class supply chain network. We believe we are one of the world's largest manufacturers of over-the-counter (“OTC”) healthcare products and suppliers of infant formulas for the store brand market. We also are a leading provider of branded OTC products throughout Europeover-the-counter ("OTC") health and the U.S., as well as a leading producer of generic standard topical products such as creams, lotions, and gels, as well as inhalants and injections ("extended topical") prescription drugs. We are headquartered in Ireland, and sell our products primarily in North America and Europe, as well as in other markets, including Australia, Israel and China.wellness solutions that enhance individual well-being by empowering consumers to proactively prevent or treat conditions that can be self-managed.


Basis of Presentation


The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statementsConsolidated Financial Statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2016.2020. In the opinion of management, all adjustments (consisting of normal recurring accruals and other adjustments) considered necessary for a fair presentation of the unaudited Condensed Consolidated Financial Statements have been included and include our accounts and the accounts of all majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.



On March 1, 2021, we announced a definitive agreement to sell our generic RX Pharmaceuticals business ("RX business") to Altaris Capital Partners, LLC ("Altaris"). On July 6, 2021, we completed the sale of the RX business. The financial results of our RX business, which were previously reported in our Prescription Pharmaceuticals ("RX") segment, have been classified as discontinued operations in the Condensed Consolidated Statements of Operations for all periods presented. The assets and liabilities of our RX business are reflected as assets and liabilities held for sale in the Condensed Consolidated Balance Sheets for all periods presented prior to the sale. Refer to Note 8 for additional information regarding discontinued operations. Unless otherwise noted, amounts and disclosures throughout the Notes to the unaudited Condensed Consolidated Financial Statements relate to our continuing operations.

Segment Reporting

Our reporting and operating segments are as follows:

•Consumer Self-Care Americas ("CSCA") comprises our consumer self-care business (OTC, infant formula, and oral self-care categories, and contract manufacturing) in the U.S., Mexico and Canada.
•Consumer Self-Care International ("CSCI") comprises our consumer self-care business primarily branded in Europe and Australia, our store brand business in the United Kingdom and parts of Europe and Asia, and our liquid licensed products business in the United Kingdom until it was disposed on June 19, 2020.

Allowance for Credit Losses
Expected credit losses on trade receivables and contract assets are measured collectively by geographic location. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and for reasonable and supportable forecasts. Historical credit loss experience provides the primary basis for estimation of expected credit losses. Adjustments to historical loss information may be made for
8
Perrigo Company plc - Item 1
Note 1



significant changes in a geographic location’s economic conditions. Receivables that do not share risk characteristics are evaluated on an individual basis. These receivables are not included in the collective evaluation.
Recent Accounting Standard PronouncementsThe allowance for credit losses is a valuation account that is deducted from the instruments’ cost basis to present the net amount expected to be collected. Trade receivables and contract assets are charged off against the allowance when the balance is no longer deemed collectible.
The following table presents the allowance for credit losses activity (in millions):
Three Months EndedNine Months Ended
October 2,
2021		September 26,
2020		October 2,
2021		September 26,
2020
Beginning balance$7.7 $5.5 $6.5 $6.0 
Provision for credit losses, net0.1 0.6 3.7 1.1 
Receivables written-off— (0.4)(0.7)(1.5)
Transfer to held for sale— — (1.4)— 
Currency translation adjustment(0.2)0.1 (0.5)0.2 
Ending balance$7.6 $5.8 $7.6 $5.8 

NOTE 2 – REVENUE RECOGNITION

Revenue is recognized when or as a customer obtains control of promised products. The amount of revenue recognized reflects the consideration we expect to be entitled to receive in exchange for these products.

Disaggregation of Revenue

We generated net sales in the following geographic locations(1) (in millions):
Three Months EndedNine Months Ended
October 2,
2021		September 26,
2020		October 2,
2021		September 26,
2020
U.S.$657.4 $638.7 $1,859.0 $1,913.4 
Europe(2)
334.5 326.6 1,037.6 1,011.0 
All other countries(3)
50.8 37.7 137.2 110.6 
Total net sales$1,042.7 $1,003.0 $3,033.8 $3,035.0 

(1) Derived from the location of the entity that sells to a third party.
(2) Includes Ireland net sales of $7.6 million and $17.4 million for the three and nine months ended October 2, 2021 respectively, and $10.8 million and $22.3 million for the three and nine months ended September 26, 2020, respectively.
(3) Includes net sales generated primarily in Mexico, Australia and Canada.
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Perrigo Company plc - Item 1
Note 2

Product Category
        
BelowThe following is a summary of our net sales by category (in millions):
Three Months EndedNine Months Ended
October 2,
2021		September 26,
2020		October 2,
2021		September 26,
2020
CSCA(1)
Upper respiratory$121.9 $117.1 $345.8 $397.2 
Digestive health110.6 111.8 344.0 339.9 
Pain and sleep-aids108.4 102.6 292.9 325.7 
Nutrition105.3 100.3 293.3 291.5 
Oral self-care76.7 81.9 227.4 202.5 
Healthy lifestyle72.9 86.9 214.9 256.2 
Skincare and personal hygiene56.0 51.4 165.9 145.4 
Vitamins, minerals, and supplements8.1 6.3 24.3 19.1 
Other CSCA(2)
34.3 5.7 48.5 14.7 
Total CSCA694.2 664.0 1,957.0 1,992.2 
CSCI
Skincare and personal hygiene88.5 83.1 307.9 275.4 
Upper respiratory58.7 62.3 144.2 191.9 
Vitamins, minerals, and supplements54.7 52.9 162.8 139.9 
Pain and sleep-aids52.1 49.0 148.4 136.0 
Healthy lifestyle42.2 40.6 140.5 124.7 
Oral self-care24.4 25.2 72.4 68.8 
Digestive health10.1 6.8 28.3 17.9 
Other CSCI(3)
17.8 19.1 72.3 88.2 
Total CSCI348.5 339.0 1,076.8 1,042.8 
Total net sales$1,042.7 $1,003.0 $3,033.8 $3,035.0 

(1) Includes net sales from our OTC contract manufacturing business.
(2) Consists primarily of diagnostic and other miscellaneous or otherwise uncategorized product lines and markets, none of which is greater than 10% of the segment net sales.
(3) Consists primarily of our distribution business and other miscellaneous or otherwise uncategorized product lines and markets, none of which is greater than 10% of the segment net sales.

While the majority of revenue is recognized at a point in time, certain of our product revenue is recognized on an over time basis. Predominately, over time customer contracts exist in contract manufacturing arrangements, which occur in both the CSCA and CSCI segments. Contract manufacturing revenue was $80.8 million and $213.7 million for the three and nine months ended October 2, 2021, respectively and $76.3 million and $190.0 million for the three and nine months ended September 26, 2020, respectively.

We also recognize a portion of the store brand OTC product revenues in the CSCA segment on an over time basis; however, the timing difference between over time and point in time revenue recognition for store brand contracts is not significant due to the short time period between the customization of the product and shipment or delivery.

Contract Balances

The following table provides information about contract assets from contracts with customers (in millions):
Balance Sheet LocationOctober 2,
2021		December 31,
2020
Short-term contract assetsPrepaid expenses and other current assets$42.2 $19.7 
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Perrigo Company plc - Item 1
Note 3

NOTE 3 – ACQUISITIONS AND DIVESTITURES
Acquisitions During the Nine Months Ended October 2, 2021

Héra SAS (“HRA Pharma”) Acquisition Agreement

On September 8, 2021, we and our wholly-owned subsidiary Habsont Unlimited Company (the "Purchaser"), entered into a Put Option Agreement to acquire certain holding companies holding all of the outstanding equity interests of HRA Pharma from funds affiliated with private equity firms Astorg and Goldman Sachs Asset Management (collectively, the "Sellers"). Pursuant to the Put Option Agreement, following completion of the works council consultation process required under French law, the selling shareholders exercised their put option right under the Put Option Agreement and, on October 20, 2021, the Company, the Purchaser and the Sellers entered into a Securities Sale Agreement in the form previously agreed by the parties (the “Purchase Agreement”). Pursuant to the terms and subject to the conditions set forth in the Purchase Agreement, the Purchaser has agreed to acquire certain holding companies holding all of the outstanding equity interests of HRA from the Sellers for cash. The transaction values HRA at approximately €1.8 billion, or approximately $2.1 billion as of the date of the Put Option Agreement, on an enterprise value basis and using a lockbox mechanism set forth in the Purchase Agreement. The proposed final transaction is expected to close in the first half of 2022, subject to the satisfaction of customary closing conditions, including regulatory approvals. We intend to pay the purchase price using a combination of cash on hand and, depending upon market conditions, either funds available under our current credit facility or funds from new debt financing. HRA Pharma is one of the fastest growing OTC companies globally, with three category-leading self-care brands in blister care (Compeed®), women’s health (ellaOne®) and scar care (Mederma®), and brings expertise in prescription-to-OTC switches. This acquisition would strengthen our presence in Europe, improve our financial profile and margins, and will complete our transformation to a consumer self-care company. Operating results are recent accounting standard updatesexpected to be reported within both our CSCA and CSCI segments.

Acquisitions Accounted for as a Business Combination During the Year Ended December 31, 2020

Eastern European OTC Dermatological Brands Acquisition
On October 30, 2020, we acquired 3 Eastern European OTC dermatological brands ("Eastern European Brands"), skincare brands Emolium® and Iwostin® and hair loss treatment brand Loxon®, from Sanofi. The transaction closed for €53.3 million ($62.3 million). We capitalized $52.5 million as brand-named intangible assets and allocated the remainder of the purchase price to goodwill, inventory, customer relationships and deferred tax assets.

The addition of these market-leading OTC brands complements our already robust skincare portfolio and adds scale to our Eastern European business. The acquisition also serves as another step for Perrigo’s CSCI growth plans and provides new opportunities for self-care revenue synergy in the European markets. The operating results of the brands are reported within our CSCI segment. The acquisition of the Eastern European Brands was accounted for as a business combination and has been reported in our Consolidated Statements of Operations as of the acquisition date.

The goodwill arising from the acquisition consists largely of the assembled workforce, and the cost and revenue synergies expected from integrating the business into the CSCI segment. The goodwill was allocated to our CSCI segment, none of which is deductible for income tax purposes. The definite-lived intangible assets acquired consisted of brands and customer relationships which are being amortized over a weighted average useful life of approximately 18.8 years. Both the brands and customer relationships were valued using the multi-period excess earnings method. Significant judgment was applied in estimating the fair value of the intangible assets acquired, which involved the use of significant estimates and assumptions with respect to the timing and amounts of cash flow projections, including revenue growth rates, projected profit margins, and discount rates. The opening balance sheet is final.

Oral Care Assets of High Ridge Brands
On April 1, 2020, we acquired the oral care assets of High Ridge Brands ("Dr. Fresh") for total purchase consideration of $113.0 million, subject to customary adjustments, including a working capital settlement. After such adjustments as of December 31, 2020, total cash consideration paid was $106.2 million net of $2.0 million that we are still assessingallocated as prepayment of contract consideration for transitional services to determinebe received related to the effect on our Condensed Consolidated Financial Statements. We do not believe that any other recently issued accounting standards could have a material effect on our Condensed Consolidated Financial Statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.transaction.
11
Perrigo Company plc - Item 1
Note 3


This acquisition includes the children’s oral care value brand, Firefly®, in addition to the REACH® and Dr. Fresh® brands, and a licensing portfolio. The U.S. operations, which represent a significant portion of the business, are reported in our CSCA segment and the non-U.S. operations are reported in our CSCI segment.
The following table summarizes the consideration paid for Dr. Fresh and the amounts of the assets acquired and liabilities assumed (in millions):
Recently Issued Accounting Standards AdoptedOral Care Assets of High Ridge Brands (Dr. Fresh)
StandardPurchase price paid$Description106.2 Date of adoptionEffect on the Financial Statements or Other Significant Matters
Clarifying the Definition of a BusinessThis update clarifies the definition of a business and addresses whether transactions should be accounted for as asset acquisitions or business combinations (or divestitures). The guidance includes an initial threshold that an acquired set of assets will not be considered a business if substantially all of the fair value of the assets acquired is concentrated in a single tangible or identifiable intangible asset (or group of similar assets). If the acquired set does not pass the initial threshold, then the guidance requires that, to be a business, the set must include an input and a substantive process that together significantly contribute to the ability to create outputs. Different factors are considered to determine whether the set includes a substantive process, such as the inclusion of an organized workforce. Further, the guidance removes language stating that a business need not include all of the inputs and processes that the seller used in operating the business.January 1, 2017
We early adopted this new standard and will apply it prospectively when determining whether transactions should be accounted for as asset acquisitions (divestitures) or business combinations (divestitures). During the nine months ended September 30, 2017, we applied the new guidance when determining whether certain product divestitures represented sales of assets or businesses.

Improvements to Employee Share-Based Payment Accounting
This guidance is intended to simplify several aspects of the accounting for share-based payment award transactions. It will require all income tax effects of awards to be recorded through the income statement when the awards vest or settle as opposed to certain amounts being recorded in additional paid-in capital. An entity will also have to elect whether to account for forfeitures as they occur or by estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change (as currently required). The guidance will also increase the amount an employer can withhold to cover income taxes on awards.January 1, 2017We adopted this standard as of January 1, 2017. We elected to estimate the number of awards expected to be forfeited and adjust the estimate when it is likely to change, consistent with past practice. We did not change the amounts that we withhold to cover income taxes on awards. As the requirement to record all income tax effects of vested or settled awards through the income statement is prospective in nature, there was no cumulative effect of adopting the standard on our balance sheet.

Perrigo Company plc - Item 1
Note 1


Recently Issued Accounting Standards Not Yet Adopted
StandardDescriptionEffective DateEffect on the Financial Statements or Other Significant Matters
Revenue from Contracts with CustomersThe 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, 2018We continue to evaluate the implications of adoption of the new revenue standard on our Consolidated Financial Statements. We have completed an initial assessment and are in the process of quantifying the adoption impact, if any, related to certain topics identified through our evaluation process. Our assessment of the new revenue standard has been focused on, but has not been limited to, the concepts of over-time versus point-in-time revenue recognition patterns, variable consideration, and identification of performance obligations. We will not complete our final assessment and quantification of the impact of the new revenue standard on our Consolidated Financial Statements until the adoption date. Our analysis indicates that certain contract manufacturing and private label arrangements may require revenue recognition over-time in situations in which we produce products that have no alternative use and we have an enforceable right to payment for performance completed to date, inclusive of a reasonable profit margin. This may result in an acceleration of revenue recognition for certain contractual arrangements as compared to recognition under current accounting literature. We plan to adopt the new revenue standard effective January 1, 2018 using the modified retrospective method.
Intra-Entity Asset Transfers of Assets Other Than InventoryUnder the new guidance, the tax impact to the seller on the profit from the transfers and the buyer’s deferred tax benefit on the increased tax basis would be recognized when the transfers occur, resulting in the recognition of expense sooner than under historical guidance. The guidance excludes intra-entity transfers of inventory. For intra-entity transfers of inventory, the Financial Accounting Standards Board ("FASB") decided to retain current GAAP, which requires an entity to recognize the income tax consequences when the inventory has been sold to an outside party.January 1, 2018We are currently evaluating the implications of adoption on our Consolidated Financial Statements.
Financial Instruments - Recognition and Measurement of Financial Assets and LiabilitiesThe objective of this simplification update is to improve the decision usefulness of financial instrument reporting, and it principally affects accounting for equity investments currently classified as available for sale and financial liabilities where the fair value option has been elected. Entities will have to measure many equity investments at fair value and recognize changes in fair value in net income rather than other comprehensive income as required under current U.S. GAAP.January 1, 2018We have identified certain investments that will require an adjustment, however, at this time, we are unable to estimate the impact of adopting this standard as the significance of the impact will depend upon our equity investments as of the date of adoption.
Perrigo Company plc - Item 1
Note 1


Assets acquired:
Recently Issued Accounting Standards Not Yet Adopted (continued)Accounts receivable13.1 
StandardInventories22.2 DescriptionEffective DateEffect on the Financial Statements or Other Significant Matters
LeasesPrepaid expenses and other current assets0.4 This guidance was issued to increase transparency
Property, plant and comparability among organizations by requiring recognition ofequipment, net0.7 
Operating lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. For leases with a term of 12 months or less, lessees are permitted to make an election to not recognize right-of-use assets and lease liabilities. Upon adoption, lessees will apply the new standard as of the beginning of the earliest comparative period presented in the financial statements, however lessees will be able to exclude leases that expire as of the implementation date. Early adoption is permitted.2.6 January 1, 2019We are currently evaluating the implications of adoption on our Consolidated Financial Statements and have commenced the first step of identifying a task force to take the lead in implementing the new Lease standard.
Derivatives and HedgingGoodwill17.2 This update was issued to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. In addition, the amendments simplify the application of hedge accounting in certain situations. Under the new rule, the entity’s ability to hedge non-financial and financial risk components is expanded. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and also eases certain documentation and assessment requirements. Early adoption is permitted.January 1, 2019
We are currently evaluating the implications of adoption on our Consolidated Financial Statements.

Measurement of Credit Losses on Financial InstrumentsThis guidance changes the impairment model for most financial assets and certain other instruments, replacing the current "incurred loss" approach with an "expected loss" credit impairment model, which will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, and off-balance sheet credit exposures such as letters of credit. Early adoption is permitted.January 1, 2020We are currently evaluating the new standard for potential impacts on our receivables, debt, and other financial instruments.
Intangibles - GoodwillDistribution and license agreements and supply agreements$2.2 
Developed product technology, formulations, and product rights0.1 
Customer relationships and distribution networks20.6 
Trademarks, trade names, and brands43.2 
Total intangible assets$66.1 
Total assets$122.3 
Liabilities assumed:
Accounts payable$6.1 
Other Simplifying the Test for Goodwillaccrued liabilities3.8 The objective of this update is to reduce the cost
Payroll and complexity of subsequent goodwill accounting by simplifying the impairment test by removing the Step 2 requirement to perform a hypothetical purchase price allocation when the carrying value of a reporting unit exceeds its fair value. If a reporting unit’s carrying value exceeds its fair value, an entity would record an impairment charge based on that difference, limited to the amount of goodwill attributed to that reporting unit. The proposal would not change the guidance on completing Step 1 of the goodwill impairment test. The proposed guidance would be applied prospectively. Early adoption is permitted.related taxes0.7 January 1, 2020
Accrued customer programs3.0 
We are currently evaluating the implications of adoption on our Consolidated Financial Statements.

Other non-current liabilities2.5 
Total liabilities$16.1 
Net assets acquired$106.2 


The goodwill of $17.2 million arising from the acquisition consists largely of the anticipated growth from new product sales, sales to new customers, the assembled workforce, and the synergies expected from combining the operations of Dr. Fresh into Perrigo. The goodwill is attributable to our CSCA segment and is tax deductible for income tax purposes. The definite-lived intangible assets acquired consisted of trademarks and trade names, license agreements, and customer relationships, which are being amortized over a weighted average useful life of approximately 17.8 years. Customer relationships were valued using the multi-period excess earnings method. Trademarks and trade names and developed technology were valued using the relief from royalty method. Significant judgment was applied in estimating the fair value of the intangible assets acquired, which involved the use of significant estimates and assumptions with respect to the timing and amounts of cash flow projections, including revenue growth rates, projected profit margins, and discount rates. The opening balance sheet is final.

12
Perrigo Company plc - Item 1
Note 23



Pro Forma Impact of Business Combinations
NOTE 2 – DIVESTITURES

Current Year Divestitures

OnThe following table presents unaudited pro forma information as if the acquisitions of Dr. Fresh and the Eastern European Brands occurred on January 3, 2017, we sold certain Abbreviated New Drug Applications ("ANDAs") for $15.0 million to a third party, which was recorded as a gain1, 2019, and had been combined with the results reported in Other operating income on theour Condensed Consolidated Statements of Operations in our Prescription Pharmaceuticals ("RX") segment.for all periods presented (in millions):

Three Months EndedNine Months Ended
(Unaudited)September 26,
2020		September 26,
2020
Net sales$1,009.2 $3,083.2 
Income from continuing operations$28.5 $108.7 

The unaudited pro forma information is presented for information purposes only and is not indicative of the results that would have been achieved if the acquisition had taken place at such time. The unaudited pro forma information presented above includes adjustments primarily for amortization charges for acquired intangible assets, depreciation of property, plant and equipment that have been revalued, certain acquisition-related charges, and related tax effects.

Acquisitions During the Nine Months Ended September 26, 2020

Dexsil®
On February 1, 2017,13, 2020, we completedacquired Dexsil®,a silicon supplement brand, from RXW Group Nv, for total cash consideration paid of approximately $8.0 million. The transaction was accounted for as an asset acquisition, in which we capitalized the consideration paid as a brand-named intangible asset. We began amortizing the brand intangible over a 25-year useful life. Operating results attributable to the product are included within our CSCI segment.

Steripod®

On January 3, 2020, we acquired Steripod®, a leading toothbrush accessory brand and innovator in the toothbrush protector market, from Bonfit America Inc. Total consideration paid was $26.0 million. The transaction was accounted for as an asset acquisition, in which we capitalized $25.1 million as a brand-named intangible asset. The remainder of the purchase price was allocated to working capital. We began amortizing the brand intangible asset over a 25-year useful life. Operating results attributable to Steripod® are included within our CSCA segment.     

Divestitures During the Nine Months Ended October 2, 2021

RX business

Refer to Note 8 - Discontinued Operations for details on the sale of the animal health pet treats plant fixed assets within our Consumer Healthcare Americas ("CHCA") segment, which were previously classified as held-for sale. We received $7.7 million in proceeds, which resulted in an immaterial loss.RX business.


Divestitures During the Nine Months Ended September 26, 2020

Rosemont Pharmaceuticals Business

On April 6, 2017,June 19, 2020, we completed the sale of our India Active Pharmaceutical Ingredients ("API")U.K.-based Rosemont Pharmaceuticals business, a generic prescription pharmaceuticals manufacturer focused on liquid medicines, to Strides Shasun Limited. We received $22.2a U.K.-headquartered private equity firm for cash consideration of £155.6 million of proceeds, inclusive of an estimated working capital adjustment, which(approximately $195.0 million). The sale resulted in an immaterial gaina pre-tax loss of $17.4 million during the three and six months ended June 27, 2020, $1.3 million during the three months ended September 26, 2020, and $2.4 million during the three months ended December 31, 2020. These losses were recorded in our CSCI segment in Other segment. Prior to closing the sale, we determined that the carrying value of the India API business exceeded its fair value less the cost to sell, resulting in an impairment charge of $35.3 million, which was recorded in Impairment charges(income) expense, net on the Consolidated Statements of Operations for the year ended December 31, 2016.Operations. These losses included professional fees and a $46.4 million write-off of foreign currency translation adjustment from Accumulated other comprehensive income.


On August 25, 2017, we completed the sale of our Russian business, which was previously classified as held-for-sale, to Alvogen Pharma LLC and Alvogen CEE Kft. The total sale price was €12.7 million ($15.1 million), inclusive of an estimated working capital adjustment, which resulted in an immaterial gain recorded in our Consumer Healthcare International ("CHCI") segment. Prior to closing the sale, we determined that the carrying value of the Russian business exceeded its fair value less the cost to sell, resulting in an impairment charge of $3.7 million, which was recorded in Impairment charges on the Condensed Consolidated Statements of Operations for the three months ended July
13
Perrigo Company plc - Item 1 2017.

Note 4
Prior Year Divestitures

On August 5, 2016, we completed the sale of our U.S. Vitamins, Minerals, and Supplements ("VMS") business within our CHCA segment to International Vitamins Corporation ("IVC") for $61.8 million inclusive of an estimated working capital adjustment. Prior to closing the sale, we determined that the carrying value of the VMS business exceeded its fair value less the cost to sell, resulting in an impairment charge of $6.2 million, which was recorded in Impairment charges on the Condensed Consolidated Statements of Operations for the year ended December 31, 2016.

NOTE 34 – GOODWILL AND OTHER INTANGIBLE ASSETS


Goodwill


Changes in the carrying amount of goodwill, by reportable segment, were as follows (in millions):
Reporting Segments: December 31,
2016		 Business divestitures Re-class to assets held-for-sale Currency translation adjustment September 30,
2017
CHCA $1,810.6
 $—
 $—
 $2.9
 $1,813.5
CHCI 1,070.8
 (4.1) —
 122.3
 1,189.0
RX 1,086.6
 —
 —
 6.5
 1,093.1
Other 81.4
 —
 (32.6) 7.6
 56.4
Total goodwill $4,049.4
 $(4.1) $(32.6) $139.3
 $4,152.0


December 31,
2020		Purchase accounting adjustmentsImpairmentsCurrency translation adjustmentsOctober 2,
2021
CSCA(1)
$1,905.0 $2.4 $(6.1)$(0.7)$1,900.6 
CSCI(2)
1,190.7 (2.4)— (57.5)1,130.8 
Total goodwill$3,095.7 $— $(6.1)$(58.2)$3,031.4 
As discussed in our Form 10-K for the year ended
(1) We had no accumulated goodwill impairments as of December 31, 2016,2020 and $6.1 million as of October 2, 2021.
(2) We had accumulated goodwill impairments of $868.4 million as of December 31, 2020 and October 2, 2021.

CSCA Reporting Unit Goodwill

On May 18, 2021, we announced a definitive agreement to sell our Mexico and Brazil-based OTC businesses ("Latin American businesses"), both within our CSCA segment, to Advent International. As a result, we prepared a goodwill impairment test. We determined the carrying value of this business exceeded the fair value and recorded an impairment of $6.1 million within our CSCA segment during the three months ended April 2, 2016July 3, 2021 (refer to Note 6 and October 1, 2016, we identified indicators of impairment for our Branded Consumer Healthcare - Rest of World ("BCH-ROW"Note 9) reporting unit and recorded impairment charges of $130.5 million and $675.6 million, respectively. In addition, during the three months ended October 1, 2016, we identified impairment indicators in our Branded Consumer Healthcare - Belgium ("BCH-Belgium") reporting unit and recorded impairment charges of $62.3 million. The impairment charges for both reporting units were recorded within our CHCI segment..
Perrigo Company plc - Item 1
Note 3




Intangible Assets


Other intangibleIntangible assets and related accumulated amortization consisted of the following (in millions):
 October 2, 2021December 31, 2020
 GrossAccumulated
Amortization		GrossAccumulated
Amortization
Indefinite-lived intangibles:
Trademarks, trade names, and brands$3.6 $— $4.3 $— 
In-process research and development1.9 — 2.7 — 
Total indefinite-lived intangibles$5.5 $— $7.0 $— 
Definite-lived intangibles:
Distribution and license agreements and supply agreements$72.8 $56.1 $74.8 $55.4 
Developed product technology, formulations, and product rights300.7 187.6 303.3 177.3 
Customer relationships and distribution networks1,844.1 872.2 1,920.5 823.7 
Trademarks, trade names, and brands1,506.0 381.5 1,581.5 342.2 
Non-compete agreements2.1 2.1 2.9 2.9 
Total definite-lived intangibles$3,725.7 $1,499.5 $3,883.0 $1,401.5 
Total intangible assets$3,731.2 $1,499.5 $3,890.0 $1,401.5 
 September 30, 2017 December 31, 2016
 Gross Accumulated Amortization Gross Accumulated Amortization
Definite-lived intangibles:
       
Distribution and license agreements, supply agreements$310.2
 $157.5
 $305.6
 $120.4
Developed product technology, formulations, and product rights1,355.4
 568.8
 1,418.1
 526.0
Customer relationships and distribution networks1,623.7
 424.5
 1,489.9
 307.5
Trademarks, trade names, and brands1,317.5
 111.0
 1,189.3
 55.3
Non-compete agreements14.7
 12.3
 14.3
 11.2
Total definite-lived intangibles$4,621.5
 $1,274.1
 $4,417.2
 $1,020.4
Indefinite-lived intangibles:
       
Trademarks, trade names, and brands$52.0
 $—
 $50.5
 $—
In-process research and development51.4
 —
 64.0
 —
Total indefinite-lived intangibles103.4
 —
 114.5
 —
Total other intangible assets$4,724.9
 $1,274.1
 $4,531.7
 $1,020.4

Certain intangible assets are denominated in currencies other than the U.S. dollar; therefore, their gross and accumulated amortization balances are subject to foreign currency movements.


We recorded amortization expense of $88.5$52.2 million and $89.7$159.0 million for the three and nine months ended September 30, 2017 and October 1, 2016,2, 2021, respectively, and $261.3$53.3 million and $263.9$157.5 million for the three and nine months ended September 30, 2017 and October 1, 2016,26, 2020, respectively.

We recorded an impairment charge within our RX segment of $12.7 million on certain In Process Research and Development ("IPR&D") assets during the nine months ended September 30, 2017 due to changes in the projected development and regulatory timelines for various projects. During the nine months ended September 30, 2017, we recorded a decrease in the contingent consideration liability associated with certain IPR&D assets in Other operating income on the Condensed Consolidated Statements of Operations (refer to Note 6).

During the three months ended July 1, 2017, we identified impairment indicators for our Lumara Health, Inc. ("Lumara") product assets. The primary impairment indicators included the decline in our 2017 performance expectations and a reduction in our long-range revenue growth forecast. The assessment utilized the multi-period excess earnings method to determine fair value and resulted in an impairment charge of $18.5 million in Impairment charges on the Condensed Consolidated Statements of Operations within our RX segment, which represented the difference between the carrying amount of the intangible assets and their estimated fair value.

As discussed in our Form 10-K for the year ended December 31, 2016, during the three months ended April 2, 2016, we identified indicators of impairment associated with certain indefinite-lived intangible assets acquired in conjunction with our acquisition of Omega Pharma Invest N.V. ("Omega") and recorded an impairment charge of $273.4 million. In addition, during the three months ended October 1, 2016, we identified indicators of impairment associated with certain indefinite-lived and definite-lived intangible brand category assets acquired in conjunction with the Omega acquisition. As a result of these additional indicators, we recorded impairment charges of $575.7 million on our indefinite-lived assets and $290.9 million on our definite-lived assets. The impairment charges for both the indefinite-lived assets and definite-lived assets were recorded within our CHCI segment.

In addition, due to reprioritization of certain brands in the CHCI segment and change in performance expectations for the cough/cold/allergy, anti-parasite, personal care, lifestyle, and natural health brands, we
14
Perrigo Company plc - Item 1
Note 35



reclassified $364.5 million and $674.4 million of indefinite-lived assets to definite-lived assets with useful lives of 20 years, which we began amortizing during the second and third quarters of 2016, respectively.

NOTE 4 - ACCOUNTS RECEIVABLE FACTORING

We have 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 invoice is charged on the gross amount of accounts receivables assigned to the Factors, and interest is calculated at the applicable EUR LIBOR rate plus 70 basis points. The total amount factored on a non-recourse basis and excluded from accounts receivable was $24.3 million and $50.7 million at September 30, 2017 and December 31, 2016, respectively.

NOTE 5 – INVENTORIES


Major components of inventory were as follows (in millions):

October 2,
2021		December 31,
2020
Finished goods$617.1 $574.1 
Work in process240.9 220.4 
Raw materials234.5 264.9 
Total inventories$1,092.5 $1,059.4 

 September 30,
2017		 December 31,
2016
Finished goods$471.4
 $431.1
Work in process146.8
 165.7
Raw materials203.7
 198.2
Total inventories$821.9
 $795.0

NOTE 6 – 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 - Item 1
Note 6



The following table below summarizes the valuation of our financial instruments carried at fair value and measured at fair value on a recurring and non-recurring basis by the aboveapplicable pricing categories (in millions):
October 2, 2021December 31, 2020
Level 1Level 2Level 3Level 1Level 2Level 3
Measured at fair value on a recurring basis:
Assets:
Investment securities$1.5 $— $— $2.5 $— $— 
Foreign currency forward contracts— 5.8 — — 9.8 — 
Cross-currency swap— — — — 6.3 — 
Foreign currency option contracts— 13.3 — — — — 
Total assets$1.5 $19.1 $— $2.5 $16.1 $— 
Liabilities:
Cross-currency swap$— $24.1 $— $— $— $— 
Foreign currency forward contracts— 1.8 — — 7.9 — 
Total liabilities$— $25.9 $— $— $7.9 $— 
Measured at fair value on a non-recurring basis:
Liabilities
Liabilities held for sale, net(1)
$— $— $15.8 $— $— $— 
Total liabilities$— $— $15.8 $— $— $— 
    Fair Value
  Fair Value Hierarchy September 30,
2017		 December 31,
2016
Measured at fair value on a recurring basis:      
Assets:      
Investment securities Level 1 $6.1
 $38.2
       
Foreign currency forward contracts Level 2 $13.1
 $3.8
Funds associated with Israeli severance liability Level 2 16.1
 15.9
Total level 2 assets   $29.2
 $19.7
       
Royalty Pharma contingent milestone payments Level 3 $143.2
 $—
Financial assets Level 3 —
 2,350.0
Total level 3 assets   $143.2
 $2,350.0
       
Liabilities:      
Foreign currency forward contracts Level 2 $3.3
 $5.0
       
Contingent consideration Level 3 $44.9
 $69.9
       
Measured at fair value on a non-recurring basis:      
Assets:      
Goodwill(1)
 Level 3 $—
 $1,148.4
Indefinite-lived intangible assets(2)
 Level 3 13.3
 0.3
Definite-lived intangible assets(3)
 Level 3 11.5
 758.0
Assets held for sale, net Level 3 95.1
 18.2
Total level 3 assets   $119.9
 $1,924.9


(1)
As of December 31, 2016, goodwill with a carrying amount of $2.2 billion was written down to its implied fair value of $1.1 billion.
(2)
As of September 30, 2017, indefinite-lived intangible assets with a carrying amount of $26.0 million were written down to a fair value of $13.3 million. As of December 31, 2016, indefinite-lived intangible assets with a carrying amount of $0.7 million were written down to a fair value of $0.3 million.
(3)
As of July 1, 2017, definite-lived intangible assets with a carrying amount of $31.1 million were written down to a fair value of $11.5 million. As of December 31, 2016, definite-lived intangible assets with a carrying amount of $2.3 billion were written down to a fair value of $758.0 million. Included in this balance are indefinite-lived intangible assets with a fair value of $364.5 million and $674.2 million that were reclassified to definite-lived assets at April 3, 2016 and October 2, 2016, respectively.

(1)     We measured the net assets held for sale for impairment purposes and recorded a total impairment of $161.2 million, resulting in a net liability held for sale balance (refer to Note 9).

There were no transfers amongwithin Level 1, 2, and 3 fair value measurements during the three and nine months endedSeptember 30, 2017 October 2, 2021 or the year ended December 31, 2016. Our policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period (refer to Note 7 for information on our investment securities and Note 8 for a discussion of derivatives).2020.

Perrigo Company plc - Item 1
Note 6



Foreign Currency ForwardOption Contracts


The fair value of foreign currency forward contracts is determined using a market approach, which utilizes values for comparable derivative instruments.

Funds Associated with Israel Severance Liability

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 funds 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.
Royalty Pharma Contingent Milestone Payments and Financial Assets

On December 18, 2013, we acquired Elan, which had a royalty agreement with Biogen Idec Inc. ("Biogen"), whereby Biogen conveyed the right to receive royalties that are typically payable on sales revenue generated by the sale, distribution or other use of the drug Tysabri®. Pursuant to the royalty agreement, we were entitled to royalty payments from 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. From May 1, 2014, we received royalties of 18% on annual worldwide Biogen sales of Tysabri® up to $2.0 billion and 25% on annual sales above $2.0 billion.

We accounted for the Tysabri® royalty stream as a financial asset and elected to use the fair value option model. We made the election to account for the Tysabri® financial asset using the fair value option as we believed this method was most appropriate for an asset that did not have a par value, a stated interest stream, or a termination date. The financial asset acquired represented a single unit of accounting. The fair value of the financial asset acquired was determined by using a discounted cash flow analysis related to the expected probability weighted future cash flows to be generated by the royalty stream. The financial asset was classified as a Level 3 asset within the fair value hierarchy, as our valuation utilized significant unobservable inputs, including industry analyst estimates for global Tysabri® sales, probability weighted as to the timing and amount of future cash flows along with certain discount rate assumptions. Cash flow forecasts included the estimated effect and timing of future competition, considering patents in effect for Tysabri® through 2024 and contractual rights to receive cash flows into perpetuity. The discounted cash flows were based upon the expected royalty stream forecasted into perpetuity using a 20-year discrete period with a declining rate terminal value.

In the first quarter of 2016, a competitor's pipeline product, Ocrevus®, received breakthrough therapy designation from the U.S. Food and Drug Administration ("FDA"). Breakthrough therapy designation is granted when a drug is intended alone or in combination with one or more other drugs to treat a serious or life threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. In June 2016, the FDA granted priority review with a target action date in December 2016. A priority review is a designation when the FDA will direct overall attention and resources to the evaluation of applications for drugs that, if approved, would be significant improvements in the safety or effectiveness of the treatment, diagnosis, or prevention of serious conditions when compared to standard applications. The product was approved late in the first quarter of 2017. The product is expected to compete with Tysabri®, and we expected it to have a significant negative impact on the Tysabri® royalty stream. Industry analysts believe that, based on released clinical study information, Ocrevus® will compete favorably against Tysabri® in the relapsing, remitting multiple sclerosis market segment due to its high efficacy and convenient dosage form.
Perrigo Company plc - Item 1
Note 6


Given the new market information for Ocrevus®, we used industry analyst estimates to reduce our first ten year growth forecasts from an average of growth of approximately 3.4% in the fourth calendar quarter of 2015 to an average decline of approximately minus 2.0% in the third and fourth calendar quarters of 2016. In November 2016, we announced we were evaluating strategic alternatives for the Tysabri® asset. As of December 31, 2016, the financial asset was adjusted based on the strategic review and sale process. These effects, combined with the change in discount rate each quarter, led to a reduction in fair value of $204.4 million, $910.8 million, $377.4 million and $1.1 billion in the first, second, third and fourth quarters of 2016, respectively.

On March 27, 2017, we announced the completed divestment of our Tysabri® financial asset to Royalty Pharma for up to $2.85 billion, which consists of $2.2 billion in cash and up to $250.0 million and $400.0 million in milestone payments if the royalties on global net sales of Tysabri® that are received by Royalty Pharma meet specific thresholds in 2018 and 2020, respectively. As a result of this transaction, we transferred the entire financial asset to Royalty Pharma and recorded a $17.1 million gain during the three months ended July 1, 2017. We elected to account for the contingent milestone payments using the fair value option method, and these were recorded at an estimated fair value of $143.2 million as of September 30, 2017. We chose the fair value option as we believe it will help investors understand the potential future cash flows we may receive associated with the two contingent milestones.

We valued the contingent milestone paymentsforeign currency option contract derivatives using a modifiedan extension of the Black-Scholes Option Pricing Model ("BSOPM"). which uses the strike price and expiry as inputs obtained from the contractual agreement. Additionally, the model uses risk-free interest rates, forward currency quotes, and option volatility assumptions obtained from the observable market.
15
Perrigo Company plc - Item 1
Note 6

Royalty Pharma Contingent Milestone Receipts

During the year ended December 31, 2020, Royalty Pharma payments from Biogen for Tysabri® sales, as defined in the agreement between the parties, did not exceed the 2020 global net sales threshold. Therefore, we were not entitled to receive the remaining contingent milestone payment. As of December 31, 2020, there were no contingent milestone payments outstanding.

The table below summarizes the change in fair value of the Royalty Pharma contingent milestone (in millions):
Three Months EndedNine Months Ended
September 26,
2020		September 26,
2020
Beginning balance$99.0 $95.3 
Change in fair value22.2 25.9 
Ending balance$121.2 $121.2 

We valued our contingent milestone payment from Royalty Pharma using a modified BSOPM. Key inputs in the BSOPM are the estimated volatility and rate of return of royalties on global net sales of Tysabri® that are received by Royalty Pharma over time until payment of the contingent milestone payments is completed. Volatilitymilestones are resolved. As of September 26, 2020, volatility and the estimated fair value of the milestones havehad a positive relationship such that higher volatility translates to a higher estimated fair value of the contingent milestone payments. InRate of return and the valuationestimated fair value of contingent milestone payments performed, we assumed volatility of 30.0% andthe milestones had an inverse relationship, such that a lower rate of return correlates with a higher estimated fair value of 8.05% as of July 1, 2017 and volatility of 30.0% and a rate of return of 8.06% as of September 30, 2017.the contingent milestone payments. We assessassessed volatility and rate of return inputs quarterly by analyzing certain market volatility benchmarks and the risk associated with Royalty Pharma achieving the underlying projected royalties. The table below represents the volatility and rate of return:

Three Months Ended
September 26,
2020
Volatility30.0 %
Rate of return6.84 %

During the three and nine months ended September 30, 2017,26, 2020, the fair value of the Royalty Pharma contingent milestone payments decreased $2.9payment related to 2020 increased by $22.2 million and $42.1$25.9 million, respectively, to $121.2 million, driven by higher projected global net sales of Tysabri® compared to the estimates in the prior period, and the estimated probability of achieving the earn-out. As of December 31, 2020, there were no contingent milestone payments outstanding and, accordingly, no asset recorded in the Condensed Consolidated Balance Sheet.

Non-recurring Fair Value Measurements

The non-recurring fair values represent only those assets whose carrying values were adjusted to fair value during the reporting period.

Goodwill

During the three months ended July 3, 2021 and nine months ended October 2, 2021, as a result of our definitive agreement to sell our Latin American businesses, we prepared a goodwill impairment test. We determined the decreasecarrying value of this business exceeded the fair value and recorded an impairment in the estimated projected Tysabri® revenues due to the launch of Ocrevus® late in the first quarter of 2017.

Our accounts receivable balance at December 31, 2016 included $84.4 million related to the Tysabri® financial asset.

The table below presents a reconciliation for the Royalty Pharma contingent milestone payments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in millions). Change in fair value in the table was recorded in Change in financial assets on the Condensed Consolidated Statements of Operations.
 Three Months Ended Nine Months Ended
 September 30,
2017		 September 30,
2017
Royalty Pharma Contingent Milestone Payments   
Beginning balance$145.8
 $—
Additions—
 184.5
Foreign currency effect0.3
 0.8
Change in fair value(2.9) (42.1)
Ending balance$143.2
 $143.2

Contingent Consideration

Contingent consideration represents milestone payment obligations obtained through product acquisitions, which are valued using estimates based on probability-weighted outcomes, sensitivity analysis, and discount rates reflective of the risk involved. The estimates are updated quarterly and the liabilities are 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. We reduced a contingent consideration liability associated with certain IPR&D assetsCSCA segment (refer to Note 34) and recorded a corresponding gain of $17.0 million during.

Assets (liabilities) held for sale, net

During the ninethree months ended September 30, 2017. The liability decrease relates to a reduction of the probability of achievement assumptionsJuly 3, 2021 and
Perrigo Company plc - Item 1
Note 6


anticipated cash flows. Purchases or additions for the nine months ended October 1, 2016 included contingent consideration associated with five transactions.

The table below presents2, 2021, as a reconciliation for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in millions). Net realized losses in the table were recorded in Other (income) expense, netresult of our definitive agreement to sell our Latin American businesses, we prepared an impairment test on the Condensed Consolidated Statements of Operations.
 Three Months Ended Nine Months Ended
 September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Contingent Consideration       
Beginning balance$49.7
 $44.9
 $69.9
 $17.9
Net realized losses(2.9) (0.4) (18.5) (4.0)
Purchases or additions—
 30.6
 —
 61.1
Foreign currency effect0.2
 —
 1.5
 0.1
Settlements(2.1) (0.1) (8.0) (0.1)
Ending balance$44.9
 $75.0
 $44.9
 $75.0

Goodwill and Indefinite-Lived Intangible Assets

net assets held for sale related to this business. We have seven reporting units for which we assess goodwill for impairment. We utilize a comparable company market approach, weighted equally with a discounted cash flow analysis, to determinedetermined the faircarrying value of the reporting units. We utilize either a relief from royalty method or a multi-period excess earnings method ("MPEEM") to value our indefinite-lived intangiblenet assets and use a consistent set of projected financial informationheld for the goodwill and indefinite-lived asset impairment tests. The discounted cash flow analysis that we prepared for goodwill impairment testing purposes for the year ended December 31, 2016 included long-term growth rates ranging from 2.0% to 3.0%. We also utilized discount rates ranging from 7.0% to 14.5%, which were deemed to be commensurate with the required investment return and risk involved in realizing the projected free cash flows of each reporting unit. In addition, we burdened projected free cash flows with the capital spending deemed necessary to support the cash flows of each reporting unit, and applied the tax rates that were applicable to the jurisdictions represented within each reporting unit. We recorded impairment charges on the Condensed Consolidated Statements of Operations related to goodwill in the BCH-ROW reporting unit and indefinite-lived intangible assets of $130.5 million and $273.4 million, respectively, for the three months ended April 2, 2016. For the three months ended October 1, 2016, we recorded impairment charges related to goodwill on the Condensed Consolidated Statements of Operations of $675.6 million in the BCH-ROW reporting unit and $62.3 million in the BCH-Belgium reporting unit, as well as indefinite-lived intangible asset impairments of $575.7 million (refer to Note 3).

Definite-Lived Intangible Assets

When assessing our definite-lived assets for impairment, we utilize either a MPEEM or a relief from royalty method to determinesale exceed the fair value of the asset and use the forecasts that are consistent with those used in the reporting unit analysis. Below is a summary of the various metrics used in our valuations:
16
Nine Months Ended
September 30, 2017
Lumara
5-year average growth rate(4.1)%
Discount rate13.5%
Valuation methodMPEEM

Perrigo Company plc - Item 1
Note 6



 Year Ended
 December 31, 2016
 Omega - Lifestyle Omega - XLS 
Entocort® - Branded Products
 
Entocort® - AG Products
 Herron Trade Names and Trademarks
5-year average growth rate2.5% 3.2% (31.7)% (30.4)% 4.6%
Long-term growth rates2.0% NA (10.0)% (4.7)% 2.5%
Discount rate9.3% 9.5% 13.0% 10.5% 10.8%
Royalty rateNA 4.0% NA NA 11.0%
Valuation methodMPEEM Relief from Royalty MPEEM MPEEM Relief from Royalty

We recorded Impairment charges on the Condensed Consolidated Statements of Operations related to definite-lived intangible assets of $18.5 million and $290.9 million for the nine months ended September 30, 2017 and October 1, 2016, respectively (refer to Note 3).

Assets Held For Sale

When a group of assets is classified as held-for-sale, the book value is evaluated and adjusted to the lower of its carrying amount or fair value less the cost to sell and recorded an impairment in the CSCA segment (refer to Note 9).


Fixed Rate Long-term Debt


As of September 30, 2017 and December 31, 2016, ourOur fixed rate long-term debt consisted of public bonds, a private placement note, and retail bonds. As of September 30, 2017, the public bonds had a carrying value offollowing (in millions):
$2.6 billion and a fair value of $2.7 billion. As of December 31, 2016, the public bonds had a carrying value and fair value of $4.6 billion.
October 2,
2021		December 31,
2020
Level 1Level 2Level 1Level 2
Public Bonds
Carrying Value (excluding discount)$2,760.0 $— $2,760.0 $— 
Fair value$2,906.0 $— $3,031.1 $— 
Private placement note
Carrying value (excluding premium)$— $156.6 $— $164.9 
Fair value$— $166.9 $— $177.5 

The fair values of our public bonds for bothall periods were based on quoted market prices
(Level 1).

As of September 30, 2017, our retail bonds and private placement note had a carrying value of $655.8 million (excluding a premium of $35.6 million) and a fair value of $699.2 million. As of December 31, 2016, our retail bonds and private placement note had a carrying value of $773.1 million (excluding a premium of $49.8 million) and a fair value of $825.0 million.prices. The fair values of our retail bonds and private placement note for bothall periods were based on interest rates offered for borrowings of a similar nature and remaining maturities (Level 2).maturities.


The carrying amounts of our other financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable, short-term debt, revolving credit agreements, promissory notes related to our equity method investment in Kazmira, and variable rate long-term debt, approximate their fair value.


NOTE 7 – INVESTMENTS


Available for Sale Securities
Our available for saleThe following table summarizes the measurement category, balance sheet location, and balances of our equity securities are reported in Prepaid expenses and other current assets. Unrealized investment gains/(losses) on available for sale securities were as follows (in millions):
Measurement CategoryBalance Sheet LocationOctober 2,
2021		December 31,
2020
Fair value methodPrepaid expenses and other current assets$1.5 $2.5 
Fair value method(1)
Other non-current assets$1.8 $1.9 
Equity methodOther non-current assets$69.0 $69.8 
 September 30,
2017		 December 31, 2016
Equity securities, at cost less impairments$15.5
 $16.5
Gross unrealized gains—
 21.7
Gross unrealized losses(9.4) —
Estimated fair value of equity securities$6.1
 $38.2


(1)     Measured at fair value using the Net Asset Value practical expedient.

The factors affectingfollowing table summarizes the assessmentexpense (income) recognized in earnings of impairments include both general financial market conditionsour equity securities (in millions):
Three Months EndedNine Months Ended
Measurement CategoryIncome Statement LocationOctober 2,
2021		September 26,
2020		October 2,
2021		September 26,
2020
Fair value methodOther (income) expense, net$— $(0.4)$0.9 $2.2 
Equity methodOther (income) expense, net$— $(1.1)$0.8 $(2.6)
NOTE 8 – DISCONTINUED OPERATIONS

Our discontinued operations primarily consist of our RX segment, which held our prescription pharmaceuticals business in the U.S. and factors specificour pharmaceuticals and diagnostic businesses in Israel (collectively, the “RX business”).

On March 1, 2021, we announced a definitive agreement to sell our RX business to Altaris. On July 6, 2021, we completed the sale of the RX business for aggregate consideration of $1.55 billion. The consideration includes a particular company. During the nine months ended October 1, 2016, we recorded an impairment charge of $1.8$53.3 million whichreimbursement related to other-than-temporary impairments of marketable equity securities duean ANDA for a generic topical lotion which Altaris is required to prolonged losses incurred on each of the investments.deliver in
17
Perrigo Company plc - Item 1
Note 7

8


We have evaluatedcash to Perrigo pursuant to the near-term prospectsterms of the equity securitiesAgreement. The sale resulted in relation to the severity and duration of any impairments, and based on that evaluation, we have the ability and intent to hold these investments until a recovery of fair value.

During the nine months ended September 30, 2017, we sold a number of our investment securities and recorded apre-tax gain of $1.6 million. The gain was reclassified out of Accumulated Other Comprehensive Income (loss) ("AOCI") and into earnings.     

Cost Method Investments

Our cost method investments totaled $7.2$63.9 million and $6.9 million at September 30, 2017 and
December 31, 2016, respectively, and are included in Other non-current assets.

Equity Method Investments

Our equity method investments totaled$4.8 million and $4.6 million at September 30, 2017 and December 31, 2016, respectively, and are included in Other non-current assets. We recorded net losses of $0.1 million and net gains of $0.2 million during the three and nine months ended September 30, 2017, respectively, and net gains of $0.1 million and net losses of $3.8 million during the three and nine months endedOctober 1, 2016, respectively, for our proportionate share of the equity method investment earnings or losses. The gains and losses were recorded in Other (income) expense, net on the Condensed Consolidated StatementsStatement of Operations.Operations for discontinued operations. The gain included a $160.0 million increase from the write-off of foreign currency translation adjustment from Accumulated other comprehensive income and a decrease from professional fees. The transaction gain is subject to final settlements under the Agreement, which we expect to finalize in the fourth quarter of 2021.


As of March 1, 2021, we determined that the RX business met the criteria to be classified as a discontinued operation and, as a result, its historical financial results have been reflected in our consolidated financial statements as a discontinued operation and its assets and liabilities have been classified as held for sale. We ceased recording depreciation and amortization on the RX business assets from March 1, 2021. We have not allocated any general corporate overhead to the discontinued operation.

Under the terms of the agreement, we will provide transition services for up to 24 months after the close of the transaction and we entered into a reciprocal supply agreement pursuant to which Perrigo will supply certain products to the RX business and the RX business will supply certain products to Perrigo. The supply agreements have a term of four years, extendable up to seven years by the party who is the purchaser of the products under such agreement. We also extended distribution rights to the RX business for certain OTC products owned and manufactured by Perrigo that may be fulfilled through pharmacy channels, in return for a share of the net profits.

During the three and nine months ended October 1, 2016, one2, 2021, we recognized $3.6 million of our equity method investments became publicly traded.income related to the transition services agreement ("TSA") in Other operating expense (income); $29.4 million of product sales and royalty income in Net sales related to the supply and distribution agreements with the RX business; and we purchased $9.5 million of inventories related to the supply arrangement with the RX business. No payments were made or received related to these agreements during the three and nine months ended October 2, 2021.

Additionally, under the TSA, we net settle any receipts received or payments made on behalf of the RX business’ customers or vendors. As of October 2, 2021, we recorded a result, we transferredreceivable in the $15.5amount of $36.4 million investmentin Prepaid expenses and other current assets for the reimbursement due to availablePerrigo.

In the transaction, Perrigo retained certain pre-closing liabilities arising out of antitrust (refer to Note 16 - Contingencies under the header "Price-Fixing Lawsuits") and opioid matters and the Company’s Albuterol recall, subject to, in each case, the buyer's obligation to indemnify the Company for sale50 percent of these liabilities up to an aggregate cap on the buyer's obligation of $50.0 million. We have not requested payments from the buyer related to the indemnity of these liabilities during the three and recorded an $8.7 million unrealized gain,nine months ended October 2, 2021.

18
Perrigo Company plc - Item 1
Note 8
Income from discontinued operations, net of tax was as follows (in millions):

 Three Months EndedNine Months Ended
 October 2,
2021		September 26,
2020		October 2,
2021		September 26,
2020
Net sales$0.5 $210.7 $405.1 $738.8 
Cost of sales0.1 149.8 258.4 496.2 
Gross profit0.4 60.9 146.7 242.6 
Operating expenses
Distribution— 3.6 6.1 11.4 
Research and development0.2 11.9 30.8 42.1 
Selling0.1 7.6 16.3 22.3 
Administration4.9 8.7 35.6 23.2 
Impairment charges— 202.4 — 202.4 
Restructuring— — — 0.4 
Other operating expense (income)— 0.6 (0.4)0.8 
Total operating expenses5.2 234.8 88.4 302.6 
Operating income (loss)(4.8)(173.9)58.3 (60.0)
Interest expense, net— 0.7 0.8 3.2 
Other (income) expense, net(63.7)1.5 (65.5)(0.7)
Income before income taxes58.9 (176.1)123.0 (62.5)
Income tax expense (benefit)63.9 4.9 38.5 21.5 
Income (loss) from discontinued operations, net of tax$(5.0)$(181.0)$84.5 $(84.0)

During the three and nine months ended October 2, 2021, we incurred $29.1 million and $40.8 million, respectively, of separation costs related to the sale of the RX business. The costs incurred during the three months ended October 2, 2021 included selling costs, which were reported in Other Comprehensive Income ("OCI"). In addition, due to significant and prolonged losses incurred on one of our equity method investments, we recorded a $22.3 million impairment charge in Otherother (income) expense, net as part of the gain on sale of the Condensed Consolidated StatementsRX business. Separation costs incurred in prior periods were included in administration expenses.

Select cash flow information related to discontinued operations was as follows (in millions):

Nine Months Ended
 October 2,
2021		September 26,
2020
Cash flows from discontinued operations operating activities:
Depreciation and amortization$15.3 $72.4 
Impairment charges— 202.4 
Loss (Gain) on sale of business(63.9)— 
Cash flows from discontinued operations investing activities:
Asset acquisitions$(69.7)$(0.9)
Additions to property, plant and equipment(6.6)(10.0)
Net proceeds from sale of business1,493.1 — 

Asset acquisitions related to discontinued operations consisted of Operations.2 Abbreviated New Drug Applications ("ANDAs") purchased under a contractual arrangement entered into on May 15, 2015 with a third party that specializes in research and development and obtaining approval for various drug candidates to develop specific products. On December 31, 2020, we purchased an ANDA for a generic topical gel for $16.4 million, which was subsequently paid during the three months ended April 3, 2021 and on March 8, 2021, we purchased an ANDA for a generic topical lotion for $53.3 million. These ANDAs were acquired by Altaris as part of the RX business sale.



19
Perrigo Company plc - Item 1
Note 8
The assets and liabilities classified as held for sale related to discontinued operations were as follows (in millions):

December 31,
2020
Cash and cash equivalents$10.0 
Accounts receivable, net of allowance for credit losses of $1.1460.7 
Inventories140.8 
Prepaid expenses and other current assets55.4 
Current assets held for sale666.9 
Property, plant and equipment, net131.4 
Operating lease assets31.3 
Goodwill and indefinite-lived intangible assets681.2 
Definite-lived intangible assets, net492.8 
Deferred income taxes3.6 
Other non-current assets23.7 
Non-current assets held for sale1,364.0 
Total assets held for sale$2,030.9 
Accounts payable$92.2 
Payroll and related taxes22.3 
Accrued customer programs237.4 
Other accrued liabilities67.2 
Current indebtedness0.5 
Current liabilities held for sale419.6 
Long-term debt, less current portion0.7 
Deferred income taxes3.1 
Other non-current liabilities104.5 
Non-current liabilities held for sale108.3 
Total liabilities held for sale$527.9 

NOTE 8 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We enter into certain derivative financial instruments, when available on a cost-effective basis, to mitigate our risk associated with changes in interest rates and foreign currency exchange rates as follows:

Interest rate risk management - We are exposed to the impact of interest rate changes through our cash investments and borrowings. We utilize a variety of strategies to manage the impact of changes in interest rates, including using a mix of debt maturities along with both fixed-rate and variable-rate debt. In addition, we may enter into treasury-lock agreements and interest rate swap agreements on certain investing and borrowing transactions to manage our exposure to interest rate changes and our overall cost of borrowing.

Foreign currency exchange risk management - We conduct business in several major currencies other than the U.S. dollar and are subject to risks associated with changing foreign exchange rates. Our 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, we enter into various contracts that change in value as foreign exchange rates change to protect the value of existing foreign currency assets and liabilities, commitments, and anticipated foreign currency sales 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 by gains and losses on the original underlying asset or liability. We do not use derivative financial instruments for speculative purposes.

     All of our designated derivatives were classified as cash flow hedges as of September 30, 2017 and December 31, 2016. 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. The deferred gains and losses are recognized in income in the period in which the hedged item affects earnings. Any ineffective portion of the change
Perrigo Company plc - Item 1
Note 8


in fair value of the derivative is immediately recognized in earnings. 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 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.

During the three months ended July 1, 2017, we repaid $584.4 million of senior notes with an interest rate of 4.000% due 2023 and $309.5 million of senior notes with an interest rate of 5.300% due 2043 (refer to Note 10). As a result of the senior note repayments on June 15, 2017, the proportionate amount remaining in OCI related to the pre-issuance hedge was reclassified to earnings. Accordingly, we recorded a loss of $5.9 million in Other expense, net, on the Condensed Consolidated Statements of Operations during the three months ended July 1, 2017 for the amount remaining in OCI.

During the six months ended December 31, 2015, we entered into a forward interest rate swap to hedge against changes in the benchmark interest rate between the date the interest rate swap was entered into and the date of expected future debt issuance. The interest rate swap was designated as a cash flow hedge and had a notional amount totaling $200.0 million. The interest rate swap was settled upon the issuance of an aggregate $1.2 billion principal amount of senior notes on March 7, 2016 for a cumulative after-tax loss of $7.0 million in OCI during the three months ended April 2, 2016.
Foreign Currency Derivatives

We enter into foreign currency forward contracts, both designated and non-designated, in order to manage the impact of foreign exchange fluctuations on expected future purchases and related payables denominated in a foreign currency, as well as to hedge the impact 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 18 months. The total notional amount for these contracts was $578.3 million and $533.5 million as of September 30, 2017 and December 31, 2016, respectively.

Effects of Derivatives on the Financial Statements
The below tables indicate the effects of all derivative instruments on the Condensed Consolidated Financial Statements. All amounts exclude income tax effects and are presented in millions.

The balance sheet location and gross fair value of our outstanding derivative instruments were as follows:
 Asset Derivatives
 Balance Sheet Location Fair Value
   September 30,
2017		 December 31,
2016
Designated derivatives:     
Foreign currency forward contractsOther current assets $4.6
 $3.1
Non-designated derivatives:     
Foreign currency forward contractsOther current assets $8.5
 $0.7
Perrigo Company plc - Item 1
Note 8


 Liability Derivatives
 Balance Sheet Location Fair Value
   September 30,
2017		 December 31,
2016
Designated derivatives:     
Foreign currency forward contractsAccrued liabilities $2.6
 $3.0
Non-designated derivatives:     
Foreign currency forward contractsAccrued liabilities $0.7
 $2.0

The gains (losses) recorded in OCI for the effective portion of our designated cash flow hedges were as follows:
  Amount of Gain/(Loss) Recorded in OCI
(Effective Portion)
  Three Months Ended Nine Months Ended
Designated Cash Flow Hedges September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Interest rate swap agreements $—
 $—
 $—
 $(9.0)
Foreign currency forward contracts 1.1
 3.4
 6.3
 4.7
Total $1.1
 $3.4
 $6.3
 $(4.3)

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 into Earnings
(Effective Portion)
    Three Months Ended Nine Months Ended
Designated Cash Flow Hedges Income Statement Location September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Treasury locks Interest expense, net $—
 $—
 $—
 $(0.1)
Interest rate swap agreements Interest expense, net (0.4) (0.6) (1.7) (1.7)
  Other (income) expense, net —
 —
 (5.9) —
Foreign currency forward contracts Net sales —
 (0.1) 0.9
 0.3
  Cost of sales 1.8
 0.9
 3.5
 1.8
  Interest expense, net (0.7) (0.4) (1.8) (1.3)
  Other (income) expense, net (1.2) (1.2) (1.7) 0.7
Total   $(0.5) $(1.4) $(6.7) $(0.3)

The net of tax amount expected to be reclassified from AOCI into earnings during the next 12 months is a $2.8 million gain.

Perrigo Company plc - Item 1
Note 8


The gains (losses) recognized against earnings for the ineffective portion of our designated cash flow hedges were as follows:
    Amount of Gain/(Loss) Recognized against Earnings
(Ineffective Portion)
    Three Months Ended Nine Months Ended
Designated Cash Flow Hedges 
Income Statement
Location
 September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Interest rate swap agreements Other (income) expense, net $—
 $—
 $—
 $(0.1)
Foreign currency forward contracts Net sales 0.2
 —
 0.1
 0.1
  Cost of sales 0.1
 —
 0.1
 —
  Other (income) expense, net —
 —
 1.0
 0.6
Total   $0.3
 $—
 $1.2
 $0.6

The effects of our non-designated derivatives on the Condensed Consolidated Statements of Operations were as follows:
    Amount of Gain/(Loss) Recognized against Earnings
    Three Months Ended Nine Months Ended
Non-Designated Derivatives Income Statement Location September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Foreign currency forward contracts Other (income) expense, net $10.1
 $(0.2) $(3.8) $(8.7)
  Interest expense, net (1.8) (1.0) (2.9) (1.5)
Total   $8.3
 $(1.2) $(6.7) $(10.2)

NOTE 9 – ASSETS HELD FOR SALE


Our India APIWe classify assets as "held for sale" when, among other factors, management approves and commits to a formal plan of sale with the expectation the sale will be completed within one year. The net assets of the business was classified as held-for-sale beginning asheld for sale are then recorded at the lower of December 31, 2015. We recorded an impairment charge totaling $6.3 million during the year ended December 31, 2016 after determining thetheir current carrying value ofand the India API business exceeded its fair market value, less the costcosts to sell. The India API business is reported in our Other segment. On April 6, 2017, we completed the sale of our India API business (refer to Note 2).


During the three months ended October 1, 2016, management committed to a plan to sell certain fixed assets associated with our animal health pet treats plant. Such assets were classified as held-for-sale beginning at October 1, 2016. On February 1, 2017, we completed the sale of our animal health pet treats plant fixed assets (refer to Note 2). We determined that the carrying value of the fixed assets associated with our animal health pet treats plant exceeded the fair value less the cost to sell. We recorded impairment charges totaling $3.7 million during the year ended December 31, 2016. The assets associated with our animal health pet treats plant are reported in our CHCA segment.

During the three months ended September 30, 2017,July 3, 2021, management committed to a plan to sell our Israel API business. The business wasLatin American businesses; as a result, such assets were classified as held-for-sale beginning at September 30, 2017. Weheld for sale. The assets associated with this business were reported within our CSCA segment. The sale is expected to close in the first half of 2022. At July 3, 2021, we determined that the carrying value of the Israel APInet assets held for sale of this business exceeded itstheir fair value less the cost to sell.sell, resulting in an impairment charge of $152.5 million. At October 2, 2021 we recorded an additional impairment charge of $2.6 million resulting in a total impairment charge of $155.1 million. We also recorded a goodwill impairment charge of $6.1 million within our CSCA segment, related to the Latin American businesses (refer to Note 4), resulting in a total impairment charge of $161.2 million.

The assets and liabilities held for sale related to the Latin American businesses were reported within Current assets held for sale and Current liabilities held for sale on the Condensed Consolidated Balance Sheets. Net of impairment charges, totaling $3.3the assets and liabilities of the Latin American businesses reported as held for sale as of October 2, 2021 totaled $13.4 million and $29.2 million, respectively.

20
Perrigo Company plc - Item 1
Note 10

NOTE 10 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES     

Foreign Currency Option Contracts

In September of 2021, to economically hedge the foreign currency exposure associated with the planned payment of the euro-denominated purchase price for HRA Pharma, we entered into 2 non-designated currency option contracts with a total notional amount of $1.1 billion that will mature in the third quarter of 2022. The company recorded a loss of $12.6 million for the change in fair value of the option contracts during the three months ended October 2, 2021 in Other (income) expense, net. Gains or losses on the derivatives due to changes in the EUR/USD exchange rate prior to the close of the acquisition will be economically offset at closing in the final settlement of the euro-denominated HRA Pharma purchase price. At the time of settlement, we are obligated to pay the deferred financing fee of $25.9 million.

Cross Currency Swaps

On August 15, 2019, we entered into a cross-currency swap designated as a net investment hedge to hedge the EUR currency exposure of our net investment in European operations. This agreement is a contract to exchange floating-rate Euro payments for floating-rate U.S. dollar payments through August 15, 2022. The payments are based on a notional basis of €450.0 million ($498.0 million) and settle quarterly.

Interest Rate Swaps

There were no active designated or non-designated interest rate swaps as of October 2, 2021 or December 31, 2020.

Foreign Currency Forwards

Net Investment Hedge

On June 19, 2020, we entered into a foreign currency forward contract designated as a net investment hedge of the GBP currency exposure of our net investment in certain of our U.K. operations. The hedge had a notional basis of £155.0 million ($194.5 million) and was settled during the three months ended September 30, 2017. The Israel API business is reported in our Other segment.

26, 2020.
21
Perrigo Company plc - Item 1
Note 910





Foreign currency forward contracts were as follows (in millions):
Notional Amount
October 2,
2021		December 31,
2020
European Euro (EUR)$1,277.7 $312.6 
British Pound (GBP)121.5 92.3 
Israeli Shekel (ILS)— 94.4 
Danish Krone (DKK)44.8 65.2 
Swedish Krona (SEK)41.9 41.2 
Chinese Yuan (CNY)36.2 49.1 
United States Dollar (USD)21.2 101.5 
Polish Zloty (PLZ)17.9 21.8 
Canadian Dollar (CAD)17.7 36.8 
Norwegian Krone (NOK)9.9 7.8 
Switzerland Franc (CHF)6.9 8.2 
Turkish Lira (TRY)4.7 4.0 
Australian Dollar (AUD)3.8 11.3 
Romanian New Leu (RON)3.7 3.6 
Mexican Peso (MPX)0.6 15.6 
Other2.2 2.3 
Total$1,610.7 $867.7 

The assets held-for-sale are reported within Prepaid expensesmaximum term of our forward currency exchange contracts is 60 months.

Effects of Derivatives on the Financial Statements

The below tables indicate the effects of all derivative instruments on the Condensed Consolidated Financial Statements. All amounts exclude income tax effects.

The balance sheet location and other currentgross fair value of our outstanding derivative instruments were as follows (in millions):
Asset Derivatives
Fair Value
Balance Sheet LocationOctober 2,
2021		December 31,
2020
Designated derivatives:
Foreign currency forward contractsPrepaid expenses and other current assets$5.0 $5.0 
Foreign currency forward contractsOther non-current assets0.4 0.5 
Cross-currency swapOther non-current assets— 6.3 
Total designated derivatives$5.4 $11.8 
Non-designated derivatives:
Foreign currency forward contractsPrepaid expenses and other current assets$0.4 $4.3 
Foreign currency optionsPrepaid expenses and other current assets13.3 — 
Total non-designated derivatives$13.7 $4.3 

22
Perrigo Company plc - Item 1
Note 10

Liability Derivatives
Fair Value
Balance Sheet LocationOctober 2,
2021		December 31,
2020
Designated derivatives:
Foreign currency forward contractsOther accrued liabilities$0.4 $5.5 
Cross-currency swapOther accrued liabilities24.1 — 
Total designated derivatives$24.5 $5.5 
Non-designated derivatives:
Foreign currency forward contractsOther accrued liabilities$1.4 $2.4 

The following tables summarize the effect of derivative instruments designated as hedging instruments in Accumulated Other Comprehensive Income ("AOCI") (in millions):

Three Months Ended
October 2, 2021
InstrumentAmount of Gain/(Loss) Recorded in OCIClassification of Gain/(Loss) Reclassified from AOCI into EarningsAmount of Gain/(Loss) Reclassified from AOCI into EarningsClassification of Gain/(Loss) Recognized into Earnings Related to Amounts Excluded from Effectiveness TestingAmount of Gain/(Loss) Recognized in Earnings on Derivatives Related to Amounts Excluded from Effectiveness Testing
Cash flow hedges:
Interest rate swap agreements$— Interest expense, net$(0.4)Interest expense, net$— 
Foreign currency forward contracts2.4 Net sales(0.4)Net sales— 
Cost of sales(0.5)Cost of sales— 
Other (income) expense, net0.2 
$2.4 $(1.3)$0.2 
Net investment hedges:
Cross-currency swap$(28.4)Interest expense, net$(0.9)

23
Perrigo Company plc - Item 1
Note 10

Nine Months Ended
October 2, 2021
Instrument
Amount of Gain/(Loss) Recorded in OCI(1)
Classification of Gain/(Loss) Reclassified from AOCI into EarningsAmount of Gain/(Loss) Reclassified from AOCI into EarningsClassification of Gain/(Loss) Recognized into Earnings Related to Amounts Excluded from Effectiveness TestingAmount of Gain/(Loss) Recognized in Earnings on Derivatives Related to Amounts Excluded from Effectiveness Testing
Cash flow hedges:
Treasury locks$— Interest expense, net$(0.1)Interest expense, net$— 
Interest rate swap agreements— Interest expense, net(1.3)Interest expense, net— 
Foreign currency forward contracts2.0 Net sales(2.3)Net sales— 
Cost of sales1.4 Cost of sales0.4 
Other (income) expense, net0.6 
$2.0 $(2.3)$1.0 
Net investment hedges:
Cross-currency swap$(30.5)Interest expense, net$(2.9)
(1) Net loss of $7.9 million is expected to be reclassified out of AOCI into earnings during the next 12 months.

Three Months Ended
September 26, 2020
InstrumentAmount of Gain/(Loss) Recorded in OCIClassification of Gain/(Loss) Reclassified from AOCI into EarningsAmount of Gain/(Loss) Reclassified from AOCI into EarningsClassification of Gain/(Loss) Recognized into Earnings Related to Amounts Excluded from Effectiveness TestingAmount of Gain/(Loss) Recognized in Earnings on Derivatives Related to Amounts Excluded from Effectiveness Testing
Cash flow hedges:
Interest rate swap agreements$— Interest expense, net$(0.4)Interest expense, net$— 
Foreign currency forward contracts(1.5)Net sales(0.1)Net sales— 
Cost of sales1.3 Cost of sales0.2 
$(1.5)$0.8 $0.2 
Net investment hedges:
Cross-currency swap$(0.3)Interest expense, net$0.9 
Foreign currency forward contract(11.7)Interest expense, net(0.1)
$(12.0)$0.8 
24
Perrigo Company plc - Item 1
Note 10

Nine Months Ended
September 26, 2020
InstrumentAmount of Gain/(Loss) Recorded in OCIClassification of Gain/(Loss) Reclassified from AOCI into EarningsAmount of Gain/(Loss) Reclassified from AOCI into EarningsClassification of Gain/(Loss) Recognized into Earnings Related to Amounts Excluded from Effectiveness TestingAmount of Gain/(Loss) Recognized in Earnings on Derivatives Related to Amounts Excluded from Effectiveness Testing
Cash flow hedges:
Treasury locks$— Interest expense, net$(0.1)Interest expense, net$— 
Interest rate swap agreements— Interest expense, net(1.3)Interest expense, net— 
Foreign currency forward contracts8.3 Net sales(0.1)Net sales0.1 
Cost of sales0.3 Cost of sales0.8 
$8.3 $(1.2)$0.9 
Net investment hedges:
Cross-currency swap$(18.6)Interest expense, net$5.6 
Foreign currency forward contract(11.2)Interest expense, net(0.1)
$(29.8)$5.5 

The amounts of (income)/expense recognized in earnings related to our non-designated derivatives on the Condensed Consolidated Statements of Operations were as follows (in millions):

Three Months EndedNine Months Ended
Non-Designated DerivativesIncome Statement
Location		October 2,
2021		September 26,
2020		October 2,
2021		September 26,
2020
Foreign currency forward contractsOther (income) expense, net$(0.1)$(0.3)$(6.1)$(1.3)
Interest expense, net0.2 0.9 1.2 2.8 
$0.1 $0.6 $(4.9)$1.5 
Foreign currency optionsOther (income) expense, net$12.6 $— $12.6 $— 

The classification and amount of gain/(loss) recognized in earnings on fair value and hedging relationships were as follows (in millions):

25
Perrigo Company plc - Item 1
Note 10

Three Months Ended
October 2, 2021
Net SalesCost of SalesInterest Expense, netOther (Income) Expense, net
Total amounts of income and expense line items presented on the Condensed Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded$1,042.7 $706.3 $30.9 $18.5 
The effects of cash flow hedging:
Gain (loss) on cash flow hedging relationships
Foreign currency forward contracts
Amount of gain or (loss) reclassified from AOCI into earnings$(0.4)$(0.5)$— $— 
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach$— $— $— $0.2 
Interest rate swap agreements
Amount of gain or (loss) reclassified from AOCI into earnings$— $— $(0.4)$— 

Nine Months Ended
October 2, 2021
Net SalesCost of SalesInterest Expense, netOther (Income) Expense, net
Total amounts of income and expense line items presented on the Condensed Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded$3,033.8 $1,980.0 $94.5 $20.4 
The effects of cash flow hedging:
Gain (loss) on cash flow hedging relationships
Foreign currency forward contracts
Amount of gain or (loss) reclassified from AOCI into earnings$(2.3)$1.4 $— $— 
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach$— $0.4 $— $0.6 
Treasury locks
Amount of gain or (loss) reclassified from AOCI into earnings$— $— $(0.1)$— 
Interest rate swap agreements
Amount of gain or (loss) reclassified from AOCI into earnings$— $— $(1.3)$— 

26
Perrigo Company plc - Item 1
Note 10

Three Months Ended
September 26, 2020
Net SalesCost of SalesInterest Expense, netOther (Income) Expense, net
Total amounts of income and expense line items presented on the Condensed Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded$1,003.0 $633.3 $33.3 $(1.0)
The effects of cash flow hedging:
Gain (loss) on cash flow hedging relationships
Foreign currency forward contracts
Amount of gain or (loss) reclassified from AOCI into earnings$(0.1)$1.3 $— $— 
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach$— $0.2 $— $— 
Interest rate swap agreements
Amount of gain or (loss) reclassified from AOCI into earnings$— $— $(0.4)$— 

Nine Months Ended
September 26, 2020
Net SalesCost of SalesInterest Expense, netOther (Income) Expense, net
Total amounts of income and expense line items presented on the Condensed Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded$3,035.0 $1,924.5 $94.3 $17.9 
The effects of cash flow hedging:
Gain (loss) on cash flow hedging relationships
Foreign currency forward contracts
Amount of gain or (loss) reclassified from AOCI into earnings$(0.1)$0.3 $— $— 
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach$0.1 $0.8 $— $— 
Treasury locks
Amount of gain or (loss) reclassified from AOCI into earnings$— $— $(0.1)$— 
Interest rate swap agreements
Amount of gain or (loss) reclassified from AOCI into earnings$— $— $(1.3)$— 

27
Perrigo Company plc - Item 1
Note 11


NOTE 11 – LEASES

The balance sheet locations of our lease assets and liabilities held-for-sale are reported in Accrued liabilities. The amounts consist of the followingwere as follows (in millions):
AssetsBalance Sheet LocationOctober 2,
2021		December 31,
2020
OperatingOperating lease assets$170.6 $154.7 
FinanceOther non-current assets29.5 29.8 
Total$200.1 $184.5 

LiabilitiesBalance Sheet LocationOctober 2,
2021		December 31,
2020
Current
OperatingOther accrued liabilities$27.2 $28.3 
FinanceCurrent indebtedness5.1 6.7 
Non-Current
OperatingOther non-current liabilities148.9 132.5 
FinanceLong-term debt, less current portion22.1 20.2 
Total$203.3 $187.7 
The below tables show our lease assets and liabilities by reporting segment (in millions):
Assets
OperatingFinancing
October 2,
2021		December 31,
2020		October 2,
2021		December 31,
2020
CSCA$100.8 $75.9 $15.7 $16.7 
CSCI30.4 34.4 8.3 5.9 
Unallocated39.4 44.4 5.5 7.2 
Total$170.6 $154.7 $29.5 $29.8 
Liabilities
OperatingFinancing
October 2,
2021		December 31,
2020		October 2,
2021		December 31,
2020
CSCA$101.3 $75.8 $16.4 $17.0 
CSCI31.4 35.2 5.2 2.5 
Unallocated43.4 49.8 5.6 7.4 
Total$176.1 $160.8 $27.2 $26.9 

Lease expense was as follows (in millions):
Three Months EndedNine Months Ended
October 2,
2021		September 26,
2020		October 2,
2021		September 26,
2020
Operating leases(1)
$10.0 $8.5 $29.9 $26.6 
Finance leases
Amortization$1.5 $1.1 $4.4 $3.2 
Interest0.2 0.2 0.6 0.6 
Total finance leases$1.7 $1.3 $5.0 $3.8 

28
Perrigo Company plc - Item 1
Note 11


 September 30,
2017		 December 31,
2016
 Other CHCA Other
Assets held for sale     
Current assets$44.0
 $—
 $5.1
Goodwill32.6
 —
 5.5
Intangible assets5.5
 —
 —
Property, plant and equipment45.9
 13.5
 33.2
Other assets3.1
 —
 3.8
Less: impairment reserves(3.3) (3.7) (35.3)
Total assets held for sale$127.8
 $9.8
 $12.3
Liabilities held for sale     
Current liabilities$7.6
 $0.1
 $1.9
Other liabilities25.1
 —
 1.9
Total liabilities held for sale$32.7
 $0.1
 $3.8
    (1) Includes short-term leases and variable lease costs, which are immaterial.

The annual future maturities of our leases as of October 2, 2021 are as follows (in millions):

Operating LeasesFinance LeasesTotal
2021$8.2 $1.5 $9.7 
202229.2 5.6 34.8 
202321.8 3.9 25.7 
202418.6 2.4 21.0 
202516.5 2.2 18.7 
After 2025109.0 15.8 124.8 
Total lease payments203.3 31.4 234.7 
Less: Interest27.2 4.2 31.4 
Present value of lease liabilities$176.1 $27.2 $203.3 

Our weighted average lease terms and discount rates are as follows:

October 2,
2021		September 26,
2020
Weighted-average remaining lease term (in years)
Operating leases11.396.26
Finance leases8.789.20
Weighted-average discount rate
Operating leases2.60 %3.64 %
Finance leases2.64 %3.20 %

Our lease cash flow classifications are as follows (in millions):
Nine Months Ended
October 2,
2021		September 26,
2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases$26.3 $25.4 
Operating cash flows for finance leases$0.6 $0.6 
Financing cash flows for finance leases$3.9 $2.9 
Leased assets obtained in exchange for new finance lease liabilities$4.5 $4.6 
Leased assets obtained in exchange for new operating lease liabilities$42.5 $24.5 

29
Perrigo Company plc - Item 1
Note 12

NOTE 1012 – INDEBTEDNESS


Total borrowings outstanding are summarized as follows (in millions):
October 2,
2021		December 31,
2020
Term loan
2019 Term loan due August 15, 2022$600.0 $600.0 
Notes and Bonds
CouponDue
5.105%
July 28, 2023(1)
$156.6 $164.9 
4.000%November 15, 2023215.6 215.6 
3.900%December 15, 2024700.0 700.0 
4.375%March 15, 2026700.0 700.0 
3.150%June 15, 2030750.0 750.0 
5.300%November 15, 204390.5 90.5 
4.900%December 15, 2044303.9 303.9 
Total notes and bonds2,916.6 2,924.9 
Other financing52.0 57.4 
Unamortized premium (discount), net(3.5)(0.3)
Deferred financing fees(14.8)(17.1)
Total borrowings outstanding3,550.3 3,564.9 
Current indebtedness(629.4)(37.3)
Total long-term debt less current portion$2,920.9 $3,527.6 
     September 30,
2017		 December 31,
2016
Term loans     
 2014 term loan due December 5, 2019
(1) 
 $428.3
 $420.7
Notes and Bonds     
 CouponDue     
 4.500%May 23, 2017
(1)(2) 
 —
 189.3
 5.125%December 12, 2017
(1)(2) 
 354.5
 315.6
 2.300%November 8, 2018
 —
 600.0
 5.000%May 23, 2019
(1)(2) 
 141.8
 126.2
 3.500%March 15, 2021
 280.4
 500.0
 3.500%December 15, 2021
 309.6
 500.0
 5.105%July 19, 2023
(1)(2) 
 159.5
 142.0
 4.000%November 15, 2023
 215.6
 800.0
 3.900%December 15, 2024
 700.0
 700.0
 4.375%March 15, 2026
 700.0
 700.0
 5.300%November 15, 2043
 90.5
 400.0
 4.900%December 15, 2044
 303.9
 400.0
 Total notes and bonds  3,255.8
 5,373.1
Other financing2.9
 3.6
Unamortized premium (discount), net24.8
 33.0
Deferred financing fees(19.0) (33.1)
Total borrowings outstanding3,692.8
 5,797.3
 Current indebtedness(417.1) (572.8)
Total long-term debt less current portion$3,275.7
 $5,224.5


(1)Debt denominated in Euros    (1) Debt denominated in euros subject to fluctuations in the euro-to-U.S. dollar exchange rate.
(2)Debt assumed from Omega.

Perrigo Company plc - Item 1
Note 10


During the three months ended April 1, 2017, we entered into amendments to the 2014 Revolver (as defined below) and the 2014 term loan to modify provisions of such agreements necessary as a result of the correction in accounting related to the Tysabri® financial asset, as well as waivers of any default or event of default that may have arisen from any restatement of or deficiencies in our financial statements for the periods specified in such amendments and waivers. We are in compliance with all covenants under our debt agreements as of September 30, 2017.

Revolving Credit Agreements


We haveOn March 8, 2018, we entered into a $1.0 billion revolving credit agreement with a borrowing capacity of $1.0 billionmaturing on March 8, 2023 (the "2014"2018 Revolver"). ThereThere were no borrowings outstanding under the 20142018 Revolver as of September October 2, 2021 or December 31, 2020.

Term Loan and Notes

In August 2019, we refinanced a prior term loan with the proceeds of a $600.0 million term loan, maturing on August 15, 2022 (the "2019 Term Loan"). We had $600.0 million outstanding under our 2019 Term Loan as of both October 2, 2021 and December 31, 2020.

Waiver and Amendment of Debt Covenants

We are subject to financial covenants in the 2018 Revolver and 2019 Term Loan, including a maximum leverage ratio covenant, which previously required us to maintain a ratio of Consolidated Net Indebtedness to Consolidated EBITDA (as such terms are defined in such credit agreements) of not more than 3.75 to 1.00 at the end of each fiscal quarter. During the nine months ended October 2, 2021, we received a waiver for non-compliance with such covenant as of July 3, 2021 from the lenders under both such credit facilities and entered into an amendment to each of the 2018 Revolver and 2019 Term Loan. Under such amendments, the maximum leverage ratio was increased to 5.75 to 1.00 for the third quarter of 2021, returning to 3.75 to 1.00 beginning with the fourth quarter of 2021. If we consummate certain qualifying acquisitions in the fourth quarter of 2021 or any subsequent quarter during the term of the loan, the maximum ratio would increase to 4.00 to 1.00 for such quarter. Due to the waiver and amendment described above, our leverage ratios at the end of the second and third quarters of 2021 do not prevent us from drawing under the 2018 Revolver. As of October 2, 2021, we are in compliance with all the covenants under our debt agreements.

30 2017
Perrigo Company plc - Item 1
Note 12

2020 Notes and 2021 Notes Redemption

On June 19, 2020, Perrigo Finance Unlimited Company, an indirect wholly-owned finance subsidiary of Perrigo ("Perrigo Finance"), issued $750.0 million in aggregate principal amount of 3.150% Senior Notes due 2030 (the “2020 Notes") and received net proceeds of $737.1 million after the underwriting discount and offering expenses. Interest on the 2020 Notes is payable semi-annually in arrears on June 15 and December 31, 201615 of each year, beginning on December 15, 2020. Due to a credit ratings downgrade by S&P Global Ratings and Moody’s in the third quarter of 2021, the interest on the 2020 Notes will step up from 3.150% to 3.900%, starting after the interest payment due on December 15, 2021. The 2020 Notes will mature on June 15, 2030 and are governed by a base indenture and a third supplemental indenture (collectively, the "2020 Indenture"). The 2020 Notes are fully and unconditionally guaranteed on a senior unsecured basis by Perrigo. Perrigo Finance may redeem the 2020 Notes in whole or in part at any time for cash at the make-whole redemption prices described in the 2020 Indenture. On July 6, 2020, a portion of the proceeds of the 2020 Notes were used to fund the redemption of $280.4 million of Perrigo Finance's 3.500% Senior Notes due March 15, 2021 and $309.6 million of 3.500% Senior Notes due December 15, 2021 (collectively, the "2021 Notes").


As a result of the early redemption of the 2021 notes, during the three months ended September 26, 2020, we recorded a loss of $20.0 million in Loss on extinguishment of debt on the Condensed Consolidated Statements of Operations, consisting of the premium on debt repayments, the write-off of deferred financing fees, and the write-off of the remaining bond discounts.

Other Financing


Overdraft Facilities

We have overdraft facilities available that we use to support our cash management operations. We report any balances outstanding in the above table under "Other financing". ThereThere were no balances outstandingborrowings outstanding under the facilities at September 30, 2017 andas of October 2, 2021 or December 31, 2016.

Debt Repayments and Related Extinguishment

During the nine months endedSeptember 30, 2017, we reduced our outstanding debt through a variety of transactions (in millions):
Date Series Transaction Type Principal Retired
April 1, 2017 2014 term loan due December 5, 2019 Scheduled quarterly payment $13.3
July 1, 2017 2014 term loan due December 5, 2019 Scheduled quarterly payment 14.3
September 30, 2017 2014 term loan due December 5, 2019 Scheduled quarterly payment 14.8
May 8, 2017 $600.0 2.300% senior notes due 2018 Early redemption 600.0
May 23, 2017 €180.0 4.500% retail bonds due 2017 Scheduled maturity 201.3
June 15, 2017 $500.0 3.500% senior notes due 2021 Tender offer 190.4
June 15, 2017 $500.0 3.500% senior notes due 2021 Tender offer 219.6
June 15, 2017 $800.0 4.000% senior notes due 2023 Tender offer 584.4
June 15, 2017 $400.0 5.300% senior notes due 2043 Tender offer 309.5
June 15, 2017 $400.0 4.900% senior notes due 2044 Tender offer 96.1
      $2,243.7

As a result of the of the early redemption and tender offer transactions discussed above, we recorded a loss of $135.2 million during the three months ended July 1, 2017 in Loss on extinguishment of debt (in millions):

Premium on debt repayment $116.1
Transaction costs 3.8
Write-off of deferred financing fees 10.6
Write-off of remaining discount on bond 4.7
Total loss on extinguishment of debt $135.2

Perrigo Company plc - Item 1
Note 11


NOTE 11 – EARNINGS PER SHARE AND SHAREHOLDERS' EQUITY

Earnings per Share

A reconciliation of the numerators and denominators used in the basic and diluted earnings per share ("EPS") calculation is as follows (in millions):
 Three Months Ended Nine Months Ended
 September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Numerator:       
Net income (loss)$44.5
 $(1,590.2) $46.4
 $(2,653.7)
        
Denominator:       
Weighted average shares outstanding for basic EPS141.3
 143.3
 142.5
 143.2
Dilutive effect of share-based awards*0.4
 —
 0.3
 —
Weighted average shares outstanding for diluted EPS141.7
 143.3
 142.8
 143.2
        
Anti-dilutive share-based awards excluded from
     computation of diluted EPS*
1.0
 —
 0.8
 —

* In the period of a net loss, diluted shares equal basic shares.

Shareholders' Equity

Shares

We issued shares related to the exercise and vesting of share-based compensation as follows:
Three Months Ended Nine Months Ended
September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
99,800
 185,000
 146,100
 283,000

Share Repurchases

On October 22, 2015, the Board of Directors approved a share repurchase plan of up to $2.0 billion (the "2015 Authorization"). During the three and nine months ended September 30, 2017, we repurchased 1.9 million and 2.7 million ordinary shares at an average repurchase price of $71.73 and $71.72 per share, for a total of $133.3 million and $191.5 million, respectively. As of September 30, 2017, there was $1.3 billion still available to be repurchased through December 31, 2018 under the 2015 Authorization. We did not repurchase any shares under the share repurchase plan during the nine months ended October 1, 2016.
Perrigo Company plc - Item 1
Note 12


NOTE 12 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in our AOCI balances, net of tax were as follows (in millions):
 Foreign currency translation adjustments Fair value of derivative financial instruments, net of tax Fair value of investment securities, net of tax Post-retirement and pension liability adjustments, net of tax Total AOCI
Balance at December 31, 2016$(67.9) $(19.5) $15.1
 $(9.5) $(81.8)
OCI before reclassifications289.9
 4.4
 (22.8) (1.2) 270.3
Amounts reclassified from AOCI—
 4.3
 (1.6) —
 2.7
Other comprehensive income (loss)289.9
 8.7
 (24.4) (1.2) 273.0
Balance at September 30, 2017$222.0
 $(10.8) $(9.3) $(10.7) $191.2
2020.
    
NOTE 13 – INCOME TAXES

The effective tax rates were as follows:
Three Months Ended Nine Months Ended
September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
65.5% 16.4% 68.7% 17.2%

The effective tax rate for the nine months ended September 30, 2017 was negatively impacted by non-deductible feesOn June 17, 2020, we incurred debt of $34.3 million related to our debt cancellation, discrete tax items,equity method investment in Kazmira pursuant to 2 Promissory Notes, with $3.7 million, $5.8 million and additional valuation allowances recorded against deferred tax assets.

Our tax rate is subject$24.8 million to adjustment overbe settled in November 2020, May 2021 and November 2021, respectively. On December 8, 2020, we repaid the $3.7 million balance due on the November 2020 portion of the fiscal yearPromissory Notes. On June 7, 2021, we repaid the $5.8 million balance due to, among other things:on the jurisdictions in which our profitsMay 2021 portion of the Promissory Notes.

We have financing leases that are determined to be earned and taxed; changesreported in the valuation of our deferred tax assets and liabilities; adjustmentsabove table under "Other financing" (refer to estimated taxes upon finalization of various tax returns; adjustments based on differing interpretations of the applicable 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 U.S. GAAP; and expiration of or the inability to renew tax rulings or tax holiday incentives.Note 11).

The total liability for uncertain tax positions was $454.9 million and $398.0 million as of September 30, 2017 and December 31, 2016, respectively, before considering the federal tax benefit of certain state and local items.

We 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 $79.0 million and $63.5 million as of September 30, 2017 and December 31, 2016, respectively.

We file income tax returns in numerous jurisdictions and are therefore subject to audits by tax authorities. Our primary income tax jurisdictions are Ireland, the United States, Israel, Belgium, France, and the United Kingdom.
On August 15, 2017, we filed a complaint in the United States District Court for the Western District of Michigan to recover $163.6 million of Federal income tax, penalties, and interest assessed and collected by the Internal Revenue Service (“IRS”), plus statutory interest thereon from the dates of payment, for the fiscal years ended June 27, 2009, June 26, 2010, June 25, 2011, and June 30, 2012 (the “2009 tax year,” “2010 tax year,” “2011 tax year,” and “2012 tax year,” respectively). The IRS audits of those years culminated in the issuances of two statutory notices of deficiency: (1) on August 27, 2014 for the 2009 and 2010 tax years and (2) on April 20, 2017 for the 2011 and 2012 tax years. The statutory notices of deficiency both included un-agreed income adjustments related principally to transfer pricing adjustments regarding the purchase, distribution, and sale of store-brand OTC pharmaceutical products in the United States. In addition, the statutory notice of deficiency for the 2011 and 2012 tax years included the capitalization of certain expenses that were deducted when paid or incurred in defending
31
Perrigo Company plc - Item 1
Note 13



against certain patent infringement lawsuits. We fully paid the assessed amounts of tax, interest, and penalties set forth in the statutory notices and filed timely claims for refund on June 11, 2015 and June 7, 2017 for the 2009-2010 tax years and 2011-2012 tax years, respectively. Our claims for refund were disallowed by certified letters dated August 18, 2015 and July 11, 2017, for the 2009-2010 tax years and 2011-2012 tax years, respectively. The complaint was timely, based upon the refund claim denials, and seeks refunds of tax, interest, and penalties of $37.2 million for the 2009 tax year, $61.5 million for the 2010 tax year, $40.2 million for the 2011 tax year, and $24.7 million for the 2012 tax year. The amounts sought in the complaint for the 2009 and 2010 tax years were recorded as deferred charges on our balance sheet during the three months ended March 28, 2015, and the amounts sought in the complaint for the 2011 and 2012 tax years were recorded as deferred charges on our balance sheet during the three months ended July 1, 2017.

On December 22, 2016, we received a notice of proposed adjustment for the IRS audit of Athena Neurosciences, Inc. (“Athena”), a subsidiary of Elan acquired in 1996, for the years ended December 31, 2011, December 31, 2012, and December 31, 2013. Perrigo acquired Elan in December 2013. This proposed adjustment relates to the deductibility of litigation costs. We disagree with the IRS’s position asserted in the notice of proposed adjustment and intend to contest it.

On July 11, 2017, we received a draft notice of proposed adjustment associated with transfer pricing positions for the IRS audit of Athena for the years ended December 31, 2011, December 31, 2012, and December 31, 2013.  Athena was the originator of the patents associated with Tysabri® prior to the acquisition of Athena by Elan in 1996. The amount of adjustments that may be asserted by the IRS in the final notice of proposed adjustment cannot be quantified at this time; however, based on the draft notice received, the amount to be assessed may be material. We disagree with the IRS’s position as asserted in the draft notice of proposed adjustment and intend to contest it.

We have ongoing audits in multiple other jurisdictions the resolution of which remains uncertain. These jurisdictions include, but are not limited to, the United States, Israel and France. In addition to the matters discussed above, the IRS is currently auditing our fiscal years ended June 29, 2013, June 28, 2014, and June 27, 2015. The Israel Tax Authority is currently auditing our fiscal years ended June 29, 2013 and June 28, 2014. The French Tax Authority is currently auditing the years ended December 2014, December 2015, and December 2016.
NOTE 14 – COMMITMENTS AND CONTINGENCIES

In view of the inherent difficulties of predicting the outcome of various types of legal proceedings, we cannot determine the ultimate resolution of the matters described below. We establish reserves for litigation and regulatory matters when losses associated with the claims become probable and the amounts can be reasonably estimated. The actual costs of resolving legal matters may be substantially higher or lower than the amounts reserved for those matters. For matters where the likelihood or extent of a loss is not probable or cannot be reasonably estimated as of September 30, 2017, we have not recorded a loss reserve. If certain of these matters are determined against us, there could be a material adverse effect on our financial condition, results of operations, or cash flows. We currently believe we have valid defenses to the claims in these lawsuits and intend to defend these lawsuits vigorously regardless of whether or not we have a loss reserve. Other than what is disclosed below, we do not expect the outcome of the litigation matters to which we are currently subject individually or in the aggregate, to have a material adverse effect on our financial condition, results of operations, or cash flows. 

Antitrust Violations
We have been named as a counterclaim co-defendant in the lawsuit Fera Pharmaceuticals, LLC v. Akorn, Inc., et al., in which Akorn, Inc. (“Akorn”) alleges tortious interference and antitrust violations against us and Fera Pharmaceuticals, LLC (“Fera”). This litigation arises from our acquisition of bacitracin ophthalmic ointment from Fera in 2013. Akorn asserts claims under Sections 1 and 2 of the Sherman Antitrust Act alleging that we and Fera conspired to monopolize, attempted to monopolize, and did unlawfully monopolize the market for sterile bacitracin ophthalmic ointment in the United States through the use of an exclusive agreement with a supplier of sterile bacitracin active pharmaceutical ingredient. The lawsuit is currently pending in the Southern District of New York. Trial was rescheduled from January 2018 to February 2018. Akorn seeks damages, injunctive relief, and attorney’s fees. Any award of antitrust damages would be subject to trebling under antitrust laws. An estimate of any possible loss cannot be determined at this time.
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We believe the claims are without merit and intend to defend them vigorously. We have preserved our indemnification rights against Fera for potential liability, defense costs, and expenses incurred as a result of this litigation.

Price-Fixing Lawsuits

We have been named as a co-defendant with other manufacturers in a number of cases alleging that we and other manufacturers of the same product engaged in anti-competitive behavior to fix or raise the prices of certain drugs starting, in some instances, as early as June 2013. The products in question are Clobetasol, Desonide, and Econazole. These complaints, along with complaints filed against other companies alleging price fixing with respect to 15 other drugs, have been consolidated for pretrial proceedings as part of a case captioned In re Generic Pharmaceuticals Pricing Antitrust Litigation, MDL No. 2724. Pursuant to the court’s schedule staging various cases in phases, we have moved to dismiss the complaints relating to Clobetasol and Econazole. At this stage, we cannot reasonably predict the outcome of the liability, if any, associated with these claims.

Securities Litigation
In the United States

On May 18, 2016, a shareholder filed a securities case against us and our former CEO, Joseph Papa, in the U.S. District Court for the District of New Jersey (Roofers’ Pension Fund v. Papa, et al.). The plaintiff purported to represent a class of shareholders for the period from April 21, 2015 through May 11, 2016, inclusive. The original complaint alleged violations of Securities Exchange Act sections 10(b) (and Rule 10b‑5) and 14(e) against both defendants and 20(a) control person liability against Mr. Papa. In general, the allegations concerned the actions taken by us and the former executive to defend against the unsolicited takeover bid by Mylan in the period from April 21, 2015 through November 13, 2015. The plaintiff also alleged that the defendants provided inadequate disclosure concerning alleged integration problems related to the Omega acquisition in the period from April 21, 2015 through May 11, 2016. On July 19, 2016, a different shareholder filed a securities class action against us and our former CEO, Joseph Papa, also in the District of New Jersey (Wilson v. Papa, et al.). The plaintiff purported to represent a class of persons who sold put options on our shares between April 21, 2015 and May 11, 2016. In general, the allegations and the claims were the same as those made in the original complaint filed in the Roofers' Pension Fund case described above. On December 8, 2016, the court consolidated Roofers' Pension Fund case and the Wilson case under the Roofers' Pension Fund case number. In February 2017, the court selected the lead plaintiffs for the consolidated case and the lead counsel to the putative class. In March 2017, the court entered a scheduling order.

On June 21, 2017, the court-appointed lead plaintiffs filed an amended complaint that superseded the original complaints in the Roofers’ Pension Fund case and the Wilson case. The lead plaintiffs seek to represent a class of shareholders for the period April 21, 2015 through May 3, 2017, and identifies three subclasses - shareholders who traded during the entire period on the U.S. exchanges; shareholders who traded during the entire period on the Tel Aviv exchange; and shareholders who traded during the period while the Mylan tender offer was pending (April 21, 2015 through November 13, 2015). The amended complaint names as defendants us and 11 current or former directors and officers of Perrigo (Mses. Judy Brown, Laurie Brlas, Jacqualyn Fouse, Ellen Hoffing, and Messrs. Joe Papa, Marc Coucke, Gary Cohen, Michael Jandernoa, Gerald Kunkle, Herman Morris, and Donal O’Connor). The amended complaint alleges violations of Securities Exchange Act sections 10(b) (and Rule 10b‑5) and 14(e) against all defendants and 20(a) control person liability against the 11 individuals. In general, the allegations concern the actions taken by us and the former executives to defend against the unsolicited takeover bid by Mylan in the period from April 21, 2015 through November 13, 2015 and the allegedly inadequate disclosure throughout the entire class period related to purported integration problems related to the Omega acquisition, alleges incorrect reporting of organic growth at the Company, alleges price fixing activities with respect to six generic prescription pharmaceuticals, and alleges improper accounting for the Tysabri® royalty stream. The amended complaint does not include an estimate of damages. In August 2017, the defendants filed motions to dismiss the amended complaint. The plaintiffs filed their opposition in October 2017. The defendants filed replies in support of the motions to dismiss in November 2017. The court has not indicated whether there will be oral argument of the motions or whether the court will decide the motions on the papers. We intend to defend the lawsuit vigorously.
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On November 1, 2017, Carmignac Gestion, S.A., filed a securities lawsuit against us and three individuals (former Chairman and CEO Joseph Papa, former CFO Judy Brown, and former Executive Vice President and Board member Marc Coucke). This lawsuit is not a securities class action. The case is styled Carmignac Gestion, S.A. v. Perrigo Company plc, et al., and was filed in the U.S. District Court for the District of New Jersey. The complaint asserts claims under Securities Exchange Act sections 10(b) (and Rule 10b-5), 14(e), and 18 against all defendants as well as 20(a) control person liability against the individual defendants. In general, the plaintiff’s allegations focus on events during the period from April 2015 through April 2016. Plaintiff contends that the defendants provided inadequate disclosure throughout the period concerning the valuation and integration of Omega, the financial guidance provided by us during that period, our reporting about the generic prescription pharmaceutical business and its prospects, and the activities surrounding the efforts to defeat the Mylan tender offer during 2015. Many of the allegations in this newly-filed case overlap with the allegations of the June 2017 amended complaint in the Roofers’ Pension Fund case described above. The plaintiff does not provide an estimate of damages. We intend to defend the lawsuit vigorously. 

In Israel

Because our shares are traded on the Tel Aviv exchange under a dual trading arrangement, we are subject to securities litigation in Israel. Three cases are currently pending. We are consulting Israeli counsel about our response to these allegations and we intend to defend these cases vigorously.

On May 22, 2016, shareholders filed a securities class action against us and five individual defendants: Our former CEO Mr. Papa, our former Executive Vice President and General Manager of the BCH segment Marc Coucke, our Chief Executive Officer John Hendrickson, our former Board member Gary Kunkle, Jr., and our Board member Laurie Brlas alleging violations of Israeli law in the District Court of Tel Aviv-Jaffa (Schweiger et al. v. Perrigo Company plc, et al.). On June 15, 2016, we filed a motion to stay the case pending the outcome of the securities class action pending in the New Jersey Federal Court. The plaintiffs did not oppose the motion. The Israeli court granted the motion on the same day, and the Schweiger action is stayed. We intend to defend the lawsuit vigorously when and if the stay is lifted. In October 2017, the Schweiger plaintiffs dismissed their claims without prejudice because of the pendency of another class action case filed in Israel (see discussion below of the Israel Elec. Corp. Employees’ Educ. Fund case). The court approved the voluntary dismissal. 

On March 29, 2017, plaintiff Eyal Keinan commenced an action in the District Court of Tel Aviv-Jaffa asserting securities claims against two defendants: Perrigo and its auditor Ernst & Young LLP ("EY"). The case is styled Keinan v. Perrigo Company plc, et al. The action seeks certification of a class of purchasers of Perrigo shares on the Israeli exchange beginning February 6, 2014. The proposed closing date for the class is not clear from the complaint though it appears to extend into 2017. In general, the plaintiff asserts that we improperly accounted for our stream of royalty income from two drugs: Tysabri® and Prialt. The court filings contend that the alleged improper accounting caused the audited financial results for Perrigo to be incorrect for the six month period ended December 31, 2015, and the years ended June 27, 2015 and June 28, 2014 and the other financial data released by us over those years and 2016 to also be inaccurate. The plaintiff maintains that the defendants are liable under Israeli securities law or, in the alternative, under U.S. securities law. The plaintiff indicates an initial, preliminary class damages estimate of 686.0 million NIS (approximately $192.0 million at 1 NIS = $0.28 cent). The response from the defendants is not yet due. We intend to defend the lawsuit vigorously.

On June 28, 2017, a plaintiff filed a complaint in Tel Aviv District Court styled Israel Elec. Corp. Employees’ Educ. Fund v. Perrigo Company plc, et al. The lead plaintiff seeks to represent a class of shareholders who traded in Perrigo stock on the Tel Aviv exchange during the period April 24, 2015 through May 3, 2017. The amended complaint names as defendants the Company, EY (the Company’s auditor), and 11 current or former directors and officers of Perrigo (Mses. Judy Brown, Laurie Brlas, Jacqualyn Fouse, Ellen Hoffing, and Messrs. Joe Papa, Marc Coucke, Gary Cohen, Michael Jandernoa, Gerald Kunkle, Herman Morris, and Donal O’Connor). The complaint alleges violations under U.S. securities laws of Securities Exchange Act sections 10(b) (and Rule 10b‑5) and 14(e) against all defendants and 20(a) control person liability against the 11 individuals or, in the alternative, under Israeli securities laws. In general, the allegations concern the actions taken by us and our former executives to defend against the unsolicited takeover bid by Mylan in the period from April 21, 2015 through November 13, 2015 and the allegedly inadequate disclosure concerning purported integration problems related to the Omega acquisition, alleges incorrect reporting of organic growth at the Company, alleges price fixing activities with respect to six
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generic prescription pharmaceuticals, and alleges improper accounting for the Tysabri® royalty stream. The plaintiff indicates an initial, preliminary class damages estimate of 2.7 billion NIS (approximately $760.0 million at 1 NIS = $0.28 cent). We intend to defend the lawsuit vigorously.

On July 12, 2017, the plaintiff in the Israel Elec. Corp. Employees’ Educ. Fund v. Perrigo Company plc, et al. case filed a motion to have all three cases pending in Israel either consolidated or the other two cases dismissed so that the Israel Elec. Corp. Educ. Fund plaintiff can proceed as the sole plaintiff. That motion is pending. In October 2017, the Schweiger plaintiffs (see description above) voluntarily dismissed their securities class action without prejudice as part of their response to the motion filed by the Israel Elec. Corp. Educ. Fund plaintiff. A variety of other procedural motions are also pending at this time having to do with the timing of any response by defendants. The court has scheduled an initial conference on November 9, 2017 to address the motion filed by the Israel Elec. Corp. Educ. Fund plaintiff. The court has indicated that other procedural motions will be addressed after it has decided the Israel Elec. Corp. Educ. Fund plaintiff’s motion.

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 our subsidiary, Perrigo Israel Agencies Ltd. The respondents included our subsidiaries, Perrigo Israel Pharmaceuticals Ltd. and/or Perrigo Israel Agencies Ltd., the manufacturers of the product, and various healthcare providers who provide healthcare services as part of the compulsory healthcare system in Israel.

One of the applications was dismissed and the remaining eight applications were consolidated into one application. The applications arose from the 2011 launch of a reformulated version of Eltroxin in Israel. The consolidated application generally alleges 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.

Several hearings on whether or not to certify the consolidated application took place in December 2013 and January 2014. 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, we 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. We have filed our statement of defense to the underlying proceedings. The parties are currently engaged in mediation in an attempt to settle the matter. The underlying proceedings have been stayed pending the outcome of the mediation process and, if necessary, a decision on the motion to appeal.

Tysabri® Product Liability Lawsuits

We and our collaborator Biogen are co-defendants in product liability lawsuits arising out of the occurrence of Progressive Multifocal Leukoencephalopathy, a serious brain infection, and serious adverse events, including deaths, which occurred in patients taking Tysabri®. Each co-defendant would be responsible for 50% of losses and expenses arising out of any Tysabri® product liability claims. During calendar year 2016, one case in the U.S. was settled and two others were dismissed with prejudice. In 2017, seven other cases were dismissed with prejudice. While we intend to vigorously defend the remaining lawsuits, management cannot predict how these cases will be resolved. Adverse results in one or more of these lawsuits could result in substantial judgments against us.

Claim Arising from the Omega Acquisition

On December 16, 2016, we and Perrigo Ireland 2 brought an arbitral claim ("Claim") against Alychlo NV ("Alychlo") and Holdco I BE NV ("Holdco") (together the Sellers) in accordance with clause 26.2 of the Share Purchase Agreement dated November 6, 2014 ("SPA") and the rules of the Belgian Centre for Arbitration and
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Mediation ("CEPANI"). Our Claim relates to the accuracy and completeness of information about Omega provided by the Sellers as part of the sale process, the withholding of information by the Sellers during that process and breaches of Sellers’ warranties. We are seeking monetary damages from the Sellers. The Sellers served their respective responses to the Claim on February 20, 2017. In its response, Alychlo has asserted a counterclaim for monetary damages contending that we breached the duty of good faith in performing the SPA. There can be no assurance that our Claim will be successful, and Sellers deny liability for the Claim. We deny that Alychlo is entitled to any relief (including monetary relief) under the counterclaim. The arbitration proceedings are confidential as required by the SPA and the rules of the CEPANI.

NOTE 13 – EARNINGS PER SHARE AND SHAREHOLDERS' EQUITY

Earnings per Share

A reconciliation of the numerators and denominators used in the basic and diluted earnings per share ("EPS") calculation is as follows (in millions):
 Three Months EndedNine Months Ended
 October 2,
2021		September 26,
2020		October 2,
2021		September 26,
2020
Numerator:
Income (loss) from continuing operations$(53.9)$26.4 $(163.0)$96.4 
Income (loss) from discontinued operations, net of tax(5.0)(181.0)84.5 (84.0)
Net income (loss)$(58.9)$(154.6)$(78.5)$12.4 
Denominator:
Weighted average shares outstanding for basic EPS133.8 136.5 133.5 136.3 
Dilutive effect of share-based awards*— 1.1 — 1.2 
Weighted average shares outstanding for diluted EPS133.8 137.6 133.5 137.5 
Anti-dilutive share-based awards excluded from computation of diluted EPS*— 1.5 — 1.5 
* In the period of a net loss, diluted shares equal basic shares.

Shareholders' Equity

Share Repurchases

In October 2018, our Board of Directors authorized up to $1.0 billion of share repurchases with no expiration date, subject to the Board of Directors’ approval of the pricing parameters and amount that may be repurchased under each specific share repurchase program (the "2018 Authorization"). We did not repurchase any shares during the three and nine months ended October 2, 2021 or September 26, 2020.

NOTE 14 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in our AOCI balances, net of tax were as follows (in millions):
Fair Value of Derivative Financial Instruments, net of taxForeign Currency Translation AdjustmentsPost-Retirement and Pension Liability Adjustments, net of taxTotal AOCI
Balance at December 31, 2020$(0.7)$407.3 $(11.6)$395.0 
OCI before reclassifications(33.4)(147.5)(2.2)(183.1)
Amounts reclassified from AOCI(1)
2.3 (160.0)— (157.7)
Other comprehensive income (loss)$(31.1)$(307.5)$(2.2)$(340.8)
Balance at October 2, 2021$(31.8)$99.8 $(13.8)$54.2 
(1) Refer to Note 8, sale of RX business for information regarding amounts reclassified from AOCI related to foreign currency translation adjustments.
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NOTE 15 – INCOME TAXES

The effective tax rates were as follows:
Three Months EndedNine Months Ended
October 2,
2021		September 26,
2020		October 2,
2021		September 26,
2020
113.9 %45.5 %165.5 %20.5 %

The effective tax rate for the three and nine months ended October 2, 2021 increased compared to the effective tax rate for the three and nine months ended September 26, 2020 primarily due to tax expense recorded in 2021 for settlement of the Irish Notice of Amended Assessment and intra-entity transfers of intellectual property, plus tax benefits recorded in the 2020 periods for reductions to the U.S. valuation allowance and the U.S. Coronavirus Aid, Relief and Economic Security ("CARES") Act, enacted in the first quarter of 2020.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes." It removes certain exceptions to the general principles in ASC Topic 740 and improves consistent application of and simplifies GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. This guidance was effective for interim and annual reporting periods beginning after December 15, 2020. We adopted this guidance as of January 1, 2021, and the impact on our Consolidated Financial Statements was immaterial.

Internal Revenue Service Audits of Perrigo Company, a U.S. Subsidiary

Perrigo Company, our U.S. subsidiary ("Perrigo U.S."), is engaged in a series of tax disputes in the U.S. relating primarily to transfer pricing adjustments including income in connection with the purchase, distribution, and sale of store-brand OTC pharmaceutical products in the United States, including the heartburn medication omeprazole. On August 27, 2014, we received a statutory notice of deficiency from the IRS relating to our fiscal tax years ended June 27, 2009, and June 26, 2010 (the “2009 tax year” and “2010 tax year”, respectively). On April 20, 2017, we received a second statutory notice of deficiency from the IRS for the fiscal tax years ended June 25, 2011 and June 30, 2012 (the “2011 tax year” and “2012 tax year”, respectively). Specifically, both statutory notices proposed adjustments related to the offshore reporting of profits on sales of omeprazole in the United States resulting from the assignment of an omeprazole distribution contract to an affiliate. In addition to the transfer pricing adjustments, which applied to all 4 tax years, the statutory notice of deficiency for the 2011 and 2012 tax years included adjustments for the capitalization and amortization of certain expenses that were deducted when paid or incurred in defending against certain patent infringement lawsuits related to ANDAs.

We do not agree with the audit adjustments proposed by the IRS in either of the notices of deficiency. We paid the assessed amounts of tax, interest, and penalties set forth in the statutory notices and timely filed claims for refund on June 11, 2015 for the 2009 and 2010 tax years, and on June 7, 2017, for the 2011 and 2012 tax years. On August 15, 2017, following disallowance of such refund claims, we timely filed a complaint in the United States District Court for the Western District of Michigan seeking refunds of tax, interest, and penalties of $27.5 million for the 2009 tax year, $41.8 million for the 2010 tax year, $40.1 million for the 2011 tax year, and $24.7 million for the 2012 tax year, for a total of $134.1 million, plus statutory interest thereon from the dates of payment. The amounts sought in the complaint for the 2009 and 2010 tax years were recorded as deferred charges in Other non-current assets on our balance sheet during the three months ended March 28, 2015, and the amounts sought in the complaint for the 2011 and 2012 tax years were recorded as deferred charges in Other non-current assets on our balance sheet during the three months ended July 1, 2017.

The previously rescheduled trial was held during the period May 25, 2021 to June 7, 2021 for the refund case in the United States District Court for the Western District of Michigan. The total amount of cumulative deferred charge that we are seeking to receive in this litigation is approximately $111.6 million, which reflects the impact of conceding that Perrigo U.S. should have received a 5.24% royalty on all omeprazole sales. That concession was previously paid and is the subject of the above refund claims. The issues outlined in the statutory notices of deficiency described above are continuing, and the IRS will likely carry forward the adjustments set forth therein as long as the drug is sold, in the case of the omeprazole issue, and for all post-2012 Paragraph IV filings that trigger patent infringement suits, in the case of the ANDA issue. On April 30, 2021, we filed a Notice of New Authority in our
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refund case in the Western District of Michigan alerting the court to a Tax Court decision in Mylan v. Comm'r that ruled in favor of the taxpayer on the identical ANDA issues we have before the court. Post-trial briefings were completed on September 24, 2021 and the case is now fully submitted for the court's decision.

On January 13, 2021, the IRS issued a 30-day letter with respect to its audit of our fiscal tax years ended June 29, 2013 (the "2013 tax year"), June 28, 2014 (the "2014 tax year"), and June 27, 2015 (the "2015 tax year" and together with the 2013 tax year and the 2014 tax year, the "2013-2015 tax years"). The IRS letter proposed, among other modifications, carryforwards of the transfer pricing adjustments regarding our profits from the distribution of omeprazole in the aggregate amount of $141.6 million and ANDA adjustments in the aggregate amount of $21.9 million. The 30-day letter also set forth adjustments described in the next two paragraphs. We timely filed a protest to the 30-day letter for those additional adjustments, but noting that due to the pending litigation described above, IRS Appeals will not consider the merits of the omeprazole or ANDA matters. We believe that we should prevail on the merits on both carryforward issues and have reserved for taxes and interest payable on the 5.24% deemed royalty on omeprazole through the tax year ended December 31, 2018. Beginning with the tax year ended December 31, 2019, we began reporting income commensurate with the 5.24% deemed royalty. We have not reserved for the ANDA-related issue described above. While we believe we should prevail on the merits of this case, the outcome remains uncertain. If our litigation position on the omeprazole issue is not sustained, the outcome for the 2009–2012 tax years could range from a reduction in the refund amount to denial of any refund. In addition, we expect that the outcome of the refund litigation could effectively bind future tax years. In that event, an adverse ruling on the omeprazole issue could have a material impact on subsequent periods, with additional tax liability in the range of $24.0 million to $112.0 million, not including interest and any applicable penalties.

The 30-day letter for the 2013-2015 tax years also proposed to reduce Perrigo U.S.'s deductible interest expense for the 2014 tax year and the 2015 tax year on $7.5 billion in debts owed by it to Perrigo Company plc. The debts were incurred in connection with the Elan merger transaction in 2013. On May 7, 2020, the IRS issued a NOPA capping the interest rate on the debts for U.S. federal tax purposes at 130.0% of the Applicable Federal Rate ("AFR") (a blended rate reduction of 4.0% per annum), on the stated ground that the loans were not negotiated on an arms’-length basis. The NOPA proposes a reduction in gross interest expense of approximately $414.7 million for tax years 2014 and 2015. On January 13, 2021, we received a Revenue Agent Report ("RAR"), together with the 30-day letter, requiring our filing of a written Protest to request IRS Appeals consideration. The Protest was timely filed with the IRS on February 26, 2021. On May 3, 2021, the IRS notified us that it will no longer pursue the 130% of AFR position reflected in its NOPA due to a change in IRS policy. The IRS will provide a new proposed adjustment in its rebuttal to our Protest, which we have not yet received. Because the IRS' revised adjustment is currently unknown and cannot be quantified, we are unable to determine the amount of gross interest expense that the IRS proposes to disallow, and we cannot estimate any increase in tax expense attributable to any such disallowance for the period under audit. In addition, we expect the IRS to seek similar revised adjustments for the tax years ended December 31, 2015 through December 31, 2018 with potential section 163(j) carryover impacts beyond December 2018. We cannot determine the amount, if any, of the estimated increase in tax expense attributable to any such adjustments. No further interest adjustments are expected beyond this period. We strongly disagree with the IRS position and we will pursue all available administrative and judicial remedies necessary. At this stage, we are unable to estimate any additional liability associated with this matter.

In addition, the 30-day letter for the 2013-2015 tax years expanded on a NOPA issued on December 11, 2019 and proposed to disallow adjustments to gross sales income on the sale of prescription products to wholesalers for accrued wholesale customer pipeline chargebacks where the prescription products were not re-sold by such wholesalers to covered retailers by the end of the tax year for the 2013-2015 tax years. The IRS' NOPA asserts that the reduction of gross sales income of such chargebacks is an impermissible method of accounting. The IRS proposed a change in accounting method that would defer the reduction in gross sales income until the year the prescription products were re-sold to covered retailers. The NOPA proposes an increase in sales revenue of approximately $99.5 million for the 2013-2015 tax years. We filed a protest on February 26, 2021 to request IRS Appeals consideration. If the IRS were to prevail in its proposed adjustment, we estimate a payment of approximately $18.0 million, excluding interest and penalties for the 2013-2015 tax years. In addition, we expect the IRS to seek similar adjustments for future years. If those future adjustments were to be sustained, based on preliminary calculations and subject to further analysis, our current best estimate is a payment that will not exceed $7.0 million through tax year ended December 31, 2020, excluding interest and penalties. We have fully reserved for this issue. We strongly disagree with the IRS’s proposed adjustment and will pursue all available administrative and judicial remedies necessary.
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Internal Revenue Service Audit of Athena Neurosciences, Inc., a U.S. Subsidiary    

On April 26, 2019, we received a revised NOPA from the IRS regarding transfer pricing positions related to the IRS audit of Athena Neurosciences, Inc. ("Athena") for the years ended December 31, 2011, December 31, 2012, and December 31, 2013. The NOPA carries forward the IRS's theory from its 2017 draft NOPA that when Elan took over the future funding of Athena's in-process research and development after acquiring Athena in 1996, Elan should have paid a substantially higher royalty rate for the right to exploit Athena’s intellectual property, rather than rates based on transfer pricing documentation prepared by Elan's external tax advisors. The NOPA proposes a payment of $843.0 million, which represents additional tax and a 40.0% penalty. This amount excludes consideration of offsetting tax attributes and any potential interest that may be imposed. We strongly disagree with the IRS position. On December 22, 2016, we also received a NOPA for these years denying the deductibility of settlement costs related to illegal marketing of Zonegran in the United States raised in a Qui Tam action. We strongly disagree with the IRS' position on this issue as well. Because we believe that any concession on these issues in Appeals would be contrary to our evaluation of the issues, we pursued our remedies under the U.S. - Ireland Income Tax Treaty to alleviate double taxation. On April 14, 2020, we filed a request for Competent Authority Assistance with the IRS on the royalty issue, and it was accepted. On October 20, 2020, we amended our request for Competent Authority Assistance to include the Zonegran issue and this amendment was also accepted. On May 6, 2021, we had our opening conference with the IRS and discussed our submission, which continues to be reviewed by the IRS. Our opening conference with Irish Revenue was held on July 23, 2021 and we discussed our submission, which continues to be reviewed by Irish Revenue.

No payment of the additional amounts is required until these two matters are resolved with finality under the treaty, or any additional administrative or judicial process if treaty negotiations are unsuccessful.
Irish Revenue Audit of Fiscal Years Ended December 31, 2012 and December 31, 2013

On October 30, 2018, we received an audit findings letter from the Irish Office of the Revenue Commissioners (“Irish Revenue���) for the tax years ended December 31, 2012 and December 31, 2013. The audit findings letter related to the tax treatment of the 2013 sale of the Tysabri® intellectual property and related assets to Biogen Idec by Elan Pharma. The consideration paid by Biogen Idec to Elan Pharma took the form of an upfront payment and future contingent royalty payments. Elan Pharma recognized such receipts as trading income in its tax returns filed with Irish Revenue, consistent with Elan Pharma's historical practice relating to its active management of intellectual property rights.

In its audit findings letter, Irish Revenue proposed to charge Elan Pharma tax on the net chargeable gain realized by Elan Pharma on the Tysabri® transaction in 2013 at a rate of 33%, rather than the 12.5% tax rate applied to trading income. On November 29, 2018,Irish Revenue issued a Notice of Amended Assessment (“NoA”) for the tax year ended December 31, 2013, in the amount of €1,643 million, and claiming tax payable in the amount of €1,636 million, not including any interest or applicable penalties.

Accordingly, we filed an appeal of the NoA on December 27, 2018 with the Irish Tax Appeals Commission ("TAC") which is the statutory body charged with considering whether the NoA was properly founded as a matter of Irish tax law. Separately, we were also granted leave by the Irish High Court on February 25, 2019 to seek judicial review of the issuance of the NoA by Irish Revenue.

On November 4, 2020, the High Court ruled that the Irish Revenue's decision to issue the NoA did not violate Elan Pharma's constitutional rights and legitimate expectations as a taxpayer. The Irish High Court did not rule on the merits of the NoA under Irish tax law.

We strongly believe that Elan Pharma’s tax position was correct and ultimately would have been confirmed through judicial process. However, in light of the risks and delays inherent in any litigation, on April 26, 2021, Perrigo, through its tax adviser, made a without prejudice written offer of settlement to Irish Revenue detailing a possible framework to resolve the dispute, which applied an alternative basis of taxation than the respective positions taken by Irish Revenue in the NoA and by Elan Pharma in its tax returns. On May 31, 2021, Irish Revenue issued a formal response to Perrigo's tax adviser indicating that the written settlement offer would not be accepted as presented. However, Irish Revenue did indicate that they would remain available for further discussion without prejudice and the Company's representatives continued to meet and correspond with Irish Revenue throughout the summer.
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Note 15

On July 9, 2021, Irish Revenue issued a letter acknowledging that not all relevant facts were known to them when they issued the NoA in 2018 and, accordingly, they would not object if the Appeal Commissioner were to make certain adjustments reducing Irish Revenue’s original assessment. Such adjustments would reflect contingent royalty payments that were never received by Elan Pharma, deductions for acquisition and development costs incurred, and allowable losses and reliefs, and would, if allowed, result in an aggregate reduction of more than €660.0 million from the income taxes claimed in the NoA as issued.

On September 29, 2021, Elan Pharma reached an agreement with Irish Revenue providing for full and final settlement of the NoA. Elan Pharma and Irish Revenue agreed to a settlement on the following terms: (i) on a 'without prejudice basis' and, for purposes of the settlement, an alternative basis of taxation was applied, (ii) Irish Revenue will take no further action in relation to the NoA or any Tysabri related income or transactions, (iii) no interest or penalties apply, (iv) a total tax of €297.0 million as full and final settlement of all liabilities arising from the sale of the Tysabri patents for the fiscal years 2013 to 2021, and (v) after Irish Revenue credited taxes already paid and certain unused R&D credits against the €297.0 million figure, the total cash payment due is €266.1 million. The payment of €266.1 million ($307.5 million) was made on October 5, 2021.

Israel Tax Authority Audit of Fiscal Year Ended June 27, 2015 and Calendar Years Ended December 31, 2015 through December 31, 2019

The Israel Tax Authority ("ITA") audited our income tax returns for the 2015 tax year, and calendar years ended December 31, 2015, December 31, 2016 and December 31, 2017. On December 29, 2020, we received a Stage A assessment from the ITA for the tax years ended December 31, 2015 through December 31, 2017 in the amount of $63.8 million relating to attribution of intangible income to Israel, income qualifying for a lower preferential rate of tax, exemption from capital gains tax, and deduction of certain settlement payments. Our protest was timely filed on March 11, 2021 to move the matter to Stage B of the assessment process.

Through negotiations with the ITA, we resolved the audit for the tax year ended June 27, 2015 through tax year ended December 31, 2019, by agreeing to add tax year ended December 31, 2018 and tax year ended December 31, 2019 to the audit period to reach an agreeable resolution to provide certainty for these additional periods. The agreement with the ITA required us to pay $19.0 million, after offset for refunds of $17.2 million, for the 5 taxable years. In addition, we paid $12.5 million to resolve a tax liability indemnity for the tax year ended December 31, 2017 relating to Perrigo API Ltd, which we disposed of in December 2017 (refer to Note 16).

As a result of the settlement with the ITA, we reduced our liability recorded for uncertain tax positions by $38.3 million including interest.

    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.
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 - one or more of which may occur within the next twelve months - it is reasonably possible that unrecognized tax benefits for certain tax positions taken on previously filed tax returns may change materially from those recorded as of October 2, 2021. However, we are not able to estimate a reasonably possible range of how these events may impact our unrecognized tax benefits in the next twelve months.
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Note 16

NOTE 16 – CONTINGENCIES

    In view of the inherent difficulties of predicting the outcome of various types of legal proceedings, we cannot determine the ultimate resolution of the matters described below. We establish reserves for litigation and regulatory matters when losses associated with the claims become probable and the amounts can be reasonably estimated. The actual costs of resolving legal matters may be substantially higher or lower than the amounts reserved for those matters. For matters where the likelihood or extent of a loss is not probable or cannot be reasonably estimated as of October 2, 2021, we have not recorded a loss reserve. If certain of these matters are determined against us, there could be a material adverse effect on our financial condition, results of operations, or cash flows. We currently believe we have valid defenses to the claims in these lawsuits and intend to defend these lawsuits vigorously regardless of whether or not we have a loss reserve. Other than what is disclosed below, we do not expect the outcome of the litigation matters to which we are currently subject to have, individually or in the aggregate, a material adverse effect on our financial condition, results of operations, or cash flows.

Price-Fixing Lawsuits
Perrigo is a defendant in several cases in the generic pricing multidistrict litigation MDL No. 2724 (United States District Court for Eastern District of Pennsylvania). This multidistrict litigation, which has many cases that do not include Perrigo, includes class action and opt-out cases for federal and state antitrust claims, as well as complaints filed by certain states alleging violations of state antitrust laws.

On July 14, 2020, the court issued an order designating the following cases to proceed on a more expedited basis (as a bellwether) than the other cases in MDL No. 2724: (a) the May 2019 state case alleging an overarching conspiracy involving more than 120 products (which does not name Perrigo a defendant) and (b) class actions alleging “single drug” conspiracies involving Clomipramine, Pravastatin, and Clobetasol. Perrigo is a defendant in the Clobetasol cases but not the others. On February 9, 2021, the Court entered an order provisionally deciding to remove the May 2019 state case and the pravastatin class cases from the bellwether proceedings. On May 7, 2021, the Court ruled that the clobetasol end payer and direct purchaser class cases will remain part of the bellwether. The Court also ruled that the June 10, 2020 state complaint against Perrigo and approximately 35 other manufacturers will move forward as a bellwether case. No schedule has been set for the bellwether cases.

Class Action Complaints

(a) Single Drug Conspiracy Class Actions

We have been named as a co-defendant with certain other generic pharmaceutical manufacturers in a number of class actions alleging single-product conspiracies to fix or raise the prices of certain drugs and/or allocate customers for those products starting, in some instances, as early as June 2013. The class actions were filed on behalf of putative classes of (a) direct purchasers, (b) end payors, and (c) indirect resellers. The products in question are Clobetasol gel, Desonide, and Econazole. The court denied motions to dismiss each of the complaints alleging “single drug” conspiracies involving Perrigo, and the cases are proceeding in discovery. As noted above, the Clobetasol cases have been designated to proceed on a more expedited schedule than the other cases. That schedule has not yet been set.

(b) “Overarching Conspiracy” Class Actions

The same 3 putative classes, including (a) direct purchasers, (b) end payors, and (c) indirect resellers, have filed 2 sets of class action complaints alleging that Perrigo and other manufacturers (and some individuals) entered into an “overarching conspiracy” that involved allocating customers, rigging bids and raising, maintaining, and fixing prices for various products. Each class brings claims for violations of Sections 1 and 3 of the Sherman Antitrust Act as well as several state antitrust and consumer protection statutes.

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Note 16

Filed in June 2018, and later amended in December 2018 (with respect to direct purchasers) and April 2019 (with respect to end payors and indirect resellers), the first set of “overarching conspiracy” class actions include allegations against Perrigo and approximately 27 other manufacturers involving 135 drugs with allegations dating back to March 2011. The allegations against Perrigo concern only 2 formulations (cream and ointment) of 1 of the products at issue, Nystatin. The court denied motions to dismiss the first set of “overarching conspiracy” class actions, and they are proceeding in discovery. None of these cases are included in the group of cases on a more expedited schedule pursuant to the court’s July 14, 2020 order.

In December 2019, both the end payor and indirect reseller class plaintiffs filed a second set of "overarching conspiracy” class actions against Perrigo, dozens of other manufacturers of generic prescription pharmaceuticals, and certain individuals dating back to July 2009 (end payors) or January 2010 (indirect resellers). The direct purchaser plaintiffs filed their second round overarching conspiracy complaint in February 2020 with claims dating back to July 2009. On March 11, 2020, the indirect reseller plaintiffs filed a motion to amend their second round December 2019 complaint, and that motion was granted. On September 4, 2020, and December 15, 2020, the end payor plaintiffs amended their second round complaint. On October 21, 2020, the direct purchaser plaintiffs amended their second round complaint. On December 15, 2020, the indirect reseller plaintiffs filed another complaint adding allegations for additional drugs that mirror the other class plaintiffs’ claims.

This second set of overarching complaints allege conspiracies relating to the sale of various products that are not at issue in the earlier-filed overarching conspiracy class actions, the majority of which Perrigo neither makes nor sells. The amended indirect reseller complaint alleges that Perrigo conspired in connection with its sales of Betamethasone Dipropionate lotion, Imiquimod cream, Desonide cream and ointment, and Hydrocortisone Valerate cream. The December 2020 indirect reseller complaint alleges that Perrigo conspired in connection with its sales of Adapalene, Ammonium Lactate, Bromocriptine Mesylate, Calcipotriene, Calcipotriene Betamethasone Dipropionate, Ciclopirox, Clindamycin Phosphate, Erythromycin, Fluticasone Propionate, Halobetasol Propionate, Hydrocortisone Acetate, Methazolamide, Mometasone Furoate, Prochlorperazine Maleate, Promethazine HCL, Tacrolimus, and Triamcinolone Acetonide.The amended end payor complaint alleges that Perrigo conspired in connection with its sale of the following drugs: Adapalene, Ammonium Lactate, Betamethasone Dipropionate, Bromocriptine Mesylate, Calcipotriene Betamethasone Dipropionate, Ciclopirox, Clindamycin Phosphate, Erythromycin, Fenofibrate, Fluocinonide, Fluticasone Propionate, Halobetasol Propionate, Hydrocortisone Acetate, Hydrocortisone Valerate, Imiquimod, Methazolamide, Mometasone Furoate, Permethrin, Prochlorperazine Maleate, Promethazine HCL, Tacrolimus, and Triamcinolone Acetonide. The amended direct purchaser complaint alleges that Perrigo conspired in connection with its sale of the following drugs: Adapalene, Ammonium Lactate, Betamethasone Dipropionate, Bromocriptine Mesylate, Ciclopirox, Clindamycin Phosphate, Fenofibrate, Fluocinonide, Halobetasol Propionate, Hydrocortisone Valerate, Methazolamide, Permethrin, Prochlorperazine Maleate, Promethazine HCL, Tacrolimus, and Triamcinolone Acetonide.

Perrigo has not yet responded to the second set of overarching conspiracy complaints, and responses are currently stayed.
Opt-Out Complaints

On January 22, 2018, Perrigo was named a co-defendant along with 35 other manufacturers in a complaint filed by 3 supermarket chains alleging that defendants conspired to fix prices of 31 generic prescription pharmaceutical products starting in 2013. On December 21, 2018, an amended complaint was filed that adds additional products and allegations against a total of 39 manufacturers for 33 products. The only allegations specific to Perrigo relate to Clobetasol, Desonide, Econazole, Nystatin cream, and Nystatin ointment. Perrigo moved to dismiss this complaint on February 21, 2019. The motion was denied on August 15, 2019. The case is proceeding in discovery. On February 3, 2020, the plaintiffs requested leave to file a second amended complaint. The proposed amended complaint adds dozens of additional products and allegations to the original complaint. Perrigo is discussed in connection with allegations concerning an additional drug, Fenofibrate. Defendants opposed the motion for leave to file a second amended complaint and the court has yet to rule on the issue.

On August 3, 2018, a large managed care organization filed a complaint alleging price-fixing and customer allocation concerning 17 different products among 27 manufacturers including Perrigo. The only allegations specific to Perrigo concern Clobetasol. Perrigo moved to dismiss this complaint on February 21, 2019. Plaintiff filed a second amended complaint in April 2019 that adds additional products and allegations. The amended allegations
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Note 16

that concern Perrigo include: Clobetasol, Desonide, Econazole, and Nystatin. The motion to dismiss was denied on August 15, 2019. The case is proceeding in discovery.

The same organization amended a different complaint that it had filed in October 2019, which did not name Perrigo, on December 15, 2020, adding Perrigo as a defendant and asserting new allegations of alleged antitrust violations involving Perrigo and dozens of other generic pharmaceutical manufacturers. The allegations relating to Perrigo concern: Adapalene, Betamethasone Dipropionate, Bromocriptine Mesylate, Ciclopirox, Clindamycin Phosphate, Fenofibrate, Fluocinonide, Halobetasol Propionate, Hydrocortisone Valerate, Imiquimod, Permethrin, Prochlorperazine Maleate, and Triamcinolone Acetonide.

The same organization filed a third complaint on December 15, 2020, naming Perrigo and dozens of other manufacturers alleging antitrust violations concerning generic pharmaceutical drugs. The allegations relating to Perrigo concern: Ammonium Lactate, Calcipotriene Betamethasone Dipropionate, Erythromycin, Fluticasone Propionate, Hydrocortisone Acetate, Methazolamide, Promethazine HCL, and Tacrolimus.

On January 16, 2019, a health insurance carrier filed a complaint in the U.S. District Court for the District of Minnesota alleging a conspiracy to fix prices of 30 products among 30 defendants. The only allegations specific to Perrigo concerned Clobetasol gel, Desonide, Econazole, Nystatin cream, and Nystatin ointment. Perrigo has not yet responded to the complaint, and responses are currently stayed. On December 15, 2020, the complaint was amended to add additional defendants and claims. The new allegations that concern Perrigo relate to Fluocinonide.

The same health insurance carrier filed a new complaint on December 15, 2020, naming Perrigo and dozens of other manufacturers alleging antitrust violations concerning generic pharmaceutical drugs. The allegations relating to Perrigo concern: Adapalene, Ammonium Lactate, Betamethasone Dipropionate, Bromocriptine Mesylate, Calcipotriene Betamethasone Dipropionate, Ciclopirox, Clindamycin Phosphate, Erythromycin, Fluticasone Propionate, Halobetasol Propionate, Hydrocortisone Acetate, Hydrocortisone Valerate, Imiquimod, Methazolamide, Prochlorperazine Maleate, Promethazine HCL, Tacrolimus, and Triamcinolone Acetonide.

On July 18, 2019, 87 health plans filed a Praecipe to Issue Writ of Summons in Pennsylvania state court to commence an action against 53 generic pharmaceutical manufacturers and 17 individuals, alleging antitrust violations concerning generic pharmaceutical drugs. While Perrigo was named as a defendant, no complaint has been filed and the precise allegations and products at issue have not been identified. Proceedings in the case, including the filing of a complaint, have been stayed at the request of the plaintiffs.

On December 11, 2019, a health care service company filed a complaint against Perrigo and 38 other pharmaceutical companies alleging an overarching conspiracy to fix, raise or stabilize prices of dozens of products, most of which Perrigo neither makes nor sells. The product conspiracies allegedly involving Perrigo focus on the same products as those involved in other multi-district litigation ("MDL") complaints naming Perrigo: Clobetasol, Desonide, Econazole, and Nystatin cream/ointment. Perrigo has not yet responded to the complaint, and responses are currently stayed. On December 15, 2020, the complaint was amended to add additional defendants and claims. The new allegations relating to Perrigo concern: Adapalene, Ammonium Lactate, Betamethasone Dipropionate, Bromocriptine Mesylate, Calcipotriene Betamethasone Dipropionate, Ciclopirox, Clindamycin Phosphate, Erythromycin, Fenofibrate, Fluocinonide, Fluticasone Propionate, Halobetasol Propionate, Hydrocortisone Acetate, Hydrocortisone Valerate, Imiquimod, Methazolamide, Permethrin, Prochlorperazine Maleate, Promethazine HCL, Tacrolimus, and Triamcinolone Acetonide.

On December 16, 2019, a Medicare Advantage claims recovery company filed a complaint against Perrigo and 39 other pharmaceutical companies alleging an overarching conspiracy to fix, raise or stabilize prices of dozens of products, most of which Perrigo neither makes nor sells. The product conspiracies allegedly involving Perrigo focus on the same products as those involved in other MDL complaints naming Perrigo: Clobetasol, Desonide, and Econazole. The complaint was originally filed in the District of Connecticut but has been consolidated into the MDL. Perrigo has not yet had the opportunity to respond to the complaint, and responses are currently stayed. On December 15, 2020, the complaint was amended to add additional defendants and claims. The new allegations relating to Perrigo concern: Adapalene, Ammonium Lactate, Betamethasone Dipropionate, Bromocriptine Mesylate, Calcipotriene Betamethasone Dipropionate, Ciclopirox, Clindamycin Phosphate, Desoximetasone, Erythromycin, Fenofibrate, Fluocinonide, Fluticasone Propionate, Halobetasol Propionate, Hydrocortisone Acetate, Hydrocortisone
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Note 16

Valerate, Imiquimod, Methazolamide, Permethrin, Prochlorperazine Maleate, Promethazine HCL, Tacrolimus, and Triamcinolone Acetonide.

On December 23, 2019, several counties in New York filed an amended complaint against Perrigo and 28 other pharmaceutical companies alleging an overarching conspiracy to fix, raise or stabilize prices of dozens products, most of which Perrigo neither makes nor sells. The product conspiracies allegedly involving Perrigo focus on the same products as those involved in other MDL complaints naming Perrigo: Clobetasol, Desonide, Econazole, and Nystatin. The complaint was originally filed in New York State court but was removed to federal court and has been consolidated into the MDL. Perrigo has not yet responded to the complaint, and responses are currently stayed. On December 15, 2020, the complaint was amended to add additional defendants and claims. The new allegations relating to Perrigo concern: Adapalene, Betamethasone Dipropionate, Bromocriptine Mesylate, Calcipotriene Betamethasone Dipropionate, Ciclopirox, Clindamycin Phosphate, Erythromycin, Fluticasone Propionate, Halobetasol Propionate, Hydrocortisone Acetate, Hydrocortisone Valerate, Imiquimod, Methazolamide, Mometasone Furoate, Nystatin, Permethrin, Prochlorperazine Maleate, Promethazine HCL, Tacrolimus, and Triamcinolone Acetonide. On June 30, 2021, the counties filed a proposed revised second amended complaint. Perrigo has not yet responded to the complaint, and responses are currently stayed.

On December 27, 2019, a healthcare management organization filed a complaint against Perrigo and 25 other pharmaceutical companies alleging an overarching conspiracy to fix, raise or stabilize prices of dozens of products, most of which Perrigo neither makes nor sells. The product conspiracies allegedly involving Perrigo focus on the same products as those involved in other MDL complaints naming Perrigo: Clobetasol, Desonide, Econazole, and Nystatin. The complaint was filed originally in the Northern District of California but has been consolidated into the MDL. Perrigo has not yet responded to the complaint, and responses are currently stayed. On December 15, 2020, the complaint was amended to add additional defendants and claims. The new allegations relating to Perrigo concern: Adapalene, Ammonium Lactate, Betamethasone Dipropionate, Bromocriptine Mesylate, Calcipotriene Betamethasone Dipropionate, Ciclopirox, Clindamycin Phosphate, Erythromycin, Fenofibrate, Fluticasone Propionate, Halobetasol Propionate, Hydrocortisone Acetate, Hydrocortisone Valerate, Imiquimod, Methazolamide, Permethrin, Prochlorperazine Maleate, Promethazine HCL, Tacrolimus, and Triamcinolone Acetonide.

On March 1, 2020, Harris County of Texas filed a complaint against Perrigo and 29 other pharmaceutical companies alleging an overarching conspiracy to fix, raise or stabilize prices of dozens of products, most of which Perrigo neither makes nor sells. The products at issue that plaintiffs claim Perrigo manufacturers or sells include: Adapalene, Betamethasone Dipropionate, Ciclopirox, Clindamycin, Clobetasol, Desonide, Econazole, Ethinyl Estradiol/Levonorgestrel, Fenofibrate, Fluocinolone, Fluocinonide, Gentamicin, Glimepiride, Griseofulvin, Halobetasol Propionate, Hydrocortisone Valerate, Ketoconazole, Mupirocin, Nystatin, Olopatadine, Permethrin, Prednisone, Promethazine, Scopolamine, and Triamcinolone Acetonide. The complaint was originally filed in the Southern District of Texas but has been transferred to the MDL. Harris County amended its complaint in May 2020. Perrigo has not yet responded to the complaint, and responses are currently stayed.

In May 2020, 7 health plans filed a writ of summons in the Pennsylvania Court of Common Pleas in Philadelphia concerning an as-yet unfiled complaint against Perrigo, 3 dozen other manufacturers, and 17 individuals, concerning alleged antitrust violations in connection with the pricing and sale of generic prescription pharmaceutical products. No complaint has yet been filed, so the precise allegations and products at issue are not yet clear. Proceedings in the case have been stayed.

On June 9, 2020, a health insurance carrier filed a complaint against Perrigo and 25 other manufacturers alleging an overarching conspiracy to allocate customers and/or fix, raise or stabilize prices of dozens of products, most of which Perrigo neither makes nor sells. The product conspiracies allegedly involving Perrigo focus on the same products as those involved in other MDL complaints naming Perrigo: Clobetasol, Desonide, Econazole, and Nystatin. The complaint was filed in the Eastern District of Pennsylvania and has been transferred into the MDL. Perrigo has not yet responded to the complaint, and responses are currently stayed. On December 15, 2020, the complaint was amended to add additional defendants and claims. The new allegations relating to Perrigo concern: Adapalene, Ammonium Lactate, Betamethasone Dipropionate, Bromocriptine Mesylate, Calcipotriene Betamethasone Dipropionate, Ciclopirox, Clindamycin Phosphate, Erythromycin, Fluocinonide, Fluticasone Propionate, Halobetasol Propionate, Hydrocortisone Acetate, Hydrocortisone Valerate, Imiquimod, Methazolamide, Permethrin, Prochlorperazine Maleate, Promethazine HCL, Tacrolimus, and Triamcinolone Acetonide.

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Note 16

On July 9, 2020, a drugstore chain filed a complaint against Perrigo and 39 other pharmaceutical companies alleging an overarching conspiracy to fix, raise or stabilize prices of dozens of products, most of which Perrigo neither makes nor sells. The product conspiracies allegedly involving Perrigo focus on the same products as those involved in other MDL complaints naming Perrigo: Clobetasol, Desonide, Econazole, and Nystatin. Perrigo is also listed in connection with Fenofibrate. The complaint was filed in the Eastern District of Pennsylvania and will be transferred into the MDL. Perrigo has not yet responded to the complaint, and responses are currently stayed. On December 15, 2020, the complaint was amended to add additional defendants and claims. The new allegations relating to Perrigo concern: Adapalene, Ammonium Lactate, Betamethasone Dipropionate, Bromocriptine Mesylate, Calcipotriene Betamethasone Dipropionate, Ciclopirox, Clindamycin Phosphate, Erythromycin, Fenofibrate, Fluticasone Propionate, Halobetasol Propionate, Hydrocortisone Acetate, Hydrocortisone Valerate, Imiquimod, Methazolamide, Permethrin, Prochlorperazine Maleate, Promethazine HCL, Tacrolimus, and Triamcinolone Acetonide.

On August 27, 2020, Suffolk County of New York filed a complaint against Perrigo and 35 other manufacturers alleging an overarching conspiracy to allocate customers and/or fix, raise or stabilize prices of dozens of products, most of which Perrigo neither makes nor sells. The product conspiracies allegedly involving Perrigo focus on the same products as those involved in other MDL complaints naming Perrigo: Clobetasol, Desonide, Econazole, and Nystatin cream and ointment. The other products at issue that plaintiffs claim Perrigo manufacturers or sells include: Adapalene gel, Albuterol, Benazepril HCTZ, Clotrimazole, Diclofenac Sodium, Fenofibrate, Fluocinonide, Glimepiride, Ketoconazole, Meprobamate, Imiquimod, Triamcinolone Acetonide, Erythromycin/Ethyl Solution, Betamethasone Valerate, Ciclopirox Olamine, Terconazole, Hydrocortisone Valerate, Fluticasone Propionate, Desoximetasone, Clindamycin Phosphate, Halobetasol Propionate, Hydrocortisone Acetate, Promethazine HCL, Mometasone Furoate, and Amiloride HCTZ. The complaint was filed in the Eastern District of New York and has been transferred into the MDL. Perrigo has not yet responded to the complaint, and responses are currently stayed.

On September 4, 2020, a drug wholesaler and distributor filed a complaint against Perrigo and 39 other manufacturers alleging an overarching conspiracy to allocate customers and/or fix, raise or stabilize prices of dozens of products, most of which Perrigo neither makes nor sells. The product conspiracies allegedly involving Perrigo focus on Adapalene, Ammonium Lactate, Betamethasone Dipropionate, Bromocriptine Mesylate, Calcipotriene Betamethasone Dipropionate, Ciclopirox, Clindamycin, Clobetasol, Desonide, Econazole, Erythromycin, Fenofibrate, Fluticasone, Halobetasol, Hydrocortisone Acetate, Hydrocortisone Valerate, Imiquimod, Methazolamide, Mometasone furoate, Nystatin, Prochlorperazine, Promethazine HCL, Tacrolimus, and Triamcinolone Acetonide. The complaint was filed in the Eastern District of Pennsylvania and has been transferred into the MDL. Perrigo has not yet responded to the complaint, and responses are currently stayed.

On December 11, 2020, a drugstore chain filed a complaint against Perrigo and 45 other manufacturers alleging an overarching conspiracy to allocate customers and/or fix, raise or stabilize prices of dozens of products, most of which Perrigo neither makes nor sells. The product conspiracies allegedly involving Perrigo focus on Adapalene, Ammonium Lactate, Betamethasone Dipropionate, Bromocriptine Mesylate, Calcipotriene Betamethasone Dipropionate, Ciclopirox, Clindamycin Phosphate, Clobetasol, Desonide, Econazole, Erythromycin, Fenofibrate, Fluticasone Propionate, Halobetasol, Hydrocortisone Acetate, Hydrocortisone Valerate, Imiquimod, Methazolamide, Nystatin, Permethrin, Prochlorperazine, Promethazine HCL, Tacrolimus, and Triamcinolone. The complaint was filed in the Eastern District of Pennsylvania and has been transferred into the MDL.

On December 14, 2020, a supermarket chain filed a complaint against Perrigo and 45 other manufacturers (as well as certain individuals) alleging an overarching conspiracy to allocate customers and/or fix, raise or stabilize prices of dozens of products, most of which Perrigo neither makes nor sells. The product conspiracies allegedly involving Perrigo focus on Betamethasone Dipropionate, Bromocriptine Mesylate, Ciclopirox, Clindamycin Phosphate, Clobetasol, Desonide, Econazole, Fenofibrate, Halobetasol, Hydrocortisone Valerate, Nystatin, Permethrin, and Triamcinolone Acetonide. The complaint was filed in the Eastern District of Pennsylvania and has been transferred into the MDL.

On December 15, 2020, a drugstore chain filed a complaint against Perrigo and 45 other manufacturers alleging an overarching conspiracy to allocate customers and/or fix, raise or stabilize prices of dozens of products, most of which Perrigo neither makes nor sells. The complaint lists 63 drugs that the chain purchased from Perrigo, but the product conspiracies allegedly involving Perrigo focus on Adapalene, Betamethasone Dipropionate, Bromocriptine Mesylate, Calcipotriene Betamethasone Dipropionate, Ciclopirox, Clindamycin Phosphate, Desonide,
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Note 16

Econazole, Erythromycin, Fluocinonide, Fluticasone Propionate, Halobetasol, Hydrocortisone Acetate, Hydrocortisone Valerate, Imiquimod, Methazolamide, Nystatin, Prochlorperazine, Promethazine HCL, Tacrolimus, and Triamcinolone. The complaint was filed in the Eastern District of Pennsylvania and has been transferred into the MDL.

On December 15, 2020, several counties in New York filed a complaint against Perrigo and 45 other pharmaceutical companies alleging an overarching conspiracy to fix, raise or stabilize prices of dozens products, most of which Perrigo neither makes nor sells. The allegations that concern Perrigo include: Adapalene, Betamethasone Dipropionate, Bromocriptine Mesylate, Calcipotriene Betamethasone Dipropionate, Ciclopirox, Clindamycin Phosphate, Erythromycin, Fluticasone Propionate, Halobetasol Propionate, Hydrocortisone Acetate, Hydrocortisone Valerate, Imiquimod, Methazolamide, Mometasone Furoate, Nystatin, Permethrin, Prochlorperazine Maleate, Promethazine HCL, Tacrolimus, and Triamcinolone Acetonide. The complaint was originally filed in New York State court but has been removed to federal court and consolidated into the MDL. The counties filed an amended complaint on June 30, 2021.

On August 30, 2021, the county of Westchester, NY filed a complaint in New York State court against Perrigo and 45 other pharmaceutical companies alleging an overarching conspiracy to fix, raise or stabilize prices of dozens products, most of which Perrigo neither makes nor sells. The allegations that concern Perrigo include: Adapalene, Betamethasone Dipropionate, Bromocriptine Mesylate, Calcipotriene Betamethasone Dipropionate, Ciclopirox, Clindamycin Phosphate, Clobetasol, Desonide, Econazole, Erythromycin, Fluticasone Propionate, Halobetasol Propionate, Hydrocortisone Acetate, Hydrocortisone Valerate, Imiquimod, Methazolamide, Mometasone Furoate, Nystatin, Permethrin, Prochlorperazine Maleate, Promethazine HCL, Tacrolimus, and Triamcinolone Acetonide. A motion to remove the case to federal court for consolidation into the MDL has been filed.

On October 8, 2021, approximately 20 health plans filed a Praecipe to Issue Writ of Summons in Pennsylvania state court to commence an action against 46 generic pharmaceutical manufacturers and 24 individuals, alleging antitrust violations concerning generic pharmaceutical drugs. While Perrigo was named as a defendant, no complaint has been filed and the precise allegations and products at issue have not been identified. Proceedings in the case, including the filing of a complaint, have not yet occurred.

State Attorney General Complaint

On June 10, 2020, the Connecticut Attorney General’s office filed a lawsuit on behalf of Connecticut and 50 other states and territories against Perrigo, 35 other generic pharmaceutical manufacturers, and certain individuals (including 1 former and 1 current Perrigo employee), alleging an overarching conspiracy to allocate customers and/or fix, raise or stabilize prices of 80 products. The allegations against Perrigo focus on the following drugs: Adapalene Cream, Ammonium Lactate cream and lotion, Betamethasone dipropionate lotion, Bromocriptine tablets, Calcipotriene Betamethasone Dipropionate Ointment, Ciclopirox cream and solution, Clindamycin solution, Desonide cream and ointment, Econazole cream, Erythromycin base alcohol solution, Fluticasone cream and lotion, Halobetasol cream and ointment, Hydrocortisone Acetate suppositories, Hydrocortisone Valerate cream, Imiquimod cream, Methazolamide tablets, Nystatin ointment, Prochlorperazine suppositories, Promethazine HCL suppositories, Tacrolimus ointment, and Triamcinolone cream and ointment. The Complaint was filed in the District of Connecticut, but has been transferred into the MDL. On May 7, 2021, the Court ruled that this case will move forward as a bellwether case. On September 9, 2021, the States filed an amended complaint, although the substantive allegations against Perrigo did not change. Perrigo's motion to dismiss the complaint is due on November 12, 2021.

Canadian Class Action Complaint

In June 2020, an end payor filed a class action in Ontario, Canada against Perrigo and 29 other manufacturers alleging an overarching conspiracy to allocate customers and/or fix, raise or stabilize prices of dozens of products, most of which Perrigo neither makes nor sells. The product conspiracies allegedly involving Perrigo focus on the same products as those involved in other MDL complaints naming Perrigo: Clobetasol, Desonide, Econazole, and Nystatin. In December 2020, Plaintiffs amended their complaint to add additional claims based on the State AG complaint of June 2020.

At this stage, we cannot reasonably estimate the outcome of the liability if any, associated with the claims listed above.
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Securities Litigation
In the United States (cases related to events in 2015-2017)

On May 18, 2016, a shareholder filed a securities case against us and our former CEO, Joseph Papa, in the U.S. District Court for the District of New Jersey (Roofers’ Pension Fund v. Papa, et al.). The plaintiff purported to represent a class of shareholders for the period from April 21, 2015 through May 11, 2016, inclusive. The original complaint alleged violations of Securities Exchange Act sections 10(b) (and Rule 10b5) and 14(e) against both defendants and 20(a) control person liability against Mr. Papa. In general, the allegations concerned the actions taken by us and the former executive to defend against the unsolicited takeover bid by Mylan in the period from April 21, 2015 through November 13, 2015. The plaintiff also alleged that the defendants provided inadequate disclosure concerning alleged integration problems related to the Omega acquisition in the period from April 21, 2015 through May 11, 2016. On July 19, 2016, a different shareholder filed a securities class action against us and our former CEO, Joseph Papa, also in the District of New Jersey (Wilson v. Papa, et al.). The plaintiff purported to represent a class of persons who sold put options on our shares between April 21, 2015 and May 11, 2016. In general, the allegations and the claims were the same as those made in the original complaint filed in the Roofers' Pension Fund case described above. On December 8, 2016, the court consolidated the Roofers' Pension Fund case and the Wilson case under the Roofers' Pension Fund case number. In February 2017, the court selected the lead plaintiffs for the consolidated case and the lead counsel to the putative class. In March 2017, the court entered a scheduling order.

On June 21, 2017, the court-appointed lead plaintiffs filed an amended complaint that superseded the original complaints in the Roofers’ Pension Fund case and the Wilson case. In the amended complaint, the lead plaintiffs seek to represent 3 classes of shareholders: (i) shareholders who purchased shares during the period from April 21, 2015 through May 3, 2017 on the U.S. exchanges; (ii) shareholders who purchased shares during the same period on the Tel Aviv exchange; and (iii) shareholders who owned shares on November 12, 2015 and held such stock through at least 8:00 a.m. on November 13, 2015 (the final day of the Mylan tender offer) regardless of whether the shareholders tendered their shares. The amended complaint names as defendants us and 11 current or former directors and officers of Perrigo (Mses. Judy Brown, Laurie Brlas, Jacqualyn Fouse, Ellen Hoffing, and Messrs. Joe Papa, Marc Coucke, Gary Cohen, Michael Jandernoa, Gerald Kunkle, Herman Morris, and Donal O’Connor). The amended complaint alleges violations of Securities Exchange Act sections 10(b) (and Rule 10b‑5) and 14(e) against all defendants and 20(a) control person liability against the 11 individuals. In general, the allegations concern the actions taken by us and the former executives to defend against the unsolicited takeover bid by Mylan in the period from April 21, 2015 through November 13, 2015 and the allegedly inadequate disclosure throughout the entire class period related to purported integration problems related to the Omega acquisition, alleges incorrect reporting of organic growth at the Company and at Omega, alleges price fixing activities with respect to 6 generic prescription pharmaceuticals, and alleges improper accounting for the Tysabri® royalty stream. The amended complaint does not include an estimate of damages. During 2017, the defendants filed motions to dismiss, which the plaintiffs opposed. On July 27, 2018, the court issued an opinion and order granting the defendants’ motions to dismiss in part and denying the motions to dismiss in part. The court dismissed without prejudice defendants Laurie Brlas, Jacqualyn Fouse, Ellen Hoffing, Gary Cohen, Michael Jandernoa, Gerald Kunkle, Herman Morris, Donal O’Connor, and Marc Coucke. The court also dismissed without prejudice claims arising from the Tysabri® accounting issue described above and claims alleging incorrect disclosure of organic growth described above. The defendants who were not dismissed are Perrigo Company plc, Joe Papa, and Judy Brown. The claims (described above) that were not dismissed relate to the integration issues regarding the Omega acquisition, the defense against the Mylan tender offer, and the alleged price fixing activities with respect to 6 generic prescription pharmaceuticals. The defendants who remain in the case (the Company, Mr. Papa, and Ms. Brown) have filed answers denying liability, and the discovery stage of litigation began in late 2018. Discovery in the class action ended on January 31, 2021. In early April 2021, the defendants filed various post-discovery motions, including summary judgment motions; the briefing of which was completed in early July 2021. The motions are now before the court. The court will hold oral argument in January 2022. We intend to defend the lawsuit vigorously.

On November 14, 2019, the court granted the lead plaintiffs’ motion and certified 3 classes for the case: (i) all those who purchased shares between April 21, 2015 through May 2, 2017 inclusive on a U.S. exchange and were damaged thereby; (ii) all those who purchased shares between April 21, 2015 through May 2, 2017 inclusive on the Tel Aviv exchange and were damaged thereby; and (iii) all those who owned shares as of November 12, 2015 and held such stock through at least 8:00 a.m. on November 13, 2015 (whether or not a person tendered shares in response to the Mylan tender offer) (the "tender offer class"). Defendants filed a petition for leave to appeal in the Third Circuit challenging the certification of the tender offer class. On April 30, 2020, the Third Circuit
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denied leave to appeal. The District Court has approved the issuance of a notice of the pendency of the class action, and the notice has been sent to shareholders who are eligible to participate in the classes.

In early July 2021, the Court assigned the securities class action case (Roofer’s case) to a new judge within the U.S. District Court for the District of New Jersey. Unless otherwise noted, each of the lawsuits discussed in the following sections is pending in the U.S. District Court for the District of New Jersey and remains with the originally assigned judge. The allegations in the complaints relate to events during certain portions of the 2015 through 2017 calendar years, including the period of the Mylan tender offer. All but one of these lawsuits allege violations of federal securities laws, but none are class actions. NaN lawsuit (Highfields) alleges only state law claims. Discovery in all these cases, except Starboard Value and Highfields, is underway and currently scheduled to end in mid-November 2021. We intend to defend all these lawsuits vigorously.

Carmignac, First Manhattan and Similar Cases. The following 7 cases were filed by the same law firm and generally make the same factual assertions but, at times, differ as to which securities laws violations they allege:
CaseDate Filed
Carmignac Gestion, S.A. v. Perrigo Company plc, et al.11/1/2017
First Manhattan Co. v. Perrigo Company plc, et al.2/16/2018; amended 4/20/2018
Nationwide Mutual Funds, et al. v. Perrigo Company plc, et al.10/29/2018
Schwab Capital Trust, et al. v. Perrigo Company plc, et al.1/31/2019
Aberdeen Canada Funds -- Global Equity Fund, et al. v. Perrigo Company plc, et al.2/22/2019
Principal Funds, Inc., et al. v. Perrigo Company plc, et al.3/5/2020
Kuwait Investment Authority, et al. v. Perrigo Company plc, et al.3/31/2020

The original complaints in the Carmignac case and the First Manhattan case named Perrigo, Mr. Papa, Ms. Brown, and Mr. Coucke as defendants. Mr. Coucke was dismissed as a defendant after the plaintiffs agreed to apply the July 2018 ruling in the Roofers' Pension Fund case to these two cases. The complaints in each of the other cases name only Perrigo, Mr. Papa, and Ms. Brown as defendants.

Each complaint asserts claims under Sections 10(b) (and Rule 10b-5 thereunder) and all cases except Aberdeen assert claims under Section 14(e) of the Securities Exchange Act against all defendants, as well as control person liability under Section 20(a) of the Securities Exchange Act against the individual defendants. The control person claims against the individual defendants are limited to the period from April 2015 through April 2016 in the Carmignac case. The complaints in the Carmignac and First Manhattan cases also assert claims under Section 18 of the Exchange Act.

Each complaint alleges inadequate disclosures concerning the valuation and integration of Omega, the financial guidance we provided, our reporting about the generic prescription pharmaceutical business and its prospects, and the activities surrounding the efforts to defeat the Mylan tender offer during 2015, and, in each of the cases other than Carmignac, alleged price fixing activities with respect to 6 generic prescription pharmaceuticals. The First Manhattan complaint also alleges improper accounting for the Tysabri® asset. With the exception of Carmignac, each of these cases relates to events during the period from April 2015 through May 2017. Many of the allegations in these cases overlap with the allegations of the June 2017 amended complaint in the Roofers’ Pension Fund case, though the Nationwide Mutual, Schwab Capital, Aberdeen, Principal Funds and Kuwait complaints do not include the factual allegations that the court dismissed in the July 2018 ruling in the Roofers' Pension Fund case.

After the court issued its July 2018 opinion in the Roofers’ Pension Fund case, the parties in Carmignac and First Manhattan conferred and agreed that the ruling in the Roofers’ Pension Fund case would apply equally to the common allegations in their cases. The later filed cases adopted a similar posture. The defendants in the Carmignac and other cases listed above filed motions to dismiss addressing the additional allegations in such cases. On July 31, 2019, the court granted such motions to dismiss in part and denied them in part. That ruling applies to each of the above cases. The defendants have filed answers in each case denying liability. Each case (except Highfields and Starboard Value) is currently in the discovery phase.

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Mason Capital, Pentwater and Similar Cases. The following 8 cases were filed by the same law firm and generally make the same factual allegations:
CaseDate Filed
Mason Capital L.P., et al. v. Perrigo Company plc, et al.1/26/2018
Pentwater Equity Opportunities Master Fund Ltd., et al.  v. Perrigo Company plc, et al.1/26/2018
WCM Alternatives: Event-Drive Fund, et al. v. Perrigo Co., plc, et al.11/15/2018
Hudson Bay Master Fund Ltd., et al. v. Perrigo Co., plc, et al.11/15/2018
Discovery Global Citizens Master Fund, Ltd., et al. v. Perrigo Co. plc, et al.12/18/2019
York Capital Management, L.P., et al. v. Perrigo Co. plc, et al.12/20/2019
Burlington Loan Management DAC v. Perrigo Co. plc, et al.2/12/2020
Universities Superannuation Scheme Limited v. Perrigo Co. plc, et al.3/2/2020

The complaints in the Mason Capital case and the Pentwater case originally named Perrigo and 11 current or former directors and officers of Perrigo as defendants. In the July 2018 Roofers’ Pension Fund ruling, the court dismissed without prejudice each of the defendants other than Perrigo, Mr. Papa and Ms. Brown from that case; these plaintiffs later agreed that this ruling would apply to their cases as well. The complaints in each of the other cases in the above table name only Perrigo, Mr. Papa, and Ms. Brown as defendants.

Each complaint asserts claims under Section 14(e) of the Securities Exchange Act against all defendants, as well as control person liability under Section 20(a) of the Securities Exchange Act against the individual defendants. The complaints in the WCM case and the Universities Superannuation Scheme case also assert claims under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

Each complaint alleges inadequate disclosure during the tender offer period in 2015 and at various times concerning valuation and integration of Omega, the financial guidance provided by us during that period, alleged price fixing activities with respect to 6 generic prescription pharmaceuticals, and alleged improper accounting for the Tysabri® asset. The WCM complaint also makes these allegations for the period through May 2017 and the Universities Superannuation Scheme complaint also concerns certain times during 2016. Many of the factual allegations in these cases overlap with the allegations of the June 2017 amended complaint in the Roofers’ Pension Fund case, and the Mason Capital and Pentwater cases include factual allegations similar to those in the Carmignac case described above.

After the court issued its July 2018 opinion in the Roofers’ Pension Fund case, the parties in each of the above casesconferred and agreed that the ruling in the Roofers’ Pension Fund case would apply equally to the common allegations in their cases. The defendants in each of these cases have filed answers denying liability, and each of the cases is currently in the discovery phase.

Harel Insurance and TIAA-CREF Cases. The following 2 cases were filed by the same law firm and generally make the same factual allegations relating to the period from February 2014 through May 2017 (in the Harel case) and from August 2014 through May 2017 (in the TIAA-CREF case):
CaseDate Filed
Harel Insurance Company, Ltd., et al. v. Perrigo Company plc, et al.2/13/2018
TIAA-CREF Investment Management, LLC., et al. v. Perrigo Company plc, et al.4/20/2018

The complaints in the Harel and TIAA-CREF cases originally named Perrigo and 13 current or former directors and officers of Perrigo as defendants (adding 2 more individual defendants not sued in the other cases described in this section). In the July 2018 Roofers’ Pension Fund ruling, the court dismissed without prejudice 8 of the 11 defendants other than Perrigo, Mr. Papa and Ms. Brown from that case. These plaintiffs later agreed that that ruling would apply to these cases as well and also dismissed their claims against the two additional individuals that only these plaintiffs had named as defendants.

Each complaint asserts claims under Sections 10(b) and 14(e) of the Securities Exchange Act and Rule 10b-5 thereunder against all defendants, as well as control person liability under Section 20(a) of the Securities
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Exchange Act against the individual defendants. The complaint in the Harel case also asserts claims based on Israeli securities laws.

Each of the complaints alleges inadequate disclosure around the tender offer events in 2015 and at various times during the relevant periods concerning valuation and integration of Omega, the financial guidance provided by us during that period, alleged price fixing activities with respect to 6 generic prescription pharmaceuticals, and alleged improper accounting for the Tysabri® asset from February 2014 until the withdrawal of past financial statements in April 2017.

After the court issued its July 2018 opinion in the Roofers’ Pension Fund case, the parties in the Harel and TIAA-CREF cases conferred and agreed that such ruling would apply equally to the common allegations in their cases. The defendants in each of these cases have filed answers denying liability, and each of the cases is currently in the discovery phase.

Other Cases Related to Events in 2015-2017. Certain allegations in the following 3 cases also overlap with the allegations of the June 2017 amended complaint in the Roofers' Pension Fund case and with allegations in 1 or more of the other individual cases described in the sections above:
CaseDate Filed
Sculptor Master Fund (f/k/a OZ Master Fund, Ltd.), et al. v. Perrigo Company plc, et al.2/6/2019
Highfields Capital I LP, et al. v. Perrigo Company plc, et al.6/4/2020
BlackRock Global Allocation Fund, Inc., et al. v. Perrigo Co. plc, et al.4/21/2020
Starboard Value and Opportunity C LP, et al. v. Perrigo Company plc, et al.2/25/2021

Each of the above complaints names Perrigo, Mr. Papa, and Ms. Brown as defendants.

The Sculptor Master Fund (formerly OZ) complaint asserts claims under Sections 10(b) and 14(e) of the Securities Exchange Act and Rule 10b-5 thereunder against all defendants, as well as control person liability under Section 20(a) of the Securities Exchange Act against the individual defendants. The parties have agreed that the court's rulings in July 2018 in the Roofers' Pension Fund case and in July 2019 in the Carmignac and related cases will apply to this case as well. The defendants have filed answers denying liability. The plaintiffs are participating in the discovery proceedings in the Roofers' Pension Fund case and the various individual cases described above.

The BlackRock Global complaint also asserts claims under Securities Exchange Act section 10(b) (and Rule 10b-5) and section 14(e) against all defendants and section 20(a) control person claims against the individual defendants largely based on the same events during the period from April 2015 through May 2017. Plaintiffs contend that the defendants provided inadequate disclosure during the tender offer period in 2015 and point to disclosures at various times during the period concerning valuation and integration of Omega, the financial guidance provided by us during that period, alleged price fixing activities with respect to 6 generic prescription pharmaceuticals, alleged lower performance in the generic prescription drug business during 2015 and alleged improper accounting for the Tysabri® asset. The defendants have filed answers denying liability. The plaintiffs are participating in the discovery proceedings in the Roofers' Pension Fund case and the various individual cases described above.

The Starboard Value and Opportunity C LP complaint also asserts claims under Securities Exchange Act section 10(b) (and Rule 10b-5) against all defendants and section 20(a) control person claims against the individual defendants based on events related to alleged price fixing activities with respect to generic prescription drugs during periods that overlap to some extent with the period alleged in the various other cases described above. Plaintiffs contend that the defendants provided inadequate disclosure during 2016 about generic prescription drug business and those alleged matters. The lawsuit was filed on February 25, 2021; but by agreement the case was administratively terminated by the court in June 2021 pending a decision on the same defendants’ motions currently pending before the court in the Roofers' Pension Fund case described above.

The Highfields federal case complaint asserted claims under Sections 14(e) and 18 of the Securities Exchange Act against all defendants, as well as control person liability under Section 20(a) of the Securities Exchange Act against the individual defendants. As originally filed in the U.S. District Court for the District of Massachusetts, the Highfields complaint also alleged claims under the Massachusetts Unfair Business Methods
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Law (chapter 93A) and Massachusetts common law claims of tortious interference with prospective economic advantage, common law fraud, negligent misrepresentation, and unjust enrichment. The factual allegations generally were similar to the factual allegations in the Amended Complaint in the Roofers' Pension Fund case described above, except that the Highfields plaintiffs did not include allegations about alleged collusive pricing of generic prescription drugs. In March 2020, the District of Massachusetts court granted defendants’ motion and transferred the case to the U.S. District Court for the District of New Jersey so that the activities in the case could proceed in tandem with the other cases in the District of New Jersey described above. After the transfer, in June 2020, the Highfields plaintiffs voluntarily dismissed their federal lawsuit. The same Highfields plaintiffs the same day then filed a new lawsuit in Massachusetts State Court asserting the same factual allegations as in their federal lawsuit and alleging only Massachusetts state law claims under the Massachusetts Unfair Business Methods Law (chapter 93A) and Massachusetts common law claims of tortious interference with prospective economic advantage, common law fraud, negligent misrepresentation, and unjust enrichment. Defendants’ motion to dismiss was fully briefed as of late November 2020, argument occurred in early May 2021, and the motion is pending before the court.

In Israel (cases related to events in 2015-2017)

Because our shares are traded on the Tel Aviv exchange under a dual trading arrangement, we are potentially subject to securities litigation in Israel. NaN cases were filed; 1 was voluntarily dismissed in each of 2017 and 2018 and 1 was stayed in 2018. We are consulting with Israeli counsel about our response to these allegations and we intend to defend this case vigorously.

On June 28, 2017, a plaintiff filed a complaint in Tel Aviv District Court styled Israel Elec. Corp. Employees’ Educ. Fund v. Perrigo Company plc, et al. The lead plaintiff seeks to represent a class of shareholders who purchased Perrigo stock on the Tel Aviv exchange during the period from April 24, 2015 through May 3, 2017 and also a claim for those that owned shares on the final day of the Mylan tender offer (November 13, 2015). The amended complaint names as defendants the Company, Ernst & Young LLP (the Company’s auditor), and 11 current or former directors and officers of Perrigo (Mses. Judy Brown, Laurie Brlas, Jacqualyn Fouse, Ellen Hoffing, and Messrs. Joe Papa, Marc Coucke, Gary Cohen, Michael Jandernoa, Gerald Kunkle, Herman Morris, and Donal O’Connor). The complaint alleges violations under U.S. securities laws of Securities Exchange Act sections 10(b) (and Rule 10b‑5) and 14(e) against all defendants and 20(a) control person liability against the 11 individuals or, in the alternative, under Israeli securities laws. In general, the allegations concern the actions taken by us and our former executives to defend against the unsolicited takeover bid by Mylan in the period from April 21, 2015 through November 13, 2015 and the allegedly inadequate disclosure concerning purported integration problems related to the Omega acquisition, alleges incorrect reporting of organic growth at the Company, alleges price fixing activities with respect to 6 generic prescription pharmaceuticals, and alleges improper accounting for the Tysabri® royalty stream. The plaintiff indicates an initial, preliminary class damages estimate of 2.7 billion NIS (approximately $760.0 million at 1 NIS = 0.28 cents). After the other 2 cases filed in Israel were voluntarily dismissed, the plaintiff in this case agreed to stay this case pending the outcome of the Roofers’ Pension Fund case in the U.S. (described above). The Israeli court approved the stay, and this case is now stayed. We intend to defend the lawsuit vigorously.
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In the United States (cases related to Irish Tax events)

On January 3, 2019, a shareholder filed a complaint against the Company, our CEO Murray Kessler, and our former CFO Ronald Winowiecki in the U.S. District Court for the Southern District of New York (Masih v. Perrigo Company, et al.). Plaintiff purported to represent a class of shareholders for the period November 8, 2018 through December 20, 2018, inclusive. The complaint alleged violations of Securities Exchange Act section 10(b) (and Rule 10b‑5) against all defendants and section 20(a) control person liability against the individual defendants. In general the allegations contended that the Company, in its Form 10-Q filed November 8, 2018, disclosed information about an October 31, 2018 audit finding letter received from Irish tax authorities but failed to disclose enough material information about that letter until December 20, 2018, when we filed a current report on Form 8‑K about Irish tax matters. The plaintiff did not provide an estimate of class damages. The court selected lead plaintiffs and changed the name of the case to In re Perrigo Company plc Sec. Litig. The lead plaintiffs filed an amended complaint on April 12, 2019, which named the same defendants, asserted the same class period, and invoked the same Exchange Act sections. The amended complaint generally repeated the allegations of the original complaint with a few additional details and adds that the defendants also failed to timely disclose the Irish tax authorities’ Notice of Amended Assessment received on November 29, 2018. Defendants filed a motion to dismiss on May 3, 2019. On May 31, 2019, the plaintiffs filed a second amended complaint, which asserted a longer class period (March 1, 2018 through December 20, 2018) and added 1 additional individual defendant, former CEO Uwe Roehrhoff. In general, the second amended complaint contends that Perrigo’s disclosures about the Irish tax audit were inadequate beginning with Perrigo’s 10-K filed on March 1, 2018 through December 20, 2018 and repeats many of the allegations of the April 2019 amended complaint. The second amended complaint alleges violations of Securities Exchange Act section 10(b) (and Rule 10b-5) against all defendants and section 20(a) control person liability against the 3 individual defendants. All defendants filed a joint motion to dismiss, and the motion was fully briefed. On January 23, 2020, the court granted the motion to dismiss in part and denied it in part, dismissing Mr. Roehrhoff as a defendant and dismissing allegations of inadequate disclosures related to the audit by Irish Revenue during the period March 2018 through October 30, 2018. The court permitted the plaintiffs to pursue their claims against us, Mr. Kessler, and Mr. Winowiecki related to disclosures after Perrigo received the October 30, 2018 audit findings letter and later events through December 20, 2018. The defendants filed answers on February 13, 2020 denying liability, and the court issued a scheduling order on March 3, 2020 that has been subsequently modified. Discovery on the remaining issues ended in early March 2021. Plaintiffs filed a motion for class certification, which was granted in September 2020. In January 2021, class plaintiffs filed a motion for leave to file a third amended complaint in an effort to revive their claim that the disclosure of the audit during the period from March 1, 2018 to October 30, 2018 was also inadequate. The court denied the motion in February 2021. Defendants filed motions for summary judgement and other post discovery motions on March 31, 2021 and plaintiffs filed cross-motions of the same type on the same day. All motions were fully briefed by late May 2021.During the week of July 11, 2021, the Court issued various opinions and orders denying some of the motions by both parties, and granting in part certain motions by plaintiffs. Defendants filed a motion for reconsideration for some of the rulings in late July, which the court granted in part in August. The court also indicated that the parties should prepare for trial in mid-October 2021 (subject to COVID-19 developments), without setting an exact trial date.

The court simultaneously ordered mediation, which led to a settlement that the parties first publicly announced in a court filing on September 8, 2021. Trial was cancelled when a settlement was reached. Motion papers seeking approval of the class action settlement were filed on October 4, 2021. The court issued a preliminary approval order on October 29, 2021, which will lead to the issuance of notices to class members. The final approval hearing is set for February 16, 2022. The settlement will be funded by insurance.

In Israel (case related to Irish Tax events)

On December 31, 2018, a shareholder filed an action against the Company, our CEO Murray Kessler, and our former CFO Ronald Winowiecki in Tel Aviv District Court (Baton v. Perrigo Company plc, et. al.). The case is a securities class action brought in Israel making similar factual allegations for the same period as those asserted in the In re Perrigo Company plc Sec. Litig case in New York federal court. This case alleges that persons who invested through the Tel Aviv stock exchange can assert claims under Israeli securities law that will follow the liability principles of Sections 10(b) and 20(a) of the U.S. Securities Exchange Act. The plaintiff does not provide an estimate of class damages. In 2019, the court granted 2 requests by Perrigo to stay the proceedings pending the resolution of proceedings in the United States. Perrigo filed a further request for a stay in February 2020, and the court granted the stay indefinitely. The plaintiff filed a motion to lift the stay then later agreed that the case should remain stayed through February 2021. In late February 2021, Perrigo filed a motion to extend the stay to mid-May 2021, and plaintiff later agreed to the request. The case is currently stayed until December 15, 2021. We intend to defend the lawsuit vigorously.

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Claim Arising from the Omega Acquisition

On December 16, 2016, we and Perrigo Ireland 2 brought an arbitral claim ("Claim") against Alychlo NV ("Alychlo") and Holdco I BE NV (together the "Sellers") in accordance with clause 26.2 of the Share Purchase Agreement dated November 6, 2014 ("SPA") and the rules of the Belgian Centre for Arbitration and Mediation ("CEPANI"). Our Claim relates to the accuracy and completeness of information about Omega provided by the Sellers as part of the sale process, the withholding of information by the Sellers during that process and breaches of Sellers’ warranties. We are seeking monetary damages from the Sellers. The Sellers served their respective responses to the Claim on February 20, 2017. In its response, Alychlo asserted a counterclaim for monetary damages contending that we breached a warranty in the SPA and breached the duty of good faith in performing the SPA. Alychlo subsequently filed papers seeking permission to introduce an additional counterclaim theory of recovery related to the Irish tax issues disclosed by the Company such that if the position of the Irish tax authorities prevails, Alychlo would have further basis for its counterclaim against Perrigo. In June 2019, the Tribunal denied permission for Alychlo to introduce the additional counterclaim and dismissed certain aspects of the original Alychlo counterclaim.

On August 27, 2021 the Tribunal issued its ruling. The panel found fraud by the Sellers of Omega and awarded Perrigo approximately €355.0 million ($417.6 million at the time of cash receipt) including fees and costs. The panel also ruled against the Sellers and in favor of Perrigo on all counterclaims. The Sellers have paid all amounts owed under the award which Perrigo publicly announced in a press release issued September 29, 2021. The Sellers have the right to challenge the Tribunal’s award for up to three months following the date of the award (until late November 2021). The arbitration proceedings are confidential as required by the SPA and the rules of CEPANI.

Other Matters

Talcum Powder

The Company has been named, together with other manufacturers, in product liability lawsuits in state courts in California, Florida, Missouri, New Jersey, Louisiana and Illinois alleging that the use of body powder products containing talcum powder causes mesothelioma and lung cancer due to the presence of asbestos. All but one of these cases involve legacy talcum powder products that have not been manufactured by the Company since 1999. One of the pending actions involves a current prescription product that contains talc as an excipient. As of October 2, 2021, the Company is currently named in 57 individual lawsuits seeking compensatory and punitive damages and has accepted a tender for a portion of the defense costs and liability from a retailer for 1 additional matter. The Company has several defenses and intends to aggressively defend these lawsuits. Trials for these lawsuits are currently scheduled throughout 2021, 2022 and 2023, with the earliest that began in September 2021.

Ranitidine

After regulatory bodies announced worldwide that ranitidine may potentially contain N-nitrosodimethylamine ("NDMA"), a known environmental contaminant, the Company promptly began testing its externally-sourced ranitidine API and ranitidine-based products. On October 8, 2019, the Company halted shipments of the product based upon preliminary results and on October 23, 2019, the Company made the decision to conduct a voluntary retail market withdrawal.

In February 2020, the resulting actions involving Zantac® and other ranitidine products were transferred for coordinated pretrial proceedings to a Multi-District Litigation (In re Zantac®/Ranitidine Products Liability Litigation MDL No. 2924) in the U.S. District Court for the Southern District of Florida. After the Company successfully moved to dismiss the first set of Master Complaints in the MDL, it now includes 3: 1) an Amended Master Personal Injury Complaint; 2) a Consolidated Amended Consumer Economic Loss Class Action Complaint; and 3) a Consolidated Medical Monitoring Class Action Complaint. All 3 name the Company. Plaintiffs appealed 1 of the original Master Complaints, the Third-Party Payor Complaint, and 2 individual plaintiffs appealed their individual personal injury claims on limited grounds. The Company is not named in the appeals.

On June 30, 2021, the Court dismissed all claims against the retail and distributor defendants with prejudice, thereby reducing the Company’s potential for exposure and liability related to possible indemnification. On July 8, 2021, the Court dismissed all claims against the Company with prejudice. Appeals of these dismissal
49
Perrigo Company plc - Item 1
Note 16

orders to the U.S. Court of Appeals for the 11th Circuit have been filed, as well several state level claims related to the theories advanced in the MDL litigation. The Company will continue to vigorously defend each of these lawsuits.

As of November 5, 2021, the Company has been named in two hundred eighty (280) of the MDL’s consolidated personal injury lawsuits tied to various federal courts alleging that plaintiffs developed various types of cancers or are placed at higher risk of developing cancer as a result of ingesting products containing ranitidine. The Company is named in these lawsuits with manufacturers of the national brand Zantac® and other manufacturers of ranitidine products, as well as distributors, repackagers, and/or retailers. Plaintiffs seek compensatory and punitive damages, and in some instances seek applicable remedies under state consumer protection laws.

The Company has also been named in a Complaint brought by the New Mexico Attorney General based on the following theories: violation of a New Mexico public nuisance statute, NMSA 30-8-1 to -14; common law nuisance; and negligence and gross negligence. The Company is named in this lawsuit with manufacturers of the national brand Zantac® and other manufacturers of ranitidine products and/or retailers. Brand name manufactures named in the lawsuit also face claims under the state’s Unfair Practices & False Advertising acts. Likewise, the Company has also been named in a Complaint brought by the Mayor and City Council of Baltimore, along with manufacturers of the national brand Zantac® and other manufacturers of ranitidine products and/or retailers. This action brings claims under the Maryland Consumer Protection Act against the brand name defendants only, as well as public nuisance and negligence for the remaining defendants. The Company was originally able to consolidate the New Mexico and Baltimore Actions to the MDL, however both actions were recently remanded to state court. The Company filed motions to dismiss in both actions. The New Mexico District Court denied the Company’s Motion to Dismiss and litigation continues. The Maryland Circuit Court has not issued a ruling on the Company’s Motion. The Company will continue to vigorously defend each of these lawsuits.

Some of the Company’s retailer customers are seeking indemnity from the Company for a portion of their defense costs and liability relating to these cases.
Acetaminophen

The Company has received requests for indemnification and defense of several consumer fraud claims involving its store brand infants’ and children’s acetaminophen products. In September 2020, the Company was directly named as a defendant in 1 suit filed in the Central District of California. The Company was recently named in a cross complaint by a retailer for contractual indemnity in California Superior Court, Alameda County. The Company has also received 16 different claims for indemnification or defense from 10 different retailers for lawsuits filed in California, Illinois, Florida, Minnesota and Pennsylvania, with nationwide class action allegations.

The Plaintiffs generally allege that the children’s and infants’ acetaminophen products have identical drug concentration amounts, yet the infants’ product costs more than the children’s product and consumers have been misled into purchasing the more expensive product. The Company will aggressively defend the suits in which it is named and is continuing to assess whether, or to what extent, the Company may contribute in the lawsuits filed against its retail customers.

Guarantee Liability Related to The Israel API Sale

During the year ended December 31, 2017, we completed the sale of our Israel API business to SK Capital, resulting in a guarantee liability of $13.8 million, classified as a Level 3 liability within the fair value hierarchy. Pursuant to the agreement, we will be reimbursed for tax receivables for tax years prior to closing and will need to reimburse SK Capital for the settlement of any uncertain tax liability positions for tax years prior to closing. In addition, after closing and going forward, the Israel API business will be assessed by and liable to the ITA for any audit findings. We are no longer the primary obligor on the liabilities transferred to SK Capital, but we have provided a guarantee on certain obligations. During the three months ended July 3, 2021, we paid $12.5 million to resolve the tax liability indemnity for the tax year ended December 31, 2017 (refer to Note 15). At October 2, 2021 and December 31, 2020, the remaining guarantee liability was $0.6 million and $13.2 million, respectively.

50
Perrigo Company plc - Item 1
Note 16

Contingencies Accruals

As a result of the matters discussed in this Note, the Company has established a loss accrual for litigation contingencies where we believe a loss to be probable and for which an amount of loss can be reasonably estimated. However, we cannot determine a reasonable estimate of the maximum possible loss or range of loss for these matters given that they are at various stages of the litigation process and each case is subject to inherent uncertainties of litigation. At October 2, 2021, the loss accrual for litigation contingencies reflected on the balance sheet in Other accrued liabilities was approximately $96.9 million. The Company also recorded an insurance recovery receivable reflected on the balance sheet in Prepaid expenses and other current assets of approximately $83.4 million related to these litigation contingencies because it believes such amount is recoverable based on communications with its insurers to date; however, the Company may erode this insurance receivable as it incurs defense costs associated with defending the matters. The Company’s management believes these accruals for contingencies are reasonable and sufficient based upon information currently available to management; however, there can be no assurance that final costs related to these contingencies will not exceed current estimates or that all of the final costs related to these contingencies will be covered by insurance. (See "Insurance Coverage Litigation," below.) In addition, we have other litigation matters pending for which we have not recorded any accruals because our potential liability for those matters is not probable or cannot be reasonably estimated based on currently available information. For those matters where we have not recorded an accrual but a loss is reasonably possible, we cannot determine a reasonable estimate of the maximum possible loss or range of loss for these matters given that they are at various stages of the litigation process and each case is subject to the inherent uncertainties of litigation.

Insurance Coverage Litigation

In May 2021 insurers on multiple policies of D&O insurance filed an action in the High Court in Dublin against the Company and multiple current and former directors and officers of the Company seeking declaratory judgments on certain coverage issues. Those coverage issues include claims that policies for periods beginning in December 2015 and December 2016, respectively, do not have to provide coverage for the securities actions described above pending in the District of New Jersey or in Massachusetts state court concerning the events of 2015-2017. The policy for the period beginning December 2014 is currently providing coverage for those matters, and the litigation would not affect that existing coverage. However, if the plaintiffs are successful, the total amount of insurance coverage available to defend such lawsuits and to satisfy any judgment or settlement costs thereunder would be limited to 1 policy period. The insurers’ lawsuit also challenges coverage for Krueger derivatively on behalf of nominal defendant Perrigo Company plc v. Alford et al., a prior derivative action filed in the District of New Jersey that was dismissed in August 2020, and for the counterclaims brought in the Omega arbitration proceedings. Perrigo responded on November 1, 2021; Perrigo’s response includes its position that the policies for the periods beginning December 2015 and December 2016 provide coverage for the underlying litigation matters and seeks a ruling to that effect. We intend to defend the lawsuit vigorously.

NOTE 17 – RESTRUCTURING CHARGES


We periodically take action to reduce redundant expenses and improve operating efficiencies. Restructuring activity includes severance, lease exit costs, and related consulting fees. The following reflects our restructuring activity (in millions):
Three Months EndedNine Months Ended
October 2,
2021		September 26,
2020		October 2,
2021		September 26,
2020
Beginning balance$10.2 $9.4 $9.1 $19.5 
Additional charges1.0 0.8 11.8 1.5 
Payments(3.7)(2.9)(13.3)(13.7)
Non-cash adjustments(0.1)0.2 (0.2)0.2 
Ending balance$7.4 $7.5 $7.4 $7.5 
 Three Months Ended Nine Months Ended
 September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Beginning balance$39.7
 $12.2
 $19.7
 $20.7
Additional charges3.8
 6.6
 54.7
 17.9
Payments(17.8) (8.6) (47.6) (33.3)
Non-cash adjustments0.4
 0.1
 (0.7) 5.0
Ending balance$26.1
 $10.3
 $26.1
 $10.3


Restructuring activity includes severance, lease exit costs, and asset impairments. The charges incurred during the three and nine months ended October 2, 2021 and September 30, 201726, 2020 were primarily associated with actions we tooktaken to streamline our organization as announced on February 21, 2017. During the three and nine months ended September 30, 2017, $3.8 million and $54.7 million of restructuring expenses were recorded, respectively. Of the amount recorded during the nine months ended September 30, 2017, $27.2 million was related to the CHCA segment. organization.

51
Perrigo Company plc - Item 1
Note 17

There were no other material restructuring programs that significantly impacted any other reportable segments.for the three and nine months ended October 2, 2021 and September 26, 2020. All charges are recorded in Restructuring expense on the Condensed Consolidated Statements of Operations. The remaining $22.4$7.4 million liability for employee severance benefits is expected to be paid within the next year, while the remaining $3.7 million liability for lease exit costs is expected to be incurred over the remaining terms of the applicable leases.year.


NOTE 16 – SEGMENT INFORMATION
Our reporting segments are as follows:

CHCA,comprises our U.S., Mexico and Canada consumer healthcare business (OTC, contract, infant formula and animal health categories).
CHCI,comprises our legacy Branded Consumer Healthcare segment and now includes our consumer focused businesses in the U.K., Australia, and Israel. This segment also includes our U.K. liquid licensed products business.
RX,comprises our U.S. Prescription Pharmaceuticals business.

We also have an "Other" reporting segment that consists of our legacy API business, which does not meet the quantitative threshold required to be a separately reportable segment. Effective January 1, 2017, due to the sale of the Tysabri® financial asset, all legal expenses associated with the former Specialty Sciences segment were moved to unallocated expenses. Our segments reflect the way in which our chief operating decision maker reviews our operating results and allocates resources.

Perrigo Company plc - Item 1
Note 16


The below tables show select financial measures by reporting segment (in millions):
  Total Assets
  September 30,
2017		 December 31,
2016
CHCA $3,833.7
 $3,351.3
CHCI 5,114.2
 4,795.2
RX 2,597.0
 2,646.4
Specialty Sciences —
 2,775.8
Other 297.7
 301.4
Total $11,842.6
 $13,870.1
 Three Months Ended
 September 30, 2017 October 1, 2016
 
Net
Sales
 Operating Income (Loss) Intangible Asset Amortization 
Net
Sales
 Operating Income (Loss) Intangible Asset Amortization
CHCA$598.8
 $124.3
 $16.9
 $611.2
 $99.0
 $17.6
CHCI365.4
 4.6
 50.2
 377.4
 (1,615.5) 44.4
RX250.6
 82.1
 21.0
 251.9
 74.4
 27.2
Specialty Sciences—
 —
 —
 —
 3.2
 —
Other16.5
 (0.4) 0.4
 21.1
 (1.5) 0.5
Unallocated—
 (48.2) —
 —
 (27.9) —
Total$1,231.3
 $162.4
 $88.5
 $1,261.6
 $(1,468.3) $89.7

 Nine Months Ended
 September 30, 2017 October 1, 2016
 
Net
Sales
 Operating Income (Loss) Intangible Asset Amortization 
Net
Sales
 Operating Income (Loss) Intangible Asset Amortization
CHCA$1,786.4
 $303.6
 $51.1
 $1,880.2
 $316.4
 $53.3
CHCI1,116.8
 8.7
 143.4
 1,232.7
 (2,011.3) 130.6
RX708.4
 239.6
 65.6
 776.9
 258.3
 78.6
Specialty Sciences—
 —
 —
 —
 (1.9) —
Other51.5
 9.4
 1.2
 59.5
 2.6
 1.4
Unallocated—
 (121.7) —
 —
 (79.2) —
Total$3,663.1
 $439.6
 $261.3
 $3,949.3
 $(1,515.1) $263.9

ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSNOTE 18 – SEGMENT INFORMATION

EXECUTIVE OVERVIEW

This Management’s DiscussionOur segments reflect the way in which our management makes operating decisions, allocates resources, and Analysismanages the growth and profitability of Financial Condition and Resultsthe Company. As discussed in Note 8, as of Operations should be read in conjunction withMarch 1, 2021, the financial statements included in this Form 10-Qresults and our Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”). These historical financial statements may not be indicative of our future performance. This discussion contains a number of forward-looking statements, all of which are based on our current expectationsassets and could be affected by the uncertainties and risks referred to under “Risk Factors” in Item 1A of our 2016 Form 10-K and Part II, Item 1A of this Form 10-Q.

Perrigo Company plc was incorporated under the laws of Ireland on June 28, 2013 and became the successor registrant of Perrigo Company, a Michigan corporation, on December 18, 2013 in connection with the acquisition of Elan Corporation, plc ("Elan"). 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.
Perrigo Company plc - Item 2
Executive Overview




We are a leading global healthcare company that delivers value to our customers and consumers by providing Quality Affordable Healthcare Products®. Founded in 1887 as a packager of home remedies, we have built a unique business model that is best described as the convergence of a fast-moving consumer goods company, a high-quality pharmaceutical manufacturing organization and a world-class supply chain network. We believe we are oneliabilities of the world's largest manufacturers of over-the-counter (“OTC”) healthcare products and suppliers of infant formulas for the store brand market. We alsoRX business are a leading provider of branded OTC products throughout Europe and the U.S.,classified as well as a leading producer of generic standard topical products such as creams, lotions, and gels, as well as inhalants and injections ("extended topical") prescription drugs. We are headquartereddiscontinued operations in Ireland, and sell our products primarily in North America and Europe, as well as in other markets, including Australia, Israel and China.

             Our reporting segments are as follows:

Consumer Healthcare Americas ("CHCA"), comprises our U.S., Mexico and Canada consumer healthcare business (OTC, contract, infant formula and animal health categories).
Consumer Healthcare International("CHCI"),comprises our legacy Branded Consumer Healthcare segment and now includes our consumer focused businesses in the U.K., Australia, and Israel. This segment also includes our U.K. liquid licensed products business.
Prescription Pharmaceuticals("RX"),comprises our U.S. Prescription Pharmaceuticals business.

We also have an "Other" reporting segment, which comprises our legacy Active Pharmaceutical Ingredients ("API") business,which does not meet the quantitative threshold required to be a separately reportable segment. Effective January 1, 2017, due to the sale of the Tysabri® financial asset, all legal expenses associated with our former Specialty Sciences segment were moved to unallocated expenses. For results by segment, see "Segment Results" below and Item 1. Note 16.

2017 Year-to-Date Highlights

•
On March 27, 2017, we completed the sale of our Tysabri® financial asset, effective January 1, 2017, to Royalty Pharma for up to $2.85 billion, which consists of $2.2 billion in cash and up to $250.0 million and $400.0 million in milestone payments if the royalties on global net sales of Tysabri® that are received by Royalty Pharma meet specific thresholds in 2018 and 2020, respectively. As a result of this transaction, we derecognized the Tysabri® financial asset and recorded a $17.1 million gain (refer to Item 1. Note 6).

•
On April 6, 2017, we completed the sale of our India API business to Strides Shasun Limited for $22.2 million, inclusive of an estimated working capital adjustment. The sale did not have a material impact on our operations (refer to Item 1. Note 2).

•
On August 4, 2017, we signed a definitive agreement for the sale of our Israel API business to SK Capital for $110.0 million in cash, inclusive of a net debt adjustment. We expect to finalize the sale within the next three months. The sale is not expected to have a material impact on our operations (refer to Item 1. Note 9).

•
We completed $2.2 billion of debt repayments during the nine months ended September 30, 2017 (refer to Item 1. Note 10).

•
On August 25, 2017, we completed the sale of our Russian business to Alvogen Pharma LLC and Alvogen CEE Kft. for €12.7 million ($15.1 million), inclusive of an estimated working capital adjustment. The sale did not have a material impact on our operations (refer to Item 1. Note 2).


Perrigo Company plc - Item 2
Consolidated


RESULTS OF OPERATIONS

CONSOLIDATED

Consolidated Results
 Three Months Ended Nine Months Ended
($ in millions)October 1,
2016		 September 30,
2017		 October 1,
2016		 September 30,
2017
Net sales$1,261.6
 $1,231.3
 $3,949.3
 $3,663.1
Gross profit$484.5
 $497.8
 $1,564.1
 $1,466.7
Gross profit %38.4 % 40.4% 39.6 % 40.0%
Operating expenses$1,952.8
 $335.4
 $3,079.2
 $1,027.1
Operating expenses %154.8 % 27.2% 78.0 % 28.0%
Operating income (loss)$(1,468.3) $162.4
 $(1,515.1) $439.6
Operating income (loss) %(116.4)% 13.2% (38.4)% 12.0%
Change in financial assets$377.4
 $2.6
 $1,492.6
 $24.2
Interest and other, net$55.6
 $31.1
 $195.6
 $132.0
Loss on extinguishment of debt$0.7
 $—
 $1.1
 $135.2
Income tax expense (benefit)$(311.8) $84.2
 $(550.7) $101.8
Net income (loss)$(1,590.2) $44.5
 $(2,653.7) $46.4
cy17q110q_chart-47601a02.jpgcy17q210q_chart-39323a01.jpg

The $30.3 million decrease in consolidated net sales for the three months ended September 30, 2017 as compared to the prior year period was due to discontinued products of $6.2 million, lower sales in the CHCA segment, due primarily to the absence of $21.0 million of sales related to the U.S. Vitamins, Minerals, and Supplements ("VMS") business, lower sales in the CHCI segment due primarily to the absence of $41.7 million of sales as a result of the cancellation of certain distribution contracts, and lower sales in the RX segment driven by lower net sales of Entocort® in the amount of $10.2 million and pricing pressures across the portfolio. These decreases were partially offset by new product sales of $55.4 million and favorable foreign currency translation of $13.0 million. Consolidated operating income for the three months ended September 30, 2017 increased due primarily to the absence of asset impairment charges in the amount of $1.6 billion taken in the prior year period (refer to Item 1. Note 3).

The $286.2 million decrease in consolidated net sales for the nine months ended September 30, 2017 as compared to the prior year period was due to discontinued products of $18.4 million, lower sales in the CHCA segment due primarily to the absence of $110.1 million of sales related to the U.S. VMS business, lower sales in the CHCI segment due primarily to the absence of $118.4 million of sales as a result of the cancellation of certain distribution contracts, and lower sales in the RX segment driven by lower net sales of Entocort® in the amount of $61.4 million and pricing pressures across the portfolio. These decreases were partially offset by new product sales
Perrigo Company plc - Item 2
Consolidated


of $155.8 million. Consolidated operating income for the nine months ended September 30, 2017 increased due primarily to the absence of asset impairment charges in the amount of $2.0 billion taken in the prior year period (refer to Item 1. Note 3).

Further details and analysis of our financial results for the three and nine months endedSeptember 30, 2017 are described below by reporting segment and line item. Refer to the "Unallocated Expenses," "Interest, Other and Change in financial assets (Consolidated)," and "Income Taxes (Consolidated)" sections below for discussions related to our expenses.

Restructuring

On February 21, 2017, we approved a workforce reduction plan as part of a larger cost optimization strategy across the Company. We expect to reduce our global workforce by approximately 750 employees, which includes some actions already taken and 235 employees who have elected to participate in a voluntary early retirement program. This represents a reduction of approximately 14% of our global non-production workforce. The changes to our workforce will vary by country, based on legal requirements and required consultations with works councils and other employee representatives, as appropriate.

In connection with this plan, we estimate that we will recognize total pre-tax restructuring charges of approximately $55.0 million to $65.0 million, consisting of one-time termination benefits, severance arrangements, and other termination costs. We expect to incur the majority of the remaining charges in 2017, with the balance to be recognized during the first quarter of the year ending December 31, 2018. During the three and nine months ended September 30, 2017, we recognized $3.8 million and $54.7 million, respectively, of restructuring expenses due primarily to this cost optimization strategy.

Our cost optimization strategy is expected to yield approximately $130.0 million in savings per annum by mid-2018. This is in addition to the savings that our supply chain organization continues to generate for both our North American and International segments.

CONSUMER HEALTHCARE AMERICAS

Recent Trends and Developments

We continue to experience a reduction in pricing expectations within our CHCA segment, primarily in the cough/cold, animal health, and analgesics categories due to various factors, including increased focus from customers to capture supply chain productivity savings and competition in specific product categories. We expect this pricing environment to continue to impact our CHCA segment for the foreseeable future.

•
We completed the sale of the animal health pet treats plant fixed assets on February 1, 2017 and received $7.7 million in proceeds (refer to Item 1. Note 2).

Perrigo Company plc - Item 2
CHCA


Segment Results

Three Month Comparison
cy17q110q_chart-47252a02.jpg

 Three Months Ended
($ in millions)October 1,
2016		 September 30,
2017
Net sales$611.2
 $598.8
Gross profit$199.2
 $206.1
Gross profit %32.6% 34.4%
Operating income$99.0
 $124.3
Operating income %16.2% 20.8%
Three Months Ended September 30, 2017 vs. Three Months Ended October 1, 2016

Net sales decreased $12.4 million, or 2%, over the prior year period due to:

•
New product sales of $13.2 million related primarily to the launches of Esomemprazole Magnesium (store brand equivalent to Nexium®); and
Favorable foreign currency translation movement of $1.4 million; more than offset by
•
The absence of $21.0 million in sales attributable to the U.S. VMS business, which was sold in August 2016 (refer to Item 1. Note 2);
A net decrease in sales of existing products of $3.2 million due primarily to:
Higher sales in the gastrointestinal and animal health categories and in our Mexico business;
Pricing pressures in the cough/cold, and analgesics categories; and
Lower volumes in the nicotine replacement category; and
Discontinued products of $2.7 million.

Operating income increased $25.3 million, or 26%, as a result of:

An increase of $6.9 million in gross profit due to:
Favorable product mix in certain categories; and
Positive contributions from supply chain efficiencies; offset partially by
•
The absence of $3.4 million in gross profit as a result of the sale of the U.S. VMS business (refer to Item 1. Note 2); and
Pricing pressures in certain categories as discussed above.

A decrease of $18.4 million in operating expenses due to:
•
Decreased restructuring expense of $4.8 million related primarily to the cost reduction initiatives taken in the prior year (refer to Item 1. Note 15);
Decreased selling and administrative expenses of $4.8 million due primarily to timing of promotions related to our animal health category and savings related to our previously announced strategic initiatives;
Decreased Research and Development ("R&D") expenses of $4.5 million due to timing of clinical trials; and
•
The absence of a $3.4 million impairment charge related to held-for-sale assets associated with our animal health pet treats plant (refer to Item 1. Note 9); offset partially by
•
A $2.0 million gain related to contingent consideration (refer to Item 1. Note 6).

Gross profit as a percentage of net sales was 1.8% higher due primarily to favorable product mix and supply chain efficiencies as discussed above.

Perrigo Company plc - Item 2
CHCA


Operating income as a percentage of net sales was 4.6% higher due primarily to favorable product mix as discussed above and decreased operating expenses.

Nine Month Comparison
cy17q210q_chart-39117a01.jpg

 Nine Months Ended
($ in millions)October 1,
2016		 September 30,
2017
Net sales$1,880.2
 $1,786.4
Gross profit$615.1
 $598.3
Gross profit %32.7% 33.5%
Operating income$316.4
 $303.6
Operating income %16.8% 17.0%
Nine Months Ended September 30, 2017 vs. Nine Months Ended October 1, 2016

Net sales decreased $93.8 million, or 5%, over the prior year period due to:

•
New product sales of $51.2 million related primarily to the launches of fluticasone nasal spray (store brand equivalent to Flonase®), smoking cessation products and Esomemprazole Magnesium (store brand equivalent to Nexium®); more than offset by
•
The absence of $110.1 million in sales attributable to the U.S. VMS business (refer to Item 1. Note 2);
A net decrease in sales of existing products of $22.6 million due to:
Higher sales in the cough/cold category and Mexico business; more than offset by
Lower sales in our infant nutrition and animal health categories;
Pricing pressures in the cough/cold, analgesics, and gastrointestinal categories; and
Lower volumes in the nicotine replacement category;
Discontinued products of $11.1 million; and
Unfavorable foreign currency translation movement of $1.1 million.

Operating income decreased $12.8 million, or 4%, as a result of:

A decrease of $16.8 million in gross profit due to:
Favorable product mix in certain categories; and
Positive contributions from supply chain efficiencies; more than offset by
•
The absence of $17.6 million in gross profit as a result of the sale of the U.S. VMS business (refer to Item 1. Note 2); and
Pricing pressures in certain categories as discussed above.

A decrease of $4.0 million in operating expenses due to:
Decreased selling and administrative expenses of $10.8 million due primarily to timing of promotions related to our animal health category and savings related to our cost reduction initiatives taken in the prior year;
•
The absence of a $9.6 million impairment charge related to the U.S. VMS business (refer to Item 1. Note 2) and held-for-sale assets associated with our animal health pet treats plant (refer to Item 1. Note 9); and
Decreased R&D expenses of $7.6 million due to timing of clinical trials, reduced spending on infant formula clinical trials and lower costs related to our cost reduction initiatives; offset partially by
•
A $2.9 million gain related to contingent consideration (refer to Item 1. Note 6);
•
Increased restructuring expenses of $21.5 million related primarily to strategic organizational enhancements (refer to Item 1. Note 15); and
A $4.1 million impairment charge recorded on idle property, plant and equipment.

Perrigo Company plc - Item 2
CHCI


CONSUMER HEALTHCARE INTERNATIONAL

Recent Trends and Developments

As part of our strategic initiatives, management continues to drive improvements and evaluate the overall cost structures within our CHCI segment in the following ways:

On December 8, 2016, we announced the cancellation of the unprofitable EuroGenerics NV distribution agreement in Belgium. The cancellation, combined with the exit of certain OTC distribution agreements, is expected to reduce net sales by approximately $210.0 million in 2017.

We continue to make progress on our previously announced restructuring plans to right-size the Omega business due to the impact of market dynamics on sales volumes. Management continues to evaluate the overall cost structure relative to current and expected market dynamics. During the three and nine months ended September 30, 2017, we recognized $3.6 million and $13.2 million of restructuring expense in the CHCI segment, respectively.

Management continues to evaluate the most effective business model for each country, aligning our sales infrastructure and actively integrating sales strategies with promotional programs.

•
On August 25, 2017, we completed the sale of our Russian business, which was previously classified as held-for-sale, to Alvogen Pharma LLC and Alvogen CEE Kft. The total sale price was €12.7 million ($15.1 million), inclusive of an estimated working capital adjustment, which resulted in an immaterial gain in the segment (refer to Item 1. Note 2).

The combination of these actions is expected to improve the segment's focus on higher value OTC products, reduce selling costs and improve operating margins in the segment.

Segment Results

Three Month Comparison

cy17q110q_chart-47491a02.jpg

 Three Months Ended
($ in millions)October 1,
2016		 September 30,
2017
Net sales$377.4
 $365.4
Gross profit$155.2
 $165.9
Gross profit %41.1 % 45.4%
Operating income (loss)$(1,615.5) $4.6
Operating income (loss) %(428.1)% 1.2%
Three Months Ended September 30, 2017 vs. Three Months Ended October 1, 2016

Net sales decreased $12.0 million, or 3%, over the prior year period due primarily to:

Favorable foreign currency translation movement of $11.6 million;
New product sales of $11.4 million; and
A net increase in sales of existing products of $8.9 million due to increased sales primarily in the cough/cold, allergy, analgesics, and lifestyle categories; more than offset by
Perrigo Company plc - Item 2
CHCI


The absence of $41.7 million in sales attributable to the cancellation of unprofitable distribution contracts; and
Discontinued products of $3.2 million.

Operating income increased $1.6 billion, as a result of:

An increase of $10.7 million in gross profit due primarily to:
Favorable foreign currency translation movement;
Improved product mix for sales of existing products; and
Operational efficiencies across the organization.

A decrease of $1.6 billion in operating expenses due primarily to:
The absence of $1.6 billion of impairment charges on certain indefinite-lived and definite-lived intangible brand category assets and goodwill impairments in the Branded Consumer Healthcare - Rest of World ("BCH-ROW") and Branded Consumer Healthcare - Belgium ("BCH-Belgium")
reporting units recorded in the prior year period (refer to Item 1. Note 3); and
A decrease of $4.6 million in selling and administrative expenses due to previously announced strategic initiatives to better align promotional investments with sales and cost reduction initiatives taken in the current year; offset partially by
•
Increased restructuring charges totaling $1.2 million related to strategic organizational enhancements (refer to Item 1. Note 15).

Gross profit as a percentage of net sales was 4.3% higher due primarily to improved product mix primarily driven by the cancellation of certain unprofitable distribution contracts, as described above.

•
Operating income as a percentage of net sales was 429.3% higher due primarily to the absence of $1.6 billion of intangible asset and goodwill impairment charges as discussed above (refer to Item 1. Note 3).

Nine Month Comparison

cy17q210q_chart-39013a01.jpg


 Nine Months Ended
($ in millions)October 1,
2016		 September 30,
2017
Net sales$1,232.7
 $1,116.8
Gross profit$542.1
 $509.4
Gross profit %44.0% 45.6%
Operating income (loss)$(2,011.3) $8.7
Operating income (loss) %(163.2)% 0.8%

Nine Months EndedSeptember 30, 2017 vs. Nine Months EndedOctober 1, 2016

Net sales decreased $115.9 million, or 9%, over the prior year period due primarily to:

New product sales of $50.4 million; more than offset by
The absence of $118.4 million in sales attributable to the cancellation of unprofitable distribution contracts;
Unfavorable foreign currency translation movement of $25.2 million;
A decrease in sales of existing products of $17.4 million primarily in the anti-parasites and vitamins categories; and
Discontinued products of $5.0 million.

Perrigo Company plc - Item 2
CHCI


Operating income increased $2.0 billion due to:

A decrease of $32.7 million in gross profit due primarily to:
Improved product mix for sales of existing products; and
Operational efficiencies across the organization; more than offset by
Lower margins in our U.K. store brand business; and
Unfavorable foreign currency translation movement.

A decrease of $2.1 billion in operating expenses due primarily to:
The absence of $2.0 billion of impairment charges on certain indefinite-lived and definite-lived intangible brand category assets and goodwill impairments in the BCH-ROW and BCH-Belgium
reporting units recorded in the prior year period (refer to Item 1. Note 3); and
A decrease in selling and administrative expenses of $48.5 million due to previously announced strategic initiatives to better align promotional investments with sales and cost reduction initiatives taken in the current year; offset partially by
•
A $4.8 million impairment charge recorded related to the Russian business (refer to Item 1. Note 2) and In-Process Research and Development ("IPR&D"); and
•
Increased restructuring expense of $2.8 million related to strategic organizational enhancements (refer to Item 1. Note 15).

Gross profit as a percentage of net sales was 1.6% higher due primarily to improved product mix primarily driven by the cancellation of certain unprofitable distribution contracts, as described above.

•
Operating income as a percentage of net sales was 164.0% higher due primarily to the absence of $2.0 billion of intangible asset and goodwill impairment charges as discussed above (refer to Item 1. Note 3).

PRESCRIPTION PHARMACEUTICALS

Recent Trends and Developments

We continue to experience a significant reduction in pricing expectations from historical levels in our RX segment due to industry and competitive pressures. This softness in pricing is attributable to various factors, including increased focus from customers to capture supply chain productivity savings, low raw material commodity pricing, competition in specific products, and consolidation of certain customers. We expect this softness to continue to impact the segment for the foreseeable future, and we are forecasting a high single digit pricing decline in this segment for the year ending December 31, 2017.

On November 10, 2016, we announced that as part of our portfolio review process we are conducting a comprehensive internal evaluation of the RX segment's market position, growth opportunities, and interdependencies with our manufacturing and shared service operations to determine if strategic alternatives should be explored.

•
During the three months ended December 31, 2016, the U.S. market for Entocort® (Budesonide) capsules, including both brand and authorized generic capsules, experienced significant and unexpected increased competition, which reduced our future revenue stream. We expect our net sales in the RX segment for the year ending December 31, 2017 will be negatively impacted by approximately $67.0 million.

During the nine months ended September 30, 2017, we sold various Abbreviated New Drug Applications ("ANDAs") for a total gain of $23.0 million.

Perrigo Company plc - Item 2
RX


Segment Results

Three Month Comparison
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 Three Months Ended
($ in millions)October 1,
2016		 September 30,
2017
Net sales$251.9
 $250.6
Gross profit$120.9
 $116.7
Gross profit %48.0% 46.6%
Operating income$74.4
 $82.1
Operating income %29.5% 32.8%
Three Months Ended September 30, 2017 vs. Three Months Ended October 1, 2016

Net sales decreased $1.3 million, or 1%, due to:

•
New product sales of $30.8 million due primarily to the sale of Scopolamine and Testosterone 2% topical (store brand equivalent to Axiron®); more than offset by
Decreased sales of existing products of $21.5 million due primarily to pricing pressure across the portfolio; and
•
Lower Entocort® sales of $10.2 million.

Segment operating income increased $7.7 million, or 10%, as a result of:

A decrease of $4.2 million in gross profit due primarily to:
•
Lower Entocort® sales as discussed above; and
Pricing pressure as discussed above.

A decrease of $11.9 million in operating expenses due primarily to:
Decreased selling and administrative expenses of $8.4 million due primarily to the prior year specialty pharmaceuticals sales force restructuring initiative; and
Decreased R&D expenses of $7.3 million due to timing of clinical trials, lower legal spend, and lower ongoing costs on certain projects; offset partially by
A $4.0 million impairment charge on certain fixed assets in the current period.

•
Gross profit as a percentage of net sales was 1.4% lower due primarily to lower sales of Entocort® and pricing pressures.

•
Operating income as a percentage of net sales was 3.3% higher due primarily to decreased costs related to R&D spend and restructuring initiatives taken in the prior year; offset partially by lower sales of Entocort®.

Perrigo Company plc - Item 2
RX


Nine Month Comparison
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 Nine Months Ended
($ in millions)October 1,
2016		 September 30,
2017
Net sales$776.9
 $708.4
Gross profit$380.2
 $332.1
Gross profit %48.9% 46.9%
Operating income$258.3
 $239.6
Operating income %33.3% 33.8%
Nine Months Ended September 30, 2017 vs. Nine Months Ended October 1, 2016

Net sales decreased $68.5 million, or 9%, due to:

•
New product sales of $53.2 million due primarily to sales of Scopolamine and Testosterone 2% topical (store brand equivalent to Axiron®); more than offset by
•
Lower Entocort® sales of $61.4 million;
Decreased sales of existing products of $58.0 million due to decreased sales volume of certain products and pricing pressure across the portfolio; and
Discontinued products of $2.3 million.

Operating income decreased $18.7 million, or 7%, as a result of:

A decrease of $48.1 million in gross profit due primarily to:
•
Lower Entocort® sales as noted above; and
Pricing pressure as discussed above.

A decrease of $29.4 million in operating expenses due to:
A $23.0 million gain on sales of certain ANDAs;
•
A $17.0 million gain related to contingent consideration (refer to Item 1. Note 6);
Decreased selling and administrative expenses of $18.3 million due primarily to the prior year specialty pharmaceuticals sales force restructuring initiative; and
Decreased R&D expenses of $14.1 million due to timing of clinical trials, lower legal spend, and lower ongoing costs on certain projects; offset partially by
•
Impairment charges related to certain definite-lived intangible assets, certain fixed assets and IPR&D of $34.8 million (refer to Item 1. Note 3); and
•
Increased restructuring expenses of $5.9 million related to strategic organizational enhancements (refer to Item 1. Note 15).

•
Gross profit as a percentage of net sales was 2.0% lower due primarily to lower sales of Entocort® as discussed above.

Perrigo Company plc - Item 2
Other


OTHER

Recent Trends and Developments

On April 6, 2017, we completed the sale of our India API business to Strides Shasun Limited. We received $22.2 million of proceeds, inclusive of an estimated working capital adjustment, which resulted in an immaterial gain. Prior to closing the sale, we determined that the carrying value of the India API business exceeded its fair value less the cost to sell, resulting in an impairment charge of $35.3 million, which was recorded in Impairment charges on the Consolidated Statements of Operations for the year ended December 31, 2016 (refer to Item 1. Note 2).

On August 4, 2017, we signed a definitive agreement for the sale of our Israel API business to SK Capital for $110.0 million in cash, inclusive of a net debt adjustment. We expect to finalize the sale within the next three months, and the sale is not expected to have a material impact on our operations (refer to Item 1. Note 9).

Segment Results

Three Month Comparison
cy17q110q_chart-47367a02.jpg
 Three Months Ended
($ in millions)October 1,
2016		 September 30,
2017
Net sales$21.1
 $16.5
Gross profit$9.4
 $9.1
Gross profit %44.5 % 55.5 %
Operating income (loss)$(1.5) $(0.4)
Operating income (loss)%(7.4)% (2.4)%
Three Months Ended September 30, 2017 vs. Three Months Ended October 1, 2016

Net sales decreased $4.6 million due primarily to increased competition on certain products. Operating loss decreased $1.1 million due primarily to a $1.4 million decrease in operating expenses. The decrease in operating expenses related to the absence of a $6.5 million impairment charge recorded on the India API business in the prior year; offset partially by a $3.3 million impairment charge recorded on the Israel API business in the current period (refer to Item 1. Note 9).



Perrigo Company plc - Item 2
Other


Nine Month Comparison

cy17q210q_chart-38723a01.jpg


 Nine Months Ended
($ in millions)October 1,
2016		 September 30,
2017
Net sales$59.5
 $51.5
Gross profit$26.8
 $27.8
Gross profit %45.0% 54.1%
Operating income$2.6
 $9.4
Operating income %4.4% 18.2%
Nine Months Ended September 30, 2017 vs. Nine Months Ended October 1, 2016

Net sales decreased $8.0 million due primarily to competition on certain products. Operating income increased $6.8 million due to a $1.0 million increase in gross profit driven by favorable product mix and a $5.8 million decrease in operating expenses. The decrease in operating expenses related primarily to the absence of a $10.8 million impairment charge recorded on the India API business in the prior year; offset partially by a $3.3 million impairment charge recorded on the Israel API business in the current period (refer to Item 1. Note 9).

Unallocated Expenses

Unallocated expenses are comprised of certain corporate services not allocated to our reporting segments and are recorded above Operating income on the Condensed Consolidated Statements of Operations. Unallocated expensesOperations and Condensed Consolidated Balance Sheets. As discussed in Note 9, as of July 3, 2021, the assets and liabilities of the Latin American businesses were classified as followsheld for sale. The RX business and Latin American businesses assets held-for-sale are included below in the summary of total assets.

The tables below show select financial measures by reporting segment (in millions):
Total Assets

October 2,
2021		December 31,
2020
CSCA$6,290.6 $4,585.1 
CSCI4,611.9 4,872.4 
Held for sale13.4 2,030.9 
Total$10,915.9 $11,488.4 

Three Months Ended
October 2, 2021September 26, 2020
Net
Sales		Operating Income (Loss)Intangible Asset AmortizationNet
Sales		Operating Income (Loss)Intangible Asset Amortization
CSCA$694.2 $90.4 $12.7 $664.0 $121.7 $13.0 
CSCI348.5 4.3 39.5 339.0 10.1 40.3 
Unallocated— 343.6 — — (53.3)— 
Continuing Operations Total$1,042.7 $438.3 $52.2 $1,003.0 $78.5 $53.3 
Nine Months Ended
October 2, 2021September 26, 2020
Net
Sales		Operating Income (Loss)Intangible Asset AmortizationNet
Sales		Operating Income (Loss)Intangible Asset Amortization
CSCA$1,957.0 $113.9 $38.7 $1,992.2 $348.4 $40.6 
CSCI1,076.8 23.1 120.3 1,042.8 45.7 116.9 
Unallocated— 226.7 — — (166.5)— 
Continuing Operations Total$3,033.8 $363.7 $159.0 $3,035.0 $227.6 $157.5 


Three Months Ended Nine Months Ended
October 1,
2016		 September 30,
2017		 October 1,
2016		 September 30,
2017
$27.7
 $48.2
 $79.1
 $120.8

Effective January 1, 2017, due to the sale of the Tysabri® financial asset, all legal expenses associated with the former Specialty Sciences segment were moved to unallocated expenses.

The increase of $20.5 million in unallocated expenses during the three months ended September 30, 2017 compared to the prior year period was due primarily to an increase in share-based compensation expense of $4.7 million driven primarily by the resignation of certain executives, which had a favorable impact on the prior year period, and an increase of $15.6 million of administrative expenses driven by consulting fees and employee-related expenses.

The increase of $41.7 million in unallocated expenses during the nine months ended September 30, 2017 compared to the prior year period was due to an increase of $26.9 million of administrative expenses driven by consulting fees and employee-related expenses, $8.8 million in share-based compensation driven primarily by the resignation of certain executives, which had a favorable impact on the prior year period, and $5.9 million of restructuring expenses related to ourcost reduction initiatives.

52
Perrigo Company plc - Item 2
Unallocated, Interest, Other, and TaxesExecutive Overview




Interest, Other and Change in financial assets (Consolidated)
 Three Months Ended Nine Months Ended
($ in millions)October 1,
2016		 September 30,
2017		 October 1,
2016		 September 30,
2017
Change in financial assets$377.4
 $2.6
 $1,492.6
 $24.2
Interest expense, net$54.6
 $34.7
 $163.2
 $133.1
Other (income) expense, net$1.0
 $(3.6) $32.4
 $(1.1)
Loss on extinguishment of debt$0.7
 $—
 $1.1
 $135.2

Change in Financial Assets

On December 18, 2013, we acquired Elan, which had a royalty agreement with Biogen Idec Inc. ("Biogen"), whereby Biogen conveyed the right to receive royalties that are typically payable on sales revenue generated by the sale, distribution or other use of the drug Tysabri®. Pursuant to the royalty agreement, we were entitled to royalty payments from 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. From May 1, 2014, we received royalties of 18% on annual worldwide Biogen sales of Tysabri® up to $2.0 billion and 25% on annual sales above $2.0 billion.

We accounted for the Tysabri® royalty stream as a financial asset and elected to use the fair value option model. We made the election to account for the Tysabri® financial asset using the fair value option as we believed this method was most appropriate for an asset that did not have a par value, a stated interest stream, or a termination date. The financial asset acquired represented a single unit of accounting. The fair value of the financial asset acquired was determined by using a discounted cash flow analysis related to the expected probability weighted future cash flows to be generated by the royalty stream. The financial asset was classified as a Level 3 asset within the fair value hierarchy, as our valuation utilized significant unobservable inputs, including industry analyst estimates for global Tysabri® sales, probability weighted as to the timing and amount of future cash flows along with certain discount rate assumptions. Cash flow forecasts included the estimated effect and timing of future competition, considering patents in effect for Tysabri® through 2024 and contractual rights to receive cash flows into perpetuity. The discounted cash flows were based upon the expected royalty stream forecasted into perpetuity using a 20-year discrete period with a declining rate terminal value.

In the first quarter of 2016, a competitor's pipeline product, Ocrevus®, received breakthrough therapy designation from the U.S. Food and Drug Administration ("FDA"). Breakthrough therapy designation is granted when a drug is intended alone or in combination with one or more other drugs to treat a serious or life threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. In June 2016, the FDA granted priority review with a target action date in December 2016. A priority review is a designation when the FDA will direct overall attention and resources to the evaluation of applications for drugs that, if approved, would be significant improvements in the safety or effectiveness of the treatment, diagnosis, or prevention of serious conditions when compared to standard applications. The product was approved late in the first quarter of 2017. The product is expected to compete with Tysabri®, and we expected it to have a significant negative impact on the Tysabri® royalty stream. Industry analysts believe that, based on released clinical study information, Ocrevus® will compete favorably against Tysabri® in the relapsing, remitting multiple sclerosis market segment due to its high efficacy and convenient dosage form.

Given the new market information for Ocrevus®, we used industry analyst estimates to reduce our first ten year growth forecasts from an average of growth of approximately 3.4% in the fourth calendar quarter of 2015 to an average decline of approximately minus 2.0% in the third and fourth calendar quarters of 2016. In November 2016, we announced we were evaluating strategic alternatives for the Tysabri® asset. As of December 31, 2016, the financial asset was adjusted based on the strategic review and sale process. These effects, combined with the change in discount rate each quarter, led to a reduction in fair value of $204.4 million, $910.8 million, $377.4 million and $1.1 billion in the first, second, third and fourth quarters of 2016, respectively.

On March 27, 2017, we announced the completed divestment of our Tysabri® financial asset to Royalty Pharma for up to $2.85 billion, which consists of $2.2 billion in cash and up to $250.0 million and $400.0 million in
Perrigo Company plc - Item 2
Unallocated, Interest, Other, and Taxes


milestone payments if the royalties on global net sales of Tysabri® that are received by Royalty Pharma meet specific thresholds in 2018 and 2020, respectively. As a result of this transaction, we transferred the entire financial asset to Royalty Pharma and recorded a $17.1 million gain during the three months ended July 1, 2017. We elected to account for the contingent milestone payments using the fair value option method, and these were recorded at an estimated fair value of $143.2 million as of September 30, 2017. We chose the fair value option as we believe it will help investors understand the potential future cash flows we may receive associated with the two contingent milestones.

We valued the contingent milestone payments using a modified Black-Scholes Option Pricing Model ("BSOPM"). Key inputs in the BSOPM are the estimated volatility and rate of return of royalties on global net sales of Tysabri® that are received by Royalty Pharma over time until payment of the contingent milestone payments is completed. Volatility and the estimated fair value of the milestones have a positive relationship such that higher volatility translates to a higher estimated fair value of the contingent milestone payments. In the valuation of contingent milestone payments performed, we assumed volatility of 30.0% and a rate of return of 8.05% as of July 1, 2017 and a volatility of 30.0% and a rate of return of 8.06% as of September 30, 2017. We assess volatility and rate of return inputs quarterly by analyzing certain market volatility benchmarks and the risk associated with Royalty Pharma achieving the underlying projected royalties. During the three and nine months ended September 30, 2017, the fair value of the Royalty Pharma contingent milestone payments decreased $2.9 million and $42.1 million, respectively, as a result of the decrease in the estimated projected Tysabri® revenues due to the launch of Ocrevus® late in the first quarter of 2017 (refer to Item 1. Note 6).

Interest Expense, Net

Interest expense, net was $34.7 million and $133.1 millionduring the three and nine months ended September 30, 2017, respectively, compared to $54.6 million and $163.2 million for the three and nine months ended October 1, 2016, respectively. The $19.9 million and $30.1 million decreases were the result of the early debt repayments made during the nine months ended September 30, 2017 (refer to the "Borrowings and Capital Resources" section below and Item 1. Note 10).

Other (Income) Expense, Net

Other (income) expense, net was $3.6 million income for the three months ended September 30, 2017, compared to $1.0 million expense for the three months ended October 1, 2016. The $4.6 million decrease in expense was due primarily to $2.6 million of favorable changes in revaluation of monetary assets and liabilities held in foreign currencies.

Other (income) expense, net was $1.1 million income during the nine months ended September 30, 2017, compared to $32.4 million expense for the nine months ended October 1, 2016. The $33.5 million decrease in expenses was due primarily to the absence of a $22.3 million equity investment impairment (refer to Item 1. Note 7), $6.7 million of favorable changes in revaluation of monetary assets and liabilities held in foreign currencies, and a $4.2 million reduction in equity method losses, partially offset by a $5.9 million loss related to the pre-issuance hedge reclassification (refer to Item 1. Note 8).

Loss on Extinguishment of Debt

During the nine months ended September 30, 2017, we recorded a $135.2 million loss on extinguishment of debt, which consisted of tender premium on debt repayments, transaction costs, write-off of deferred financing fees, and bond discounts related to the $500.0 million 3.500% senior notes due December 2021, $500.0 million 3.500% senior notes due March 2021, $400.0 million 4.900% senior notes due 2044, $800.0 million 4.000% senior notes due 2023, and $400.0 million 5.300% senior notes due 2043 (refer to Item 1. Note 10).

Perrigo Company plc - Item 2
Unallocated, Interest, Other, and Taxes


Income Taxes (Consolidated)

The effective tax rates were as follows:

Three Months Ended Nine Months Ended
October 1,
2016		 September 30,
2017		 October 1,
2016		 September 30,
2017
16.4% 65.5% 17.2% 68.7%

The effective tax rate for the nine months ended September 30, 2017 was negatively impacted by non-deductible fees related to our debt cancellation, discrete tax items, and additional valuation allowances recorded against deferred tax assets.

Our tax rate is subject to adjustment over the balance of the fiscal year due to, among other things: the jurisdictions in which our profits are determined to be earned and taxed; changes in the valuation of our deferred tax assets and liabilities; adjustments to estimated taxes upon finalization of various tax returns; adjustments based on differing interpretations of the applicable 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 U.S. GAAP; and expiration of or the inability to renew tax rulings or tax holiday incentives.

On August 15, 2017, we filed a complaint in the United States District Court for the Western District of Michigan to recover $163.6 million of Federal income tax, penalties, and interest assessed and collected by the Internal Revenue Service (“IRS”), plus statutory interest thereon from the dates of payment, for the fiscal years ended June 27, 2009, June 26, 2010, June 25, 2011, and June 30, 2012 (the “2009 tax year,” “2010 tax year,” “2011 tax year,” and “2012 tax year,” respectively). The IRS audits of those years culminated in the issuances of two statutory notices of deficiency: (1) on August 27, 2014 for the 2009 and 2010 tax years and (2) on April 20, 2017 for the 2011 and 2012 tax years. The statutory notices of deficiency both included un-agreed income adjustments related principally to transfer pricing adjustments regarding the purchase, distribution, and sale of store-brand OTC pharmaceutical products in the United States. In addition, the statutory notice of deficiency for the 2011 and 2012 tax years included the capitalization of certain expenses that were deducted when paid or incurred in defending against certain patent infringement lawsuits. We fully paid the assessed amounts of tax, interest, and penalties set forth in the statutory notices and filed timely claims for refund on June 11, 2015 and June 7, 2017 for the 2009-2010 tax years and 2011-2012 tax years, respectively. Our claims for refund were disallowed by certified letters dated August 18, 2015 and July 11, 2017, for the 2009-2010 tax years and 2011-2012 tax years, respectively. The complaint was timely, based upon the refund claim denials, and seeks refunds of tax, interest, and penalties of $37.2 million for the 2009 tax year, $61.5 million for the 2010 tax year, $40.2 million for the 2011 tax year, and $24.7 million for the 2012 tax year. The amounts sought in the complaint for the 2009 and 2010 tax years were recorded as deferred charges on our balance sheet during the three months ended March 28, 2015, and the amounts sought in the complaint for the 2011 and 2012 tax years were recorded as deferred charges on our balance sheet during the three months ended July 1, 2017.

On December 22, 2016, we received a notice of proposed adjustment for the IRS audit of Athena Neurosciences, Inc. (“Athena”), a subsidiary of Elan acquired in 1996, for the years ended December 31, 2011, December 31, 2012, and December 31, 2013. Perrigo acquired Elan in December 2013. This proposed adjustment relates to the deductibility of litigation costs.

On July 11, 2017, we received a draft notice of proposed adjustment associated with transfer pricing positions for the IRS audit of Athena for the years ended December 31, 2011, December 31, 2012, and December 31, 2013.  Athena was the originator of the patents associated with Tysabri® prior to the acquisition of Athena by Elan in 1996. The amount of adjustments that may be asserted by the IRS in the final notice of proposed adjustment cannot be quantified at this time; however, based on the draft notice received, the amount to be assessed may be material. We disagree with the IRS’s position as asserted in the draft notice of proposed adjustment and intend to contest it.


Perrigo Company plc - Item 2
Unallocated, Interest, Other, and Taxes


We have ongoing audits in multiple other jurisdictions the resolution of which remains uncertain. These jurisdictions include, but are not limited to, the United States, Israel and France. In addition to the matters discussed above, the IRS is currently auditing our fiscal years ended June 29, 2013, June 28, 2014, and June 27, 2015. The Israel Tax Authority is currently auditing our fiscal years ended June 29, 2013 and June 28, 2014. The French Tax Authority is currently auditing the years ended December 2014, December 2015, and December 2016.


FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

Cash and Cash Equivalents

cy17q110q_chart-47174a02.jpg
*Working capital represents current assets less current liabilities, excluding cash and cash equivalents, and current indebtedness.

Cash, cash equivalents, cash flows from operations, and borrowings available under our credit facilities are expected to be sufficient to finance the known and/or foreseeable liquidity and capital expenditures. Although our lenders have made commitments to make funds available to us 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 our existing credit facilities.

Perrigo Company plc - Item 2
Financial Condition, Liquidity and Capital Resources


Operating Activities
 Nine Months Ended
(in millions)October 1,
2016		 September 30,
2017		 Increase/(Decrease)
Cash Flows From (For) Operating Activities     
Net income (loss)$(2,653.7) $46.4
 $2,700.1
Non-cash adjustments3,229.9
 560.8
 (2,669.1)
Subtotal576.2
 607.2
 31.0
      
Increase (decrease) in cash due to:     
Accounts receivable113.0
 38.4
 (74.6)
Inventories25.1
 (28.3) (53.4)
Accounts payable(57.7) (6.0) 51.7
Payroll and related taxes(40.0) (36.7) 3.3
Accrued customer programs(73.7) (15.8) 57.9
Accrued liabilities(90.0) (18.8) 71.2
Accrued income taxes5.2
 (61.5) (66.7)
Other, net(9.4) 3.5
 12.9
Subtotal$(127.5) $(125.2) $2.3
      
Net cash from operating activities$448.7
 $482.0

$33.3

We generated $482.0 million of cash from operating activities during the nine months ended September 30, 2017, a $33.3 million increase over the prior year period, due to the following:

Increased net earnings after adjustments for items such as deferred income taxes, impairment charges, restructuring charges, changes in our financial assets, loss on extinguishment of debt, and depreciation and amortization;

Changes in accrued liabilities due to deferred revenue associated with BCH-Belgium distribution contracts and the absence of accruals related to the sale of our U.S. VMS business;

Changes in accrued customer-related programs due primarily to the pricing dynamics in the RX segment; and

Changes in accounts payable due primarily to changes to the Omega accounts payable structure that occurred in the prior year period; offset primarily by

Changes in accounts receivable due primarily to timing of receipt of payments and the absence of receivables related to the sale of our U.S. VMS business;

Changes in inventory due to the build up of inventory levels to support customer demands in the current period; offset by improved inventory management in the comparable prior year period; and

•
Changes in accrued income taxes due primarily to a U.S. Federal tax obligation payment made in the current year period, offset by expected tax refunds (refer to Item 1. Note 13).

Perrigo Company plc - Item 2
Financial Condition, Liquidity and Capital Resources


Investing Activities
 Nine Months Ended
($ in millions)October 1,
2016		 September 30,
2017		 Increase/(Decrease)
Cash Flows From (For) Investing Activities
Proceeds from royalty rights$259.5
 $86.4
 $(173.1)
Acquisitions of businesses, net of cash acquired(436.8) —
 436.8
Asset acquisitions(65.1) —
 65.1
Additions to property, plant and equipment(84.6) (55.2) 29.4
Net proceeds from sale of business and other assets58.5
 46.7
 (11.8)
Proceeds from sale of the Tysabri® financial asset
—
 2,200.0
 2,200.0
Other investing, net(1.0) (5.8) (4.8)
Net cash from (for) investing activities$(269.5) $2,272.1
 $2,541.6

Cash generated from investing activities totaled $2.3 billion for the nine months ended September 30, 2017, compared to cash used of $269.5 million in the prior year period. The inflow in the current year was due primarily to the completed divestment of our Tysabri® financial asset to Royalty Pharma, for which we received $2.2 billion in cash at closing (refer toItem 1. Note 6). The outflow in the prior year was due primarily to the acquisition of a portfolio of generic dosage forms and strengths of Retin-A® ("Tretinoin"), a topical prescription acne treatment from Mattawan Pharmaceuticals, LLC, which used $416.4 million in cash. The prior year outflow was offset partially by proceeds from royalty rights of $259.5 million. Cash used for capital expenditures totaled $55.2 million during the nine months ended September 30, 2017 compared to $84.6 million in the prior year period. The decrease in cash used for capital expenditures was due primarily to the decrease in the number of projects in the current year compared to the prior year period.

Financing Activities
 Nine Months Ended
($ in millions)October 1,
2016		 September 30,
2017		 Increase/(Decrease)
Cash Flows From (For) Financing Activities
Issuances of long-term debt$1,190.3
 $—
 $(1,190.3)
Borrowings (repayments) of revolving credit agreements and other financing, net(803.6) —
 803.6
Payments on long-term debt(545.8) (2,243.7) (1,697.9)
Deferred financing fees(2.8) (4.2) (1.4)
Premium on early debt retirement(0.6) (116.1) (115.5)
Issuance of ordinary shares8.2
 0.5
 (7.7)
Repurchase of ordinary shares—
 (191.5) (191.5)
Cash dividends(62.4) (68.7) (6.3)
Other financing(17.4) 2.7
 20.1
Net cash (for) financing activities$(234.1) $(2,621.0) $(2,386.9)

Cash used for financing activities totaled $2.6 billion for the nine months ended September 30, 2017, compared to $234.1 million for the comparable prior year period. In the current year period, cash used for financing included $2.2 billion of repayments on long-term debt and $116.1 million of discounts on early debt retirement related to the current year debt extinguishment and $191.5 million in share repurchases, as discussed below. In the prior year period, the cash used for financing activities was due primarily to borrowings of $1.2 billion of long-term debt, more than offset by net repayments on our revolving credit agreements and other short-term financing of $803.6 million and net repayments on our long-term debt of $545.8 million (refer to "Borrowings and Capital Resources" below and Item 1. Note 10).

Perrigo Company plc - Item 2
Financial Condition, Liquidity and Capital Resources


The declaration and payment of dividends, if any, is subject to the discretion of our Board of Directors and will depend on our earnings, financial condition, availability of distributable reserves, capital and surplus requirements, and other factors our Board of Directors may consider relevant.

On October 22, 2015, the Board of Directors approved a share repurchase plan of up to $2.0 billion (the "2015 Authorization"). During the three and nine months ended September 30, 2017, we repurchased 1.9 million and 2.7 million ordinary shares at an average repurchase price of $71.73 and $71.72 per share, for a total of $133.3 million and $191.5 million, respectively. As of September 30, 2017, there was $1.3 billion still available to be repurchased through December 31, 2018 under the 2015 Authorization. We did not repurchase any shares under the share repurchase plan during the nine months ended October 1, 2016.

Borrowings and Capital Resources

cy17q110q_chart-47327a02.jpg

Overdraft Facilities

We have overdraft facilities available that we use to support our cash management operations. There were no balances outstanding under the facilities at September 30, 2017 and December 31, 2016.

Accounts Receivable Factoring

We have 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 invoice is charged on the gross amount of accounts receivables assigned to the Factors, and interest is calculated at the applicable EUR LIBOR rate plus 70 basis points. The total amount factored on a non-recourse basis and excluded from accounts receivable was $24.3 million and $50.7 million at September 30, 2017 and December 31, 2016, respectively.

Revolving Credit Agreements

On December 9, 2015, our 100% owned finance subsidiary, Perrigo Finance Unlimited Company (formerly Perrigo Finance plc) ("Perrigo Finance"), entered into a $750.0 million revolving credit agreement (the "2015 Revolver"). On March 15, 2016, we used the proceeds of the long-term debt issuance described below to repay the $750.0 million then outstanding under the 2015 Revolver and terminated the facility.

On December 5, 2014, Perrigo Finance entered into a $600.0 million revolving credit agreement, which increased to $1.0 billion on March 30, 2015 (the "2014 Revolver"). On March 15, 2016, we used the proceeds of the long-term debt issuance described below to repay the $435.0 million then outstanding under the 2014 Revolver. There were no borrowings outstanding under the 2014 Revolver as of September 30, 2017.
Perrigo Company plc - Item 2
Financial Condition, Liquidity and Capital Resources



Term Loans and Notes

On March 7, 2016, Perrigo Finance issued $500.0 million in aggregate principal amount of 3.500% senior notes due 2021 and $700.0 million in aggregate principal amount of 4.375% senior notes due 2026 (together, the "2016 Notes") and received net proceeds of $1.2 billion after fees and market discount, which were used to repay the amounts outstanding under the 2015 Revolver and 2014 Revolver mentioned above.

We had $3.3 billion and $5.4 billion outstanding under our notes and bonds, and $428.3 million and $420.7 million outstanding under our term loan, as of September 30, 2017 and December 31, 2016, respectively. On September 29, 2016, we repaid the 1.300% senior notes due 2016 in full.

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 we entered into a $300.0 million term loan tranche maturing December 18, 2015, which we repaid in full on June 25, 2015.

Debt Repayments

During the nine months ended September 30, 2017, we reduced our outstanding debt through a variety of transactions (in millions):
Date Series Transaction Type Principal Retired
April 1, 2017 2014 term loan due December 5, 2019 Scheduled quarterly payment $13.3
July 1, 2017 2014 term loan due December 5, 2019 Scheduled quarterly payment 14.3
September 30, 2017 2014 term loan due December 5, 2019 Scheduled quarterly payment 14.8
May 8, 2017 $600.0 2.300% senior notes due 2018 Early redemption 600.0
May 23, 2017 €180.0 4.500% retail bonds due 2017 Scheduled maturity 201.3
June 15, 2017 $500.0 3.500% senior notes due 2021 Tender offer 190.4
June 15, 2017 $500.0 3.500% senior notes due 2021 Tender offer 219.6
June 15, 2017 $800.0 4.000% senior notes due 2023 Tender offer 584.4
June 15, 2017 $400.0 5.300% senior notes due 2043 Tender offer 309.5
June 15, 2017 $400.0 4.900% senior notes due 2044 Tender offer 96.1
      $2,243.7

As previously disclosed, during the three months ended April 1, 2017 we entered into amendments to the 2014 Revolver and the 2014 term loan to modify provisions of such agreements necessary as a result of the correction in accounting related to the Tysabri® financial asset, as well as waivers of any default or event of default that may have arisen from any restatement of or deficiencies in our financial statements for the periods specified in such amendments and waivers. We are in compliance with all covenants under our debt agreements as of September 30, 2017.
See Item 1. Note 10 for more information on all of the above debt facilities.

Credit Ratings
Our credit ratings on September 30, 2017 were Baa3 (stable) and BBB- (stable) by Moody's Investors Service and Standard and Poor's Global Ratings, respectively.
Credit rating agencies review their ratings periodically and, therefore, the credit rating assigned to us by each agency may be subject to revision at any time. Accordingly, we are not able to predict whether current credit ratings will remain as disclosed above. Factors that can affect our credit ratings include changes in operating performance, the economic environment, our financial position, and changes in business strategy. If changes in our 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 2
Financial Condition, Liquidity and Capital Resources




Contractual Obligations and Commitments

Other than the obligations related to the changes to our debt structure in relation to the repayments, as discussed in Item 1. Note 10, there were no material changes in contractual obligations as of September 30, 2017 from those provided in our 2016 Form 10-K. See below for a revised schedule of our enforceable and legally binding obligations as of September 30, 2017 related to our short and long-term debt arrangements.
 Payment Due by Period (in millions)
 
2017(1)
 2018 - 2019 2020 - 2021 After 2021 Total
Short and long-term debt(2)
$406.5
 $811.5
 $812.5
 $2,859.6
 $4,890.1

(1)Reflects remaining three months of 2017.
(2)
Short and long-term debt includes interest payments, which were calculated using the effective interest rate at September 30, 2017.

ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements included in this Form 10-Q and our Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”). These historical financial statements may not be indicative of our future performance. This discussion contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks referred to under “Risk Factors” in Item 1A of our 2020 Form 10-K and Part II. Item 1A of this Form 10-Q.

Perrigo Company plc was incorporated under the laws of Ireland on June 28, 2013 and became the successor registrant of Perrigo Company, a Michigan corporation, on December 18, 2013 in connection with the acquisition of Elan Corporation, plc ("Elan"). 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.

Our vision is to make lives better by bringing Quality, Affordable Self-Care Products that consumers trust everywhere they are sold. We are a leading provider of over-the-counter ("OTC") health and wellness solutions that enhance individual well-being by empowering consumers to proactively prevent or treat conditions that can be self-managed.

On March 1, 2021, we announced a definitive agreement to sell our RX business to Altaris. On July 6, 2021, we completed the sale of the RX business for aggregate consideration of $1.55 billion. The consideration includes a $53.3 million reimbursement which Altaris is required to deliver in cash to Perrigo pursuant to the terms of the Agreement. The sale resulted in a pre-tax gain of $63.9 million recorded in Other (income) expense, net on the Statement of Operations for discontinued operations. The gain included a $160.0 million increase from the write-off of foreign currency translation adjustment from Accumulated other comprehensive income and a decrease from professional fees. The transaction gain is subject to final settlements under the Agreement, which we expect to finalize in the fourth quarter of 2021.

The sale of the RX business establishes Perrigo as a pure-play consumer self-care company, and was an essential milestone in our transformation plan. The financial results of the RX business, which were previously reported as part of our RX segment, have been classified as discontinued operations in the Condensed Consolidated Statements of Operations, and its assets and liabilities have been classified as held for sale for all periods presented prior to the sale. Unless otherwise noted, amounts and disclosures throughout this Management’s Discussion and Analysis relate to our continuing operations. Refer to Item 1. Note 8 for additional information regarding discontinued operations.

Our Segments

Our reporting and operating segments are as follows:

•Consumer Self-Care Americas ("CSCA") comprises our consumer self-care business (OTC, infant formula, and oral self-care categories, and contract manufacturing) in the U.S., Mexico and Canada.
•Consumer Self-Care International ("CSCI") comprises our consumer self-care business primarily branded in Europe and Australia, our store brand business in the United Kingdom and parts of Europe and Asia, and our liquid licensed products business in the United Kingdom until it was disposed on June 19, 2020.

Our segments reflect the way in which our management makes operating decisions, allocates resources, and manages the growth and profitability of the Company. Financial information related to our business segments and geographic locations can be found in Item 1. Note 2 and Note 18. For results by segment, see "Segment Results" below.
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Perrigo Company plc - Item 2
Executive Overview


Highlights and Recent Developments

Operating Trends

The self-care markets in which we compete have been negatively impacted over the past year by COVID-19 pandemic related factors including, a dramatic reduction in cough, cold, and flu illnesses in the first half of the year, higher input costs, and most recently supply chain disruptions. Starting in the second quarter of 2021, we were encouraged to see a sharp rebound in consumer takeaway in the US and Europe in almost all categories, as these countries began to remove restrictions and reopen and the incidences of cough and cold related illnesses begin to increase. Despite increased consumer purchases, net sales for the second quarter of 2021 significantly lagged this consumer takeaway, which we primarily attribute to year over year reductions in customer inventories. Consumer take-away remained strong in the third quarter and we saw a surge in orders however, due to supply chain disruptions, including the lack of truck drivers in the U.S. and record delays at global shipping ports, our net sales were negatively impacted because of the inability to ship products. These supply chain disruptions led to a large increase in unfulfilled customer orders compared to the prior year quarter. We have taken a series of actions to improve the current situation including, reconfiguring our distribution system for short term shipments, outsourcing highly complex product lines to a third party logistic provider, adding regional carriers for challenged shipping lanes, hiring additional distribution center personnel, and increasing the purchase cycle as it relates to the manufacturing process. Our actions have improved our ability to ship, however, we still do not think we will meet demand in the fourth quarter.

Higher input costs were somewhat offset by price increases initiated in the second quarter of 2021. We continue to take steps in order to mitigate the challenges of our current operating environment, including further pricing actions and a focus on reducing discretionary costs. While we believe these trends will continue in the near-term, we are expecting a gradual improvement heading into the middle of 2022. However, this will depend on the trajectory of the COVID-19 pandemic and worldwide supply chain challenges, as discussed below, and it is possible some of these factors may increase or decrease more than others, and could also negatively affect consumer purchases in the jurisdictions in which we operate.

Irish Revenue Notice of Amended Assessment

On October 30, 2018, we received an audit findings letter from the Irish Office of the Revenue Commissioners (“Irish Revenue”) for the tax years ended December 31, 2012 and December 31, 2013. The audit findings letter related to the tax treatment of the 2013 sale of the Tysabri® intellectual property and related assets to Biogen Idec by Elan Pharma. The consideration paid by Biogen Idec to Elan Pharma took the form of an upfront payment and future contingent royalty payments. Elan Pharma recognized such receipts as trading income in its tax returns filed with Irish Revenue, consistent with Elan Pharma's historical practice relating to its active management of intellectual property rights.

In its audit findings letter, Irish Revenue proposed to charge Elan Pharma tax on the net chargeable gain realized by Elan Pharma on the Tysabri® transaction in 2013 at a rate of 33%, rather than the 12.5% tax rate applied to trading income. On November 29, 2018,Irish Revenue issued a Notice of Amended Assessment (“NoA”) for the tax year ended December 31, 2013, in the amount of €1,643 million, and claiming tax payable in the amount of €1,636 million, not including any interest or applicable penalties.

Accordingly, we filed an appeal of the NoA on December 27, 2018 with the Irish Tax Appeals Commission ("TAC") which is the statutory body charged with considering whether the NoA was properly founded as a matter of Irish tax law. Separately, we were also granted leave by the Irish High Court on February 25, 2019 to seek judicial review of the issuance of the NoA by Irish Revenue.

On November 4, 2020, the High Court ruled that the Irish Revenue's decision to issue the NoA did not violate Elan Pharma's constitutional rights and legitimate expectations as a taxpayer. The Irish High Court did not rule on the merits of the NoA under Irish tax law.

We strongly believe that Elan Pharma’s tax position was correct and ultimately would have been confirmed through judicial process. However, in light of the risks and delays inherent in any litigation, on April 26, 2021, Perrigo, through its tax adviser, made a without prejudice written offer of settlement to Irish Revenue detailing a possible framework to resolve the dispute, which applied an alternative basis of taxation than the respective positions taken by Irish Revenue in the NoA and by Elan Pharma in its tax returns. On May 31, 2021, Irish Revenue
54
Perrigo Company plc - Item 2
Executive Overview


issued a formal response to Perrigo's tax adviser indicating that the written settlement offer would not be accepted as presented. However, Irish Revenue did indicate that they would remain available for further discussion without prejudice and the Company's representatives continued to meet and correspond with Irish Revenue throughout the summer.

On July 9, 2021, Irish Revenue issued a letter acknowledging that not all relevant facts were known to them when they issued the NoA in 2018 and, accordingly, they would not object if the Appeal Commissioner were to make certain adjustments reducing Irish Revenue’s original assessment. Such adjustments would reflect contingent royalty payments that were never received by Elan Pharma, deductions for acquisition and development costs incurred, and allowable losses and reliefs, and would, if allowed, result in an aggregate reduction of more than €660.0 million from the income taxes claimed in the NoA as issued.

On September 29, 2021, Elan Pharma reached an agreement with Irish Revenue providing for full and final settlement of the NoA. Elan Pharma and Irish Revenue agreed to a settlement on the following terms: (i) on a 'without prejudice basis' and, for purposes of the settlement, an alternative basis of taxation was applied, (ii) Irish Revenue will take no further action in relation to the NoA or any Tysabri related income or transactions, (iii) no interest or penalties apply, (iv) a total tax of €297.0 million as full and final settlement of all liabilities arising from the sale of the Tysabri patents for the fiscal years 2013 to 2021, and (v) after Irish Revenue credited taxes already paid and certain unused R&D credits against the €297.0 million figure, the total cash payment due is €266.1 million. The payment of €266.1 million ($307.5 million) was made on October 5, 2021 (refer to Item 1. Note 15).

Tribunal Ruling in Claim Arising from the Omega Acquisition

The Tribunal panel in the matter described under Claim Arising from the Omega Acquisition (as described in more detail in Item 1. Note 16) found fraud by the Sellers of Omega in a ruling on August 27, 2021 and awarded Perrigo approximately €355.0 million ($417.6 million at the time of cash receipt) including fees and costs. The panel also ruled against the Sellers and in favor of Perrigo on all the counterclaims. The Sellers have paid all amounts owed under the award which Perrigo publicly announced in a press release issued September 29, 2021. The Sellers have the right to challenge the Tribunal’s award for up to three months following the date of the award (until late November 2021). The arbitration proceedings remain confidential as required by the SPA and the rules of CEPANI.

Héra SAS (“HRA Pharma”) Acquisition Agreement

On September 8, 2021, we and our wholly-owned subsidiary Habsont Unlimited Company (the "Purchaser"), entered into a Put Option Agreement to acquire certain holding companies holding all of the outstanding equity interests of HRA Pharma from funds affiliated with private equity firms Astorg and Goldman Sachs Asset Management (collectively, the "Sellers"). Pursuant to the Put Option Agreement, following completion of the works council consultation process required under French law, the selling shareholders exercised their put option right under the Put Option Agreement and, on October 20, 2021, the Company, the Purchaser and the Sellers entered into a Securities Sale Agreement in the form previously agreed by the parties (the “Purchase Agreement”). Pursuant to the terms and subject to the conditions set forth in the Purchase Agreement, the Purchaser has agreed to acquire certain holding companies holding all of the outstanding equity interests of HRA from the Sellers for cash. The transaction values HRA at approximately €1.8 billion, or approximately $2.1 billion as of the date of the Put Option Agreement, on an enterprise value basis and using a lockbox mechanism set forth in the Purchase Agreement. The proposed final transaction is expected to close in the first half of 2022, subject to the satisfaction of customary closing conditions, including regulatory approvals. We intend to pay the purchase price using a combination of cash on hand and, depending upon market conditions, either funds available under our current credit facility or funds from new debt financing. HRA Pharma is one of the fastest growing OTC companies globally, with three category-leading self-care brands in blister care (Compeed®), women’s health (ellaOne®) and scar care (Mederma®), and brings expertise in prescription-to-OTC switches. This acquisition would strengthen our presence in Europe, improve our financial profile and margins, and will complete our transformation to a consumer self-care company. Operating results are expected to be reported within both our CSCA and CSCI segments.

Securities litigation settlement

A settlement was reached in the case, In re Perrigo Company plc Securities Litigation as described in more detail in Item 1. Note 16, that the parties first publicly announced in a court filing on September 8, 2021. Motion papers seeking approval of the class action settlement were filed on October 4, 2021. The Court issued a preliminary approval order on October 29, 2021, which will lead to notices being sent to class members. A final approval hearing before the Court is set for February 16, 2022. The settlement will be funded by insurance.

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Perrigo Company plc - Item 2
Executive Overview


Consumer Self-Care Americas Leadership

Effective October 5, 2021, Jim Dillard was named Executive Vice President ("EVP") and President of our CSCA segment. Mr. Dillard's supply chain, manufacturing, R&D, innovation, and regulatory experience, along with his proven leadership skills, make him uniquely qualified to lead this segment. Before this role, Mr. Dillard served as Perrigo's EVP and Chief Scientific Officer.

Internal Revenue Service Audits of Perrigo Company, a U.S. Subsidiary

As described in more detail in Item 1. Note 15, Perrigo Company, our U.S. subsidiary ("Perrigo U.S."), is engaged in a series of tax disputes in the U.S. relating primarily to transfer pricing adjustments including income in connection with the purchase, distribution, and sale of store-brand OTC pharmaceutical products in the United States, including the heartburn medication omeprazole. The previously re-scheduled trial of the refund case relating to the dispute of the amount of taxable income on Omeprazole sales was held during the period May 25, 2021 to June 7, 2021 in the United States District Court for the Western District of Michigan. Post-trial briefing is scheduled to be completed by late September 2021, when the case will be fully submitted for the court’s decision.

On May 7, 2020, we received final Notices of Proposed Adjustment ("NOPA") from the IRS regarding the deductibility of interest related to the IRS audit of Perrigo U.S. for the years ended June 28, 2014 and June 27, 2015. The NOPA capped the interest rate on the debts for U.S. federal tax purposes at 130.0% of the Applicable Federal Rate (a blended rate reduction of 4.0% per annum) on the stated ground that the loans were not negotiated on an arms’-length basis. On May 3, 2021, the IRS notified us that it will no longer pursue the 130% of AFR position as indicated in the NOPA due to a change in IRS policy. The new proposed adjustment, if any, will be provided by the IRS in its rebuttal to our Protest which we filed on February 26, 2021.

Internal Revenue Service Audit of Athena Neurosciences, Inc., a U.S. Subsidiary
On April 26, 2019, we received a revised NOPA from the IRS regarding transfer pricing positions related to the IRS audit of Athena for the years ended December 31, 2011, December 31, 2012 and December 31, 2013. Our request for Competent Authority Assistance with the IRS, which we made on April 14, 2020, was accepted. An opening conference with the IRS was held on May 6, 2021, and an opening conference with Irish Revenue was held on July 23, 2021 (refer to Item 1. Note 15).
Israeli Notice of Assessment

On December 29, 2020, we received a Stage A assessment from the Israeli Tax Authority for the tax years ended December 31, 2015 through December 31, 2017 in the amount of $63.8 million relating to attribution of intangible income to Israel, income qualifying for a lower preferential rate of tax, exemption from capital gains tax, and deduction of certain settlement payments. We timely filed our protest on March 11, 2021 to move the matter to Stage B of the assessment process. Through negotiations with the ITA, we resolved the audit for the tax year ended June 27, 2015 through tax year ended December 31, 2019, by agreeing to add tax year ended December 31, 2018 and tax year ended December 31, 2019 to the audit to reach an agreeable resolution to provide certainty for these additional periods. The agreement with the ITA required us to pay $19.0 million, after offset of refunds of $17.2 million, for the five taxable years. In addition, we paid $12.5 million to resolve a tax liability indemnity for the tax year ended December 31, 2017 relating to Perrigo API Ltd, which we disposed of in December 2017 (refer to Item 1. Note 15).

Impact of COVID-19 Pandemic

We have been impacted by the COVID-19 global pandemic and the responses by government entities to combat the virus. We currently continue to operate in all our jurisdictions and are complying with the rules and guidelines prescribed in each jurisdiction. We continue to closely monitor the impact of COVID-19 on all aspects of our business in all our global locations and have continued our COVID-19 safety protocols for employees. To date, these arrangements have not materially affected our ability to maintain our business operations, including the operation of financial reporting systems, internal control over financial reporting, and disclosure controls and procedures. However, the pandemic and actions to slow its spread have impacted our operations, including through increased absenteeism and increased costs of raw materials and finished goods, although most of our facilities have continued to produce at high levels despite these challenges. Moreover, our global operations have been negatively impacted by the worldwide supply chain challenges, which have increased costs and delays.
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Perrigo Company plc - Item 2
Executive Overview



As many jurisdictions have relaxed COVID-19 related restrictions, a number of those jurisdictions have experienced increases in COVID-19 cases, including more contagious variants of the virus and in some cases have begun implementing new or renewed restrictions. In addition, as conditions worldwide continue to evolve, uncertainty remains about the timing of widespread availability and acceptance of vaccines and the efficacy of current vaccines against evolving strains or variants of the virus. As such, if the pandemic continues or intensifies, it is possible that these or other challenges may begin having a larger impact on our operations. Additionally, future volatility in financial and other capital markets may continue to adversely impact our stock price and our ability to access capital markets. The situation surrounding COVID-19 remains fluid, and we continue to actively manage our response and assess potential impacts to our financial condition, supply chains and other operations, employees, results of operations, consumer demand for our products, and our ability to access capital. The magnitude of any such adverse impact cannot currently be determined due to a number of uncertainties surrounding COVID-19.

During the first half of 2021, our segments experienced a sharp decline in net sales for cough and cold products in our upper respiratory and pain and sleep aid categories, due to the very low incidence of cough and cold related illness during that time. We believe the low incidence of cough and cold related illness was due to social distancing measures and mask mandates put in place. As many of these markets relaxed restrictions and reopen, we saw consumer behavior begin to return to normal, and the incidences of cough and cold related illnesses begin to increase. This resulted in rebounding consumer takeaway in the second quarter, including for cough and cold related products, although factory shipments lagged consumption. During the third quarter of 2021, consumer takeaway remained strong in both the US and Europe and further accelerated for cough and cold products. However, we also experienced supply chain disruptions, including a lack of truck drivers in the U.S. and record delays at global shipping ports, which lead to higher unfulfilled customer orders compared to the prior year. While we believe this will continue in the near-term, we are expecting a gradual improvement heading into the middle of 2022.

Moreover, we continue to incur additional operating costs related to COVID-19, due primarily to increased material costs and increased costs driven by pandemic-related global supply chain disruptions as well as costs related to our ongoing employee safety protocols. We expect these costs will continue into early calendar year 2022.

While the current trend of increased consumer takeaway suggests that the volatility in consumer behavior during the pandemic is improving, the emergence and spread of new disease variants or additional outbreaks in these or other jurisdictions could result in new restrictions or cause these trends to change, slow or reverse. Moving forward, it remains uncertain if the consumer and customer behavior surrounding COVID-19 that has impacted net sales will continue to normalize or change and if the increase in operating costs and supply chain disruptions will continue or change. Any change in these trends will likely depend on the duration and severity of the COVID-19 pandemic, including the emergence of new strains of the virus, including the Delta variant, that are more contagious or harmful, each individual country's evolving response to the pandemic, as well as the availability and efficacy of the COVID-19 vaccines. Given our financial strength, we expect to continue to maintain sufficient liquidity as we continue to operate through the pandemic.


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Perrigo Company plc - Item 2
Consolidated

RESULTS OF OPERATIONS

CONSOLIDATED

Consolidated Financial Results

Three Month Comparison

 Three Months Ended
(in millions, except percentages)October 2,
2021		September 26,
2020
Net sales$1,042.7 $1,003.0 
Gross profit$336.4 $369.7 
Gross profit %32.3 %36.9 %
Operating income$438.3 $78.5 
Operating income %42.0 %7.8 %
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* Total net sales by geography is derived from the location of the entity that sells to a third party.

Three Months Ended October 2, 2021 vs. Three Months Ended September 26, 2020

Net sales increased $39.7 million, or 4.0%, due to:
•$25.9 million, or 2.6%, net increase in the base business driven by strong growth in e-commerce sales, primarily in the CSCA segment and the recognition of contract manufacturing sales to the now-divested RX business. Additional increases were driven by incremental new product sales and positive pricing. These increases were partially offset by discontinued products of $11.4 million, lost distribution within the healthy lifestyle category, lower net sales in the CSCI contract manufacturing business, and a decrease of $3.9 million for a product recall in the vitamin, minerals, and supplements ("VMS") category; and
•$13.8 million net increase due primarily to:
◦$8.8 million increase from favorable foreign currency translation; and
◦$5.0 million increase due to the acquisition of three Eastern European Brands in October 2020.
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Consolidated

Operating income increased $359.8 million, or 458.3%, due primarily to:

•$33.3 million decrease in gross profit due primarily to unfavorable plant overhead absorption due to lower production volumes resulting from the weak cough cold season in the first half of the year, higher input and freight costs, and product recalls initiated during the quarter. Gross profit as a percentage of net sales decreased 460 basis points due to the same factors as gross profit as well as unfavorable product mix; more than offset by
•$393.1 million decrease in operating expenses due primarily to:
◦$410.1 million decrease in other operating expenses due to:
▪$417.6 million award received for the Claim Arising from the Omega Acquisition, as described in Item 1. Note 16; partially offset by
▪$4.0 million increase for the absence of an insurance reimbursement received in the prior year period; and
▪$3.5 million impairment charge primarily on held for sale assets related to our Mexico and Brazil-based OTC businesses (the “Latin American businesses”).
◦$16.5 million increase in R&D and administration expenses due primarily to:
▪$19.3 million increase in administration expenses due primarily to an increase in legal and professional fees and a reduction in an insurance recovery receivable related to litigation contingencies, partially offset by a reduction in employee related expenses, Project Momentum savings and transition service agreement ("TSA") income from the RX business;
▪$2.8 million decrease in R&D expenses.
Nine Month Comparison
Nine Months Ended
(in millions, except percentages)October 2,
2021		September 26,
2020
Net sales$3,033.8 $3,035.0 
Gross profit$1,053.8 $1,110.5 
Gross profit %34.7 %36.6 %
Operating income$363.7 $227.6 
Operating income %12.0 %7.5 %
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* Total net sales by geography is derived from the location of the entity that sells to a third party.
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Consolidated


Nine Months Ended October 2, 2021 vs. Nine Months Ended September 26, 2020

Net sales decreased $1.2 million, or 0.0% due to:
•$86.0 million, or 2.9%, net decrease in the base business due primarily to a decline of $102.3 million in sales of cough and cold products due to the low incidence of related illness in the first half of the year. Additional decreases were due primarily to a decrease in demand of certain products due primarily to COVID-19 restrictions, inventory reductions at our retail customers in the US compared to the prior year, and discontinued products. These decreases were partially offset by the incremental impact of new product sales, recognition of contract manufacturing sales to the now-divested RX business, and positive pricing; and
•$84.8 million increase due primarily to:
◦$69.4 million increase from favorable foreign currency translation; and
◦$44.1 million increase from our acquisitions of the three Eastern European Brands in October 2020 and Dr. Fresh in April 2020; partially offset by
◦$28.7 million decrease due to our now-divested Rosemont pharmaceuticals business previously included in our CSCI segment.
Operating income increased $136.1 million, or 59.8%, due primarily to:

•$56.7 million decrease in gross profit due primarily to unfavorable plant overhead absorption due to lower production volumes resulting from the weak cough cold season in the first half of the year, and by higher input and freight costs. Gross profit as a percentage of net sales decreased 190 basis points due to the same factors as gross profit as well as unfavorable product mix.

•$192.8 million decrease in operating expenses due primarily to:
◦$241.5 million decrease in other operating expenses due primarily to:
▪$417.6 million award received for the Claim Arising from the Omega Acquisition, as described in Item 1. Note 16; partially offset by
▪$162.1 million of impairment charges primarily on goodwill and held for sale assets related to the Latin American businesses;
▪$10.2 million increase in restructuring expenses primarily associated with actions taken to streamline the organization; and
▪$4.0 million increase for the absence of an insurance reimbursement received in the prior year period.

◦$48.6 million increase in selling, distribution, R&D, and administration expenses due primarily to:
▪$22.9 million increase in administration expenses due primarily to a reduction in an insurance recovery receivable related to litigation contingencies, and an increase in legal and professional fees, partially offset by Project Momentum savings and TSA income from the RX business;
▪$16.0 million increase in selling, advertising and promotion expenses due primarily to unfavorable foreign currency translation and the addition of expenses from acquired businesses;
▪$6.7 million increase in distribution expenses due primarily to increased warehouse costs; and
▪$3.0 million increase in R&D expenses.


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CSCA

CONSUMER SELF-CARE AMERICAS

Recent Trends and Developments

•During the first half of 2021, net sales of cough and cold products decreased as a result of the very low incidence of cough and cold related illness, which we believe is attributed to social distancing and mask mandates. However, increased consumer takeaway at our retail customers, starting in May, suggested normalizing consumer purchasing routines could be expected in the second half of 2021. In the third quarter, we experienced higher demand for cough, cold and pain products due primarily to the higher incidences of cough and cold illness as society returns to in-person activities. Further, consumer take away remained strong during the third quarter and, as such, we expect sales of cough, cold and pain products to continue to increase, depending on the trajectory of the COVID-19 pandemic (refer to "Impact of COVID-19 Pandemic" above).

•During the third quarter of 2021, supply chain disruptions, including a lack of truck drivers in the U.S. and record delays at global shipping ports, lead to higher unfulfilled customer orders and higher input costs compared to the prior year. While we believe this will continue in the near-term, we are expecting a gradual improvement heading into the middle of 2022. We have taken a series of actions to improve the current situation including, reconfiguring our distribution system for short term shipments, outsourcing highly complex product lines to a third party logistic provider, adding regional carriers for challenged shipping lanes, hiring additional distribution center personnel, and increasing the purchase cycle as it relates to the manufacturing process.

•On May 18, 2021, we announced a definitive agreement to sell our Latin American businesses to Advent International. This transaction is part of our margin improvement program and Project Momentum cost savings initiative and is expected to close in the first half of 2022. We determined that the carrying value of these businesses exceeded their fair value less cost to sell, resulting in an impairment charge of $161.2 million allocated to goodwill and assets held for sale (refer to Item 1. Note 9).

Segment Financial Results

Three Month Comparison
 Three Months Ended
(in millions, except percentages)October 2,
2021		September 26,
2020
Net sales$694.2 $664.0 
Gross profit$187.6 $215.6 
Gross profit %27.0 %32.5 %
Operating income$90.4 $121.7 
Operating income %13.0 %18.3 %

Three Months Ended October 2, 2021 vs. Three Months Ended September 26, 2020

Net sales increased $30.2 million, or 4.5%, due to:

•$27.7 million, or 4.2%, net increase due primarily to:
◦$21.3 million increase in OTC due primarily to growth in e-commerce sales and the recognition of contract manufacturing sales to the now-divested RX business. Additional increases were due to higher demand for cough, cold and pain products, an increase in the branded OTC business, and positive pricing stemming from management actions taken earlier in the year. These gains were partially offset by lost distribution within the healthy lifestyle category, $9.9 million of discontinued products driven by the discontinuation of diabetes care products, and lower net sales in the allergy category.
◦Nutrition net sales increased $6.2 million due primarily to the incremental benefit of new product sales within infant formula and growth in the oral electrolytes business.
◦Net sales in our oral self-care category decreased $5.8 million due primarily to delayed receipt of products manufactured outside of the US, leading to unfulfilled customer orders.
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CSCA

•$2.5 million increase due to favorable Mexican peso foreign currency translation.

Operating income decreased $31.3 million, or 25.7%, due primarily to:

•$28.0 million decrease in gross profit due primarily to lower operating efficiencies driven by unfavorable plant overhead absorption from lower production volumes in OTC resulting from the weak cough cold season in the first half of the year, higher freight and input costs, and a product recall related to an allergy product, partially offset by the increase in net sales as described above. Gross profit as a percentage of net sales decreased 550 basis points due primarily to lower operating efficiencies discussed above and unfavorable product mix.
•$3.3 million increase in operating expenses due primarily to:
◦$6.5 million increase in other operating expenses due primarily to:
▪$2.6 million of additional impairment charges on held for sale assets related to the Latin American businesses; and
▪$4.0 million increase for the absence of an insurance reimbursement received in the prior year period.
◦$1.8 million decrease in distribution and administration expenses due primarily to:
▪$3.5 million decrease in administration expenses due primarily to a decrease in employee related expenses and legal and professional fees; partially offset by
▪$1.7 million increase in distribution costs due primarily to increased warehouse costs.

Nine Month Comparison
Nine Months Ended
(in millions, except percentages)October 2,
2021		September 26,
2020
Net sales$1,957.0 $1,992.2 
Gross profit$569.5 $627.3 
Gross profit %29.1 %31.5 %
Operating income$113.9 $348.4 
Operating income %5.8 %17.5 %

Nine Months Ended October 2, 2021 vs. Nine Months Ended September 26, 2020

Net sales decreased $35.2 million, or 1.8%, due to:
•$63.9 million, or 3.2%, net decrease due primarily to:
◦$82.5 million decrease in OTC due primarily to a decline of $63.1 million in sales of cough and cold products from the low incidence of related illness in the first half of the year. Additional decreases were due primarily to inventory reductions at our retail customers in the US compared to the prior year, and discontinued products driven by diabetes care products. These decreases were partially offset by the recognition of contract manufacturing sales to the now-divested RX business and incremental new product sales.
◦Nutrition net sales increased $6.6 million due primarily to growth in infant formula contract manufacturing, incremental new product sales, and higher net sales in oral electrolyte solutions. These factors were partially offset by inventory reductions at our retail customers compared to the prior year.
◦In the oral self-care category, net sales were flat compared to the prior period with incremental new product sales being offset by delayed receipt of products manufactured outside of the US, leading to unfulfilled customer orders.
•$28.7 million increase due to:
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CSCA

◦$23.8 million increase from our acquisition of Dr. Fresh in April 2020; and
◦$4.9 million increase from favorable Mexican peso foreign currency translation.

Operating income decreased $234.5 million, or 67.3%, due to:

•$57.8 million decrease in gross profit due primarily to unfavorable plant overhead absorption as a result of lower OTC production volumes resulting from the weak cough cold season in the first half of the year, higher freight and input costs, the decrease in net sales as described above, and a product recall related to an allergy product. Gross profit as a percentage of net sales decreased 240 basis points due primarily to unfavorable plant overhead absorption and the higher freight and input costs; and

•$176.7 million increase in operating expenses due primarily to:
◦$168.6 million increase in other operating expenses due primarily to:
▪$161.2 million of impairment charges on goodwill and held for sale assets related to the Latin American businesses;
▪$4.0 million increase for the absence of an insurance reimbursement received in the prior year period; and
▪$3.5 million increase in restructuring costs related primarily with actions taken to streamline the organization and business integrations.
◦$8.1 million increase in distribution, R&D, selling, and administration expenses due to:
▪$7.3 million increase in distribution costs related due primarily to increased warehouse costs;
▪$4.8 million increase in operating expenses due to the inclusion of Dr. Fresh expenses; and
▪$3.8 million increase in R&D expenses, partially for a new drug application filing fee and continued innovation; partially offset by
▪$7.8 million decrease in selling and administration expenses due primarily to a decrease in legal and professional fees, partially offset by an increase in selling expenses within the OTC business.

CONSUMER SELF-CARE INTERNATIONAL

Recent Trends and Developments

•During the first half of 2021, net sales of cough and cold products decreased as a result of the very low incidence of cough and cold related illness this year, which we believe is attributed to social distancing and mask mandates. However, increased consumer takeaway at our retail customers starting in May suggests normalizing consumer purchasing routines are expected through the remainder of 2021 depending on the trajectory of the COVID-19 pandemic (refer to "Impact of COVID-19 Pandemic" above).

•During the three months ended October 2, 2021, a number of EU regulators requested recalls, some at the consumer level, due to the detection of 2-chloroethanol (“2-CE”). 2-CE has been associated with the presence of ethylene oxide, a constituent in pesticides, which is not permitted for use in food products under food regulations in the EU. Due to the potential presence of ethylene oxide in certain of our VMS products, we initiated recalls. We have since secured alternate sourcing of the raw material. During the three months ended October 2, 2021, these recalls resulted in a decrease in net sales of $3.9 million and a decrease in gross profit of $5.5 million.






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CSCI

Segment Financial Results

Three Month Comparison
 Three Months Ended
(in millions, except percentages)October 2,
2021		September 26,
2020
Net sales$348.5 $339.0 
Gross profit$148.8 $154.1 
Gross profit %42.7 %45.5 %
Operating income$4.3 $10.1 
Operating income %1.2 %3.0 %

Three Months Ended October 2, 2021 vs. Three Months Ended September 26, 2020

Net sales increased $9.5 million, or 2.8%, due to:
•$1.9 million, or 0.6%, net decrease due primarily to the lower than normal buy-in for cough and cold products by independent pharmacies, lower net sales in contract manufacturing, lower demand for weight loss products across Europe, which led to lower net sales for XLS Medical in the healthy lifestyle category, and a product recall that impacted the VMS category. These decreases were mostly offset by higher net sales in the U.K. store brand business, greater demand for NiQuitin smoking cessation products in the Healthy Lifestyle category, incremental new product sales, and positive pricing; more than offset by

•$11.4 million increase due primarily to:
◦$6.4 million increase from favorable foreign currency translation; and
◦$5.0 million increase from our acquisition of three Eastern European Brands in October 2020.

Operating income decreased $5.8 million, or 57.4%, due primarily to:

•$5.3 million decrease in gross profit due primarily to the VMS product recall. Gross profit as a percentage of net sales decreased 280 basis points due primarily to the VMS product recall and unfavorable product mix.

Nine Month Comparison
Nine Months Ended
(in millions, except percentages)October 2,
2021		September 26,
2020
Net sales$1,076.8 $1,042.8 
Gross profit$484.3 $483.2 
Gross profit %45.0 %46.3 %
Operating income$23.1 $45.7 
Operating income %2.1 %4.4 %

Nine Months Ended October 2, 2021 vs. Nine Months Ended September 26, 2020

Net sales increased $34.0 million, or 3.3%, due to:
•$22.1 million, or 2.2%, net decrease due primarily to a decline of $39.2 million in sales of cough and cold products due to the low incidence of related illness this year. Additional decreases were due primarily to lower demand for weight loss products across Europe, which led to lower net sales for XLS Medical in the healthy lifestyle category, lower consumer demand for anti-parasite products in the skincare and personal hygiene category due primarily to COVID-19 restrictions and a slow start to the mosquito summer season, lower net sales in contract manufacturing, and a product recall that impacted the VMS category. These decreases were partially offset by incremental new product sales including XLS Medical Forte 5 sticks in the healthy lifestyle category, the introduction of the Probify probiotics brand in the VMS category, and the
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Perrigo Company plc - Item 2
CSCI

launch of Plackers® into new markets in the oral self-care category, positive pricing, and greater demand for NiQuitin smoking cessation products in the Healthy Lifestyle category. Such decreases were more than offset by
•$56.1 million increase due primarily to:
◦$64.5 million increase from favorable foreign currency translation; and
◦$20.3 million increase from our acquisitions of the three Eastern European Brands in October 2020 and Dr. Fresh in April 2020; partially offset by
◦$28.7 million decrease due to our now-divested Rosemont pharmaceuticals business.
Operating income decreased $22.6 million, or 49.5%, due to:

•$1.1 million increase in gross profit due primarily to greater operating efficiencies, positive pricing and foreign currency translation, partially offset by an increase in lower margin product sales, the now-divested Rosemont pharmaceuticals business, and the VMS product recall. Gross profit as a percentage of net sales decreased 130 basis points due primarily to unfavorable product mix and the VMS product recall, partially offset by greater operating efficiencies; and

•$23.7 million increase in operating expenses due primarily to:
◦$20.6 million increase in selling and administration expenses due primarily to:
▪$11.3 million increase in selling, advertising and promotion ("A&P") expenses due primarily to unfavorable foreign currency translation, more than offsetting the reduction in expenses from base business A&P and the divestiture of our Rosemont pharmaceuticals business; and
▪$9.3 million increase in administration expenses due primarily to an increase in employee expenses and unfavorable foreign currency translation, partially offset by the absence of expenses from the divestiture of our Rosemont pharmaceuticals business; and
◦$4.8 million increase in restructuring expenses associated with actions taken to streamline the organization.

Unallocated Expenses

Unallocated expenses are comprised of certain corporate services not allocated to our reporting segments and are recorded in Operating income on the Condensed Consolidated Statements of Operations. Unallocated expenses were as follows (in millions):
Three Months EndedNine Months Ended
October 2,
2021		September 26,
2020		October 2,
2021		September 26,
2020
$(343.6)$53.3 $(226.7)$166.5 

The decrease of $396.9 million in unallocated expenses during the three months ended October 2, 2021 compared to the prior year period was due primarily to the award in the Claim Arising from the Omega Acquisition, as described in Item 1. Note 16 for $417.6 million, TSA income from the RX business, and Project Momentum savings. This was partially offset by an increase in legal and professional fees and a reduction in an insurance recovery receivable related to litigation contingencies.

The decrease of $393.2 million in unallocated expenses during the nine months ended October 2, 2021 compared to the prior year period was due primarily to the award in the Claim Arising from the Omega Acquisition, as described in Item 1. Note 16 for $417.6 million, higher indirect costs in the prior year period relating to the RX business, TSA income from the RX business, and Project Momentum savings. These were partially offset by an increase in legal and professional fees, a reduction in an insurance recovery receivable related to litigation contingencies, and an increase in restructuring expenses.
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Unallocated, Interest, Other, and Taxes

Change in Financial Assets, Interest expense, net, and Other (income) expense, net and Loss on extinguishment of debt (Consolidated)
Three Months EndedNine Months Ended
(in millions)October 2,
2021		September 26,
2020		October 2,
2021		September 26,
2020
Change in financial assets$— $(22.2)$— $(25.9)
Interest expense, net$30.9 $33.3 $94.5 $94.3 
Other (income) expense, net$18.5 $(1.0)$20.4 $17.9 
Loss on extinguishment of debt$— $20.0 $— $20.0 

Change in Financial Assets

During the year ended December 31, 2020, Royalty Pharma payments from Biogen for Tysabri® sales, as defined in the agreement between the parties, did not exceed the 2020 global net sales threshold. Therefore, we were not entitled to receive the remaining contingent milestone payment. As of December 31, 2020, there are no contingent milestone payments outstanding.

During the three and nine months ended September 26, 2020, the fair value of the Royalty Pharma contingent milestone payment related to 2020 increased by $22.2 million and $25.9 million, respectively to $121.2 million, driven by higher projected global net sales of Tysabri® compared to the estimates in the prior period, and the estimated probability of achieving the earn-out (refer to Item 1. Note 6).

Interest Expense, Net

The $2.4 million decrease during the three months ended October 2, 2021, compared to the prior year period was due primarily to a reduction in interest expense due primarily to a reduction in interest rates.

The $0.2 million increase for the nine months ended October 2, 2021, compared to the prior year period was due primarily to a reduction in interest income received, partially offset by a reduction in interest expense.

Other (Income) Expense, Net

The $19.5 million increase in expense during the three months ended October 2, 2021 compared to the prior year period was due primarily to unfavorable changes in revaluation of monetary assets and liabilities held in foreign currencies.

The $2.5 million increase in expense during the nine months ended October 2, 2021 compared to the prior year period was due primarily to the absence of an $18.7 million pre-tax loss on the divestiture of our Rosemont Pharmaceuticals business partially offset by unfavorable changes in revaluation of monetary assets and liabilities held in foreign currencies.

Loss on Extinguishment of Debt

During the three months ended September 26, 2020, we recorded a loss of $20.0 million as a result of the early redemption of the 2021 Notes, consisting of the premium on debt repayments, the write-off of deferred financing fees, and the write-off of the remaining bond discounts (refer to Item 1. Note 12).

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Perrigo Company plc - Item 2
Unallocated, Interest, Other, and Taxes

Income Taxes (Consolidated)

The effective tax rates were as follows:
Three Months EndedNine Months Ended
October 2,
2021		September 26,
2020		October 2,
2021		September 26,
2020
113.9 %45.5 %165.5 %20.5 %

The effective tax rate for the three and nine months ended October 2, 2021 increased compared to the effective tax rate for the three and nine months ended September 26, 2020 primarily due to tax expense recorded in 2021 for settlement of the Irish Notice of Amended Assessment and intra-entity transfers of intellectual property, plus tax benefits recorded in the 2020 periods for reductions to the U.S. valuation allowance and the U.S. Coronavirus Aid, Relief and Economic Security ("CARES") Act, enacted in the first quarter of 2020.

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

We finance our operations with internally generated funds, supplemented by credit arrangements with third parties and capital market financing. We routinely monitor current and expected operational requirements and financial market conditions to evaluate other available financing sources including term and revolving bank credit and securities offerings. In determining our future capital requirements, we regularly consider, among other factors, known trends and uncertainties, such as the Notices of Proposed Adjustment ("NOPAs") from the IRS, the current COVID-19 pandemic, and other contingencies. We note that no payment of the additional amounts proposed by the IRS in the NOPAs is currently required, and no such payment is expected to be required, unless and until a settlement or other final determination of the matter is reached that is adverse to us (refer to Item 1. Note 15 for additional information on the NOPAs). Based on the foregoing, management believes that our operations and borrowing resources are sufficient to provide for our short-term and long-term capital requirements, as described below. However, an adverse result with respect to our appeal of any material outstanding tax assessments or litigation, including securities or drug pricing matters and product liability cases, damages resulting from third-party claims, and related interest and/or penalties, could ultimately require the use of corporate assets to pay such assessments and any such use of corporate assets would limit the assets available for other corporate purposes. As such, we continue to evaluate the impact of the above factors on liquidity and may determine that modifications to our capital structure are appropriate if market conditions deteriorate, favorable capital market opportunities become available, or any change in conditions relating to the NOPAs, the COVID-19 pandemic or other contingencies have a material impact on our capital requirements. We received $1.5 billion in cash upon the completion of the RX business sale, on July 6, 2021. We intend to use a portion of these proceeds to fund the acquisition of HRA Pharma (refer to Item 1. Note 3). We also received $417.6 million relating to the Claim Arising from the Omega Acquisition in September 2021. A portion of these proceeds were used for the settlement of the NoA dispute with Irish Revenue.

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Perrigo Company plc - Item 2
Financial Condition, Liquidity and Capital Resources

Cash and Cash Equivalents

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* Working capital represents current assets less current liabilities, excluding cash and cash equivalents, assets and liabilities held for sale, and excluding current indebtedness.

Cash, cash equivalents, cash flows from operations, and borrowings available under our credit facilities are expected to be sufficient to finance our liquidity and capital expenditures in both the short and long term. Although our lenders have made commitments to make funds available to us in a timely fashion under our revolving credit agreements and overdraft facilities, if economic conditions worsen, including due to the COVID-19 pandemic, 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 our existing credit facilities. Should our outlook on liquidity requirements change substantially from current projections, we may seek additional sources of liquidity in the future.

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Perrigo Company plc - Item 2
Financial Condition, Liquidity and Capital Resources

Cash Generated by (Used in) Operating Activities
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The $264.1 million decrease in operating cash inflow was due primarily to:

•$267.0 million decrease in cash flow from the change in net earnings after adjustments for items including impairment charges, deferred income taxes, restructuring charges, changes in our financial assets, share-based compensation, amortization of debt premium, loss (gain) on sale of businesses, loss on extinguishment of debt, and depreciation and amortization;
•$288.7 million decrease in cash flow from the change in accounts receivable, due primarily to timing of sales and receipt of payments;
•$58.4 million decrease in cash flow from the change in accrued payroll and related taxes, due primarily to the timing of payroll and the increase in annual management and employee bonus payments compared to the prior year period; and
•$50.7 million decrease in cash flow from the change in other assets and liabilities, due primarily to recording a receivable for the net settlement of receipts received and payments made on behalf of the RX business under the TSA arrangement; partially offset by
•$322.2 million increase in cash flow from the change in accrued income taxes, due primarily to the accruals recorded for the taxes related to the settlement of the Irish NoA and taxes related to the Omega Arbitration settlement;

•$48.9 million increase in cash flow from the change in accrued customer programs, due primarily to pricing dynamics and timing of rebate and chargeback payments related to our discontinued operations; and

•$22.0 million increase in cash flow from the change in prepaid expenses, due primarily to a decrease in our annual prepaid expenses compared to the prior year period and for a payment received in the current year related to a prior TSA agreement.


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Perrigo Company plc - Item 2
Financial Condition, Liquidity and Capital Resources

Cash Generated by (Used in) Investing Activities
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The $1,378.0 million increase in cash from investing cash flow was due primarily to:

•$1,305.3 million increase in cash due to the proceeds from the RX business sale partially offset by the absence of the proceeds from the divestiture of our Rosemont Pharmaceuticals business (refer to Item 1. Note 3);
•$106.0 million increase in cash due to the absence of the payment for the acquisition of Dr. Fresh (refer to Item 1. Note 3); and
•$15.0 million increase in cash due to the absence of the payment for the purchase of our equity method investment in Kazmira LLC; partially offset by
•$36.5 million decrease in cash due to the increase in spending on asset acquisitions, primarily related to the payment for an ANDA for a generic topical gel for $16.4 million and the purchase of an ANDA for a generic topical lotion for $53.3 million, offset by prior year acquisitions for the Steripod® brand for $25.1 million and theDexsil® brand for approximately $8.0 million (refer to Item 1. Note 3).

Cash Generated by (Used in) Financing Activities
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The $141.0 million decrease in financing cash flow was due primarily to:

•$743.8 million decrease due to absence of the debt issuance completed in the prior year; and
•$5.9 million decrease due primarily to the payment made on the promissory notes related to our Kazmira investment; partially offset by
•$590.0 million increase due to the absence of the payment on long-term debt in the prior year; and
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Perrigo Company plc - Item 2
Financial Condition, Liquidity and Capital Resources

•$19.0 million increase due to the absence of the payment of premiums on the early redemption of the 2021 Notes in the prior year.

Dividends

The declaration and payment of dividends, if any, is subject to the discretion of our Board of Directors and will depend on our earnings, financial condition, availability of distributable reserves, capital and surplus requirements, and other factors our Board of Directors may consider relevant.

Share Repurchases

In October 2018, our Board of Directors authorized up to $1.0 billion of share repurchases with no expiration date, subject to the Board of Directors’ approval of the pricing parameters and amount that may be repurchased under each specific share repurchase program. We did not repurchase any shares during the three and nine months ended October 2, 2021 or September 26, 2020.

Borrowings and Capital Resources
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Revolving Credit Agreements

On March 8, 2018, we entered into a $1.0 billion revolving credit agreement maturing on March 8, 2023 (the "2018 Revolver"). There were no borrowings outstanding under the 2018 Revolver as of October 2, 2021 or December 31, 2020.

Term Loans and Notes

We had $2.9 billion outstanding under our notes and bonds as of both October 2, 2021 and December 31, 2020. In August 2019, we refinanced a prior term loan with the proceeds of a $600.0 million term loan, maturing on August 15, 2022 (the "2019 Term Loan"). We had $600.0 million outstanding under our 2019 Term Loan as of both October 2, 2021 and December 31, 2020.

Waiver and Amendment of Debt Covenants

We are subject to financial covenants in the 2018 Revolver and 2019 Term Loan, including a maximum leverage ratio covenant, which previously required us to maintain a ratio of Consolidated Net Indebtedness to Consolidated EBITDA (as such terms are defined in the respective credit agreements) of not more than 3.75 to 1.00 at the end of each fiscal quarter. During the nine months ended October 2, 2021, we received a waiver for non-compliance with such covenant as of July 3, 2021 from the lenders under both credit facilities and entered into an amendment to each of the 2018 Revolver and 2019 Term Loan. Under such amendments, the maximum leverage ratio was increased to 5.75 to 1.00 for the third quarter of 2021, returning to 3.75 to 1.00 beginning with the fourth quarter of 2021. If we consummate certain qualifying acquisitions in the fourth quarter of 2021 or any subsequent quarter during the term of the loan, the maximum ratio would increase to 4.00 to 1.00 for such quarter. Due to the waiver and amendment described above, our leverage ratios at the end of the second and third quarters of 2021 do
71
Perrigo Company plc - Item 2
Financial Condition, Liquidity and Capital Resources

not prevent us from drawing under the 2018 Revolver. As of October 2, 2021, we are in compliance with all the covenants under our debt agreements. No assurance can be given that the Company will meet the leverage covenant under such credit agreements. However, given the Company’s strong cash position, we do not believe that any failure to comply with such leverage covenant would have a material adverse effect on the Company or its liquidity. The 2019 Term Loan currently matures in the third quarter of 2022, and the amount outstanding thereunder has been classified as current indebtedness on our balance sheet as of July 3, 2021. The Company is currently evaluating various options relating to the 2018 Revolver and the 2019 Term Loan, which may include further amendments, repayment of the 2019 Term Loan, and/or refinancing.

Other Financing

On June 17, 2020, we incurred debt of $34.3 million related to our equity method investment in Kazmira pursuant to two Promissory Notes, with $3.7 million, $5.8 million and $24.8 million to be settled in November 2020, May 2021 and November 2021, respectively. On December 8, 2020, we repaid the $3.7 million balance due on the November 2020 portion of the Promissory Notes. On June 7, 2021, we repaid the $5.8 million balance due on the May 2021 portion of the Promissory Notes.

Overdraft Facilities

We have overdraft facilities available that we use to support our cash management operations. There were no borrowings outstanding under the facilities as of October 2, 2021 or December 31, 2020.

Leases

We had $203.3 million and $187.7 million of lease liabilities and $200.1 million and $184.5 million of lease assets as of October 2, 2021 and December 31, 2020, respectively.

Accounts Receivable Factoring

The total amount factored on a non-recourse basis and excluded from accounts receivable was zero and $6.9 million at October 2, 2021 and December 31, 2020, respectively.

Refer to Item 1. Note 11 and Note 12 for more information on all of the above lease activity and debt facilities, respectively.

Credit Ratings
During the third quarter of 2021, our credit ratings were downgraded by Moody’s and S&P Global Ratings to Ba1 (negative) and BB (stable), respectively, which are not investment grade ratings. On October 2, 2021, our credit rating was BBB- (negative) by Fitch Ratings Inc., which is an investment grade rating.

Credit rating agencies review their ratings periodically and, therefore, the credit rating assigned to us by each agency may be subject to revision at any time. Accordingly, we are not able to predict whether current credit ratings will remain as disclosed above. Factors that can affect our credit ratings include changes in operating performance, the economic environment, our financial position, and changes in business strategy. If changes in our credit ratings were to occur, they could impact, among other things, future borrowing costs, access to capital markets, and vendor financing terms. A security rating is not a recommendation to buy, sell or hold securities.

Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have a material current effect or that are reasonably likely to have a material future effect on our financial condition, changes in financial condition, net sales or expenses, results of operations, liquidity, capital expenditures, or capital resources. We acquire and collaborate on potential products still in development and enter into R&D arrangements with third parties that often require milestone payments to the third-party contingent upon the occurrence of certain future events linked to the success of the asset in development. Milestone payments may be required contingent upon the successful achievement of an important point in the development life cycle of the product. Because of the contingent nature of these payments, they are not included in our table of contractual obligations.
72
Perrigo Company plc - Item 2
Financial Condition, Liquidity and Capital Resources

Contractual Obligations and Commitments

There were no material changes in contractual obligations as of October 2, 2021 from those provided in our 2020 Form 10-K.

Significant Accounting Policies

Other than the adoption of ASU 2019-12: Income taxes (refer to Item 1. Note 15), there have been no material changes to the significant accounting policies as disclosed in our 2020 Form 10-K.

Critical Accounting Estimates

The determination of certain amounts in our financial statements requires the use of estimates. These estimates are based upon our 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 we have used. There have been no material changes to the critical accounting estimates as disclosed in our 2020 Form 10-K.

ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


There have been no material changes to our quantitative or qualitative disclosures found in Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of our Annual Report on2020 Form 10-K for the year ended December 31, 2016.10-K.


ITEM 4.        CONTROLS AND PROCEDURES


Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures


Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act) as of September 30, 2017.October 2, 2021. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were notare effective as of September 30, 2017 because of thein ensuring that all material weaknessesinformation relating to us and our consolidated subsidiaries required to be included in our internal control over financial reporting described below.

All systems of internal control, no matter how well designed, have inherent limitations. Therefore, evenperiodic SEC filings would be made known to them by others within those systems deemed to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. A material weakness is a deficiency, or combination of deficiencies,entities in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis.manner and that no changes are required at this time.


Evaluation of the Effectiveness of Internal Control over Financial Reporting


We conducted an evaluation ofOur management assessed the effectiveness of our internal control over financial reporting based upon theas of October 2, 2021. The framework establishedused in carrying out our evaluation was the 2013 Internal Control - Integrated Framework issued published by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission (“COSO”).

Perrigo Company plc - Item 4
Controls and Procedures


Tysabri® Contingent Payments

We acquired the Tysabri® royalty stream inCommission. In evaluating our acquisition of Elan Pharmaceuticals plc (“Elan”) in December 2013, and at the timeinformation technology controls, we also used components of the acquisition,framework contained in the Control Objectives for Information and related Technology, which was developed by the Information Systems Audit and Control Association’s IT Governance Institute, as a complement to the COSO internal control framework. Management has concluded that the right to receive quarterly royalty payments from Biogen Idec Inc. should be an intangible asset and such payments recognized as revenue in our financial statements. As discussed in Item 4.02 of our Form 8-K filed on April 25, 2017, during the 2016 year-end close process, and in anticipation of our potential sale of the Tysabri® royalty rights and the 2018 adoption of ASC 606 Revenue from Contracts with Customers, we re-evaluated the historical classification of the Tysabri® royalty stream as an intangible asset and concluded that it should have been reflected in the financial statements as a financial asset as of its 2013 acquisition date. As part of this evaluation, management determined that its control over the review of the application of the accounting guidance in ASC 805 Business Combinations did not operate effectively in the appropriate identification of the assets acquired and liabilities assumed in connection with the Elan acquisition in December 2013.All of our originally filed financial statements through the filing of the Form 10-Q for the quarter ended October 1, 2016, as originally filed on November 10, 2016, included the disclosure of the Elan acquisition with the Tysabri® royalty stream presented as an intangible asset. In addition, due to the fact that the asset was historically classified as an intangible asset, we did not design or implement controls around the fair value accounting for the Tysabri® royalty stream as a financial asset, so these controls were not in place at any quarter end subsequent to the acquisition, including the date of the quarterly and annual assessment of internal control. Accordingly, management concluded that these control deficiencies represent material weaknesses. As discussed in our Form 10-Q for the quarter ended July 1, 2017, the material weakness related to the fair value accounting for the Tysabri® royalty stream as a financial asset was remediated during that period. See below for our discussion of the remediation efforts related to our acquisition of the Tysabri® royalty rights.

Income Taxes

Management has determined that we did not design or maintain effective management review controls related to our (1) evaluation of non-routine transactions that impact our effective tax rate on an annual and interim basis and (2) determination of our deferred taxes in connection with business combinations.

During our quarterly and annual fiscal 2016 close processes, management determined that the design and operating effectiveness of our controls around the evaluation of non-routine events did not operate appropriately. As disclosed in our Form 10-Q for the quarterly period ended April 2, 2016, our management review controls did not operate at a sufficient level of precision to ensure interim income taxes were properly recorded and disclosed in our condensed consolidated financial statements in connection with the recording of an indefinite-lived intangible asset impairment and estimated goodwill impairment as part of the Company’s controls to evaluate non-routine events that occur during a quarterly period and the related income tax impacts. These control deficiencies resulted in a material misstatement in income taxes in the preliminary financial statements for the quarter ended April 2, 2016. Additionally, these controls remained unremediated as of September 30, 2017, as they were in February 2017 when we identified that these controls did not appropriately evaluate the need for a valuation allowance. ASC 740, Income Taxes, requires a company to record a valuation allowance to reduce a deferred tax asset to its net realizable value. Our controls related to consideration of non-routine transactions or events were not designed and did not operate appropriately and identify whether a valuation allowance was needed as they did not identify that we entered into a three year cumulative loss and did not consider the positive and negative evidence in evaluating the potential sources of taxable income in determining whether a valuation allowance was required in the consolidated financial statements.

In February 2017, management identified the existence of tax basis in certain acquired intangible assets (“tax amortization benefits”) that existed at the time of the acquisition of Omega Pharma Invest N.V. (“Omega”) on March 30, 2015. Upon evaluating the tax amortization benefits, management concluded that the purchase accounting for Omega should have included the tax basis in the intangible assets in calculating the deferred tax liability in the opening balance sheet. This omission of existing tax basis in calculating the deferred tax liability on the acquisition date indicated that management’s review over the opening balance sheet deferred income tax accounts was not designed or operating appropriately.

Accordingly, management concluded that these control deficiencies represent material weaknesses.

Perrigo Company plc - Item 4
Controls and Procedures


Impairment

In connection with our long-lived asset impairment testing, management determined that the controls around the identification of the relevant asset group under ASC 360, Impairment and Disposal of Long-lived Assets, did not operate effectively. In determining the level to evaluate the long-lived assets in our animal health reporting unit for impairment testing, we inappropriately grouped the assets that constituted the asset group in applying the guidance in ASC 360.

Accordingly, management concluded that this control deficiency represented a material weakness.

Remediation Plan for the Material Weaknesses

We are committed to remediating the control deficiencies that gave rise to the material weaknesses described above. Management is responsible for implementing changes and improvements to internal control over financial reporting and for remediating the control deficiencies that gave rise to the material weaknesses.

Tysabri® Contingent Payments

To remediate the material weakness related to the acquisition of the Tysabri® royalty rights, we, with oversight from the Audit committee, designed certain controls around the identification of assets acquired and liabilities assumed in our business combination process. As part of the re-design of the controls, we: (1) considered our controls around the review of the related contracts and agreements and our application of ASC 805 to identify the type of assets acquired and liabilities assumed and (2) evaluated and enhanced management review controls related to business acquisitions. Based on the evaluation of the design and changes to our business acquisition process performed during the second and third quarters of 2017 on these newly implemented controls, we have concluded that these controls have been designed and implemented appropriately. As a result, we consider this material weakness to be remediated as of September 30, 2017.

Income Taxes

To remediate the material weaknesses in internal control over financial reporting related to income taxes, we have, with oversight from the Audit Committee, completed the review of the organizational structure, resources, processes and controls in place to measure and record income taxes to enhance the effectiveness of the design and operation of those controls. In addition, we continue to:

Evaluate the design and operating effectiveness of our controls related to income taxes for business acquisitions and non-routine transactions on an interim and annual basis;
Enhance monitoring activities related to income taxes; and
Evaluate and enhance the level of precision in the management review controls related to income taxes.

We have begun to implement the remediation actions and expect to complete the implementation as part of our 2017 fiscal year closing process. Until the remediation actions are fully implemented and the operational effectiveness of related internal controls is validated through testing, the material weaknesses related to income taxes described above will continue to exist.

Impairment

We, with oversight from the Audit Committee, designed and initiated certain controls around the financial reporting related to the identification of asset groups as part of our impairment testing. Controls we implemented include: (1) reviewing the design and operation of our controls related to asset group determination in our impairment process on an interim and annual basis and (2) evaluating and enhancing the management review controls related to impairment. Based on the testing performed during the second and third quarters of 2017 on these newly implemented controls around the identification of asset groups as part of our impairment testing, we have concluded that these controls have been designed appropriately and are operating effectively. As a result, we consider this material weakness to be remediated as of September 30, 2017.

Perrigo Company plc - Item 4
Controls and Procedures


We are committed to achieving and maintaining a strong internal control environment and believe the remediation measures will strengthen our internal control over financial reporting and remediate the material weaknesses identified. We continue to review the remaining un-remediated material weaknesses and intend to add resources and improvewas effective as of October 2, 2021. The results of management’s assessment have been reviewed with our processes to achieve and maintain a strong control environment. We will continue to monitor the effectiveness of our remediation measures and will make any changes and take such other actions that we deem appropriate given the circumstances.Audit Committee.


Changes in Internal Control over Financial Reporting

Other than as described above under "Remediation Plan for Material Weaknesses," thereThere have been no changes in our internal control over financial reporting during the three months ended September 30, 2017October 2, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.








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Perrigo Company plc - Part II - Other Information

PART II.     OTHER INFORMATION


ITEM 1.    LEGAL PROCEEDINGS


Refer to Part I, Item 1. Note 1415 and Item 1. Note 16 of the Notes to the Condensed Consolidated Financial Statements.


ITEM 1A.    RISK FACTORS


Our Annual Report on Form 10-K for the year ended December 31, 20162020 includes a detailed discussion of our risk factors. At the time of this filing, there have been no material changes to the risk factors that were included in the Form 10-K, other than as described below.


We identified material weaknessesManagement transition creates uncertainties, and any difficulties we experience in managing such transitions may negatively impact our business.

Effective October 4, 2021, Jim Dillard was named EVP and President of our CSCA segment, following the mutual separation of Rich Sorota. Changes in executive management create uncertainty. Moreover, changes in our internal controls over financial reporting; failurecompany as a result of management transition could have a disruptive impact on our ability to remediate the material weaknessesimplement, or result in changes to, our strategy and could negatively impact our business, financial condition and the priceresults of our ordinary shares.operations.

In connection with our review of certain material misstatements related to the characterization of the Tysabri® royalty stream acquired in the Elan transaction, as well as material misstatements related to the calculation of deferred tax liabilities that existed at the time of the acquisition of Omega, and the evaluation of long-lived assets in our animal health reporting unit for impairment testing, in each case contained in certain of our historical financial statements, we concluded that there were material weaknesses in our internal control over financial reporting that contributed to those misstatements. As a result of the material weaknesses, which existed at December 31, 2016 and some of which remained at September 30, 2017, we have concluded that we did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2016, April 1, 2017, July 1, 2017 or September 30, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The failure to maintain effective control over financial reporting in turn resulted in material deficiencies in our disclosure controls and procedures.

We have identified and begun the implementation of actions, and continue to identify and implement, actions to improve the effectiveness of our internal control over financial reporting and disclosure controls and procedures, but there can be no assurance that such remediation efforts will be successful. We have also incurred and will continue to incur substantial accounting, legal, consulting, and other costs in connection with identifying and remediating the material weaknesses. Failure to remediate the material weaknesses could have a negative impact on our business and the market for our ordinary shares. For more information on our material weaknesses and the status of our remediation efforts, See Part I, Item 4 - Controls and Procedures.

We are currently involved in a search for a new Chief Executive Officer and a subsequent search for a permanent Chief Financial Officer. If these searches are delayed, our business could be negatively impacted.

On June 5, 2017, we announced the forthcoming retirement of John T. Hendrickson as our Chief Executive Officer. Mr. Hendrickson will continue to serve as our Chief Executive Officer and a member of our Board until such time as a successor has been appointed. Our Board of Directors has initiated a Chief Executive Officer search process and has retained an executive search and leadership advisory firm to assist with the process of identifying and evaluating candidates.
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Perrigo Company plc - Item 1A
Risk Factors





In addition, on February 21, 2017, we announced the resignation of Judy L. Brown as our Executive Vice President, Business Operations and Chief Financial Officer, effective February 27, 2017. Since that time, Ronald L. Winowiecki has served as our acting Chief Financial Officer. Although Mr. Winowiecki remains a key candidate for our permanent Chief Financial Officer, our Board of Directors has suspended its Chief Financial Officer search during its search for Mr. Hendrickson’s successor as Chief Executive Officer. There are no assurances concerning the timing or outcome of our search for a new Chief Executive Officer or subsequent search for a permanent Chief Financial Officer. If there are any delays in this process, or if any transition is not successful, our business could be negatively impacted.

The resolution of uncertain tax positions could be unfavorable, which could have an adverse effect on our business.

Although we believe that our tax estimates are reasonable and that 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 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 or interest assessments.

On August 15, 2017, we filed a complaint in the United States District Court for the Western District of Michigan to recover $163.6 million of Federal income tax, penalties, and interest assessed and collected by the Internal Revenue Service (“IRS”), plus statutory interest thereon from the dates of payment, for the fiscal years ended June 27, 2009, June 26, 2010, June 25, 2011, and June 30, 2012 (the “2009 tax year,” “2010 tax year,” “2011 tax year,” and “2012 tax year,” respectively). The IRS audits of those years culminated in the issuances of two statutory notices of deficiency: (1) on August 27, 2014 for the 2009 and 2010 tax years and (2) on April 20, 2017 for the 2011 and 2012 tax years. The statutory notices of deficiency both included un-agreed income adjustments related principally to transfer pricing adjustments regarding the purchase, distribution, and sale of store-brand OTC pharmaceutical products in the United States. In addition, the statutory notice of deficiency for the 2011 and 2012 tax years included the capitalization of certain expenses that were deducted when paid or incurred in defending against certain patent infringement lawsuits. We fully paid the assessed amounts of tax, interest, and penalties set forth in the statutory notices and filed timely claims for refund on June 11, 2015 and June 7, 2017 for the 2009-2010 tax years and 2011-2012 tax years, respectively. Our claims for refund were disallowed by certified letters dated August 18, 2015 and July 11, 2017, for the 2009-2010 tax years and 2011-2012 tax years, respectively. The complaint was timely, based upon the refund claim denials, and seeks refunds of tax, interest, and penalties of $37.2 million for the 2009 tax year, $61.5 million for the 2010 tax year, $40.2 million for the 2011 tax year and $24.7 million for the 2012 tax year. The amounts sought in the complaint for the 2009 and 2010 tax years were recorded as deferred charges on our balance sheet during the three months ended March 28, 2015, and the amounts sought in the complaint for the 2011 and 2012 tax years were recorded as deferred charges on our balance sheet in the second quarter of the year ending December 31, 2017.

On December 22, 2016, we received a notice of proposed adjustment for the IRS audit of Athena Neurosciences, Inc. (“Athena”), a subsidiary of Elan Corporation plc (“Elan”) acquired in 1996, for the years ended December 31, 2011, December 31, 2012 and December 31, 2013. We acquired Elan in December 2013. This proposed amendment relates to the deductibility of litigation costs. We disagree with the IRS’s position asserted in the notice of proposed adjustment and intend to contest it.

On July 11, 2017, we received a draft notice of proposed adjustment associated with transfer pricing positions for the IRS audit of Athena for the years ended December 31, 2011, December 31, 2012 and December 31, 2013. Athena was the originator of the patents associated with Tysabri® prior to the acquisition of Athena by Elan in 1996. The amount of adjustments that may be asserted by the IRS in the final notice of proposed adjustment cannot be quantified at this time; however, based on the draft notice received, the amount to be assessed may be material. We disagree with the IRS’s position as asserted in the draft notice of proposed adjustment and intend to contest it.

Perrigo Company plc - Item 1A
Risk Factors




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. Unfavorable resolutions of the audit matters discussed above could have a material impact on our consolidated financial statements in future periods.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share repurchase activity during the three months ended September 30, 2017 was as follows:

 Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans 
Value of Shares Available for Purchase(1)
July 2 - July 31, 2017484,860
 $72.27
 484,860
  
August 1 - August 31, 20171,354,721
 $71.46
 1,354,721
  
September 1 - September 30, 201719,124
 $77.50
 19,124
  
Total1,858,705
     $1.30 billion

(1) The remaining $1.30 billion in the table represents the amount available to be repurchased under our 2015 Authorization as of September 30, 2017.

ITEM 5. OTHER INFORMATION
Our Board of Directors has established May 4, 2018 as the date of our 2018 Annual General Meeting of Shareholders (the “2018 Annual Meeting”). Because the date of the 2018 Annual Meeting will be more than 30 days before the anniversary of our 2017 Annual General Meeting of Shareholders, we are informing shareholders of the change in accordance with Rule 14a-5(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

For shareholders who wish to present a proposal to be considered for inclusion in our proxy materials for the 2018 Annual Meeting, we have set a new deadline for the receipt of those proposals in accordance with Rule 14a-8 under the Exchange Act. To be considered timely, shareholders must submit their proposals, in writing, to our Company Secretary at our principal executive offices located at Treasury Building, Lower Grand Canal Street, Dublin 2, Ireland by December 19, 2017, which we have determined to be a reasonable time before we expect to begin to print and mail our proxy materials. Shareholder proposals must also comply with all applicable requirements of Rule 14a-8.

Because the 2018 Annual Meeting will be more than 30 days before the anniversary of the 2017 Annual General Meeting of Shareholders, our Articles of Association (the “Articles”) provide that shareholders who wish to bring a proposal or nominate a director at the 2018 Annual Meeting, but who are not requesting that the proposal or nomination be included in our proxy materials, must notify our Company Secretary, in writing, not earlier than the close of business on February 3, 2018 and not later than the close of business on February 23, 2018. Shareholders are advised to review the Articles, which contain additional requirements about advance notice of shareholder proposals and director nominations.

Perrigo Company plc - Part II - Item 6
Exhibits



ITEM 6.    EXHIBITS


Exhibit
Number
Description
3.12.1
3.1
3.2
10.1
10.2
10.3
10.310.4
10.431.1
10.5
Forms of Nonqualified Stock Option Agreements under the Company's 2013 Long-Term Incentive Plan filed (herewith).
31.1
Rule 13a-14(a) Certification by John T. Hendrickson,Murray S. Kessler, Chief Executive Officer (filed herewith).
31.2
32
101.INS
101. INSXBRL Instance Document.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Date File, formatted in Inline XBRL (contained in Exhibit 101).


*Denotes Management contract or compensatory plan or arrangement.
75

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
PERRIGO COMPANY PLC
(Registrant)
Date:November 12, 2021PERRIGO COMPANY PLC/s/ Murray S. Kessler
(Registrant)Murray S. Kessler
Date:November 9, 2017By: /s/ John T. Hendrickson
John T. Hendrickson
Chief Executive Officer and President
(Principal Executive Officer)
Date:November 9, 201712, 2021By: /s/ Ronald L. Winowiecki/s/ Raymond P. Silcock
Ronald L. WinowieckiRaymond P. Silcock
Acting Chief Financial Officer
(Principal Accounting and Financial Officer)



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