20
| Asset Derivatives | |||||||||
| Balance Sheet Location | Fair Value | ||||||||
| September 30, 2017 | December 31, 2016 | ||||||||
| Designated derivatives: | |||||||||
| Foreign currency forward contracts | Other current assets | $ | 4.6 | $ | 3.1 | ||||
| Non-designated derivatives: | |||||||||
| Foreign currency forward contracts | Other current assets | $ | 8.5 | $ | 0.7 | ||||
Perrigo Company plc - Item 1
Note 810
| Liability Derivatives | |||||||||
| Balance Sheet Location | Fair Value | ||||||||
| September 30, 2017 | December 31, 2016 | ||||||||
| Designated derivatives: | |||||||||
| Foreign currency forward contracts | Accrued liabilities | $ | 2.6 | $ | 3.0 | ||||
| Non-designated derivatives: | |||||||||
| Foreign currency forward contracts | Accrued liabilities | $ | 0.7 | $ | 2.0 | ||||
The gains (losses) recordedfollowing tables summarize the effect of derivative instruments designated as hedging instruments in OCI for the effective portionAOCI (in millions):
| Gain/(Loss) | ||||||||||||||||||||||||||||||||
| Reclassified from AOCI into Earnings | Related to Amounts Excluded from Effectiveness Testing | |||||||||||||||||||||||||||||||
Amount Recorded in OCI(1) | Classification | Amount(2) | Classification | Amount Recognized in Earnings on Derivatives | ||||||||||||||||||||||||||||
Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||
| Cash flow hedges | ||||||||||||||||||||||||||||||||
| Interest rate swap agreements | $ | 17.7 | Interest expense, net | $ | 6.4 | Interest expense, net | $ | — | ||||||||||||||||||||||||
| Foreign currency forward contracts | $ | (6.8) | Net sales | $ | (0.2) | Net sales | $ | 0.2 | ||||||||||||||||||||||||
| Cost of sales | $ | 0.2 | Cost of sales | $ | 0.1 | |||||||||||||||||||||||||||
| Other (income) expense, net | $ | — | ||||||||||||||||||||||||||||||
| $ | 10.9 | $ | 6.4 | $ | 0.3 | |||||||||||||||||||||||||||
| Net investment hedges | ||||||||||||||||||||||||||||||||
| Cross-currency swap | $ | 40.1 | Interest expense, net | $ | 6.4 | |||||||||||||||||||||||||||
Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||
| Cash flow hedges | ||||||||||||||||||||||||||||||||
| Interest rate swap agreements | $ | 20.9 | Interest expense, net | $ | 16.2 | Interest expense, net | $ | — | ||||||||||||||||||||||||
| Foreign currency forward contracts | (17.0) | Net sales | — | Net sales | 0.4 | |||||||||||||||||||||||||||
| Cost of sales | 0.4 | Cost of sales | 0.1 | |||||||||||||||||||||||||||||
| Other (income) expense, net | (0.5) | |||||||||||||||||||||||||||||||
| $ | 3.9 | $ | 16.6 | $ | — | |||||||||||||||||||||||||||
| Net investment hedges | ||||||||||||||||||||||||||||||||
| Cross-currency swap | $ | (0.1) | Interest expense, net | $ | 19.2 | |||||||||||||||||||||||||||
Three Months Ended October 1, 2022 | ||||||||||||||||||||||||||||||||
| Cash flow hedges | ||||||||||||||||||||||||||||||||
| Interest rate swap agreements | $ | 65.4 | Interest expense, net | $ | 0.5 | Interest expense, net | $ | — | ||||||||||||||||||||||||
| Foreign currency forward contracts | $ | 1.6 | Net sales | 0.4 | Net sales | $ | (0.2) | |||||||||||||||||||||||||
| Cost of sales | (1.7) | Cost of sales | $ | (0.1) | ||||||||||||||||||||||||||||
| Other (income) expense, net | $ | (1.0) | ||||||||||||||||||||||||||||||
| $ | 67.0 | $ | (0.8) | $ | (1.3) | |||||||||||||||||||||||||||
| Net investment hedges | ||||||||||||||||||||||||||||||||
| Cross-currency swap | $ | 90.5 | Interest expense, net | $ | (6.7) | |||||||||||||||||||||||||||
Nine Months Ended October 1, 2022 | ||||||||||||||||||||||||||||||||
| Cash flow hedges | ||||||||||||||||||||||||||||||||
| Interest rate swap agreements | $ | 59.2 | Interest expense, net | $ | (1.4) | Interest expense, net | $ | — | ||||||||||||||||||||||||
| Foreign currency forward contracts | (3.3) | Net sales | 0.9 | Net sales | (0.3) | |||||||||||||||||||||||||||
| Cost of sales | (2.9) | Cost of sales | (0.1) | |||||||||||||||||||||||||||||
| Other (income) expense, net | (1.7) | |||||||||||||||||||||||||||||||
| $ | 55.9 | $ | (3.5) | $ | (2.1) | |||||||||||||||||||||||||||
| Net investment hedges | ||||||||||||||||||||||||||||||||
| Cross-currency swap | $ | 124.7 | Interest expense, net | $ | (10.9) | |||||||||||||||||||||||||||
(1) Net gain 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 | ) | |||||||
| 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 | ) | ||||||
21
Perrigo Company plc - Item 1
Note 810
The gains (losses)classification and amount of gain/(loss) recognized againstin earnings for the ineffective portion of our designated cash flow hedgeson fair value and hedging relationships 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 | ||||||||||
| 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 | ) | |||||||
| Net Sales | Cost of Sales | Interest Expense, net | Other (Income) Expense, net | |||||||||||||||||||||||
| Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||
| 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 | $ | 1,123.8 | $ | 712.6 | $ | 43.5 | $ | (0.6) | ||||||||||||||||||
| Gain (loss) on cash flow hedging relationships | ||||||||||||||||||||||||||
| Foreign currency forward contracts | ||||||||||||||||||||||||||
| Amount of gain or (loss) reclassified from AOCI into earnings | $ | (0.2) | $ | 0.2 | $ | — | $ | — | ||||||||||||||||||
| Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach | $ | 0.2 | $ | 0.1 | $ | — | $ | — | ||||||||||||||||||
| Interest rate swap agreements | ||||||||||||||||||||||||||
| Amount of gain or (loss) reclassified from AOCI into earnings | $ | — | $ | — | $ | 6.4 | $ | — | ||||||||||||||||||
| Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||
| 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 | $ | 3,498.7 | $ | 2,245.6 | $ | 131.1 | $ | (9.6) | ||||||||||||||||||
| Gain (loss) on cash flow hedging relationships | ||||||||||||||||||||||||||
| Foreign currency forward contracts | ||||||||||||||||||||||||||
| Amount of gain or (loss) reclassified from AOCI into earnings | $ | — | $ | 0.4 | $ | — | $ | — | ||||||||||||||||||
| Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach | $ | 0.4 | $ | 0.1 | $ | — | $ | (0.5) | ||||||||||||||||||
| Interest rate swap agreements | ||||||||||||||||||||||||||
| Amount of gain or (loss) reclassified from AOCI into earnings | $ | — | $ | — | $ | 16.2 | $ | — | ||||||||||||||||||
| Three Months Ended October 1, 2022 | ||||||||||||||||||||||||||
| 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 | $ | 1,100.2 | $ | 737.3 | $ | 41.0 | $ | (4.0) | ||||||||||||||||||
| Gain (loss) on cash flow hedging relationships | ||||||||||||||||||||||||||
| Foreign currency forward contracts | ||||||||||||||||||||||||||
| Amount of gain or (loss) reclassified from AOCI into earnings | $ | 0.4 | $ | (1.7) | $ | — | $ | — | ||||||||||||||||||
| Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach | $ | (0.2) | $ | (0.1) | $ | — | $ | (1.0) | ||||||||||||||||||
| Interest rate swap agreements | ||||||||||||||||||||||||||
| Amount of gain or (loss) reclassified from AOCI into earnings | $ | — | $ | — | $ | 0.5 | $ | — | ||||||||||||||||||
| Nine Months Ended October 1, 2022 | ||||||||||||||||||||||||||
| 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 | $ | 3,296.3 | $ | 2,223.5 | $ | 115.1 | $ | 48.7 | ||||||||||||||||||
| Gain (loss) on cash flow hedging relationships | ||||||||||||||||||||||||||
| Foreign currency forward contracts | ||||||||||||||||||||||||||
| Amount of gain or (loss) reclassified from AOCI into earnings | $ | 0.9 | $ | (2.9) | $ | — | $ | — | ||||||||||||||||||
| Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach | $ | (0.3) | $ | (0.1) | $ | — | $ | (1.7) | ||||||||||||||||||
| 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 | $ | — | $ | — | $ | (1.4) | $ | — | ||||||||||||||||||
22
| September 30, 2017 | December 31, 2016 | ||||||||||
| Other | CHCA | Other | |||||||||
| Assets held for sale | |||||||||||
| Current assets | $ | 44.0 | $ | — | $ | 5.1 | |||||
| Goodwill | 32.6 | — | 5.5 | ||||||||
| Intangible assets | 5.5 | — | — | ||||||||
| Property, plant and equipment | 45.9 | 13.5 | 33.2 | ||||||||
| Other assets | 3.1 | — | 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 liabilities | 25.1 | — | 1.9 | ||||||||
| Total liabilities held for sale | $ | 32.7 | $ | 0.1 | $ | 3.8 | |||||
NOTE 10 –11 - INDEBTEDNESS
Total borrowings outstanding are summarized as follows (in millions):
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Term loans | |||||||||||||||||||||||
| 2022 Term loan A due April 20, 2027 | 478.1 | 493.8 | |||||||||||||||||||||
| 2022 Term loan B due April 20, 2029 | 1,086.3 | 1,094.5 | |||||||||||||||||||||
| Total term loans | 1,564.4 | 1,588.3 | |||||||||||||||||||||
| Notes and Bonds | |||||||||||||||||||||||
| Coupon | Due | ||||||||||||||||||||||
| 3.900% | December 15, 2024 | 700.0 | 700.0 | ||||||||||||||||||||
| 4.375% | March 15, 2026 | 700.0 | 700.0 | ||||||||||||||||||||
| 4.650% | June 15, 2030(1) | 750.0 | 750.0 | ||||||||||||||||||||
| 5.300% | November 15, 2043 | 90.5 | 90.5 | ||||||||||||||||||||
| 4.900% | December 15, 2044 | 303.9 | 303.9 | ||||||||||||||||||||
| Total notes and bonds | 2,544.4 | 2,544.4 | |||||||||||||||||||||
| Other financing | 18.2 | 20.6 | |||||||||||||||||||||
| Unamortized discount, net | (13.9) | (15.9) | |||||||||||||||||||||
| Deferred financing fees | (26.5) | (30.8) | |||||||||||||||||||||
| Total borrowings outstanding | 4,086.6 | 4,106.6 | |||||||||||||||||||||
| Current indebtedness | (38.1) | (36.2) | |||||||||||||||||||||
| Total long-term debt less current portion | $ | 4,048.5 | $ | 4,070.4 | |||||||||||||||||||
| September 30, 2017 | December 31, 2016 | ||||||||||
| Term loans | |||||||||||
| 2014 term loan due December 5, 2019 | (1) | $ | 428.3 | $ | 420.7 | ||||||
| Notes and Bonds | |||||||||||
| Coupon | Due | ||||||||||
| 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 financing | 2.9 | 3.6 | |||||||||
| Unamortized premium (discount), net | 24.8 | 33.0 | |||||||||
| Deferred financing fees | (19.0 | ) | (33.1 | ) | |||||||
| Total borrowings outstanding | 3,692.8 | 5,797.3 | |||||||||
| Current indebtedness | (417.1 | ) | (572.8 | ) | |||||||
| Total long-term debt less current portion | $ | 3,275.7 | $ | 5,224.5 | |||||||
(1) The coupon rate noted above increased from 4.400% to 4.650% on payments starting after June 15, 2023, following a credit rating downgrade by Moody's in the first quarter of 2023. Future interest rate adjustments are subject to a 2.0% total cap above the original 3.150% interest rate based on certain rating events as specified in the Note’s Supplemental Indenture No. 3, dated as of June 19, 2020, among Perrigo Finance Unlimited Company, Perrigo Company plc and Wells Fargo Bank, National Association, as trustee.
Credit Agreements
On April 20, 2022, we and our wholly owned subsidiary, Perrigo Investments, LLC, entered into new senior secured credit facilities consisting of (i) a $1.0 billion five-year revolving credit facility (the “2022 Revolver”), (ii) a $500 million five-year Term Loan A facility (the “2022 Term Loan A Facility”), and (iii) a $1.1 billion seven-year Term Loan B facility (the “2022 Term Loan B Facility” and, together with the 2022 Revolver and 2022 Term Loan A Facility, the “New Senior Secured Credit Facilities”), pursuant to a new Term Loan and Revolving Credit Agreement. The New Senior Secured Credit Facilities are guaranteed, along with any hedging or cash management obligations entered into with a lender, by us and certain of our direct and indirect wholly-owned subsidiaries organized in the United States, Ireland, Belgium and England and Wales (subject to certain exceptions) (the “Guarantor Subsidiaries”). The Guarantor Subsidiaries and Perrigo Investments, LLC provide full and unconditional guarantees, jointly and severally, on a senior unsecured basis, of the 5.300% Notes due 2043 issued by the Company, and the Guarantor Subsidiaries, Perrigo Investments, LLC and the Company provide full and unconditional guarantees, jointly and severally, on a senior unsecured basis, of the 3.900% Notes due 2024, the 4.375% Notes due 2026, the 4.650% Notes due 2030 and the 4.900% Notes due 2044 issued by Perrigo Finance Unlimited Company, a wholly-owned subsidiary.
The Credit Agreement also contains customary representations and warranties and customary affirmative and negative covenants applicable to the Borrower and its restricted subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of junior indebtedness and dividends and other distributions. The Credit Agreement contains financial covenants that require the Borrower and its restricted subsidiaries to (a) not exceed a maximum first lien secured net leverage ratio of 3.00 to 1.00 at the end of each fiscal quarter and (b) not fall below a minimum interest coverage ratio of 3.00 to 1.00 at the end of each fiscal quarter, provided that such covenants apply only to the 2022 Revolver and the 2022 Term Loan A Facility. If we consummate certain qualifying acquisitions during the term of the loan, the maximum first lien secured net leverage ratio covenant would increase to 3.25 to 1.00 for such quarter and the three following fiscal quarters
23
Perrigo Company plc - Item 1
Note 1011
thereafter. The Credit Agreement also contains customary events of default relating to, among other things, failure to make payments, breach of covenants and breach of representations.
During the three and nine months ended April 1, 2017, September 30, 2023, principal repayments of $9.1 million and $24.0 million were made on the 2022 Term Loan A Facility and 2022 Term Loan B Facility, respectively.
There we entered into amendments tore no borrowings outstanding under the 20142022 Revolver (as defined below) and the 2014 term loan to modify provisionsas of such agreements necessary as a result of the correction in accounting related to the Tysabri® financial asset, as well as waivers of any defaultSeptember 30, 2023 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. December 31, 2022, respectively.
We are in compliance with all the covenants under our debt agreements as of September 30, 2017.2023.
Other Financing
We have overdraft facilities available that we use to support our cash management operations. We report any balances outstanding under such facilities in the above table under "Other financing". ThereThere were no balances outstandingborrowings outstanding under the overdraft facilities atas of September 30, 2017 and2023 or December 31, 2016.2022.
| 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 | |||||||
| 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 | ||
NOTE 11 –12 - EARNINGS PER SHARE AND SHAREHOLDERS' EQUITY
Earnings per Share
A reconciliation of the numerators and denominators used in theour basic and diluted earnings per share ("EPS") calculation is as follows (in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 15.4 | $ | (52.1) | $ | 23.3 | $ | (118.2) | |||||||||||||||
| Income (loss) from discontinued operations, net of tax | (1.2) | 2.7 | (3.7) | 1.3 | |||||||||||||||||||
| Net income (loss) | $ | 14.2 | $ | (49.4) | $ | 19.6 | $ | (116.9) | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares outstanding for basic EPS | 135.5 | 134.6 | 135.2 | 134.4 | |||||||||||||||||||
| Dilutive effect of share-based awards | 1.4 | — | 1.4 | — | |||||||||||||||||||
Weighted average shares outstanding for diluted EPS (1) | 136.9 | 134.6 | 136.6 | 134.4 | |||||||||||||||||||
| 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 EPS | 141.3 | 143.3 | 142.5 | 143.2 | |||||||||||
| Dilutive effect of share-based awards* | 0.4 | — | 0.3 | — | |||||||||||
| Weighted average shares outstanding for diluted EPS | 141.7 | 143.3 | 142.8 | 143.2 | |||||||||||
Anti-dilutive share-based awards excluded from computation of diluted EPS* | 1.0 | — | 0.8 | — | |||||||||||
Shareholders' Equity
| 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 | |||||||
NOTE 12 –13 - 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 reclassifications | 289.9 | 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 | ||||||
| Fair Value of Derivative Financial Instruments, net of tax | Foreign Currency Translation Adjustments | Post-Employment Plan Adjustments, net of tax | Total AOCI | ||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 24.5 | $ | (58.6) | $ | 7.1 | $ | (27.0) | |||||||||||||||||||||
| OCI before reclassifications | 32.2 | (65.0) | (1.7) | (34.5) | |||||||||||||||||||||||||
| Amounts reclassified from AOCI | (16.6) | — | — | (16.6) | |||||||||||||||||||||||||
| Other comprehensive income (loss) | $ | 15.6 | $ | (65.0) | $ | (1.7) | $ | (51.1) | |||||||||||||||||||||
| Balance at September 30, 2023 | $ | 40.1 | $ | (123.6) | $ | 5.4 | $ | (78.1) | |||||||||||||||||||||
24
| 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 | % | |||
Perrigo Company plc - Item 1
Note 13
NOTE 15 –14 - RESTRUCTURING CHARGES
We periodically take action to reduce redundant expenses and improve operating efficiencies. Restructuring activity includes severance, lease exit costs, asset impairments, and related consulting fees. The following reflects our restructuring activity (in millions):
| Three Months Ended | ||||||||||||||||||||
| September 30, 2023 | ||||||||||||||||||||
| Supply Chain Reinvention | HRA Pharma Integration | Other Initiatives | Total | |||||||||||||||||
| Beginning balance | $ | — | $ | 9.6 | $ | 3.8 | $ | 13.4 | ||||||||||||
| Additional charges | 13.5 | 0.5 | 1.5 | 15.5 | ||||||||||||||||
| Payments | (2.3) | (4.0) | (2.8) | (9.0) | ||||||||||||||||
| Non-cash adjustments | (11.2) | (0.1) | (0.4) | (11.7) | ||||||||||||||||
| Ending balance | $ | — | $ | 6.0 | $ | 2.2 | $ | 8.2 | ||||||||||||
| 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 charges | 3.8 | 6.6 | 54.7 | 17.9 | |||||||||||
| Payments | (17.8 | ) | (8.6 | ) | (47.6 | ) | (33.3 | ) | |||||||
| Non-cash adjustments | 0.4 | 0.1 | (0.7 | ) | 5.0 | ||||||||||
| Ending balance | $ | 26.1 | $ | 10.3 | $ | 26.1 | $ | 10.3 | |||||||
| Three Months Ended | ||||||||||||||
| October 1, 2022 | ||||||||||||||
| Supply Chain Reinvention | Other Initiatives | Total | ||||||||||||
| Beginning balance | $ | 7.6 | $ | 5.9 | $ | 13.5 | ||||||||
| Additional charges | 11.4 | 7.7 | 19.1 | |||||||||||
| Payments | (10.0) | (2.9) | (12.9) | |||||||||||
| Non-cash adjustments | — | (0.4) | (0.4) | |||||||||||
| Ending balance | $ | 9.0 | $ | 10.3 | $ | 19.3 | ||||||||
| Nine Months Ended | ||||||||||||||||||||
| September 30, 2023 | ||||||||||||||||||||
| Supply Chain Reinvention | HRA Pharma Integration | Other Initiatives | Total | |||||||||||||||||
| Beginning balance | $ | 2.2 | $ | 13.3 | $ | 4.3 | $ | 19.8 | ||||||||||||
| Additional charges | 17.4 | 2.7 | 5.6 | 25.7 | ||||||||||||||||
| Payments | (8.4) | (10.1) | (7.8) | (26.3) | ||||||||||||||||
| Non-cash adjustments | (11.2) | 0.1 | 0.1 | (11.0) | ||||||||||||||||
| Ending balance | $ | — | $ | 6.0 | $ | 2.2 | $ | 8.2 | ||||||||||||
| Nine Months Ended | ||||||||||||||
| October 1, 2022 | ||||||||||||||
| Supply Chain Reinvention | Other Initiatives | Total | ||||||||||||
| Beginning balance | $ | — | $ | 6.9 | $ | 6.9 | ||||||||
| Additional charges | 22.3 | 9.9 | 32.2 | |||||||||||
| Payments | (13.3) | (5.7) | (19.0) | |||||||||||
| Non-cash adjustments | — | (0.8) | (0.8) | |||||||||||
| Ending balance | $ | 9.0 | $ | 10.3 | $ | 19.3 | ||||||||
The charges incurred during the three and nine months ended September 30, 20172023 and October 1, 2022 were primarily associated with actions we tooktaken on our multi-year supply chain restructuring program initiative started in 2022, and HRA Pharma integration activities associated with employee separation, continuity and other benefit-related costs. Supply chain restructuring charges in the three months ended September 30, 2023 included an asset impairment of $11.2 million and other restructuring charges of $2.3 million. We have incurred $15.2 million of cumulative restructuring expense to streamline our organization as announced on February 21, 2017. Duringdate related to HRA Pharma integration. We expect that most of the HRA Pharma restructuring expenses will be incurred by the end of 2023.
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Note 14
Of the amount recorded during the three and nine months ended September 30, 2017, $3.82023, $12.5 million and $54.7$19.2 million, ofrespectively, was related to our CSCI segment, due primarily to supply chain restructuring expenses were recorded, respectively.(including the $11.2 million asset impairment) and HRA Pharma integration initiatives, and $2.3 million and $4.6 million related to our CSCA segment, also due primarily to supply chain restructuring initiatives. Of the amount recorded during the three and nine months ended September 30, 2017, $27.2October 1, 2022, $6.4 million and $8.1 million, respectively, was related to our CSCI segment, $6.8 million and $6.9 million was related to the CHCAour CSCA segment, and $5.8 million and $17.2 million was related to our Unallocated segment. For all segments, amounts were due primarily to supply chain restructuring.
There were no other material restructuring programs that significantly impacted any other reportable segments.for the periods presented. All charges are recorded in Restructuring expense on the Condensed Consolidated Statements of Operations. The remaining $22.4$8.2 million liability for employee severance benefits and consulting fees is expected to be mostly paid within the next year, whileyear.
NOTE 15 - INCOME TAXES
The effective tax rates were as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | |||||||||||||||||
| 19.7 | % | (1,377.1) | % | 49.5 | % | 5.3 | % | |||||||||||||
The effective tax rate on the remaining $3.7 million liabilitypre-tax income for lease exit coststhe three months ended September 30, 2023 decreased compared to the effective tax rate on the pre-tax loss for the three months ended October 1, 2022, primarily due to changes in the jurisdictional mix of earnings, as well as the impact of benefits not realized on certain pre-tax losses in the three months ended October 1, 2022. The effective tax rate on the pre-tax income for the nine months ended September 30, 2023, increased compared to the effective tax rate on the pre-tax loss for the nine months ended October 1, 2022, primarily due to audit settlements occurring in the current period, as well as the tax benefit of the loss on sale of our Latin American businesses recognized in the prior year. The effective tax rate for these periods differs from the statutory income tax rate of 12.5% primarily due to non-deductible expenses as well as the impact of audit settlements in these periods.
The Organization for Economic Co-operation and Development (“OECD”), which represents a coalition of member countries, has recommended changes to numerous longstanding tax principles. Changes include imposing a global minimum corporation tax of 15% and introducing new filing obligations. These changes are being adopted and implemented by many of the countries in which we do business. Specifically, in December 2022, the EU adopted a directive issued by the European Commission requiring EU members to implement the OECD's global minimum tax rules in part by January 1, 2024 and fully by January 1, 2025. Any such global minimum tax is expected to be a period cost, and thus we are continuing to evaluate the potential global impact on future periods.
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 generic heartburn medication omeprazole. On August 27, 2014, we received a statutory notice of deficiency from the Internal Revenue Service ("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 statutory notice of deficiency from the IRS for the 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 Israeli affiliate. In addition to the transfer pricing adjustments, which applied to all four tax years, the statutory notice of deficiency for the 2011 and 2012 tax years included adjustments requiring the capitalization and amortization of certain legal expenses that were deducted when paid or incurred in defending against certain patent infringement lawsuits related to ANDAs filed with a Paragraph IV Certification.
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
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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 overpayment 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.
A bench 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 in nature, and the IRS will likely carry forward the adjustments set forth therein as long as the OTC medication 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. Post-trial briefings were completed on September 24, 2021 and the case is now fully submitted for the court’s decision. On April 30, 2021, we filed a Notice of New Authority in our refund case in the Western District of Michigan alerting the court to a United States Tax Court decision in Mylan v. Comm'r that ruled in favor of the taxpayer on nearly identical ANDA issues as we have before the court. On January 28, 2022, the IRS filed a Notice of Appeal with the United States Court of Appeals of the Third Circuit to appeal the United States Tax Court's decision in Mylan v. Comm'r. Briefing to the appellate court was completed during 2022, oral argument was held before the Third Circuit on January 12, 2023, and on July 27, 2023, the Third Circuit Court affirmed the decision of the Tax Court. On August 1, 2023, we filed a Notice of New Authority in our refund case in the Western District of Michigan alerting the court to the Third Circuit Court decision in Mylan v. Comm’r that ruled in favor of the taxpayer on nearly identical ANDA issues that we have before the court. On August 22, 2022, the parties filed a Notice of New Authority in the refund case alerting the court to a United States Court of Federal Claims decision in Actavis Laboratories v. United States that also ruled in favor of the taxpayer on the ANDA issues. The government appealed the Actavis Laboratories decision to the United States court of Appeals for the Federal Circuit in December of 2022 and briefing to the appellate court is ongoing.
On January 13, 2021, the IRS issued a 30-day letter and Revenue Agent's Report ("RAR") with respect to its audit of our fiscal tax years ended June 29, 2013, June 28, 2014, and June 27, 2015. The 30-day letter proposed, among other modifications, transfer pricing adjustments in connection with the distribution of omeprazole in the aggregate amount of $141.6 million and ANDA-related 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 refund litigation described above, IRS Appeals would 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 certain intercompany debts owed by it to Perrigo Company plc. The debts were incurred in connection with the 2013 Elan merger transaction. On May 7, 2020, the IRS issued a Notice of Proposed Adjustment ("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 May 7, 2020 NOPA proposed a reduction in gross interest expense of approximately $414.7 million for tax years 2014 and 2015. On January 13, 2021, we received a 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 January 20, 2022, the IRS responded to our protest with its rebuttal in which it revised its position on this interest rate issue by reasserting that implicit parental support considerations are necessary to determine the arm's length interest rates and
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proposed revised interest rates that are higher than the interest rates proposed under its 130.0% of AFR assertion. The blended interest rate proposed by the IRS rebuttal was 4.36%, an increase from the blended interest rate in the RAR of 2.57% but lower than the stated blended interest rate of the loans of 6.8%. An IRS Appeals conference for the interest rate issue was held during March 7, 2023 through March 9, 2023. On May 5, 2023, we finalized an agreement with IRS Appeals resulting in settlement of the May 7, 2020 NOPA of $153.4 million of gross interest expense reduction for the 2013-2015 tax years. This implies a blended interest rate of 5.44%. In addition, based on the above agreement with IRS Appeals, we will apply similar adjustments for all remaining tax years through 2018. Tax payments relating to the settlement have been suspended until the pending disputes relating to omeprazole income recognition and deductibility of certain ANDA legal costs are fully resolved. In the second quarter of fiscal year 2023 we adjusted our previously established reserves related to this matter to account for the agreed reduction of the interest rates.
On December 2, 2021, the IRS commenced an audit of our federal income tax returns for the tax years ended December 31, 2015, through December 31, 2019.
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, LLC ("Athena") for the years ended December 31, 2011, December 31, 2012, and December 31, 2013. The April 26, 2019 NOPA carried forward the IRS's theory from its 2017 draft NOPA that when Elan took over the remaining termsfuture 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 in various developmental products, including the Multiple Sclerosis drug Tysabri, rather than rates based on transfer pricing documentation prepared by Elan's external tax advisors. The April 26, 2019 NOPA proposed a payment of $843.0 million, which represented additional tax based on imputing royalty income to Athena using a 24.7% royalty rate derived by the IRS and a 40.0% accuracy-related penalty. This amount excluded consideration of offsetting tax attributes and any potential interest that may be imposed. We strongly disagreed with the IRS position. On December 22, 2016, we also received a NOPA for these years denying the deductibility of settlement costs incurred in 2011 by Athena's parent company Elan Pharmaceuticals, Inc. ("EPI") related to illegal marketing of Zonegran by EPI's employees in the United States raised in a Qui Tam action under the U.S. False Claims Act. We strongly disagreed with the IRS' position on this issue as well. Because we believed that any concession on these issues in Appeals would be contrary to our evaluation of the issues and to avoid double taxation of the same income in the United States and Ireland, we pursued our remedies under the Mutual Agreement Procedure ("MAP") of the U.S.-Ireland Income Tax Treaty to alleviate double taxation. On April 21 and 23, 2020, we filed requests for Competent Authority assistance with the IRS and Irish Revenue on the Tysabri royalty issue, and those MAP applications were accepted. On October 20, 2020, we amended our requests for Competent Authority assistance to include the Zonegran issue and these supplemental requests were also accepted.
On April 24, 2023, we received a letter from the IRS informing us that the U.S. Competent Authority had agreed to fully withdraw the income and penalty adjustments related to the Tysabri royalty issue and considered that case to be closed. The April 24, 2023 letter concluded the competent authority process for the Tysabri royalty issue without the need for negotiations between the Competent Authorities and constitutes a full and final resolution of all adjustments proposed by the IRS in the April 26, 2019 NOPA. In the second quarter of fiscal year 2023 we adjusted previously established reserves related to this and other matters in the same audit period. The Zonegran deduction issue remains pending in the MAP case and is being considered by the U.S. and Irish Competent Authorities.
Summary
Although we believe that our tax estimates are reasonable and that we prepare our tax filings in accordance with all applicable leases.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
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September 30, 2023. 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.
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 September 30, 2023, 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, individually or in the aggregate, have a material adverse effect on our financial condition, results of operations, or cash flows.
Price-Fixing Lawsuits Related to the Company's Former Rx Business
Beginning in 2016, the Company, along with other manufacturers, was named as a defendant in lawsuits in the United States and Canada generally alleging anticompetitive conduct with respect to the sale of generic drugs by the Company’s former Rx business. The complaints – which have been filed by putative classes of direct purchasers, end payors, andindirect resellers, as well as individual direct and indirect purchasers and certain cities and counties – allege a conspiracy to fix, maintain, stabilize, and/or raise prices, rig bids, and allocate markets or customers for various generic drugs in violation of federal and state antitrust and consumer protection laws. While most of the complaints involve alleged single-drug conspiracy, the three putative classes have each filed an over-arching conspiracy complaint 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.The vast majority of the lawsuits described in this paragraph have been consolidated in the generic pricing multidistrict litigation ("MDL") MDL No. 2724 (United States District Court for Eastern District of Pennsylvania).
While the Court has ordered that the class actions alleging “single drug” conspiracies involving Clobetasol will proceed on a more expedited basis (as a bellwether) than the other cases in MDL No. 2724, the classes voluntarily dismissed their claims against Perrigo relating to "single drug" conspiracies involving Clobetasol in May 2023. The Court also ordered that the State Attorney General Complaint (described below) will proceed as a bellwether case. The bellwether cases completed discovery during October 2023 under the schedule set by the Court, and motions for summary judgment will be due on June 28, 2024. No trial dates have been set for any of the bellwether cases, or any of the other cases in the MDL.
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 generic pharmaceutical manufacturers, and certain individuals (including two former Perrigo employees), alleging an overarching conspiracy to allocate customers and/or fix, raise, or stabilize prices of eighty products. This case is included among the “bellwether cases” designated to follow the expedited schedule described above. Like the other cases in the MDL, no trial date has been set for this case.
Canadian Class Action Complaint
In June 2020, an end payor filed a class action in Ontario, Canada against Perrigo and 29 manufacturers alleging an overarching conspiracy to allocate customers and/or fix, raise, or stabilize prices of dozens of products, most of which were neither made nor sold by Perrigo's former Rx business. 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 Attorney General Complaint of June 2020.
Hospitals Complaint
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Perrigo Company plc - Item 1
Note 16
On June 30, 2023, a group of 150 hospitals filed a complaint against Perrigo and 35 manufacturers alleging a conspiracy to fix, raise, or stabilize prices of 228 products. Perrigo's former Rx business made and sold 30 of these products. Most of the product conspiracies allegedly involving Perrigo focus on products that are the same as the products involved in other MDL complaints naming Perrigo.
At this stage, we cannot reasonably estimate the outcome of the liability if any, associated with the claims listed above. We intend to defend each of these lawsuits vigorously.
Securities Litigation
In the United States (cases related to events in 2015-2017)
Beginning in May 2016, purported class action complaints were filed against the Company 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.) purporting to represent a class of shareholders for the period from April 21, 2015 through May 11, 2016, inclusive. The original complaint alleged violations of federal securities laws in connection with 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 business developments during the alleged class period including integration problems related to the Omega acquisition.
The operative complaint is the first amended complaint filed on June 21, 2017, and named 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 federal securities laws arising out of the actions taken by us and the former directors and 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 the business developments during that longer period (April 2015 to May 2017) including 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 six generic prescription pharmaceuticals, and alleges improper accounting for the Tysabri® royalty stream. 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 the Company, Joe Papa, and Judy Brown. The claims (described above) that were not dismissed relate to the integration issue regarding the Omega acquisition, the defense against the Mylan tender offer, and the alleged price fixing activities with respect to six generic prescription pharmaceuticals. The defendants who remain in the case (us, Mr. Papa, and Ms. Brown) have filed answers denying liability.
On November 14, 2019, the court granted the lead plaintiffs’ motion and certified three 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"). Plaintiffs' counsels have sent notices to the alleged classes.
The parties took discovery from 2018 through 2020. After discovery ended, defendants filed motions for summary judgement and to exclude plaintiffs' experts, which were fully briefed. The case was then re-assigned to a new federal judge, who heard oral argument on the motions in April 2022. In July 2023 the court reassigned the case to another federal judge. On August 17, 2023, the court granted summary judgment to Ms. Brown on all claims and dismissed her from the case; the court granted summary judgment in part to Mr. Papa terminating the claim against him that he made false statements with respect to alleged collusive pricing at the Generic Rx business. The court did not grant summary judgment on statements made about the integration of Omega during 2015. As to the Company, the court reserved ruling on claims related to the Generic Rx unit and ordered further briefing on that issue as to Perrigo and set an argument in mid-November 2023 on that issue. The court also indicated it would later
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address aspects of defendants’ challenges to the plaintiffs’ experts. The case remains ongoing against Perrigo while the court considers the remaining issues. There can be no certainty that Perrigo will be successful in these further proceedings. We intend to defend the lawsuit vigorously.
In addition to the class action, the following opt-out cases have been filed against us, and in some cases, Mr. Papa and Ms. Brown. We intend to defend these lawsuits vigorously. These cases in the New Jersey federal court currently are stayed pending further developments in the Roofers' case (discussed above). The lawsuits, contain factual allegations and claims that are similar to some or all of the factual allegations and claims in the class actions:
| Case | Date 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 | ||||
| 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 | ||||
| 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 | ||||
| Sculptor Master Fund (f/k/a OZ Master Fund, Ltd.), et al. v. Perrigo Company plc, et al. | 2/6/2019 | ||||
| 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 | ||||
In June 2020, three Highfields Capital entities filed a lawsuit in Massachusetts State Court with factual allegations that 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, and alleged 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. In December 2021, the Massachusetts State Court granted Defendants’ motion to dismiss in part and denied it in part. Defendants’ filed their answers in January 2022 denying liability. This is the only opt out case that has not been stayed during the summary judgment proceedings in the New Jersey federal court. The discovery phase in this case is underway (including discovery related to some factual allegations that were not part of the discovery in the actions in New Jersey federal court). The Court held a discovery conference and approved fact discovery deadlines into May 2023 and later deadlines to complete expert discovery. Subsequently, the Court held a further conference in March 2023 and revised the schedule with fact discovery ending in October 2023 and expert discovery in May 2024. Subsequently, on November 1, 2023, the Court issued a further revised scheduling order that ends fact discovery in March 2024, ends expert discovery in August 2024, and a post-discovery court conference in September 2024. We intend to defend the lawsuit vigorously.
In Israel (cases related to events in 2015-2017)
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
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Perrigo Company plc - Item 1
Note 16
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 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 Israeli securities laws that are similar to U.S. 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 other Israeli securities laws. In general, the allegations in Israel are similar to the factual allegations in the Roofers' Pension Fund case in the U.S. as described above. 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 two 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.
In Israel (case related to Irish Tax events)
On December 31, 2018, a shareholder filed an action against the Company, our former 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 a securities class action case (for those who purchased on a U.S. exchange) in New York federal court in which the settlement received final approval in February 2022. The Baron case alleges that persons who purchased securities through the Tel Aviv stock exchange and suffered damages 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. Since 2019, the court granted several requests by Perrigo to stay the proceedings pending the resolution of proceedings in the New York federal court. During 2022, the case was reassigned to a newly-appointed judge. After the settlement of the U.S. case in New York federal court, Perrigo's counsel informed the Israeli Court of the final approval of the settlement of the U.S. case. The parties then sought further stays of the case while they attempted mediation, which the Court granted. In April 2023, the parties reported to the Court that the mediation had led to a preliminary agreement on settlement; the Court set a deadline for the parties to file settlement papers, which was later extended to November 16, 2023.
Other Matters
Talcum Powder
The Company has been named, together with other manufacturers, in product liability lawsuits in a variety of state courts 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 13, 2023, the Company is currently named in 101 individual lawsuits seeking compensatory and punitive damages. The Company has several defenses and intends to aggressively defend these lawsuits. Trials for these lawsuits are currently scheduled throughout 2023, 2024 and 2025, with the earliest trial date commencing in November 2023.
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 three: 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 three name the Company. Plaintiffs appealed one of
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Perrigo Company plc - Item 1
Note 16
the original Master Complaints, the Third-Party Payor Complaint, and two 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 orders to the U.S. Court of Appeals for the 11th Circuit have been filed, as well as several state level claims related to the theories advanced in the MDL litigation. The Company will continue to vigorously defend each of these lawsuits. In December 2022 the Court granted in full brand defendants Daubert motions, finding no scientific causation, and in turn granted summary judgment dismissing the actions with prejudice. The Court later ruled that it was appropriate to apply the same standards to the retail and distributor defendants as well as the generic defendants, and the Court thereby ruled that its Daubert decision applied equally to these defendants as well. Appeals of these orders have been filed to the 11th Circuit.
Excepting the MDL due to the nature of the multiple dismissals as described above, as of October 13, 2023, the Company has been named in 202 personal injury lawsuits, primarily in the state courts of California and Pennsylvania. 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 believes that it has strong defenses to such claims based on a significant body of scientific evidence, and pursuant to the doctrine of federal preemption. As noted above, the Company has won multiple motions to dismiss in the MDL, most recently in Illinois where the Circuit Court granted in full the Company's motions to dismiss based on federal preemption, as well as additional state court actions in California and Maryland. The Company has also been dismissed from additional state court actions in Ohio, New York and New Jersey.
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. The Company filed motions to dismiss the action. The New Mexico District Court denied the Company’s Motion to Dismiss and litigation continues. The Company will continue to vigorously defend this lawsuit.
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
In October 2022 the Judicial Panel on Multidistrict Litigation ("MDL") consolidated a number of pending actions filed in various federal courts alleging that prenatal exposure to acetaminophen is purportedly associated with the development of autism spectrum disorder (“ASD”) and attention-deficit/hyperactivity disorder (“ADHD”). The MDL is styled In re: Acetaminophen – ASD/ADHD Products Liability Litigation (MDL No. 3043) and is pending before the U.S. District Court for the Southern District of New York. Plaintiffs in the MDL have asserted claims against Johnson & Johnson Consumer, Inc. (“JJCI”) and various retailer chains alleging that plaintiff-mothers took acetaminophen products while pregnant and that plaintiff-children developed ASD and/or ADHD as a result of prenatal exposure to these acetaminophen products. At this time, the MDL proceedings are in the early stages. Currently, it is not possible to assess reliably the outcome of these cases or any potential future financial impact on the Company. As of October 13, 2023 the Company has not been named as a defendant in any Complaints filed in the MDL. Certain of the Company’s customers have made requests regarding indemnity from the Company for a portion of their defense costs and potential liability.
Phenylephrine
In September 2023, the FDA’s Advisory Committee on Nonprescription Drugs issued an advisory opinion calling into question the efficacy of orally administered phenylephrine (PE) containing products as a nasal decongestant. While the FDA itself has thus far taken no action in response to the Advisory Committee opinion, several putative class action lawsuits have been filed asserting various economic injury claims to consumers. The Judicial Panel on Multi-District Litigation (JPML) is determining whether to create an MDL class-action related to PE lawsuits. Currently, it is not possible to assess reliably the outcome of these cases or any potential future financial impact on the
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Perrigo Company plc - Item 1
Note 16
Company. Certain of the Company’s customers have made requests regarding indemnity from the Company for a portion of their defense costs and potential liability.
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 September 30, 2023, the loss accrual for litigation contingencies reflected on the balance sheet in Other accrued liabilities was $67.6 million. The Company also recorded an insurance recovery receivable reflected on the balance sheet in Prepaid expenses and other current assets of $32.9 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 one policy period. The insurers’ lawsuit also challenges aspects of 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. The discovery stage of the case occurred in 2022. The Court has set a schedule for submissions by the parties during 2023 and for a bench trial in mid-November 2023. We intend to defend the lawsuit vigorously.
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Perrigo Company plc - Item 2
Note 17
NOTE 16 –17 - SEGMENT INFORMATION
The tables below tables show select financial measures by reporting segment (in millions):
| Total Assets | ||||||||||||||
| September 30, 2023 | December 31, 2022 | |||||||||||||
| CSCA | $ | 5,094.6 | $ | 5,134.1 | ||||||||||
| CSCI | 5,663.7 | 5,883.2 | ||||||||||||
| Total | $ | 10,758.3 | $ | 11,017.3 | ||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | ||||||||||||||||||||||||||||||||||
| Net Sales | Operating Income (Loss) | Intangible Asset Amortization | Net Sales | Operating Income (Loss) | Intangible Asset Amortization | ||||||||||||||||||||||||||||||
| CSCA | $ | 703.5 | $ | 91.1 | $ | 14.5 | $ | 722.3 | $ | 75.2 | $ | 14.6 | |||||||||||||||||||||||
| CSCI | 420.3 | 13.6 | 53.5 | 377.9 | 1.3 | 53.3 | |||||||||||||||||||||||||||||
| Unallocated | — | (42.6) | — | — | (43.4) | — | |||||||||||||||||||||||||||||
| Continuing Operations Total | $ | 1,123.8 | $ | 62.1 | $ | 68.0 | $ | 1,100.2 | $ | 33.1 | $ | 67.9 | |||||||||||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | ||||||||||||||||||||||||||||||||||
| Net Sales | Operating Income (Loss) | Intangible Asset Amortization | Net Sales | Operating Income (Loss) | Intangible Asset Amortization | ||||||||||||||||||||||||||||||
| CSCA | $ | 2,217.9 | $ | 272.0 | $ | 43.1 | $ | 2,160.2 | $ | 240.0 | $ | 40.6 | |||||||||||||||||||||||
| CSCI | 1,280.7 | 43.6 | 159.6 | 1,136.1 | 19.0 | 138.2 | |||||||||||||||||||||||||||||
| Unallocated | — | (148.1) | — | — | (211.1) | — | |||||||||||||||||||||||||||||
| Continuing Operations Total | $ | 3,498.7 | $ | 167.5 | $ | 202.7 | $ | 3,296.3 | $ | 47.9 | $ | 178.8 | |||||||||||||||||||||||
35
| 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 | ||||
Perrigo Company plc - Item 2
Executive Overview
| 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 | |||||||||||
| CHCI | 365.4 | 4.6 | 50.2 | 377.4 | (1,615.5 | ) | 44.4 | ||||||||||||||||
| RX | 250.6 | 82.1 | 21.0 | 251.9 | 74.4 | 27.2 | |||||||||||||||||
| Specialty Sciences | — | — | — | — | 3.2 | — | |||||||||||||||||
| Other | 16.5 | (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 | |||||||||||
| CHCI | 1,116.8 | 8.7 | 143.4 | 1,232.7 | (2,011.3 | ) | 130.6 | ||||||||||||||||
| RX | 708.4 | 239.6 | 65.6 | 776.9 | 258.3 | 78.6 | |||||||||||||||||
| Specialty Sciences | — | — | — | — | (1.9 | ) | — | ||||||||||||||||
| Other | 51.5 | 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 OPERATIONS
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 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 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 OTCover-the-counter ("OTC") health and wellness solutions that are designed to enhance individual well-being and empower consumers to proactively prevent or treat conditions that can be self-managed. Our vision is to make lives better by bringing quality, affordable self-care products throughout Europe 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.that consumers trust everywhere they are sold. We are headquartered in Ireland and sell our products primarily in North America and Europe, as well as in other markets around the world.
Our core competencies are geared to fully take advantage of the massive global trend towards self-care. We define self-care as not just treating disease or helping individuals feel better after taking a product, but also maintaining and enhancing their overall health and wellness. Consistent with our vision, we recently completed our three-year strategy to transform the Company into a consumer self-care leader by reconfiguring our portfolio through the divestiture of our Rx business in 2021 and acquiring Héra SAS (“HRA Pharma”) in 2022. Additionally, we removed significant uncertainty in 2021 through final settlement of the Irish Revenue Notice of Amended Assessment. Upon completion of our transformation, we have transitioned our strategy to ‘Optimizing’ business and ‘Accelerating’ profitable growth. Several initiatives are anticipated to propel this strategy, including Australia, Israelplans to achieve significant synergies from our acquisitions and China.implementation of our Supply Chain Reinvention Program. In addition, we continue to invest in other initiatives, including innovation, information systems and tools, and our people to drive consistent and sustainable results in line with consumer-packaged goods peers.
Our fiscal year begins on January 1 and ends on December 31. We end our quarterly accounting periods on the Saturday closest to the end of the calendar quarter, with the fourth quarter ending on December 31 of each year.
Our Segments
Our reporting and operating segments are as follows:reflect the way our chief operating decision maker, who is our CEO, makes operating decisions, allocates resources and manages the growth and profitability of the Company. Our reporting and operating segments are:
•Consumer HealthcareSelf-Care Americas ("CHCA" ("CSCA"), comprises our consumer self-care business in the U.S., Mexico and Canada. CSCA previously included our Latin American businesses until they were disposed on March 9, 2022.
•Consumer Self-Care International ("CSCI") comprises our consumer self-care business outside of the U.S. and Canada, consumer healthcareprimarily in Europe and Australia.
We previously had an Rx segment which was comprised of our generic prescription pharmaceuticals business (OTC, contract, infant formulain the U.S. and animal health categories).
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Perrigo Company plc - Item 2
Executive Overview
Tax Updates
On April 26, 2019, we received a revised Notice of Proposed Adjustment ("API"NOPA") business,which does not meetfrom the quantitative threshold required to be a separately reportable segment. Effective January 1, 2017, dueIRS regarding transfer pricing positions related to the saleIRS audit of Athena Neurosciences, LLC ("Athena") for its 2013 to 2015 fiscal tax years. The April 26, 2019 NOPA carried 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 in various developmental products, including the Multiple Sclerosis drug Tysabri, rather than rates based on transfer pricing documentation prepared by Elan's external tax advisors. The April 26, 2019 NOPA proposed a payment of $843.0 million, which represented additional tax based on imputing royalty income to Athena using a 24.7% royalty rate derived by the IRS and a 40.0% accuracy-related penalty. On April 24, 2023, we received a letter from the IRS regarding the Competent Authority request filed by Athena concluding the competent authority process commenced by such submissions without the need for negotiations between the competent authorities and constitutes a full and final resolution of the April 26, 2019 NOPA. We believe that any prior uncertainty regarding the tax treatment of the Tysabri® financial asset, all legal expenses associated with our former Specialty Sciences segment were moved royalty is now resolved. In the second quarter of fiscal year 2023 we adjusted previously established reserves related to unallocated expenses. For results by segment, see "Segment Results" belowthis and other matters in the same audit period. Refer to Item 1. Note 1615. for additional information.
Supply Chain Reinvention Program
In 2022, we initiated our Supply Chain Reinvention Program to reduce structural costs, improve profitability and our service levels to our retail partners, and strengthen our resiliency by streamlining and simplifying our global supply chain. Through this initiative, we plan to reduce portfolio complexity, invest in advanced planning capabilities, diversify sourcing, and optimize our manufacturing assets and distribution models. We have identified a total annual run-rate potential savings opportunity by the end of fiscal year 2028 of between an estimated $200 million to $300 million per year (not including related depreciation expense on capital investments) if all facets of the Program are successfully implemented and executed. To obtain these potential benefits, we anticipate incurring costs of between $350 million to $570 million by the end of fiscal year 2028 to complete the program implementation, including capital investments, restructuring expenses, and implementation costs. A significant portion of the annual run-rate potential savings of the Program, between $150 million to $200 million per year (not including related depreciation expense on capital investments), are anticipated by the end of fiscal year 2025, along with associated potential spend of between $300 million and $450 million. Refer to Item 1. Note 14 for further details on restructuring charges.
We initiated the first phase of our Supply Chain Reinvention Program by announcing on November 1, 2022, a $170 million strategic investment to expand and strengthen our U.S. infant formula manufacturing. This strategic investment included the $110 million purchase of Nestlé’s Gateway infant formula plant in Eau Claire, Wisconsin, along with the U.S. and Canadian rights to the GoodStart® infant formula brand and other related formula brands ("Gateway"), and an additional $60 million investment into the plant to expand its capacity. Refer to Item 1. Note 3 for further transaction details.
Market Factors and Trends
Infant Formula
As part of its efforts to prevent supply interruptions and future Cronobacter spp. illnesses associated with powdered infant formula, in March 2023, the FDA released an "Immediate National Strategy to Increase the Resiliency of the
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Perrigo Company plc - Item 2
U.S. Infant Formula Market" and issued a letter to the powdered infant formula industry to share information to assist the industry in improving the microbiologic safety of powdered infant formula. As a result of the FDA communications, we are experiencing additional costs and lower production volumes associated with compliance with these new and evolving regulatory expectations. In addition, as did others in the industry, Perrigo received a warning letter from the FDA on August 30, 2023. Consistent with the Company’s commitment to quality, the Company is in the process of working with the FDA to resolve issues raised in the August 30 letter, which stemmed from a routine inspection of the Company's recently-acquired infant formula facility in Wisconsin.
Economic Uncertainty
Current macroeconomic conditions remain very dynamic, including impacts from rising inflation and interest rates, volatile changes in foreign currency exchange rates, political unrest, COVID-19 and legislative and regulatory changes. Any causes of market size contraction could reduce our sales or erode our operating margin and consequently reduce our net earnings and cash flows.
Our interest expense is impacted by the overall global economic and interest rate environment. We manage interest rate risk through our capital structure and the use of interest rate swaps to fix the interest rate on greater than 90% of our outstanding debt.
Inflationary Costs and Supply Chain
Over the course of 2022 and 2023, supply chain disruptions, including volatility in both cost and availability of agricultural, oil and paper based commodities driven by the war in Ukraine, have led to higher input costs. Additionally, we experienced employment vacancies and attrition as the labor market negatively impacted productivity and drove the need for wage rate increases and other retention benefits. We implemented a series of actions to substantially mitigate these and other inflationary cost pressures such as strategic pricing and our Supply Chain Reinvention Program. Benefits from our actions have begun to substantially offset inflationary pressures, and the global freight constraints in availability of freight containers and truck drivers are normalizing. However, future supply chain disruptions and inflationary pressures from the continuation of the war in Ukraine and the more recent events from the war in Israel are uncertain.
War in Ukraine
The invasion of Ukraine by Russia and resulting economic and political sanctions imposed by the United States, United Kingdom, European Union, and others on Russia, Belarus, and occupied regions in Ukraine have negatively impacted our results from operations in the region. We currently have 81 employees working in our Ukraine subsidiary. We do not have a subsidiary or employees in Russia. We have no manufacturing facilities in either Russia or Ukraine and we previously sold products into Russia entirely through distributors. In March 2022, we halted all sales to distributors in Russia and sales in Ukraine were severely depressed. If the conflict spreads or materially escalates, or economic conditions deteriorate, the impact on our business and results of operations could be material.
Israel-Hamas War
In response to the attack by Hamas in Israel and the subsequent hostilities, the Company is continuing to monitor the social, political and economic environment in Israel and in the surrounding region to evaluate the impacts on our operations and supply chain. The Company has suppliers who operate in Israel and could experience disruption of their manufacturing facilities due to terrorist acts or military actions, which could lead to delays, increased costs or the need to seek alternative sourcing. If the conflict spreads or materially escalates, or if the conflict leads to further volatility and uncertainty in financial markets or economic conditions, the impact on our business and results of operations could be material.
Foreign Exchange
We have both translation and transaction exposure to the fluctuation of exchange rates. Translation exposures relate to exchange rate impacts of measuring income statements of foreign subsidiaries that do not use the U.S. dollar as their functional currency. Transaction exposures relate to 1) the impact from input costs that are denominated in a currency other than the local reporting currency and 2) the revaluation of transaction-related working capital balances denominated in currencies other than the functional currency. Significant exchange rate fluctuations, especially in the Euro or the British Pound Sterling, have had, and could continue to have, a significant
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Perrigo Company plc - Item 2
Executive Overview
impact on our net sales, net earnings and cash flows, and have significantly impacted our historical net sales, costs and net earnings and could do so in the future.
RESULTS OF OPERATIONS
| 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 | |||||
Three Month Comparison
| Three Months Ended | ||||||||||||||
| (in millions, except percentages) | September 30, 2023 | October 1, 2022 | ||||||||||||
| Net sales | $ | 1,123.8 | $ | 1,100.2 | ||||||||||
| Gross profit | $ | 411.2 | $ | 362.9 | ||||||||||
| Gross profit % | 36.6 | % | 33.0 | % | ||||||||||
| Operating income | $ | 62.1 | $ | 33.1 | ||||||||||
| Operating income % | 5.5 | % | 3.0 | % | ||||||||||
| 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 | % | |||
Net sales decreased $12.4increased $23.6 million, or 2%2.1%, over the prior year period due to:
•$22.4 million increase from favorable foreign currency translation; partially offset by
•$13.4 million decrease, or 1.2%, due to lower net sales in legacy U.S. Nutrition stemming from the gastrointestinalFDA evolving regulatory expectations for infant formula manufacturing, lower net sales as a result of purposeful SKU prioritization actions to focus capacity on higher margin products, lower volumes driven by consumer consumption, primarily in U.S. OTC and animal health categoriesan unfavorable impact from distributor transitions as part of the integration strategy to capture synergies from the acquisition of HRA Pharma. These factors were partially offset by strategic pricing actions of approximately $51 million and in our Mexico business;new product sales; and
Operating income increased $25.3$29.0 million, or 26%87.6%, as a result of:due primarily to:
lower manufacturing productivity within U.S. Nutrition. Gross profit as a percentage of net sales was 1.8% higher due primarilyincreased 360 basis points compared to favorable product mix and supply chain efficiencies as discussed above.
| Nine Months Ended | |||||||
| ($ 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 | % | |||
| 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 | % | |||
39
Perrigo Company plc - Item 2
Consolidated
Nine Month Comparison
| Nine Months Ended | |||||||||||||||||||||||
| (in millions, except percentages) | September 30, 2023 | October 1, 2022 | |||||||||||||||||||||
| Net sales | $ | 3,498.7 | $ | 3,296.3 | |||||||||||||||||||
| Gross profit | $ | 1,253.1 | $ | 1,072.8 | |||||||||||||||||||
| Gross profit % | 35.8 | % | 32.5 | % | |||||||||||||||||||
| Operating income | $ | 167.5 | $ | 47.9 | |||||||||||||||||||
| Operating income % | 4.8 | % | 1.5 | % | |||||||||||||||||||
Net sales increased $202.4 million, or 6.1%, due primarily to:
•$76.7 million increase, or 2.4%, due primarily to approximately $164 million in strategic pricing actions and goodwill impairmentshigher sales volume in the Branded Consumer Healthcare - Rest of World ("BCH-ROW")OTC and Branded Consumer Healthcare - Belgium ("BCH-Belgium")
•$31.4 million decrease from exited product lines and a $19.3 million decrease from the divestitures of the Latin American businesses and ScarAway® brand asset; and
•$12.7 million decrease from unfavorable foreign currency translation.
Operating income increased $119.6 million, or 249.7%, due primarily to:
•$180.3 million increase in gross profit driven by strategic initiatives to better align promotional investments with salespricing actions and $95.1 million from our acquisitions of the GoodStart®infant formula brand and HRA Pharma, including $22.1 million unfavorable impact of distributor transitions; partially offset by cost reduction initiatives taken inof goods sold inflation, and lower infant formula productivity within U.S. Nutrition stemming from the current year; offset partially by
FDA evolving regulatory expectations for infant formula manufacturing. Gross profit as a percentage of net sales was 4.3%increased 330 basis points compared to the prior year due to the same factors that drove gross profit and benefits from the purposeful SKU prioritization actions to focus capacity on higher due primarilymargin products in CSCA.
•$60.7 million increase in operating expense as a result of the acquisition of HRA Pharma and Gateway, and higher employee expenses, partially offset by decreased acquisition and integration expenses compared to improved product mix primarily driven by the cancellation of certain unprofitable distribution contracts, as described above.prior year period and $2.2 million from foreign currency translation.
CONSUMER SELF-CARE AMERICAS FINANCIAL RESULTS
Three Month Comparison
| Three Months Ended | |||||||||||||||||||||||
| (in millions, except percentages) | September 30, 2023 | October 1, 2022 | |||||||||||||||||||||
| Net sales | $ | 703.5 | $ | 722.3 | |||||||||||||||||||
| Gross profit | $ | 224.0 | $ | 190.3 | |||||||||||||||||||
| Gross profit % | 31.8 | % | 26.3 | % | |||||||||||||||||||
| Operating income | $ | 91.1 | $ | 75.2 | |||||||||||||||||||
| Operating income % | 12.9 | % | 10.4 | % | |||||||||||||||||||
| 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 | % | |||
40
Perrigo Company plc - Item 2
CSCA
Net sales decreased $115.9$18.8 million, or 9%2.6%, overdue primarily to:
•$36.6 million decrease, or 5.1%, due primarily to lower net sales in legacy U.S. Nutrition driven by lower manufacturing productivity, purposeful SKU prioritization actions to focus capacity on higher margin products and lower net sales of branded OTC products; partially offset by approximately $26 million in strategic pricing actions; and
•$27.0 million increase from the addition of Gateway; partially offset by
•$9.0 million decrease from exited product lines.
| Sales | Three Months Ended | ||||||||||||||||||||||
| (in millions, except percentages) | September 30, 2023 | October 1, 2022 | $ Change | % Change | |||||||||||||||||||
| Nutrition | $ | 130.7 | $ | 124.4 | $ | 6.3 | 5.1 | % | |||||||||||||||
| Upper Respiratory | 130.2 | 132.2 | (2.0) | (1.5) | % | ||||||||||||||||||
| Digestive Health | 117.1 | 119.6 | (2.5) | (2.1) | % | ||||||||||||||||||
| Pain and Sleep-Aids | 94.1 | 104.0 | (9.9) | (9.5) | % | ||||||||||||||||||
| Healthy Lifestyle | 79.4 | 73.8 | 5.6 | 7.6 | % | ||||||||||||||||||
| Oral Care | 76.5 | 83.6 | (7.1) | (8.5) | % | ||||||||||||||||||
| Skin Care | 47.6 | 48.9 | (1.3) | (2.7) | % | ||||||||||||||||||
| Women's Health | 10.2 | 12.4 | (2.2) | (17.7) | % | ||||||||||||||||||
| Vitamins, Minerals, and Supplements ("VMS") | 4.3 | 7.1 | (2.8) | (39.4) | % | ||||||||||||||||||
| Other CSCA | 13.4 | 16.3 | (2.9) | (17.8) | % | ||||||||||||||||||
| Total CSCA | $ | 703.5 | $ | 722.3 | $ | (18.8) | (2.6)% | ||||||||||||||||
Sales drivers in each category are provided below:
•Nutrition: Net sales of $130.7 million increased 5.1% due primarily to the Gateway acquisition. This benefit was partially offset by lower net sales in legacy infant formula due to lower manufacturing productivity and exited product lines;
•Upper Respiratory: Net sales of $130.2 million decreased 1.5% due primarily to the launch and channel fill of Nasonex® in the prior year periodquarter and exited product lines, partially offset by higher net sales of cough cold products, led by store brand Guaifenesin-based offerings, and the new product launch of store brand Cough Relief Liquid Honey;
•Digestive Health: Net sales of $117.1 million decreased 2.1% due primarily to:
•Healthy Lifestyle: Net sales of $79.4 million increased 7.6% due primarily to higher sales volumes and market share gains in smoking cessation products;
•Oral Care: Net sales of $76.5 million decreased 8.5% due primarily to purposeful SKU prioritization actions and timing of promotions compared to the cancellation of unprofitable distribution contracts;
•Skin Care: Net sales of $17.4$47.6 million decreased 2.7% due primarily to exited product lines, partially offset by strong performance of Mederma®;
•Women's Health: Net sales of $10.2 million decreased 17.7% due primarily to purposeful SKU prioritization actions in the anti-parasitesfeminine hygiene; and vitamins categories;
•VMS and
$17.7 million decreased 24.4% due primarily to purposeful SKU prioritization actions.
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Perrigo Company plc - Item 2
Operating income increased $2.0 billion$15.9 million, or 21.1%, due primarily to:
FDA evolving regulatory expectations for infant formula manufacturing. Gross profit as a percentage of net sales was 1.6% higherincreased 550 basis points compared to the prior year due to the same factors that drove gross profit in addition to benefits from purposeful SKU prioritization actions.
•$17.8 million increase in operating expenses due primarily to improved product mix primarily driventhe addition of Gateway and Opill® pre-launch expenses, partially offset by reduced distribution costs compared to the cancellation of certain unprofitable distribution contracts, as described above.prior year period.
| Three Months Ended | |||||||
| ($ 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 | % | |||
| Nine Months Ended | |||||||||||
| (in millions, except percentages) | September 30, 2023 | October 1, 2022 | |||||||||
| Net sales | $ | 2,217.9 | $ | 2,160.2 | |||||||
| Gross profit | $ | 659.3 | $ | 555.0 | |||||||
| Gross profit % | 29.7 | % | 25.7 | % | |||||||
| Operating income (loss) | $ | 272.0 | $ | 240.0 | |||||||
| Operating income % | 12.3 | % | 11.1 | % | |||||||
Net sales decreased $1.3increased $57.7 million, or 1%2.7%, due primarily to:
•$20.4 million decrease, or 1.0%, due primarily to lower distribution driven by known capacity constraints that limited our net sales primarily in cough cold products during the first quarter and purposeful SKU prioritization actions of approximately $55 million to focus capacity on higher margin products that primarily impacted net sales in our CSCA Pain and Sleep product categories, partially offset by approximately $79 million of strategic pricing pressure acrossactions in addition to new products; and
•$19.3 million decrease from the portfolio;divestitures of the Latin American businesses and
ScarAway® brand asset and $21.9 million decrease from exited product lines.
| Sales | Nine Months Ended | ||||||||||||||||||||||
(in millions, except percentages)(1) | September 30, 2023 | October 1, 2022 | $ Change | % Change | |||||||||||||||||||
| Nutrition | $ | 435.4 | $ | 376.7 | $ | 58.7 | 15.6 | % | |||||||||||||||
| Upper Respiratory | 422.2 | 430.9 | (8.7) | (2.0) | % | ||||||||||||||||||
| Digestive Health | 368.0 | 363.3 | 4.7 | 1.3 | % | ||||||||||||||||||
| Pain and Sleep-Aids | 295.0 | 309.5 | (14.5) | (4.7) | % | ||||||||||||||||||
| Oral Care | 237.8 | 230.6 | 7.2 | 3.1 | % | ||||||||||||||||||
| Healthy Lifestyle | 220.1 | 208.7 | 11.4 | 5.5 | % | ||||||||||||||||||
| Skin Care | 150.7 | 138.4 | 12.3 | 8.9 | % | ||||||||||||||||||
| Women's Health | 34.6 | 32.6 | 2.0 | 6.1 | % | ||||||||||||||||||
| VMS | 12.7 | 23.0 | (10.3) | (44.8) | % | ||||||||||||||||||
| Other CSCA | 41.4 | 46.5 | (5.1) | (11.0) | % | ||||||||||||||||||
| Total CSCA | $ | 2,217.9 | $ | 2,160.2 | $ | 57.7 | 2.7% | ||||||||||||||||
Sales drivers in each category are provided below:
•Nutrition: Net sales of $435.4 million increased 15.6% due primarily to the Gateway acquisition and strong growth in contract infant formula. This growth was partially offset by lower net sales in legacy infant formula
42
Perrigo Company plc - Item 2
CSCA
due to lower manufacturing productivity, an unfavorable impact due to a voluntary recall and exited product lines;
•Upper Respiratory: Net sales of $422.2 million decreased 2.0% due primarily to lower net sales of allergy products driven by a weaker and later start to the allergy season compared to the prior year, a voluntary OTC product recall, the divested Latin American businesses, exited product lines and the absence of the launch and channel fill of Nasonex® from the prior year quarter. These factors were partially offset by higher net sales of cough cold products, led by store brand Guaifenesin-based offerings, and the new product launch of store brand Cough Relief Liquid Honey;
•Digestive Health: Net sales of $368.0 million increased 1.3% due to higher net sales of Omeprazole, increased manufacturing capacity and demand for Polyethylene Glycol 3350, and new products, including Omeprazole Mini Capsules and Polyethylene Glycol 3350 Orange. Growth in this category was partially offset by the divested Latin American businesses and lower net sales of store brand Proton Pump Inhibitors;
•Pain and Sleep-aids: Net sales of $295.0 million decreased 4.7% due primarily to purposeful SKU prioritization actions in adult analgesic offerings to focus capacity on higher margin products as well as the divested Latin American businesses, partially offset by new products, including store brand Dual Action Acetaminophen 250mg and Ibuprofen 125mg Tablets and higher demand for children's analgesics products resulting from a relatively stronger cough cold and flu season;
•Oral Care: Net sales of $237.8 million increased 3.1% due primarily to the normalization of supply chain disruptions that impacted net sales in the prior year period and higher net sales of Plackers® and store brand teeth whitening products, partially offset by purposeful SKU prioritization actions and lower sales of manual toothbrushes, including branded Firefly® and REACH®, and store brand offerings;
•Healthy Lifestyle: Net sales of $220.1 million increased 5.5% due primarily to higher sales volumes and market share gains in smoking cessation products, partially offset by lost distribution at a specific customer;
•Skin Care: Net sales of $150.7 million increased 8.9% due primarily to the addition of HRA Pharma brands, including Mederma®and Compeed®, partially offset by the unfavorable impact from the divested Latin American businesses and ScarAway® brand asset and exited product lines;
•Women's Health: Net sales of $34.6 million increased 6.1% due primarily to the addition of HRA Pharma brands, including ella®, partially offset by purposeful SKU prioritization actions in feminine hygiene; and
•VMS and Other: Net sales of $54.1 million decreased 22.2% due primarily to the unfavorable impact from the divested Latin American businesses and purposeful SKU prioritization actions.
Operating income increased $7.7$32.0 million, or 10%13.3%, as a result of:due primarily to:
43
Perrigo Company plc - Item 2
CONSUMER SELF-CARE INTERNATIONAL FINANCIAL RESULTS
Three Month Comparison
| Three Months Ended | |||||||||||
| (in millions, except percentages) | September 30, 2023 | October 1, 2022 | |||||||||
| Net sales | $ | 420.3 | $ | 377.9 | |||||||
| Gross profit | $ | 187.2 | $ | 172.6 | |||||||
| Gross profit % | 44.5 | % | 45.7 | % | |||||||
| Operating income | $ | 13.6 | $ | 1.3 | |||||||
| Operating income % | 3.2 | % | 0.3 | % | |||||||
| 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 | % | |||
Net sales decreased $68.5increased $42.4 million, or 9%11.2%, due primarily to:
•$23.1 million, or 6.2%, net increase due primarily to approximately $26 million of strategic pricing actions in addition to new products, partially offset by lower sales volumes in certain product categories; and
•$22.7 million increase from favorable foreign currency translation; partially offset by
•$3.4 million decrease from exited product lines.
| Sales | Three Months Ended | ||||||||||||||||||||||
(in millions, except percentages)(1) | September 30, 2023 | October 1, 2022 | $ Change | % Change | |||||||||||||||||||
| Skin Care | $ | 86.7 | $ | 81.1 | $ | 5.6 | 6.9 | % | |||||||||||||||
| Upper Respiratory | 78.2 | 69.2 | 9.0 | 13.0 | % | ||||||||||||||||||
| Pain and Sleep-Aids | 61.1 | 46.1 | 15.0 | 32.5 | % | ||||||||||||||||||
| Healthy Lifestyle | 52.4 | 47.6 | 4.8 | 10.1 | % | ||||||||||||||||||
| VMS | 46.1 | 46.4 | (0.3) | (0.6) | % | ||||||||||||||||||
| Women's Health | 28.5 | 28.7 | (0.2) | (0.7) | % | ||||||||||||||||||
| Oral Care | 24.8 | 21.7 | 3.1 | 14.3 | % | ||||||||||||||||||
| Digestive Health | 10.8 | 8.2 | 2.6 | 31.7 | % | ||||||||||||||||||
| Other CSCI | 31.7 | 28.9 | 2.8 | 9.7 | % | ||||||||||||||||||
| Total CSCI | $ | 420.3 | $ | 377.9 | $ | 42.4 | 11.2 | % | |||||||||||||||
(1) We updated our global reporting product categories as a result of our product portfolio reconfiguration. These product categories have been adjusted retroactively to reflect the changes and have no impact on historical financial position, results of operations, or cash flows.
Sales in each category were driven primarily by:
•Skin Care: Net sales of existing$86.7 million increased 6.9%, inclusive of a 2.5% favorable effect of currency translation, driven primarily by the Sebamed and ACO brands, partially offset by lower net sales in wound care products, which were primarily impacted by distributor transitions;
•Upper Respiratory: Net sales of $58.0$78.2 million increased 13.0%, inclusive of a 7.9% favorable effect of currency translation, due primarily to higher demand for cough cold products, including Bronchostop and Coldrex. Net sales of U.K. store brand cough cold products were also higher compared to the prior year period;
•Pain & Sleep-Aids: Net sales of $61.1 million increased 32.5%, inclusive of a 9.5% favorable effect of currency translation, due primarily to quarterly phasing of Solpadeine, higher net sales in store brands and increased demand for Nytol;
•Healthy Lifestyle: Net sales of $52.4 million increased 10.1%, inclusive of a 5.7% favorable effect of currency translation, due primarily to higher net sales of anti-parasite offerings that continue to outpace strong category growth and higher demand for smoking cessation products. This growth was partially offset by lower category consumption in weight loss, impacting XLS Medical;
•VMS: Net sales of $46.1 million decreased 0.6%, inclusive of a 6.9% favorable effect of currency translation, due primarily to lower category consumption, impacting sales volume of certainDavitamon and Abtei;
44
Perrigo Company plc - Item 2
CSCI
•Women's Health: Net sales of $28.5 million decreased 0.7%, inclusive of a 6.3% favorable effect of currency translation, due primarily to lower net sales in contraceptive products, which were primarily impacted by distributor transitions;
•Oral Care: Net sales of $24.8 million increased 14.3%, inclusive of a 7.8% favorable effect of currency translation, due primarily to higher net sales of power oral care products, Plackers® and improved service levels compared to the prior year;
•Digestive Health and Other: Net sales of $42.5 million increased 14.6%, inclusive of a 3.8% favorable effect of currency translation, due primarily to higher net sales of store brand digestive health products and pricing pressure across the portfolio; and
distribution brands.
Operating income decreased $18.7increased $12.3 million, or 7%946.2%, as a result of:due primarily to:
Nine Month Comparison
| Nine Months Ended | |||||||||||
| (in millions, except percentages) | September 30, 2023 | October 1, 2022 | |||||||||
| Net sales | $ | 1,280.7 | $ | 1,136.1 | |||||||
| Gross profit | $ | 593.8 | $ | 517.8 | |||||||
| Gross profit % | 46.4 | % | 45.6 | % | |||||||
| Operating income | $ | 43.6 | $ | 19.0 | |||||||
| Operating income % | 3.4 | % | 1.7 | % | |||||||
Net sales increased $144.6 million, or 12.7%, due primarily to:
•$68.3 million increase from an additional four months of HRA Pharma sales prior to the twelve month anniversary of the HRA Pharma acquisition, which included an unfavorable impact of $22.1 million from distributor transitions; and
•$11.2 million decrease from unfavorable foreign currency translation; and
•$10.4 million decrease from exited product lines.
45
Perrigo Company plc - Item 2
CSCI
| Sales | Nine Months Ended | ||||||||||||||||||||||
(in millions, except percentages)(1) | September 30, 2023 | October 1, 2022 | $ Change | % Change | |||||||||||||||||||
| Skin Care | $ | 293.1 | $ | 257.5 | $ | 35.6 | 13.8 | % | |||||||||||||||
| Upper Respiratory | 227.9 | 194.5 | 33.4 | 17.2 | % | ||||||||||||||||||
| Healthy Lifestyle | 179.4 | 165.6 | 13.8 | 8.3 | % | ||||||||||||||||||
| Pain and Sleep-Aids | 163.8 | 149.2 | 14.6 | 9.8 | % | ||||||||||||||||||
| VMS | 135.4 | 138.2 | (2.8) | (2.0) | % | ||||||||||||||||||
| Women's Health | 89.5 | 65.7 | 23.8 | 36.2 | % | ||||||||||||||||||
| Oral Care | 75.5 | 71.2 | 4.3 | 6.0 | % | ||||||||||||||||||
| Digestive Health | 30.0 | 27.4 | 2.6 | 9.5 | % | ||||||||||||||||||
| Other CSCI | 86.1 | 66.8 | 19.3 | 28.9 | % | ||||||||||||||||||
| Total CSCI | $ | 1,280.7 | $ | 1,136.1 | $ | 144.6 | 12.7 | % | |||||||||||||||
(1) We updated our global reporting product categories as a result of our product portfolio reconfiguration. These product categories have been adjusted retroactively to reflect the changes and have no impact on historical financial position, results of operations, or cash flows.
Sales in each category were driven primarily by:
•Skin Care: Net sales of certain ANDAs;$293.1 million increased 13.8%, inclusive of a 4.4% unfavorable effect of currency translation, driven primarily by the addition of HRA Pharma, Sebamed and ACO brands, partially offset by lower net sales in wound care products, which were primarily impacted by distributor transitions;
•Healthy Lifestyle: Net sales of $179.4 million increased 8.3%, inclusive of a 0.2% favorable effect of currency translation, due primarily to higher net sales of anti-parasite offerings that continue to outpace strong category growth, partially offset by lower category consumption in weight management impacting XLS Medical;
•Pain & Sleep-Aids: Net sales of $163.8 million increased 9.8%, inclusive of a 0.3% favorable effect of currency translation, primarily due to quarterly phasing of Solpadeine, higher net sales in store brands and increased demand for Nytol;
•VMS: Net sales of $135.4 million decreased 2.0%, inclusive of a 1.1% favorable effect of currency translation, primarily due to higher sales in the prior year due to pandemic related demand and lower category consumption, impacting sales of Davitamon and Abtei;
•Women's Health: Net sales of $89.5 million increased 36.2%, inclusive of a 0.6% favorable effect of currency translation, due primarily to the addition of HRA Pharma brands, including ellaOne®and NorLevo®, partially offset bylower net sales in contraceptive products, which were primarily impacted by distributor transitions;
•Oral Care: Net sales of $75.5 million increased 6.0%, due primarily to higher net sales of power oral care products, Plackers® and improved service levels compared to the prior year specialty pharmaceuticalsyear;
•Digestive Health and Other: Net sales force restructuring initiative; and
| Three Months Ended | |||||||
| ($ 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 | )% | |||
| 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 | % | |||
•$76.0 million increase in gross profit drivenfrom positive sales pricing benefits and the addition of HRA Pharma, partially offset by favorable product mix$25.0 million of cost of goods sold inflation and $22.1 million impact from distributor transitions. Gross profit as a $5.8percentage of net sales increased 80 basis points due primarily to the same factors that drove gross profit; and
•$51.4 million decrease in operating expenses. The decreaseincrease in operating expenses relateddue to higher selling and administrative expenses primarily todriven by the absenceaddition of a $10.8 million impairment charge recorded on the India API business in the prior year;HRA Pharma, higher restructuring and increased amortization expenses, partially offset partially by a $3.3$4.6 million impairment charge recordedgain on the Israel API businessan asset divestiture in the current period (refer to year.
46
Unallocated Expenses
Unallocated expenses are comprised of certain corporate services not allocated to our reporting segments and are recorded abovein Operating income on the Condensed Consolidated Statements of Operations. Unallocated expenses were as follows (in millions):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | |||||||||||||||||
| $ | 42.5 | $ | 43.4 | $ | 148.1 | $ | 211.1 | |||||||||||||
| 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 | |||||||
Interest expense, net, and Other (income) expense, net
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (in millions) | September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | |||||||||||||||||||
| Interest expense, net | $ | 43.5 | $ | 41.0 | $ | 131.1 | $ | 115.1 | |||||||||||||||
| Other (income) expense, net | $ | (0.6) | $ | (4.0) | $ | (9.6) | $ | 48.7 | |||||||||||||||
| (Gain) loss on extinguishment of debt | $ | — | $ | (0.4) | $ | — | $ | 8.9 | |||||||||||||||
The $2.5 million increase of $20.5 million in unallocated expensesInterest Expense, net during the three months ended September 30, 20172023 compared to the prior year period was due primarily to increasing interest rates on our variable rate debt.
The $16.0 million increase in Interest Expense, net during the nine months ended September 30, 2023 compared to the prior year period was due primarily to an increase in share-based compensation expense of $4.7outstanding borrowings under our New Senior Secured Credit Facilities (as defined in Item 1. Note 11) in addition to increasing interest rates on our variable rate debt.
The $3.4 million driven primarily by the resignation of certain executives, which had a favorable impact on the prior year period, and an increase of $15.6 million of administrative expenses driven by consulting fees and employee-related expenses.
| Three Months Ended | Nine Months Ended | ||||||||||||||
| ($ 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 | |||||||
The (gain) loss on extinguishment of debt was due to the prior year write-off of certain deferred financing fees and Item 1. Note 10).make whole payments on debt redeemed prior to maturity.
Income Taxes (Consolidated)
The effective tax rates were as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, 2023 | October 1, 2022 | September 30, 2023 | October 1, 2022 | |||||||||||||||||||||||||||||
| 19.7 | % | (1,377.1) | % | 49.5 | % | 5.3 | % | |||||||||||||||||||||||||
The effective tax rate on the pre-tax income for the three months ended September 30, 2017,2023 decreased compared to $1.0 million expensethe effective tax rate on the pre-tax loss for the three months ended October 1, 2016.2022, primarily due to the jurisdictional mix of earnings, as well as the impact of benefits not realized on certain pre-tax losses in the three months ended October 1, 2022. 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.
47
Perrigo Company plc - Item 2
Unallocated, Interest, Other, and Taxes
| 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 | % | |||
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
We finance our operations with internally generated funds, supplemented by credit arrangements with third parties and capital markets 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 war in Ukraine and Israel, inflation and interest rates, the status of material contingent liabilities, recent financial market volatility, the COVID-19 pandemic and other uncertainties. We may from time to time, subject to relevant restrictions under our debt agreements, use available funds to redeem, repurchase or refinance our debt in privately negotiated or open market transactions, by tender offer or otherwise, in compliance with applicable laws, rules and regulations, at prices and on terms we deem appropriate (which may be below par) and subject to our cash requirements for other purposes and other factors management deems relevant.
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 markets opportunities become available, or any change in conditions relating to the war in Ukraine and Israel, inflation and interest rates, the status of material contingent liabilities, financial market volatility, the COVID-19 pandemic or other uncertainties have a material impact on our capital requirements.
Cash and Cash Equivalents
| (in millions) | September 30, 2023 | December 31, 2022 | |||||||||
| Cash and cash equivalents | $ | 598.3 | $ | 600.7 | |||||||
Working capital(1) | $ | 1,196.7 | $ | 1,041.8 | |||||||
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 foreseeableour liquidity and capital expenditures.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 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.
Cash Flows
The following table includes summarized cash flow activities:
| Nine Months Ended | |||||||||||||||||
| (in millions) | September 30, 2023 | October 1, 2022 | $ Change | ||||||||||||||
| Net cash from operating activities | $ | 196.8 | $ | 121.4 | $ | 75.4 | |||||||||||
| Net cash for investing activities | (54.7) | (1,932.6) | 1,877.9 | ||||||||||||||
| Net cash (for) from financing activities | (142.6) | 464.1 | (606.7) | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (1.9) | (63.5) | 61.6 | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents | $ | (2.4) | $ | (1,410.6) | $ | 1,408.2 | |||||||||||
48
Perrigo Company plc - Item 2
Financial Condition, Liquidity and Capital Resources
Net cash from (for) 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 adjustments | 3,229.9 | 560.8 | (2,669.1 | ) | |||||||
| Subtotal | 576.2 | 607.2 | 31.0 | ||||||||
| Increase (decrease) in cash due to: | |||||||||||
| Accounts receivable | 113.0 | 38.4 | (74.6 | ) | |||||||
| Inventories | 25.1 | (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 taxes | 5.2 | (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 | |||||
Net cash from (for) Investing Activities
The $1.9 billion increase in accrued liabilitiesinvesting cash flow was due to deferred revenue associated with BCH-Belgium distribution contracts and the absence of accrualsa $1.9 billion cash paid for the acquisition of HRA Pharma in the prior year and a $15.6 million increase in proceeds from royalty rights primarily driven by higher milestone income related to legacy royalty rights in the current year, partially offset by $58.7 million of prior year proceeds from the sale of our U.S. VMS business;Latin American businesses and from an ANDA for a generic topical lotion related to our RX business sale.
The $606.7 million decrease in accrued customer-related programsfinancing cash flow was due primarily to $589.3 million from the pricing dynamics in the RX segment; and
| Nine Months Ended | |||||||||||
| ($ 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 assets | 58.5 | 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 | ||||
| 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 shares | 8.2 | 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 | ) | ||
Borrowings and Capital Resources
The interest rate net of derivatives results in a fixed rate on a substantial portion 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 onlong-term debt, the gross amountearliest of accounts receivables assigned to the Factors,which matures in December 2024.
On April 20, 2022, we 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.
| 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 | |||||||
We have overdraft facilities available that we may use to support our cash management operations. There were no borrowings outstanding under the overdraft facilities as of the above debt facilities.
Leases
We had $219.3 million and BBB- (stable) by Moody's Investors Service$238.6 million of lease liabilities and Standard$219.3 million and Poor's Global Ratings,$239.1 million of lease assets as of September 30, 2023 and December 31, 2022, respectively.
49
Perrigo Company plc - Item 2
Financial Condition, Liquidity and Capital Resources
Credit Ratings
Guarantor Financial Information
As detailed in Item 1. Note 1011, thereour Guarantor Subsidiaries and the Borrower under the New Senior Secured Credit Facilities provide full and unconditional guarantees, jointly and severally, on a senior unsecured basis, of the 5.300% Notes due 2043 issued by the Company, and the Loan Parties provide full and unconditional guarantees, jointly and severally, on a senior unsecured basis, of the 3.900% Notes due 2024, the 4.375% Notes due 2026, the 4.650% Notes due 2030 and the 4.900% Notes due 2044 issued by Perrigo Finance Unlimited Company.
The guarantees of the Guarantor Subsidiaries, the Company and the Borrower are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The guarantees of the Guarantor Subsidiaries, the Company and the Borrower rank senior in right of payment to any future subordinated indebtedness of the Company, equal in right of payment with all of the Company’s existing and future senior indebtedness and effectively subordinated to any of the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing such indebtedness.
Basis of Presentation
The following tables include summarized financial information of the obligor groups of debt issued by Perrigo Finance Unlimited Company and Perrigo Company plc. The summarized financial information of each obligor group is presented on a combined basis with balances and transactions within the obligor group eliminated. Investments in and the equity in earnings of non-guarantor subsidiaries, which would otherwise be consolidated in accordance with U.S. GAAP, are excluded from the below summarized financial information pursuant to SEC Regulation S-X Rule 13-01.
The summarized balance sheet information for the consolidated obligor group of debt issued by Perrigo Finance Unlimited Company and Perrigo Company plc is presented in the table below:
| September 30, 2023 | December 31, 2022 | ||||||||||
| Current Assets | $ | 1,979.9 | $ | 1,975.7 | |||||||
| Non-current Assets | $ | 4,652.8 | $ | 4,819.1 | |||||||
| Current liabilities | $ | 641.5 | $ | 734.9 | |||||||
| Non-current liabilities | $ | 11,079.7 | $ | 11,036.2 | |||||||
| Due to non-guarantors | $ | 6,402.5 | $ | 6,346.4 | |||||||
50
Perrigo Company plc - Item 2
Financial Condition, Liquidity and Capital Resources
The summarized results of operations information for the consolidated obligor group of debt issued by Perrigo Finance Unlimited Company and Perrigo Company plc is presented in the table below:
| Nine Months Ended | ||||||||
| September 30, 2023 | ||||||||
| Total Revenues | $ | 2,461.7 | ||||||
| Gross Profit | $ | 711.3 | ||||||
| Operating Income (loss) | $ | 24.7 | ||||||
| Net Income (loss) | $ | 23.4 | ||||||
| Revenue from non-guarantors | $ | 51.8 | ||||||
| Operating Expenses to non-guarantors | $ | (1.5) | ||||||
| Other (income) expense to non-guarantors | $ | (201.3) | ||||||
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.
Contractual Obligations
There were no material changes in contractual obligations as of September 30, 20172023 from those provided in our 20162022 Form 10-K. See below for a revised schedule
Significant Accounting Policies
There have been no material changes to the significant accounting policies as disclosed in our 2022 Form 10-K.
Critical Accounting Estimates
The determination of certain amounts in our enforceablefinancial statements requires the use of estimates. These estimates are based upon our historical experiences combined with management’s understanding of current facts and legally binding obligationscircumstances. 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 of September 30, 2017 related todisclosed in our short and long-term debt arrangements.2022 Form 10-K.
| 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 | |||||||||
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 on2022 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, 2017.2023. 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.
Evaluation of the Effectiveness of Internal Control over Financial Reporting
51
Perrigo Company plc - Item 4
Controls and Procedures
published by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission (“COSO”).
Changes in Internal Control over Financial Reporting
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, 20162022 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 the risk factor as described below.
We identifiedoperate in highly regulated industries, and any inability to timely meet current or future regulatory requirements could have a material weaknesses in our internal controls over financial reporting; failure to remediate the material weaknesses could negatively impactadverse effect on our business and operating results.
We operate in highly regulated industries in numerous countries and are subject to the priceregulations of our ordinary shares.
•On July 14, 2021, the European Commission adopted a set of proposals to ensure polices are aligned with the goal of reducing net greenhouse gas emissions by 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) issuedleast 55% by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”2030 (the "EU Green Deal"). The failureThere is a growing focus on environmental impact of self-care products, their ingredients, components, packaging, manufacturing, and disposal. This focus could lead to maintain effective control over financial reportingnew requirements and restrictions in turn resultedthe coming years across all product categories.
•We must obtain approval from the appropriate regulatory agencies in material deficienciesorder to manufacture and sell our products in our disclosure controlsthe regions in which we operate. Obtaining this approval can be time consuming and procedures.
•U.S. law encourages generic competition by providing eligibility for first generic marketing exclusivity if certain conditions are met. If we are granted generic exclusivity, the exclusivity may be successful. We have also incurredshared with other companies; or we may forfeit 180-day exclusivity if we fail to obtain regulatory approval and will continuebegin marketing within the statutory requirements. If we are not the first to incur substantial accounting, legal, consulting, and other costs in connection with identifying and remediatingfile our ANDA, the material weaknesses. FailureFDA may grant 180-day exclusivity to remediateanother company, thereby effectively delaying 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 statuslaunch of our remediation efforts, See Part I, Item 4 - Controls and Procedures.
52
Perrigo Company plc - Item 1A
Risk Factors
•In 2020, regulatory agencies globally, including the FDA and the European Medicines Agency, issued guidance on assessing and controlling nitrosamine impurities in medicine products. We are continuing to undertake a review of our business.
•Rx-to-OTC switches are part of our future growth. If regulatory agencies fail to approve Rx-to-OTC switches in new product categories or reassess the terms of existing OTC classifications, our growth prospects and any related litigation couldproduct mix would be materially different from our estimates or from our historical income tax provisions and accruals. The resultsimpaired. Further, regulatory agencies may reassess the terms of an audit or litigation could haveOTC classification if they perceive a material effect on operating results or cash flowsshift 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.
•The regulation of List I chemicals complicate our supply chain, and adverse regulatory actions may result in temporary or permanent interruption of distribution of our products, withdrawal of our products from the market, or other penalties. If we are unable to obtain necessary quotas for List I chemicals, we risk having delayed product launches or failing to meet commercial supply obligations.
•Very recently the European Parliament voted on a proposal to extend the EU's Medical Device Regulation ("MDR") transition periods until 2027-2028, together with an extended validity of existing medical device certificates and the possibility to sell off existing medical device products until end of shelf-life. With this decision the European Parliament took into account that there is currently a shortage in the final noticenumber of proposed adjustment cannot be quantified at this time; however, based onNotified Bodies authorized to carry out conformity assessments required under MDR.
•Increased scrutiny of product classifications by government agencies can result in investigations and prosecutions, which carry the draft notice received,risk of significant civil and criminal penalties, including but not limited to, debarment from government business and prohibition to continue 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.business.
| 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, 2017 | 484,860 | $ | 72.27 | 484,860 | |||||||||
| August 1 - August 31, 2017 | 1,354,721 | $ | 71.46 | 1,354,721 | |||||||||
| September 1 - September 30, 2017 | 19,124 | $ | 77.50 | 19,124 | |||||||||
| Total | 1,858,705 | $ | 1.30 | billion | |||||||||
ITEM 5.OTHER INFORMATION
Rule 10b5-1 Trading Plans
During the three months ended September 30, 2023, no director or executive officer adopted, modified or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement", as each term is defined in Item 408(a) 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”).Regulation S-K.
53
Perrigo Company plc - Part II - Item 6
Exhibits
ITEM 6. EXHIBITS
Exhibit Number | Description | ||||||||||
| 3.1 | |||||||||||
| 3.2 | |||||||||||
| 10.1 | |||||||||||
| 10.2 | |||||||||||
| 10.4 | |||||||||||
| 22 | List of Guarantor Subsidiaries (filed herewith). | ||||||||||
| 31.2 | |||||||||||
| 32 | |||||||||||
| 101. INS | XBRL Instance | ||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document. | ||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | ||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | ||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | ||||||||||
| 104 | Cover Page Interactive Date File, formatted in Inline XBRL (contained in Exhibit 101). | ||||||||||
54
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 7, 2023 | ||||||||||
| Chief Executive Officer and President | |||||||||||
| (Principal Executive Officer) | |||||||||||
| Date: | November | ||||||||||
| (Principal Accounting and Financial Officer) | |||||||||||
55