NOTE 1 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Information
The Company
Perrigo Company plc was incorporated under the laws of Ireland on June 28, 2013 and became the successor registrant of Perrigo Company, a Michigan corporation, on December 18, 2013 in connection with the acquisition of Elan Corporation, plc ("Elan"). Unless the context requires otherwise, the terms "Perrigo," the "Company," "we," "our," "us," and similar pronouns used herein refer to Perrigo Company plc, its subsidiaries, and all predecessors of Perrigo Company plc and its subsidiaries. We are a leading global over-the-counter ("OTC") consumer goods and specialty pharmaceutical company, offering patients and customers high quality products at affordable prices. From our beginning in 1887 as a packager of home remedies, we have grown to become the world's largest manufacturer of OTC healthcare products and supplier of infant formulas for the store brand market. We are also a leading provider of generic extended topical prescription products, and we receive royalties from sales of the multiple sclerosis drug Tysabri
®
. We provide “Quality Affordable Healthcare Products
®
” across a wide variety of product categories and geographies, primarily in North America, Europe, and Australia, as well as in other markets, including Israel, China, and Latin America.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2016. In the opinion of management, all adjustments (consisting of normal recurring accruals and other adjustments) considered necessary for a fair presentation have been included. The Condensed Consolidated Financial Statements include our accounts and the accounts of all majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Our fiscal year previously consisted of a 52- or 53-week year ending on or around June 30 of each year with each quarter ending on the Saturday closest to each calendar quarter-end. Beginning on January 1, 2016, we changed our fiscal year to begin on January 1 and end on December 31 of each year. We will continue to cut off 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.
Restatement
In connection with our year-end financial statement close and preparation of our Annual Report on Form 10-K for 2016, we identified misstatements in our historical financial statements, including for the nine months ended October 1, 2016, six months ended
December 31, 2015
, and the years ended
June 27, 2015
and
June 28, 2014
(the "Restated Periods"). Accordingly, we have restated the Condensed Consolidated Financial Statements for the three and six months ended July 2, 2016 and June 27, 2015 to reflect the correction of the misstatements, the most significant of which are described below. The segments predominantly affected by this restatement are Specialty Sciences and Consumer Healthcare International. Refer to
Note 10
for additional information on how this restatement affects our debt covenants.
During the 2016 year-end financial statement close process, and in anticipation of our potential sale of our royalty rights, we evaluated the potential effects of the Tysabri
®
royalty stream sale accounting and the accounting and disclosures associated with the pending 2018 adoption of ASC 606 “Revenues from Contracts with Customers.” After an extensive evaluation of the facts and circumstances and the judgments required to determine the appropriate classification, it was determined that under existing U.S. GAAP the contingent payments from Elan's May 2013 sale of Tysabri
®
to Biogen (the "Tysabri
®
royalty stream") should have been recorded as a financial asset, rather than an intangible asset, on the date of our acquisition of Elan.
Perrigo Company plc
- Item 1
Note 1
Our Tysabri
®
royalty stream is now accounted for in our financial statements for fiscal 2016 and prior restated periods as a financial asset using the fair value option. We made the election to account for the Tysabri
®
financial asset using the fair value option as we believe this method is most appropriate for an asset that does not have a par value, a stated interest stream, or a termination date. Accounting for the Tysabri
®
royalty stream as a financial asset required us to adjust our financial statements for the Restated Periods to (1) remove the Tysabri
®
royalty stream from net sales in our Condensed Consolidated Statements of Operations, (2) remove the amortization expense (reflected in cost of goods sold) associated with recording the Tysabri
®
royalty stream as an intangible asset, and (3) include the quarterly changes in fair value of the Tysabri
®
royalty stream as a component of other non-operating income/expense. The cash payments we received from the royalty stream are included in our Condensed Consolidated Statements of Cash Flows for the Restated Periods and reflect the cash received from the Tysabri
®
royalty stream as cash from investing activities, rather than as cash from operating activities.
In addition, in connection with the financial closing for the year ended December 31, 2016, we identified certain tax basis intangible assets that existed at the time of the acquisition of Omega Pharma Invest N.V. (“Omega”) on
March 30, 2015
, which reduced the deferred tax liabilities in acquired intangible assets and increased our valuation allowance resulting in a net change to our deferred taxes of approximately
$236.3 million
. The resulting balance sheet reclassification required a reduction of goodwill, offset by a corresponding reduction to net deferred taxes at the date of the Omega acquisition. Further, we have evaluated the accounting effect subsequent to the acquisition date related to the remeasured deferred tax liability, including the impairments of Omega goodwill recorded in 2016 and certain adjustments to valuation allowances, which have been reflected in the Restated Periods.
In restating our financial statements to correct the misstatements discussed above, we are also making adjustments for previously identified required corrections with respect to the three and six months ended July 2, 2016 and June 27, 2015, which were recorded in our year ended December 31, 2016 and year ended June 27, 2015 financial results. In conjunction with the restatement, we have determined that it would be appropriate within this Form 10-Q/A to reflect these adjustments in the three and six months ended July 2, 2016 and June 27, 2015.
The Condensed Consolidated Balance Sheet, Condensed Consolidated Statements of Operations, Condensed Consolidated Comprehensive Income (Loss), and Condensed Consolidated Statement of Cash Flows, and
Notes 2
,
3
,
4
,
5
,
6
,
7
,
8
,
10
,
11
,
12
,
13
, and
17
in these financial statements were updated to reflect the restatement.
The tables below present the impact of the changes to our Condensed Consolidated Financial Statement line items in our Original Filing:
Perrigo Company plc
- Item 1
Note 1
Condensed Consolidated Statement of Operations
(in millions, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
July 2, 2016
|
|
|
|
Adjustments
|
|
|
|
Previously Reported
|
|
Tysabri
®
|
|
Other
|
|
Restated
|
Net sales
|
$
|
1,481.0
|
|
|
$
|
(88.9
|
)
|
|
$
|
(51.6
|
)
|
(b)
|
$
|
1,340.5
|
|
Cost of sales
|
913.8
|
|
|
(72.5
|
)
|
|
(47.3
|
)
|
(b)
|
794.0
|
|
Gross profit
|
567.2
|
|
|
(16.4
|
)
|
|
(4.3
|
)
|
|
546.5
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
Distribution
|
22.5
|
|
|
—
|
|
|
—
|
|
|
22.5
|
|
Research and development
|
47.0
|
|
|
—
|
|
|
—
|
|
|
47.0
|
|
Selling
|
171.6
|
|
|
—
|
|
|
—
|
|
|
171.6
|
|
Administration
|
101.8
|
|
|
—
|
|
|
2.5
|
|
|
104.3
|
|
Impairment charges (credits)
|
(19.8
|
)
|
|
—
|
|
|
30.3
|
|
(a)
|
10.5
|
|
Restructuring
|
5.8
|
|
|
—
|
|
|
—
|
|
|
5.8
|
|
Total operating expenses
|
328.9
|
|
|
—
|
|
|
32.8
|
|
|
361.7
|
|
|
|
|
|
|
|
|
|
Operating income
|
238.3
|
|
|
(16.4
|
)
|
|
(37.1
|
)
|
|
184.8
|
|
|
|
|
|
|
|
|
|
Tysabri
®
royalty stream - change in fair value
|
—
|
|
|
910.8
|
|
|
—
|
|
|
910.8
|
|
Interest expense, net
|
57.4
|
|
|
—
|
|
|
—
|
|
|
57.4
|
|
Other expense, net
|
29.3
|
|
|
0.2
|
|
|
(0.7
|
)
|
|
28.8
|
|
Income (loss) before income taxes
|
151.6
|
|
|
(927.4
|
)
|
|
(36.4
|
)
|
|
(812.2
|
)
|
Income tax (benefit)
|
(42.7
|
)
|
|
(116.0
|
)
|
|
(119.2
|
)
|
(a)(b)(c)
|
(277.9
|
)
|
Net income (loss)
|
$
|
194.3
|
|
|
$
|
(811.4
|
)
|
|
$
|
82.8
|
|
|
$
|
(534.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share
|
|
|
|
|
|
|
|
Basic
|
$
|
1.36
|
|
|
$
|
(5.67
|
)
|
|
$
|
0.58
|
|
|
$
|
(3.73
|
)
|
Diluted
|
$
|
1.35
|
|
|
$
|
(5.67
|
)
|
|
$
|
0.58
|
|
|
$
|
(3.73
|
)
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
Basic
|
143.2
|
|
|
|
|
|
|
143.2
|
|
Diluted
|
143.6
|
|
|
|
|
|
|
143.2
|
|
|
|
(a)
|
Adjustments primarily related to certain tax basis intangible assets that existed at the time of the acquisition of Omega on
March 30, 2015
, which reduced the deferred tax liabilities in acquired intangible assets and increased our valuation allowance resulting in a net change to our deferred taxes. The resulting balance sheet reclassification required a reduction of goodwill, offset by a corresponding reduction to net deferred taxes at the date of the Omega acquisition. The adjustment made at the date of the Omega acquisition also had an impact on previously reported goodwill impairment charges. ("BCH Deferred Tax Matters"). (Income tax expense (benefit):
$4.5 million
)
|
|
|
(b)
|
Adjustments primarily related to certain contracts related to a specific Belgium distributor that were consignment in nature due to an option for the distributor to return the product if it was not sold timely. The characterization of the contracts as consignment impacted the timing of revenue recognition in the Condensed Consolidated Statement of Operations and, due to the impact on factoring arrangements, required a reclassification between accounts receivable and current liabilities for the amounts factored for these contracts. (“BCH Belgium Distribution Contracts”) (Income tax expense (benefit):
($3.4) million
))
|
|
|
(c)
|
Adjustment related to income tax expense (benefit) for interim period tax accounting required under ASC 740, Accounting for Income Taxes. (Income tax expense (benefit):
($121.8) million
)
|
Perrigo Company plc
- Item 1
Note 1
Condensed Consolidated Statement of Operations
(in millions, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
July 2, 2016
|
|
|
|
Adjustments
|
|
|
|
Previously Reported
|
|
Tysabri
®
|
|
Other
|
|
Restated
|
Net sales
|
$
|
2,864.2
|
|
|
$
|
(174.6
|
)
|
|
$
|
(1.8
|
)
|
(b)
|
$
|
2,687.8
|
|
Cost of sales
|
1,774.1
|
|
|
(145.0
|
)
|
|
(20.9
|
)
|
(b)
|
1,608.2
|
|
Gross profit
|
1,090.1
|
|
|
(29.6
|
)
|
|
19.1
|
|
|
1,079.6
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
Distribution
|
44.3
|
|
|
—
|
|
|
—
|
|
|
44.3
|
|
Research and development
|
92.2
|
|
|
—
|
|
|
—
|
|
|
92.2
|
|
Selling
|
352.4
|
|
|
—
|
|
|
—
|
|
|
352.4
|
|
Administration
|
208.2
|
|
|
—
|
|
|
3.6
|
|
|
211.8
|
|
Impairment charges
|
447.2
|
|
|
—
|
|
|
(32.8
|
)
|
(a)
|
414.4
|
|
Restructuring
|
11.3
|
|
|
—
|
|
|
—
|
|
|
11.3
|
|
Total operating expenses
|
1,155.6
|
|
|
—
|
|
|
(29.2
|
)
|
|
1,126.4
|
|
|
|
|
|
|
|
|
|
Operating loss
|
(65.5
|
)
|
|
(29.6
|
)
|
|
48.3
|
|
|
(46.8
|
)
|
|
|
|
|
|
|
|
|
Tysabri
®
royalty stream - change in fair value
|
—
|
|
|
1,115.3
|
|
|
—
|
|
|
1,115.3
|
|
Interest expense, net
|
108.6
|
|
|
—
|
|
|
—
|
|
|
108.6
|
|
Other expense, net
|
33.1
|
|
|
0.1
|
|
|
(1.9
|
)
|
|
31.3
|
|
Loss on extinguishment of debt
|
0.4
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
Loss before income taxes
|
(207.6
|
)
|
|
(1,145.0
|
)
|
|
50.2
|
|
|
(1,302.4
|
)
|
Income tax benefit
|
(67.3
|
)
|
|
(143.2
|
)
|
|
(28.4
|
)
|
(a)(b)(c)
|
(238.9
|
)
|
Net loss
|
$
|
(140.3
|
)
|
|
$
|
(1,001.8
|
)
|
|
$
|
78.6
|
|
|
$
|
(1,063.5
|
)
|
|
|
|
|
|
|
|
|
Loss per shares
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.98
|
)
|
|
$
|
(6.99
|
)
|
|
$
|
0.54
|
|
|
$
|
(7.43
|
)
|
Diluted
|
$
|
(0.98
|
)
|
|
$
|
(6.99
|
)
|
|
$
|
0.54
|
|
|
$
|
(7.43
|
)
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
Basic
|
143.2
|
|
|
|
|
|
|
143.2
|
|
Diluted
|
143.6
|
|
|
|
|
|
|
143.2
|
|
|
|
(a)
|
Adjustments primarily related to the BCH Deferred Tax Matters as described above. (Income tax expense (benefit):
($26.4) million
)
|
|
|
(b)
|
Adjustments primarily related to BCH Belgium Distribution Contracts as described above. (Income tax expense (benefit):
$3.5 million
)
|
|
|
(c)
|
Adjustment related to income tax expense (benefit) for interim period tax accounting required under ASC 740, Accounting for Income Taxes. (Income tax expense (benefit):
($8.0) million
)
|
Perrigo Company plc
- Item 1
Note 1
Condensed Consolidated Statement of Operations
(in millions, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
June 27, 2015
|
|
|
|
Adjustments
|
|
|
|
Previously Reported
|
|
Tysabri
®
|
|
Other
|
|
Restated
|
Net sales
|
$
|
1,531.6
|
|
|
$
|
(81.6
|
)
|
|
$
|
(34.8
|
)
|
(b)
|
$
|
1,415.2
|
|
Cost of sales
|
903.5
|
|
|
(72.5
|
)
|
|
(16.8
|
)
|
(b)
|
814.2
|
|
Gross profit
|
628.1
|
|
|
(9.1
|
)
|
|
(18.0
|
)
|
|
601.0
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
Distribution
|
23.7
|
|
|
—
|
|
|
—
|
|
|
23.7
|
|
Research and development
|
62.6
|
|
|
—
|
|
|
—
|
|
|
62.6
|
|
Selling
|
174.9
|
|
|
—
|
|
|
—
|
|
|
174.9
|
|
Administration
|
140.1
|
|
|
—
|
|
|
0.7
|
|
|
140.8
|
|
Impairment charges
|
—
|
|
|
—
|
|
|
6.8
|
|
|
6.8
|
|
Restructuring
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
Total operating expenses
|
401.2
|
|
|
—
|
|
|
7.5
|
|
|
408.7
|
|
|
|
|
|
|
|
|
|
Operating income
|
226.9
|
|
|
(9.1
|
)
|
|
(25.5
|
)
|
|
192.3
|
|
|
|
|
|
|
|
|
|
Tysabri
®
royalty stream - change in fair value
|
—
|
|
|
69.2
|
|
|
—
|
|
|
69.2
|
|
Interest expense, net
|
45.9
|
|
|
—
|
|
|
—
|
|
|
45.9
|
|
Other expense, net
|
22.7
|
|
|
(0.8
|
)
|
|
(6.1
|
)
|
|
15.8
|
|
Loss on extinguishment of debt
|
0.9
|
|
|
—
|
|
|
—
|
|
|
0.9
|
|
Income before income taxes
|
157.4
|
|
|
(77.5
|
)
|
|
(19.4
|
)
|
|
60.5
|
|
Income tax expense
|
101.0
|
|
|
(9.7
|
)
|
|
(8.6
|
)
|
(a)(b)
|
82.7
|
|
Net income (loss)
|
$
|
56.4
|
|
|
$
|
(67.8
|
)
|
|
$
|
(10.8
|
)
|
|
$
|
(22.2
|
)
|
|
|
|
|
|
|
|
|
Income (loss) per share
|
|
|
|
|
|
|
|
Basic
|
$
|
0.39
|
|
|
$
|
(0.46
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.15
|
)
|
Diluted
|
$
|
0.38
|
|
|
$
|
(0.46
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
Basic
|
146.3
|
|
|
|
|
|
|
146.3
|
|
Diluted
|
146.8
|
|
|
|
|
|
|
146.3
|
|
|
|
(a)
|
Adjustments primarily related to the BCH Deferred Tax Matters as described above. (Income tax expense (benefit):
$6.5 million
)
|
|
|
(b)
|
Adjustments primarily related to BCH Belgium Distribution Contracts as described above. (Income tax expense (benefit): (
$3.3 million
))
|
Perrigo Company plc
- Item 1
Note 1
Condensed Consolidated Statement of Operations
(in millions, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 27, 2015
|
|
|
|
Adjustments
|
|
|
|
Previously Reported
|
|
Tysabri
®
|
|
Other
|
|
Restated
|
Net sales
|
$
|
2,580.8
|
|
|
$
|
(161.6
|
)
|
|
$
|
(36.8
|
)
|
(b)
|
$
|
2,382.4
|
|
Cost of sales
|
1,573.8
|
|
|
(145.1
|
)
|
|
(16.7
|
)
|
(b)
|
1,412.0
|
|
Gross profit
|
1,007.0
|
|
|
(16.5
|
)
|
|
(20.1
|
)
|
|
970.4
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
Distribution
|
38.4
|
|
|
—
|
|
|
—
|
|
|
38.4
|
|
Research and development
|
98.0
|
|
|
—
|
|
|
—
|
|
|
98.0
|
|
Selling
|
223.7
|
|
|
—
|
|
|
—
|
|
|
223.7
|
|
Administration
|
219.7
|
|
|
—
|
|
|
0.1
|
|
|
219.8
|
|
Impairment charges
|
—
|
|
|
—
|
|
|
6.8
|
|
|
6.8
|
|
Restructuring
|
1.0
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
Total operating expenses
|
580.8
|
|
|
—
|
|
|
6.9
|
|
|
587.7
|
|
|
|
|
|
|
|
|
|
Operating income
|
426.2
|
|
|
(16.5
|
)
|
|
(27.0
|
)
|
|
382.7
|
|
|
|
|
|
|
|
|
|
Tysabri
®
royalty stream - change in fair value
|
—
|
|
|
(31.5
|
)
|
|
—
|
|
|
(31.5
|
)
|
Interest expense, net
|
89.2
|
|
|
—
|
|
|
—
|
|
|
89.2
|
|
Other expense, net
|
281.3
|
|
|
—
|
|
|
(7.4
|
)
|
|
273.9
|
|
Loss on extinguishment of debt
|
0.9
|
|
|
—
|
|
|
—
|
|
|
0.9
|
|
Income before income taxes
|
54.8
|
|
|
15.0
|
|
|
(19.6
|
)
|
|
50.2
|
|
Income tax expense
|
93.2
|
|
|
1.9
|
|
|
(0.4
|
)
|
|
94.7
|
|
Net loss
|
$
|
(38.4
|
)
|
|
$
|
13.1
|
|
|
$
|
(19.2
|
)
|
|
$
|
(44.5
|
)
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.27
|
)
|
|
$
|
0.09
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.31
|
)
|
Diluted
|
$
|
(0.27
|
)
|
|
$
|
0.09
|
|
|
$
|
(0.13
|
)
|
|
$
|
(0.31
|
)
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
Basic
|
143.5
|
|
|
|
|
|
|
143.5
|
|
Diluted
|
143.5
|
|
|
|
|
|
|
143.5
|
|
|
|
(b)
|
Adjustments primarily related to BCH Belgium Distribution Contracts as described above.
|
Perrigo Company plc
- Item 1
Note 1
Condensed Consolidated Balance Sheet
(in millions)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2, 2016
|
|
|
|
Adjustments
|
|
|
|
Previously Reported
|
|
Tysabri
®
|
|
Other
|
|
Restated
|
Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
641.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
641.8
|
|
Accounts receivable, net of allowance for doubtful accounts of $5.4 million
|
1,199.1
|
|
|
—
|
|
|
(5.0
|
)
|
|
1,194.1
|
|
Inventories
|
894.6
|
|
|
—
|
|
|
—
|
|
|
894.6
|
|
Prepaid expenses and other current assets
|
297.3
|
|
|
—
|
|
|
—
|
|
|
297.3
|
|
Total current assets
|
3,032.8
|
|
|
—
|
|
|
(5.0
|
)
|
|
3,027.8
|
|
Property, plant and equipment, net
|
888.6
|
|
|
—
|
|
|
—
|
|
|
888.6
|
|
Tysabri
®
royalty stream - at fair value
|
—
|
|
|
4,020.0
|
|
|
—
|
|
|
4,020.0
|
|
Goodwill and other indefinite-lived intangible assets
|
6,627.1
|
|
|
—
|
|
|
(201.3
|
)
|
(a)(b)
|
6,425.8
|
|
Other intangible assets, net
|
8,679.3
|
|
|
(5,067.2
|
)
|
|
(4.5
|
)
|
|
3,607.6
|
|
Non-current deferred income taxes
|
100.6
|
|
|
—
|
|
|
8.7
|
|
(a)(c)
|
109.3
|
|
Other non-current assets
|
205.2
|
|
|
—
|
|
|
6.9
|
|
|
212.1
|
|
Total non-current assets
|
16,500.8
|
|
|
(1,047.2
|
)
|
|
(190.2
|
)
|
|
15,263.4
|
|
Total assets
|
$
|
19,533.6
|
|
|
$
|
(1,047.2
|
)
|
|
$
|
(195.2
|
)
|
|
$
|
18,291.2
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
514.1
|
|
|
$
|
—
|
|
|
$
|
(5.0
|
)
|
|
$
|
509.1
|
|
Payroll and related taxes
|
98.4
|
|
|
—
|
|
|
—
|
|
|
98.4
|
|
Accrued customer programs
|
354.2
|
|
|
—
|
|
|
(1.2
|
)
|
|
353.0
|
|
Accrued liabilities
|
295.7
|
|
|
—
|
|
|
—
|
|
|
295.7
|
|
Accrued income taxes
|
72.5
|
|
|
—
|
|
|
(26.6
|
)
|
(a)(b)(c)
|
45.9
|
|
Current indebtedness
|
758.1
|
|
|
—
|
|
|
—
|
|
|
758.1
|
|
Total current liabilities
|
2,093.0
|
|
|
—
|
|
|
(32.8
|
)
|
|
2,060.2
|
|
Long-term debt, less current portion
|
5,652.5
|
|
|
—
|
|
|
—
|
|
|
5,652.5
|
|
Non-current deferred income taxes
|
1,473.7
|
|
|
(130.9
|
)
|
|
(235.2
|
)
|
(a)(b)(c)
|
1,107.6
|
|
Other non-current liabilities
|
414.7
|
|
|
—
|
|
|
7.8
|
|
|
422.5
|
|
Total non-current liabilities
|
7,540.9
|
|
|
(130.9
|
)
|
|
(227.4
|
)
|
|
7,182.6
|
|
Total liabilities
|
9,633.9
|
|
|
(130.9
|
)
|
|
(260.2
|
)
|
|
9,242.8
|
|
Commitments and contingencies - Note 14
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
Controlling interest:
|
|
|
|
|
|
|
|
Preferred shares, $0.0001 par value, 10 million shares authorized
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ordinary shares, €0.001 par value, 10 billion shares authorized
|
8,144.0
|
|
|
—
|
|
|
—
|
|
|
8,144.0
|
|
Accumulated other comprehensive income
|
31.3
|
|
|
—
|
|
|
(0.6
|
)
|
(b)
|
30.7
|
|
Retained earnings
|
1,725.0
|
|
|
(916.3
|
)
|
|
65.6
|
|
|
874.3
|
|
Total controlling interest
|
9,900.3
|
|
|
(916.3
|
)
|
|
65.0
|
|
|
9,049.0
|
|
Noncontrolling interest
|
(0.6
|
)
|
|
—
|
|
|
—
|
|
|
(0.6
|
)
|
Total shareholders’ equity
|
9,899.7
|
|
|
(916.3
|
)
|
|
65.0
|
|
|
9,048.4
|
|
Total liabilities and shareholders' equity
|
$
|
19,533.6
|
|
|
$
|
(1,047.2
|
)
|
|
$
|
(195.2
|
)
|
|
$
|
18,291.2
|
|
|
|
(a)
|
Adjustments primarily related to the BCH Deferred Tax Matters as described above. (Goodwill and other indefinite-lived intangible assets:
$229.0 million
, Non-current deferred income tax asset:
$278.4 million
, and Non-current deferred tax liability of
$33.7 million
, and Accrued income taxes:
$(10.9) million
)
|
|
|
(b)
|
Adjustments primarily related to BCH Belgium Distribution Contracts as described above. (Goodwill and other indefinite-lived intangible assets:
$(5.4) million
, Non-current deferred income tax liabiliy:
$0.7 million
, and Accrued income taxes:
$(6.1) million
)
|
|
|
(c)
|
Adjustment related to income tax expense (benefit) for interim period tax accounting required under ASC 740, Accounting for Income Taxes. (Accrued income taxes:
$(8.1) million
). The balance of the adjustment to deferred taxes relates to jurisdictional netting.
|
Perrigo Company plc
- Item 1
Note 1
Condensed Consolidated Balance Sheet
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Adjustments
|
|
|
|
Previously Reported
|
|
Tysabri
®
|
|
Other
|
|
Restated
|
Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
417.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
417.8
|
|
Accounts receivable, net of allowance for doubtful accounts of $4.5 million
|
1,193.1
|
|
|
—
|
|
|
(4.1
|
)
|
(b)
|
1,189.0
|
|
Inventories
|
844.4
|
|
|
—
|
|
|
54.3
|
|
(b)
|
898.7
|
|
Prepaid expenses and other current assets
|
289.1
|
|
|
—
|
|
|
(3.0
|
)
|
|
286.1
|
|
Total current assets
|
2,744.4
|
|
|
—
|
|
|
47.2
|
|
|
2,791.6
|
|
Property, plant and equipment, net
|
886.2
|
|
|
—
|
|
|
—
|
|
|
886.2
|
|
Tysabri
®
royalty stream - at fair value
|
—
|
|
|
5,310.0
|
|
|
—
|
|
|
5,310.0
|
|
Goodwill and other indefinite-lived intangible assets
|
7,281.2
|
|
|
—
|
|
|
(212.2
|
)
|
(a)(b)
|
7,069.0
|
|
Other intangible assets, net
|
8,190.5
|
|
|
(5,212.2
|
)
|
|
(5.2
|
)
|
|
2,973.1
|
|
Non-current deferred income taxes
|
54.6
|
|
|
—
|
|
|
16.8
|
|
(a)(c)
|
71.4
|
|
Other non-current assets
|
237.0
|
|
|
—
|
|
|
11.3
|
|
|
248.3
|
|
Total non-current assets
|
16,649.5
|
|
|
97.8
|
|
|
(189.3
|
)
|
|
16,558.0
|
|
Total assets
|
$
|
19,393.9
|
|
|
$
|
97.8
|
|
|
$
|
(142.1
|
)
|
|
$
|
19,349.6
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
554.9
|
|
|
$
|
—
|
|
|
$
|
0.9
|
|
(b)
|
$
|
555.8
|
|
Payroll and related taxes
|
125.3
|
|
|
—
|
|
|
—
|
|
|
125.3
|
|
Accrued customer programs
|
398.0
|
|
|
—
|
|
|
(2.0
|
)
|
(b)
|
396.0
|
|
Accrued liabilities
|
308.4
|
|
|
—
|
|
|
43.5
|
|
(b)
|
351.9
|
|
Accrued income taxes
|
85.2
|
|
|
—
|
|
|
(22.5
|
)
|
(a)
|
62.7
|
|
Current indebtedness
|
1,018.3
|
|
|
—
|
|
|
42.2
|
|
(b)
|
1,060.5
|
|
Total current liabilities
|
2,490.1
|
|
|
—
|
|
|
62.1
|
|
|
2,552.2
|
|
Long-term debt, less current portion
|
4,971.6
|
|
|
—
|
|
|
—
|
|
|
4,971.6
|
|
Non-current deferred income taxes
|
1,563.7
|
|
|
12.2
|
|
|
(203.2
|
)
|
(a)(b)(c)
|
1,372.7
|
|
Other non-current liabilities
|
332.4
|
|
|
—
|
|
|
13.9
|
|
(a)
|
346.3
|
|
Total non-current liabilities
|
6,867.7
|
|
|
12.2
|
|
|
(189.3
|
)
|
|
6,690.6
|
|
Total liabilities
|
9,357.8
|
|
|
12.2
|
|
|
(127.2
|
)
|
|
9,242.8
|
|
Commitments and contingencies - Note 14
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
Controlling interest:
|
|
|
|
|
|
|
|
Preferred shares, $0.0001 par value, 10 million shares authorized
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ordinary shares, €0.001 par value, 10 billion shares authorized
|
8,144.6
|
|
|
—
|
|
|
(2.0
|
)
|
|
8,142.6
|
|
Accumulated other comprehensive (loss)
|
(15.5
|
)
|
|
—
|
|
|
0.2
|
|
(b)
|
(15.3
|
)
|
Retained earnings
|
1,907.6
|
|
|
85.6
|
|
|
(13.1
|
)
|
|
1,980.1
|
|
Total controlling interest
|
10,036.7
|
|
|
85.6
|
|
|
(14.9
|
)
|
|
10,107.4
|
|
Noncontrolling interest
|
(0.6
|
)
|
|
—
|
|
|
—
|
|
|
(0.6
|
)
|
Total shareholders’ equity
|
10,036.1
|
|
|
85.6
|
|
|
(14.9
|
)
|
|
10,106.8
|
|
Total liabilities and shareholders' equity
|
$
|
19,393.9
|
|
|
$
|
97.8
|
|
|
$
|
(142.1
|
)
|
|
$
|
19,349.6
|
|
|
|
(a)
|
Adjustments primarily related to the BCH Deferred Tax Matters as described above. (Goodwill and other indefinite-lived intangible assets:
$(223.3) million
, Non-current deferred income tax assets:
$272.2 million
, and Non-current deferred income tax liability
$65.4 million
)
|
|
|
(b)
|
Adjustments primarily related to BCH Belgium Distribution Contracts as described above. (Goodwill and other indefinite-lived intangible assets:
$10.2 million
and Non-current deferred income taxes:
$8.7 million
)
|
|
|
(c)
|
Adjustment related to income tax expense (benefit) for interim period tax accounting required under ASC 740, Accounting for Income Taxes. The balance of the adjustment to deferred taxes relates to jurisdictional netting.
|
Perrigo Company plc
- Item 1
Note 1
Condensed Consolidated Statement of Cash Flows
(in millions)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
July 2, 2016
|
|
|
|
Adjustments
|
|
|
|
Previously Reported
|
|
Tysabri
®
|
|
Other
|
|
Restated
|
Cash Flows From (For) Operating Activities
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(140.3
|
)
|
|
$
|
(1,001.8
|
)
|
|
$
|
78.6
|
|
|
$
|
(1,063.5
|
)
|
Adjustments to derive cash flows
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
0.4
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
Restructuring charges
|
11.3
|
|
|
—
|
|
|
—
|
|
|
11.3
|
|
Depreciation and amortization
|
369.3
|
|
|
(145.0
|
)
|
|
(0.6
|
)
|
|
223.7
|
|
Impairment charges
|
447.2
|
|
|
—
|
|
|
(32.8
|
)
|
(a)
|
414.4
|
|
Tysabri
®
royalty stream - change in fair value
|
—
|
|
|
1,115.3
|
|
|
—
|
|
|
1,115.3
|
|
Share-based compensation
|
7.6
|
|
|
—
|
|
|
2.0
|
|
|
9.6
|
|
Amortization of financing fees and debt premium
|
—
|
|
|
—
|
|
|
(16.2
|
)
|
|
(16.2
|
)
|
Deferred income taxes
|
(157.1
|
)
|
|
(143.2
|
)
|
|
(22.5
|
)
|
(a)(b)
|
(322.8
|
)
|
Other non-cash adjustments
|
28.2
|
|
|
—
|
|
|
(0.1
|
)
|
|
28.1
|
|
Subtotal
|
566.6
|
|
|
(174.7
|
)
|
|
8.4
|
|
|
400.3
|
|
Increase (decrease) in cash due to:
|
|
|
|
|
|
|
|
Accounts receivable
|
42.3
|
|
|
5.8
|
|
|
(6.9
|
)
|
|
41.2
|
|
Inventories
|
(50.3
|
)
|
|
—
|
|
|
55.0
|
|
(b)
|
4.7
|
|
Accounts payable
|
(41.1
|
)
|
|
—
|
|
|
(5.9
|
)
|
|
(47.0
|
)
|
Payroll and related taxes
|
(39.2
|
)
|
|
—
|
|
|
—
|
|
|
(39.2
|
)
|
Accrued customer programs
|
(45.3
|
)
|
|
—
|
|
|
1.1
|
|
(b)
|
(44.2
|
)
|
Accrued liabilities
|
(9.8
|
)
|
|
—
|
|
|
(44.1
|
)
|
(b)
|
(53.9
|
)
|
Accrued income taxes
|
21.8
|
|
|
—
|
|
|
(24.6
|
)
|
(a)(b)(c)
|
(2.8
|
)
|
Other
|
(45.4
|
)
|
|
—
|
|
|
16.0
|
|
|
(29.4
|
)
|
Subtotal
|
(167.0
|
)
|
|
5.8
|
|
|
(9.4
|
)
|
|
(170.6
|
)
|
Net cash from (for) operating activities
|
399.6
|
|
|
(168.9
|
)
|
|
(1.0
|
)
|
|
229.7
|
|
Cash Flows From (For) Investing Activities
|
|
|
|
|
|
|
|
Proceeds from royalty rights
|
—
|
|
|
168.9
|
|
|
1.0
|
|
|
169.9
|
|
Acquisitions of businesses, net of cash acquired
|
(419.7
|
)
|
|
—
|
|
|
—
|
|
|
(419.7
|
)
|
Additions to property, plant and equipment
|
(57.1
|
)
|
|
—
|
|
|
—
|
|
|
(57.1
|
)
|
Other investing
|
(1.0
|
)
|
|
—
|
|
|
—
|
|
|
(1.0
|
)
|
Net cash from (for) investing activities
|
(477.8
|
)
|
|
168.9
|
|
|
1.0
|
|
|
(307.9
|
)
|
Cash Flows From (For) Financing Activities
|
|
|
|
|
|
|
|
Issuances of long-term debt
|
1,190.3
|
|
|
—
|
|
|
—
|
|
|
1,190.3
|
|
Payments on long-term debt
|
(28.7
|
)
|
|
—
|
|
|
—
|
|
|
(28.7
|
)
|
Borrowings (repayments) of revolving credit agreements and other financing, net
|
(803.9
|
)
|
|
—
|
|
|
—
|
|
|
(803.9
|
)
|
Deferred financing fees
|
(2.4
|
)
|
|
—
|
|
|
—
|
|
|
(2.4
|
)
|
Issuance of ordinary shares
|
3.5
|
|
|
—
|
|
|
—
|
|
|
3.5
|
|
Cash dividends
|
(41.6
|
)
|
|
—
|
|
|
—
|
|
|
(41.6
|
)
|
Other financing
|
(11.7
|
)
|
|
—
|
|
|
—
|
|
|
(11.7
|
)
|
Net cash from (for) financing activities
|
305.5
|
|
|
—
|
|
|
—
|
|
|
305.5
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(3.3
|
)
|
|
—
|
|
|
—
|
|
|
(3.3
|
)
|
Net increase (decrease) in cash and cash equivalents
|
224.0
|
|
|
—
|
|
|
—
|
|
|
224.0
|
|
Cash and cash equivalents, beginning of period
|
417.8
|
|
|
—
|
|
|
—
|
|
|
417.8
|
|
Cash and cash equivalents, end of period
|
$
|
641.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
641.8
|
|
|
|
(a)
|
Adjustments primarily related to the BCH Deferred Tax Matters as described above.
|
|
|
(b)
|
Adjustments primarily related to BCH Belgium Distribution Contracts as described above.
|
|
|
(c)
|
Adjustment related to income tax expense (benefit) for interim period tax accounting required under ASC 740, Accounting for Income Taxes.
|
Perrigo Company plc
- Item 1
Note 1
Condensed Consolidated Statement of Cash Flows
(in millions)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 27, 2015
|
|
|
|
Adjustments
|
|
|
|
Previously Reported
|
|
Tysabri
®
|
|
Other
|
|
Restated
|
Cash Flows From (For) Operating Activities
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(38.4
|
)
|
|
$
|
13.1
|
|
|
$
|
(19.2
|
)
|
|
$
|
(44.5
|
)
|
Adjustments to derive cash flows
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
0.9
|
|
|
—
|
|
|
—
|
|
|
0.9
|
|
Restructuring charges
|
1.0
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
Depreciation and amortization
|
295.0
|
|
|
(145.1
|
)
|
|
—
|
|
|
149.9
|
|
Impairment charges
|
—
|
|
|
—
|
|
|
6.8
|
|
|
6.8
|
|
Tysabri
®
royalty stream - change in fair value
|
—
|
|
|
(31.5
|
)
|
|
—
|
|
|
(31.5
|
)
|
Share-based compensation
|
15.5
|
|
|
—
|
|
|
—
|
|
|
15.5
|
|
Loss on acquisition-related foreign currency derivatives
|
300.0
|
|
|
—
|
|
|
—
|
|
|
300.0
|
|
Amortization of financing fees and debt premium
|
—
|
|
|
—
|
|
|
(1.8
|
)
|
|
(1.8
|
)
|
Deferred income taxes
|
21.9
|
|
|
1.9
|
|
|
(3.6
|
)
|
(a)(b)
|
20.2
|
|
Other non-cash adjustments
|
12.1
|
|
|
0.1
|
|
|
(6.8
|
)
|
|
5.4
|
|
Subtotal
|
608.0
|
|
|
(161.5
|
)
|
|
(24.6
|
)
|
|
421.9
|
|
Increase (decrease) in cash due to:
|
|
|
|
|
|
|
|
Accounts receivable
|
(77.2
|
)
|
|
(6.2
|
)
|
|
35.7
|
|
(b)
|
(47.7
|
)
|
Inventories
|
28.4
|
|
|
—
|
|
|
(20.4
|
)
|
(b)
|
8.0
|
|
Accounts payable
|
187.5
|
|
|
—
|
|
|
(20.1
|
)
|
(b)
|
167.4
|
|
Payroll and related taxes
|
(3.8
|
)
|
|
—
|
|
|
—
|
|
|
(3.8
|
)
|
Accrued customer programs
|
18.1
|
|
|
—
|
|
|
1.4
|
|
(b)
|
19.5
|
|
Accrued liabilities
|
(14.8
|
)
|
|
—
|
|
|
5.5
|
|
(b)
|
(9.3
|
)
|
Accrued income taxes
|
(14.9
|
)
|
|
—
|
|
|
3.6
|
|
|
(11.3
|
)
|
Other
|
(0.6
|
)
|
|
—
|
|
|
19.3
|
|
|
18.7
|
|
Subtotal
|
122.7
|
|
|
(6.2
|
)
|
|
25.0
|
|
|
141.5
|
|
Net cash from (for) operating activities
|
730.7
|
|
|
(167.7
|
)
|
|
0.4
|
|
|
563.4
|
|
Cash Flows From (For) Investing Activities
|
|
|
|
|
|
|
|
Proceeds from royalty rights
|
—
|
|
|
167.7
|
|
|
1.2
|
|
|
168.9
|
|
Acquisitions of businesses, net of cash acquired
|
(2,098.8
|
)
|
|
—
|
|
|
—
|
|
|
(2,098.8
|
)
|
Settlement of acquisition-related foreign currency derivatives
|
(303.5
|
)
|
|
—
|
|
|
—
|
|
|
(303.5
|
)
|
Additions to property, plant and equipment
|
(89.0
|
)
|
|
—
|
|
|
—
|
|
|
(89.0
|
)
|
Other investing
|
1.0
|
|
|
—
|
|
|
|
|
1.0
|
|
Net cash from (for) investing activities
|
(2,490.3
|
)
|
|
167.7
|
|
|
1.2
|
|
|
(2,321.4
|
)
|
Cash Flows From (For) Financing Activities
|
|
|
|
|
|
|
|
Payments on long-term debt
|
(889.0
|
)
|
|
—
|
|
|
—
|
|
|
(889.0
|
)
|
Borrowings (repayments) of revolving credit agreements and other financing, net
|
(50.4
|
)
|
|
—
|
|
|
(1.6
|
)
|
(b)
|
(52.0
|
)
|
Deferred financing fees
|
(3.3
|
)
|
|
—
|
|
|
—
|
|
|
(3.3
|
)
|
Premium on early debt retirement
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance of ordinary shares
|
4.0
|
|
|
—
|
|
|
—
|
|
|
4.0
|
|
Cash dividends
|
(35.9
|
)
|
|
—
|
|
|
—
|
|
|
(35.9
|
)
|
Other financing
|
(10.6
|
)
|
|
—
|
|
|
—
|
|
|
(10.6
|
)
|
Net cash from (for) financing activities
|
(985.2
|
)
|
|
—
|
|
|
(1.6
|
)
|
|
(986.8
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
(65.7
|
)
|
|
—
|
|
|
—
|
|
|
(65.7
|
)
|
Net increase (decrease) in cash and cash equivalents
|
(2,810.5
|
)
|
|
—
|
|
|
—
|
|
|
(2,810.5
|
)
|
Cash and cash equivalents, beginning of period
|
3,596.1
|
|
|
—
|
|
|
—
|
|
|
3,596.1
|
|
Cash and cash equivalents, end of period
|
$
|
785.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
785.6
|
|
|
|
(a)
|
Adjustments primarily related to the BCH Deferred Tax Matters as described above.
|
|
|
(b)
|
Adjustments primarily related to BCH Belgium Distribution Contracts as described above.
|
Perrigo Company plc
- Item 1
Note 1
The Condensed Consolidated Statement of Comprehensive Income (Loss) was adjusted primarily for a
$728.6 million
decrease
in net
income
and
$923.2 million
increase in net
loss
for the three and six months ended July 2, 2016, respectively, and a
$78.6 million
decrease
in net
income
and
$6.1 million
increase
in net
loss
for the three and six months ended June 27, 2015, respectively, and misstatement in foreign currency translation adjustment of
$1.4 million
and
$0.9 million
for the three and six months ended July 2, 2016, respectively, and
$0.1 million
for the six months ended June 27, 2015.
The accumulated effect on Shareholders' Equity at December 27, 2014 was a
$41.7 million
increase.
Recent Accounting Standard Pronouncements
Below are recent accounting standard updates that we are still assessing to determine the effect on our consolidated financial statements. We do not believe that any other recently issued accounting standards could have a material effect on our consolidated financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
|
|
|
|
|
|
|
|
Recently Issued Accounting Standards Not Yet Adopted
|
Standard
|
|
Description
|
|
Effective Date
|
|
Effect on the Financial Statements or Other Significant Matters
|
Improvements to Employee Share-Based Payment Accounting
|
|
This guidance is intended to simplify several aspects of the accounting for share-based payment award transactions. It will require all income tax effects of awards to be recorded through the income statement when they vest or settle as opposed to certain amounts being recorded in additional paid-in capital. An entity will also have to elect whether to account for forfeitures as they occur or by estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change (as currently required). The guidance will also increase the amount an employer can withhold to cover income taxes on awards. Early adoption is permitted.
|
|
January 1, 2017
|
|
We are currently evaluating the implications of adoption on our consolidated financial statements and considering whether to early adopt the standard.
|
Revenue from Contracts with Customers
|
|
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation. This guidance allows for two adoption methods, full retrospective approach or modified retrospective approach. Early adoption is not permitted.
|
|
January 1, 2018
|
|
We are currently evaluating the possible adoption methodologies and the implications of adoption on our consolidated financial statements.
|
Leases
|
|
This guidance was issued to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. For leases with a term of 12 months or less, lessees are permitted to make an election to not recognize right-of-use assets and lease liabilities. Upon adoption, lessees will apply the new standard as of the beginning of the earliest comparative period presented in the financial statements, however lessees will be able to exclude leases that expire as of the implementation date. Early adoption is permitted.
|
|
January 1, 2019
|
|
We are currently evaluating the implications of adoption on our consolidated financial statements and considering whether to early adopt the standard.
|
Perrigo Company plc
- Item 1
Note 1
|
|
|
|
|
|
|
|
Recently Issued Accounting Standards Not Yet Adopted (continued)
|
Standard
|
|
Description
|
|
Effective Date
|
|
Effect on the Financial Statements or Other Significant Matters
|
Measurement of Credit Losses on Financial Instruments
|
|
This guidance changes the impairment model for most financial assets and certain other instruments, replacing the current "incurred loss" approach with an "expected loss" credit impairment model, which will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities,and off-balance sheet credit exposures such as letters of credit. Early adoption is permitted.
|
|
January 1, 2020
|
|
We are currently evaluating the new standard for potential impacts on our receivables, debt, and other financial instruments.
|
NOTE 2 –
ACQUISITIONS
All of the below acquisitions have been accounted for under the acquisition method of accounting based on our analysis of the acquired inputs and processes, and the related assets acquired and liabilities assumed were recorded at fair value as of the acquisition date.
Fair value estimates are based on a complex series of judgments about future events and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations.
The effects of all of the acquisitions described below are included in the Condensed Consolidated Financial Statements prospectively from the date of each acquisition. Unless otherwise indicated, acquisition costs incurred were immaterial and were recorded in Administration expense.
Current Year Acquisitions
Tretinoin Product Portfolio
On
January 22, 2016
, we acquired a portfolio of generic dosage forms and strengths of
Retin-A
®
(tretinoin), a topical prescription acne treatment, from Matawan Pharmaceuticals, LLC, for
$416.4 million
in cash ("Tretinoin Products"), which further expanded our extended topicals portfolio. We were the authorized generic distributor of these products from 2005 to 2013. Operating results attributable to the acquisition are included within our Prescription Pharmaceuticals ("Rx") segment. The intangible assets acquired included generic product rights valued using the multi-period excess earnings method and assigned a
20
-year useful life, and non-compete agreements valued using the lost income method and assigned a
five
-year useful life. The goodwill acquired is deductible for tax purposes.
Development-Stage Rx Products
In May 2015, we entered into an agreement with a clinical stage biotechnology company for two specialty pharmaceutical products in development ("Development-Stage Rx Products"). We paid
$18.0 million
for an option to acquire the two products, which was recorded in Research and Development expense. On
March 1, 2016
, to further invest in our specialty Rx portfolio, we exercised the option for both products, which requires us to make contingent payments if we obtain regulatory approval and achieve certain sales milestones. We will also be obligated to make certain royalty payments over periods ranging from
seven
to
ten
years from the launch of each product.
We accounted for the option exercise as a business acquisition within our Rx segment, recording in-process research and development assets ("IPR&D") and contingent consideration on the balance sheet. The IPR&D was valued using the multi-period excess earnings method and has an indefinite useful life until such time as the research is completed (at which time it will become a definite-lived intangible asset), or is determined to have no future use (at which time it would be impaired). The contingent consideration is an estimate of the future milestone payments and royalties based on probability-weighted outcomes, sensitivity analysis, and discount rates reflective of the risk involved. The preliminary amount of contingent consideration recognized as of the acquisition date was
$24.9 million
and is recorded in
Other non-current liabilities
. The amount is subject to change as the valuation
Perrigo Company plc
- Item 1
Note 2
assumptions are refined over the measurement period. Once the purchase accounting has been finalized, the contingent consideration will continue to be updated quarterly to adjust the liability to fair value depending on a number of assumptions, including the competitive landscape and regulatory approvals that may impact future sales of the products.
Purchase Price Allocation of Current Year Acquisitions
The purchase accounting allocations for the Development-Stage Rx Products acquisition and one small product acquisition (included in "All Other" in the table below) are preliminary a
nd are
based on the valuation information, estimates, and assumptions available at
July 2, 2016
. As we finalize the fair value estimate, additional purchase price adjustments may be recorded during the measurement period to contingent consideration and intangible assets.
The below table indicates the purchase price allocation for acquisitions completed in the current year (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tretinoin Products
|
|
Development-Stage Rx Products*
|
|
All Other
(1)
*
|
Purchase price paid
|
$
|
416.4
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
Contingent consideration
|
—
|
|
|
24.9
|
|
|
5.6
|
|
Total purchase consideration
|
$
|
416.4
|
|
|
$
|
24.9
|
|
|
$
|
5.9
|
|
|
|
|
|
|
|
Assets acquired:
|
|
|
|
|
|
Inventories
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Goodwill
|
1.7
|
|
|
—
|
|
|
—
|
|
Definite-lived intangibles
:
|
|
|
|
|
|
Developed product technology, formulations, and product rights
|
411.0
|
|
|
—
|
|
|
—
|
|
Non-compete agreements
|
2.3
|
|
|
—
|
|
|
—
|
|
Indefinite-lived intangibles
:
|
|
|
|
|
|
In-process research and development
|
—
|
|
|
24.9
|
|
|
5.9
|
|
Total intangible assets
|
413.3
|
|
|
24.9
|
|
|
5.9
|
|
Total assets
|
$
|
416.4
|
|
|
$
|
24.9
|
|
|
$
|
5.9
|
|
* Opening balance sheet is preliminary
|
|
(1)
|
Consists of
one
product acquisition in the CHC segment
|
Prior Year Acquisitions
Entocort
®
On
December 15, 2015
, we completed our acquisition of Entocort
®
(budesonide) capsules, as well as the authorized generic capsules, for sale within the U.S., from AstraZeneca plc for
$380.2 million
in cash. Entocort
®
is a gastroenterology medicine for patients with mild to moderate Crohn's disease and the acquisition complemented our Rx portfolio. Operating results attributable to the acquisition are included within our Rx segment. The intangible assets acquired included the branded and authorized generic product rights with useful lives of
10
and
15
years, respectively, which were valued using the multi-period excess earnings method.
Perrigo Company plc
- Item 1
Note 2
Naturwohl Pharma GmbH
On
September 15, 2015
, we completed our acquisition of
100%
of Naturwohl Pharma GmbH ("Naturwohl"), a Munich, Germany-based nutritional business known for its leading German dietary supplement brand, Yokebe
®
. The acquisition built on our Branded Consumer Healthcare ("BCH") segment's OTC product portfolio and European commercial infrastructure. The assets were purchased through an all-cash transaction valued at
€133.5 million
(
$150.4 million
). Operating results attributable to Naturwohl are included in the BCH segment. The intangible assets acquired included a trademark with a
20
-year useful life, customer relationships with a
15
-year useful life, non-compete agreements with a
three
-year useful life, and a licensing agreement with a
three
-year useful life. We utilized the relief from royalty method for valuing the trademark, the multi-period excess earnings method for valuing the customer relationships, and the lost income method for valuing the non-compete agreements and the licensing agreement. The goodwill acquired is not deductible for tax purposes.
ScarAway
®
On
August 28, 2015
, we completed our acquisition of ScarAway
®
, a leading U.S. OTC scar management brand portfolio comprised of five products, from Enaltus, LLC, for
$26.7 million
in cash. This acquisition served as our entry into the niche branded OTC business in the U.S. Operating results attributable to ScarAway
®
are included in the Consumer Healthcare ("CHC") segment. The intangible assets acquired included a trademark with a
25
-year useful life, non-compete agreements with a
four
-year useful life, developed product technology with an
eight
-year useful life, and customer relationships with a
15
-year useful life. We utilized the relief from royalty method for valuing the trademark and developed product technology, the multi-period excess earnings method for valuing the customer relationships, and the lost income method for valuing the non-compete agreements. The goodwill acquired is deductible for tax purposes.
GlaxoSmithKline
Consumer Healthcare Product Portfolio
On
August 28, 2015
, we completed our acquisition of a portfolio of well-established OTC brands from GlaxoSmithKline Consumer Healthcare (“GSK Products”). This acquisition further leveraged our European market share and expanded our product offerings. The assets were purchased through an all-cash transaction valued at
€200.0 million
(
$223.6 million
). Operating results attributable to the acquired GSK Products are included primarily in the BCH segment. The intangible assets acquired included trademarks with a
20
-year useful life and customer relationships with a
15
-year useful life. We utilized the relief from royalty method for valuing the trademarks and the multi-period excess earnings method for valuing the customer relationships. The goodwill acquired is deductible for tax purposes and recorded primarily in the BCH segment.
Gelcaps Exportadora de Mexico, S.A. de C.V.
On
May 12, 2015
, we completed our acquisition of
100%
of Gelcaps Exportadora de Mexico, S.A. de C.V. ("Gelcaps"), the Mexican operations of Durham, North Carolina-based Patheon Inc., for
$37.9 million
in cash. The acquisition added softgel manufacturing technology to our supply chain capabilities and broadened our presence, product portfolio, and customer network in Mexico. Operating results attributable to Gelcaps are included in the CHC segment. The intangible assets acquired included a trademark with a
25
-year useful life and customer relationships with a
20
-year useful life. We utilized the relief from royalty method for valuing the trademark and the multi-period excess earnings method for valuing the customer relationships.
Based on valuation estimates utilizing the comparative sales method, a step-up in the value of inventory of
$0.6 million
was recorded in the opening balance sheet, which was charged to cost of goods sold during the three months ended June 27, 2015. In addition, property, plant and equipment were written up by
$0.9 million
to their estimated fair market value based on a valuation method that included both the cost and market approaches. This additional step-up in value is being depreciated over the estimated remaining useful lives of the assets. The goodwill recorded is not deductible for tax purposes.
Omega Pharma Invest N.V.
On
March 30, 2015
, we completed our acquisition of Omega Pharma Invest N.V. ("Omega"), a limited liability company incorporated under the laws of Belgium. Omega was a leading European OTC company and is
Perrigo Company plc
- Item 1
Note 2
providing us several key benefits, including advancing our growth strategy outside the U.S. by providing access across a larger global platform with critical mass in key European countries, establishing commercial infrastructure in the high barrier-to-entry European OTC marketplace, strengthening our product portfolio while enhancing scale and distribution, and expanding our international management capabilities.
We purchased
95.77%
of the issued and outstanding share capital of Omega (
685,348,257
shares) from Alychlo N.V. (“Alychlo”) and Holdco I BE N.V. (together with Alychlo, the “Sellers”), limited liability companies incorporated under the laws of Belgium, under the terms of the Share Purchase Agreement dated November 6, 2014 (the "Share Purchase Agreement"). Omega holds the remaining
30,243,983
shares as treasury shares.
The acquisition was a cash and stock transaction made up of the following consideration (in millions except per share data):
|
|
|
|
|
|
Perrigo ordinary shares issued
|
|
5.4
|
|
Perrigo per share price at transaction close on March 30, 2015
|
|
$
|
167.64
|
|
Total value of Perrigo ordinary shares issued
|
|
$
|
904.9
|
|
Cash consideration
|
|
2,078.3
|
|
Total consideration
|
|
$
|
2,983.2
|
|
The cash consideration shown in the above table was financed by a combination of debt and equity. We issued
$1.6 billion
of debt as described in
Note 10
, and issued
6.8 million
ordinary shares, which raised
$999.3 million
, net of issuance costs.
The Sellers agreed to indemnify us for certain potential future losses. The Sellers’ indemnification and other obligations to us under the Share Purchase Agreement are secured up to
€248.0 million
(
$277.0 million
). Under the terms of the Share Purchase Agreement, Alychlo and its affiliates are subject to a
three
-year non-compete in Europe, and the Sellers are subject to a
two
-year non-solicit, in each case subject to certain exceptions. The Share Purchase Agreement contains other customary representations, warranties, and covenants of the parties thereto.
The operating results attributable to Omega are included in the BCH segment. We incurred general transaction costs (legal, banking and other professional fees), financing fees, and debt extinguishment charges in connection with the Omega acquisition. The amounts recorded were not allocated to a reporting segment. The table below details the acquisition costs, as well as losses on hedging activities associated with the acquisition purchase price, and where they were recorded for the three and six months ended June 27, 2015 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
Line item
|
|
June 27, 2015
|
Administration
|
|
$
|
16.1
|
|
|
$
|
18.1
|
|
Interest expense, net
|
|
—
|
|
|
18.7
|
|
Other expense, net
|
|
—
|
|
|
258.2
|
|
Total acquisition-related costs
|
|
$
|
16.1
|
|
|
$
|
295.0
|
|
See
Note 8
for further details on losses on the Omega-related hedging activities shown above in Other expense, net, and
Note 10
for details on the loss on extinguishment of debt.
Perrigo Company plc
- Item 1
Note 2
We acquired the following intangible assets: indefinite-lived brands, a definite-lived trade name with an
eight
-year useful life, definite-lived brands with a
22
-year useful life, a distribution network with a
21
-year useful life, and developed product technology with useful lives ranging from
four
to
13
years. We also recorded goodwill, which is not deductible for tax purposes and represents the value we assigned to the expected synergies described above, in our BCH segment. We utilized the multi-period excess earnings method to value the indefinite-lived brands, the definite-lived brands, and distribution network. We utilized the relief from royalty method to value the developed product technology and definite-lived trade name. The weighted-average useful life of all intangible assets acquired is
20.6
years.
Based on valuation estimates utilizing the comparative sales method, a step-up in the value of inventory of
$15.1 million
was recorded in the opening balance sheet and was charged to cost of goods sold during the three months ended June 27, 2015. In addition, property, plant and equipment were written up
$41.5 million
to their estimated fair market value based on a valuation method that included both the cost and market approaches. This additional step-up in value is being depreciated over the estimated remaining useful lives of the assets. Additionally, the fair value of the debt assumed
on the date of acquisition exceeded par value by
$101.9 million
, which was recorded as part of the carrying value of the underlying debt and will be amortized as a reduction of interest expense over the remaining terms of the respective debt instruments. For more information on the debt we assumed from Omega and our subsequent payments on the debt, see
Note 10
.
Purchase Price Allocation of Prior Year Acquisitions
The purchase accounting allocations for the Entocort
®
and GSK Products acquisitions were finalized during the three months ended April 2, 2016. Changes to the allocations were due to adjustments to the intangible asset valuation assumptions. The purchase accounting for all other prior year acquisitions was final as of
December 31, 2015
. The Omega opening balance sheet adjustments made in connection with the restatement described in Note 1 are included in the balances below. The restatement adjustments impacting the Omega purchase accounting were due primarily to the BCH Belgium Distribution Contracts and taxes.
See Note 1 for further detail on the restatement.
Perrigo Company plc
- Item 1
Note 2
The below table indicates the purchase price allocation for acquisitions completed during the
year ended
December 31, 2015
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entocort
®
|
|
Naturwohl
|
|
ScarAway
®
|
|
GSK Products
|
|
Gelcaps
|
|
Omega*
Restated
|
|
All Other
(1)
|
Purchase price paid
|
$
|
380.2
|
|
|
$
|
150.4
|
|
|
$
|
26.7
|
|
|
$
|
223.6
|
|
|
$
|
37.9
|
|
|
$
|
2,983.2
|
|
|
$
|
15.3
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13.9
|
|
Total purchase consideration
|
$
|
380.2
|
|
|
$
|
150.4
|
|
|
$
|
26.7
|
|
|
$
|
223.6
|
|
|
$
|
37.9
|
|
|
$
|
2,983.2
|
|
|
$
|
29.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
4.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4.6
|
|
|
$
|
14.7
|
|
|
$
|
—
|
|
Accounts receivable
|
—
|
|
|
3.3
|
|
|
—
|
|
|
—
|
|
|
7.3
|
|
|
222.9
|
|
|
—
|
|
Inventories
|
0.2
|
|
|
1.5
|
|
|
1.0
|
|
|
—
|
|
|
7.2
|
|
|
277.0
|
|
|
—
|
|
Prepaid expenses and other current assets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.1
|
|
|
51.2
|
|
|
—
|
|
Property, plant and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.0
|
|
|
130.8
|
|
|
—
|
|
Goodwill
|
—
|
|
|
61.0
|
|
|
3.5
|
|
|
32.6
|
|
|
6.0
|
|
|
1,688.7
|
|
|
—
|
|
Definite-lived intangibles
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution and license agreements, supply agreements
|
—
|
|
|
21.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Developed product technology, formulations, and product rights
|
380.0
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
—
|
|
|
31.4
|
|
|
—
|
|
Customer relationships and distribution networks
|
—
|
|
|
25.9
|
|
|
9.8
|
|
|
61.5
|
|
|
6.6
|
|
|
1,056.3
|
|
|
—
|
|
Trademarks, trade names, and brands
|
—
|
|
|
64.2
|
|
|
11.4
|
|
|
129.5
|
|
|
—
|
|
|
287.5
|
|
|
—
|
|
Non-compete agreements
|
—
|
|
|
0.3
|
|
|
0.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Indefinite-lived intangibles
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks, trade names, and brands
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.4
|
|
|
2,003.8
|
|
|
—
|
|
In-process research and development
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29.2
|
|
Total intangible assets
|
380.0
|
|
|
111.8
|
|
|
22.2
|
|
|
191.0
|
|
|
11.0
|
|
|
3,379.0
|
|
|
29.2
|
|
Other non-current assets
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
2.4
|
|
|
—
|
|
Total assets
|
380.2
|
|
|
182.2
|
|
|
26.7
|
|
|
223.6
|
|
|
44.6
|
|
|
5,766.7
|
|
|
29.2
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
—
|
|
|
2.8
|
|
|
—
|
|
|
—
|
|
|
3.3
|
|
|
225.0
|
|
|
—
|
|
Short-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
112.6
|
|
|
—
|
|
Accrued liabilities
|
—
|
|
|
1.6
|
|
|
—
|
|
|
—
|
|
|
1.6
|
|
|
49.3
|
|
|
—
|
|
Payroll and related taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51.3
|
|
|
—
|
|
Accrued customer programs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28.9
|
|
|
—
|
|
Long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,471.0
|
|
|
—
|
|
Net deferred income tax liabilities
|
—
|
|
|
27.4
|
|
|
—
|
|
|
—
|
|
|
1.4
|
|
|
785.5
|
|
|
—
|
|
Other non-current liabilities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
59.9
|
|
|
—
|
|
Total liabilities
|
—
|
|
|
31.8
|
|
|
—
|
|
|
—
|
|
|
6.7
|
|
|
2,783.5
|
|
|
—
|
|
Net assets acquired
|
$
|
380.2
|
|
|
$
|
150.4
|
|
|
$
|
26.7
|
|
|
$
|
223.6
|
|
|
$
|
37.9
|
|
|
$
|
2,983.2
|
|
|
$
|
29.2
|
|
|
|
(1)
|
Consists of
eight
product acquisitions in the CHC, BCH, and Rx segments
|
* Includes opening balance sheet adjustments made as part of the restatement described in Note 1.
Perrigo Company plc
- Item 1
Note 2
Actual and Unaudited Pro Forma Impact of Acquisitions
Our Condensed Consolidated Financial Statements include operating results from the acquisitions of the Tretinoin Products, Entocort
®
, Naturwohl, GSK Products, ScarAway
®
, Omega, and Gelcaps, and two small product acquisitions (included in "All Other" in the above table) from the date of each acquisition through
July 2, 2016
. Net sales and operating
income
attributable to acquisitions completed in the current year and included in our financial statements totaled
$13.4 million
and
$7.5 million
, respectively, for the
three months ended
July 2, 2016
and totaled
$29.2 million
and
$18.9 million
, respectively, for the
six months ended
July 2, 2016
.
The following unaudited pro forma information gives effect to the acquisitions of the Tretinoin Products, Entocort
®
, Naturwohl, GSK Products, ScarAway
®
, Omega, and Gelcaps, and two small product acquisitions, as if the acquisitions had occurred on the first day of the
six months ended
June 27, 2015
and had been included in our Results of Operations for all periods presented thereafter (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
July 2,
2016
|
|
June 27,
2015
|
|
July 2,
2016
|
|
June 27,
2015
|
(Unaudited)
|
Restated
|
|
Restated
|
|
Restated
|
|
Restated
|
Net sales
|
$
|
1,340.5
|
|
|
$
|
1,511.5
|
|
|
$
|
2,691.1
|
|
|
$
|
2,807.0
|
|
Net income (loss)
|
$
|
(534.3
|
)
|
|
$
|
8.7
|
|
|
$
|
(1,062.0
|
)
|
|
$
|
6.0
|
|
The historical consolidated financial information of Perrigo, and the Tretinoin Products, Entocort
®
, Naturwohl, GSK Products, ScarAway
®
, Omega, and Gelcaps acquisitions, and
two
small product acquisitions, has been adjusted in the pro forma information to give effect to pro forma events that are (1) directly attributable to the transactions, (2) factually supportable and (3) expected to have a continuing impact on combined results. In order to reflect the occurrence of the acquisitions on the first day of the
six months ended
June 27, 2015
as required, the unaudited pro forma results include adjustments to reflect the incremental amortization expense to be incurred based on the current values of each acquisition's identifiable intangible and tangible assets, along with the reclassification of acquisition-related costs from the
six months ended
July 2, 2016
to the
six months ended
June 27, 2015
. The unaudited pro forma results do not reflect future events that have occurred or may occur after the acquisitions.
NOTE 3 –
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Changes in the carrying amount of goodwill, by reportable segment, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Business acquisitions
|
|
Purchase accounting adjustments
|
|
Impairments
|
|
Changes in assets held for sale
|
|
Currency translation adjustment
|
|
July 2,
2016
|
Reporting Segments:
|
|
Restated
|
|
Restated
|
|
Restated
|
|
Restated
|
|
Restated
|
|
Restated
|
|
Restated
|
CHC
|
|
$
|
1,890.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4.5
|
|
|
$
|
(5.7
|
)
|
|
$
|
1,888.8
|
|
BCH
|
|
1,769.4
|
|
|
—
|
|
|
0.7
|
|
|
(130.5
|
)
|
|
—
|
|
|
52.0
|
|
|
1,691.6
|
|
Rx
|
|
1,222.2
|
|
|
1.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13.0
|
)
|
|
1,210.9
|
|
Specialty Sciences
|
|
199.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
199.6
|
|
Other
|
|
71.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7.2
|
|
|
0.9
|
|
|
79.6
|
|
Total goodwill
|
|
$
|
5,152.7
|
|
|
$
|
1.7
|
|
|
$
|
0.7
|
|
|
$
|
(130.5
|
)
|
|
$
|
11.7
|
|
|
$
|
34.2
|
|
|
$
|
5,070.5
|
|
In connection with the preparation of our financial statements for the three-month period ended April 2, 2016, we identified indicators of goodwill impairment in our BCH - rest of world (“BCH - ROW”) reporting unit, which comprises primarily operations attributable to the Omega acquisition in all geographic regions except for Belgium. The primary impairment indicators included the decline in our 2016 performance expectations and a reduction in our long-range revenue growth forecast. Step one of the goodwill impairment test involved determining the fair value of the reporting unit using a discounted cash flow technique and comparing it to the reporting unit’s carrying value. The main assumptions supporting the cash flow projections used to determine the reporting unit’s fair value included
Perrigo Company plc
- Item 1
Note 3
revenue growth based on product line extensions, product life cycle strategies, and geographical expansion within the markets in which the reporting unit distributes products, gross margins consistent with historical trends, and advertising and promotion investments largely consistent with the reporting unit's growth plans. The BCH-ROW reporting unit did not pass step one of goodwill impairment testing. The change in fair value from previous estimates was due primarily to the changes in the market and performance of the brands such that the evaluation of brand prioritization and product extensions or launches in new regions are being more focused to maximize the potential of all brands in the segment's portfolio.
The second step of the goodwill impairment test required that we determine the implied fair value of the BCH - ROW reporting unit’s goodwill, which involved determining the value of the reporting unit’s individual assets and liabilities. Based on our estimates of the fair values of the assets and liabilities and the deficit of the fair value when compared to the related book value, we recorded an impairment charge of
$130.5 million
in
Impairment charges (credits)
on the Condensed Consolidated Statements of Operations for the three months ended April 2, 2016.
While no impairment charges were recorded as a result of the goodwill impairment testing for the transition period of
June 28, 2015
to
December 31, 2015
, our Specialty Sciences reporting unit's fair value exceeded the carrying value by less than 10%. Management evaluated the primary source of cash flow in this segment, the Tysabri
®
royalty stream, based on a combination of factors including independent external research, information provided from our royalty partner, and internal estimates. Based on this information, management’s assessment of future cash flow from this royalty stream has been reduced primarily due to anticipated new competitors entering the market and unfavorable currency exchange effects. Future performance different from the assumptions utilized in our quantitative analysis may further reduce the fair value of the reporting unit, which may result in the fair value no longer exceeding the carrying value. In February 2016, a competitor’s pipeline product, Ocrevus
®
, received breakthrough therapy designation from the FDA and in June 2016 the FDA granted priority review with target action date in December 2016. Although the product has not launched, industry analysts believe that based on released clinical study information and the recent announcements, Ocrevus
®
will favorably compete against Tysabri
®
in the relapsing, remitting multiple sclerosis market segment due to its high efficacy and convenient dosage form. The product will compete with Tysabri
®
and could have a significant negative impact on the royalty we receive from Biogen Idec Inc. ("Biogen") and the performance of the Specialty Sciences segment. We continue to monitor the progress of all potential competing products and assess the reporting unit for potential impairment should impairment indicators arise, as applicable, and at least annually during our fourth quarter impairment testing.
During the
three months ended
June 27, 2015
, we performed our annual goodwill impairment testing, which indicated that our CHC Mexico reporting unit's goodwill fair value was below its net book value as of March 28, 2015. As a result, we initiated the second step of the goodwill impairment test to measure the amount of impairment. We concluded that the goodwill was fully impaired and recorded an impairment of
$6.8 million
in the CHC segment during the
three months ended
June 27, 2015
in Impairment charges.
Perrigo Company plc
- Item 1
Note 3
Intangible Assets
Other intangible assets and related accumulated amortization consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2, 2016
|
|
December 31, 2015
|
|
Restated
|
|
Restated
|
|
Gross
|
|
Accumulated Amortization
|
|
Gross
|
|
Accumulated Amortization
|
Definite-lived intangibles
:
|
|
|
|
|
|
|
|
Distribution and license agreements, supply agreements
|
$
|
245.7
|
|
|
$
|
96.5
|
|
|
$
|
242.4
|
|
|
$
|
77.7
|
|
Developed product technology, formulations, and product rights
|
1,788.9
|
|
|
492.1
|
|
|
1,387.6
|
|
|
426.0
|
|
Customer relationships and distribution networks
|
1,545.7
|
|
|
256.6
|
|
|
1,520.7
|
|
|
193.0
|
|
Trademarks, trade names, and brands
|
911.4
|
|
|
42.6
|
|
|
539.4
|
|
|
22.8
|
|
Non-compete agreements
|
14.6
|
|
|
10.9
|
|
|
15.2
|
|
|
12.7
|
|
Total definite-lived intangibles
|
$
|
4,506.3
|
|
|
$
|
898.7
|
|
|
$
|
3,705.3
|
|
|
$
|
732.2
|
|
Indefinite-lived intangibles
:
|
|
|
|
|
|
|
|
Trademarks, trade names, and brands
|
$
|
1,288.4
|
|
|
$
|
—
|
|
|
$
|
1,868.1
|
|
|
$
|
—
|
|
In-process research and development
|
66.9
|
|
|
—
|
|
|
48.2
|
|
|
—
|
|
Total indefinite-lived intangibles
|
1,355.3
|
|
|
—
|
|
|
1,916.3
|
|
|
—
|
|
Total other intangible assets
|
$
|
5,861.6
|
|
|
$
|
898.7
|
|
|
$
|
5,621.6
|
|
|
$
|
732.2
|
|
Certain intangible assets are denominated in currencies other than the U.S. dollar; therefore, their gross and accumulated amortization balances are subject to foreign currency movements.
We recorded amortization expense of
$88.9 million
and
$70.1 million
for the
three months ended
July 2, 2016
and
June 27, 2015
, respectively, and
$174.1 million
and
$105.3 million
for the
six months ended
July 2, 2016
and
June 27, 2015
, respectively. The increase in amortization expense for the 2016 six-month period was due primarily to the incremental amortization expense incurred on the definite-lived intangible assets acquired from Omega.
During our impairment testing for the transition period of
June 28, 2015
to
December 31, 2015
, we identified an impairment of certain indefinite-lived intangible assets purchased in conjunction with the Omega acquisition based on management’s expectations of the prospects for future revenues, profits, and cash flows associated with these assets. The assessment resulted in an impairment charge of
$185.1 million
within our BCH segment, which represented the difference between the carrying amount of the intangible assets and their estimated fair value. See our Transition Report on Form 10-KT filed on February 25, 2016 for a further discussion of this impairment charge.
In connection with the preparation of our financial statements for the three-month period ended April 2, 2016, we identified indicators of impairment associated with certain indefinite-lived intangible assets acquired in conjunction with the Omega acquisition. The primary impairment indicators included the decline in our 2016 performance expectations and a reduction in our long-range revenue growth forecast. The assessment utilized the excess earnings method to determine fair value and resulted in an impairment charge of
$273.4 million
in
Impairment charges (credits)
on the Condensed Consolidated Statements of Operations within our BCH segment, which represented the difference between the carrying amount of the intangible assets and their estimated fair value. The change in fair value from previous estimates was due primarily to the changes in the market and performance of the brands such that the evaluation of brand prioritization and product extensions or launches in new regions are being more focused to maximize the potential of all brands in the segment's portfolio. The main assumptions supporting the fair value of these assets and cash flow projections included revenue growth based on product line extensions, product life cycle strategies, and geographical expansion within the markets in which the BCH segment distributes products, gross margins consistent with historical trends, and advertising and promotion investments largely consistent with the segment's growth plans.
Perrigo Company plc
- Item 1
Note 3
The carrying value for certain intangible assets and goodwill equals estimated and implied fair values, respectively, and as a result, any further deterioration in those assets' fair value would lead to a further impairment charge. Future performance different from the assumptions utilized in our quantitative analyses may result in additional changes in the fair value. We will continue to monitor and assess these assets for potential impairment should further impairment indicators arise, as applicable, and at least annually during our fourth quarter annual impairment testing.
In addition, due to the reprioritization of certain brands in the BCH segment and change in performance expectations for our impaired lifestyle brands previously recorded as indefinite-lived assets, we reclassified the remaining asset balance of
$364.5 million
to definite-lived assets with a useful life of
20
years and began amortizing the asset during the three months ended July 2, 2016.
NOTE 4 -
ACCOUNTS RECEIVABLE FACTORING
We have multiple accounts receivable factoring arrangements with non-related third-party financial institutions (the “Factors”). Pursuant to the terms of the arrangements, we sell to the Factors certain of our accounts receivable balances on a non-recourse basis for credit approved accounts. An administrative fee ranging from
0.14%
to
0.15%
per invoice is charged on the gross amount of accounts receivables assigned to the Factors, plus 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
$54.7 million
and
$64.5 million
at
July 2, 2016
and
December 31, 2015
, respectively.
NOTE 5 –
INVENTORIES
Major components of inventory were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
July 2,
2016
|
|
December 31,
2015
|
|
|
Restated
|
Finished goods
|
$
|
523.4
|
|
|
$
|
537.2
|
|
Work in process
|
148.6
|
|
|
151.6
|
|
Raw materials
|
222.6
|
|
|
209.9
|
|
Total inventories
|
$
|
894.6
|
|
|
$
|
898.7
|
|
NOTE 6 –
FAIR VALUE MEASUREMENTS
Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.
|
|
Level 1:
|
Quoted prices for identical instruments in active markets.
|
|
|
Level 2:
|
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
|
|
|
Level 3:
|
Valuations derived from valuation techniques in which one or more significant inputs are not observable.
|
Perrigo Company plc
- Item 1
Note 6
The following table summarizes the valuation of our financial instruments carried at fair value and measured at fair value on a recurring basis by the above pricing categories (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Fair Value Hierarchy
|
|
July 2,
2016
|
|
December 31,
2015
|
Measured at fair value on a recurring basis:
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Investment securities
|
|
Level 1
|
|
$
|
40.0
|
|
|
$
|
14.9
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Level 2
|
|
$
|
4.3
|
|
|
$
|
4.8
|
|
Funds associated with Israeli post-employment benefits
|
|
Level 2
|
|
16.3
|
|
|
17.2
|
|
Total level 2 assets
|
|
|
|
$
|
20.6
|
|
|
$
|
22.0
|
|
|
|
|
|
|
|
|
Tysabri
®
royalty stream - at fair value (restated)
|
|
Level 3
|
|
$
|
4,020.0
|
|
|
$
|
5,310.0
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
Level 2
|
|
$
|
—
|
|
|
$
|
0.3
|
|
Foreign currency forward contracts
|
|
Level 2
|
|
2.8
|
|
|
3.9
|
|
Total level 2 liabilities
|
|
|
|
$
|
2.8
|
|
|
$
|
4.2
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
Level 3
|
|
$
|
44.9
|
|
|
$
|
17.9
|
|
|
|
|
|
|
|
|
Measured at fair value on a non-recurring basis:
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Indefinite-lived intangible assets
|
|
Level 3
|
|
$
|
—
|
|
|
$
|
1,031.8
|
|
Assets held for sale, net
|
|
Level 3
|
|
70.1
|
|
|
37.5
|
|
Total level 3 assets
|
|
|
|
$
|
70.1
|
|
|
$
|
1,069.3
|
|
There were no transfers between Level 1, 2, and 3 during the
three and six months ended
July 2, 2016
and
June 27, 2015
. Our policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period. See
Note 7
for information on our investment securities. See
Note 8
for a discussion of derivatives.
Funds Associated with Israel Severance Liability
Israeli post-employment benefits represent amounts we have deposited in funds managed by financial institutions designated by management to cover post-employment benefits for our Israeli employees as required by Israeli law. The funds are recorded in Other non-current assets and values are determined using prices for recently traded financial instruments with similar underlying terms, as well as directly or indirectly observable inputs, such as interest rates and yield curves, that are observable at commonly quoted intervals.
Tysabri
®
Royalty Stream - at Fair Value
On
December 18, 2013
, we acquired Elan, which had
a royalty agreement with Biogen Idec Inc. ("Biogen"),
whereby Biogen conveyed the right to receive royalties that are typically payable on sales revenue generated by the sale, distribution or other use of the drug Tysabri
®
. Pursuant to the royalty agreement, we were entitled to royalty payments from Biogen based on its Tysabri
®
sales in all indications and geographies. We received royalties of
12%
on worldwide Biogen sales of Tysabri
®
from December 18, 2013 through April 30, 2014. From May 1, 2014, we received royalties of
18%
on annual worldwide Biogen sales of Tysabri
®
up to
$2.0 billion
and
25%
on annual sales above
$2.0 billion
.
We are accounting for the Tysabri
®
royalty stream as a financial asset and have elected to use the fair value option model. We made the election to account for the Tysabri
®
financial asset using the fair value option as we
Perrigo Company plc
- Item 1
Note 6
believe this method is most appropriate for an asset that does not have a par value, a stated interest stream, or a termination date.
The financial asset acquired represents a single unit of accounting. The fair value of the financial asset acquired was determined by using a discounted cash flow analysis related to the expected probability weighted future cash flows to be generated by the royalty stream. The financial asset is classified as a Level 3 asset within the fair value hierarchy, as our valuation utilized significant unobservable inputs,
including industry analyst estimates for global Tysabri
®
sales, probability weighted as to the timing and amount of future cash flows along with certain discount rate assumptions. Cash flow forecasts included the estimated effect and timing of future competition, considering patents in effect for Tysabri
®
through 2024 and contractual rights to receive cash flows into perpetuity. The discounted cash flows are based upon the expected royalty stream forecasted into perpetuity using a
20
-year discrete period with a declining rate terminal value. At
July 2, 2016
and December 31, 2015, the pre-tax discount rate utilized was
7.52%
and
7.72%
, respectively. Significant judgment is required in selecting appropriate discount rates.
In February 2016, a competitor’s pipeline product, Ocrevus
®
, received breakthrough therapy designation from the FDA.
Breakthrough therapy designation is when a drug intended alone or in combination with one or more other drugs to treat a serious or life threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
In June 2016 the FDA granted priority review with target action date in December 2016. A
priority review is a
designation when the FDA will direct overall attention and resources to the evaluation of applications for drugs that, if approved, would be significant improvements in the safety or effectiveness of the treatment, diagnosis, or prevention of serious conditions when compared to standard applications.
Although the product has not launched, industry analysts believe that based on released clinical study information and the recent announcement, Ocrevus
®
could favorably compete against Tysabri
®
in the relapsing, remitting multiple sclerosis market segment due to its high efficacy and convenient dosage form. Given the new market information for Ocrevus
®
, using industry analyst estimates we reduced our first ten year growth forecast from an average of approximately
3.4%
in the fourth calendar quarter of 2015 to approximately growth of
1.8%
and a decline of minus
0.4%
in the first and second calendar quarters of 2016, respectively, which had the effect of reducing cumulative cash flows over the ten year period by approximately
3.0%
and
18.0%
compared to the fourth quarter of calendar 2015, respectively. These effects, combined with the change in discount rate, resulted in a reduction in fair value of
$1.1 billion
in the first six months of 2016.
At
July 2, 2016
and December 31, 2015, an evaluation was performed to assess the rate and general market conditions potentially affecting the fair value. As of
July 2, 2016
if this discount rate had increased or decreased by
0.5%
, the fair value of the asset would have decreased by
$190.0 million
or increased by
$200.0 million
, respectively. As of December 31, 2015 had this discount rate increased or decreased by
0.5%
, the fair value of the asset would have decreased by
$260.0 million
or increased by
$270.0 million
, respectively. The estimated fair value of the asset is subject to variation should those cash flows vary significantly from those estimates. Quarterly, we assess the expected future cash flows and to the extent such payments are greater or less than initial estimates, or the timing of such payments is materially different than the original estimates, we will adjust the estimated fair value of the asset. As of July 2, 2016 if the expected royalty cash flows used in the estimation process had increased or decreased by
5.0%
, the fair value of the asset would have increased by
$200.0 million
or decreased by
$210.0 million
, respectively. As of December 31, 2015 if the expected royalty cash flows used in the estimation process increased or decreased by
5.0%
, the fair value of the asset would have increased by
$270.0 million
or decreased by
$280.0 million
, respectively.
In addition, included in our accounts receivable balance was
$89.2 million
and
$83.4 million
related to our Tysabri
®
royalty stream at July 2, 2016 and December 31, 2015, respectively.
The following table summarizes the change in our Condensed Consolidated Balance Sheet for the royalty rights and our fair value adjustment that is a Level 3 measurement under ASC 820, which is included in our Condensed Consolidated Statement of Operations
for the
six months ended
July 2, 2016
and the six months ended December 31, 2015 (in millions):
Perrigo Company plc
- Item 1
Note 6
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
July 2,
2016
|
|
December 31,
2015
|
Tysabri
®
royalty stream - at fair value
|
|
|
|
Beginning balance
|
$
|
5,310.0
|
|
|
$
|
5,420.0
|
|
Royalties earned
|
(174.7
|
)
|
|
(167.3
|
)
|
Change in fair value
|
(1,115.3
|
)
|
|
57.3
|
|
Ending balance
|
$
|
4,020.0
|
|
|
$
|
5,310.0
|
|
Contingent Consideration
Contingent consideration represents milestone payment obligations obtained through product acquisitions, which are valued using estimates based on probability-weighted outcomes, sensitivity analysis, and discount rates reflective of the risk involved. The estimates are updated quarterly and the liabilities are adjusted to fair value depending on a number of assumptions, including the competitive landscape and regulatory approvals that may impact the future sales of a product.
The table below presents a reconciliation for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in millions). Net realized losses in the table were recorded in Administrative expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
July 2,
2016
|
|
June 27,
2015
|
|
July 2,
2016
|
|
June 27,
2015
|
Contingent consideration
|
|
|
|
|
|
|
|
Beginning balance:
|
$
|
48.0
|
|
|
$
|
12.4
|
|
|
$
|
17.9
|
|
|
$
|
12.4
|
|
Net realized (gains) losses
|
(0.1
|
)
|
|
0.9
|
|
|
—
|
|
|
0.9
|
|
Purchases or additions
|
1.0
|
|
|
—
|
|
|
30.5
|
|
|
—
|
|
Impairments
|
(3.8
|
)
|
|
(13.3
|
)
|
|
(3.8
|
)
|
|
(13.3
|
)
|
Foreign currency effect
|
(0.2
|
)
|
|
—
|
|
|
0.3
|
|
|
—
|
|
Ending balance:
|
$
|
44.9
|
|
|
$
|
—
|
|
|
$
|
44.9
|
|
|
$
|
—
|
|
Non-Recurring Fair Value Measurements
The non-recurring fair values represent only those assets whose carrying values were adjusted to fair value during the reporting period. See
Note 3
for a more detailed discussion of the impaired goodwill and indefinite-lived intangible assets and the valuation methods used, and
Note 9
for information on the impaired assets held for sale, net.
Fixed Rate Long-Term Debt
As of
July 2, 2016
and
December 31, 2015
, our fixed rate long-term debt consisted of public bonds, a private placement note, and retail bonds. As of
July 2, 2016
, the public bonds and private placement note had a carrying value of
$5.1 billion
and a fair value of
$5.2 billion
, based on quoted market prices (Level 1). As of
December 31, 2015
, the public bonds and private placement note had a carrying value of
$3.9 billion
and fair value of
$3.8 billion
, based on quoted market prices (Level 1). As of
July 2, 2016
, our retail bonds had a carrying value of
$818.6 million
(excluding a premium of
$67.5 million
) and a fair value of
$885.3 million
. As of
December 31, 2015
, our retail bonds had a carrying value of
$798.3 million
(excluding a premium of
$82.5 million
) and a fair value of
$859.8 million
. The fair value of our related bonds for both periods was based on interest rates offered for borrowings of a similar nature and remaining maturities (Level 2).
The carrying amounts of our other financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable, short-term debt and variable rate long-term debt, approximate their fair value.
Perrigo Company plc
- Item 1
Note 7
NOTE 7 –
INVESTMENTS
Available for Sale Securities
Our available for sale securities are reported in
Prepaid expenses and other current assets
. Unrealized investment gains (losses) on available for sale securities were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
July 2,
2016
|
|
December 31, 2015
|
Equity securities, at cost less impairments
|
$
|
20.2
|
|
|
$
|
6.4
|
|
Gross unrealized gains
|
19.8
|
|
|
9.3
|
|
Gross unrealized losses
|
—
|
|
|
(0.8
|
)
|
Estimated fair value of equity securities
|
$
|
40.0
|
|
|
$
|
14.9
|
|
The factors affecting the assessment of impairments include both general financial market conditions and factors specific to a particular company. We recorded impairment charges of
$1.7 million
related to other-than-temporary impairments of our marketable equity securities during the
three months ended
July 2, 2016
due to prolonged losses incurred on each of the investments.
Cost Method Investments
Our cost method investments totaled
$7.0 million
and
$6.9 million
at
July 2, 2016
and
December 31, 2015
, respectively, and are included in
Other non-current assets
.
Equity Method Investments
Our equity method investments totaled
$4.8 million
and
$45.5 million
at
July 2, 2016
and
December 31, 2015
, respectively, and are included in
Other non-current assets
. We recorded a net
loss
of
$1.6 million
and
$3.9 million
during the
three and six months ended
July 2, 2016
, respectively, and a net
loss
of
$5.0 million
and
$5.3 million
during the
three and six months ended
June 27, 2015
, respectively, for our proportionate share of the equity method investment earnings or losses. The losses were recorded in Other expense, net.
In addition, due to significant and prolonged losses incurred on one of our equity method investments, we recorded a
$22.3 million
impairment in Other expense, net, during the
three months ended
July 2, 2016
.
During the
six months ended
July 2, 2016
, one of our equity method investments became publicly traded. As a result, we transferred the
$15.5 million
investment to available for sale and recorded an
$8.7 million
unrealized gain, net of tax, in Other Comprehensive Income ("OCI"), as reflected in the table above.
NOTE 8 –
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We enter into certain derivative financial instruments, when available on a cost-effective basis, to mitigate our risk associated with changes in interest rates and foreign currency exchange rates as follows:
Interest rate risk management -
We are exposed to the impact of interest rate changes through our cash investments and borrowings. We utilize a variety of strategies to manage the impact of changes in interest rates including using a mix of debt maturities along with both fixed-rate and variable-rate debt. In addition, we may enter into treasury-lock agreements and interest rate swap agreements on certain investing and borrowing transactions to manage our exposure to interest rate changes and our overall cost of borrowing.
Foreign currency exchange risk management -
We conduct business in several major currencies other than the U.S. dollar and are subject to risks associated with changing foreign exchange rates. Our objective is to reduce cash flow volatility associated with foreign exchange rate changes on a consolidated basis to allow management to focus its attention on business operations. Accordingly, we enter into various contracts that change in value as foreign exchange rates change to protect the value of existing foreign currency assets and liabilities, commitments, and anticipated foreign currency sales and expenses.
Perrigo Company plc
- Item 1
Note 8
All derivative instruments are managed on a consolidated basis to efficiently net exposures and thus take advantage of any natural offsets. Gains and losses related to the derivative instruments are expected to be offset largely by gains and losses on the original underlying asset or liability. We do not use derivative financial instruments for speculative purposes.
All of our designated derivatives were classified as cash flow hedges as of
July 2, 2016
and
December 31, 2015
. Designated derivatives meet hedge accounting criteria, which means the fair value of the hedge is recorded in shareholders’ equity as a component of OCI, net of tax. The deferred gains and losses are recognized in income in the period in which the hedged item affects earnings. Any ineffective portion of the change in fair value of the derivative is immediately recognized in earnings. All of our designated derivatives are assessed for hedge effectiveness quarterly.
We also have economic non-designated derivatives that do not meet hedge accounting criteria. These derivative instruments are adjusted to current market value at the end of each period through earnings. Gains or losses on these instruments are offset substantially by the remeasurement adjustment on the hedged item.
Interest Rate Swaps and Treasury Locks
Interest rate swap agreements are contracts to exchange floating rate for fixed rate payments (or vice versa) over the life of the agreement without the exchange of the underlying notional amounts. The notional amounts of the interest rate swap agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap agreements is recognized as an adjustment to interest expense.
During the
six months ended
December 31, 2015
, we entered into a forward interest rate swap to hedge against changes in the benchmark interest rate between the date the interest rate swap was entered into and the date of expected future debt issuance. The interest rate swap was designated as a cash flow hedge and had a notional amount totaling
$200.0 million
. The interest rate swap was settled upon the issuance of an aggregate
$1.2 billion
principal amount of senior notes on March 7, 2016 for a cumulative after-tax
loss
of
$7.0 million
in OCI during the
six months ended
July 2, 2016
.
In connection with the Omega acquisition, we assumed a
$20.0 million
private placement note. We also assumed an interest rate swap agreement with a notional amount totaling
$20.0 million
that was in place to hedge the cross currency exchange differences between the U.S. dollar and the euro on the above-mentioned debt. On May 29, 2015, we repaid the loan and the interest rate swap. We also assumed
€500.0 million
(
$544.5 million
) of debt under Omega's revolving credit facility, as well as an interest rate swap agreement with a notional amount of
€135.0 million
(
$147.0 million
) that was in place to hedge the change in the floating rate on that credit facility. On April 8, 2015, we repaid the loan and terminated the interest rate swap. Because both interest rate swaps mentioned above were recorded at fair market value on the date of termination,
no
gain or loss was recorded. For more information on the acquired debt and termination, see
Note 10
.
During the
three months ended
June 27, 2015
, we repaid a
$300.0 million
term loan with floating interest rates priced off the LIBOR yield curve, see
Note 10
. As a result of the term loan repayment on June 25, 2015, the forward interest rate swap agreements with notional amounts totaling
$240.0 million
that were in place to hedge the change in the LIBOR rate were terminated as well. We recorded a loss of
$3.6 million
in Other expense, net, during the
three months ended
June 27, 2015
for the amount remaining in Accumulated Other Comprehensive Income (Loss) ("AOCI") when the hedges were terminated.
Foreign Currency Derivatives
We enter into foreign currency forward contracts, both designated and non-designated, in order to manage the impact of foreign exchange fluctuations on expected future purchases and related payables denominated in a foreign currency, as well as to hedge the impact of foreign exchange fluctuations on expected future sales and related receivables, and future royalties denominated in a foreign currency. Both types of forward contracts have a maximum maturity date of
15
months. The total notional amount for these contracts was
$500.4 million
and
$755.5 million
as of
July 2, 2016
and
December 31, 2015
, respectively.
Perrigo Company plc
- Item 1
Note 8
In order to economically hedge the foreign currency exposure associated with the planned payment of the euro-denominated purchase price of Omega, we entered into non-designated forward contracts that matured during the
three months ended
March 28, 2015. We recorded losses of
$259.8 million
during the
three months ended
March 28, 2015 related to the settlement of the forward contracts in Other expense, net. The losses on the derivatives due to changes in the euro-to-U.S. dollar exchange rates were economically offset at closing in the final settlement of the euro-denominated Omega purchase price. In June 2015, in order to economically hedge the foreign currency exposure associated with the planned payment of the euro-denominated GSK Products acquisition discussed in
Note 2
, we entered into a non-designated option contract to protect against a strengthening of the euro relative to the U.S. dollar. We recorded losses of
$1.9 million
for the change in fair value of the option contract during the three months ended June 27, 2015 in Other expense, net. Because these derivatives were economically hedging future acquisitions, the cash outflows associated with their settlement are shown as investing activity on the Condensed Consolidated Statements of Cash Flows.
Effects of Derivatives on the Financial Statements
The below tables indicate the effects of all derivative instruments on the Condensed Consolidated Financial Statements. All amounts exclude income tax effects and are presented in millions.
The balance sheet location and gross fair value of our outstanding derivative instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
|
July 2,
2016
|
|
December 31, 2015
|
Designated derivatives:
|
|
|
|
|
|
Foreign currency forward contracts
|
Other current assets
|
|
$
|
2.6
|
|
|
$
|
3.8
|
|
Total designated derivatives
|
|
|
$
|
2.6
|
|
|
$
|
3.8
|
|
Non-designated derivatives:
|
|
|
|
|
|
Foreign currency forward contracts
|
Other current assets
|
|
$
|
1.7
|
|
|
$
|
1.0
|
|
Total non-designated derivatives
|
|
|
$
|
1.7
|
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
|
July 2,
2016
|
|
December 31, 2015
|
Designated derivatives:
|
|
|
|
|
|
Foreign currency forward contracts
|
Accrued liabilities
|
|
$
|
1.0
|
|
|
$
|
2.0
|
|
Interest rate swap agreements
|
Other non-current liabilities
|
|
—
|
|
|
0.3
|
|
Total designated derivatives
|
|
|
$
|
1.0
|
|
|
$
|
2.3
|
|
Non-designated derivatives:
|
|
|
|
|
|
Foreign currency forward contracts
|
Accrued liabilities
|
|
$
|
1.8
|
|
|
$
|
1.9
|
|
Total non-designated derivatives
|
|
|
$
|
1.8
|
|
|
$
|
1.9
|
|
The gains (losses) recognized in OCI for the effective portion of our designated cash flow hedges were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss) Recorded in OCI
(Effective Portion)
|
|
|
Three Months Ended
|
|
Six Months Ended
|
Designated Cash Flow Hedges
|
|
July 2,
2016
|
|
June 27,
2015
|
|
July 2,
2016
|
|
June 27,
2015
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
(14.0
|
)
|
|
$
|
(9.0
|
)
|
|
$
|
(12.0
|
)
|
Foreign currency forward contracts
|
|
(0.3
|
)
|
|
2.7
|
|
|
1.3
|
|
|
(1.1
|
)
|
Total
|
|
$
|
(0.3
|
)
|
|
$
|
(11.3
|
)
|
|
$
|
(7.7
|
)
|
|
$
|
(13.1
|
)
|
Perrigo Company plc
- Item 1
Note 8
The gains (losses) reclassified from AOCI into earnings for the effective portion of our designated cash flow hedges were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss) Reclassified from AOCI to Income
(Effective Portion)
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
Designated Cash Flow Hedges
|
|
Income Statement Location
|
|
July 2,
2016
|
|
June 27,
2015
|
|
July 2,
2016
|
|
June 27,
2015
|
Treasury locks
|
|
Interest expense, net
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
Interest rate swap agreements
|
|
Interest expense, net
|
|
(0.6
|
)
|
|
(19.1
|
)
|
|
(1.1
|
)
|
|
(18.2
|
)
|
Foreign currency forward contracts
|
|
Net sales (restated)
|
|
(0.1
|
)
|
|
2.7
|
|
|
0.4
|
|
|
1.8
|
|
|
|
Cost of sales
|
|
0.6
|
|
|
(1.8
|
)
|
|
0.9
|
|
|
(4.6
|
)
|
|
|
Interest expense, net
|
|
(0.6
|
)
|
|
—
|
|
|
(0.9
|
)
|
|
—
|
|
|
|
Other expense, net (restated)
|
|
1.7
|
|
|
(0.9
|
)
|
|
1.9
|
|
|
(0.4
|
)
|
Total
|
|
|
|
$
|
1.0
|
|
|
$
|
(19.2
|
)
|
|
$
|
1.2
|
|
|
$
|
(21.5
|
)
|
The net of tax amount expected to be reclassified out of AOCI into earnings during the next 12 months is a
$1.0 million
loss
.
The gains (losses) recognized against earnings for the ineffective portion of our designated cash flow hedges were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss) Recognized in Income
(Ineffective Portion)
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
Designated Cash Flow Hedges
|
|
Income Statement
Location
|
|
July 2,
2016
|
|
June 27,
2015
|
|
July 2,
2016
|
|
June 27,
2015
|
Interest rate swap agreements
|
|
Other expense, net
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
Foreign currency forward contracts
|
|
Net sales (restated)
|
|
(0.1
|
)
|
|
—
|
|
|
0.1
|
|
|
(0.3
|
)
|
|
|
Cost of sales
|
|
(0.1
|
)
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
|
Other expense, net (restated)
|
|
0.6
|
|
|
—
|
|
|
0.6
|
|
|
—
|
|
Total
|
|
|
|
$
|
0.4
|
|
|
$
|
0.1
|
|
|
$
|
0.6
|
|
|
$
|
(0.2
|
)
|
The effects of our non-designated derivatives on the Condensed Consolidated Statements of Operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss) Recognized in Income
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
Non-Designated Derivatives
|
|
Income Statement Location
|
|
July 2,
2016
|
|
June 27,
2015
|
|
July 2,
2016
|
|
June 27,
2015
|
Foreign currency forward contracts
|
|
Other expense, net
|
|
$
|
(1.6
|
)
|
|
$
|
5.2
|
|
|
$
|
(8.5
|
)
|
|
$
|
(250.5
|
)
|
|
|
Interest expense, net
|
|
(0.6
|
)
|
|
(1.0
|
)
|
|
(0.5
|
)
|
|
(3.5
|
)
|
Total
|
|
|
|
$
|
(2.2
|
)
|
|
$
|
4.2
|
|
|
$
|
(9.0
|
)
|
|
$
|
(254.0
|
)
|
NOTE 9 –
ASSETS HELD FOR SALE
During the
six months ended
December 31, 2015
, management committed to a plan to sell our U.S. Vitamins, Minerals, and Supplements ("VMS") and India Active Pharmaceutical Ingredients ("API") businesses. The VMS business is reported in our CHC segment and the API business is reported in our Other segment. When a group of assets is classified as held for sale, the book value is evaluated and adjusted to the lower of its carrying amount or fair value less cost to sell. At December 31, 2015, we determined that the carrying value of the India API business exceeded its fair value less cost to sell, resulting in an impairment charge of
$29.0 million
. During the
three months ended
July 2, 2016
, we recorded an additional impairment charge to the India API business of
Perrigo Company plc
- Item 1
Note 9
$4.3 million
. In addition, during the
three months ended
July 2, 2016
, we determined that the carrying value of the U.S. VMS business exceeded its fair value less cost to sell, resulting in an impairment charge of
$6.2 million
.
Assets and liabilities associated with the U.S. VMS and India API held for sale businesses were classified as held for sale at
July 2, 2016
and
December 31, 2015
. The assets held for sale were reported within
Prepaid expenses and other current assets
and liabilities held for sale were reported in
Accrued liabilities
. The amounts consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2,
2016
|
|
December 31,
2015
|
|
CHC
|
|
Other
|
|
CHC
|
|
Other
|
Assets held for sale
|
|
|
|
|
|
|
|
Current assets
|
$
|
59.4
|
|
|
$
|
6.8
|
|
|
$
|
55.1
|
|
|
$
|
13.6
|
|
Goodwill
|
8.5
|
|
|
7.3
|
|
|
13.0
|
|
|
14.5
|
|
Property, plant and equipment
|
18.9
|
|
|
34.0
|
|
|
18.8
|
|
|
37.4
|
|
Other assets
|
0.9
|
|
|
3.2
|
|
|
—
|
|
|
3.2
|
|
Less: impairment reserves
|
(6.2
|
)
|
|
(32.5
|
)
|
|
—
|
|
|
(29.0
|
)
|
Total assets held for sale
|
$
|
81.5
|
|
|
$
|
18.8
|
|
|
$
|
86.9
|
|
|
$
|
39.7
|
|
Liabilities held for sale
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
27.0
|
|
|
$
|
1.1
|
|
|
$
|
30.5
|
|
|
$
|
0.5
|
|
Other liabilities
|
—
|
|
|
2.1
|
|
|
—
|
|
|
1.7
|
|
Total liabilities held for sale
|
$
|
27.0
|
|
|
$
|
3.2
|
|
|
$
|
30.5
|
|
|
$
|
2.2
|
|
Perrigo Company plc
- Item 1
Note 10
NOTE 10 –
INDEBTEDNESS
Total borrowings outstanding are summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2,
2016
|
|
December 31,
2015
|
Revolving credit agreements
|
|
|
|
|
|
|
2015 Revolver
|
$
|
—
|
|
|
$
|
380.0
|
|
|
2014 Revolver
|
—
|
|
|
300.0
|
|
|
Total revolving credit agreements
|
—
|
|
|
680.0
|
|
Term loans
|
|
|
|
|
|
*
|
2014 Term loan due December 5, 2019
|
473.3
|
|
|
488.8
|
|
Notes and Bonds
|
|
|
|
|
|
|
Coupon
|
Due
|
|
|
|
|
|
|
1.300%
|
November 8, 2016
|
(2)
|
|
500.0
|
|
|
500.0
|
|
*
|
4.500%
|
May 23, 2017
|
(3)
|
|
200.5
|
|
|
195.5
|
|
*
|
5.125%
|
December 12, 2017
|
(3)
|
|
334.1
|
|
|
325.8
|
|
|
2.300%
|
November 8, 2018
|
(2)
|
|
600.0
|
|
|
600.0
|
|
*
|
5.000%
|
May 23, 2019
|
(3)
|
|
133.6
|
|
|
130.3
|
|
|
3.500%
|
March 15, 2021
|
(4)
|
|
500.0
|
|
|
—
|
|
|
3.500%
|
December 15, 2021
|
(1)
|
|
500.0
|
|
|
500.0
|
|
*
|
5.105%
|
July 19, 2023
|
(3)
|
|
150.4
|
|
|
146.7
|
|
|
4.000%
|
November 15, 2023
|
(2)
|
|
800.0
|
|
|
800.0
|
|
|
3.900%
|
December 15, 2024
|
(1)
|
|
700.0
|
|
|
700.0
|
|
|
4.375%
|
March 15, 2026
|
(4)
|
|
700.0
|
|
|
—
|
|
|
5.300%
|
November 15, 2043
|
(2)
|
|
400.0
|
|
|
400.0
|
|
|
4.900%
|
December 15, 2044
|
(1)
|
|
400.0
|
|
|
400.0
|
|
|
Total notes and bonds
|
|
|
5,918.6
|
|
|
4,698.3
|
|
Other financing (restated)
|
4.6
|
|
|
128.2
|
|
Unamortized premium (discount), net
|
49.5
|
|
|
73.4
|
|
Deferred financing fees
|
(35.4
|
)
|
|
(36.6
|
)
|
Total borrowings outstanding
|
6,410.6
|
|
|
6,032.1
|
|
|
Current indebtedness (restated)
|
(758.1
|
)
|
|
(1,060.5
|
)
|
Total long-term debt less current portion
|
$
|
5,652.5
|
|
|
$
|
4,971.6
|
|
|
|
(1)
|
Discussed below collectively as the "2014 Notes."
|
|
|
(2)
|
Discussed below collectively as the "2013 Notes."
|
|
|
(3)
|
Debt assumed from Omega.
|
|
|
(4)
|
Discussed below collectively as the "2016 Notes."
|
|
|
*
|
Debt denominated in euros subject to fluctuations in the euro-to-U.S. dollar exchange rate.
|
On April 25, 2017, the lenders under our 2014 Revolver and 2014 Term Loan waived any default or event of default that may arise from any restatement of or deficiencies in our financial statements for the periods specified in such waivers, including the quarter ended July 2, 2016. No default or event of default existed prior to receipt of these waivers. We are in compliance with all covenants under the 2014 Revolver and the 2014 Term Loan as of the date of this Form 10-Q/A.
Revolving Credit Agreements
On
December 9, 2015
, our
100%
owned finance subsidiary, Perrigo Finance Unlimited Company (formerly Perrigo Finance plc) ("Perrigo Finance"), entered into a
$750.0 million
revolving credit agreement (the "2015 Revolver"). On March 15, 2016, we used the proceeds of the long-term debt issuance described below under "2016 Notes" to repay the
$750.0 million
then outstanding under the 2015 Revolver and terminated the facility.
Perrigo Company plc
- Item 1
Note 10
On
March 30, 2015
, we assumed a revolving credit facility with
€500.0 million
(
$544.5 million
) outstanding from Omega. On
April 8, 2015
, the
€500.0 million
(
$539.1 million
) outstanding under the assumed revolving credit facility was repaid and the facility was terminated.
On
December 5, 2014
, Perrigo Finance entered into a
$600.0 million
revolving credit agreement, which we increased to
$1.0 billion
on March 30, 2015 (the "2014 Revolver"). On March 15, 2016, we used the proceeds of the long-term debt issuance described below under "2016 Notes" to repay the
$435.0 million
then outstanding under the 2014 Revolver. There were
no
borrowings outstanding under the 2014 Revolver as of
July 2, 2016
.
Term Loans
On
December 5, 2014
, Perrigo Finance entered into a term loan agreement consisting of a
€500.0 million
(
$614.3 million
) tranche, with the ability to draw an additional
€300.0 million
(
$368.6 million
) tranche, maturing December 5, 2019, and we entered into a
$300.0 million
term loan tranche maturing December 18, 2015, which we repaid in full on June 25, 2015. During the
six months ended
July 2, 2016
, we made
$27.9 million
in scheduled principal payments on the euro-denominated term loan.
Notes and Bonds
2016 Notes
On
March 7, 2016
, Perrigo Finance issued
$500.0 million
in aggregate principal amount of
3.500%
senior notes due 2021 and
$700.0 million
in aggregate principal amount of
4.375%
senior notes due 2026 (together, the "2016 Notes") and received net proceeds of
$1.2 billion
after fees and market discount. Interest on the 2016 Notes is payable semiannually in arrears in March and September of each year, beginning in September 2016. The 2016 Notes are governed by a base indenture and a second supplemental indenture. The 2016 Notes are fully and unconditionally guaranteed on a senior basis by Perrigo, and no other subsidiary of Perrigo guarantees the 2016 Notes. The proceeds were used to repay amounts borrowed under the 2015 Revolver and the 2014 Revolver, as mentioned above. There are no restrictions under the 2016 Notes on our ability to obtain funds from our subsidiaries. Perrigo Finance may redeem the 2016 Notes in whole or in part at any time for cash at the make-whole redemption prices described in the 2016 Notes.
Notes and Bonds Assumed from Omega
In connection with the Omega acquisition, on
March 30, 2015
, we assumed:
|
|
•
|
$20.0 million
in aggregate principal amount of
6.19%
senior notes due
2016
, which was repaid on May 29, 2015 in full;
|
|
|
•
|
€135.0 million
(
$147.0 million
) in aggregate principal amount of
5.1045%
senior notes due
2023
(the "2023 Notes");
|
|
|
•
|
€300.0 million
(
$326.7 million
) in aggregate principal amount of
5.125%
retail bonds due
2017
;
€180.0 million
(
$196.0 million
) in aggregate principal amount of
4.500%
retail bonds due
2017
; and
€120.0 million
(
$130.7 million
) in aggregate principal amount of
5.000%
retail bonds due
2019
(collectively, the "Retail Bonds").
|
The fair value of the 2023 Notes and Retail Bonds
exceeded par value by
€93.6 million
(
$101.9 million
) on the date of the Omega acquisition. As a result, a fair value adjustment was recorded as part of the carrying value of the underlying debt and will be amortized as a reduction of interest expense over the remaining terms of the respective debt instruments. The adjustment does not affect cash interest payments.
2014 Notes
On
December 2, 2014
, Perrigo Finance issued
$500.0 million
in aggregate principal amount of
3.500%
senior notes due
2021
(the "2021 Notes”),
$700.0 million
in aggregate principal amount of
3.900%
senior notes due
2024
(the “2024 Notes”), and
$400.0 million
in aggregate principal amount of
4.900%
senior notes due
2044
(the “2044 Notes” and, together with the 2021 Notes and the 2024 Notes, the “2014 Notes”) and received net proceeds
Perrigo Company plc
- Item 1
Note 10
of
$1.6 billion
after fees and market discount. Interest on the 2014 Notes is payable semiannually in arrears in June and December of each year, beginning in June 2015. The 2014 Notes are governed by a base indenture and a first supplemental indenture. The 2014 Notes are fully and unconditionally guaranteed on a senior unsecured basis by Perrigo, and no other subsidiary of Perrigo guarantees the 2014 Notes. There are no restrictions under the 2014 Notes on our ability to obtain funds from our subsidiaries. Perrigo Finance may redeem the 2014 Notes in whole or in part at any time for cash at the make-whole redemption prices described in the 2014 Notes.
2013 Notes
On November 8, 2013, Perrigo Company issued
$500.0 million
aggregate principal amount of its
1.300%
senior notes due 2016 (the "
1.300%
2016 Notes"),
$600.0 million
aggregate principal amount of its
2.300%
senior notes due 2018 (the "2018 Notes"),
$800.0 million
aggregate principal amount of its
4.000%
senior notes due 2023 (the "
4.000%
2023 Notes") and
$400.0 million
aggregate principal amount of its
5.300%
senior notes due 2043 (the "2043 Notes" and, together with the
1.300%
2016 Notes, the 2018 Notes and the
4.000%
2023 Notes, the "2013 Notes") in a private placement with registration rights. We received net proceeds of
$2.3 billion
from the issuance of the 2013 Notes after fees and market discount. We plan to prepay the
1.300%
2016 Notes in September 2016. See
Part II, Item 5
.
Interest on the 2013 Notes is payable semiannually in arrears in May and November of each year, beginning in May 2014. The 2013 Notes are governed by a base indenture and a first supplemental indenture (collectively, the "2013 Indenture"). The 2013 Notes are our unsecured and unsubordinated obligations, ranking equally in right of payment to all of our existing and future unsecured and unsubordinated indebtedness. The 2013 Notes are not entitled to mandatory redemption or sinking fund payments. We may redeem the 2013 Notes in whole or in part at any time for cash at the make-whole redemption prices described in the 2013 Indenture. The 2013 Notes were guaranteed on an unsubordinated, unsecured basis by the same entities that guaranteed our then-outstanding credit agreement until November 21, 2014, at which time the 2013 Indenture was amended to remove all guarantors.
Other Financing
Overdraft Facilities
On
March 30, 2015
, we assumed and repaid certain overdraft facilities totaling
€51.4 million
(
$56.0 million
) with the Omega acquisition. Our BCH segment uses overdraft facilities to increase the efficiency of its cash utilization and meet its short-term liquidity needs. We repaid the balance outstanding under these overdraft facilities during the three months ended July 2, 2016, but retain the ability to use these facilities in our day-to-day cash operations. The balance outstanding under the facilities was
$82.9 million
at
December 31, 2015
and is shown in the above table under "Other Financing".
Obligations Resulting from Recourse Factoring
In conjunction with the restatement related to BCH Belgium Distribution Contracts we have included the obligations due to the factors related to recourse amounts factored in Other Financing. The recourse contracts were discontinued during 2016 and no balance remains outstanding at July 2, 2016. The balance outstanding and due to the factor was
$42.2 million
at
December 31, 2015
.
Perrigo Company plc
- Item 1
Note 11
NOTE 11 –
EARNINGS PER SHARE AND SHAREHOLDERS' EQUITY
Earnings per Share
A reconciliation of the numerators and denominators used in the basic and diluted earnings per share ("EPS") calculation is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
July 2,
2016
|
|
June 27,
2015
|
|
July 2,
2016
|
|
June 27,
2015
|
|
Restated
|
|
Restated
|
|
Restated
|
|
Restated
|
Numerator:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(534.3
|
)
|
|
$
|
(22.2
|
)
|
|
$
|
(1,063.5
|
)
|
|
$
|
(44.5
|
)
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic EPS
|
143.2
|
|
|
146.3
|
|
|
143.2
|
|
|
143.5
|
|
Dilutive effect of share-based awards*
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Weighted average shares outstanding for diluted EPS
|
143.2
|
|
|
146.3
|
|
|
143.2
|
|
|
143.5
|
|
|
|
|
|
|
|
|
|
Anti-dilutive share-based awards excluded from computation of diluted EPS*
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
* In the period of a net loss, diluted shares equal basic shares.
Shareholders' Equity
Shares
We issued
19,000
and
57,000
shares related to the exercise and vesting of share-based compensation during the
three months ended
July 2, 2016
and
June 27, 2015
, respectively. We issued
98,000
and
92,000
shares related to the exercise and vesting of share-based compensation during the
six months ended
July 2, 2016
and
June 27, 2015
, respectively.
Share Repurchases
In October 2015, the Board of Directors approved a share repurchase plan of up to
$2.0 billion
, of which
$1.5 billion
is still available to be repurchased through December 31, 2018. We did not repurchase any shares under the share repurchase plan during the
six months ended
July 2, 2016
.
NOTE 12 –
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in our AOCI balances, net of tax were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
Fair value of derivative financial instruments, net of tax
|
|
Fair value of investment securities, net of tax
|
|
Post-retirement and pension liability adjustments, net of tax
|
|
Total AOCI
|
Balance at December 31, 2015 (restated)
|
$
|
(4.6
|
)
|
|
$
|
(14.2
|
)
|
|
$
|
6.4
|
|
|
$
|
(2.9
|
)
|
|
$
|
(15.3
|
)
|
OCI before reclassifications (restated)
|
43.9
|
|
|
(5.6
|
)
|
|
7.2
|
|
|
0.6
|
|
|
46.1
|
|
Amounts reclassified from AOCI
|
—
|
|
|
(1.4
|
)
|
|
1.3
|
|
|
—
|
|
|
(0.1
|
)
|
Other comprehensive income (loss) (restated)
|
43.9
|
|
|
(7.0
|
)
|
|
8.5
|
|
|
0.6
|
|
|
46.0
|
|
Balance at July 2, 2016 (restated)
|
$
|
39.3
|
|
|
$
|
(21.2
|
)
|
|
$
|
14.9
|
|
|
$
|
(2.3
|
)
|
|
$
|
30.7
|
|
Perrigo Company plc
- Item 1
Note 13
NOTE 13 –
INCOME TAXES
The effective tax rate for the
three months ended
July 2, 2016
was a benefit of
34.2%
on a net loss compared to expense of
136.8%
for the
three months ended
June 27, 2015
. The effective tax rate for the
six months ended
July 2, 2016
was a benefit of
18.3%
on a net loss reported in the period compared to
188.5%
on income for the six months ended June 27, 2015.
Our tax rate is subject to adjustment over the balance of the prior fiscal year ended due to, among other things: income tax rate changes by governments; the jurisdictions in which our profits are determined to be earned and taxed; changes in the valuation of our deferred tax assets and liabilities; adjustments to estimated taxes upon finalization of various tax returns; adjustments to our interpretation of transfer pricing standards; changes in available tax credits, grants and other incentives; changes in stock-based compensation expense; changes in tax laws or the interpretation of such tax laws (for example, proposals for fundamental U.S. international tax reform); changes in U.S. GAAP; expiration of or the inability to renew tax rulings or tax holiday incentives; and the repatriation of earnings with respect to which we have not previously provided for taxes.
Israel passed legislation in January 2016, effective immediately, reducing the tax rate from
26.5%
to
25%
. The impact on our effective tax rate was minimal.
The total liability for uncertain tax positions was
$371.7 million
and
$340.3 million
as of
July 2, 2016
and
December 31, 2015
, respectively, before considering the federal tax benefit of certain state and local items.
We recognize interest and penalties related to uncertain tax positions as a component of income tax expense. The total amount accrued for interest and penalties in the liability for uncertain tax positions was
$60.7 million
and
$52.1 million
as of
July 2, 2016
and
December 31, 2015
, respectively.
We file income tax returns in numerous jurisdictions and are therefore subject to audits by tax authorities. Our primary income tax jurisdictions are Ireland, the U.S., Israel, Belgium, France, and the U.K.
Although we believe that the tax estimates are reasonable and that we prepare our tax filings in accordance with all applicable tax laws, the final determination with respect to any tax audit and any related litigation could be materially different from estimates or from historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on our 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.
The IRS audit of our fiscal years ended June 27, 2009 and June 26, 2010 had previously concluded with the issuance of a statutory notice of deficiency on August 27, 2014. While we had previously agreed on certain adjustments and made associated payments of
$8.0 million
, inclusive of interest in November 2014, the statutory notice of deficiency asserted various additional positions, including transfer pricing, relative to the same audit of fiscal years ended June 27, 2009 and June 26, 2010. The statutory notice asserted an incremental tax obligation of approximately
$68.9 million
, inclusive of interest and penalties. We disagree with the IRS’s positions asserted in the notice of deficiency. In January 2015, we paid this amount, a prerequisite to being able to contest the IRS’s positions in U.S. Federal court, and in June 2015, we filed a request for a refund. The IRS denied our request for a refund. We anticipate filing a complaint in federal district court claiming a refund for these amounts in the first quarter of 2017. The payment was recorded during the three months ended March 28, 2015 as a deferred charge on the balance sheet given our anticipated action to recover this amount. An unfavorable resolution of this matter could have a material impact on our consolidated financial statements in future periods.
We have ongoing audits in multiple jurisdictions for which tax returns are not yet settled. These jurisdictions include, but are not limited to, the United States and Belgium. The IRS is auditing our fiscal years ended June 25, 2011 and June 30, 2012, and may make adjustments consistent with their claims for the 2009 - 2010 audit period. In February 2016, the Belgium Tax Authority notified us that all Belgium locations will be audited for the years ended December 31, 2013 and December 31, 2014. At this time, we cannot predict the outcome of any audit or related litigation.
Perrigo Company plc
- Item 1
Note 14
NOTE 14 –
COMMITMENTS AND CONTINGENCIES
In view of the inherent difficulties of predicting the outcome of various types of legal proceedings, we cannot determine the ultimate resolution of the matters described below. We establish reserves for litigation and regulatory matters when losses associated with the claims become probable and the amounts can be reasonably estimated. The actual costs of resolving legal matters may be substantially higher or lower than the amounts reserved for those matters. For matters where the likelihood or extent of a loss is not probable or cannot be reasonably be estimated as of
July 2, 2016
, we have not recorded a loss reserve. If certain of these matters are determined against us, it could have 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.
Securities Litigation
On May 18, 2016, a shareholder filed a securities case against the Company and our former CEO, Joseph Papa, in the District of New Jersey (
Roofers’ Pension Fund v. Papa, et al.)
. The plaintiff purports to represent a class of shareholders for the period from April 21, 2015 through May 11, 2016, inclusive. The complaint alleges violations of Securities Exchange Act sections 10(b) (and Rule 10b‑5) and 14(e) against both defendants and 20(a) control person liability against Mr. Papa. In general, the allegations concern the actions taken by us and the former executive to defend against the hostile takeover bid by Mylan in the period from April 21, 2015 through November 13, 2015. The plaintiff also alleges that we provided inadequate disclosure concerning alleged integration problems related to the Omega acquisition in the period from April 21, 2015 through May 11, 2016. The case is in an early stage.
Four
different plaintiff groups have sought appointment as lead plaintiff/lead counsel. The court will decide in the near term who will represent the purported class. Once the court has chosen a lead plaintiff, the plaintiff will likely file an amended complaint and the defendants will then have an opportunity to make a motion to dismiss the case.
A substantially similar case making virtually the same allegations for the same class period against the same defendants was filed in the Southern District of New York on June 21, 2016 (
AMI - Gov’t Employees Provident Fund Mgmt Co. v. Papa, et al.)
. The plaintiff in the
AMI
case voluntarily dismissed its action on July 12, 2016.
On May 22, 2016, shareholders filed a securities class action against us and
five
individual defendants Mr. Papa, our former Executive Vice President and General Manager of the BCH segment Marc Coucke, our Chief Executive Officer John Hendrickson and our Board members Gary Kunkle, Jr. and Laurie Brlas alleging violations of Israeli law in the District Court of Tel Aviv-Jaffa (
Schwieger et al. v. Perrigo Company plc, et al.).
On June 15, 2016, Perrigo filed a motion to stay the case pending the outcome of the securities class action pending in the New Jersey federal court. The plaintiffs did not oppose the motion. The Israeli court granted the motion on the same day, and the action is stayed.
Eltroxin
During October and November 2011,
nine
applications to certify a class action lawsuit were filed in various courts in Israel related to Eltroxin, a prescription thyroid medication manufactured by a third party and distributed in Israel by our subsidiary, Perrigo Israel Agencies Ltd. The respondents included our subsidiaries, Perrigo Israel Pharmaceuticals Ltd. and/or Perrigo Israel Agencies Ltd., the manufacturers of the product, and various healthcare providers who provide healthcare services as part of the compulsory healthcare system in Israel.
One
of the applications was dismissed and the remaining
eight
applications were consolidated into
one
application. The applications arose from the 2011 launch of a reformulated version of Eltroxin in Israel. The consolidated application generally alleges that the respondents: (a) failed to timely inform patients, pharmacists and physicians about the change in the formulation; and (b) failed to inform physicians about the need to monitor patients taking the new formulation in order to confirm patients were receiving the appropriate dose of the drug. As a result, claimants allege they incurred the following damages: (a) purchases of product that otherwise would not have been made by patients had they been aware of the reformulation; (b) adverse events to some patients
Perrigo Company plc
- Item 1
Note 14
resulting from an imbalance of thyroid functions that could have been avoided; and (c) harm resulting from the patients' lack of informed consent prior to the use of the reformulation.
Several hearings on whether or not to certify the consolidated application took place in December 2013 and January 2014. On May 17, 2015, the District Court certified the motion against Perrigo Israel Agencies Ltd. and dismissed it against the remaining respondents, including Perrigo Israel Pharmaceuticals Ltd.
On June 16, 2015, Perrigo submitted a motion for permission to appeal the decision to certify to the Israeli Supreme Court together with a motion to stay the proceedings of the class action until the motion for permission to appeal is adjudicated. Perrigo has filed its statement of defense to the underlying proceedings and the underlying proceedings have been stayed pending a decision on the motion to appeal. The hearing on Perrigo’s motion to appeal the decision to certify the class action was held on July 11, 2016. At this stage, we cannot reasonably predict the outcome or the liability, if any, associated with this claim.
Tysabri
®
Product Liability Lawsuits
Perrigo and collaborator Biogen are co-defendants in product liability lawsuits arising out of the occurrence of Progressive Multifocal Leukoencephalopathy, a serious brain infection, and serious adverse events, including deaths, which occurred in patients taking Tysabri
®
. Perrigo and Biogen will each be responsible for
50%
of losses and expenses arising out of any Tysabri
®
product liability claims. While these lawsuits will be vigorously defended, management cannot predict how these cases will be resolved. Adverse results in one or more of these lawsuits could result in substantial judgments against us.
NOTE 15 –
COLLABORATION AGREEMENTS AND OTHER CONTRACTUAL ARRANGEMENTS
In May 2015, we entered into a development agreement wherein we transferred the ownership rights to
two
pharmaceutical products to a clinical stage development company to fund and conduct development activities for the products. We do not expect to incur any expense related to the development of either product. If the products are approved by the FDA, we will execute a buy-back agreement to purchase each product for a multiple of the development costs incurred. Based on the initial development budget for each product, the estimated purchase price for both products is approximately
$78.0 million
. If development costs exceed the initial budgeted amounts, the purchase price will increase but will not exceed approximately
$105.0 million
. If the products are approved by the FDA and we purchase the products, we estimate the acquisitions will occur in 2019 and 2020.
In June 2016, we added an additional product to the May 2015 development agreement that is subject to similar buy-back terms if the product is approved by the FDA. The estimated purchase price for this additional product, based on the initial development budget, is approximately
$42.0 million
. If development costs exceed the initial budgeted amounts, the purchase price will increase, but will not exceed approximately
$57.0 million
. If the product is approved by the FDA and we purchase the product, we estimate the acquisition will occur in 2020. There can be no assurance that any such products will be approved by the FDA on the anticipated schedule or at all.
NOTE 16 –
RESTRUCTURING CHARGES
We periodically take action to reduce redundant expenses and improve operating efficiencies, typically in connection with business acquisitions. The following reflects our restructuring activity (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
July 2,
2016
|
|
June 27,
2015
|
|
July 2,
2016
|
|
June 27,
2015
|
Beginning balance
|
$
|
13.0
|
|
|
$
|
3.6
|
|
|
$
|
20.7
|
|
|
$
|
3.2
|
|
Additional charges
|
5.8
|
|
|
(0.1
|
)
|
|
11.3
|
|
|
1.0
|
|
Payments
|
(6.6
|
)
|
|
(1.9
|
)
|
|
(24.8
|
)
|
|
(2.6
|
)
|
Non-cash adjustments
|
—
|
|
|
—
|
|
|
5.0
|
|
|
—
|
|
Ending balance
|
$
|
12.2
|
|
|
$
|
1.6
|
|
|
$
|
12.2
|
|
|
$
|
1.6
|
|
Perrigo Company plc
- Item 1
Note 16
Restructuring activity includes severance, lease exit costs, and asset impairments. The charges incurred during the
three and six months ended
July 2, 2016
were primarily associated with actions we took to streamline our organization as announced on October 22, 2015 and did not materially impact any one reportable segment. There were no other material restructuring programs in any of the periods presented. All charges are recorded in Restructuring expense. The remaining
$7.0 million
liability for employee severance benefits will be paid within the next year, while cash expenditures related to the remaining
$5.2 million
liability for lease exit costs will be incurred over the remaining terms of the applicable leases.
NOTE 17 –
SEGMENT INFORMATION
Our reporting segments are as follows:
|
|
•
|
CHC
is focused primarily on the global sale of OTC store brand products including cough, cold, allergy and sinus, analgesic, gastrointestinal, smoking cessation, infant formula and food, VMS, animal health, and diagnostic products.
|
|
|
•
|
BCH
develops, manufactures, markets and distributes many well-known European OTC brands in the natural health and vitamins, cough, cold and allergy, smoking cessation, personal care and derma-therapeutics, lifestyle, and anti-parasite categories.
|
|
|
•
|
Rx
develops, manufactures and markets a portfolio of generic and specialty pharmaceutical prescription drugs primarily for the U.S. and U.K. markets.
|
|
|
•
|
Specialty Sciences
is comprised primarily of royalties received from assets focused on the management of multiple sclerosis (Tysabri
®
).
|
We also have an "
Other
" segment that is comprised of our API business, which does not meet the quantitative threshold required to be a separately reportable segment. Our segments reflect the way in which our chief operating decision maker reviews our operating results and allocates resources.
The below tables show select financial measures by reporting segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
July 2,
2016
|
|
December 31, 2015
|
Total Assets
|
|
Restated
|
|
Restated
|
CHC
|
|
$
|
3,748.3
|
|
|
$
|
3,384.8
|
|
BCH
|
|
6,290.7
|
|
|
7,083.5
|
|
Rx
|
|
3,340.1
|
|
|
2,738.0
|
|
Specialty Sciences
|
|
4,710.1
|
|
|
5,930.2
|
|
Other
|
|
202.0
|
|
|
213.1
|
|
Total
|
|
$
|
18,291.2
|
|
|
$
|
19,349.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
July 2, 2016
|
|
June 27, 2015
|
|
Restated
|
|
Restated
|
|
Total Revenue
|
|
Operating Income (Loss)
|
|
Intangible Asset Amortization
|
|
Total Revenue
|
|
Operating Income (Loss)
|
|
Intangible Asset Amortization
|
CHC
|
$
|
686.3
|
|
|
$
|
115.0
|
|
|
$
|
19.0
|
|
|
$
|
746.4
|
|
|
$
|
130.1
|
|
|
$
|
16.6
|
|
BCH
|
343.1
|
|
|
(1.8
|
)
|
|
39.5
|
|
|
368.3
|
|
|
16.7
|
|
|
34.2
|
|
Rx
|
293.3
|
|
|
96.8
|
|
|
29.9
|
|
|
278.3
|
|
|
99.5
|
|
|
18.6
|
|
Specialty Sciences
|
—
|
|
|
(3.8
|
)
|
|
—
|
|
|
—
|
|
|
(5.2
|
)
|
|
0.2
|
|
Other
|
17.8
|
|
|
(1.3
|
)
|
|
0.5
|
|
|
22.2
|
|
|
1.9
|
|
|
0.5
|
|
Unallocated
|
—
|
|
|
(20.1
|
)
|
|
—
|
|
|
—
|
|
|
(50.7
|
)
|
|
—
|
|
Total
|
$
|
1,340.5
|
|
|
$
|
184.8
|
|
|
$
|
88.9
|
|
|
$
|
1,415.2
|
|
|
$
|
192.3
|
|
|
$
|
70.1
|
|
Perrigo Company plc
- Item 1
Note 17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
July 2, 2016
|
|
June 27, 2015
|
|
Restated
|
|
Restated
|
|
Total Revenue
|
|
Operating Income (Loss)
|
|
Intangible Asset Amortization
|
|
Total Revenue
|
|
Operating Income (Loss)
|
|
Intangible Asset Amortization
|
CHC
|
$
|
1,386.6
|
|
|
$
|
214.5
|
|
|
$
|
38.8
|
|
|
$
|
1,431.3
|
|
|
$
|
234.4
|
|
|
$
|
32.8
|
|
BCH*
|
705.9
|
|
|
(400.0
|
)
|
|
74.9
|
|
|
368.3
|
|
|
16.8
|
|
|
34.2
|
|
Rx
|
556.9
|
|
|
191.1
|
|
|
59.4
|
|
|
529.9
|
|
|
199.5
|
|
|
36.9
|
|
Specialty Sciences
|
—
|
|
|
(5.1
|
)
|
|
—
|
|
|
—
|
|
|
(8.5
|
)
|
|
0.5
|
|
Other
|
38.4
|
|
|
4.1
|
|
|
1.0
|
|
|
52.9
|
|
|
12.4
|
|
|
0.9
|
|
Unallocated
|
—
|
|
|
(51.4
|
)
|
|
—
|
|
|
—
|
|
|
(71.9
|
)
|
|
—
|
|
Total*
|
$
|
2,687.8
|
|
|
$
|
(46.8
|
)
|
|
$
|
174.1
|
|
|
$
|
2,382.4
|
|
|
$
|
382.7
|
|
|
$
|
105.3
|
|
|
|
*
|
The BCH segment was created on March 30, 2015 as a result of the Omega acquisition, thus data for the six months ended June 27, 2015 includes only three months of results from operations attributable to Omega.
|
The Specialty Sciences segment recognized expense (income) of
$910.8 million
and
$69.2 million
for the three months ended
July 2, 2016
and
June 27, 2015
, respectively, and
$1.1 billion
and
$(31.5) million
for the six months ended
July 2, 2016
and
June 27, 2015
, respectively, for the change in the fair value of the Tysabri
®
royalty stream during each period.
NOTE 18 –
SUBSEQUENT EVENTS
On
August 5, 2016
we closed the sale of our U.S. VMS business to International Vitamins Corporation for
$61.8 million
in cash inclusive of an estimated working capital adjustment. During the three months ended July 2, 2016 we recorded an impairment of
$6.2 million
to bring the carrying value of the assets held for sale in line with the expected sales price. See
Note 9
for more information.
Perrigo Company plc
- Item 2
Executive Overview