The Perrigo Company (NASDAQ: PRGO)(TASE: PRGO) today announced results for the third quarter and nine months of fiscal 2005 ended March 26, 2005.
Perrigo Company
(in thousands, except per share amounts)
Third Quarter Year-To-Date
2005 2004 2005 2004
Sales $220,093 $232,863 $699,560 $692,079
(Net Loss)/Income $(379,436) $17,739 $(346,020) $72,482
Diluted Shares 73,660 72,598 71,970 72,035
Diluted EPS $(5.15) $0.24 $(4.81) $1.01
The acquisition of Agis Industries was completed on March 17, 2005. Agis is included in the consolidated balance sheet as of March 26, 2005. Agis operating results are not included in the third quarter, but will be included in the consolidated results beginning in the fourth quarter of fiscal 2005.
Third Quarter Results
Net sales for the third quarter of fiscal 2005 were $220.1 million, a decrease of five percent from $232.9 million last year due to a sales shortfall in the Consumer Healthcare segment. Perrigo reported a net loss of $379.4 million, or $5.15 per share, which includes charges associated with the acquisition of Agis.
The acquisition-related charges include the following: the write-off of in-process research and development of $388.6 million, which is not deductible for tax purposes; a charge for operational improvements and asset impairments in the Consumer Healthcare segment of $6.4 million pre-tax, or $4.1 million after-tax; and, acquisition-related legal, audit and integration expenses of $4.6 million pre-tax, or $3.0 million after-tax.
Excluding the charges associated with the acquisition, net income was $16.2 million, or $0.22 per share. This is compared with net income of $17.7 million, or $0.24 per share, a year ago. A reconciliation of these non-GAAP measures is shown in Table II at the end of this press release.
"Our operating results in the third quarter reflect lower sales and profits in the Consumer Healthcare segment where we experienced weak seasonal demand for cough/cold and pain relief products. There was a late pick-up at retail, but, with adequate inventories available following the season's slow start, retailers were able to meet consumer demand in the quarter from on-hand inventory," said David T. Gibbons, Perrigo Chairman, President and Chief Executive Officer.
Agis Acquisition
Commenting on the Agis acquisition, Mr. Gibbons stated, "The combination of Perrigo and Agis has created a global company with broader capabilities to grow in the generic pharmaceutical, active pharmaceutical ingredients and consumer healthcare markets. We have brought together talent and technology and we are combining Perrigo's leadership in store brand over-the-counter pharmaceutical and nutritional products with Agis' growing position in topical generics and active pharmaceutical ingredients. Together, we have excellent R&D and an experienced, global management team. The integration of our companies is off to a good start and we are enthusiastic about the opportunities we see to grow and enhance value for our shareholders."
Nine Months Results
Net sales for the nine months ended March 26, 2005 were $699.6 million, an increase of $7.5 million, or one percent, compared with $692.1 million last year. Perrigo reported a net loss of $346.0 million, or $4.81 per share, which includes charges associated with the acquisition of Agis and the expense of a product recall.
The charges and expenses associated with the acquisition were the same as those recorded in the third quarter. The impact of the loratadine syrup product recall in the second quarter of fiscal 2005 reduced sales by $6.3 million and after-tax income by $5.3 million. In the prior year, the Company reported a one-time tax benefit of $13.1 million after-tax.
Excluding the write-off of in-process research and development, acquisition-related expenses and the expense of the product recall, net income was $54.9 million, or $0.76 per share. Excluding the one-time tax benefit of $13.1 million, or $0.18 per share, in the prior year period, comparable net income was $59.4 million, or $0.83 per share. A reconciliation of these non- GAAP measures is shown in Table II at the end of this press release.
Consumer Healthcare
Consumer Healthcare segment sales decreased six percent to $194.0 million, compared with $206.1 million in the third quarter of fiscal 2004. The decline reflected lower sales of loratadine products compared with strong initial sales a year ago. Sales were also lower in the vitamin category following our strong first half. We received positive benefits from sales of new products for smoking cessation and feminine hygiene. Operating income was $18.7 million, reflecting lower sales and production levels, as well as a $6.4 million charge for asset impairment and acquisition-related restructuring expense. Excluding the $6.4 million charge, operating income was $25.1 million, compared with $28.8 million last year.
For nine months of fiscal 2005, Consumer Healthcare sales were $612.4 million, two percent below the $623.9 million in the same period last year. Operating income was $69.7 million, reflecting lower sales and production levels, an asset impairment charge, acquisition-related expenses and the expense of a product recall. Excluding the charge of $6.4 million and the product recall expense of $8.3 million, operating income was $84.4 million, compared with $91.5 million a year ago.
Pseudoephedrine
Mr. Gibbons also noted, "A number of major retailers have recently announced plans to move certain over-the-counter products that contain the active ingredient pseudoephedrine to a position behind the pharmacy counter. This is in reaction to new legislation in certain states to slow the misuse of pseudoephedrine-based products to create methamphetamine for illegal drug use. We are developing phenylephrine-based alternatives for the most popular solid dose products and expect to phase-in the reformulated products as soon as possible throughout the 2005/2006 season. We anticipate that the recent acceleration of the move behind the counter will have some negative impact on our cough/cold/allergy/sinus category sales in the next year. However, it is too early to accurately measure the effect."
Pharmaceuticals
In the third quarter, the Pharmaceutical Segment recorded an operating loss of $1.9 million, compared with a loss of $1.6 million a year ago as the Company continued to invest in its start-up pharmaceutical business. For nine months of fiscal 2005, Pharmaceutical operating loss was $5.5 million, compared with a loss of $3.0 million last year.
United Kingdom
Third quarter net sales for the United Kingdom operations decreased $2.0 million, or nine percent, to $19.8 million due to declines in contract and nutritional product sales, partially offset by favorable foreign exchange rates. Operating income for the third quarter was $0.4 million compared with $0.2 million last year.
Sales for nine months were $67.5 million, compared with $49.4 million in the year ago period, and operating income was $2.3 million, compared with $1.5 million a year ago.
Mexico
Sales for Perrigo's Mexico Operations increased $0.9 million, or 18 percent, to $5.9 million in the third quarter as a result of increased sales to the store brand and pharmaceutical distribution channels. Operating income for the quarter was $0.2 million, compared with an operating loss of $0.8 million last year. Sales for nine months were $19.1 million, compared with $18.7 million last year and operating income was $1.7 million, compared with $0.6 million for the comparable nine months a year ago.
Opening Balance Sheet
The attached condensed balance sheet includes the preliminary allocation of the purchase price for Agis into the components of fair value of the assets at acquisition, as well as adjustments related to the transaction financing.
At closing, Perrigo also entered into a loan agreement with an Israeli bank for $400 million. Simultaneously, $400 million was deposited by Perrigo with the same Israeli bank. As required, these amounts are reported separately on the consolidated balance sheet as long-term debt and restricted cash. Perrigo will pay interest expense on the loan and receive interest income on the deposit in subsequent periods. The purpose of this transaction is to provide an appropriate and efficient mechanism for inter-company financing.
Included in the fair value of the assets of Agis is a step-up in the value of inventory of $27.6 million. This amount will be charged to cost of sales over the next three to six months, but is not expected to have any impact beyond that period.
Outlook
The year-to-date reported net loss of $346.0 million included the write- off of in-process research and development of $388.6 million, the loratadine recall of $5.3 million and other acquisition-related costs of $7.0 million. Adjusted net income was $54.9 million, or $0.76 per share, through nine months of fiscal 2005.
There will be an additional $2 million in integration costs incurred in the fourth quarter. Further, the write-off of the inventory step-up that was recorded as part of the purchase price adjustment will approximate $16 million.
Commenting on the outlook for the fourth quarter and full year, Mr. Gibbons stated, "Operating results for Agis will be consolidated for the first time in our fiscal fourth quarter and the shares outstanding will change to reflect the 22 million shares issued as part of the purchase price. Consistent with the historical seasonal pattern, we anticipate lower sequential sales and profits in our Consumer Healthcare business. The continuing ramp-up in sales of new nicotine gum products should help offset difficult comparisons on our loratadine products.
"We anticipate reported per share results for the full year to range from a loss of $4.45 to a loss of $4.55 per share. On an operating basis, we expect income per share in the range of $0.90 to $0.94."
Perrigo will host a conference call to discuss third quarter fiscal 2005 results at 11 a.m. (ET) today. The call and replay will be available via webcast on the Company's Web site at http://www.perrigo.com/investor/ , or by phone, at 800-473-6123, International, 973-582-2745. A taped replay of the call will be available beginning at approximately 2:30 p.m. (ET) Thursday, May 5 until midnight Wednesday, May 11. To listen to the replay, call 877-519-4471, International 973-341-3080, access code 6009317.
Perrigo Company is a leading global healthcare supplier and the world's largest manufacturer of over-the-counter (OTC) pharmaceutical and nutritional products for the store brand and contract manufacturing markets. Store brand products are sold by food, drug, mass merchandise, dollar store and club store retailers under their own labels. The Company also develops, manufactures and markets topical OTC pharmaceuticals, prescription generic drugs, active pharmaceutical ingredients and consumer products, and operates manufacturing and logistics facilities in the United States, Israel, United Kingdom, Mexico, and Germany. Visit Perrigo on the Internet (http://www.perrigo.com/ ).
Note: Certain statements in this press release are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. These statements relate to future events or the Company's future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Company or its industry to be materially different from those expressed or implied by any forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential" or other comparable terminology. Please see the "Cautionary Note Regarding Forward-Looking Statements" on pages 27 - 33 of the Company's Form 10-K for the year ended June 26, 2004 for a discussion of certain important factors that relate to forward-looking statements contained in this press release. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
Third Quarter Year-To-Date
2005 2004 2005 2004
Net sales $220,093 $232,863 $699,560 $692,079
Cost of sales 157,132 164,108 504,830 487,125
Gross profit 62,961 68,755 194,730 204,954
Operating expenses
Distribution 4,032 4,117 12,130 11,472
Research and development 7,224 6,685 22,864 18,584
Selling and administration 32,552 31,441 89,808 84,271
Subtotal 43,808 42,243 124,802 114,327
Write-off of in-process
research and development 388,600 - 388,600 -
Restructuring 6,382 - 6,382 -
Total 438,790 42,243 519,784 114,327
Operating (loss) income (375,829) 26,512 (325,054) 90,627
Interest and other, net (1,545) (1,206) (2,989) (2,159)
(Loss) income before income
taxes (374,284) 27,718 (322,065) 92,786
Income tax expense 5,152 9,979 23,955 20,304
Net (loss) income $(379,436) $17,739 $(346,020) $72,482
(Loss) Earnings per share
Basic $(5.15) $0.25 $(4.81) $1.03
Diluted $(5.15) $0.24 $(4.81) $1.01
Weighted average shares
outstanding
Basic 73,660 70,296 71,970 70,103
Diluted 73,660 72,598 71,970 72,035
Dividends declared per share $0.04 $0.035 $0.115 $0.095
PERRIGO COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 26, June 26, March 27,
2005 2004 2004
Assets (unaudited) (unaudited)
Current assets
Cash and cash equivalents $40,735 $8,392 $30,692
Investment securities 33,200 163,308 125,725
Accounts receivable 203,849 86,040 102,299
Inventories 301,270 174,253 154,847
Current deferred income taxes 47,380 29,877 30,041
Prepaid expenses and other current
assets 28,690 11,359 19,846
Total current assets 655,124 473,229 463,450
Property and equipment 576,049 462,185 468,056
Less accumulated depreciation 253,316 234,544 241,724
322,733 227,641 226,332
Restricted cash 400,000 - -
Goodwill 150,226 35,919 35,919
Other intangible assets 142,050 94 110
Non-current deferred income taxes 13,922 8,137 8,062
Other non-current assets 47,126 14,074 12,774
$1,731,181 $759,094 $746,647
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $141,621 $88,858 $89,289
Notes payable 22,334 9,528 9,746
Current maturities of long-term
liabilities 20,000 - -
Payroll and related taxes 48,160 41,387 35,530
Accrued customer programs 31,302 13,212 13,187
Accrued liabilities 74,496 30,477 36,121
Accrued income taxes 15,201 - -
Current deferred income taxes 9,010 4,024 4,095
Total current liabilities 362,124 187,486 187,968
Long-term liabilities
Long-term debt, less current
maturities 666,706 - -
Non-current deferred income taxes 59,740 29,606 26,315
Other non-current liabilities 33,637 5,770 5,490
Total long-term liabilities 760,083 35,376 31,805
Shareholders' equity
Preferred stock, without par
value, 10,000 shares authorized - - -
Common stock, without par value,
200,000 shares authorized 532,108 104,160 99,622
Unearned compensation (4,888) (514) (631)
Accumulated other comprehensive
income 6,275 2,892 3,801
Retained earnings 75,479 429,694 424,082
Total shareholders' equity 608,974 536,232 526,874
$1,731,181 $759,094 $746,647
Supplemental Disclosures of Balance
Sheet Information
Allowance for doubtful accounts $8,280 $8,296 $7,606
Allowance for inventory $27,841 $22,888 $22,493
Working capital $293,000 $285,743 $275,482
Preferred stock, shares issued - - -
Common stock, shares issued 93,802 70,882 70,595
PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Year-To-Date
2005 2004
Cash Flows From Operating Activities
Net income (loss) $(346,020) $72,482
Adjustments to derive cash flows
Write-off of in-process
research and development 388,600 -
Depreciation and amortization 23,561 21,270
Share-based compensation 4,828 4,142
Deferred income taxes (5,860) 35
Changes in operating assets and
liabilities, net of acquisitions
of businesses and assets
Accounts receivable (11,320) (11,150)
Inventories 10,202 13,551
Accounts payable (7,108) 13,074
Payroll and related taxes (14,369) (5,001)
Accrued income taxes 3,805 2,458
Accrued customer programs (2,398) 7,421
Accrued liabilities 4,090 (5,572)
Other 6,381 (8,502)
Net cash from operating
activities 54,392 104,208
Cash Flows For Investing Activities
Purchase of securities (81,070) (122,325)
Proceeds from sales of
securities 243,975 80,035
Additions to property and
equipment (15,576) (18,638)
Acquisition of business, net of
cash acquired (381,569) (12,061)
Acquisition of assets (5,562) -
Increase in restricted cash (400,000) -
Issuance of note receivable - (10,000)
Investment in equity
subsidiaries - (2,000)
Net cash for investing
activities (639,802) (84,989)
Cash Flows From Financing Activities
Borrowings of short-term debt, net 3,622 789
Borrowings of long-term debt 615,000 -
Increase in deferred bond issue
costs (1,017) -
Tax benefit of stock
transactions 1,087 813
Issuance of common stock 6,137 7,911
Repurchase of common stock (122) (1,940)
Cash dividends (8,195) (6,664)
Net cash from financing
activities 616,512 909
Net Increase in Cash and
Cash Equivalents 31,102 20,128
Cash and cash equivalents, at
beginning of period 8,392 10,392
Effect of exchange rate changes on cash 1,241 172
Cash and cash equivalents, at end
of period $40,735 $30,692
Supplemental Disclosures of Cash
Flow Information
Cash paid during the year for
Interest $231 $467
Income taxes $18,341 $25,188
Table I
PERRIGO COMPANY
SEGMENT INFORMATION
(in thousands)
(unaudited)
Third Quarter Year-To-Date
2005 2004 2005 2004
Segment Sales
Consumer Healthcare $194,009 $206,087 $612,390 $623,917
Pharmaceuticals 403 - 567 -
UK Operations 19,809 21,789 67,526 49,417
Mexico Operations 5,872 4,987 19,077 18,745
Total $220,093 $232,863 $699,560 $692,079
Segment Operating Income (loss)
Consumer Healthcare $18,683 $28,771 $69,675 $91,538
Pharmaceuticals (1,887) (1,647) (5,537) (3,004)
UK Operations 424 159 2,286 1,493
Mexico Operations 176 (771) 1,747 600
Write-off of in-process
research and development (388,600) - (388,600) -
Acquisition and integration
costs (4,625) - (4,625)
Total $(375,829) $26,512 $(325,054) $90,627
Table II
PERRIGO COMPANY
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share amounts)
(unaudited)
Third Quarter Year-To-Date
2005 2004 2005 2004
Reported net sales $220,093 $232,863 $699,560 $692,079
Loratadine recall - - 6,300 -
Adjusted net sales $220,093 $232,863 $705,860 $692,079
Reported gross profit $62,961 $68,755 $194,730 $204,954
Loratadine recall - - 8,300 -
Adjusted gross profit $62,961 $68,755 $203,030 $204,954
Reported operating income
(loss) $(375,829) $26,512 $(325,054) $90,627
Loratadine recall - - 8,300 -
Perrigo operational
improvements 3,150 - 3,150 -
Perrigo asset impairments 3,232 - 3,232 -
Purchase accounting
adjustment:
Write off in-process R&D 388,600 - 388,600 -
Acquisition costs 4,625 - 4,625 -
Adjusted operating income $23,778 $26,512 $82,853 $90,627
Reported net income (loss) $(379,436) $17,739 $(346,020) $72,482
Loratadine recall (1) 5,300
One time tax benefit (13,100)
Perrigo operational
improvements (1) 2,016 2,016
Perrigo asset impairments (1) 2,068 2,068
Purchase accounting
adjustment:
Write off in-process R&D (2) 388,600 388,600
Acquisition costs (1) 2,960 2,960
Adjusted net income $16,208 $17,739 $54,924 $59,382
Reported diluted earnings
(loss) per share $(5.15) $0.24 $(4.81) $1.01
Adjusted diluted earnings per
share $0.22 $0.24 $0.76 $0.83
Weighted average diluted
shares outstanding 73,660 72,598 71,970 72,035
(1) Net of taxes at 36%
(2) Write-off of in-process research and development is a permanent
difference for tax purposes and thus is not tax effected
Table II (Continued)
CONSUMER HEALTHCARE
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share amounts)
(unaudited)
Third Quarter Year-To-Date
2005 2004 2005 2004
Consumer Healthcare
Reported net sales $194,009 $206,087 $612,390 $623,917
Loratadine recall - - 6,300 -
Adjusted net sales $194,009 $206,087 $618,690 $623,917
Consumer Healthcare
Reported gross profit $58,296 $64,997 $178,346 $192,735
Loratadine recall - - 8,300 -
Adjusted gross profit $58,296 $64,997 $186,646 $192,735
Consumer Healthcare
Reported operating income
(loss) $18,683 $28,771 $69,765 $91,538
Loratadine recall - - 8,300 -
Perrigo operational
improvements 3,150 - 3,150 -
Perrigo asset impairments 3,232 - 3,232 -
Adjusted operating income $25,065 $28,771 $84,447 $91,538
SOURCE: Perrigo Company
CONTACT: Ernest J. Schenk, Manager, Investor Relations and Communication
of Perrigo Company, +1-269-673-9212, E-mail: Investor@perrigo.com
Web site: http://www.perrigo.com/