The Perrigo Company (NASDAQ: PRGO)(TASE: PRGO) today announced results for the third quarter of fiscal year 2006 ended March 25, 2006.
The acquisition of Agis Industries was completed on March 17, 2005. Agis was first included in the consolidated balance sheet as of March 26, 2005 and operating results were first included in the quarter ended June 25, 2005.
Perrigo Company
(in thousands, except per share amounts)
Third Quarter Nine Months
2006 2005 2006 2005
Sales $332,321 $220,093 $1,011,752 $699,560
Net Income $20,861 $(379,436) $59,138 $(346,020)
Diluted EPS $0.22 $(5.15) $0.63 $(4.81)
Diluted Shares 94,044 73,660 94,143 71,970
Third Quarter Results
Net sales for the third quarter of fiscal 2006 were $332.3 million, an increase of $112.2 million, or 51 percent from $220.1 million last year, largely reflecting the addition of Agis' product sales. Net income was $20.9 million this year, or $0.22 per share and includes a $1.3 million reversal of the accrual related to the Loratadine recall. In fiscal 2005, the Company reported a net loss of $379.4 million, or $5.15 per share, which included charges of $395.6 million associated with the acquisition of Agis. Excluding these charges, net income and earnings per share would have been $16.2 million and $0.22 per share, respectively. (A reconciliation of these non-GAAP measures is shown in Table II at the end of this press release.)
Commenting on third quarter results, David T. Gibbons, Perrigo Chairman, President and Chief Executive Officer, said, "The results in our Consumer Healthcare segment continue to reflect the ongoing market impact of pseudoephedrine-based cough and cold products, as retailers respond to the passage of Federal legislation. Despite a decline of $26 million in sales of pseudoephedrine products, our Consumer Healthcare sales increased 10 percent, as the pseudoephedrine sales loss was offset by topical product sales of $16 million related to the Agis acquisition, strong new product revenues in smoking cessation, and increased vitamin sales. In February, we began shipping over-the-counter nicotine lozenges, an aid to smoking cessation, and we expect to expand distribution of this product during the fourth quarter. We continue to see good results from our Rx and API businesses.
"Cash flow in our third quarter was strong, allowing for continued share repurchases, dividend payments and debt reduction," concluded Gibbons.
On February 21, 2006, the Company announced that the Board of Directors authorized the repurchase of an additional $60 million of common stock through February 16, 2007, under its ongoing share repurchase program.
The $395.6 million of last year's acquisition-related charges noted above included:
* A write-off of in-process research and development of $388.6 million, which was 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;
* Acquisition-related legal, audit and integration expenses of $4.6 million pre-tax, or $2.9 million after-tax.
Nine Months Results
Net sales for the nine months ended March 25, 2006 were $1,011.8 million, an increase of $312.2 million, or 45 percent, compared with $699.6 million last year, largely reflecting the addition of Agis' product sales. Net income for the nine months this year was $59.1 million, or $0.63 per share and includes a $1.3 million reversal of the accrual related to the Loratadine recall. In fiscal 2005, the net loss was $346.0 million, or $4.81 per share, which included a charge for the Loratadine recall of $5.3 million, or $0.07 per share.
Excluding an acquisition-related write-off of the step-up in the value of inventory acquired ($3.7 million after-tax, or $0.04 per share) and a gain on the sale of the interest in a Canadian distribution company ($2.9 million after-tax, or $0.03 per share), net income for the nine months in the current year would have been $59.9 million, or $0.64 per share. In the prior year nine months, excluding the $395.6 million of acquisition-related charges, net income would have been $49.6 million, or $0.69 per share. (A reconciliation of non-GAAP measures is shown in Table II at the end of this press release.)
Outlook
Mr. Gibbons stated, "Our full year guidance for reported earnings of $0.74 to $0.78 per share remains unchanged. Our third quarter results were in line with expectations, as the Consumer Healthcare business continued to reflect the impact of pseudoephedrine product dynamics, while the Rx and API segments continued to deliver good operating results. Even with increasing investments in research and development and competitive pricing on several key Rx and API products in the fourth quarter, we still anticipate that results from these businesses will help to balance the challenges in Consumer Healthcare.
"We expect recently launched new products in Consumer Healthcare to make significant revenue and profit contributions in the fourth quarter. Because of the new products, fourth quarter profitability should be in line with historical levels despite increased costs for the large number of cough/cold product reformulations and for investments to support our high standards of quality assurance.
"We are disappointed by the year-over-year decline in Consumer Healthcare margins driven by pseudoephedrine and the resulting operational issues. We continue to invest in quality and new product development, and remain focused on cost reduction and operational changes that are necessary to drive margin improvement," concluded Gibbons.
Consumer Healthcare
Consumer Healthcare segment sales in the third quarter were $241.2 million compared with $219.7 million last year. A sales decline of $26 million in pseudoephedrine-based cough and cold products was offset by topical over-the- counter (OTC) product sales of $16 million related to the Agis acquisition and $24 million in new product sales. The Company began shipping nicotine polacrilix lozenges and recorded strong sales in the smoking cessation, feminine hygiene, and vitamin product categories. Operating income was $21.5 million and includes a $2.1 million reversal of the accrual related to the Loratadine recall. In fiscal 2005, operating income was $19.3 million. Excluding a $6.4 million charge for asset impairment and acquisition-related restructuring, operating income was $25.7 million.
For nine months of fiscal 2006, Consumer Healthcare sales were $742.1 million, compared with $699 million in the nine months last year. A sales decline of $69 million in pseudoephedrine-based cough and cold products was offset by topical OTC product sales of $48 million related to the Agis acquisition and $51 million in new product sales. Operating income was $66.6 million, and includes a $2.1 million reversal of the accrual related to the Loratadine recall. In fiscal 2005, operating income was $73.7 million. Excluding a $6.4 million charge for asset impairment and acquisition-related restructuring, operating income was $80.1 million.
Rx Pharmaceuticals
The Rx Pharmaceuticals segment reported sales of $30.2 million and operating income of $4.3 million. The Company announced final approvals for desoximetasone gel, ciclopirox olamine cream, terconazole vaginal suppositories and a tentative approval for sertraline hydrochloride tablets during the quarter. In the prior year, the Rx Pharmaceutical segment reported an operating loss of $1.9 million, reflecting the Company's investment in the start-up of its generics business. For the nine months, sales were $88.0 million and operating income was $13.4 million, which included a pre-tax charge of $2.8 million for a product recall in the first quarter, compared with an operating loss of $5.5 million in the same period last year.
API
Third quarter sales for the API segment were $30.3 million and operating income was $8 million. Sales in the quarter included $4 million for non- product revenues. For the nine months, sales were $83.9 million and operating income was $21.1 million. Excluding a first quarter write-off of the step-up in the value of inventory acquired of $1.7 million, the API segment had operating income of $22.8 million for the nine months.
Other
The Other category, consisting of Israel Consumer Products and Israel Pharmaceutical and Diagnostic Products segments, reported sales of $30.6 million and an operating loss of $0.3 million. Sales for nine months were $97.8 million, with an operating loss of $0.6 million. Excluding a first quarter write-off of the step-up in the value of inventory acquired of $2.7 million, the Other category had operating income of $2.1 million.
In the third quarter, unallocated expenses were $3.1 million, including corporate costs of $2.5 million and integration costs of $0.6 million. For nine months, unallocated expenses were $10.2 million, consisting of corporate costs of $7.6 million and integration costs of $2.6 million.
Significant Events
On February 2, 2006, the Company announced it received approval from the U.S. Food and Drug Administration (FDA) to market OTC nicotine polacrilix lozenges. With the approval, the Company was granted 180 days of generic market exclusivity. The FDA determined the product was bioequivalent to GlaxoSmithKline's Commit® lozenge, which is indicated as an aid to smoking cessation. Initial shipments of the product began in late-February.
On February 2, the Company also said that it entered into a supply, purchase and license agreement with another pharmaceutical company pursuant to which the Company will produce API for the other company and sell certain intellectual property assets. The Company also entered into a collaboration agreement with that company pursuant to which the two companies will collaborate on the development and manufacture of two drug products. Revenues from sales under the supply, purchase and license agreement and fees from the collaboration agreement contributed to operating income in the third quarter and will continue to have a positive impact in the fourth quarter of fiscal 2006 and beyond.
Perrigo will host a conference call to discuss fiscal 2006 third quarter results at 10 a.m. (ET) Thursday, April 27. 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 877-715-5282, International, 973-582-2850. A taped replay of the call will be available beginning at approximately 2:30 p.m. (ET) Thursday, April 27 until midnight Wednesday, May 3. To listen to the replay, call 877-519-4471, International 973-341-3080, access code 7293512.
The 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 market. 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 prescription generic drugs, active pharmaceutical ingredients and consumer products, and operates manufacturing 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 33 - 41 of the Company's Form 10-K for the year ended June 25, 2005, as well as the Company's subsequent filings with the Securities and Exchange Commission, 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
2006 2005 2006 2005
Net sales $332,321 $220,093 $1,011,752 $699,560
Cost of sales 235,043 157,132 721,988 504,830
Gross profit 97,278 62,961 289,764 194,730
Operating expenses
Distribution 6,438 4,032 20,541 12,130
Research and development 12,260 7,224 37,135 22,864
Selling and administration 48,225 32,552 141,695 89,808
Subtotal 66,923 43,808 199,371 124,802
Write-off of in-process
research and
development - 388,600 - 388,600
Restructuring - 6,382 - 6,382
Total 66,923 438,790 199,371 519,784
Operating income (loss) 30,355 (375,829) 90,393 (325,054)
Interest, net 2,465 (454) 11,606 (1,405)
Other income, net (2,310) (1,091) (9,346) (1,584)
Income (loss) before
income taxes 30,200 (374,284) 88,133 (322,065)
Income tax expense 9,339 5,152 28,995 23,955
Net income (loss) $20,861 $(379,436) $59,138 $(346,020)
Earnings (loss) per share
Basic $0.23 $(5.15) $0.64 $(4.81)
Diluted $0.22 $(5.15) $0.63 $(4.81)
Weighted average
shares outstanding
Basic 92,683 73,660 92,966 71,970
Diluted 94,044 73,660 94,143 71,970
Dividends declared per
share $0.043 $0.040 $0.125 $0.115
PERRIGO COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 25, June 25, March 26,
2006 2005 2005
Assets (unaudited) (unaudited)
Current assets
Cash and cash equivalents $29,168 $16,707 $40,735
Investment securities 6,685 17,761 33,200
Accounts receivable 220,425 210,308 203,849
Inventories 273,668 272,980 301,270
Current deferred income taxes 47,088 55,987 47,380
Prepaid expenses and other current
assets 16,010 35,064 28,690
Total current assets 593,044 608,807 655,124
Property and equipment 599,702 586,306 576,049
Less accumulated depreciation 281,733 262,505 253,316
317,969 323,801 322,733
Restricted cash 400,000 400,000 400,000
Goodwill 147,633 150,293 150,226
Other intangible assets 138,043 147,967 142,050
Non-current deferred income taxes 32,725 26,964 13,922
Other non-current assets 41,460 47,144 47,126
$1,670,874 $1,704,976 $1,731,181
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $163,494 $142,789 $141,621
Notes payable 26,969 25,345 22,334
Current maturities of long-term
liabilities - - 20,000
Payroll and related taxes 48,632 42,326 48,160
Accrued customer programs 46,020 41,666 31,302
Accrued liabilities 46,832 57,532 74,496
Accrued income taxes 7,004 21,225 15,201
Current deferred income taxes 9,002 9,659 9,010
Total current liabilities 347,953 340,542 362,124
Non-current liabilities
Long-term debt 594,360 656,128 666,706
Non-current deferred income taxes 68,924 74,379 59,740
Other non-current liabilities 35,274 43,090 33,637
Total non-current
liabilities 698,558 773,597 760,083
Shareholders' equity
Preferred stock, without par value,
10,000 shares authorized - - -
Common stock, without par value,
200,000 shares authorized 518,996 527,748 527,220
Accumulated other comprehensive
income (loss) (7,377) (1,687) 6,275
Retained earnings 112,744 64,776 75,479
Total shareholders' equity 624,363 590,837 608,974
$1,670,874 $1,704,976 $1,731,181
Supplemental Disclosures of Balance
Sheet Information
Allowance for doubtful accounts $10,619 $10,370 $8,280
Allowance for inventory $43,035 $38,095 $27,841
Working capital $245,091 $268,265 $293,000
Preferred stock, shares issued - - -
Common stock, shares issued 93,087 93,903 93,802
PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Year-to-Date
2006 2005
Cash Flows (For) From Operating
Activities
Net income (loss) $59,138 $(346,020)
Adjustments to derive cash flows
Write-off of in-process
research and development - 388,600
Depreciation and
amortization 42,155 23,561
Share-based compensation 7,274 4,828
Deferred income taxes (2,707) (5,860)
Sub-total 105,860 65,109
Changes in operating assets and
liabilities
Accounts receivable (8,701) (11,320)
Inventories 1,201 10,202
Accounts payable 19,180 (7,108)
Payroll and related taxes 5,928 (14,369)
Accrued customer programs 4,354 (2,398)
Accrued liabilities (12,358) 4,090
Accrued income taxes (17,480) 3,805
Other 12,648 6,381
Sub-total 4,772 (10,717)
Net cash from operating
activities 110,632 54,392
Cash Flows (For) From Investing
Activities
Purchases of securities (29,134) (81,070)
Proceeds from sales of
securities 39,384 243,975
Additions to property and
equipment (18,672) (15,576)
Acquisition of business, net of
cash acquired - (381,569)
Acquisition of assets - (5,562)
Increase in restricted cash - (400,000)
Net cash for investing activities (8,422) (639,802)
Cash (For) From Financing
Activities
Borrowings of short-term debt, net 1,543 3,622
Borrowings of long-term debt 15,000 615,000
Repayments of long-term debt (75,000) -
Increase in deferred debt issue
costs - (1,017)
Tax effect of stock
transactions (762) 1,087
Issuance of common stock 5,223 6,137
Repurchases of common stock (20,488) (122)
Cash dividends (11,660) (8,195)
Net cash (for) from
financing activities (86,144) 616,512
Net increase in cash and
cash equivalents 16,066 31,102
Cash and cash equivalents, at
beginning of period 16,707 8,392
Effect of exchange rate changes on
cash (3,605) 1,241
Cash and cash equivalents, at end
of period $29,168 $40,735
Supplemental Disclosures of Cash
Flow Information
Cash paid/received during the
period for:
Interest paid $27,093 $231
Interest received $15,870 $2,193
Income taxes paid $40,106 $22,537
Income taxes refunded $5,239 $4,196
Table I
PERRIGO COMPANY
SEGMENT INFORMATION
(in thousands)
(unaudited)
Third Quarter Fiscal Year
2006 2005 2006 2005
Segment Sales
Consumer Healthcare $241,238 $219,690 $742,091 $698,993
Rx Pharmaceuticals 30,237 403 87,976 567
API 30,250 - 83,903 -
Other 30,596 - 97,782 -
Total $332,321 $220,093 $1,011,752 $699,560
Segment Operating Income (Loss)
Consumer Healthcare $21,471 $19,283 $66,644 $73,708
Rx Pharmaceuticals 4,260 (1,887) 13,396 (5,537)
API 7,969 - 21,099 -
Other (290) - (570) -
Unallocated expenses (3,055) - (10,176) -
Write-off of in process R&D - (388,600) - (388,600)
Acquisition and integration costs - (4,625) - (4,625)
Total $30,355 $(375,829) $90,393 $(325,054)
Table II
PERRIGO COMPANY
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share amounts)
(unaudited)
Third Quarter Fiscal Year
2006 2005 2006 2005
Net sales $332,321 $220,093 $1,011,752 $699,560
Reported gross profit $97,278 $62,961 $289,764 $194,730
Inventory step-up - - 4,762 -
Adjusted gross profit $97,278 $62,961 $294,526 $194,730
Adjusted gross profit % 29.3% 28.6% 29.1% 27.8%
Reported operating income
(loss) $30,355 $(375,829) $90,393 $(325,054)
Inventory step-up - - 4,762 -
Perrigo operational
improvements - 3,150 - 3,150
Perrigo asset impairments - 3,232 - 3,232
Write-off of in-process R&D - 388,600 - 388,600
Acquisition costs - 4,625 - 4,625
Adjusted operating income $30,355 $23,778 $95,155 $74,553
Reported net income (loss) $20,861 $(379,436) $59,138 $(346,020)
Inventory step-up (1) - - 3,714 -
Gain on sale of equity
investment (2) - (2,939) -
Perrigo operational
improvements (3) - 2,016 - 2,016
Perrigo asset impairments (3) - 2,068 - 2,068
Write-off of in-process R&D
(4) - 388,600 - 388,600
Acquisition costs (3) - 2,960 - 2,960
Adjusted net income $20,861 $16,208 $59,913 $49,624
Diluted earnings (loss) per
share
Reported $0.22 $(5.15) $0.63 $(4.81)
Adjusted $0.22 $0.22 $0.64 $0.69
Diluted weighted average
shares outstanding 94,044 73,660 94,143 71,970
(1) Net of taxes at 22%
(2) Net of taxes at 37%
(3) Net of taxes at 36%
(4) Write-off of in-process research and development is a permanent
difference for tax purposes and thus is not tax effected
Table II (Continued)
REPORTABLE SEGMENTS
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share amounts)
(unaudited)
Third Quarter Year-To-Date
2006 2005 2006 2005
Consumer Healthcare
Net sales $241,238 $219,690 $742,091 $698,993
Reported gross profit $61,467 $62,648 $184,838 $194,499
Inventory step-up - - 318 -
Adjusted gross profit $61,467 $62,648 $185,156 $194,499
Adjusted gross profit % 25.5% 28.5% 25.0% 27.8%
Reported operating income $21,471 $19,283 $66,644 $73,708
Inventory step-up - 318
Perrigo operational improvements - 3,150 - 3,150
Perrigo asset impairments - 3,232 - 3,232
Adjusted operating income $21,471 $25,665 $66,962 $80,090
API
Net sales $30,250 $- $83,903 $-
Reported gross profit $14,310 $- $39,111 $-
Inventory step-up - - 1,747 -
Adjusted gross profit $14,310 $- $40,858 $-
Adjusted gross profit % 47.3% 0.0% 48.7% 0.0%
Reported operating income $7,969 $- $21,099 $-
Inventory step-up - - 1,747 -
Adjusted operating income $7,969 $- $22,846 $-
Other
Net sales $30,596 $- $97,782 $-
Reported gross profit $9,957 $- $31,054 $-
Inventory step-up - - 2,697 -
Adjusted gross profit $9,957 $- $33,751 $-
Adjusted gross profit % 32.5% 0.0% 34.5% 0.0%
Reported operating loss $(290) $- $(570) $-
Inventory step-up - - 2,697 -
Adjusted operating loss $(290) $- $2,127 $-
Unallocated
Reported operating loss $(3,055) $(393,225) $(10,176) $(393,225)
Write-off of in-process R&D - 388,600 - 388,600
Acquisition costs - 4,625 - 4,625
Adjusted operating loss $(3,055) $- $(10,176) $-
SOURCE: Perrigo Company
CONTACT: Ernest J. Schenk, Manager, Investor Relations and Communication
of Perrigo Company, +1-269-673-9212, E-mail: eschenk@perrigo.com
Web site: http://www.perrigo.com/