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Perrigo Company Reports Third Quarter Fiscal 2006 Financial Results
PRNewswire-FirstCall
ALLEGAN, Mich.

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/