The Perrigo Company (NASDAQ: PRGO)(TASE: PRGO) today announced results for the third quarter of fiscal year 2007 ended March 31, 2007.
Perrigo Company
(in thousands, except per share amounts)
Third Quarter Nine Months
2007 2006 2007 2006
Sales $362,288 $332,321 $1,073,132 $1,011,752
Net Income $17,056 $20,860 $55,026 $59,138
Diluted EPS $0.18 $0.22 $0.59 $0.63
Diluted Shares 93,298 94,044 93,604 94,143
On March 26, 2007, Perrigo completed the acquisition of nine generic prescription products and four pipeline products from Glades Pharmaceuticals, Inc. The reported results above include an acquisition-related write-off of the in-process research and development (IPR&D) of $4.8 million after-tax.
Third Quarter Results
Net sales for the third quarter of fiscal 2007 were $362.3 million, an increase of $30 million, or nine percent, compared with $332.3 million last year. Reported net income was $17.1 million, or $0.18 per share, and included the aforementioned write-off of IPR&D and a restructuring charge of $0.2 million after-tax. Excluding these charges, adjusted net income was $22.1 million, or $0.24 per share. In the third quarter last year, net income was $20.9 million, or $0.22 per share. A reconciliation of non-GAAP measures is shown in Table II at the end of this press release.
Commenting on the third quarter, Joseph C. Papa, Perrigo's President and Chief Executive Officer said, "Our strong revenue growth this quarter was driven largely by improved volume in several of our core Consumer Healthcare product categories, despite this year's mild cold and flu season. New product sales remained strong, especially in the smoking cessation category, positioning us to exceed our targeted new product sales expectations for 2007. The acquisition of generic prescription products from Glades Pharmaceuticals this quarter and the pending acquisition of Qualis, Inc. provide us additional growth prospects in the coming quarters and enhance our future product pipeline. In addition, I was pleased to note our focus on working capital and inventory in the quarter have helped drive operating cash flow of $57 million in the quarter, bringing us to $74 million year-to-date."
Nine Months Results
Net sales for the nine months ended March 31, 2007 were $1,073.1 million, an increase of $61 million, or six percent compared with $1,011.8 million last year. Reported net income was $55.0 million, or $0.59 per share, which included costs for a product recall of $4.1 million after-tax, or $0.04 per share. Excluding the write-off of IPR&D of $4.8 million after-tax and restructuring charges of $0.6 million after-tax, adjusted net income was $60.5 million, or $0.65 per share.
In the nine months a year ago, net income was $59.1 million, or $0.63 per share. Excluding an acquisition-related write-off of the step-up in the value of inventory acquired in the first quarter last year ($3.7 million after-tax, or $0.04 per share) and a gain on the sale of an interest in a Canadian distribution company ($2.9 million after-tax, or $0.03 per share) in the second quarter last year, net income for the nine months was $59.9 million, or $0.64 per share. A reconciliation of non-GAAP measures for both years is shown in Table II at the end of this press release.
The effective tax rate for the nine months year to date was 19.4%, down from 32.9% in the same period a year ago. This lower rate was a result of the higher proportion of income from non-US businesses versus last year, international tax planning and the retroactive renewal of the research and development tax credit that was part of the Tax Relief and Healthcare Act.
Consumer Healthcare
Perrigo's Consumer Healthcare segment net sales in the quarter were $262.3 million, up $23.7 million, or 9.9%, compared with $238.6 million last year. New products contributed $16.7 million in incremental sales primarily in the smoking cessation and nutrition categories. These results also include strong growth in the analgesics category and strong sales gains from store-brand operations in Mexico and the United Kingdom. Operating income in the quarter was $21.6 million, compared with $20.4 million a year ago.
For the nine months, Consumer Healthcare sales were $780.0 million, up $44.1 million, or six percent, compared with $735.9 million last year. The sales gain was driven by new product sales of $44.4 million, and increases in Mexico and the United Kingdom, offset by a decline in cough and cold product sales in the first half of the year. Operating income was $56.1 million and includes a $6.3 million charge for a recall of certain Acetaminophen products in November 2006. In fiscal 2006, operating income was $65.2 million.
On March 7, 2007, the Company announced that it will acquire store brand OTC pediculicide products for $12 million in cash. The production of these products, which compare to Rid® and Nix®, will be absorbed into our facilities as of the closing date, expected to be on or around June 30, 2007.
Rx Pharmaceuticals
Perrigo's Rx Pharmaceuticals segment reported sales of $34.0 million, including $5.8 million of service and royalty revenue, compared with $30.2 million a year ago. Operating income was $7.4 million, compared with $4.3 million last year.
For the first nine months of fiscal 2007, net sales were $93.7 million and operating income was $16.9 million with a 26% increase in research and development spending. For the same period last year, sales were $88.0 million and operating income was $13.4 million, including a charge of $2.8 million pre-tax for a product recall.
As noted above, the Company completed an acquisition of products from Glades Pharmaceuticals, Inc. at the end of March for $57 million in cash plus other consideration of $2.5 million for future research and development collaborations. Glades is a subsidiary of Stiefel Laboratories, Inc., a privately-owned company specializing in the branded dermatology market. The acquisition is expected to add more than $20 million in net sales annually.
API
Fiscal third quarter sales in the API segment were $30.1 million, compared with last year's $30.3 million, which included $4 million of non-product revenue. Operating income was $4.0 million, compared with $8.0 million last year. For the nine months, sales were $88.5 million, compared with $83.9 million, and operating income was $14.6 million, compared with $21.1 million last year. Spending in API research and development has increased 70% from last year. Excluding a $1.7 million write-off of the step-up in the value of inventory acquired, operating income for the nine months last year was $22.8 million.
Other
Perrigo's Other category, consisting of the Israel Consumer Products and Israel Pharmaceutical and Diagnostic Products segments, reported third quarter sales of $35.9 million, compared with $33.2 million a year ago. Operating income was $1.1 million, compared with $0.7 million last year. Sales for the nine months were $110.9 million, up 6.7%, compared with $104.0 million in the same period a year ago and operating income was $6.7 million, compared with $0.9 million last year. Excluding a $2.7 million write-off of the step-up in the value of inventory acquired, operating income for the nine months last year was $3.6 million.
Outlook
The Company continues to anticipate earnings for the full fiscal year in the range of $0.86 to $0.91 per share, excluding $0.01 per share of restructuring costs and $0.05 per share for the write-off of IPR&D. The Company also expects full-year operating cash flow between $100 to $120 million.
Mr. Papa stated, "Our outlook continues to be positive as we focus on quality, service and cost efficiencies and look forward to assisting our customers in meeting the needs of consumers for more affordable healthcare, especially for over-the-counter store brand products. We remain committed to our investments in quality and continue to invest in R&D to enable our future launches of new products."
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, the United Kingdom, Mexico, Germany and China. 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. The Company has based these forward-looking statements on its current expectations, assumptions, estimates and projections. While the Company believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the Company's control. These and other important factors, including those discussed under "Risk Factors" in the Company's Form 10-K for the year ended July 1, 2006, as well as the Company's subsequent filings with the Securities and Exchange Commission, may cause actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. The forward-looking statements in this press release are made only as of the date hereof, and 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
2007 2006 2007 2006
Net sales $362,288 $332,321 $1,073,132 $1,011,752
Cost of sales 262,079 235,043 779,981 721,988
Gross profit 100,209 97,278 293,151 289,764
Operating expenses
Distribution 7,020 6,438 21,559 20,541
Research and development 16,390 12,260 44,339 37,135
Selling and administration 44,710 48,225 142,423 141,695
Subtotal 68,120 66,923 208,321 199,371
Write-off of in-process
research and development 8,252 - 8,252 -
Restructuring 306 - 948 -
Total 76,678 66,923 217,521 199,371
Operating income 23,531 30,355 75,630 90,393
Interest, net 3,650 2,465 11,536 11,606
Other income, net (1,874) (2,310) (4,193) (9,346)
Income before income taxes 21,755 30,200 68,287 88,133
Income tax expense 4,699 9,339 13,261 28,995
Net income $17,056 $20,861 $55,026 $59,138
Earnings per share
Basic $0.19 $0.23 $0.60 $0.64
Diluted $0.18 $0.22 $0.59 $0.63
Weighted average shares
outstanding
Basic 91,643 92,683 92,161 92,966
Diluted 93,298 94,044 93,604 94,143
Dividends declared per share $0.045 $0.043 $0.133 $0.125
PERRIGO COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, July 1, March 25,
2007 2006 2006
Assets (unaudited) (unaudited)
Current assets
Cash and cash equivalents $34,873 $19,018 $29,168
Investment securities 58,220 26,733 6,685
Accounts receivable 246,582 240,130 220,425
Inventories 310,272 302,941 273,668
Current deferred income taxes 39,122 52,058 47,088
Prepaid expenses and other current
assets 23,833 16,298 16,010
Total current assets 712,902 657,178 593,044
Property and equipment 641,343 606,907 599,702
Less accumulated depreciation 320,672 287,549 281,733
320,671 319,358 317,969
Restricted cash 422,000 400,000 400,000
Goodwill 189,450 152,183 147,633
Other intangible assets 155,899 132,426 138,043
Non-current deferred income taxes 42,624 43,143 32,725
Other non-current assets 47,015 46,336 41,460
$1,890,561 $1,750,624 $1,670,874
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $158,499 $179,740 $163,494
Notes payable 3,763 20,081 26,969
Payroll and related taxes 43,590 54,153 48,632
Accrued customer programs 40,494 49,534 46,020
Accrued liabilities 48,135 45,335 46,832
Accrued income taxes 16,210 14,132 7,004
Current deferred income taxes 13,886 8,456 9,002
Current portion of long-term debt 14,910 - -
Total current liabilities 339,487 371,431 347,953
Non-current liabilities
Long-term debt 709,342 621,717 594,360
Non-current deferred income taxes 102,129 81,923 68,924
Other non-current liabilities 34,346 34,809 35,274
Total non-current liabilities 845,817 738,449 698,558
Shareholders' equity
Preferred stock, without par value,
10,000 shares authorized - - -
Common stock, without par value,
200,000 shares authorized 507,025 516,098 518,996
Accumulated other comprehensive
income (loss) 34,434 3,593 (7,377)
Retained earnings 163,798 121,053 112,744
Total shareholders' equity 705,257 640,744 624,363
$1,890,561 $1,750,624 $1,670,874
Supplemental Disclosures of Balance
Sheet Information
Allowance for doubtful accounts $9,933 $11,178 $10,619
Allowance for inventory $37,390 $42,509 $43,035
Working capital $373,415 $285,747 $245,091
Preferred stock, shares issued - - -
Common stock, shares issued 92,510 92,922 93,087
PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Year-to-Date
2007 2006
Cash Flows (For) From Operating Activities
Net income $55,026 $59,138
Adjustments to derive cash flows
Write-off of in-process research
and development 8,252 -
Depreciation and amortization 41,997 42,155
Share-based compensation 6,530 7,274
Deferred income taxes 12,749 (2,707)
Sub-total 124,554 105,860
Changes in operating assets and liabilities
Accounts receivable (8,616) (8,701)
Inventories (4,224) 1,201
Accounts payable (19,254) 19,180
Payroll and related taxes (10,151) 5,928
Accrued customer programs (9,040) 4,354
Accrued liabilities 2,968 (12,358)
Accrued income taxes 3,008 (17,480)
Other (5,084) 12,648
Sub-total (50,393) 4,772
Net cash from operating activities 74,161 110,632
Cash Flows (For) From Investing Activities
Purchases of securities (228,341) (29,134)
Proceeds from sales of securities 198,530 39,384
Additions to property and equipment (30,133) (18,672)
Proceeds from sale of property
and equipment 2,613 -
Acquisition of assets (59,538) -
Net cash for investing activities (116,869) (8,422)
Cash (For) From Financing Activities
Borrowings (repayments) of
short-term debt, net (16,293) 1,543
Borrowings of long-term debt 130,000 15,000
Repayments of long-term debt (30,000) (75,000)
Tax effect of stock transactions (30) (762)
Issuance of common stock 5,347 5,223
Repurchases of common stock (20,919) (20,488)
Cash dividends (12,281) (11,660)
Net cash (for) from financing
activities 55,824 (86,144)
Net increase in cash and cash
equivalents 13,116 16,066
Cash and cash equivalents,
beginning of period 19,018 16,707
Effect of exchange rate changes on cash 2,739 (3,605)
Cash and cash equivalents, end of period $34,873 $29,168
Supplemental Disclosures of Cash Flow Information
Cash paid/received during the period for:
Interest paid $25,547 $27,093
Interest received $15,119 $15,870
Income taxes paid $8,500 $40,106
Income taxes refunded $8,443 $5,239
Table I
PERRIGO COMPANY
SEGMENT INFORMATION
(in thousands)
(unaudited)
Third Quarter Fiscal Year
2007 2006 2007 2006
Segment Sales
Consumer Healthcare $262,277 $238,594 $780,033 $735,916
Rx Pharmaceuticals 34,025 30,237 93,710 87,976
API 30,095 30,250 88,507 83,904
Other 35,891 33,240 110,882 103,956
Total $362,288 $332,321 $1,073,132 $1,011,752
Segment Operating Income (Loss)
Consumer Healthcare $21,578 $20,434 $56,098 $65,196
Rx Pharmaceuticals 7,448 4,260 16,921 13,396
API 4,002 7,969 14,589 21,100
Other 1,105 747 6,745 877
Unallocated expenses (2,350) (3,055) (10,471) (10,176)
Write-off of in-process R&D (8,252) - (8,252) -
Total $23,531 $30,355 $75,630 $90,393
Table II
PERRIGO COMPANY
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share amounts)
(unaudited)
Third Quarter Fiscal Year
2007 2006 2007 2006
Net sales $362,288 $332,321 $1,073,132 $1,011,752
Reported gross profit $100,209 $97,278 $293,151 $289,764
Inventory step-up - - - 4,762
Adjusted gross profit $100,209 $97,278 $293,151 $294,526
Adjusted gross profit % 27.7% 29.3% 27.3% 29.1%
Reported operating income
(loss) $23,531 $30,355 $75,630 $90,393
Inventory step-up - - - 4,762
Perrigo operational
improvements 306 - 948 -
Write-off of in-process R&D 8,252 - 8,252 -
Adjusted operating income $32,089 $30,355 $84,830 $95,155
Reported net income (loss) $17,056 $20,861 $55,026 $59,138
Inventory step-up (1) - - - 3,714
Gain on sale of equity
investment (2) - - - (2,939)
Perrigo operational
improvements (3) 199 - 616 -
Write-off of in-process R&D (4) 4,827 - 4,827 -
Adjusted net income $22,082 $20,861 $60,470 $59,913
Diluted earnings (loss) per share
Reported $0.18 $0.22 $0.59 $0.63
Adjusted $0.24 $0.22 $0.65 $0.64
Diluted weighted average
shares outstanding 93,298 94,044 93,604 94,143
(1) Net of taxes at 22%
(2) Net of taxes at 37%
(3) Net of taxes at 35%
(4) Net of taxes at 41.5%
Table II (Continued)
REPORTABLE SEGMENTS
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share amounts)
(unaudited)
Third Quarter Year-To-Date
2007 2006 2007 2006
Consumer Healthcare
Net sales $262,277 $238,594 $780,033 $735,916
Reported gross profit $59,233 $60,166 $174,780 $182,539
Inventory step-up - - - 318
Adjusted gross profit $59,233 $60,166 $174,780 $182,857
Adjusted gross profit % 22.6% 25.2% 22.4% 24.8%
Reported operating income $21,578 $20,434 $56,098 $65,196
Inventory step-up - - - 318
Perrigo operational improvements 306 - 948 -
Adjusted operating income $21,884 $20,434 $57,046 $65,514
API
Net sales $30,095 $30,250 $88,507 $83,904
Reported gross profit $12,499 $14,310 $38,463 $39,111
Inventory step-up - - - 1,747
Adjusted gross profit $12,499 $14,310 $38,463 $40,858
Adjusted gross profit % 41.5% 47.3% 43.5% 48.7%
Reported operating income $4,002 $7,969 $14,589 $21,100
Inventory step-up - - - 1,747
Adjusted operating income $4,002 $7,969 $14,589 $22,847
Other
Net sales $35,891 $33,240 $110,882 $103,956
Reported gross profit $12,346 $11,258 $38,603 $33,353
Inventory step-up - - - 2,697
Adjusted gross profit $12,346 $11,258 $38,603 $36,050
Adjusted gross profit % 34.4% 33.9% 34.8% 34.7%
Reported operating income $1,105 $747 $6,745 $877
Inventory step-up - - - 2,697
Adjusted operating income $1,105 $747 $6,745 $3,574
Unallocated
Reported operating loss $(10,602) $(3,055) $(18,723) $(10,176)
Write-off of in-process R&D 8,252 - 8,252 -
Adjusted operating income (loss) $(2,350) $(3,055) $(10,471) $(10,176)
FCMN Contact: pblain@perrigo.com
SOURCE: Perrigo Company
CONTACT: Arthur J. Shannon, Vice President, Investor Relations and
Communication, +1-269-686-1709, or ajshannon@perrigo.com, or Ernest J. Schenk,
Manager, Investor Relations and Communication, or +1-269-673-9212, or
eschenk@perrigo.com, both of Perrigo Company
Web site: http://www.perrigo.com/