Perrigo Company (NASDAQ: PRGO)(TASE: PRGO) today announced results for its fiscal year 2009 second quarter and six months that ended December 27, 2008.
Perrigo Company
(in thousands, except per share amounts)
Second Quarter Six Months
2009 2008 2009 2008
Net Sales $561,477 $435,483 $1,041,713 $818,223
Reported Net Income $24,993 $34,289 $62,951 $68,308
Adjusted Net Income $42,716 $34,289 $81,313 $68,308
Diluted EPS $0.27 $0.36 $0.67 $0.72
Adjusted Diluted EPS $0.46 $0.36 $0.86 $0.72
Diluted Shares 93,587 95,283 94,076 95,104
Second Quarter Results
Net sales for the second quarter of fiscal 2009 were a record $561.5 million, an increase of 29%. Reported net income was $25.0 million, or $0.27 per share, compared with $34.3 million, or $0.36 per share, a year ago, a decrease of 27%. Excluding charges as outlined in Table II at the end of this release, second quarter fiscal 2009 adjusted net income was $42.7 million, or $0.46 per share.
The Company incurred a charge of $15.1 million, or $0.16 per share, related to the write-down of auction rate securities purchased in Israel from Lehman Brothers. These assets were written down from a face value of $18.0 million and continue to be held in non-current assets. The market for these securities has been illiquid for over 12 months, and the credit worthiness of underlying issuers has continued to deteriorate significantly. As a result, per Financial Accounting Standard 115 "Accounting for Certain Investments in Debt and Equity Securities," the impairment of these securities can no longer be considered to be temporary.
(Refer to Table II at the end of this press release for additional adjustments in the current year period and additional non-GAAP disclosure information.)
Perrigo's Chairman and CEO Joseph C. Papa stated, "In the second quarter, we achieved record sales with our new products contributing $84 million to top line growth. This past quarter, the over-the-counter category grew 4% versus second quarter last year and the store brand category grew nearly 17%, while Perrigo grew 39%. Store brand offerings continue to perform well as our retailers promote these products to help their customers through these trying times."
Six Months Results
Net sales for the first half of fiscal 2009 were $1,041.7 million, an increase of 27% over fiscal 2008. The increase was driven primarily by the Consumer Healthcare segment and included consolidated new product sales of approximately $156 million. Reported gross profit was $298.5 million, up 20% over fiscal 2008, driven by the Consumer Healthcare segment. The reported gross profit percentage in the first half of fiscal 2009 was 29%, down from 30% last year. Operating expenses were $179.2 million, an increase of 18% over fiscal 2008, but as a percent of sales were slightly lower than fiscal 2008. Reported net income was $63.0 million, a decrease of 8% from fiscal 2008. Adjusted net income was $81.3 million or an increase of 19% from fiscal 2008.
Consumer Healthcare
Consumer Healthcare segment net sales in the second quarter were a record $446.4 million compared with $320.2 million in the second quarter last year, an increase of $126.2 million or 39%. The increase resulted from approximately $77 million of new product sales, and a $15.3 million increase in domestic sales of existing products. Sales also included $33.4 million of sales from the acquisitions of JB Laboratories and Unico Holdings. In addition, international acquisitions, including Galpharm, Brunel and Diba, added $18.9 million.
Reported operating income was $56.3 million, compared with $38.8 million a year ago, largely driven by sales of new, higher margin products and improved management of operating expenses. Adjusted operating income was $60.1 million or an increase of 55% compared to a year ago.
For the first six months of fiscal year 2009, Consumer Healthcare net sales increased 38% or $224.1 million compared to fiscal 2008. The increase resulted from approximately $143.8 million of new product sales and a $38.2 million increase from higher domestic sales of existing products. The increase also included sales of $70.6 million from the Company's recent acquisitions, which were slightly offset by the absence of the U.K.'s vitamins, minerals and supplements business' sales of $16.0 million and the unfavorable effect of foreign currency exchange of $10.0 million.
On October 6, the Company announced that it acquired Laboratorios Diba, S.A. (Diba) for approximately $25 million in cash. Based in Guadalajara, Mexico, privately-held Diba is a store brand manufacturer of over-the-counter (OTC) and prescription pharmaceuticals, including antibiotics, hormonals and opthalmics. The acquisition is expected to add approximately $15 million of annual sales.
On November 13, the Company announced that it acquired Unico Holdings (Unico) for approximately $52 million in cash. Based in Lake Worth, Florida, privately-held Unico is the leading manufacturer of store brand pediatric electrolytes, enemas and feminine hygiene products for retail customers in the U.S. The acquisition is expected to add approximately $50 million of annual sales and to be accretive to earnings in the first 12 months.
On December 29, the Company announced that it received final approval from the U.S. Food and Drug Administration (FDA) for its Abbreviated New Drug Application (ANDA) for OTC Ibuprofen and Diphenhydramine Citrate Tablets, 200/38 mg. The Company expects to begin shipping the product to retailers during the first quarter of calendar year 2009. The product will be marketed under store brand labels and is comparable to Wyeth Consumer Healthcare's Advil® PM tablets, 200/38 mg, indicated as a pain reliever (NSAID)/nighttime sleep-aid. Estimated brand sales for the product for the last 12 months ending December 21, 2008 were $71 million.
Rx Pharmaceuticals
The Rx Pharmaceutical segment second quarter net sales were $40.4 million compared with $38.7 million a year ago. This increase resulted primarily from new product sales of approximately $5.7 million and a slight increase in sales volumes on the Company's existing portfolio of products. These increases were partially offset by a $1.8 million reduction in non-product revenue, along with continued pricing pressure due to changes in customer mix and increased competition in the marketplace for generic drugs. Operating income was $7.2 million, compared with $8.4 million last year.
For the first six months of fiscal year 2009, net sales for the Rx Pharmaceutical segment were relatively flat compared to fiscal 2008. Sales increased due to new product sales of approximately $10.0 million, along with an increase in sales volumes on the Company's existing portfolio of products. These increases were offset by a $6.0 million reduction in non-product revenue, along with unfavorable changes in customer mix and increased competition in the marketplace for generic drugs.
On November 19, the Company acknowledged the settlement of patent litigation brought by Sanofi-Aventis against Barr Laboratories, Inc. (Barr), a subsidiary of Barr Pharmaceuticals, Inc. The suit was brought in the U.S. District Court of Delaware in 2006 based upon Barr's filing of an ANDA for Triamcinolone Acetonide Nasal Spray containing a paragraph IV certification. Barr believes that it is the first to file an ANDA containing a paragraph IV certification for NASACORT®AQ. Barr developed its Triamcinolone Acetonide Nasal Spray product with the Company and is awaiting final approval from the FDA. NASACORT®AQ had annual sales of approximately $325 million for the 12 months ended November 2008, based on Wolters Kluwer sales data.
On December 4, the Company announced that all Hatch-Waxman litigation relating to Desloratadine tablets (5 mg) had been settled with the Company taking a license under all relevant patents. Under the terms of the settlement, the Company can commercially launch its generic Desloratadine product on July 1, 2012, or earlier in certain circumstances. The new product launch may be a prescription or OTC product depending on its status at the time of launch. The Company's product is awaiting FDA approval. This product seeks an AB-rating as equivalent to Schering-Plough's Clarinex® tablets (5 mg) indicated for the treatment of seasonal allergic rhinitis, perennial allergic rhinitis and chronic idiopathic urticaria. Sales for the brand were approximately $300 million for the 12 months ending November 2008, according to Wolters Kluwer data.
API
The API segment reported second quarter net sales of $31.9 million compared with $34.6 million a year ago, reflecting lower sales in two key products and unfavorable changes in foreign currency exchange rates. Operating income was $1.1 million, compared with $3.4 million last year, reflecting lower sales volume and unfavorable foreign currency exchange rate changes. For the first six months of fiscal year 2009, net sales decreased 10% or $7.3 million, compared to fiscal 2008. This decrease was due primarily to a decline of approximately $13.3 million in sales of two key products, partially offset by $6.0 million in increased volume on the remaining portfolio of existing products, favorable changes in the foreign currency exchange rate and new product sales.
Other
The Other category, consisting of the Israel Consumer Products and Israel Pharmaceutical and Diagnostic Products operating segments, reported second quarter net sales of $42.8 million, compared with $42.0 million a year ago. Operating income was $0.5 million, down from $3.4 million last year, due primarily to recognizing a loss on assets that fund the Israeli post employment obligations. Year-to-date net sales for fiscal 2009 increased 8% or $6.7 million, compared to fiscal 2008. The increase was due primarily to approximately $8.7 million of favorable changes in the foreign currency exchange rate.
Chairman and CEO Joseph C. Papa concluded, "The Perrigo business model remains strong. Despite an unprecedented negative economic environment, we have grown our business and expect to continue to do so given the momentum we have in our healthy OTC business and our strong balance sheet. But we are not immune to the effects of this economy. The API market is changing rapidly as our customers consolidate and manage their own costs, changing the timing of new product development activities. The requirement to recognize a loss on the assets that fund our Israeli post employment obligations was an unexpected result of global financial distress. As a result of unusually volatile foreign currency markets, our international businesses were atypically impacted by exchange rates. Increased sales in our nutrition product category as a result of high customer demand were offset by increased materials costs and additional costs of managing through short-term capacity constraints. To counteract these forces, we are in the process of changing our cost base in Israel, cutting corporate expenses and removing underperforming products and assets. It is imperative that we not rest on OTC's strong performance alone, but rather continue to look for additional ways to drive return on invested capital and to position ourselves for any environment."
"As a result of the combination of these factors, we are now expecting adjusted fiscal 2009 earnings to be between $1.75 and $1.90 per share, which implies a year over year growth rate of adjusted earnings of 11 to 20% over fiscal 2008. This is down from our previous guidance of $1.92 to $2.00 per share, excluding charges outlined in Table III at the end of this release. Reported fiscal 2009 earnings per share are expected to be between $1.55 and $1.70 per share."
"Looking ahead, we believe Perrigo is well positioned to continue to add value to our customers and shareholders."
Perrigo will host a conference call to discuss fiscal 2009 second quarter results at 10:00 a.m. (ET) on Tuesday, February 3. The conference call will be available live via webcast to interested parties on the Perrigo website http://www.perrigo.com/ or by phone 877-248-9413, International 973-582-2737 and reference ID# 80886866. A taped replay of the call will be available beginning at approximately 2:00 p.m. (ET) Tuesday, February 3, until midnight Friday, February 13, 2009. To listen to the replay, call 800-642-1687, International 706-645-9291, access code 80886866.
Perrigo Company is a leading global healthcare supplier that develops, manufactures and distributes OTC and generic prescription pharmaceuticals, nutritional products, active pharmaceutical ingredients (API) and consumer products. The Company is the world's largest manufacturer of OTC pharmaceutical products for the store brand market. The Company's primary markets and locations of manufacturing and logistics operations are the United States, Israel, Mexico and the United Kingdom. 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 June 28, 2008, 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)
Second Quarter Year-to-Date
2009 2008 2009 2008
Net sales $561,477 $435,483 $1,041,713 $818,223
Cost of sales 407,174 304,674 743,195 570,143
Gross profit 154,303 130,809 298,518 248,080
Operating expenses
Distribution 7,643 7,744 15,612 14,818
Research and development 19,923 16,143 38,147 32,463
Selling and administration 65,784 57,626 125,125 104,844
Subtotal 93,350 81,513 178,884 152,125
Write-off of in-process
research and development 279 - 279 -
Total 93,629 81,513 179,163 152,125
Operating income 60,674 49,296 119,355 95,955
Interest, net 7,464 3,674 13,310 8,329
Other (income) expense, net 891 (513) 1,006 (1,086)
Investment impairment 15,104 - 15,104 -
Income before income taxes 37,215 46,135 89,935 88,712
Income tax expense 12,222 11,846 26,984 20,404
Net income $24,993 $34,289 $62,951 $68,308
Earnings per share
Basic $0.27 $0.37 $0.68 $0.73
Diluted $0.27 $0.36 $0.67 $0.72
Weighted average shares
outstanding
Basic 92,044 93,147 92,415 93,186
Diluted 93,587 95,283 94,076 95,104
Dividends declared per share $0.055 $0.050 $0.105 $0.095
PERRIGO COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
December 27, June 28, December 29,
2008 2008 2007
Assets
Current assets
Cash and cash equivalents $162,164 $318,604 $72,163
Investment securities 9 560 29,642
Accounts receivable, net 359,136 350,272 311,013
Inventories 430,719 399,972 326,002
Current deferred income taxes 48,725 43,342 38,683
Income taxes refundable 22,965 6,883 4,568
Prepaid expenses and other current
assets 25,969 37,226 21,415
Total current assets 1,049,687 1,156,859 803,486
Property and equipment 746,184 745,840 687,068
Less accumulated depreciation (385,542) (388,945) (358,068)
360,642 356,895 329,000
Restricted cash 400,000 400,000 400,000
Goodwill 267,937 282,417 212,934
Other intangible assets 230,961 229,327 191,430
Non-current deferred income taxes 63,837 74,737 59,925
Other non-current assets 52,613 74,842 42,535
$2,425,677 $2,575,077 $2,039,310
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $266,189 $253,307 $194,214
Notes payable - - 3,937
Payroll and related taxes 51,445 77,140 44,673
Accrued customer programs 52,855 53,668 48,882
Accrued liabilities 48,954 56,958 40,137
Current deferred income taxes 18,354 24,493 20,320
Current portion of long-term debt 17,050 20,095 16,539
Total current liabilities 454,847 485,661 368,702
Non-current liabilities
Long-term debt 892,050 895,095 648,077
Non-current deferred income taxes 136,625 139,212 106,569
Other non-current liabilities 116,430 121,394 99,566
Total non-current
liabilities 1,145,105 1,155,701 854,212
Shareholders' equity
Preferred stock, without par value,
10,000 shares authorized - - -
Common stock, without par value,
200,000 shares authorized 442,774 488,537 505,076
Accumulated other comprehensive
income 39,716 155,184 79,470
Retained earnings 343,235 289,994 231,850
Total shareholders' equity 825,725 933,715 816,396
$2,425,677 $2,575,077 $2,039,310
Supplemental Disclosures of Balance
Sheet Information
Allowance for doubtful accounts $11,324 $9,931 $8,944
Working capital $594,840 $671,198 $434,784
Preferred stock, shares issued - - -
Common stock, shares issued 92,129 93,311 93,353
PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Year-To-Date
2009 2008
Cash Flows (For) From Operating
Activities
Net income $62,951 $68,308
Adjustments to derive cash flows
Write-off of in-process
research and development 279 -
Depreciation and amortization 34,362 30,983
Asset impairments 16,704 -
Share-based compensation 4,923 3,930
Income tax benefit from exercise of
stock options 646 2,094
Excess tax benefit of stock transactions (3,365) (3,209)
Deferred income taxes (8,035) 1,908
Sub-total 108,465 104,014
Changes in operating assets and liabilities,
net of asset and business acquisitions
Accounts receivable (13,849) (22,125)
Inventories (28,714) (24,238)
Income taxes refundable (22,965) (4,568)
Accounts payable 13,674 24,951
Payroll and related taxes (26,496) (2,605)
Accrued customer programs (813) 664
Accrued liabilities (10,289) (6,663)
Accrued income taxes 14,607 13,475
Other 2,361 10,131
Sub-total (72,484) (10,978)
Net cash from operating activities 35,981 93,036
Cash Flows (For) From Investing Activities
Purchase of securities - (133,791)
Proceeds from sales of securities - 153,502
Cash acquired in asset exchange 2,115 -
Acquisitions of businesses, net
of cash acquired (88,224) -
Acquisition of intangible assets (1,000) (12,401)
Additions to property and equipment (20,929) (13,714)
Net cash for investing activities (108,038) (6,404)
Cash Flows (For) From Financing Activities
Repayments of short-term debt, net (13,736) (7,839)
Borrowings of long-term debt - 50,000
Repayments of long-term debt (14,287) (55,000)
Excess tax benefit of stock transactions 3,365 3,209
Issuance of common stock 8,892 16,029
Repurchase of common stock (62,297) (35,417)
Cash dividends (9,710) (8,898)
Net cash for financing activities (87,773) (37,916)
Net increase (decrease) in cash and cash
equivalents (159,830) 48,716
Cash and cash equivalents, at beginning of
period 318,604 30,305
Effect of exchange rate changes on
cash 3,390 (6,858)
Cash and cash equivalents, at end
of period $162,164 $72,163
Supplemental Disclosures of Cash
Flow Information
Cash paid/received during
the period for:
Interest paid $24,206 $19,561
Interest received $13,448 $10,392
Income taxes paid $44,322 $11,331
Income taxes refunded $1,084 $1,288
Table I
PERRIGO COMPANY
SEGMENT INFORMATION
(in thousands)
(unaudited)
Second Quarter Fiscal Year
2009 2008 2009 2008
Segment Sales
Consumer Healthcare $446,410 $320,205 $812,612 $588,464
Rx Pharmaceuticals 40,401 38,655 73,576 73,615
API 31,866 34,608 66,109 73,422
Other 42,800 42,015 89,416 82,722
Total $561,477 $435,483 $1,041,713 $818,223
Segment Operating Income (Loss)
Consumer Healthcare $56,305 $38,838 $115,420 $68,856
Rx Pharmaceuticals 7,172 8,365 8,956 15,810
API 1,062 3,423 1,497 10,699
Other 456 3,424 1,705 6,054
Unallocated expenses (4,321) (4,754) (8,223) (5,464)
Total $60,674 $49,296 $119,355 $95,955
Table II
PERRIGO COMPANY
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share amounts)
(unaudited)
Second Quarter Fiscal Year
2009 2008 2009 2008
Net sales $561,477 $435,483 $1,041,713 $818,223
Reported gross profit $154,303 $130,809 $298,518 $248,080
Inventory step-up - Unico 1,062 - 1,062 -
Inventory step-up - Diba 767 - 767 -
Inventory step-up - JB Labs 358 - 358 -
Impairment of fixed assets 1,600 - 1,600 -
Adjusted gross profit $158,090 $130,809 $302,305 $248,080
Adjusted gross profit % 28.2% 30.0% 29.0% 30.3%
Reported operating income $60,674 $49,296 $119,355 $95,955
Inventory step-up - Unico 1,062 - 1,062 -
Inventory step-up - Diba 767 - 767 -
Inventory step-up - JB Labs 358 - 358 -
Impairment of fixed assets 1,600 - 1,600 -
Write-off of in-process R&D -
Diba acquisition 279 - 279 -
Loss on asset exchange - - 639 -
Adjusted operating income $64,740 $49,296 $124,060 $95,955
Adjusted operating income % 11.5% 11.3% 11.9% 11.7%
Reported net income $24,993 $34,289 $62,951 $68,308
Inventory step-up - Unico (4) 645 - 645 -
Inventory step-up - Diba (1) 552 - 552 -
Inventory step-up - JB Labs (2) 229 - 229 -
Impairment of fixed assets (3) 992 - 992 -
Write-off of in-process R&D -
Diba acquisition (1) 201 - 201 -
Investment impairment (5) 15,104 - 15,104 -
Loss on asset exchange (5) - - 639 -
Adjusted net income $42,716 $34,289 $81,313 $68,308
Diluted earnings per share
Reported $0.27 $0.36 $0.67 $0.72
Adjusted $0.46 $0.36 $0.86 $0.72
Diluted weighted average shares
outstanding 93,587 95,283 94,076 95,104
(1)Net of taxes at 28%
(2)Net of taxes at 36%
(3)Net of taxes at 38%
(4)Net of taxes at 39.3%
(5)No tax impact
Table II (Continued)
REPORTABLE SEGMENTS
RECONCILIATION OF NON-GAAP MEASURES
(in thousands)
(unaudited)
Second Quarter Fiscal Year
2009 2008 2009 2008
Consumer Healthcare
Net sales $446,410 $320,205 $812,612 $588,464
Reported gross profit $114,977 $86,553 $224,284 $158,909
Inventory step-up - Unico 1,062 - 1,062 -
Inventory step-up - Diba 767 - 767 -
Inventory step-up - JB Labs 358 - 358 -
Impairment of fixed assets 1,600 - 1,600 -
Adjusted gross profit $118,764 $86,553 $228,071 $158,909
Adjusted gross profit % 26.6% 27.0% 28.1% 27.0%
Reported operating expenses $58,672 $47,715 $108,864 $90,053
Loss on asset exchange - - (639) -
Adjusted operating expenses $58,672 $47,715 $108,225 $90,053
Adjusted operating expenses % 13.1% 14.9% 13.3% 15.3%
Reported operating income $56,305 $38,838 $115,420 $68,856
Inventory step-up - Unico 1,062 - 1,062 -
Inventory step-up - Diba 767 - 767 -
Inventory step-up - JB Labs 358 - 358 -
Impairment of fixed assets 1,600 - 1,600 -
Loss on asset exchange - - 639 -
Adjusted operating income $60,092 $38,838 $119,846 $68,856
Adjusted operating income % 13.5% 12.1% 14.7% 11.7%
Unallocated
Reported operating loss $(4,321) $(4,754) $(8,223) $(5,464)
Write-off of in-process R&D -
Diba acquisition 279 - 279 -
Adjusted operating loss $(4,042) $(4,754) $(7,944) $(5,464)
Table III
2009 GUIDANCE
RECONCILIATION OF NON-GAAP MEASURES
(unaudited)
Full Year
Fiscal 2009 Guidance
Reported earnings per share range $1.55 - $1.70
Loss on asset exchange $0.007
Charges associated with inventory step-ups $0.023
Fixed asset impairment $0.011
Write-off of in-process R&D $0.002
Investment impairment $0.161
Adjusted earnings per share range $1.75 - $1.90
FCMN Contact: penny.bursma@perrigo.com
SOURCE: Perrigo Company
CONTACT: Arthur J. Shannon, Vice President, Investor Relations and
Communication, +1-269-686-1709, ajshannon@perrigo.com, or Daniel B. Willard,
Manager, Investor Relations and Communication, +1-269-686-1597,
dbwillard@perrigo.com, both of Perrigo Company
Web site: http://www.perrigo.com/