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UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
______________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________to_______________
Commission file number 0-19725
PERRIGO COMPANY
(Exact name of registrant as specified in its charter)
Michigan 38-2799573
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
117 Water Street, Allegan, Michigan 49010
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(Address of principal executive offices) (Zip Code)
(616) 673-8451
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class of Common Stock October 9, 1996
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<S> <C>
without par 76,516,801 shares
</TABLE>
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PERRIGO COMPANY AND SUBSIDIARIES
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
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Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--September 30, 1996
and June 30, 1996. 3
Condensed consolidated statements of income--Three months
ended September 30, 1996 and 1995 4
Condensed consolidated statements of cash flows--Three
months ended September 30, 1996 and 1995 5
Notes to condensed consolidated financial statements--
September 30, 1996 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 12
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PERRIGO COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
(Unaudited)
ASSETS
<S> <C> <C>
Current assets $ 484 $ 176
Cash 115,739 91,396
Accounts receivable, net of allowances of $2,930 and 2,975,
respectively 158,831 156,976
Inventories 11,487 11,025
Prepaid expenses and other current assets 286,541 259,573
Total current assets
Property and equipment 342,362 339,708
Less accumulated depreciation 107,360 100,716
235,002 238,992
Cost in excess of net assets of acquired businesses,
net of accumulated amortization of $10,872 and $10,340
respectively 42,429 42,961
Other 7,877 7,869
$571,849 $549,395
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 68,376 $ 56,700
Payrolls and related taxes 10,042 13,002
Accrued expenses 25,468 21,417
Income taxes 6,782 1,225
Current installments on long-term debt 300 300
Total current liabilities 110,968 92,644
Deferred income taxes 27,001 26,751
Long-term debt, less current installments 41,840 48,840
Shareholders' equity
Preferred stock, without par value,
10,000 shares authorized, none issued - -
Common stock, without par value, 200,000 shares 146,219 146,056
authorized, 76,511 and 76,327 issued, respectively 245,821 235,104
Retained earnings 392,040 381,160
Total shareholders' equity $571,849 $549,395
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
<S> <C> <C>
Net sales $ 212,174 $ 205,147
Cost of sales 156,880 149,771
Gross profit 55,294 55,376
Operating expenses
Distribution 7,040 6,105
Research and development 3,268 2,382
Selling and administrative 24,647 23,233
Restructuring costs 989 1,154
Unusual litigation costs 1,780 1,470
37,724 34,344
Operating income 17,570 21,032
Interest expense 683 1,742
Income before income taxes 16,887 19,290
Income taxes 6,170 7,100
Net income $ 10,717 $ 12,190
Earnings per common share $ 0.14 $ 0.16
Weighted average number of common
shares outstanding 77,185 77,191
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1996 1995
<S> <C> <C>
Cash Flows From (For) Operating Activities:
Net income $ 10,717 $ 12,190
Depreciation and amortization 7,242 6,612
17,959 18,802
Accounts receivable (24,343) (32,413)
Inventories (1,855) (8,014)
Accounts payable 11,676 18,157
Other 6,436 9,614
Net cash from operating activities 9,873 6,146
Cash Flows For Investing Activities:
Additions to property and equipment (2,696) (5,288)
Other (32) (8)
Net cash for investing activities (2,728) (5,296)
Cash Flows From (For) Financing Activities:
Repayments of long-term debt (7,000) (1,000)
Issuance of common stock 163 56
Net cash for financing activities (6,837) (944)
Net Increase (Decrease) in Cash and Cash
Equivalents 308 (94)
Cash, at Beginning of Period 176 259
Cash, at End of Period $ 484 $ 165
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 844 $ 1,448
Income taxes paid $ 431 $ 538
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PERRIGO COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals and other adjustments) considered
necessary for a fair presentation have been included. Operating results for
the three month period ended September 30, 1996 are not necessarily indicative
of the results that may be expected for the year ending June 30, 1997. The
unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended June
30, 1996.
NOTE B -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
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(in thousands)
<S> <C> <C>
Finished goods $ 78,086 $ 74,657
Work in process 55,256 57,529
Raw materials 25,489 24,790
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$158,831 $156,976
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</TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or
market.
NOTE C -- RESTRUCTURING COSTS
For the three months ended September 30, 1996, the condensed
consolidated statement of income includes $989 of restructuring costs expensed
as incurred related primarily to business process redesign. In addition, $290
of costs were paid, primarily related to severance and employee benefit costs,
that had been accrued in a previous period. As of September 30, 1996, $1,358
remains in accrued liabilities.
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NOTE D -- COMMITMENTS AND CONTINGENCIES
For the three months ended September 30, 1996, the condensed
consolidated statement of income includes $1,780 of unusual litigation costs
related to a purported class action and other legal matters as described in the
Company's annual report on Form 10-K for the year ended June 30, 1996. The
Company believes the actions and claims are without merit or are covered by
insurance and intends to vigorously defend against these actions.
NOTE E -- NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The new statement requires the Company to review
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If it is
determined that an impairment loss has occurred based on expected future cash
flows, then the loss should be recognized in the income statement and certain
disclosures regarding the impairment should be made in the financial statements.
The Company adoption of SFAS No. 121 had no material impact on the Company's
financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 allows
companies to continue to account for their stock option plans in accordance with
APB Opinion No. 25 but encourages the adoption of a new accounting method to
record compensation expense based on the estimated fair value of employee stock
options. The Company will continue to account for its stock option plans in
accordance with APB Opinion No. 25 and provide supplemental disclosures in its
year-end financial statements as required by SFAS No. 123. No additional
disclosures are required on an interim basis.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
RESULTS OF OPERATIONS
The Company's net sales increased by 3.4% to $212,174 for the first
quarter of fiscal 1997, from $205,147 during the same period in fiscal 1996.
The growth in net sales was attributable to increased unit sales of vitamins,
Minoxidil, cough and cold remedies, antacid products and pregnancy test kits.
Vitamin, cough and cold, and antacid product sales increases are due primarily
to increased unit sales to existing customers. Minoxidil (a hair growth
stimulant) and pregnancy test kits are new products introduced by the Company
within the past 12 to 18 months.
Gross profit decreased 0.1% or $82 for the first quarter of fiscal
1997 compared to the same period in fiscal 1996. The gross profit margin for
the first quarter of fiscal 1997 was 26.1%, compared to 27.0% for the same
period in fiscal 1996. The gross profit margin decline was primarily the
result of increased sales of lower than average margin nutritional products and
lower production volumes for personal care products.
Operating expenses increased 9.8% or $3,380 for the first quarter of
fiscal 1997 compared to the same period in fiscal 1996. Operating expenses as
a percentage of net sales were 17.8% for the first quarter of fiscal 1997
compared to 16.7% for the first quarter of fiscal 1996. Distribution expenses
increased $935 or 15.3% from the first quarter of fiscal 1996 due primarily to
increased shipment volume and higher freight costs incurred in support of
customers' delivery requirements. Distribution expenses as a percentage of
sales were 3.3% for the first quarter of fiscal 1997, compared to 3.0% for the
first quarter of fiscal 1996. Research and development expenses increased $886
or 37.2% from the first quarter of fiscal 1996 due to expenses related to new
product development, primarily expenses related to the development of new
products for which an approval from the United States Food and Drug
Administration, through its Abbreviated New Drug Application process, is
required. Research and development expenses as a percentage of net sales were
1.5% for the first quarter of fiscal 1997 compared to 1.2% for the first
quarter of fiscal 1996. Selling and administrative expenses increased $1,414
or 6% from the first quarter of fiscal 1996 due primarily to higher sales
volume. Selling and administrative expense as a percentage of sales were 11.6%
for the first quarter of fiscal 1997, compared to 11.3% for the first quarter
of fiscal 1996. The Company anticipates incurring restructuring costs of
approximately $6 million and unusual litigation costs of approximately $6
million in fiscal 1997. See Notes C and D.
Interest expense decreased $1,059 or 60.8% to $683 for the first
quarter of fiscal 1997 compared to the same period in fiscal 1996. The
decrease reflects lower borrowing levels and lower effective interest rates
during the current year quarter.
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The effective income tax rates of 36.5% and 36.8% for the first
quarter of fiscal 1997 and 1996, respectively, were comparable.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of fiscal 1997 working capital increased
$8,644 and cash flow generated by operations exceeded cash flow used by
operations by $9,873. Accounts receivable increased $24,343 due to increased
sales and the timing of receipts, inventories increased $1,855 in order to
support the increased sales volume and accounts payable increased $11,676 due
to materials and component purchases related to production increases.
The Company's capital expenditures for facilities and equipment were
$2,696 for the three months ended September 30, 1996. In order to support
ongoing growth in sales, the Company is investing in a number of projects to
increase its manufacturing and distribution capabilities. The Company's
planned capital expenditures will require approximately $30,000 during fiscal
year 1997, principally for additional manufacturing and packaging equipment to
support growth in the over-the-counter pharmaceutical and nutritional product
categories. The Company plans to finance capital expenditures with cash flow
from operations and, if required, additional borrowings on its existing line of
credit.
The Company's ratio of indebtedness for borrowed money to equity of
0.1:1 at September 30, 1996 remained relatively unchanged from June 30, 1996.
Note: In accordance with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, please see Perrigo Company's Form
10-K for the fiscal year ended June 30, 1996, under the heading "Safe Harbor
For Forward-Looking Statements", for a discussion of certain important factors
as they relate to forward-looking statements.
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PART II. OTHER INFORMATION
<TABLE>
<S><C>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number Description
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3(a)** Amended and Restated Articles of Incorporation of Registrant.
3(b)**** Restated Bylaws of Registrant, dated April 10, 1996.
4(a)**** Shareholders' Rights Plan.
10(a)***** Credit Agreement, dated June 30, 1996, between the Registrant and NBD Bank, N.W., Sanwa Bank,
Comerica Bank-Detroit, National City Bank, Westdeutsche Landesbank Girozentrale and Old Kent Bank
and Trust Company.
10(b)*** Registrant's Management Incentive Plan.
10(c)***** Registrant's 1988 Employee Incentive Stock Option Plan as amended, incorporated by reference to
Exhibit A of the Registrant's 1995 proxy statement.
10(d)* Registrant's 1989 Non-Qualified Stock Option Plan for Directors.
27 Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the three months ended September 30, 1996.
</TABLE>
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* Document incorporated by reference from Registration Statement
No. 33-43834 filed by the Registrant on November 8, 1991.
** Document incorporated by reference from Amendment No. 2 to Registration
Statement No. 33-43834 filed by the Registrant on December 11, 1991.
*** Document incorporated by reference from Registration Statement No.
33-69324 filed by the Registrant on September 23, 1993.
**** Document incorporated by reference to the Registrant's Form 8-K filed on
April 10, 1996.
***** Document incorporated by reference to the Registrant's Form 10-K filed
on September 27, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERRIGO COMPANY
----------------------------------
(Registrant)
Date: October 28, 1996 /s/ Michael J. Jandernoa
------------------------ ----------------------------------
Michael J. Jandernoa
Chairman of the Board and Chief
Executive Officer
Date: October 28, 1996 /s/ Steve M. Neil
------------------------ ----------------------------------
Steve M. Neil
Vice President--Finance, Treasurer
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 484
<SECURITIES> 0
<RECEIVABLES> 115,739
<ALLOWANCES> 2,930
<INVENTORY> 158,831
<CURRENT-ASSETS> 286,541
<PP&E> 342,362
<DEPRECIATION> 107,360
<TOTAL-ASSETS> 571,849
<CURRENT-LIABILITIES> 110,968
<BONDS> 0
<COMMON> 146,219
0
0
<OTHER-SE> 245,821
<TOTAL-LIABILITY-AND-EQUITY> 571,849
<SALES> 212,174
<TOTAL-REVENUES> 212,174
<CGS> 156,880
<TOTAL-COSTS> 156,880
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 116
<INTEREST-EXPENSE> 683
<INCOME-PRETAX> 16,887
<INCOME-TAX> 6,170
<INCOME-CONTINUING> 10,717
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,717
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
