<PAGE> 1
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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: MARCH 31, 1997
--------------
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
------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
117 WATER STREET
ALLEGAN, MICHIGAN 49010
------------------------------- -------------------
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
(616) 673-8451
----------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
----------------------------------------------------
(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
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS OF COMMON STOCK MAY 1, 1997
--------------------- ---------------------------------
WITHOUT PAR 76,579,433 SHARES
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<PAGE> 2
PERRIGO COMPANY
FORM 10-Q
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--March 31, 1997
and June 30, 1996 3
Condensed consolidated statements of income--Three months and nine
months ended March 31, 1997 and 1996 4
Condensed consolidated statements of cash flows--Nine months
ended March 31, 1997 and 1996 5
Notes to condensed consolidated financial statements--
March 31, 1997 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
- ----------
-2-
<PAGE> 3
PERRIGO COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
--------- ----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash $ 6,613 $ 176
Accounts receivable, net of allowances of $2,877 and $2,975, respectively 99,039 91,396
Inventories 162,542 156,976
Prepaid expenses and other current assets 13,060 11,025
----------- -----------
Total current assets 281,254 259,573
Property and equipment 350,015 339,708
Less accumulated depreciation 117,849 100,716
----------- -----------
232,166 238,992
Cost in excess of net assets of acquired businesses, net of
accumulated amortization of $11,924 and $10,340, respectively 41,377 42,961
Other 8,148 7,869
----------- -----------
$ 562,945 $ 549,395
LIABILITIES AND SHAREHOLDERS' EQUITY =========== ===========
Current liabilities
Accounts payable $ 67,577 $ 56,700
Payrolls and related taxes 15,214 13,002
Accrued expenses 28,728 21,417
Income taxes 4,225 1,225
Current installments on long-term debt 300 300
----------- -----------
Total current liabilities 116,044 92,644
Deferred income taxes 27,992 26,751
Long-term debt, less current installments 1,540 48,840
Shareholders' equity
Preferred stock, without par value,
10,000 shares authorized, none issued - -
Common stock, without par value, 200,000 shares authorized,
76,579 and 76,327 issued, respectively 146,257 146,056
Retained earnings 271,112 235,104
----------- -----------
Total shareholders' equity 417,369 381,160
----------- -----------
$ 562,945 $ 549,395
=========== ===========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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<PAGE> 4
PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 214,580 $ 196,326 $ 648,419 $ 602,464
Cost of sales 156,660 144,924 472,557 441,318
----------- ----------- ----------- -----------
Gross profit 57,920 51,402 175,862 161,146
----------- ----------- ----------- -----------
Operating expenses
Distribution 7,354 6,846 21,485 19,097
Research and development 3,078 3,043 10,017 7,718
Selling and administrative 25,196 21,713 76,841 68,052
Restructuring costs 2,215 263 4,577 1,878
Unusual litigation costs 1,503 1,586 4,799 4,584
----------- ----------- ----------- -----------
39,346 33,451 117,719 101,329
----------- ----------- ----------- -----------
Operating income 18,574 17,951 58,143 59,817
Interest expense 374 1,317 1,445 4,731
----------- ----------- ----------- -----------
Income before income taxes 18,200 16,634 56,698 55,086
Income taxes 6,600 6,000 20,690 20,100
----------- ----------- ----------- -----------
Net income $ 11,600 $ 10,634 $ 36,008 $ 34,986
=========== =========== =========== ===========
Earnings per common share $ 0.15 $ 0.14 $ 0.47 $ 0.45
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 77,387 77,215 77,262 77,205
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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<PAGE> 5
PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
1997 1996
---- ----
<S> <C> <C>
Cash Flows From (For) Operating Activities:
Net income $ 36,008 $ 34,986
Depreciation and amortization 21,698 20,361
---------- ----------
57,706 55,347
Accounts receivable (7,643) (5,312)
Inventories (5,566) (9,277)
Accounts payable 10,877 1,085
Other 11,734 3,595
---------- ----------
Net cash from operating activities 67,108 45,438
---------- ----------
Cash Flows From (For) Investing Activities:
Additions to property and equipment (13,066) (14,460)
Other (506) 35
---------- ----------
Net cash for investing activities (13,572) (14,425)
---------- ----------
Cash Flows From (For) Financing Activities:
Repayments of long-term debt (47,300) (31,300)
Issuance of common stock 201 221
---------- ----------
Net cash for financing activities (47,099) (31,079)
---------- ----------
Net Increase (Decrease) in Cash 6,437 (66)
Cash, at beginning of period 176 259
---------- ----------
Cash, at end of period $ 6,613 $ 193
========== ==========
Supplemental disclosures of cash flow information:
Interest paid $ 1,367 $ 4,552
Income taxes paid $ 17,624 $ 13,731
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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<PAGE> 6
PERRIGO COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
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) considered necessary for a fair
presentation have been included. Operating results for the three and nine
month periods ended March 31, 1997 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 inventories consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Finished goods $84,617 $74,657
Work in process 48,791 57,529
Raw materials 29,134 24,790
-------- --------
$162,542 $156,976
======== ========
</TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or
market.
NOTE C -- RESTRUCTURING COSTS
In March 1997, the Company announced the closing of its Cumberland Freight
Line (CFL) truck fleet operations effective immediately. The operations of CFL
were not significant relative to the operations of the Company. Anticipated
restructuring costs of $1,211 were recorded during the third quarter of fiscal
1997.
For the nine months ended March 31, 1997, the condensed consolidated
statement of income includes $4,577 of restructuring costs expensed as incurred
related primarily to business process redesign and to the closing of CFL as
noted above. In addition, $1,040 was paid for expenses accrued in a previous
period, primarily related to the elimination of certain low volume products and
severance costs. As of March 31, 1997, $1,767 remains in accrued liabilities.
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<PAGE> 7
NOTE D -- COMMITMENTS AND CONTINGENCIES
For the nine months ended March 31, 1997 the condensed consolidated
statement of income includes $4,799 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's adoption of SFAS No. 121 has had no 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.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share." This Statement simplifies the standards for
computing earnings per share (EPS) and makes them comparable to international
EPS standards. The Statement requires the presentation of both "basic" and
"diluted" EPS on the face of the income statement with a supplementary
reconciliation of the numerators and denominators used in the calculations.
The Statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted. Had the Statement been required to be implemented for the periods
presented, the effect on EPS would have been insignificant.
-7-
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
The Company's net sales increased $18,254 or 9.3% to $214,580 for the
third quarter of fiscal 1997 compared to the same period in fiscal 1996. The
increase was primarily due to new product sales and to greater unit sales to
existing customers of cough and cold and analgesic products. New products
included Naproxen Sodium (a non-aspirin analgesic which is the active
ingredient in Aleve(R)), Minoxidil (a hair growth stimulant) and pregnancy test
kits.
Gross profit increased $6,518 or 12.7% for the third quarter of fiscal
1997 compared to the same period in fiscal 1996. The gross profit percentage
for the third quarter was 27.0% versus 26.2% for the same period in fiscal
1996. The increase in margin rate was due to increased sales of higher margin
products of cough and cold, analgesics, Minoxidil and pregnancy test kits.
Operating expenses increased $5,895 or 17.6% for the third quarter of
fiscal 1997 compared to the same period in fiscal 1996. Operating expenses as
a percentage of net sales were 18.3% for the third quarter of fiscal 1997
versus 17.0% for the third quarter of fiscal 1996. Selling and administrative
expenses increased by $3,483 for the third quarter of fiscal 1997 to 11.7% of
net sales from 11.1% of net sales for the same period in fiscal 1996. The
increase was primarily due to higher wages and costs to support higher sales.
Restructuring costs increased by $1,952 for the third quarter of fiscal 1997 to
1.0% of net sales from .1% of net sales for the same period in fiscal 1996,
primarily due to the closing of CFL, and unusual litigation costs were $1,503
for the third quarter of fiscal 1997 versus $1,586 for the same period of
fiscal 1996. See Notes C and D to the Condensed Consolidated Financial
Statements. Operating expenses without restructuring and unusual litigation
costs increased $4,026 or 12.7% for the third quarter of fiscal 1997 compared
to the same period in fiscal 1996.
Interest expense decreased $943 for the third quarter of fiscal 1997
compared to the same period in fiscal 1996 due to lower borrowing levels and
slightly lower interest rates.
The effective income tax rate was 36.3% for the third quarter of fiscal
1997 versus 36.1% for the same period in fiscal 1996.
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
The Company's net sales increased $45,955 or 7.6% to $648,419 for the
first nine months of fiscal 1997 compared to the same period in fiscal 1996.
The increase was primarily due to greater unit sales to existing customers of
cough and cold, vitamin and analgesic products and to sales of new products as
discussed for the quarter, partially offset by sales of personal care products
which decreased in total due to price increases initiated in fiscal 1996.
-8-
<PAGE> 9
Gross profit increased $14,716 or 9.1% for the first nine months of fiscal
1997 compared to the same period of fiscal 1996. The gross profit percentage
for the first nine months was 27.1% versus 26.7% for the same period in fiscal
1996. The increase in margin rate was due to increased sales of higher margin
products of cough and cold, analgesics, Minoxidil and pregnancy test kits.
Operating expenses increased $16,390 or 16.2% for the first nine months
of fiscal 1997 compared to the same period in fiscal 1996. Operating expenses
as a percentage of net sales were 18.2% for the first nine months of fiscal
1997 versus 16.8% for the same period in fiscal 1996. Research and development
costs increased $2,299 to 1.5% of net sales for the first nine months of fiscal
1997 compared to 1.3% of net sales for the same period in fiscal 1996,
primarily due to expenses related to new product development for which an
approval from the FDA through its ANDA process is required. Selling and
administrative expenses increased $8,789 to 11.9% of net sales for the first
nine months of fiscal 1997 from 11.3% of net sales for the same period in
fiscal 1996. The increase was primarily due to higher wages and costs to
support higher sales. Restructuring costs increased $2,699 to 0.7% of net
sales for the first nine months of fiscal 1997 from 0.3% of net sales for the
same period in fiscal 1996, in part due to the closing of CFL, and unusual
litigation costs were $4,799 for the first nine months of fiscal 1997 versus
$4,584 for the same period in fiscal 1996. See Notes C and D to the Condensed
Consolidated Financial Statements.
Interest expense decreased $3,286 to $1,445 for the first nine months of
fiscal 1997 compared to the same period in fiscal 1996 due to lower borrowing
levels and slightly lower interest rates.
The effective income tax rate was 36.5% for the first nine months of both
fiscal 1997 and fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 1997 working capital decreased
$1,719 and cash flow generated by operations exceeded cash flow used by
operations by $67,108. Accounts receivable increased $7,643 due primarily to
increased sales, inventories increased $5,566 in order to support the increased
sales volume and accounts payable increased $10,877 due to the timing of
materials and component purchases related to production increases.
Long-term debt decreased by $47,300 during the first nine months of
fiscal 1997 and as a result the Company's line of credit was fully paid down.
The decrease in debt was primarily due to close monitoring and management of
working capital and capital expenditures.
The Company's capital expenditures for facilities and equipment were
$13,066 for the nine months ended March 31, 1997. 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 anticipates
capital expenditures of approximately $20,000 during fiscal year 1997,
principally for additional manufacturing and packaging equipment, and for an
integrated computer software package. The Company plans to finance these
capital expenditures with cash flow from operations and, if required,
additional borrowings on its existing lines of credit.
-9-
<PAGE> 10
SAFE HARBOR PROVISIONS
In accordance with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, please see pages 25-28 of Perrigo Company's Form
10-K for the year ended June 30, 1996, for cautionary statements and discussion
of certain important factors as they relate to forward looking statements.
-10-
<PAGE> 11
PART II. OTHER INFORMATION
Item. 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<S> <C>
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
</TABLE>
(b) The Company filed no reports on Form 8-K during the three
months ended March 31, 1997.
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<PAGE> 12
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: May 5, 1997 /s/ Michael J. Jandernoa
-------------- ----------------------------------
Michael J. Jandernoa
Chairman of the Board and Chief
Executive Officer
Date: May 5, 1997 /s/ Steven M. Neil
-------------- ----------------------------------
Steven M. Neil
Vice President--Finance, Treasurer
and Chief Financial Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 6,613
<SECURITIES> 0
<RECEIVABLES> 99,039
<ALLOWANCES> 2,877
<INVENTORY> 162,542
<CURRENT-ASSETS> 281,254
<PP&E> 350,015
<DEPRECIATION> 117,849
<TOTAL-ASSETS> 562,945
<CURRENT-LIABILITIES> 116,044
<BONDS> 0
0
<COMMON> 146,257
0
<OTHER-SE> 271,112
<TOTAL-LIABILITY-AND-EQUITY> 562,945
<SALES> 648,419
<TOTAL-REVENUES> 648,419
<CGS> 472,557
<TOTAL-COSTS> 472,557
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 304
<INTEREST-EXPENSE> 1,445
<INCOME-PRETAX> 56,698
<INCOME-TAX> 20,690
<INCOME-CONTINUING> 36,008
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,008
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
</TABLE>
