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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: December 31, 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
- ------------------------------- -------------------
(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 February 1, 1997
- --------------------- -----------------------
without par 76,554,201 shares
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PERRIGO COMPANY
FORM 10-Q
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--December 31, 1996
and June 30, 1996 3
Condensed consolidated statements of income--Three months and six
months ended December 31, 1996 and 1995 4
Condensed consolidated statements of cash flows--Six
months ended December 31, 1996 and 1995 5
Notes to condensed consolidated financial statements--
December 31, 1996 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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PERRIGO COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
------------ ---------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash $ 328 $ 176
Accounts receivable, net of allowances of $2,661 and $2,975, respectively 107,004 91,396
Inventories 164,179 156,976
Prepaid expenses and other current assets 10,342 11,025
-------- --------
Total current assets 281,853 259,573
Property and equipment 346,665 339,708
Less accumulated depreciation 113,908 100,716
-------- --------
232,757 238,992
Cost in excess of net assets of acquired
businesses, net of accumulated
amortization of $11,404 and $10,340 respectively 41,897 42,961
Other 7,989 7,869
-------- --------
$564,496 $549,395
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 75,736 $ 56,700
Payrolls and related taxes 13,291 13,002
Accrued expenses 27,827 21,417
Income taxes 2,899 1,225
Current installments on long-term debt 300 300
-------- --------
Total current liabilities 120,052 92,644
Deferred income taxes 27,161 26,751
Long-term debt, less current installments 11,540 48,840
Shareholders' equity
Preferred stock, without par value,
10,000 shares authorized, none issued - -
Common stock, without par value, 200,000
shares authorized, 76,543 and
76,327 issued, respectively 146,231 146,056
Retained earnings 259,512 235,104
-------- --------
Total shareholders' equity 405,743 381,160
-------- --------
$564,496 $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 Six Months Ended
December 31, December 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 221,665 $ 200,991 $ 433,839 $ 406,138
Cost of sales 159,017 146,623 315,897 296,394
----------- ----------- ----------- -----------
Gross profit 62,648 54,368 117,942 109,744
----------- ----------- ----------- -----------
Operating expenses
Distribution 7,091 6,146 14,131 12,251
Research and development 3,671 2,293 6,939 4,675
Selling and administrative 26,998 23,106 51,645 46,339
Restructuring costs 1,373 461 2,362 1,615
Unusual litigation costs 1,516 1,528 3,296 2,998
----------- ----------- ----------- -----------
40,649 33,534 78,373 67,878
----------- ----------- ----------- -----------
Operating income 21,999 20,834 39,569 41,866
Interest expense 388 1,672 1,071 3,414
----------- ----------- ----------- -----------
Income before income taxes 21,611 19,162 38,498 38,452
Income taxes 7,920 7,000 14,090 14,100
----------- ----------- ----------- -----------
Net income $ 13,691 $ 12,162 $ 24,408 $ 24,352
=========== =========== =========== ===========
Earnings per common share $ 0.18 $ 0.16 $ 0.32 $ 0.32
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 77,215 77,208 77,200 77,200
=========== =========== =========== ===========
</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>
Six Months Ended December 31,
1996 1995
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 24,408 $ 24,352
Depreciation and amortization 14,449 13,425
-------- --------
38,857 37,777
Accounts receivable (15,608) (23,145)
Inventories (7,203) (14,298)
Accounts payable 19,035 6,447
Other 9,466 3,827
-------- --------
Net cash from operating activities 44,547 10,608
-------- --------
Cash Flows For Investing Activities:
Additions to property and equipment (7,002) (11,421)
Other (268) (33)
-------- --------
Net cash for investing activities (7,270) (11,454)
-------- --------
Cash Flows From Financing Activities:
Borrowings of long-term debt - 1,000
Repayments of long-term debt (37,300) (300)
Issuance of common stock 175 178
-------- --------
Net cash from financing activities (37,125) 878
-------- --------
Net Increase in Cash 152 32
Cash, at beginning of period 176 259
-------- --------
Cash, at end of period $ 328 $ 291
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 1,241 $ 3,307
Income taxes paid $ 12,071 $ 12,570
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PERRIGO COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 six month
periods ended December 31, 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>
December 31, June 30,
1996 1996
---- ----
(in thousands)
<S> <C> <C>
Finished goods $ 85,174 $ 74,657
Work in process 52,108 57,529
Raw materials 26,897 24,790
--------- ---------
$164,179 $156,976
======== ========
</TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or
market.
NOTE C -- RESTRUCTURING COSTS
For the six months ended December 31, 1996, the condensed consolidated
statement of income includes $2,362 of restructuring costs expensed as
incurred, related primarily to business process redesign. In addition, $851
was paid for expenses accrued in a previous period, primarily related to the
elimination of certain low volume products and severance costs. As of December
31, 1996, $797 remains in accrued liabilities.
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NOTE D -- COMMITMENTS AND CONTINGENCIES
For the six months ended December 31, 1996 the condensed consolidated
statement of income includes $3,296 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
RESULTS OF OPERATIONS
The Company's net sales increased by 10% to $221,665 for the second
quarter of fiscal 1997, from $200,991 during the same period in fiscal 1996.
The Company's net sales increased by 7% to $433,839 during the first six months
of fiscal 1997 from $406,138 during the same period in fiscal 1996. The growth
in net sales for the second quarter and the six months ended December 31, 1996
were primarily attributable to greater unit sales to existing customers of
cough and cold products, vitamin products, Minoxidil (a hair growth stimulant)
and pregnancy test kits. Minoxidil and pregnancy test kits are new products
introduced by the Company within the past 24 months.
Gross profit increased 15% or $8,280 for the second quarter of fiscal
1997 compared to 1996. Gross profit as a percentage of net sales for the second
quarter of fiscal 1997 was 28.3%, compared to 27.0% for the same period in
fiscal 1996. Gross profit increased by 7% or $8,198 for the first six months of
fiscal 1997 compared to fiscal 1996. The gross profit percentage for the first
six months of fiscal 1997 was 27.2% compared to 27.0% for the first six months
of fiscal 1996. The increased sales of higher margin cough and cold products
resulted in the slight increase in gross profit percentage between periods.
Operating expenses increased by 21% or $7,115 for the second 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 second quarter of the current year
compared to 16.7% for the prior year. Distribution expenses increased by $945
or 15% from the second 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
3.2% for the second quarter of fiscal 1997, compared to 3.1% for the second
quarter of fiscal 1996. Research and development expenses increased $1,378 or
60% from the second quarter of fiscal 1996 primarily due to expenses related to
new product development for which an approval from the United States Food and
Drug Administration ("FDA"), through its Abbreviated New Drug Application
("ANDA") process, is required. Selling and administrative expenses increased
$3,892 or 17% from the second quarter of fiscal 1996 due primarily to higher
wages and costs to support the increase in sales. Selling and administrative
expenses as a percentage of net sales were 12.2% for the second quarter of
fiscal 1997, compared to 11.5% for the second quarter of fiscal 1996.
Restructuring and unusual litigation costs were $2,889 for the second quarter
of fiscal 1997, compared to $1,989 for the second quarter of fiscal 1996. See
Notes C and D to the Condensed Consolidated Financial Statements.
Operating expenses increased by 15% or $10,495 for the first six months
of fiscal 1997 compared to the same period in fiscal 1996. Operating expenses
as a percentage of net sales were 18.1% for the current year compared to 16.7%
for the same period last year. Distribution expenses increased by $1,880 or
15% for the first six months of fiscal 1997 compared to the same period in
fiscal 1996 due primarily to increased volume and higher freight costs incurred
in support of customers' delivery requirements. Distribution expenses as a
percentage of net sales were 3.3% for the first six months of
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fiscal 1997 compared to 3.0% for the same period last year. Research
and development expenses increased $2,264 or 48% from the first six months of
fiscal 1996 primarily due to expenses related to new product development for
which an approval from the FDA through its ANDA process is required. Research
and development expenses as a percentage of net sales for the first six months
of fiscal 1997 were 1.6% compared to 1.2% for the same period in fiscal 1996.
Selling and administrative expenses increased $5,306 or 11% from the first six
months of fiscal 1996 due to higher wages and costs to support the increase in
net sales. Selling and administrative expenses as a percentage of net sales
were 11.9% for the first six months of fiscal 1997 compared to 11.4% for the
first six months of fiscal 1996. Restructuring and unusual litigation costs
were $5,658 for the first six months of fiscal 1997 compared to $4,613 for the
first six months of fiscal 1996. The Company anticipates incurring
restructuring costs of approximately $6 million and unusual litigation costs of
approximately $6 million in fiscal 1997.
Interest expense decreased 77% from $1,672 to $388 for the second
quarter. Interest expense decreased $2,343 during the first six months of
fiscal 1997 compared to the first six months of fiscal 1996. The decrease
reflects lower borrowing levels and slightly lower interest rates during the
current year.
The effective income tax rate for the second quarter and six months of
fiscal 1997 of 36.6% was approximately the same as the comparable periods of
fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal 1997 working capital decreased
$5,128 and cash flow generated by operations exceeded cash flow used by
operations by $44,547. Accounts receivable increased $15,608 due primarily to
increased sales, inventories increased $7,203 in order to support the increased
sales volume and accounts payable increased $19,035 due to the timing of
materials and component purchases related to production increases.
Long-term debt decreased by $37,300 during the first six months of
fiscal 1997 due primarily to close monitoring and management of working capital
and capital expenditures.
The Company's capital expenditures for facilities and equipment were
$7,002 for the six months ended December 31, 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 anticipates
capital expenditures of approximately $25,000-$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 these capital expenditures with cash
flow from operations and, if required, additional borrowings on its existing
lines of credit.
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.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Stockholders' Meeting held on October 30,
1996, the Company's stockholders voted on the following matters:
1. Election of four directors of the Company;
2. The ratification of selection of independent accountants; and
3. Such other business as may properly come before the meeting.
The tabulation of votes provided by the Inspector of Election was as
follows:
<TABLE>
<CAPTION>
Proposal Voting Tabulation
-------- -----------------
1. Election of Directors
---------------------
Nominee For Withhold/Against
------- --- ----------------
<S> <C> <C>
Larry D. Fredricks 61,821,016 319,707
John W. Spoelhof 61,455,498 685,225
Mary Alice Taylor 61,819,426 321,297
Peter R. Formanek 61,315,357 825,366
Other Directors Whose Term
--------------------------
of Office Continues
-------------------
Michael J. Jandernoa
William C. Swaney
F. Folsom Bell
L. R. Jalenak, Jr.
Richard G. Hansen
For Against Abstain
--- ------- -------
2. Ratification of Selection of
------------------------------
BDO Seidman, L. L. P. 61,832,324 183,067 125,332
---------------------
</TABLE>
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Item. 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit Number Description Page
-------------- ----------- -----
27 Financial Data Schedule 13
(b) The Company filed the following report on Form 8-K during the
three months ended December 31, 1996.
October 30, 1996:
The Company announced at its Annual Shareholders' Meeting that
Larry D. Fredricks was elected by shareholders to the Board of
Directors for a two-year term ending November 1998. With the election
of Mr. Fredricks, the Company fills a new position and increases Board
membership to nine.
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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: February 10, 1997 /s/Michael J. Jandernoa
------------------ ---------------------------
Michael J. Jandernoa
Chairman of the Board and Chief
Executive Officer
Date: February 10, 1997 /s/Steven M. Neil
------------------ ---------------------------
Steven M. Neil
Vice President--Finance, Treasurer
and Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 328
<SECURITIES> 0
<RECEIVABLES> 107,004
<ALLOWANCES> 2,661
<INVENTORY> 164,179
<CURRENT-ASSETS> 281,853
<PP&E> 346,665
<DEPRECIATION> 113,908
<TOTAL-ASSETS> 564,496
<CURRENT-LIABILITIES> 120,052
<BONDS> 0
0
0
<COMMON> 146,231
<OTHER-SE> 259,512
<TOTAL-LIABILITY-AND-EQUITY> 564,496
<SALES> 433,839
<TOTAL-REVENUES> 433,839
<CGS> 315,897
<TOTAL-COSTS> 315,897
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 253
<INTEREST-EXPENSE> 1,071
<INCOME-PRETAX> 38,498
<INCOME-TAX> 14,090
<INCOME-CONTINUING> 24,408
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,408
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
