<PAGE> 1
UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19725
PERRIGO COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
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 (Zip Code)
executive offices)
</TABLE>
(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
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
<S> <C>
Outstanding at
Class of Common Stock October 6, 1997
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without par 76,244,928 shares
</TABLE>
<PAGE> 2
PERRIGO COMPANY AND SUBSIDIARIES
FORM 10-Q
INDEX
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<CAPTION>
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited)
Condensed consolidated statements of income--Three months
ended September 30, 1997 and 1996 3
Condensed consolidated balance sheets--September 30, 1997
and June 30, 1997. 4
Condensed consolidated statements of cash flows--Three
months ended September 30, 1997 and 1996 5
Notes to condensed consolidated financial statements--
September 30, 1997 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 11
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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,
1997 1996
<S> <C> <C>
Net sales $ 223,773 $ 212,174
Cost of sales 164,307 156,880
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Gross profit 59,466 55,294
Operating expenses
Distribution 7,667 7,040
Research and development 2,942 3,268
Selling and administrative 25,689 24,647
Restructuring and redesign 364 989
Unusual litigation costs 1,682 1,780
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38,344 37,724
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Operating income 21,122 17,570
Interest and other expense 327 683
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Income before income taxes 20,795 16,887
Income taxes 7,590 6,170
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Net income $ 13,205 $ 10,717
=========== ===========
Earnings per common and equivalent share $ 0.17 $ 0.14
=========== ===========
Weighted average number of common and
equivalent shares outstanding 77,630 77,185
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
PERRIGO COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
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ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,915 $ 14,356
Accounts receivable, net of allowances of $3,208 and $3,026, respectively 123,722 93,367
Inventories 173,484 161,473
Prepaid expenses and other current assets 14,469 13,182
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Total current assets 313,590 282,378
Property and equipment 380,656 358,913
Less accumulated depreciation 133,456 123,053
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247,200 235,860
Goodwill, net of accumulated amortization of $13,000 and
$12,467, respectively 50,850 40,834
Other 10,724 9,305
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$ 622,364 $ 568,377
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 80,812 $ 63,846
Payrolls and related taxes 14,326 17,219
Accrued expenses 32,217 29,932
Income taxes 7,783 1,450
Current installments on long-term debt 2,342 300
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Total current liabilities 137,480 112,747
Deferred income taxes 29,876 28,215
Long-term debt, less current installments 20,793 1,540
Minority interest 105 -
Shareholders' equity
Preferred stock, without par value,
10,000 shares authorized, none issued - -
Common stock, without par value, 200,000 shares authorized,
76,213 and 76,516 issued, respectively 140,809 145,779
Retained earnings 293,301 280,096
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Total shareholders' equity 434,110 425,875
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$ 622,364 $ 568,377
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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<CAPTION>
Three Months Ended September 30,
1997 1996
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<S> <C> <C>
Cash Flows From (For) Operating Activities:
Net income $ 13,205 $ 10,717
Depreciation and amortization 7,321 7,242
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20,526 17,959
Accounts receivable (26,517) (24,343)
Inventories (9,583) (1,855)
Accounts payable 12,607 11,676
Other 7,143 6,436
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Net cash from operating activities 4,176 9,873
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Cash Flows For Investing Activities:
Additions to property and equipment (11,946) (2,696)
Business acquisitions, net of cash acquired (15,827) -
Other (580) (32)
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Net cash for investing activities (28,353) (2,728)
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Cash Flows From (For) Financing Activities:
Borrowings of long-term debt 16,706 -
Repayments of long-term debt - (7,000)
Issuance of common stock 159 163
Repurchase of common stock (5,129) -
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Net cash from (for) financing activities 11,736 (6,837)
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Net (Decrease) Increase in Cash and Cash Equivalents (12,441) 308
Cash and Cash Equivalents, at Beginning of Period 14,356 176
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Cash and Cash Equivalents, at End of Period $ 1,915 $ 484
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 129 $ 844
Income taxes paid $ 120 $ 431
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PERRIGO COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
(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, 1997 are not necessarily indicative
of the results that may be expected for the year ending June 30, 1998. 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, 1997.
NOTE B -- INVENTORIES
The components of inventories consist of the following:
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<CAPTION>
September 30, June 30,
1997 1997
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<S> <C> <C>
Finished goods $ 85,877 $ 77,953
Work in process 52,387 53,291
Raw materials 35,220 30,229
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$173,484 $161,473
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</TABLE>
NOTE C -- RESTRUCTURING AND REDESIGN COSTS
For the three months ended September 30, 1997, the condensed
consolidated statement of income includes $364 of restructuring costs expensed
as incurred related primarily to business process redesign. In addition, $56
of costs were paid, primarily related to severance and employee benefit costs,
that had been accrued in a previous period. As of September 30, 1997, $763
remains in accrued liabilities.
NOTE D -- COMMITMENTS AND CONTINGENCIES
For the three months ended September 30, 1997, the condensed
consolidated statement of income includes $1,682 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, 1997. The
Company believes the actions and claims are without merit or are covered by
insurance and continues to vigorously defend against these actions.
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NOTE E -- NEW ACCOUNTING STANDARDS
In February, 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128, "Earnings Per Share." The 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.
In June, 1997, the FASB issued two new disclosure standards, as
follows:
SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes
in equity except those resulting from investments by owners and distribution to
owners. Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for Segments
of a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. The implementation of these new standards
will not affect results of operations and financial position, but may have an
impact on future financial statement disclosures.
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<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(AMOUNTS IN THOUSANDS)
RESULTS OF OPERATIONS
The Company's net sales increased by $11,599 or 5.5% to $223,773 for
the first quarter of fiscal year 1998, from $212,174 during the same period in
fiscal year 1997. The increase was primarily due to new product sales and
increases in unit sales to existing customers of cough and cold products,
vitamins and nutritional drinks, hair care and antacid products. New products
included an analgesic comparable to the brand Aleve(R) and "super vitamins"
that contain more vitamins and minerals than comparable national brands.
Gross profit increased $4,172 or 7.5% for the first quarter of fiscal
year 1998 compared to the same period in fiscal year 1997. The gross profit
percentage for the first quarter of fiscal year 1998 was 26.6%, compared to
26.1% for the same period in fiscal year 1997. The increase in gross profit
percentage was primarily due to operational efficiencies and increased sales of
higher margin vitamin products.
Operating expenses increased $620 or 1.6% for the first quarter of
fiscal year 1998 compared to the same period in fiscal year 1997. Operating
expenses as a percentage of net sales were 17.1% for the first quarter of
fiscal year 1998 compared to 17.8% for the first quarter of fiscal year 1997.
Operating expenses consist of distribution, research and development, selling
and administration, restructuring and redesign and unusual litigation costs.
Excluding restructuring and redesign and unusual litigation costs, operating
expenses were 16.2% of net sales for the first quarter of fiscal year 1998
compared to 16.5% of net sales for the same period in fiscal year 1997.
Distribution expenses increased $627 or 8.9% from the first quarter of fiscal
year 1997 primarily due to increased shipment volume and higher warehouse costs
incurred in support of customers' delivery requirements. Distribution expense
as a percentage of net sales was 3.4% for the first quarter of fiscal year
1998, compared to 3.3% for the first quarter of fiscal year 1997. Research and
development expenses decreased $326 or 10.0% from the first quarter of fiscal
year 1997 primarily due to the timing of expenses related to the development of
new products which are approved through the FDA's Abbreviated New Drug
Application (ANDA) process. Research and development expenses for fiscal year
1998 are expected to be higher than the fiscal year 1997 expenses. Research
and development expense, as a percentage of net sales, was 1.3% for the first
quarter of fiscal year 1998 compared to 1.5% for the first quarter of fiscal
year 1997. Selling and administrative expenses increased $1,042 or 4.2% from
the first quarter of fiscal year 1997 primarily due to the higher sales volume.
Selling and administrative expense as a percentage of net sales was 11.5% for
the first quarter of fiscal year 1998, compared to 11.6% for the first quarter
of fiscal year 1997. Restructuring and redesign and unusual litigation costs
decreased $723 or 26.1% from the first quarter of fiscal year 1997. See Notes
C and D to the condensed consolidated financial statements.
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Interest and other expenses decreased from $683 for the first quarter
of fiscal year 1997 to $327 for the same period in fiscal year 1998. Interest
expense decreased due to lower borrowing levels and was partially offset by an
increase in other expense.
The effective income tax rate was 36.5% for the first quarter of
fiscal years 1998 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of fiscal year 1998, working capital
increased $6,479 and cash flow from operating activities was $4,176. Changes
in working capital are net of the effect of the business acquisition described
below. Accounts receivable increased $26,517 due to increased sales and the
timing of cash receipts, inventories increased $9,583 in order to support
increased sales volume, and accounts payable increased $12,607 due to materials
and component purchases related to production increases.
The Company's capital expenditures for facilities and equipment were
$11,946 for the three months ended September 30, 1997. In order to support the
business process redesign effort and ongoing growth in sales, the Company is
investing in a number of projects. Planned capital expenditures will require
approximately $70,000 during fiscal year 1998, principally for construction of
two new distribution facilities, expansion of manufacturing facilities for
nutritional products, and capital costs related to an integrated software
package that was purchased in fiscal year 1997 which is expected to be
installed in early fiscal year 1999. The Company plans to finance capital
expenditures with cash flows from operations and, if required, additional
borrowings on its existing line of credit.
In September 1997, the Company acquired 87.8% of the outstanding
shares of Quimica y Farmacia, S.A. de C.V. for approximately $16,000. The
purchase was funded by cash generated from operations and cash provided from
financing activities. Quimica y Farmacia, S.A. de C.V. is a pharmaceutical
manufacturer and distributor located in Mexico. The assets, liabilities, sales
and profits of this acquisition are not considered material to the Company.
During the first quarter of fiscal year 1998, the Company purchased
393 shares of common stock for $5,129 under its common stock repurchase
program. The common stock was retired.
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, 1997, 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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<PAGE> 10
PART II. OTHER INFORMATION
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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, PNC 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) Reports on Form 8-K.
</TABLE>
The Company filed a report on Form 8-K during the three months
ended September 30, 1997 that announced the Company's intention to
build new distribution centers in Allegan, Michigan and LaVergne,
Tennessee. The new facilities will consolidate currently leased
space in Holland, Michigan and LaVergne.
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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 25, 1996.
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<PAGE> 11
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 29, 1997 /s/Michael J. Jandernoa
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Michael J. Jandernoa
Chairman of the Board and
Chief Executive Officer
Date: October 29, 1997 /s/Thomas J. Ross
-------------------- --------------------------------------------
Thomas J. Ross
Vice President-Finance,
Principal Accounting and Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,915
<SECURITIES> 0
<RECEIVABLES> 123,722
<ALLOWANCES> 3,208
<INVENTORY> 173,484
<CURRENT-ASSETS> 313,590
<PP&E> 380,656
<DEPRECIATION> 133,456
<TOTAL-ASSETS> 622,364
<CURRENT-LIABILITIES> 137,480
<BONDS> 23,135,000
0
0
<COMMON> 140,809
<OTHER-SE> 293,301
<TOTAL-LIABILITY-AND-EQUITY> 622,364
<SALES> 223,773
<TOTAL-REVENUES> 223,773
<CGS> 164,307
<TOTAL-COSTS> 164,307
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 182
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 20,795
<INCOME-TAX> 7,590
<INCOME-CONTINUING> 13,205
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,205
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
