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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, 2000
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
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(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.)
515 EASTERN AVENUE
ALLEGAN, MICHIGAN 49010
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(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
(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.
OUTSTANDING AT
CLASS OF COMMON STOCK OCTOBER 17, 2000
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WITHOUT PAR 73,513,095 SHARES
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PERRIGO COMPANY AND SUBSIDIARIES
FORM 10-Q
INDEX
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated statements of income-- For the
quarters ended September 30, 2000 and October 2, 1999 1
Condensed consolidated balance sheets-- September 30, 2000
and July 1, 2000 2
Condensed consolidated statements of cash flows-- For the
quarters ended September 30, 2000 and October 2, 1999 3
Notes to condensed consolidated financial statements--
September 30, 2000 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risks 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 11
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PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
First Quarter
---------------------------------
2001 2000
---- ----
Net sales $ 193,333 $ 212,320
Cost of sales 146,394 162,527
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Gross profit 46,939 49,793
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Operating expenses
Distribution 3,457 4,595
Research and development 3,958 3,517
Selling and administrative 23,091 23,867
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30,506 31,979
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Operating income 16,433 17,814
Interest and other, net (174) 2,462
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Income before income taxes 16,607 15,352
Income tax expense 6,073 5,327
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Net income $ 10,534 $ 10,025
=========== ============
Basic earnings per share $ 0.14 $ 0.14
=========== ============
Diluted earnings per share $ 0.14 $ 0.14
=========== ============
See accompanying notes to condensed consolidated financial statements.
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PERRIGO COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, July 1,
2000 2000
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 33,414 $ 7,055
Accounts receivable, net of allowances of $6,828 and
$5,997, respectively 109,426 88,217
Inventories 126,074 126,935
Refundable income taxes - 10,413
Prepaid expenses and other current assets 5,887 6,520
Current deferred income taxes 11,462 11,123
Assets held for sale 18,382 18,382
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Total current assets 304,645 268,645
Property and equipment 343,964 338,447
Less accumulated depreciation 150,441 144,867
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193,523 193,580
Goodwill, net of accumulated amortization of $11,539 and
$11,256, respectively 17,915 18,199
Other 5,414 5,640
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$ 521,497 $ 486,064
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 72,051 $ 63,172
Notes payable 8,326 8,884
Payrolls and related taxes 13,387 14,987
Accrued expenses 29,844 24,105
Income taxes 15,402 2,772
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Total current liabilities 139,010 113,920
Deferred income taxes 18,967 19,462
Minority interest 922 922
Shareholders' equity
Preferred stock, without par value, 10,000 shares authorized,
none issued - -
Common stock, without par value, 200,000 shares authorized,
73,513 and 73,489 issued, respectively 102,777 102,750
Unearned compensation (496) (543)
Accumulated other comprehensive income 479 249
Retained earnings 259,838 249,304
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Total shareholders' equity 362,598 351,760
--------------- ---------------
$ 521,497 $ 486,064
=============== ===============
</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>
First Quarter
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2001 2000
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<S> <C> <C>
Cash Flows From (For) Operating Activities:
Net income $ 10,534 $ 10,025
Depreciation and amortization 6,176 5,433
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16,710 15,458
Accounts receivable (22,502) (39,689)
Inventories 861 6,983
Current and deferred income taxes 22,209 4,872
Assets held for sale - 2,429
Accounts payable 8,879 4,989
Other 6,484 (2,341)
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Net cash from (for) operating activities 32,641 (7,299)
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Cash Flows (For) From Investing Activities:
Additions to property and equipment (5,810) (3,766)
Proceeds from sale of assets held for sale - 31,186
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Net cash (for) from investing activities (5,810) 27,420
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Cash Flows (For) From Financing Activities:
Repayments of long-term debt - (19,652)
Repayments of short-term debt (558) (42)
Issuance of common stock 27 57
Other 59 (915)
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Net cash (for) financing activities (472) (20,552)
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Net Increase (Decrease) in Cash and Cash Equivalents 26,359 (431)
Cash and Cash Equivalents, at Beginning of Period 7,055 1,695
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Cash and Cash Equivalents, at End of Period $ 33,414 $ 1,264
============ =============
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 552 $ 1,956
Income taxes paid $ 43 $ 500
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PERRIGO COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(IN THOUSANDS)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 quarter ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 2001. The unaudited condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and footnotes
included in the Company's annual report on Form 10-K for the year ended July 1,
2000. See Note E regarding the inclusion of personal care operations for the
periods presented.
In July 2000, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue 00-10, "Accounting for Shipping and Handling Fees and Costs".
Among other things, EITF 00-10 requires companies to classify as revenue any
shipping and handling fees and costs billed to a customer. In accordance with
this EITF, shipping costs billed to a customer are included in net sales and
shipping expenses incurred by the Company are included in cost of sales in the
consolidated statements of income. Previously, shipping revenues and shipping
costs were included in distribution expense. All periods presented have been
reclassified to conform with the current year presentation.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
SFAS No. 133 requires companies to recognize all derivative contracts as either
assets or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133, as amended by SFAS
No. 137, became effective for the Company on July 2, 2000 and did not affect the
Company's consolidated financial statements.
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NOTE B - INVENTORIES
The components of inventories consist of the following:
September 30, July 1,
2000 2000
---- ----
Finished goods $ 55,675 $ 53,399
Work in process 44,419 47,920
Raw materials 25,980 25,616
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$126,074 $126,935
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NOTE C - COMPREHENSIVE INCOME
Comprehensive income is comprised of all changes in shareholders'
equity during the period other than from transactions with shareholders.
Comprehensive income consists of the following:
First Quarter
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2001 2000
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Net income $10,534 $10,025
Other comprehensive income:
Unrealized holding gains on securities 149
Foreign currency translation adjustments 230 17
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Comprehensive income $10,764 $10,191
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NOTE D - EARNINGS PER SHARE
A reconciliation of the numerators and denominators used in the "basic"
and "diluted" Earnings per Share ("EPS") calculations follows:
First Quarter
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2001 2000
---- ----
Numerator:
Net income (loss) used for both "basic"
and "diluted" EPS calculation $10,534 $10,025
======= =======
Denominator:
Weighted average shares outstanding
for the period - used for "basic"
EPS calculation 73,505 73,327
Dilutive effect of stock options 424 201
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Weighted average shares outstanding
for the period - used for "diluted"
EPS calculation 73,929 73,528
======= =======
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NOTE E - RESTRUCTURING COSTS
The personal care business was sold in August 1999. Proceeds from the
sale were $32,200, including funds held in escrow. No gain or loss was recorded
in fiscal year 2000.
Fiscal year 2000 reflects one month of the personal care business. Net
sales for the personal care business were zero and $17,778 for the first quarter
of fiscal year 2001 and 2000, respectively. The Company does not maintain
operating income information by its main product lines; however, based on the
incremental approach, the Company estimates that the pre-tax operating income
for the personal care business was $1,000 for the first quarter of fiscal year
2000. Included in pre-tax operating income is the effect of suspending personal
care depreciation of $700 for the first quarter of fiscal year 2000.
Assets held for sale were $18,382 at September 30, 2000 and are
comprised of the LaVergne, Tennessee logistics facility. The Company intends to
sell this facility in fiscal year 2001. The effect of suspending depreciation on
this facility was $200 and $210 for the first quarter of fiscal year 2001 and
2000, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER OF FISCAL YEARS 2001 AND 2000
(IN THOUSANDS)
RESULTS OF OPERATIONS
FIRST QUARTER OF FISCAL YEARS 2001 AND 2000
RESULTS OF OPERATIONS
The Company's net sales decreased by $18,987 or 8.9% to $193,333 during
the first quarter of fiscal year 2001, from $212,320 during the first quarter of
fiscal year 2000. The decrease was primarily due to the sale of the personal
care business. Excluding the effect of the personal care business, net sales
decreased by $1,209 or .6% during the first quarter of fiscal year 2001 to
$193,333 from $194,542 during the first quarter of fiscal year 2000. The
decrease in fiscal year 2001 was due primarily to lower sales of vitamin
products, smoking cessation products, and cough and cold products partially
offset by an increase in unit sales of analgesic and antacid products to
existing customers.
Gross profit decreased $2,854 during the first quarter of fiscal year
2001 compared to the same period of fiscal year 2000. The gross profit percent
to net sales was 24.3% for the first quarter of fiscal year 2001 compared to
23.5% for the same period of fiscal year 2000. Excluding the personal care
business, gross profit percent to net sales was 24.3% for the first quarter of
fiscal year 2001 compared to 24.2% for the same period of fiscal year 2000.
Operating expenses decreased $1,473 during the first quarter of fiscal
year 2001 compared to the same period in fiscal year 2000. Operating expenses as
a percent of net sales were 15.8% for the first quarter of fiscal year 2001
compared to 15.1% for the same period of fiscal year 2000. Operating expenses
consist of distribution, research and development and selling and administrative
expense. Distribution expense decreased $1,138 or 24.8% from the first quarter
of fiscal year 2000 primarily due to the sale of the personal care business.
Research and development expense increased $441 from the first quarter of fiscal
year 2000. Selling and administrative expense decreased $776 from the first
quarter of fiscal year 2000 and as a percent of net sales was 11.9% for the
first quarter of fiscal year 2001 compared to 11.2% for the same period in
fiscal year 2000. Selling and administrative expense decreased primarily due to
the sale of the personal care business and lower promotion expenses partially
offset by an increase in bad debt expense.
Interest and other, net decreased $2,636 primarily due to a decrease in
interest expense to $236 in the first quarter of fiscal year 2001 from $2,395
for the same period in fiscal year 2000. Interest expense decreased due to lower
borrowing levels.
The effective tax rate was 36.6% for the first quarter of fiscal year
2001 compared to 34.7% for the same period in fiscal year 2000. The lower
effective tax rate in fiscal year 2000 was primarily due to foreign income
taxes.
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LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of fiscal year 2001, working capital increased
$10,910 and cash flow from operating activities was $32,641. Accounts payable
increased $8,879, primarily due to seasonal production increases. Current and
deferred income taxes decreased $22,209 primarily due to the receipt of a
$16,000 federal income tax refund.
Capital expenditures were $5,810 during the first quarter of fiscal
year 2001. Capital expenditures for fiscal year 2001 are anticipated to be
approximately $25,000 to $30,000, primarily for normal equipment replacement and
productivity enhancements.
The Company had no long-term debt at September 30, 2000 and had
$175,000 available on its unsecured credit facility.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
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 July 1, 2000, under the heading "Cautionary Note
Regarding Forward-Looking Statements" for a discussion of certain important
factors as they relate to forward-looking statements contained in this quarterly
report.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
The Company has evaluated possible disclosures required under this item
and has determined that no market, interest rate or foreign currency risk exists
that would require disclosure.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number Description
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2(a) Asset Purchase Agreement, dated August 25,
1999, among Perrigo Company of Tennessee as
Sellers; and Cumberland Swan Holdings, Inc. as
Buyer, incorporated by reference from the
Registrant's Form 10-K filed on October 1,
1999.
3(a) Amended and Restated Articles of Incorporation
of Registrant, incorporated by reference from
Amendment No. 2 to Registration Statement No.
33-43834 filed by the Registrant on September
23, 1993.
3(b) Restated Bylaws of Registrant, dated April 10,
1996, as amended, incorporated by reference
from the Registrant's Form 10-K filed on
September 6, 2000.
4(a) Shareholders' Rights Plan, incorporated by
reference from the Registrant's Form 8-K filed
on April 10, 1996.
10(a)* Registrant's Management Incentive Plan,
incorporated by reference from Registration
Statement No. 33-69324 filed by the Registrant
on September 23, 1993.
10(b)* Registrant's 1988 Employee Incentive Stock
Option Plan, as amended on August 25, 2000.
10(c)* Registrant's 1989 Non-Qualified Stock Option
Plan for Directors, as amended on August 25,
2000.
10(d)* Registrant's Restricted Stock Plan for
Directors, dated November 6, 1997, incorporated
by reference from Registrant's Form 10-K filed
on October 6, 1998.
10(e) Credit Agreement, dated September 23, 1999,
between Registrant and Bank One, Michigan,
incorporated by reference from the Registrant's
Form 10-K filed on October 1, 1999.
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10(f) Guaranty Agreement, dated September 23, 1999,
executed by L. Perrigo Company and Perrigo
Company of South Carolina, Inc., in favor of
the Agent and each Lender, incorporated by
reference from the Registrant's Form 10-K filed
on October 1, 1999.
10(g)* Employment Agreement, Restricted Stock
Agreement, Contingent Restricted Stock
Agreement, and Noncompetition and Nondisclosure
Agreement, dated April 19, 2000, between
Registrant and David T. Gibbons, incorporated
by reference from the Registrant's Form 10-Q
filed on April 26, 2000.
10(h)* Consulting Agreement, Noncompetition and
Nondisclosure Agreement, and Indemnity
Agreement, dated June 2, 2000, between
Registrant and Michael J. Jandernoa,
incorporated by reference from the Registrant's
Form 10-K filed on September 6, 2000.
27 Financial Data Schedule
* Denotes management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the first quarter
of fiscal year 2001.
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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
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(Registrant)
Date: October 25, 2000 By: /s/ David T. Gibbons
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David T. Gibbons
President and Chief Executive Officer
Date: October 25, 2000 By: /s/ Douglas R. Schrank
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Douglas R. Schrank
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
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