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Perrigo Company Reports Operating Results (10-Q)

October 27, 2011 | About:
10qk

10qk

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Perrigo Company (PRGO) filed Quarterly Report for the period ended 2011-09-24.

Perrigo Company has a market cap of $9.21 billion; its shares were traded at around $98.83 with a P/E ratio of 24.7 and P/S ratio of 3.3. The dividend yield of Perrigo Company stocks is 0.3%. Perrigo Company had an annual average earning growth of 19.3% over the past 10 years. GuruFocus rated Perrigo Company the business predictability rank of 2.5-star.

Highlight of Business Operations:

First quarter net sales for fiscal 2012 increased 4% or $15,577 compared to fiscal 2011. The increase was due primarily to an increase in sales of existing products of $9,400, primarily in the cough/cold and smoking cessation categories, along with new product sales of $15,100, primarily in the cough/cold and analgesics categories. In addition, net sales increased by approximately $3,100 due to favorable changes in foreign currency exchange rates. These combined increases were partially offset by a decline of $12,000 in sales of existing products within the gastrointestinal product category driven by competitive pressures on a key product.

On November 2, 2009, the Company announced that it had signed a definitive agreement to sell the Israel Consumer Products business to Emilia Group. On February 26, 2010, the sale to Emilia Group was completed for approximately $47,000, of which approximately $11,000, subject to foreign currency fluctuations between the Israeli shekel and the U.S. dollar, is contingent upon satisfaction of contingency factors specified in the agreement. The sale was completed in the third quarter of fiscal 2010 resulting in a preliminary pre-tax gain on the sale of $750, excluding the contingent consideration. The sales price was subject to post-closing working capital adjustments as defined by the sale agreement. During the third quarter of fiscal 2011, as part of an arbitration ruling, the Company made a $3,558 payment to Emilia Group settling the final post-closing working capital adjustment. Of this amount, $2,151 was charged to earnings and included in discontinued operations in the third quarter of fiscal 2011. Including this charge, the pre-tax loss on the sale of the Israel Consumer Products business was $1,407. Under the terms of the sale agreement, the Company provided distribution and support services for the importation of private label cosmetics from this business into the U.S. market for 12 months after the close of the transaction. These services were fully transferred to Emilia Group during the third quarter of fiscal 2011.

The Securitization Program is a three-year program, and under the terms of the Securitization Program, the subsidiaries sell certain eligible trade accounts receivables to a wholly owned bankruptcy remote special purpose entity (SPE), Perrigo Receivables, LLC. The Company has retained servicing responsibility for those receivables. The SPE then transfers an interest in the receivables to the Committed Investors. Under the terms of the Securitization Program, Bank of America, Wells Fargo and PNC have committed $101,750, $55,500 and $27,750, respectively, effectively allowing the Company to borrow up to a total amount of $185,000, subject to a Maximum Net Investment calculation as defined in the agreement. At September 24, 2011, $185,000 was available under this calculation. The interest rate on any borrowings is based on a thirty-day LIBOR plus 0.45%. In addition, a facility fee of 0.45% is applied to the $185,000 commitment. Under the terms of the Securitization Program, the Company may elect to have the entire amount or any portion of the facility unutilized.

The Company funded the transaction using a $250,000 five-year term loan, as discussed in Note 8, $212,052 of cash on hand and $85,000 from its accounts receivable securitization program. As of the end of the fourth quarter of fiscal 2011, the Company had incurred $2,560 of acquisition costs, of which $1,315, $695 and $550 were expensed in operations in the second, third and fourth quarters of fiscal 2011, respectively. During the first quarter of fiscal 2012, the Company had incurred an additional $5,600 of acquisition costs, along with severance costs of $3,200.

Current Year Results – Net sales from continuing operations for the first quarter of fiscal 2012 were $725,295, an increase of 13% over fiscal 2011. The increase was driven primarily by $38,900 of net sales attributable to the acquisition of Paddock and new product sales of $41,000. Gross profit was $227,579, an increase of 6% over fiscal 2011. The gross profit percentage in the first quarter of fiscal 2012 was 31.4%, as compared to 33.4% last year. Operating expenses in the first quarter of fiscal 2012 were $126,027, an increase of 23% over fiscal 2011. As a percentage of net sales, operating expenses were 17.4%, up from 15.9% in the first quarter of fiscal 2011. Income from continuing operations was $70,458, a decrease of 4% over fiscal 2011. Net income was $70,458, a decrease of 5% over fiscal 2011. During the first quarter of fiscal 2012, the Company recorded certain one-time charges related to the Paddock acquisition, including a $27,179 charge to cost of sales as a result of the step-up in value of inventory acquired and sold during the quarter, as well as $8,800 of acquisition-related and severance charges.

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