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UNITED STATES
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: SEPTEMBER 24, 2005
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.)
515 EASTERN AVENUE
ALLEGAN, MICHIGAN 49010
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
(269) 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [ ] YES [X] NO
As of October 21, 2005 the registrant had 93,411,992 outstanding shares of
common stock.
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PERRIGO COMPANY
FORM 10-Q
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated statements of income -- For the quarters
ended September 24, 2005 and September 25, 2004 1
Condensed consolidated balance sheets -- September 24, 2005,
June 25, 2005 and September 25, 2004 2
Condensed consolidated statements of cash flows -- For the quarters
ended September 24, 2005 and September 25, 2004 3
Notes to condensed consolidated financial statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risks 18
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 6. Exhibits 21
SIGNATURES 22
PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
First Quarter
--------------------
2006 2005
-------- ---------
Net sales $319,734 $227,719
Cost of sales 232,818 163,006
-------- --------
Gross profit 86,916 64,713
-------- --------
Operating expenses
Distribution 7,150 4,193
Research and development 12,649 6,354
Selling and administration 46,388 27,540
-------- --------
Total 66,187 38,087
Operating income 20,729 26,626
Interest and other, net 2,780 (840)
-------- --------
Income before income taxes 17,949 27,466
Income tax expense 5,038 9,888
-------- --------
Net income $ 12,911 $ 17,578
======== ========
Earnings per share
Basic $ 0.14 $ 0.25
Diluted $ 0.14 $ 0.24
Weighted average shares outstanding
Basic 93,188 70,948
Diluted 94,314 73,043
See accompanying notes to condensed consolidated financial statements.
-1-
PERRIGO COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 24, June 25, September 25,
2005 2005 2004
------------- ---------- -------------
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents $ 25,118 $ 16,707 $ 9,734
Investment securities 15,823 17,761 132,080
Accounts receivable 212,433 210,308 112,624
Inventories 269,695 272,980 181,837
Current deferred income taxes 49,870 55,987 29,306
Prepaid expenses and other current assets 39,270 35,064 11,017
---------- ---------- --------
Total current assets 612,209 608,807 476,598
Property and equipment 594,464 586,306 463,241
Less accumulated depreciation 275,758 262,505 240,144
---------- ---------- --------
318,706 323,801 223,097
Restricted cash 400,000 400,000 --
Goodwill 144,362 150,293 35,919
Other intangible assets 144,315 147,967 8,039
Non-current deferred income taxes 26,828 26,964 8,761
Other non-current assets 44,617 47,144 9,716
---------- ---------- --------
$1,691,037 $1,704,976 $762,130
========== ========== ========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 142,361 $ 142,789 $ 83,516
Notes payable 19,303 25,345 9,465
Payroll and related taxes 37,788 42,326 20,857
Accrued customer programs 40,129 41,666 16,210
Accrued liabilities 56,821 57,532 28,541
Accrued income taxes 25,903 21,225 7,417
Current deferred income taxes 10,980 9,659 4,044
---------- ---------- --------
Total current liabilities 333,285 340,542 170,050
Non-current liabilities
Long-term debt 670,814 656,128 --
Non-current deferred income taxes 56,586 74,379 29,259
Other non-current liabilities 37,715 43,090 6,898
---------- ---------- --------
Total non-current liabilities 765,115 773,597 36,157
Shareholders' equity
Preferred stock, without par value, 10,000 shares authorized -- -- --
Common stock, without par value, 200,000 shares authorized 523,093 527,748 108,321
Accumulated other comprehensive income (loss) (4,402) (1,687) 2,817
Retained earnings 73,946 64,776 444,785
---------- ---------- --------
Total shareholders' equity 592,637 590,837 555,923
---------- ---------- --------
$1,691,037 $1,704,976 $762,130
========== ========== ========
Supplemental Disclosures of Balance Sheet Information
Allowance for doubtful accounts $ 10,207 $ 10,370 $ 7,971
Allowance for inventory $ 37,164 $ 34,028 $ 21,124
Working capital $ 278,924 $ 268,265 $306,548
Preferred stock, shares issued -- -- --
Common stock, shares issued 93,561 93,903 71,208
See accompanying notes to condensed consolidated financial statements.
-2-
PERRIGO COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
First Quarter
-------------------
2006 2005
-------- --------
Cash Flows From (For) Operating Activities
Net income $ 12,911 $ 17,578
Adjustments to derive cash flows
Depreciation and amortization 14,296 7,092
Share-based compensation 2,403 1,578
Deferred income taxes (1,072) (410)
Changes in operating assets and liabilities
Accounts receivable (1,559) (25,543)
Inventories 3,776 (6,676)
Accounts payable (723) (5,463)
Payroll and related taxes (4,631) (20,535)
Accrued customer programs (1,537) 2,999
Accrued liabilities (2,938) (1,937)
Accrued income taxes 2,757 7,422
Other (5,961) 918
-------- --------
Net cash from (for) operating activities 17,722 (22,977)
-------- --------
Cash Flows (For) From Investing Activities
Purchase of securities (19,438) (29,900)
Proceeds from sales of securities 21,372 60,950
Additions to property and equipment (8,228) (2,394)
Acquisition of assets -- (5,000)
-------- --------
Net cash (for) from investing activities (6,294) 23,656
-------- --------
Cash (For) From Financing Activities
Repayments of short-term debt, net (6,104) (92)
Borrowings of long-term debt 15,000 --
Tax (expense) benefit of stock transactions (500) 118
Issuance of common stock 2,000 3,101
Repurchase of common stock (8,558) (122)
Cash dividends (3,741) (2,487)
-------- --------
Net cash (for) from financing activities (1,903) 518
-------- --------
Net increase in cash and cash equivalents 9,525 1,197
Cash and cash equivalents, at beginning of period 16,707 8,392
Effect of exchange rate changes on cash (1,114) 145
-------- --------
Cash and cash equivalents, at end of period $ 25,118 $ 9,734
======== ========
Supplemental Disclosures of Cash Flow Information
Cash paid/received during the period for:
Interest paid $ 9,210 $ 141
Interest received $ 5,641 $ 562
Income taxes paid $ 2,928 $ 815
Income taxes refunded $ 4,866 $ 4,062
See accompanying notes to condensed consolidated financial statements.
-3-
PERRIGO COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 24, 2005
(in thousands, except per share amounts)
Perrigo Company is a leading global healthcare supplier and the world's largest
manufacturer of over-the-counter (OTC) pharmaceutical and nutritional products
for the store brand market. The Company also develops and manufactures generic
prescription (Rx) drugs, active pharmaceutical ingredients (API) and consumer
products.
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. The Company has reclassified certain amounts in the prior
years to conform to the current year presentation.
An evaluation of the Company's classification of cash equivalents indicated
that, due to their contractual maturity date, floating and adjustable rate
securities were more appropriately classified as investment securities.
Accordingly, the Company reclassified floating and adjustable rate securities of
$126,810 as of September 25, 2004 from cash and cash equivalents to investment
securities in its consolidated balance sheets. The Company has also reclassified
the purchases of and proceeds from sales of these securities in its consolidated
statements of cash flows, which increased cash flows from investing activities
by $26,050 for the three months ended September 25, 2004.
Operating results for the quarter ended September 24, 2005 are not necessarily
indicative of the results that may be expected for a full year. 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 June 25, 2005.
Significant Events
Update on Pseudoephedrine Sales - The Company continued to be impacted by the
legislative and market changes related to products containing pseudoephedrine,
which have resulted from concerns over the use of pseudoephedrine in the
production of methamphetamine, an illegal drug. Sales of these products in the
first quarter of fiscal 2006 were approximately $23,000 lower than the first
quarter of fiscal 2005. The Company monitors this issue continuously and
consequently, recorded an additional charge of $2,400 in the first quarter of
fiscal 2006 for estimated obsolete inventory on hand. Products containing
pseudoephedrine generated approximately $182,000 of the Company's revenues in
fiscal 2005. Sales for fiscal 2006 are expected to be $110,000 to $120,000.
Based on recent events in the retail market, legislative actions and the
resulting lost sales, management believes that these issues will continue to
have a significant adverse effect on the Company's results of operations in
fiscal 2006.
Product Recall - In September 2005, the Company initiated a voluntary
retail-level recall of all affected
-4-
lots of mesalamine rectal suspension, an anti-inflammatory agent used to treat
mild to moderate ulcerative colitis, following reports of leakage related to the
bottle closure cap. The recall is not safety related and there have been no
reports of injury or illness related to the leakage of this product. The cost to
write off the Company's on-hand inventories and the cost of return and disposal
are estimated to be $2,750. The charge reduced operating income by $2,750 and
earnings per share by $0.03 for the first quarter of fiscal 2006.
New Accounting Pronouncements
During the first quarter of fiscal 2006, the Company adopted the provisions of
the Financial Accounting Standards Board's (FASB) Statement of Financial
Accounting Standards (SFAS) 123(R), "Share-Based Payment". All share-based
compensation for employees, directors and others is granted under the Company's
2003 Long-Term Incentive Plan. The weighted average fair value per share for
options granted was estimated using the Black-Scholes option pricing model.
Share-based compensation costs are included in operating expenses. Since the
Company began expensing stock-based compensation using the fair value based
method of accounting as permitted under SFAS 123 in December 2002, the adoption
of SFAS 123(R) did not have a significant impact on its consolidated financial
statements or results of operations. In accordance with the disclosure
requirements of the pronouncement, the Company reclassified unearned
compensation to common stock in the Company's condensed consolidated balance
sheets as of June 25, 2005 and September 25, 2004.
During the first quarter of fiscal 2006, the Company prospectively adopted the
provisions of SFAS 151, "Inventory Costs - An amendment of ARB No. 43, Chapter
4". SFAS 151 clarifies that abnormal amounts of idle facility expense, freight,
handling costs and spoilage should be expensed as incurred and not included in
overhead. Further, SFAS 151 requires that allocation of fixed production
overheads to conversion costs should be based on normal capacity of the
production facilities. The Company's accounting policies align to the rules and
the adoption of this statement did not impact the Company's consolidated
financial position or results of operations.
In October 2004, the FASB issued FSP 109-1, "Application of FASB Statement 109,
Accounting for Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004", effective upon
issuance. The FSP provides guidance on the application of SFAS 109, "Accounting
for Income Taxes", to the provision within the American Jobs Creation Act of
2004 that provides a tax deduction on qualified production activities. According
to FSP 109-1, the deduction should be accounted for as a special deduction in
accordance with SFAS 109. Based on preliminary evaluations of FSP 109-1, the
Company does not anticipate a significant impact on fiscal 2006 results of
operations.
NOTE B - EARNINGS PER SHARE
A reconciliation of the numerators and denominators used in the basic and
diluted earnings per share (EPS) calculation follows:
-5-
First Quarter
-----------------
2006 2005
------- -------
Numerator:
Net income used for both basic and diluted EPS $12,911 $17,578
======= =======
Denominator:
Weighted average shares outstanding for basic EPS 93,188 70,948
Dilutive effect of share-based awards 1,126 2,095
------- -------
Weighed average shares outstanding for diluted EPS 94,314 73,043
======= =======
Share-based awards outstanding that are anti-dilutive were 3,852 and 481 for the
first quarter of fiscal 2006 and 2005, respectively. These share-based awards
were excluded from the diluted EPS calculation.
NOTE C - INVENTORIES
Inventories are summarized as follows:
September 24, June 25, September 25,
2005 2005 2004
------------- -------- -------------
Finished goods $133,347 $135,955 $ 75,045
Work in process 60,708 58,588 59,411
Raw materials 75,640 78,437 47,381
-------- -------- --------
$269,695 $272,980 $181,837
======== ======== ========
The Company maintains an allowance for estimated obsolete or unmarketable
inventory based on the difference between the cost of inventory and its
estimated market value. The inventory balances stated above are net of an
inventory allowance of $37,164 at September 24, 2005, $34,028 at June 25, 2005
and $21,124 at September 25, 2004.
NOTE D - GOODWILL
There were no acquisitions, dispositions or impairments of goodwill during the
first quarter of fiscal 2006. The Company recorded an adjustment to goodwill
that was originally established in connection with the Company's acquisition of
Agis Industries (1983) Ltd. (Agis) on March 17, 2005. The adjustment was for
changes in tax-related assets and liabilities and additional termination
liabilities for the Company's New York facility. A summary of goodwill, by
reportable segment is as follows:
Consumer Rx
Healthcare Pharmaceuticals API Total
---------- --------------- ------- --------
Balance as of June 25, 2005 $35,919 $65,608 $48,766 $150,293
Goodwill adjustment -- (3,795) (2,136) (5,931)
------- ------- ------- --------
Balance as of September 24, 2005 $35,919 $61,813 $46,630 $144,362
======= ======= ======= ========
-6-
NOTE E - OUTSTANDING DEBT
Total borrowings outstanding are summarized as follows:
September 24, June 25, September 25,
2005 2005 2004
------------- -------- -------------
Short-term debt:
Swingline loan $ 4,135 $ 10,198 --
Bank loan - Germany subsidiary 8,651 8,652 --
Bank loan - U.K. subsidiary 2,161 2,188 $3,927
Bank loans - Mexico subsidiary 4,356 4,307 5,538
-------- -------- ------
Total 19,303 25,345 9,465
-------- -------- ------
Long-term debt:
Revolving line of credit 130,000 115,000 --
Term loan 100,000 100,000 --
Letter of undertaking - Israel subsidiary 400,000 400,000 --
Debenture - Israel subsidiary 40,814 41,128 --
-------- -------- ------
Total 670,814 656,128 --
-------- -------- ------
Total debt $690,117 $681,473 $9,465
======== ======== ======
The terms of the loan related to the letter of undertaking indicated above
require that the Company maintain a deposit of $400,000 in an uninsured account
with the lender as security for the loan.
NOTE F - POSTRETIREMENT MEDICAL BENEFITS
The Company has an unfunded postretirement plan (plan) that provides medical
benefits to eligible retired employees and their dependents. The cost of
postretirement medical benefits is accrued by the Company over the service lives
of the employees based on actuarial calculations for the plan. Effective January
1, 2004, the plan was modified to limit the amount of benefits the Company
provides to retirees each year, adjusted annually for inflation.
First Quarter
-------------
2006 2005
----- -----
Components of expense as provided by the Company's actuary:
Service cost $ 151 $ 103
Interest cost 53 56
Amortization of prior year service cost (112) (111)
Amortization of unrecognized net actuarial loss 39 34
----- -----
Net expense $ 131 $ 82
===== =====
Retirement benefit claims paid for the first quarter of fiscal 2006 were $25 and
are expected to be approximately $135 for the remainder of fiscal 2006.
NOTE G - SHAREHOLDERS' EQUITY
The Company has a common stock repurchase program. Purchases are made on the
open market, subject to market conditions, and are funded by available cash or
borrowings. All common stock repurchased is retired upon purchase. On April 22,
2005, the Board of Directors approved a plan to
-7-
repurchase shares of common stock with a value of up to $30,000. This plan will
expire on April 26, 2006. On June 21, 2005, the Company announced the
implementation of a 10b5-1 plan that allows brokers selected by the Company to
repurchase shares on behalf of the Company at times when it would ordinarily not
be in the market because of the Company's trading policies. The Company
repurchased 606 shares of its common stock for $8,558 and 7 shares for $122
during the first quarter of fiscal 2006 and 2005, respectively. Private party
transactions accounted for 110 shares in the first quarter of fiscal 2006 and 7
shares in the first quarter of fiscal 2005.
NOTE H - 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
----------------
2006 2005
------- -------
Net income $12,911 $17,578
Other comprehensive income:
Change in fair value of derivative instruments, net of tax 2,029 --
Foreign currency translation adjustments (5,074) (75)
Change in fair value of investment securities, net of tax 330 --
------- -------
Comprehensive income $10,196 $17,503
======= =======
NOTE I - COMMITMENTS AND CONTINGENCIES
The Company is not a party to any litigation, other than routine litigation
incidental to its business except for the litigation described below. The
Company believes that none of the routine litigation, individually or in the
aggregate, will be material to the business of the Company.
In August 2004, the Company agreed to settle with the FTC and states' attorneys
general offices which had been investigating a 1998 agreement between Alpharma,
Inc. and the Company related to a children's ibuprofen suspension product. The
agreement between Alpharma, Inc. and the Company is no longer in effect. The
consent order included payment of $4,750 to resolve all claims by the FTC and
state governments as well as certain restrictions on future contractual
agreements of this nature. These restrictions are not expected to have a
material impact on the Company's future results of operations. The $4,750 charge
was recorded in the fourth quarter of fiscal 2004 and paid in the first quarter
of fiscal 2005.
In connection with the Alpharma, Inc. agreement and the related FTC settlement
in fiscal 2004, the Company has been named as a defendant in three suits, two of
which are class actions that have been consolidated with one another, filed on
behalf of Company customers (i.e., retailers) and the other consisting of four
class action suits filed on behalf of indirect Company customers (i.e.,
consumers), alleging that the plaintiffs overpaid for children's ibuprofen
suspension product as a result of the Company's agreement with Alpharma, Inc.
While the Company has been defending these claims, it has also participated in
settlement negotiations with the plaintiffs. The most recent negotiations lead
the Company to believe it may settle all of the lawsuits for a combination of
cash payments and product donations, the aggregate value of which the Company
anticipates will approximate $4,500. The Company recorded a charge of $4,500 in
the fourth quarter of fiscal 2005 as its best estimate of the
-8-
combined expected cost of the settlements. While the Company believes the
estimates are reasonable, the amount of future payments cannot be assured and
may be materially different than the recorded charge.
The Company is currently defending numerous individual lawsuits pending in
various state and federal courts involving phenylpropanolamine (PPA), an
ingredient used in the manufacture of certain OTC cough/cold and diet products.
The Company discontinued using PPA in the U.S. in November 2000 at the request
of the FDA. These cases allege that the plaintiff suffered injury, generally
some type of stroke, from ingesting PPA-containing products. Many of these suits
also name other manufacturers or retailers of PPA-containing products. These
personal injury suits seek an unspecified amount of compensatory, exemplary and
statutory damages. The Company maintains product liability insurance coverage
for the claims asserted in these lawsuits. The Company believes that it has
meritorious defenses to these lawsuits and intends to vigorously defend them. At
this time, the Company cannot determine whether it will be named in additional
PPA-related suits, the outcome of existing suits or the effect that PPA-related
suits may have on its financial condition or operating results.
The Company's Israeli subsidiary has provided a guaranty to a bank to secure the
debt of a 50% owned joint venture for approximately $460, not to exceed 50% of
the joint venture's debt, that is not recorded on the Company's condensed
consolidated balance sheets as of September 24, 2005.
NOTE J - SEGMENT INFORMATION
The Company has three reportable segments, aligned primarily by product:
Consumer Healthcare, Rx Pharmaceuticals and API as well as an Other category.
Prior year's segment information has been restated to conform to the current
year presentation. The Consumer Healthcare segment, API segment and Other
category include charges of $318, $1,747 and $2,697, respectively, for the
write-off of the step-up in the value of inventory resulting from the Agis
acquisition. The write-off of the inventory step-up value was completed in the
first quarter of fiscal 2006. The majority of corporate expenses, which
generally represent shared services, are charged to operating segments as part
of a corporate allocation. Unallocated expenses related to one-time acquisition
integration costs and certain corporate services that are not allocated to the
segments. Acquisition integration costs were $600 for the first quarter of
fiscal 2006.
Consumer Rx Pharma- Unallocated
Healthcare ceuticals API Other expenses Total
---------- ---------- ------- -------- ----------- --------
First Quarter 2006
Net sales $228,633 $29,094 $26,791 $ 35,216 -- $319,734
Operating income (loss) $ 13,122 $ 3,836 $ 6,586 $ (659) $(2,156) $ 20,729
Operating income (loss)% 5.7% 13.2% 24.6% (1.9)% -- 6.5%
Amortization of intangibles $ 1,382 $ 1,584 $ 429 $ 240 -- $ 3,635
First Quarter 2005
Net sales $227,719 -- -- -- -- $227,719
Operating income (loss) $ 27,925 $(1,299) $ 26,626
Operating income % 12.3% -- -- -- -- 11.7%
Amortization of intangibles $ 178 -- -- -- -- $ 178
-9-
NOTE K - RESTRUCTURING
In connection with the Agis acquisition, the Company reviewed its Consumer
Healthcare operating strategies. As a result, the Company approved a
restructuring plan and recorded a charge to the Company's Consumer Healthcare
segment. The implementation of the plan began on March 24, 2005 and is expected
to be completed in its entirety by March 2006. The Company terminated 22
employees performing in certain executive and administrative roles. Accordingly,
the Company recorded employee termination benefits of $3,150 in the fourth
quarter of fiscal 2005. The activity of the restructuring reserve is as follows:
Fiscal 2005 Restructuring
Employee Termination
-------------------------
Balance at June 25, 2005 $2,152
Payments (700)
------
Balance at September 24, 2005 $1,452
======
In connection with the Agis acquisition, the Company accrued $2,727 of
restructuring costs, consisting of employee termination benefits for 60
employees and certain lease termination costs. The Company accrued an additional
amount of $1,206 for employee termination benefits in the first quarter of
fiscal 2006. For accounting purposes, these restructuring costs were included in
the allocation of the total purchase price. Employee termination benefits are
expected to be paid over the next six to nine months. The activity related to
these restructuring costs is as follows:
Fiscal 2005 Restructuring
-------------------------
Employee Lease
Termination Termination
----------- -----------
Balance at June 25, 2005 $ 374 $1,592
Additions $1,206 --
------ ------
Balance at September 24, 2005 $1,580 $1,592
====== ======
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER FISCAL YEARS 2006 AND 2005
(in thousands, except per share amounts)
OVERVIEW
Acquisition
On March 17, 2005, the Company acquired Agis Industries (1983) Ltd. (Agis). The
acquisition resulted in the establishment of new operating and reportable
segments. The results of operations related to the Agis acquisition are
distributed throughout all of the Company's reportable segments, as described
below.
Segments
The Company has three reportable segments, aligned primarily by product:
Consumer Healthcare, Rx Pharmaceuticals and API as well as an Other category.
Segment information for prior periods has been restated to conform to the
current year presentation. The Consumer Healthcare segment includes the U.S.,
U.K. and Mexico operations supporting the sale of OTC pharmaceutical and
nutritional products worldwide. The Rx Pharmaceuticals segment supports the
development and sale of prescription drug products. The API segment supports the
development and manufacturing of API products in Israel and Germany, with sales
to customers worldwide. The Other category consists of two operating segments,
Israel Consumer Products and Israel Pharmaceutical and Diagnostic Products, with
sales primarily to the Israeli market, including cosmetics, toiletries,
detergents, manufactured and imported pharmaceutical products and medical
diagnostic products. Neither of these operating segments meets the quantitative
thresholds required to be separately reportable segments.
Significant Factors Impacting Earnings
The Company continued to be impacted by the legislative and market concerns
related to products containing pseudoephedrine, which have resulted from
concerns over the use of pseudoephedrine in the production of methamphetamine,
an illegal drug. Sales of these products in the first quarter of fiscal 2006
were approximately $23,000 lower than the first quarter of fiscal 2005. The
Company took an additional charge of $2,400 in the first quarter of fiscal 2006
for estimated obsolete inventory on hand.
The Company recorded a charge of $2,750 in the first quarter of fiscal 2006 as
the Company initiated a voluntary retail-level recall of all affected lots of
mesalamine rectal suspension, an anti-inflammatory agent used to treat mild to
moderate ulcerative colitis, following reports of leakage related to the bottle
closure cap.
The Company's sales of OTC pharmaceutical and nutritional products are subject
to the seasonal demands for cough/cold/flu and allergy products. Accordingly,
operating results for the first quarter of fiscal 2006 are not necessarily
indicative of the results that may be expected for a full year.
-11-
RESULTS OF OPERATIONS
CONSUMER HEALTHCARE
First Quarter
-------------------
2006 2005
-------- --------
Net sales $228,633 $227,719
Gross profit $ 52,791 $ 64,713
Gross profit % 23.1% 28.4%
Operating expenses $ 39,669 $ 36,788
Operating expenses % 17.4% 16.2%
Operating income $ 13,122 $ 27,925
Operating income % 5.7% 12.3%
Net Sales
First quarter net sales for fiscal 2006 increased $914 compared to fiscal 2005.
The increase included topical OTC products produced at the New York facility
acquired in conjunction with the Agis acquisition of approximately $19,000 and
new product sales. This increase was largely offset by sales of
pseudoephedrine-containing products that were $23,000 lower in the first quarter
of fiscal 2006 compared to the first quarter of fiscal 2005.
Gross Profit
First quarter gross profit for fiscal 2006 decreased 18% or $11,922 compared to
fiscal 2005 primarily due to the lower volume of pseudoephedrine-containing
products. Inventory obsolescence expenses were higher than fiscal 2005,
including a charge of $2,400 for estimated obsolete pseudoephedrine inventory on
hand, but were generally offset by lower production-related costs. The decrease
in the first quarter gross profit percentage was primarily attributable to an
unfavorable mix of products sold and the lower volume of
pseudoephedrine-containing products, which were typically sold at a margin
higher than the average product in the Consumer Healthcare segment.
Operating Expenses
First quarter operating expenses for fiscal 2006 increased 8% or $2,881 during
fiscal 2006 compared to fiscal 2005 primarily due to expenses related to the New
York facility and amortization of intangible assets related to the Agis
acquisition. Amortization expense in the first quarter was $1,382 for fiscal
2006 and $178 for fiscal 2005.
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RX PHARMACEUTICALS
First Quarter
-----------------
2006 2005
------- -------
Net sales $29,094 --
Gross profit $11,625 --
Gross profit % 40.0% --
Operating expenses $ 7,789 $ 1,299
Operating expenses % 26.8% --
Operating income (loss) $ 3,836 $(1,299)
Operating income % 13.2% --
Net Sales and Gross Profit
First quarter net sales and gross profit for fiscal 2006 resulted almost
entirely from the Agis acquisition. Gross profit includes a charge of $1,584 for
amortization of product-related intangible assets.
In September 2005, the Company initiated a voluntary retail-level recall of all
affected lots of mesalamine rectal suspension, an anti-inflammatory agent used
to treat mild to moderate ulcerative colitis, following reports of leakage
related to the bottle closure cap. The recall is not safety related and there
have been no reports of injury or illness related to the leakage of this
product. The cost to write off the value of the Company's on-hand inventories
and the cost of return and disposal are estimated to be $2,750. The charge
reduced operating income by $2,750 and earnings per share by $0.03 for the first
quarter of fiscal 2006.
Operating Expenses
First quarter fiscal 2006 operating expenses increased $6,490. Approximately 80%
of the increase resulted from the Agis acquisition. Research and development
spending in this segment increased $4,243 from the first quarter of fiscal 2005.
ADDITIONAL INFORMATION
Unallocated
First Quarter 2006 API Other Expenses
------- -------- -----------
Net sales $26,791 $ 35,216 --
Gross profit $12,004 $ 10,496 --
Gross profit % 44.8% 29.8%
Operating expenses $ 5,418 $ 11,155 $ 2,156
Operating expenses % 20.2% 31.7% --
Operating income (loss) $ 6,586 $ (659) $(2,156)
Operating income (loss) % 24.6% (1.9)% --
-13-
Three new operating segments were established as a result of the Agis
acquisition. The API segment is a reportable segment. The remaining two
operating segments, Israel Consumer Products and Israel Pharmaceutical and
Diagnostic Products, which comprise the Other category, do not meet the
quantitative thresholds required to be separately reportable. Gross profit of
the API segment and Other category include charges of $1,747 and $2,697,
respectively, for the write-off of the step-up in the value of inventory
resulting from the Agis acquisition. Amortization expense was $429 and $240 for
the API segment and Other category, respectively. Unallocated expenses relate to
one-time acquisition integration costs and certain corporate services that are
not allocated to the segments. Acquisition integration costs were $600 for the
first quarter of fiscal 2006.
INTEREST AND OTHER (CONSOLIDATED)
First quarter fiscal 2006 net interest expense was $3,869, which included
interest expense of $9,347 and interest income of $5,478. Net interest income
was $357 for the first quarter of fiscal 2005. The overall higher interest
expense in the first quarter of fiscal 2006 was due to the level of long-term
debt held by the Company compared to the level of invested cash balances in the
first quarter of fiscal 2005. The gross amounts of interest expense and income
were high in the first quarter of fiscal 2005 due to the outstanding loan and
restricted cash deposit of $400,000 established in connection with the Agis
acquisition. Other income was $1,089 for the first quarter of fiscal 2006
compared to $483 for the first quarter of fiscal 2005.
INCOME TAXES (CONSOLIDATED)
First quarter effective tax rate was 28.1% for fiscal 2006 and 36% for fiscal
2005. The Agis acquisition changed the relative composition of U.S. and Foreign
income, which is expected to result in a lower effective tax rate than the
Company has historically experienced. This tax rate will fluctuate from quarter
to quarter depending on the composition of income before tax. Forty-seven
percent of income before tax in the first quarter of fiscal 2006 was contributed
by foreign entities, generally Israeli, with a tax rate lower than the U.S.
statutory rate. The effective tax rate for succeeding quarters is expected to be
higher as the Company's U.S. income is likely to be a higher percentage of the
total income than in the first quarter. Additionally, due to its intended sale
of an equity investment that will result in a capital gain, the Company released
a valuation allowance of $1,090 on a capital loss carry forward, which reduced
income tax expense in the first quarter of fiscal 2006. The Company recorded
additional tax expense of $623 as certain deferred tax assets and liabilities
were adjusted as a result of changes in statutory tax rates in Israel. The
estimated annualized effective tax rate for fiscal 2006 is between 33% and 34%.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and investment securities decreased $100,873 to $40,941
at September 24, 2005 from $141,814 at September 25, 2004. Working capital,
including cash, decreased $27,624 to $278,924 at September 24, 2005 from
$306,548 at September 25, 2004. The Company's priorities for use of cash and
investment securities include support of seasonal working capital demands,
investment in capital assets, repurchase of common stock and acquisition of
complementary businesses that could leverage retailer relationships, offer a
product niche opportunity or support geographic expansion.
First quarter net cash provided from operating activities increased by $40,699
to $17,722 for fiscal 2006 compared to cash used for operating activities of
$22,977 for fiscal 2005. The contribution of cash flow from operating income of
the subsidiaries related to the Agis acquisition offset the reduction in
operating income of the Consumer Healthcare segment. The decreased use of cash
was primarily due to lower employee bonuses paid in fiscal 2006 and lower
accounts receivable from the timing of sales in the Consumer Healthcare segment
coupled with reductions in inventory and accounts
-14-
payable from lower production volumes.
First quarter net cash used for investing activities increased $29,950 to $6,294
for fiscal 2006 compared to cash provided by investing activities of $23,656 for
fiscal 2005. In the first quarter of fiscal 2005, the Company liquidated
securities held in the U.S. in support of seasonal working capital demands.
First quarter capital expenditures for facilities and equipment were for normal
replacement and productivity enhancements. Capital expenditures are anticipated
to be $45,000 to $50,000 for fiscal 2006.
First quarter net cash used for financing activities increased $2,421 to $1,903
for fiscal 2006 compared to cash provided by financing activities of $518 for
fiscal 2005. The increase was primarily due to an increase in repurchases of
common stock of $8,436, an increase in payments of short-term debt of $6,012 and
an increase in dividend payments of $1,254 offset by borrowings of long-term
debt of $15,000.
The Company repurchased 606 shares of its common stock for $8,558 and 7 shares
for $122 during the first quarter of fiscal 2006 and 2005, respectively. Private
party transactions accounted for 110 shares in the first quarter of fiscal 2006
and 7 shares in the first quarter of fiscal 2005.
The Company paid quarterly dividends in the first quarter of $3,741 and $2,487,
or $0.04 and $0.035 per share, for fiscal 2006 and 2005, respectively. The
declaration and payment of dividends, if any, is subject to the discretion of
the Board of Directors and will depend on the earnings, financial condition and
capital and surplus requirements of the Company and other factors the Board of
Directors may consider relevant.
GUARANTIES AND CONTRACTUAL OBLIGATIONS
The Company's Israeli subsidiary has provided a guaranty to a bank to secure the
debt of a 50% owned joint venture for approximately $460, not to exceed 50% of
the joint venture's debt that is not recorded on the Company's condensed
consolidated balance sheets as of September 24, 2005.
During the first quarter of fiscal 2006, no material change in contractual
obligations occurred.
CRITICAL ACCOUNTING POLICIES
Determination of certain amounts in the Company's financial statements requires
the use of estimates. These estimates are based upon the Company's historical
experiences combined with management's understanding of current facts and
circumstances. Although the estimates are considered reasonable, actual results
could differ from the estimates. The accounting policies, discussed below, are
considered by management to require the most judgment and are critical in the
preparation of the financial statements. These policies are reviewed by the
Audit Committee. Other significant accounting policies are included in Note A of
the notes to the consolidated financial statements in the Company's annual
report on Form 10-K for the fiscal year ended June 25, 2005.
Revenue Recognition and Customer Programs - The Company records revenues from
product sales when the goods are shipped to the customer. For customers with
Free on Board destination terms, a provision is recorded to exclude shipments
estimated to be in-transit to these customers at the end of the reporting
period. A provision is recorded and accounts receivable are reduced as revenues
are
-15-
recognized for estimated losses on credit sales due to customer claims for
discounts, price discrepancies, returned goods and other items. A liability is
recorded as revenues are recognized for estimated customer program liabilities,
as discussed below.
The Company maintains accruals for customer programs that consist primarily of
chargebacks, rebates and shelf stock adjustments.
A chargeback relates to an agreement the Company has with a wholesaler, a retail
customer that will ultimately purchase product from a wholesaler or a
pharmaceutical buying group for a contracted price that is different than the
Company's price to the wholesaler. The wholesaler will issue an invoice to the
Company for the difference in the contract prices. The accrual for chargebacks
is based on historical chargeback experience and estimated wholesaler inventory
levels, as well as expected sell-through levels by wholesalers to retailers.
Rebates are payments issued to the customer when certain criteria are met which
may include specific levels of product purchases, introduction of new products
or other objectives. The accrual for rebates is based on contractual agreements
and estimated purchasing levels by customers with such programs. Medicaid
rebates are payments made to states for pharmaceutical products covered by the
program. The accrual for Medicaid rebates is based on historical trends of
rebates paid and current period sales activity.
Shelf stock adjustments are credits issued to reflect decreases in the selling
price of a product and are based upon estimates of the amount of product
remaining in a customer's inventory at the time of the anticipated price
reduction. In many cases, the customer is contractually entitled to such a
credit. The accrual for shelf stock adjustments is based on specified terms with
certain customers, estimated launch dates of competing products and estimated
declines in market price.
Changes in these estimates and assumptions related to customer programs may
result in additional accruals. The following table summarizes the activity for
the balance sheet for accounts receivable allowances and customer program
accruals:
First Quarter Fiscal Year First Quarter
2006 2005 2005
------------- ----------- -------------
ACCOUNTS RECEIVABLE ALLOWANCES,
excluding allowance
for doubtful accounts
Balance, beginning of period $ 10,403 $ 3,691 $ 3,691
Acquisition -- 5,038 --
Provision recorded 4,167 6,631 --
Credits processed (4,620) (4,957) --
-------- -------- -------
Balance, end of the period $ 9,950 $ 10,403 $ 3,691
======== ======== =======
CUSTOMER PROGRAM ACCRUALS
Balance, beginning of period $ 41,666 $ 13,212 $13,212
Acquisition -- 20,488 --
Provision recorded 29,812 49,612 8,342
Credits processed (31,349) (41,646) (5,344)
-------- -------- -------
Balance, end of the period $ 40,129 $ 41,666 $16,210
======== ======== =======
-16-
Allowance for Doubtful Accounts - The Company maintains an allowance for
customer accounts that reduces receivables to amounts that are expected to be
collected. In estimating the allowance, management considers factors such as
current overall economic conditions, industry-specific economic conditions,
historical and anticipated customer performance, historical experience with
write-offs and the level of past-due amounts. Changes in these conditions may
result in additional allowances. The allowance for doubtful accounts was $10,207
at September 24, 2005, $10,370 at June 25, 2005 and $7,971 at September 25,
2004.
Inventory - The Company maintains an allowance for estimated obsolete or
unmarketable inventory based on the difference between the cost of the inventory
and its estimated market value. In estimating the allowance, management
considers factors such as excess or slow moving inventories, product expiration
dating, products on quality hold, current and future customer demand and market
conditions. Changes in these conditions may result in additional allowances. The
allowance for inventory was $37,164 at September 24, 2005, $34,028 at June 25,
2005 and $21,124 at September 25, 2004.
Goodwill - Goodwill is tested for impairment annually or more frequently if
changes in circumstances or the occurrence of events suggest impairment exists.
The test for impairment requires the Company to make several estimates about
fair value, most of which are based on projected future cash flows. The
estimates associated with the goodwill impairment tests are considered critical
due to the judgments required in determining fair value amounts, including
projected future cash flows. Changes in these estimates may result in the
recognition of an impairment loss. The required annual testing is performed in
the second quarter of the fiscal year. Goodwill was $144,362 at September 24,
2005, $150,293 at June 25, 2005 and $35,919 at September 25, 2004.
Other Intangible Assets - Other intangible assets subject to amortization
consist of developed product technology, distribution and license agreements,
customer relationships and trademarks. Most of these assets are amortized over
their estimated useful economic lives using the straight-line method. An
accelerated method of amortization is used for customer relationships. For
intangible assets subject to amortization, an impairment analysis is performed
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. An impairment loss is recognized if the
carrying amount of the asset is not recoverable and its carrying amount exceeds
its fair value. Other intangible assets were $144,315 at September 24, 2005,
$147,967 at June 25, 2005 and $8,039 at September 25, 2004.
Product Liability and Workers' Compensation - The Company maintains accruals to
provide for claims incurred that are related to product liability and workers'
compensation. In estimating these accruals, management considers actuarial
valuations of exposure based on loss experience. These actuarial valuations
include significant estimates and assumptions, which include, but are not
limited to, loss development, interest rates, product sales, litigation costs,
accident severity and payroll expenses. Changes in these estimates and
assumptions may result in additional accruals. The accrual for product liability
claims was $2,182 at September 24, 2005, $1,930 at June 25, 2005 and $4,074 at
September 25, 2004. The accrual for workers' compensation claims was $2,703 at
September 24, 2005, $2,472 at June 25, 2005 and $2,249 at September 25, 2004.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements in Management's Discussion and Analysis of Results of
Operations and Financial Condition and other portions of this report are
forward-looking statements within the meaning of Section
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21E of the Securities Exchange Act of 1934, as amended, and are subject to the
safe harbor created thereby. These statements relate to future events or the
Company's future financial performance and involve known and unknown risks,
uncertainties and other factors that may cause the actual results, levels of
activity, performance or achievements of the Company or its industry to be
materially different from those expressed or implied by any forward-looking
statements. In some cases, forward-looking statements can be identified by
terminology such as "may," "will," "could," "would," "should," "expect," "plan,"
"anticipate," "intend," "believe," "estimate," "predict," "potential" or other
comparable terminology. Please see the "Cautionary Note Regarding
Forward-Looking Statements" in the Company's Form 10-K for the year ended June
25, 2005 for a discussion of certain important risk factors that relate to
forward-looking statements contained in this report. Although the Company
believes that the expectations reflected in these forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to be
correct. Unless otherwise required by applicable securities laws, the Company
disclaims any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
The Company is exposed to market risks due to changes in currency exchange rates
and interest rates.
The Company is exposed to interest rate changes primarily as a result of
interest expense on borrowings used to finance the Agis acquisition and working
capital requirements and interest income earned on its investment of cash on
hand. As of September 24, 2005, the Company had invested cash, cash equivalents
and investment securities of approximately $41,000 and short and long-term debt,
net of restricted cash, of approximately $290,000.
The Company enters into certain derivative financial instruments, when available
on a cost-effective basis, to hedge its underlying economic exposure,
particularly related to the management of interest rate risk. Because of the use
of certain derivative financial instruments, the Company believes that a
significant fluctuation in interest rates in the near future will not have a
material impact on the Company's consolidated financial statements. These
instruments are managed on a consolidated basis to efficiently net exposures and
thus take advantage of any natural offsets. Derivative financial instruments are
not used for speculative purposes. Gains and losses on hedging transactions are
offset by gains and losses on the underlying exposures being hedged.
The Company has operations in the U.K., Israel, Germany and Mexico. These
operations transact business in their local currency and foreign currencies,
thereby creating exposures to changes in exchange rates. Significant currency
fluctuations could adversely impact foreign revenues; however, the Company
cannot predict future changes in foreign currency exposure.
Item 4. Controls and Procedures
As of September 24, 2005, the Company's management, including its Chief
Executive Officer and its Chief Financial Officer, has performed an interim
review on the effectiveness of the Company's disclosure controls and procedures
pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934. Based on that
review, as well as an evaluation and consideration of the update described
below, the Chief Executive Officer and Chief Financial Officer have concluded
the Company's disclosure controls and procedures are not effective at a
reasonable assurance level. Certain material weaknesses in internal control over
financial reporting (ICFR) were identified in fiscal year 2005 in connection
with integration and initial internal control assessment activities related to
the Agis acquisition (this section of
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Item 4. Controls and Procedures should be read in conjunction with Item 9A.
Controls and Procedures, included in the Company's Form 10-K for the fiscal year
ended June 25, 2005). As of September 24, 2005, total assets subject to Agis'
ICFR represented approximately 40% of the Company's consolidated total assets.
Net sales subject to Agis' ICFR represented approximately 35% of the Company's
consolidated total net sales for the quarter ended September 24, 2005.
The Company is actively seeking to remedy these material weaknesses. Other than
the deficiencies related to the Agis entities, the Chief Executive Officer and
Chief Financial Officer did not note any other material weaknesses in the
Company's disclosure controls and procedures during their evaluation.
The following is an update on the Company's remediation plan:
- The New York location's information systems infrastructure and related
policies were converted to align with the Company's existing
infrastructure and policies. Additionally, significant progress has
been made on converting this location to the Company's ERP system.
This conversion is moving in accordance with the timeline of the plan
with expected completion late in the second quarter of fiscal 2006.
- Formal policies to reflect the tone of top management have been
introduced to the New York location.
- The Company still expects to report the ICFR for the New York and
Germany locations will be effective by the end of fiscal 2006. These
two locations represent approximately 18% of the Company's
consolidated fiscal 2006 first quarter revenue.
- Limited progress has been made in modification of the Israel
locations' information systems infrastructure to align with the
Company's standards. However, several formal policies and internal
control enhancements are expected to be in place late in the second
quarter of fiscal 2006. The Company still anticipates completion of
this aspect of the remediation plan in the fourth quarter of fiscal
2006.
- Company management is in the process of deploying certain formal
policies to reflect the tone of top management at the Israel
locations. This process is expected to be completed late in the second
quarter of fiscal 2006.
- The first stages of an ERP system implementation in Israel are
underway.
In connection with the interim evaluation by the Company's management, including
its Chief Executive Officer and Chief Financial Officer, of the Company's ICFR
pursuant to Rule 13a-15(d) of the Securities Exchange Act of 1934, no changes
during the quarter ended September 24, 2005 were identified that have materially
affected, or are reasonably likely to materially affect, the Company's ICFR,
other than the infrastructure conversion and implementation of policies at the
New York location described above.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In August 2004, the Company agreed to settle with the FTC and states' attorneys
general offices which had been investigating a 1998 agreement between Alpharma,
Inc. and the Company related to a children's ibuprofen suspension product. The
agreement between Alpharma, Inc. and the Company is no longer in effect. The
consent order included payment of $4,750 to resolve all claims by the FTC and
state governments as well as certain restrictions on future contractual
agreements of this nature. These restrictions are not expected to have a
material impact on the Company's future results of operations. The $4,750 charge
was recorded in the fourth quarter of fiscal 2004 and paid in the first quarter
of fiscal
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2005.
In connection with the Alpharma, Inc. agreement and the related FTC settlement
in fiscal 2004, the Company has been named as a defendant in three suits, two of
which are class actions that have been consolidated with one another, filed on
behalf of Company customers (i.e., retailers) and the other consisting of four
class action suits filed on behalf of indirect Company customers (i.e.,
consumers), alleging that the plaintiffs overpaid for children's ibuprofen
suspension product as a result of the Company's agreement with Alpharma, Inc.
While the Company has been defending these claims, it has also participated in
settlement negotiations with the plaintiffs. The most recent negotiations lead
the Company to believe it may settle all of the lawsuits for a combination of
cash payments and product donations, the aggregate value of which the Company
anticipates will approximate $4,500. The Company recorded a charge of $4,500 in
the fourth quarter of fiscal 2005 as its best estimate of the combined expected
cost of the settlements. While the Company believes the estimates are
reasonable, the amount of future payments cannot be assured and may be
materially different than the recorded charge.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On April 22, 2005, the Board of Directors approved a plan to repurchase shares
of common stock with a value of up to $30,000. This plan will expire on April
21, 2006. On June 21, 2005, the Company announced the implementation of a 10b5-1
plan that allows brokers selected by the Company to repurchase shares on behalf
of the Company at times when it would ordinarily not be in the market because of
the Company's trading policies. All common stock repurchased is retired upon
purchase.
The table below lists the Company's repurchases of shares of common stock during
its most recently completed quarter:
Total
Total Average Number of Shares Value
Number of Price Purchased as of Shares
Shares Paid per Part of Publicly Available for
Fiscal 2006 Purchased (1) Share Announced Plans Purchase
------------------------- ------------- -------- ---------------- -------------
$27,100
June 26 to July 30 231 $13.95 231 $23,882
July 31 to August 27 187 $13.74 174 $21,490
August 28 to September 24 188 $14.70 91 $20,160
--- ---
Total 606 496
(1) Private party transactions accounted for the purchase of 13 shares in the
period from July 31 to August 27 and 97 shares in the period from August 28
to September 24.
-20-
Item 6. Exhibits
Exhibit Number Description
-------------- -----------
2(a) Agreement and Plan of Merger dated as of November 14, 2004,
among Registrant, Agis Industries (1983) Ltd. and Perrigo
Israel Opportunities Ltd., incorporated by reference from
Appendix A to the Registrant's Proxy Statement/Prospectus
included in the Registrant's Registration Statement on Form S-4
(No. 333-121574), filed and declared effective on February 14,
2005.
10(a) First Amendment to Credit Agreement, dated as of September 30,
2005, among Perrigo Company, the Foreign Subsidiary Borrowers,
JPMorgan Chase Bank, N.A., as Administrative Agent for the
Lenders, Bank Leumi USA, as Syndication Agent, and Bank of
America, N.A., Standard Federal Bank N.A. and National City
Bank of the Midwest, as Documentation Agents.
10(b) Foreign Subsidiary Borrower Agreement, dated as of September
26, 2005, among Chemagis (Germany) GmbH, Perrigo Company and
JPMorgan Chase Bank, N.A., as Administrative Agent, pursuant to
the Credit Agreement, dated as of March 16, 2005, among Perrigo
Company, the Foreign Subsidiary Borrowers, JPMorgan Chase Bank,
N.A., as Administrative Agent, Bank Leumi USA, as Syndication
Agent, and Bank of America, N.A., Standard Federal Bank N.A.
and National City Bank of the Midwest, as Documentation Agents.
31 Rule 13a-14(a) Certifications.
32 Section 1350 Certifications.
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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: October 26, 2005 By: /s/ David T. Gibbons
-------------------------------------------------------
David T. Gibbons
Chairman, President and Chief Executive Officer
Date: October 26, 2005 By: /s/ Douglas R. Schrank
-------------------------------------------------------
Douglas R. Schrank
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
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