Company Quick10K Filing
Quick10K
Perrigo
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$52.62 136 $7,150
10-Q 2019-03-30 Quarter: 2019-03-30
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-29 Quarter: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-Q 2016-10-01 Quarter: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-Q 2015-09-26 Quarter: 2015-09-26
10-K 2015-06-27 Annual: 2015-06-27
10-Q 2015-03-28 Quarter: 2015-03-28
10-Q 2014-12-27 Quarter: 2014-12-27
10-Q 2014-09-27 Quarter: 2014-09-27
10-K 2014-06-28 Annual: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-Q 2013-12-28 Quarter: 2013-12-28
8-K 2019-05-08 Enter Agreement
8-K 2019-05-08 Earnings, Exhibits
8-K 2019-05-08 Earnings, Exhibits
8-K 2019-04-26 Other Events
8-K 2019-04-26 Shareholder Vote, Exhibits
8-K 2019-03-17 Officers, Exhibits
8-K 2019-02-13 Officers
8-K 2018-12-20 Other Events
8-K 2018-10-02 Officers, Exhibits
8-K 2018-03-09 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2018-02-27 Earnings, Exhibits
8-K 2018-02-20 Officers
8-K 2018-01-06 Officers, Exhibits
UGI UGI 9,410
STL Sterling Bancorp 4,470
PACD Pacific Drilling 1,080
NBEV New Age Beverages 395
REPH Recro Pharma 194
DLA Delta Apparel 151
WSTL Westell Technologies 32
FXS Invesco Currencyshares Swedish Krona Trust 0
DCLT Data Call Technologies 0
QPRC Quest Patent Research 0
PRGO 2019-03-30
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Note 1
Note 1 - Summary of Significant Accounting Policies
Note 2 - Revenue Recognition
Note 2
Note 3 - Goodwill and Intangible Assets
Note 3
Note 4 - Inventories
Note 5
Note 5 - Fair Value Measurements
Note 6 - Investments
Note 6
Note 7 - Derivative Instruments and Hedging Activities
Note 7
Note 8 - Leases
Note 8
Note 9
Note 9 - Indebtedness
Note 10
Note 10 - Earnings per Share and Shareholders' Equity
Note 11 - Accumulated Other Comprehensive Income (Loss)
Note 12
Note 12 - Income Taxes
Note 13 - Contingencies
Note 13
Note 15
Note 14 - Restructuring Charges
Note 15 - Segment Information
Note 16 - Subsequent Events
Note 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-10.7 cy19q110qex107.htm
EX-10.9 cy19q110qex109.htm
EX-31.1 cy19q110qex311.htm
EX-31.2 cy19q110qex312.htm
EX-32 cy19q110qex32.htm

Perrigo Earnings 2019-03-30

PRGO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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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: March 30, 2019
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 001-36353
_______________________________________________
Perrigo Company plc
(Exact name of registrant as specified in its charter)
_______________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Ireland
 
Not Applicable
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
The Sharp Building, Hogan Place, Dublin 2, Ireland
 
-
(Address of principal executive offices)
 
(Zip Code)
+353 1 7094000
(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 (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days.    YES [X]    NO  [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  [X]   NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
[X]
 
Accelerated filer
[ ]
 
Non-accelerated filer
[ ]
 
Smaller reporting company
[ ]
Emerging growth company
[ ]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
[ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   [ ]  YES  [X] NO
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Ordinary shares
PRGO
New York Stock Exchange
As of May 3, 2019, there were 135,991,315 ordinary shares outstanding.




PERRIGO COMPANY PLC
FORM 10-Q
INDEX
 
PAGE
NUMBER
 
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1
 
 
 
2
 
 
 
3
 
 
 
4
 
 
 
5
 
 
 
6
 
 
 
7
 
 
 
8
 
 
 
9
 
 
 
10
 
 
 
11
 
 
 
12
 
 
 
13
 
 
 
14
 
 
 
15
 
 
 
16
 
 
 
 
 
 
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report are “forward-looking statements” within the meaning of Section 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 our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our, or our industry’s actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. In particular, statements about our expectations, beliefs, plans, objectives, assumptions, future events or future performance contained in this report, including certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are 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,” "forecast," “predict,” “potential” or the negative of those terms or other comparable terminology.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control, including: the timing, amount and cost of any share repurchases; future impairment charges; the success of management transition; customer acceptance of new products; competition from other industry participants, some of whom have greater marketing resources or larger market shares in certain product categories than we do; pricing pressures from customers and consumers; resolution of uncertain tax positions, including the Company's appeal of the Notice of Assessment ("NoA") issued by the Irish Office of the Revenue Commissioners (“Irish Revenue”) and the Notice of Proposed Adjustment ("NOPA") issued by the U.S. Internal Revenue Service and the impact that an adverse result in such proceedings would have on operating results, cash flows and liquidity; potential third-party claims and litigation, including litigation relating to our restatement of previously-filed financial information and litigation relating to uncertain tax positions, including the NoA and the NOPA; potential impacts of ongoing or future government investigations and regulatory initiatives; the impact of tax reform legislation and healthcare policy; general economic conditions; fluctuations in currency exchange rates and interest rates; the consummation of announced acquisitions or dispositions and the success of such transactions, and our ability to realize the desired benefits thereof; and our ability to execute and achieve the desired benefits of announced cost-reduction efforts, and strategic and other initiatives. Statements regarding the separation of the RX business, including the expected benefits, anticipated timing, form of any such separation and whether the separation ultimately occurs, are all subject to various risks and uncertainties, including future financial and operating results, our ability to separate the business, the effect of existing interdependencies with our manufacturing and shared service operations, and the tax consequences of the planned separation to us or our shareholders. Furthermore, we may incur additional tax liabilities in respect of 2016 and prior years or be found to have breached certain provisions of Irish company law in connection with our restatement of our previously-filed financial statements, which may result in additional expenses and penalties. These and other important factors, including those discussed in our form 10-K for the year-ended December 31, 2018, this report under “Risk Factors” and in any subsequent filings with the United States Securities and Exchange Commission, may cause actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. The forward-looking statements in this report are made only as of the date hereof, and unless otherwise required by applicable securities laws, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

This report contains trademarks, trade names and service marks that are the property of Perrigo Company plc, as well as, for informational purposes, trademarks, trade names, and service marks that are the property of other organizations. Solely for convenience, certain trademarks, trade names, and service marks referred to in this report appear without the ®, ™ and SM symbols, but those references are not intended to indicate that we or the applicable owner, as the case may be, will not assert, to the fullest extent under applicable law, our or their rights to such trademarks, trade names, and service marks.


1

Perrigo Company plc - Item 1

PART I.     FINANCIAL INFORMATION

ITEM 1.        FINANCIAL STATEMENTS (UNAUDITED)

PERRIGO COMPANY PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(unaudited)
 
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Net sales
$
1,174.5

 
$
1,217.0

Cost of sales
725.7

 
724.3

Gross profit
448.8

 
492.7

 
 
 
 
Operating expenses
 
 
 
Distribution
23.3

 
24.7

Research and development
40.2

 
38.4

Selling
148.6

 
161.3

Administration
125.1

 
107.6

Impairment charges
4.1

 

Restructuring
9.3

 
1.5

Other operating expense (income)
(4.1
)
 
2.9

Total operating expenses
346.5

 
336.4

 
 
 
 
Operating income
102.3

 
156.3

 
 
 
 
Change in financial assets
(10.4
)
 
9.6

Interest expense, net
28.6

 
31.4

Other (income) expense, net
3.2

 
4.3

Loss on extinguishment of debt

 
0.5

Income before income taxes
80.9

 
110.5

Income tax expense
17.0

 
29.7

Net income
$
63.9

 
$
80.8

 
 
 
 
Earnings per share
 
 
 
Basic
$
0.47

 
$
0.57

Diluted
$
0.47

 
$
0.57

 
 
 
 
Weighted-average shares outstanding
 
 
 
Basic
135.9

 
140.8

Diluted
136.2

 
141.4



See accompanying Notes to the Condensed Consolidated Financial Statements.

2

Perrigo Company plc - Item 1

PERRIGO COMPANY PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Net income
$
63.9

 
$
80.8

Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustments
(16.8
)
 
73.0

Change in fair value of derivative financial instruments, net of tax
1.7

 
(0.6
)
Change in post-retirement and pension liability, net of tax
(0.5
)
 
(0.2
)
Other comprehensive income (loss), net of tax
(15.6
)
 
72.2

Comprehensive income
$
48.3

 
$
153.0

See accompanying Notes to the Condensed Consolidated Financial Statements.


3

Perrigo Company plc - Item 1

PERRIGO COMPANY PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share amounts)
(unaudited)
 
March 30,
2019
 
December 31,
2018
Assets
 
 
 
Cash and cash equivalents
$
837.9

 
$
551.1

Accounts receivable, net of allowance for doubtful accounts of $6.8 and $6.4, respectively
1,118.7

 
1,073.1

Inventories
912.9

 
878.0

Prepaid expenses and other current assets
139.8

 
400.0

Total current assets
3,009.3

 
2,902.2

Property, plant and equipment, net
821.1

 
829.1

Operating lease assets
146.8

 

Goodwill and indefinite-lived intangible assets
3,999.0

 
4,029.1

Definite-lived intangible assets, net
2,757.9

 
2,858.9

Deferred income taxes
2.7

 
1.2

Other non-current assets
382.7

 
362.9

Total non-current assets
8,110.2

 
8,081.2

Total assets
$
11,119.5

 
$
10,983.4

Liabilities and Shareholders’ Equity
 
 
 
Accounts payable
$
549.2

 
$
474.9

Payroll and related taxes
117.3

 
132.1

Accrued customer programs
379.6

 
442.4

Accrued liabilities
232.0

 
201.3

Accrued income taxes
85.9

 
96.5

Current indebtedness
467.9

 
190.2

Total current liabilities
1,831.9

 
1,537.4

Long-term debt, less current portion
2,749.9

 
3,052.2

Deferred income taxes
282.4

 
282.3

Other non-current liabilities
554.5

 
443.4

Total non-current liabilities
3,586.8

 
3,777.9

Total liabilities
5,418.7

 
5,315.3

Commitments and contingencies - Refer to Note 13

 

Shareholders’ equity
 
 
 
Controlling interests:
 
 
 
Preferred shares, $0.0001 par value per share, 10 shares authorized

 

Ordinary shares, €0.001 par value per share, 10,000 shares authorized
7,409.4

 
7,421.7

Accumulated other comprehensive income
69.0

 
84.6

Retained earnings (accumulated deficit)
(1,777.8
)
 
(1,838.3
)
Total controlling interest
5,700.6

 
5,668.0

Noncontrolling interest
0.2

 
0.1

Total shareholders’ equity
5,700.8

 
5,668.1

Total liabilities and shareholders' equity
$
11,119.5

 
$
10,983.4

 
 
 
 
Supplemental Disclosures of Balance Sheet Information
 
 
 
Ordinary shares, issued and outstanding
136.0

 
135.9


See accompanying Notes to the Condensed Consolidated Financial Statements.

4

Perrigo Company plc - Item 1

PERRIGO COMPANY PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions, except per share amounts)
(unaudited)
 
Ordinary Shares
Issued
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
(Accumulated Deficit)
 
Total
 
Shares
 
Amount
Balance at December 31, 2017
140.8

 
$
7,892.9

 
$
253.1

 
$
(1,975.5
)
 
$
6,170.5

Adoption of new accounting standards

 

 
(1.0
)
 
6.3

 
5.3

Net income

 

 

 
80.8

 
80.8

Other comprehensive income

 

 
72.2

 

 
72.2

Stock options exercised

 
0.2

 

 

 
0.2

Restricted stock plan
0.2

 

 

 

 

Compensation for stock options

 
2.7

 

 

 
2.7

Compensation for restricted stock

 
10.0

 

 

 
10.0

Cash dividends, $0.19 per share

 
(26.7
)
 

 

 
(26.7
)
Shares withheld for payment of employees' withholding tax liability

 
(1.5
)
 

 

 
(1.5
)
Repurchases of ordinary shares
(1.3
)
 
(108.1
)
 

 

 
(108.1
)
Balance at March 31, 2018
139.7

 
$
7,769.5

 
$
324.3

 
$
(1,888.4
)
 
$
6,205.4

 
Ordinary Shares
Issued
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
(Accumulated Deficit)
 
Total
 
Shares
 
Amount
Balance at December 31, 2018
135.9

 
$
7,421.7

 
$
84.6

 
$
(1,838.3
)
 
$
5,668.0

Adoption of new accounting standards

 

 

 
(3.4
)
 
(3.4
)
Net income

 

 

 
63.9

 
63.9

Other comprehensive loss

 

 
(15.6
)
 

 
(15.6
)
Restricted stock plan
0.2

 

 

 

 

Compensation for stock options

 
1.8

 

 

 
1.8

Compensation for restricted stock

 
14.2

 

 

 
14.2

Cash dividends, $0.19 per share

 
(25.9
)
 

 

 
(25.9
)
Shares withheld for payment of employees' withholding tax liability
(0.1
)
 
(2.4
)
 

 

 
(2.4
)
Balance at March 30, 2019
136.0

 
$
7,409.4

 
$
69.0

 
$
(1,777.8
)
 
$
5,700.6


See accompanying Notes to the Condensed Consolidated Financial Statements.

5

Perrigo Company plc - Item 1

PERRIGO COMPANY PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Cash Flows From (For) Operating Activities
 
 
 
Net income
$
63.9

 
$
80.8

Adjustments to derive cash flows:
 
 
 
Depreciation and amortization
96.6

 
109.5

Share-based compensation
12.4

 
12.7

Impairment charges
4.1

 

Change in financial assets
(10.4
)
 
9.6

Loss on extinguishment of debt

 
0.5

Restructuring charges
9.3

 
1.5

Deferred income taxes
3.9

 
(7.2
)
Amortization of debt premium
(1.9
)
 
(2.1
)
Other non-cash adjustments, net
13.4

 
12.1

Subtotal
191.3

 
217.4

Increase (decrease) in cash due to:
 
 
 
Accounts receivable
(48.5
)
 
2.6

Inventories
(37.5
)
 
(43.7
)
Accounts payable
75.4

 
57.5

Payroll and related taxes
(19.9
)
 
(38.9
)
Accrued customer programs
(61.7
)
 
17.3

Accrued liabilities
(3.8
)
 
(24.0
)
Accrued income taxes
(10.0
)
 
6.4

Other, net
9.2

 
(22.2
)
Subtotal
(96.8
)
 
(45.0
)
Net cash from (for) operating activities
94.5

 
172.4

Cash Flows From (For) Investing Activities
 
 
 
Proceeds from royalty rights
1.2

 
10.0

Royalty Pharma contingent milestone payment
250.0

 

Additions to property, plant and equipment
(21.1
)
 
(13.4
)
Net proceeds from sale of business and other assets

 
1.3

Net cash from (for) investing activities
230.1

 
(2.1
)
Cash Flows From (For) Financing Activities
 
 
 
Issuances of long-term debt

 
431.0

Payments on long-term debt
(12.3
)
 
(444.5
)
Borrowings (repayments) of revolving credit agreements and other financing, net
(0.3
)
 
(6.2
)
Deferred financing fees

 
(2.4
)
Repurchase of ordinary shares

 
(108.1
)
Cash dividends
(25.9
)
 
(26.7
)
Other financing, net
(3.1
)
 
(5.7
)
Net cash from (for) financing activities
(41.6
)
 
(162.6
)
Effect of exchange rate changes on cash and cash equivalents
3.8

 
0.9

Net increase (decrease) in cash and cash equivalents
286.8

 
8.6

Cash and cash equivalents, beginning of period
551.1

 
678.7

Cash and cash equivalents, end of period
$
837.9

 
$
687.3


See accompanying Notes to the Condensed Consolidated Financial Statements.

6

Perrigo Company plc - Item 1
Note 1



NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General Information

The Company

Perrigo Company plc was incorporated under the laws of Ireland on June 28, 2013 and became the successor registrant of Perrigo Company, a Michigan corporation, on December 18, 2013 in connection with the acquisition of Elan Corporation, plc ("Elan"). Unless the context requires otherwise, the terms "Perrigo," the "Company," "we," "our," "us," and similar pronouns used herein refer to Perrigo Company plc, its subsidiaries, and all predecessors of Perrigo Company plc and its subsidiaries.

We are dedicated to making lives better by bringing “Quality, Affordable Self-Care Products™” that consumers trust everywhere they are sold. We are a leading provider of over-the-counter ("OTC") health and wellness solutions that enhance individual well-being by empowering consumers to proactively prevent or treat conditions that can be self-managed. We are also a leading producer of generic prescription pharmaceutical topical products such as creams, lotions, gels, and nasal sprays.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") 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 GAAP for complete financial statements. The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2018. In the opinion of management, all adjustments (consisting of normal recurring accruals and other adjustments) considered necessary for a fair presentation of the unaudited Condensed Consolidated Financial Statements have been included and include our accounts and the accounts of all majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Segment Reporting Change

               During the three months ended March 30, 2019, we changed the composition of our operating and reporting segments. We moved our Israeli diagnostic business from the Consumer Self-Care International segment to the Prescription Pharmaceuticals segment and we made certain adjustments to our allocations between segments. These changes were made to reflect changes in the way in which management makes operating decisions, allocates resources, and manages the growth and profitability of the Company. Financial information related to our business segments and geographic locations can be found in Note 2 and Note 15.

Our new reporting and operating segments are as follows:

Consumer Self-Care Americas ("CSCA"), formerly Consumer Healthcare Americas, comprises our consumer self-care business (OTC, contract manufacturing, infant formula and animal health categories) in the U.S., Mexico and Canada.
Consumer Self-Care International ("CSCI"), formerly Consumer Healthcare International, comprises our branded consumer self-care business primarily in Europe, our consumer-focused business in the United Kingdom and Australia, and our liquid licensed products business in the United Kingdom.
Prescription Pharmaceuticals ("RX"), comprises our Prescription Pharmaceuticals business in the U.S. and our diagnostic business in Israel, which was previously in our CSCI segment.


7

Perrigo Company plc - Item 1
Note 1


Recent Accounting Standard Pronouncements
    
Below are recent Accounting Standard Updates ("ASU") that we are still assessing to determine the effect on our Condensed Consolidated Financial Statements. We do not believe that any other recently issued accounting standards could have a material effect on our Condensed Consolidated Financial Statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
Recently Issued Accounting Standards Not Yet Adopted
Standard
 
Description
 
Effective Date
 
Effect on the Financial Statements or Other Significant Matters
ASU 2018-15: Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
 
This guidance requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred.
 
January 1, 2020
 
We currently plan to adopt the standard prospectively on the effective date. Upon adoption, no impact is currently expected, however, future hosting arrangements treated as service contracts will need to be evaluated for capitalizable costs during implementation. The Consolidated Financial Statement impact will align with the presentation of the underlying hosting contracts, which will be included within Operating expenses.
ASU 2018-13: Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement
 
This guidance amends ASC 820 to add, remove, and modify certain disclosure requirements for fair value measurements.
 
January 1, 2020
 
We currently plan to adopt the standard on the effective date. Upon adoption, we will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurement. We will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy.
ASU 2017-04 Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
 
The objective of this update is to reduce the cost and complexity of subsequent goodwill accounting and simplify the impairment test by removing the Step 2 requirement to perform a hypothetical purchase price allocation when the carrying value of a reporting unit exceeds its fair value. If a reporting unit’s carrying value exceeds its fair value, an entity would record an impairment charge based on that difference, limited to the amount of goodwill attributed to that reporting unit. This will not change the guidance on completing Step 1 of the goodwill impairment test and would be applied prospectively. Early adoption is permitted.
 
January 1, 2020
 
We currently plan to adopt the standard prospectively on the effective date. Upon adoption, we will no longer be required to calculate the implied fair value of goodwill to measure a goodwill impairment. Rather, a Step 1 failure will result in an immediate impairment charge based on the carrying value of the reporting unit.
ASU 2016-13: Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

ASU 2018-19 Codification Improvements for Topic 326: Measurement of Credit Losses on Financial Instruments
 
This guidance changes the impairment model for most financial assets and certain other instruments, replacing the current "incurred loss" approach with an "expected loss" credit impairment model, which will apply to most financial assets measured at amortized cost, and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities and off-balance sheet credit exposures such as letters of credit.
 
January 1, 2020
 
We are currently evaluating the implications of adoption on our Consolidated Financial Statements.
ASU 2018-18 Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606
 
This guidance amends ASC 808 to clarify that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. The proposed guidance would be applied retrospectively to the date of initial adoption of Topic 606.
 
January 1, 2020
 
We are currently evaluating the implications of adoption on our Consolidated Financial Statements.
ASU 2018-14: Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans
 
This guidance amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other post-retirement plans.
 
December 31, 2020
 
We are currently evaluating the implications of adoption on our Consolidated Financial Statements.


NOTE 2 – REVENUE RECOGNITION

Revenue is recognized when or as a customer obtains control of promised products. The amount of revenue recognized reflects the consideration we expect to be entitled to receive in exchange for these products.


8

Perrigo Company plc - Item 1
Note 2


Disaggregation of Revenue

We generated net sales in the following geographic locations(1) (in millions):
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
U.S.
$
768.8

 
$
786.4

Europe(2)
340.9

 
361.9

All other countries(3)
64.8

 
68.7

 
$
1,174.5

 
$
1,217.0


(1) Derived from the location of the entity that sells to a third party.
(2) Includes Ireland net sales of $5.2 million and $5.4 million for the three months ended March 30, 2019 and March 31, 2018, respectively.
(3) Includes net sales generated primarily in Israel, Mexico, Australia and Canada.

The following is a summary of our net sales by category (in millions):
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
CSCA(1)
 
 
 
Cough/cold/allergy/sinus
$
132.6

 
$
141.5

Gastrointestinal
100.3

 
92.2

Infant nutritionals
96.0

 
103.4

Analgesics
88.8

 
93.7

Smoking cessation
66.8

 
65.9

Animal health
19.6

 
26.3

Vitamins, minerals and dietary supplements
3.4

 
3.0

Other CSCA(2)
74.3

 
75.6

Total CSCA
581.8

 
601.6

CSCI
 
 
 
Cough/cold/allergy/sinus
95.7

 
98.7

Lifestyle
81.5

 
89.7

Personal care and derma-therapeutics
66.0

 
75.6

Natural health and vitamins, minerals and dietary supplements
29.8

 
33.2

Anti-parasites
26.7

 
28.1

Other CSCI(3)
51.1

 
52.5

Total CSCI
350.8

 
377.8

Total RX
241.9

 
237.6

Total net sales
$
1,174.5

 
$
1,217.0


(1)    Includes net sales from our OTC contract manufacturing business.
(2)
Consists primarily of branded OTC, diabetic care, diagnostic products and other miscellaneous or otherwise uncategorized product lines and markets, none of which is greater than 10% of the segment net sales.
(3)
Consists primarily of liquid licensed products and other miscellaneous or otherwise uncategorized product lines and markets, none of which is greater than 10% of the segment net sales.


9

Perrigo Company plc - Item 1
Note 2


While the majority of revenue is recognized at a point in time, certain of our product revenue is recognized on an over time basis. Predominately, over time customer contracts exist in contract manufacturing arrangements, which occur in both the CSCA and CSCI segments. Contract manufacturing revenue was $67.3 million and $69.4 million for the three months ended March 30, 2019 and March 31, 2018, respectively.

We also recognize a portion of the store brand OTC product revenues in the CSCA segment on an over time basis; however, the timing difference between over time and point in time revenue recognition for store brand contracts is not significant due to the short time period between the customization of the product and shipment or delivery.

Contract Balances

The following table provides information about contract assets from contracts with customers (in millions):
 
Balance Sheet Location
 
March 30,
2019
 
December 31,
2018
Short-term contract assets
Prepaid expenses and other current assets
 
$
18.1

 
$
25.5



NOTE 3 – GOODWILL AND INTANGIBLE ASSETS

Goodwill

Changes in the carrying amount of goodwill, by reportable segment, were as follows (in millions):
 
 
December 31,
2018
 
Currency Translation Adjustments
 
March 30,
2019
CSCA(1)
 
$
1,713.7

 
$
1.2

 
$
1,714.9

CSCI(2)
 
1,151.3

 
(17.7
)
 
1,133.6

RX
 
1,114.8

 
2.9

 
1,117.7

Total goodwill
 
$
3,979.8

 
$
(13.6
)
 
$
3,966.2



(1)
We had accumulated impairments of $24.5 million and $161.2 million for the three months ended March 31, 2018 and March 30, 2019, respectively.
(2)
We had accumulated impairments of $868.4 million for the three months ended March 31, 2018 and March 30, 2019.


10

Perrigo Company plc - Item 1
Note 3


Intangible Assets

Intangible assets and related accumulated amortization consisted of the following (in millions):
 
March 30, 2019
 
December 31, 2018
 
Gross
 
Accumulated
Amortization
 
Gross
 
Accumulated
Amortization
Indefinite-lived intangibles:
 
 
 
 
 
 
 
Trademarks, trade names, and brands
$
18.5

 
$

 
$
18.1

 
$

In-process research and development
14.3

 

 
31.2

 

Total indefinite-lived intangibles
$
32.8

 
$

 
$
49.3

 
$

Definite-lived intangibles:
 
 
 
 
 
 
 
Distribution and license agreements and supply agreements
$
180.4

 
$
101.9

 
$
178.6

 
$
99.0

Developed product technology, formulations, and product rights
1,333.1

 
686.0

 
1,318.8

 
654.6

Customer relationships and distribution networks
1,562.5

 
587.6

 
1,586.6

 
566.5

Trademarks, trade names, and brands
1,257.8

 
201.3

 
1,282.4

 
188.5

Non-compete agreements
12.6

 
11.7

 
12.9

 
11.8

Total definite-lived intangibles
$
4,346.4

 
$
1,588.5

 
$
4,379.3

 
$
1,520.4

Total intangible assets
$
4,379.2

 
$
1,588.5

 
$
4,428.6

 
$
1,520.4



We recorded amortization expense of $75.4 million and $87.2 million for the three months ended March 30, 2019 and March 31, 2018, respectively.     

We recorded an impairment charge of $4.1 million on a certain IPR&D asset during the three months ended March 30, 2019 due to changes in projected development and regulatory timelines.

NOTE 4 – INVENTORIES

Major components of inventory were as follows (in millions):
 
 
March 30,
2019
 
December 31,
2018
Finished goods
$
474.0

 
$
444.9

Work in process
199.3

 
197.5

Raw materials
239.6

 
235.6

Total inventories
$
912.9

 
$
878.0




11

Perrigo Company plc - Item 1
Note 5


NOTE 5 – FAIR VALUE MEASUREMENTS

The table below summarizes the valuation of our financial instruments carried at fair value by the applicable pricing categories (in millions):
 
 
March 30, 2019
 
December 31, 2018
 
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Measured at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities
 
$
3.7

 
$

 
$

 
$
9.4

 
$

 
$

Foreign currency forward contracts
 

 
3.2

 

 

 
3.8

 

Funds associated with Israeli severance liability
 

 
13.4

 

 

 
13.0

 

Royalty Pharma contingent milestone payments
 

 

 
83.6

 

 

 
323.2

Total assets
 
$
3.7

 
$
16.6

 
$
83.6

 
$
9.4

 
$
16.8

 
$
323.2

 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
$

 
$
5.8

 
$

 
$

 
$
9.2

 
$

Contingent consideration
 

 

 
12.4

 

 

 
15.3

Total liabilities
 
$

 
$
5.8

 
$
12.4

 
$

 
$
9.2

 
$
15.3

 
 
 
 
 
 
 
 
 
 
 
 
 
Measured at fair value on a non-recurring basis:
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill(1)
 
$

 
$

 
$

 
$

 
$

 
$
42.2

Indefinite-lived intangible assets(2)
 

 

 

 

 

 
10.5

Definite-lived intangible assets(3)
 

 

 

 

 

 
22.4

Total assets
 
$

 
$

 
$

 
$

 
$

 
$
75.1



(1)
As of December 31, 2018, goodwill with a carrying amount of $178.9 million was written down to a fair value of $42.2 million.
(2)
As of December 31, 2018, indefinite-lived intangible assets with a carrying amount of $46.9 million were written down to a fair value of $10.5 million.
(3)
As of December 31, 2018, definite-lived intangible assets with a carrying amount of $72.0 million were written down to a fair value of $22.4 million.

There were no transfers among Level 1, 2, and 3 during the three months ended March 30, 2019 or the year ended December 31, 2018.

Royalty Pharma Contingent Milestone Payments

The table below summarizes the change in fair value of the Royalty Pharma contingent milestone payments (in millions):
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Beginning balance
$
323.2

 
$
134.5

Payments received
(250.0
)
 

Change in fair value
10.4

 
(9.6
)
Ending balance
$
83.6

 
$
124.9




12

Perrigo Company plc - Item 1
Note 5


We value our contingent milestone payments from Royalty Pharma using a modified Black-Scholes Option Pricing Model ("BSOPM"). Key inputs in the BSOPM are the estimated volatility and rate of return of royalties on global net sales of Tysabri® that are received by Royalty Pharma until the contingent milestones are resolved. Volatility and the estimated fair value of the milestones have a positive relationship such that higher volatility translates to a higher estimated fair value of the contingent milestone payments. We assess volatility and rate of return inputs quarterly by analyzing certain market volatility benchmarks and the risk associated with Royalty Pharma achieving the underlying projected royalties. The table below represents the volatility and rate of return:
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Volatility
30.0
%
 
30.0
%
Rate of return
8.02
%
 
8.08
%

During the three months ended March 30, 2019, the fair value of the Royalty Pharma contingent milestone payments increased $10.4 million driven by higher projected global net sales of Tysabri® and the estimated probability of achieving the earn-out. During the three months ended March 31, 2018, the fair value of the Royalty Pharma contingent milestone payments decreased $9.6 million due primarily to projected global net sales of Tysabri® temporarily falling below the threshold required for payment of the $250.0 million milestone payment for 2018.

In order for us to receive the 2020 milestone payment of $400.0 million, Royalty Pharma contingent payments for Tysabri® sales in 2020 must exceed $351.0 million. If Royalty Pharma contingent payments for Tysabri® sales do not meet the prescribed threshold in 2020, we will write off the $83.6 million asset as an expense. If the prescribed threshold is exceeded, we will increase the asset to $400.0 million and recognize income of $316.4 million in Change in financial assets on the Condensed Consolidated Statements of Operations.

Contingent Consideration

The table below summarizes the change in fair value of contingent consideration (in millions):
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Beginning balance
$
15.3

 
$
22.0

Changes in value
1.2

 
0.4

Currency translation adjustments

 
0.1

Settlements and other adjustments
(4.1
)
 
(4.4
)
Ending balance
$
12.4

 
$
18.1



Goodwill and Intangible Assets

Animal Health

When determining the fair value of our animal health reporting unit for the year ended December 31, 2018, we utilized a combination of comparable company market and discounted cash flow techniques. In our comparable company market approach, we considered observable market information and transactions for companies that we deemed to be of a comparable nature, scope, and size of animal health (Level 2 inputs). Our cash flow projections included revenue assumptions related to new products, product line extensions, and existing products, plus gross margin, advertising and promotion, and other operating expenses based on the growth plans (Level 3 inputs). In our discounted cash flow analysis, we utilized projected sales growth rate and discount rate assumptions of 2.5% and 9.8%, respectively. The discount rate correlates with the required investment return and risk that we believe market participants would apply to the projected growth rate. In addition, we burdened projected free cash flows with the capital spending deemed necessary to support the cash flows and applied the jurisdictional tax rate of 22.8%. We weighted indications of fair value resulting from the market approach and present value techniques, considering the

13

Perrigo Company plc - Item 1
Note 5


reasonableness of the range of measurements and the point within the range that we determined was most representative of fair market conditions.

When assessing our animal health indefinite-lived intangible asset for the year ended December 31, 2018, we utilized a multi-period excess earnings method ("MPEEM") to determine the fair value of the intangible asset. Our cash flow projections included revenue assumptions related to new products, product line extensions, and existing products. We utilized long-term growth rate and discount rate assumptions of (0.3)% and 9.8%, respectively, and we applied a jurisdictional tax rate of 22.8%.

When assessing our animal health definite-lived assets for impairment for the year ended December 31, 2018, we utilized a combination of MPEEM and relief from royalty methods to determine the fair values of definite-lived assets within the asset group. The projected financial information, inputs, and assumptions utilized were consistent with those utilized in the goodwill discounted cash flow analysis described above.

Fixed Rate Long-term Debt    

Our fixed rate long-term debt consisted of the following (in millions):
 
March 30,
2019
 
December 31,
2018
 
Level 1
 
Level 2
 
Level 1
 
Level 2
Public Bonds
 
 
 
 
 
 
 
Carrying Value (excluding discount)
$
2,600.0

 
 
 
$
2,600.0

 
 
Fair value
$
2,472.0