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MarketScreener Homepage  >  Equities  >  Nyse  >  Perrigo Company plc    PRGO   IE00BGH1M568

PERRIGO COMPANY PLC

(PRGO)
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PERRIGO : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

11/05/2020 | 08:20am EST

EXECUTIVE OVERVIEW


This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the financial statements included
in this Form 10-Q and our Form 10-K for the year ended December 31, 2019 (the
"2019 Form 10-K"). These historical financial statements may not be indicative
of our future performance. This discussion contains a number of forward-looking
statements, all of which are based on our current expectations and could be
affected by the uncertainties and risks referred to under "Risk Factors" in Item
1A of our 2019 Form 10-K and   Part II. Item 1A   of this Form 10-Q.

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.

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                                                    Perrigo Company plc - Item 2
                                                              Executive Overview




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,
and gels as well as nasal sprays and inhalers.

Our Segments

Our reporting and operating segments are as follows:

• Consumer Self-Care Americas ("CSCA") comprises our consumer self-care

business (OTC, contract manufacturing, infant formula, and oral self-care

categories and our divested animal health category) in the U.S., Mexico

and Canada.

Consumer Self-Care International ("CSCI") comprises our branded consumer

self-care business primarily in Europe, our consumer self-care businesses

in the United Kingdom and Australia, and our divested liquid licensed

       products business in the United Kingdom.


•      Prescription Pharmaceuticals ("RX") comprises our prescription
       pharmaceuticals business in the U.S., predominantly generics, and our
       pharmaceuticals and diagnostic businesses in Israel.



Our segments reflect the way in which our 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   Item 1. Note 2   and   Note 16  . For results by segment, see
"Segment Results" below.

Highlights

• Effective July 29, 2020, our board of directors appointed Katherine C.

       Doyle to serve as a director of the Company and a member of its Audit
       Committee.


• On June 19, 2020, Perrigo Finance Unlimited Company ("Perrigo Finance")

issued $750.0 million in aggregate principal amount of 3.150% Senior Notes

due 2030 (the "2020 Notes") and received net proceeds of $737.1 million

after fees and market discount. Interest on the 2020 Notes is payable

semi-annually in arrears on June 15 and December 15 of each year,

beginning on December 15, 2020. The 2020 Notes will mature on June 15,

2030. The 2020 Notes are governed by the 2020 Indenture. The 2020 Notes

are fully and unconditionally guaranteed on a senior unsecured basis by

Perrigo and, no other subsidiary of Perrigo guarantees the 2020 Notes.

       There are no restrictions under the 2020 Notes on Perrigo's ability to
       obtain funds from its subsidiaries. Perrigo Finance may redeem the 2020
       Notes in whole or in part at any time for cash at the make-whole
       redemption prices described in the 2020 Indenture. On July 6, 2020, the

net proceeds of the 2020 Notes were used to fund the redemption of Perrigo

Finance's $280.4 million of 3.500% Senior Notes due March 15, 2021 and

$309.6 million of 3.500% Senior Notes due December 15, 2021 (collectively,

the "2021 Notes"). The balance will be used for general corporate purposes

which may include the repayment or redemption of additional indebtedness.

       As a result of the early redemption of the 2021 Notes, during the three
       months ended September 26, 2020, we recorded a loss of $20.0 million in

Loss on extinguishment of debt on the Condensed Consolidated Statements of

Operations, consisting of the premium on debt repayments, the write-off of

       deferred financing fees, and the write-off of the remaining bond
       discounts.



•      We previously announced a plan to separate our RX business, which, if
       completed, would enable us to focus solely on our consumer-focused
       businesses. A separation of the RX business could include a possible sale,

spin-off, merger or other form. We have incurred significant preparation

       costs due to the announced plan to separate, and if completed we could
       incur total costs in the range of $45.0 million to $80.0 million,
       excluding restructuring expenses and transaction costs, depending on
       timing and structure of a transaction. We have not committed to a time
       frame for a separation.




                                       49
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                                                    Perrigo Company plc - Item 2
                                                              Executive Overview



Impact of COVID-19 Pandemic

We have been impacted by the novel coronavirus (COVID-19) global pandemic and
the responses by government entities to combat the virus. We currently continue
to operate in all our jurisdictions and are complying with the rules and
guidelines prescribed in each jurisdiction. We are closely monitoring the impact
of COVID-19 on all aspects of our business and geographies. Our first priority
has been, and will continue to be, the safety of our employees who continue to
come to work and are dedicated to keeping our essential products flowing into
the market. We have taken extra precautions at our facilities to help ensure the
health and safety of our employees that are in line with guidance from global
and local health authorities. Among other precautions implemented, we have
generally restricted access to our production facilities worldwide to essential
employees only and permitted a limited number of nonessential employees into
other facilities with a strict approval process, implemented a multi-step
pre-screening access process before an employee can enter a facility,
communicated regularly with employees and provided education and implemented
controls related to physical distancing and hygiene measures, implemented remote
work arrangements where appropriate, restricted business travel, and prioritized
production of essential products for several months following the initial
outbreak. To date, these arrangements have not materially affected our ability
to maintain our business operations, including the operation of financial
reporting systems, internal control over financial reporting, and disclosure
controls and procedures.

Both the outbreak of the disease and the actions to slow its spread have had an
adverse impact on our operations by, among other things, increasing absenteeism,
affecting the supply of raw materials and third party supplied finished goods,
and preventing many of our employees from coming to work. We have responded to
such impacts by, among other things, implementing protocols to protect the
health of factory workers, adjusting production schedules, and seeking alternate
suppliers where available, and so far, most of our facilities have continued to
produce at high levels despite these challenges. However, a number of
jurisdictions that relaxed such restrictions, or have experienced limited public
adherence with suggested safety measures, have experienced new surges in
COVID-19 cases. Many of these jurisdictions are now contemplating or
implementing new or renewed restrictions. As such, as the pandemic continues or
intensifies, it is possible that these or other challenges may begin having a
larger impact on our operations. Additionally, concerns over the economic impact
of COVID-19 have caused extreme volatility in financial and other capital
markets which has adversely impacted, and may continue to adversely impact our
stock price and our ability to access capital markets. The situation surrounding
COVID-19 remains fluid, and we are actively managing our response and assessing
potential impacts to our financial condition, supply chains and other
operations, employees, results of operations, consumer demand for our products,
and our ability to access capital. The magnitude of any such adverse impact
cannot currently be determined due to a number of uncertainties surrounding
COVID-19 (refer to   Item 1A. Risk Factors   for related risks).

During the nine months ended September 26, 2020, we have experienced a number of
changes in product sales mix across all our Segments, which we attribute to
consumer and customer behavior surrounding the COVID-19 pandemic. In March and
April of 2020, we experienced a surge in demand for certain of our essential
health-care and self-care products in both the CSCA and CSCI segments. This was
followed by a slow-down in demand in May and June in both the CSCA and CSCI
segments for some of the products in which we previously saw surges, which we
attribute primarily to consumer pantry de-load. In the third quarter, demand in
our CSCA segment normalized and was not significantly impacted by the pandemic.
Our CSCI segment also experienced lower consumer demand during the second and
third quarters, with some improvement in the third quarter, for certain other
self-care products that were impacted by the movement and social distancing
restrictions put in place to combat spreading of the virus, such as travel bans,
country lock-downs and school closings. In March and April of 2020 our RX
segment saw strong demand for Albuterol. In the latter half of the second
quarter, our RX segment experienced a decrease in demand for base products due
to lower volume of U.S. prescriptions from pandemic and lock down-related
reductions in doctor visits, which partially rebounded in the third quarter.
Also in the third quarter, we voluntarily recalled Albuterol and established an
estimated recall reserve. Consequently, on a year-to-date basis, after
accounting for both the positive and negative sales impacts related to the
pandemic, excluding Albuterol, we believe COVID-19 did not significantly impact
our consolidated net sales.

In the same time frame, we had incremental operating costs of approximately $11.0 million related to COVID-19 and estimate that full year incremental operating costs will be between $15.0 million to $20.0 million, primarily related to the precautions implemented to keep our employees safe and properly rewarded during the pandemic as well as increased material costs. We also experienced a decrease in our effective tax rate due to

                                       50
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                                                    Perrigo Company plc - Item 2
                                                              Executive Overview



additional interest and depreciation deductions provided for in the CARES Act
enacted on March 27, 2020 resulting in a reduction of income tax expense by
approximately $30.8 million during the nine months ended September 26, 2020.
Given our financial strength, we expect to continue to maintain sufficient
liquidity as we manage through the current environment.

Moving forward, whether the trends we've experienced in our segments will
continue or change is uncertain and will likely depend on the duration and
severity of the COVID-19 pandemic and the annual cold and flu season. If the
pandemic intensifies or there is a second wave, it is possible that we could see
another surge in demand for our essential self-care products. However, this
could lead to continued lower demand for certain self-care products in our CSCI
segment, as well as products in our RX segment. Additionally, we could
experience continued slow-down in demand for our essential products sold in the
initial sales surge if consumers continue to pantry de-load, all of which could
depend on the duration and severity of the COVID-19 pandemic and related
illnesses.

RESULTS OF OPERATIONS

CONSOLIDATED

Consolidated Financial Results

Three Month Comparison

                                  Three Months Ended
                           September 26,      September 28,
(in millions)                   2020               2019
Net sales                 $     1,213.7$      1,191.1
Gross profit              $       428.1$        412.8
Gross profit %                     35.3  %             34.7 %
Operating income (loss)   $       (95.5 )    $         54.4
Operating income (loss) %          (7.9 )%              4.6 %

                [[Image Removed: chart-a264a626c33153a5abb.jpg]]

                [[Image Removed: chart-85469c30e3cc5f78a30.jpg]]

* Total net sales by geography is derived from the location of the entity that sells to a third party.

Three Months Ended September 26, 2020 vs. Three Months Ended September 28, 2019

Net sales increased $22.6 million, or 2%, due to: • $19.8 million, or 2%, net increase due primarily to an increase in the

CSCA segment of $48.0 million, which includes $24.5 million of demand

driven growth across most product categories led by continued consumer

channel shifting from traditional brick and mortar outlets to e-commerce

and $23.5 million from the acquisition of the oral care assets of High

Ridge Brands ("Dr. Fresh"). These gains were partially offset by a

$20.5 million decline in net sales in our RX segment as $23.0 million in

       pre-recall albuterol sulfate inhalation



                                       51
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                                                    Perrigo Company plc - Item 2
                                                                    Consolidated


aerosol ("Albuterol") sales were more than offset by the establishment of the
estimated Albuterol recall reserve of $31.2 million and $8.7 million from
discontinued lower margin distribution products. Due primarily to
pandemic-related consumer behavior, net sales in our CSCI segment decreased
$7.8 million as lower demand in certain product categories more than offset
increased demand in other categories; and
• $2.8 million increase due primarily to:


•            $10.0 million increase primarily from favorable Euro foreign
             currency translation; and


•            $9.2 million increase due to the absence of the Ranitidine retail
             market withdrawal included in the prior year period; partially
             offset by


•            $16.4 million decrease due to our divested Rosemont

pharmaceuticals

             business and Canoderm prescription product, both previously included
             in our CSCI segment, and our divested animal health business
             previously included in our CSCA segment.


Operating income decreased $149.9 million, or 276%, due to:

$15.3 million increase in gross profit due primarily to increased net

sales as described above, which were partially offset by the net charge of

$22.5 million from the Albuterol recall and an increase in commodity costs

for a certain OTC brand. Gross profit as a percentage of net sales

increased 60 basis points due primarily to the absence of the Ranitidine

retail market withdrawal included in the prior year period, partially

offset by the net charge from the Albuterol recall and unfavorable product

mix; more than offset by

$165.2 million increase in operating expenses due primarily to:


•            A $202.4 million goodwill impairment charge in the current year
             period related to RX goodwill, partially offset by the absence of a
             $10.8 million impairment charge related to a definite-lived
             intangible asset in the prior year period; partially offset by


•            The absence of $12.5 million in acquisition and

integration-related

             charges related to the acquisition of Ranir in the prior year
             period;


•            The absence of a $7.1 million asset abandonment charge related to
             our waste water treatment plant in Vermont recorded in the prior
             year period;


•            $4.4 million decrease in restructuring expenses that were related
             primarily to the reorganization of our executive management team;
             and


• $4.0 million insurance reimbursement received in the current year period.



Nine Month Comparison
                            Nine Months Ended
                    September 26,      September 28,
(in millions)            2020               2019
Net sales          $      3,773.8$      3,514.6
Gross profit       $      1,346.0$      1,292.5
Gross profit %               35.7 %             36.8 %
Operating income   $        167.6$        211.7
Operating income %            4.4 %              6.0 %



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                                                    Perrigo Company plc - Item 2
                                                                    Consolidated


                [[Image Removed: chart-714199db9f68549eabb.jpg]]

                [[Image Removed: chart-9c392cf67c4954c4ab1.jpg]]

* Total net sales by geography is derived from the location of the entity that sells to a third party.

Nine Months Ended September 26, 2020 vs. Nine Months Ended September 28, 2019

Net sales increased $259.2 million, or 7% due to: • $334.6 million, or 10%, net increase due primarily to an increase in the

CSCA segment of $259.5 million, including $142.0 million from our

acquisitions of Ranir and Dr. Fresh and $117.5 million of demand driven

growth across most product categories, which was due primarily to

increased consumer COVID-19 related demand and benefited from strong

e-commerce performance, and the incremental impact of new product sales.

In our CSCI segment, net sales increased $50.4 million due primarily to

Ranir and Dr. Fresh contributing $40.6 million and an overall increase

from the incremental impact of new product sales and increased demand in

certain product categories more than offsetting the decrease in demand of

other categories, both due to pandemic-related factors, and discontinued

products of $5.3 million. The $24.7 million increase in the RX segment was

due primarily to pre-recall Albuterol sales of $142.7 million and an

increase of $24.4 million in other new product offerings. These increases

were partially offset by pricing pressure, a decline in the base business

due to lower prescription volumes related to the pandemic and lock

down-related reductions in doctor visits, $31.2 million for the

establishment of the estimated Albuterol recall reserve, and $24.4 million

of discontinued lower margin distribution products; further partially

offset by

$75.4 million decrease due primarily to:

$65.3 million decrease due to our divested Rosemont 

pharmaceuticals

             business and Canoderm prescription product, both previously included
             in our CSCI segment, and our divested animal health business
             previously included in our CSCA segment; and


•            $19.3 million decrease primarily from unfavorable Euro and Peso
             foreign currency translation; partially offset by


•            $9.2 million increase due to the absence of the Ranitidine retail
             market withdrawal included in the prior year period.


Operating income decreased $44.1 million, or 21%, due to:

$53.5 million increase in gross profit due primarily to increased net

sales as described above, which were partially offset by the net charge of

$22.5 million from the Albuterol recall, operational inefficiencies,

increased labor and overhead costs associated with the COVID-19 pandemic,

and an increase in commodity costs for a certain OTC brand. Gross profit

as a percentage of net sales decreased 110 basis points due primarily to

the gross profit factors discussed above and unfavorable product mix; more

       than offset by




                                       53
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                                                    Perrigo Company plc - Item 2
                                                                    Consolidated

$97.6 million increase in operating expenses due primarily to:


•            A $202.4 million goodwill impairment charge in the current year
             period related to RX goodwill, partially offset by the absence of
             $42.9 million of impairment charges related to definite-lived
             intangible assets and IPR&D assets in the prior year period; further
             offset by


•            $25.7 million decrease in restructuring expenses related primarily
             to the reorganization of our sales force in France and the
             reorganization of our executive management team in the prior year;


•            $26.5 million decrease in administration expenses due

primarily to a

             reduction in legal and professional fees, the absence of 

acquisition

             and integration-related charges related to the acquisition of 

Ranir,

             the absence of expenses from the divested animal health

business,

             and a reduction in employee related expenses, partially offset by an
             increase in insurance expense, the inclusion of expenses from our
             acquisitions of Ranir and Dr. Fresh, and incremental costs of
             operating in the current COVID-19 environment, including

employee

             bonuses and costs related to measures implemented to keep 

employees

             safe;


•            $8.1 million decrease in selling expense due primarily to the
             reduction in selling, advertising, and promotion expenses in
             response to consumer sentiment and behavior during the

COVID-19

             pandemic in the CSCI segment and the absence of expenses from 

the

             divested animal health business, partially offset by the 

inclusion

             of expenses from our acquisitions of Ranir and Dr. Fresh; and


•            The absence of a $7.1 million asset abandonment charge 

related to

             our waste water treatment plant in Vermont taken in the prior year
             period.



Recent Developments

Internal Revenue Service Complaint


As previously disclosed, on August 15, 2017, we filed a complaint in the United
States District Court for the Western District of Michigan to recover $163.6
million of Federal income tax, penalties, and interest assessed and collected by
the IRS, plus statutory interest thereon from the dates of payment, for the
fiscal tax years ended June 27, 2009, June 26, 2010, June 25, 2011, and June 30,
2012. In response to our complaint, the United States District Court for Western
District of Michigan scheduled a new trial date for January 26, 2021 (refer to

Item 1. Note 13 ).

Internal Revenue Service Notice of Proposed Adjustment


As previously disclosed, on April 26, 2019, we received a revised Notice of
Proposed Adjustment ("NOPA") from the IRS regarding transfer pricing positions
related to the IRS audit of Athena for the years ended December 31, 2011,
December 31, 2012 and December 31, 2013. We strongly disagree with the IRS
position and will pursue all available administrative and judicial remedies,
including those available under the U.S. - Ireland Income Tax Treaty to
alleviate double taxation. Accordingly, on April 14, 2020, we filed a request
for Competent Authority Assistance with the IRS (refer to   Item 1. Note 13 

).

The request was accepted and is under review.

Internal Revenue Service Notice of Proposed Adjustment


On May 7, 2020, we received a final NOPA from the IRS, which was unchanged from
the draft NOPA previously received, regarding the deductibility of interest
related to the IRS audit of Perrigo Company for the years ended June 28, 2014
and June 27, 2015. We strongly disagree with the IRS position and are pursuing
all available administrative and judicial remedies (refer to   Item 1. Note
13  ).

Irish Tax Appeals Commission Notice of Amended Assessment


On October 30, 2018, we received an audit finding letter from the Irish Office
of the Revenue Commissioners ("Irish Revenue") for the years ended December 31,
2012 and December 31, 2013 relating to the tax treatment of the 2013 sale of the
Tysabri® intellectual property and other assets related to Tysabri® to Biogen
Idec from Elan Pharma. We strongly disagree with this assessment and believe
that the Notice of Amended Assessment ("NoA") is without merit and incorrect as
a matter of law and appealed the assessment to the Tax Appeals Commission.
Separately, we were granted leave by the Irish High Court on February 25, 2019
to seek

                                       54
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                                                    Perrigo Company plc - Item 2
                                                                    Consolidated


judicial review of the issuance of the NoA by Irish Revenue. The High Court held
a hearing in June 2020 regarding the judicial review case and on November 4,
2020 ruled that the NoA did not violate our rights and legitimate expectations
as a taxpayer. Because the Irish High Court did not quash the NoA in the
judicial review case, absent an appeal by Elan Pharma in the judicial review
case, the amended assessment can be examined on its merits by the Irish Tax
Appeals Commission (refer to   Item 1. Note 13  ).

CONSUMER SELF-CARE AMERICAS

Recent Trends and Developments

• In March and April of 2020, we experienced a surge in demand for many of

our OTC and infant nutrition products, which we attributed to consumer

reaction to the outbreak of COVID-19. In May and June, the initial surge

slowed, and we experienced a decrease in demand for some of these

products, which we attributed primarily to consumers' de-load of pantry

stocking that occurred during the initial March and April surge. During

the third quarter, demand normalized and COVID-19 did not have a

significant impact on our net sales. It is possible that we could still

experience a lower demand for some of the products sold in the initial

surge if consumers continue to pantry de-load, however, this could depend

on the duration and severity of the COVID-19 pandemic and related

illnesses. Alternatively, it is possible that we could experience another

       surge in demand if a concentrated wave of COVID-19 occurs.


• On June 17, 2020, we announced our entrance into the CBD market through a

strategic investment in and long-term supply agreement with Kazmira LLC

("Kazmira"), a leading supplier of hemp-based, THC-free CBD products. In

addition to the supply agreement, we acquired an approximate 20% equity

stake in Kazmira for $50.0 million with $15.0 million paid at close of the

transaction and the balance due within 18 months. Our minority equity

       investment initiates the first phase of the partnership in which we will
       collaborate to scale-up Kazmira's facilities and laboratories, in
       accordance with current Good Manufacturing Practices and to produce

THC-free CBD from industrial hemp that meets our standards for reliability

and consistency. In the second phase of the partnership, we will work to

launch THC-free, hemp-based CBD products in a number of global markets,

while leveraging our supply agreement with Kazmira, which is exclusive for

       the U.S. store brand market (refer to   Item 1. Note 7   and   Note 10  ).



•      On April 6, 2020, we received approval from the U.S. Food and Drug
       Administration on our abbreviated new drug application ("ANDA") for OTC

diclofenac sodium topical gel 1%, the store brand equivalent to Voltaren®

gel. On September 8, 2020, we launched this product to our retail partners

under store brand labels, which provides consumers with a high-quality,

       value alternative for the temporary relief of arthritis pain.


• On April 1, 2020, we acquired Dr. Fresh for total purchase consideration

of $113.0 million, subject to customary post-closing adjustments,

including a working capital settlement. After post-closing adjustments as

of September 26, 2020, total cash consideration paid was $106.0 million.

This acquisition includes the children's oral care value brand, Firefly®,

in addition to the REACH® and Dr. Fresh® brands, and a licensing

portfolio. The addition of these brands positions us as the number one

fastest-growing value brand player in the children's oral care category

       and the licensing portfolio will enable creative solutions for our
       customers (refer to   Item 1. Note 3  ).


• On January 3, 2020, we acquired Steripod®, a leading toothbrush accessory

brand and innovator in the toothbrush protector market, from Bonfit

America Inc. Total consideration paid was $26.0 million. The transaction

was accounted for as an asset acquisition, in which we capitalized $25.1

million as a brand-named intangible asset. The remainder of the purchase

price was allocated to working capital. The acquisition, which includes a

portfolio of antibacterial toothbrush protectors, kids' toothbrush

protectors and tongue cleaners, complements our current portfolio of oral

       self-care products, and leverages our manufacturing and marketing platform
       (refer to   Item 1. Note 3  ).




                                       55
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                                                    Perrigo Company plc - Item 2
                                                                            CSCA


Segment Financial Results

Three Month Comparison
                          Three Months Ended
                    September 26,     September 28,
(in millions)           2020              2019
Net sales          $      664.0$       613.3
Gross profit       $      217.1$       185.1
Gross profit %             32.7 %             30.2 %
Operating income   $      123.6$        81.3
Operating income %         18.6 %             13.3 %


Three Months Ended September 26, 2020 vs. Three Months Ended September 28, 2019

Net sales increased $50.7 million, or 8%, due to: • $48.0 million, or 8%, net increase due primarily to an increase of $23.5

million from our acquisition of Dr. Fresh and demand driven growth across

most product categories benefiting from e-commerce growth as consumers

continued to shift purchasing towards online where we have greater market

       share, which more than offset lower traditional brick and mortar
       purchases. More specifically, OTC net sales growth of $15.5 million was
       driven by strong demand in the pain, allergy, and digestive health
       categories, resulting from strong e-commerce growth and incremental new

product sales including Prevacid®, Diclofenac sodium topical gel 1%, and

Esomeprazole Mini. These increases were partially offset by a decrease in

sales of cough and cold products included in our upper respiratory

category due to a weaker start to the cough and cold season and normal

pricing pressure. Nutrition net sales growth of $5.5 million was due

primarily to new product sales from an infant formula launch at a major

       retailer in the prior year, greater shipments in the infant formula
       contract manufacturing business, and e-commerce growth, which were
       partially offset by multi-year pricing contracts. Growth in the oral
       self-care category was driven by strong e-commerce performance and

$2.7 million increase due primarily to:

$7.4 million increase due to the absence of the Ranitidine retail
             market withdrawal included in the prior year period; partially
             offset by


•            $2.9 million decrease from unfavorable Mexican peso foreign currency
             translation; and

$1.8 million decrease related to our divested animal health business.

Operating income increased $42.3 million, or 52%, due primarily to:

$32.0 million increase in gross profit due primarily to increased net

sales as described above. Gross profit as a percentage of net sales

increased 250 basis points due primarily to the absence of the Ranitidine

retail market withdrawal included in the prior year period and higher

margin new product sales, partially offset by normal pricing pressure; and

$10.3 million decrease in operating expenses due primarily to the absence

       of a $7.1 million asset abandonment charge related to our waste water
       treatment plant in Vermont taken in the prior year period and a $4.0
       million insurance reimbursement received in the current year period.



Nine Month Comparison

                                       56
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                                                    Perrigo Company plc - Item 2
                                                                            CSCA


                            Nine Months Ended
                    September 26,      September 28,
(in millions)            2020               2019
Net sales          $      1,992.2$      1,777.2
Gross profit       $        632.2$        565.9
Gross profit %               31.7 %             31.8 %
Operating income   $        354.5$        283.3
Operating income %           17.8 %             15.9 %



Nine Months Ended September 26, 2020 vs. Nine Months Ended September 28, 2019

Net sales increased $215.0 million, or 12%, due to: • $259.5 million, or 15%, net increase due primarily to an increase of

$142.0 million from our acquisitions of Ranir and Dr. Fresh and demand

driven growth across most product categories, which was due primarily to

increased consumer COVID-19 related demand and benefited from strong

e-commerce performance. More specifically, OTC net sales growth of

$100.5 million across most product categories was due primarily to the net

increase of consumer COVID-19 related demand, overall market growth,

favorable consumer conversion in digestive health products, and the

incremental impact of new product sales led by Prevacid®, Diclofenac

sodium topical gel 1%, and Esomeprazole Mini. All of these drivers

benefited from continued robust e-commerce growth. These increases were

partially offset by normal pricing pressure on certain products. Nutrition

       net sales growth of $11.4 million was due primarily to new product sales
       from an infant formula launch at a major retailer in the prior year,
       partially offset by multi-year pricing contracts and a $5.8 million

decrease due to discontinued products. In the oral self-care category,

growth was driven by the incremental impact of new product sales

benefiting from e-commerce growth; partially offset by

$44.5 million decrease due primarily to:

$43.7 million decrease due to our divested animal health business; and

$8.2 million decrease from unfavorable Mexican peso foreign currency
             translation; partially offset by


•            $7.4 million increase due to the absence of the Ranitidine retail
             market withdrawal included in the prior year period.


Operating income increased $71.2 million, or 25%, due to:

$66.3 million increase in gross profit due primarily to increased net

sales as described above, partially offset by operating inefficiencies at

       one of our infant nutrition facilities as well as increased labor and
       overhead costs associated with the COVID-19 pandemic. Gross profit as a
       percentage of net sales decreased 10 basis points due primarily to the

operating inefficiencies described above, pricing pressure on certain

products, and the divested animal health business, partially offset by the

absence of the Ranitidine retail market withdrawal included in the prior

year period, and higher margin new product sales; and

$4.9 million decrease in operating expenses due primarily to:


•            The absence of a $7.1 million asset abandonment charge related to
             our waste water treatment plant in Vermont taken in the prior year
             period and a $4.0 million insurance reimbursement received in the
             current year period; partially offset by


•            $6.3 million increase in selling and administration expenses due
             primarily to the inclusion of expenses from our acquisitions of
             Ranir and Dr. Fresh and an increase in promotion expenses on branded
             products, partially offset by a reduction in employee related
             expenses and the absence of expenses from the divested animal health
             business.



CONSUMER SELF-CARE INTERNATIONAL

Recent Trends and Developments

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• Throughout the year, we experienced demand shifts for certain products,

which we attributed to consumer reactions related to the COVID-19 pandemic

and the movement and social distancing restrictions put in place to combat

spreading of the virus, such as travel bans, and country lock-downs.

Certain products in our pain and sleep-aids and vitamins, minerals and

supplements ("VMS") categories increased, while products in our skincare

and personal hygiene, and healthy lifestyle categories decreased. It is

possible that demand in our skincare and personal hygiene, and healthy

lifestyle categories may continue to decrease due to continued movement

and social distancing restrictions, which could depend on the duration and

       severity of the COVID-19 pandemic and related illnesses.


• On August 7, 2020, we entered into a definitive agreement to acquire three

Eastern European OTC dermatological skincare and hair loss treatment

brands, Emolium®, Iwostin®, and Loxon® from Sanofi for €52.0 million and

additional consideration for the transfer of related inventory on hand. On

October 30, 2020, the transaction closed for €53.3 million (approximately

$62.0 million), subject to post-closing conditions. The acquisition will

be accounted for as a business combination. This transaction builds on our

self-care transformation and strengthens our skincare and personal hygiene

       portfolio.


• Consistent with our strategy to reconfigure our portfolio to focus on our

consumer self-care businesses, on June 19, 2020, we completed the sale of

our U.K.- based Rosemont Pharmaceuticals business, a generic prescription

pharmaceuticals manufacturer focused on liquid medicines, to a U.K.

headquartered private equity firm for cash consideration of £155.6 million

       (approximately $195.0 million), which resulted in a pre-tax loss of
       $18.7 million (refer to   Item 1. Note 3  ).


• On February 13, 2020, we acquired Dexsil®, a silicon supplement brand,

from RXW Group NV, for total cash consideration paid of approximately

$8.0 million. The transaction was accounted for as an asset acquisition,

in which we capitalized the consideration paid as a brand-named intangible

asset. The acquisition provides additional opportunities for growth

through new product launches and geographic expansion (refer to Item 1.

       Note 3  ).



Segment Financial Results

Three Month Comparison

                          Three Months Ended
                    September 26,     September 28,
(in millions)           2020              2019
Net sales          $      339.0$       347.5
Gross profit       $      154.1$       156.3
Gross profit %             45.5 %             45.0 %
Operating income   $       10.2$        13.2
Operating income %          3.0 %              3.8 %


Three Months Ended September 26, 2020 vs. Three Months Ended September 28, 2019

Net sales decreased $8.5 million, or 2%, due to: • $7.8 million, or 2%, net decrease due primarily to lower sales of cough

and cold OTC products in the upper respiratory category and lower consumer

demand for anti-parasite products in the skincare and personal hygiene

category due to pandemic-related consumer behavior, travel bans, social

       distancing measures, country lock-downs, and school closings, and a
       $2.9 million decrease from discontinued products. These decreases were
       partially offset by incremental new product sales including line

extensions in the ACO dermatology product and the XLS Forte-Five weight

management brand in the skincare and personal hygiene and healthy

lifestyle categories, respectively, and higher net sales in our pain and

sleep-aids and VMS categories due to pandemic-related consumer behavior;

       and


$14.6 million decrease due to our divested Rosemont pharmaceuticals

       business and Canoderm prescription product previously included in the
       Nordic region; partially offset by



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•      $12.1 million increase from favorable foreign currency translation

primarily related to the Euro; and

$1.8 million increase due to the absence of the Ranitidine retail market

withdrawal included in the prior year period.

Operating income decreased $3.0 million, or 23%, due to:

$2.2 million decrease in gross profit due primarily to the decrease in net

sales as described above and higher commodity costs for a certain OTC

brand. Gross profit as a percentage of net sales increased 50 basis points

due primarily to the absence of the Ranitidine retail market withdrawal

included in the prior year period, partially offset by the divested

Rosemont pharmaceuticals business, unfavorable product mix, and higher

       commodity costs for a certain OTC brand; and


$0.8 million increase in operating expenses due primarily to unfavorable

       Euro foreign currency translation, partially offset by the absence of
       expenses from the divested Rosemont pharmaceuticals business and a
       decrease in administration and restructuring expenses.


Nine Month Comparison

                            Nine Months Ended
                    September 26,      September 28,
(in millions)            2020               2019
Net sales          $      1,042.8$      1,025.8
Gross profit       $        483.3$        480.0
Gross profit %               46.3 %             46.8 %
Operating income   $         45.7     $         18.4
Operating income %            4.4 %              1.8 %


Nine Months Ended September 26, 2020 vs. Nine Months Ended September 28, 2019

Net sales increased $17.0 million, or 2%, due to: • $50.4 million, or 5%, net increase due primarily to a $40.6 million

increase from our acquisitions of Ranir and Dr. Fresh and an increase in

demand for products in our pain and sleep-aids and VMS categories due to

pandemic-related consumer behavior. The segment also benefited from the

incremental impact of new product sales, including line extensions in the

ACO dermatology product line and the XLS Forte-Five weight management

brand in the skincare and personal hygiene and healthy lifestyle

categories, respectively. These increases were partially offset by lower

consumer demand of certain self-care products in the upper respiratory,

       skincare and personal hygiene and healthy lifestyle categories due to
       pandemic-related consumer behavior, travel bans, social distancing
       measures as well as country lock-downs and discontinued products of
       $5.3 million; partially offset by

$33.4 million decrease due primarily to:

$21.6 million decrease due to our divested Rosemont 

pharmaceuticals

             business and Canoderm prescription product previously included in
             the Nordic region; and


•            $13.6 million decrease from unfavorable foreign currency translation
             primarily related to the Euro; partially offset by


•            $1.8 million increase due to the absence of the Ranitidine retail
             market withdrawal included in the prior year period.




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                                                    Perrigo Company plc - Item 2
                                                                            CSCI

Operating income increased $27.3 million, or 148%, due to:

$3.3 million increase in gross profit due primarily to increased net sales

as described above, partially offset by higher commodity costs for a

certain OTC brand. Gross profit as a percentage of net sales decreased 50

basis points due primarily to the addition of the oral self-care category,

which has a relatively lower gross margin than the overall portfolio,

unfavorable product mix, and an increase in commodity costs, partially

offset by positive pricing trends and the absence of the Ranitidine retail

market withdrawal included in the prior year period; and

$24.0 million decrease in operating expenses due primarily to:

$18.1 million decrease in selling and administration 

expenses due

             primarily to a reduction in selling, advertising, and promotion
             expenses in response to consumer sentiment and behavior during the
             COVID-19 pandemic, partially offset by the inclusion of expenses
             from our acquisitions of Ranir and Dr. Fresh; and


•            $10.4 million decrease due to the absence of restructuring expenses
             related to the reorganization of our sales force in France;
             partially offset by

$4.1 million increase in R&D expenses towards continued innovation efforts.

PRESCRIPTION PHARMACEUTICALS

Recent Trends and Developments

• We experienced more moderate pricing reductions compared to the prior year

in our RX segment, but pricing erosion continues due to approvals for

products competing with our portfolio and overall competitive pressures.

       We expect some softness in pricing to continue to impact the segment for
       the foreseeable future.


• On September 17, 2020, we initiated a voluntary nationwide recall to the

retail level of Albuterol as a result of complaints from patients that

some units may not dispense due to clogging. Corrective action plans are

underway and a definitive time-line for product reintroduction has not

been determined at this time. As a result of the recall, we recorded a net

charge of $22.5 million in our Condensed Consolidated Statements of

Operations during the third quarter. We launched Albuterol in the first

       quarter of 2020 after receiving approval from the U.S. Food and Drug
       Administration on our abbreviated new drug application on February 24,
       2020, along with our partner Catalent Pharma Solutions.


• During the three months ended September 26, 2020, our RX U.S. reporting

unit had an indication of potential impairment primarily from the stoppage

of production and distribution of Albuterol and voluntary nationwide

recall at the retail level, combined with a decline in market multiples.

       We prepared an impairment test as of September 26, 2020, determined the
       carrying value of the RX U.S. reporting unit exceeded its estimated fair
       value and recorded a goodwill impairment of $202.4 million.



•      Starting in the second quarter, with a partial rebound in the third

quarter, we experienced a reduction in demand for certain of our existing

base products due to lower prescription volumes related to pandemic and

lock-down-related reductions in doctor visits. The decrease in demand of

       existing base products was market-wide and did not result in market share
       loss.



Segment Financial Results

Three Month Comparison


                                       60
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                                                    Perrigo Company plc - Item 2
                                                                              RX


                                 Three Months Ended
                           September 26,     September 28,
(in millions)                  2020              2019
Net sales                 $      210.7$       230.3
Gross profit              $       57.0$        71.4
Gross profit %                    27.0  %            31.0 %
Operating income (loss)   $     (180.6 )$        19.7
Operating income (loss) %        (85.7 )%             8.5 %



Three Months Ended September 26, 2020 vs. Three Months Ended September 28, 2019

Net sales decreased $19.6 million, or 9%, due primarily to: • $20.5 million, or 9%, net decrease due primarily to $23.0 million in

pre-recall Albuterol sales being more than offset by the establishment of

the estimated Albuterol recall reserve of $31.2 million, $8.7 million from

discontinued lower margin distribution products, and a slight decline in

the base business. Net sales increased from other new products by

$3.0 million, mainly from the Scopolamine patch relaunch.

Operating income decreased $200.3 million, or 1,017%, primarily due to:

$14.4 million decrease in gross profit, and a 400 basis point decrease in

gross profit as a percentage of net sales, due primarily to the net charge

       of $22.5 million from the Albuterol recall; and



•      $185.9 million increase in operating expenses due primarily to the

$202.4 million goodwill impairment charge in the current year period,

partially offset by the absence of a $10.8 million impairment charge

related to a definite-lived intangible asset in the prior year period and

a decrease in R&D expenses driven by lower clinical study costs.



Nine Month Comparison
                                  Nine Months Ended
                           September 26,     September 28,
(in millions)                  2020              2019
Net sales                 $      738.8$       711.6
Gross profit              $      230.6$       246.5
Gross profit %                    31.2  %            34.6 %
Operating income (loss)   $      (81.2 )$        95.0
Operating income (loss) %        (11.0 )%            13.4 %



Nine Months Ended September 26, 2020 vs. Nine Months Ended September 28, 2019


Net sales increased $27.2 million, or 4%, due primarily to:
•      $24.7 million, or 3%, net increase due primarily to $142.7 million from
       Albuterol sales prior to the recall and an increase of $24.4 million in

other new product sales driven by the Scopolamine relaunch and Diclofenac

sodium topical gel 1%. These increases were partially offset by pricing

pressure, including for testosterone gel 1.62% (which still had 180-day

market exclusivity in the prior year period), a decline in the base

business, which was due to lower prescription volumes related to pandemic

and lock-down-related reductions in doctor visits, $31.2 million for the

establishment of the estimated Albuterol recall reserve, and $24.4 million

of discontinued lower margin distribution products.

Operating income decreased $176.2 million, or 185%, due to:

$15.9 million decrease in gross profit due primarily to the net charge of

$22.5 million from the Albuterol recall and third party operational

inefficiencies on partnered products, offset by the increase in net sales

       as



                                       61
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                                                    Perrigo Company plc - Item 2
                                                                              RX


described above. Gross profit as a percentage of net sales decreased 340 basis
points, due primarily to the gross profit factors discussed above and pricing
pressure; and

$160.3 million increase in operating expenses due primarily to the

$202.4 million goodwill impairment in the current year period, partially

offset by the absence of $38.7 million of impairment charges related to

definite-lived intangible assets in the prior year period and a decrease

       in selling and administration costs related primarily to a reduction in
       employee related expenses.


Unallocated Expenses


Unallocated expenses are comprised of certain corporate services not allocated
to our reporting segments and are recorded in Operating income on the Condensed
Consolidated Statements of Operations. Unallocated expenses were as follows (in
millions):
         Three Months Ended                     Nine Months Ended
  September 26,       September 28,      September 26,     September 28,
       2020                2019              2020               2019
$     48.6           $          59.8    $    151.3        $         185.1



The decrease of $11.2 million in unallocated expenses during the three months
ended September 26, 2020 compared to the prior year period was due primarily to
the absence of $12.5 million in acquisition and integration-related charges
related to the acquisition of Ranir and a $5.6 million decrease in legal and
consulting fees, partially offset by an increase of $3.2 million in insurance
related expenses.

The decrease of $33.8 million in unallocated expenses during the nine months
ended September 26, 2020 compared to the prior year period was due primarily to
a $27.9 million decrease in legal and consulting fees, a $13.3 million decrease
in Restructuring expense related primarily to the reorganization of our
executive management team, and the absence of $12.5 million in acquisition and
integration-related charges related to the acquisition of Ranir, partially
offset by an increase of $12.8 million in employee incentive compensation
expenses, which included COVID-19 bonuses for production employees, and an
increase of $11.7 million in insurance related expenses.

Change in Financial Assets, Interest expense, net, Other (income) expense, net and Loss on extinguishment of debt (Consolidated)

                                       Three Months Ended                  

Nine Months Ended

                                 September 26,      September 28,   September 26,      September 28,
(in millions)                        2020               2019             2020              2019

Change in financial assets $ (22.2 )$ (2.6 )$ (25.9 )$ (18.5 ) Interest expense, net $ 34.0 $ 30.5 $

         97.6     $        90.4
Other (income) expense, net    $          0.4      $       (71.0 ) $         17.1     $       (65.6 )
Loss on extinguishment of debt $         20.0      $         0.2   $         20.0     $         0.2



Change in Financial Assets

The proceeds from our 2017 sale of the Tysabri® financial asset consisted of
$2.2 billion in upfront cash and up to $250.0 million and $400.0 million in
contingent milestone payments related to 2018 and 2020, respectively. During the
year ended December 31, 2019 we received the $250.0 million contingent milestone
payment.

During the three and nine months ended September 26, 2020, the fair value of the
Royalty Pharma contingent milestone payment related to 2020 increased by $22.2
million and $25.9 million, respectively to $121.2 million, which is recorded on
the Condensed Consolidated Balance Sheets within Prepaid expenses and other
current assets. The adjustments were driven by higher projected global net sales
of Tysabri® compared to the estimates in the prior period, and the estimated
probability of achieving the earn-out. During the three and nine months ended
September 28, 2019, the fair value of the Royalty Pharma contingent milestone
payments increased by $2.6 million and $18.5 million, respectively. These
adjustments were driven by higher projected global net sales of Tysabri® and the
estimated probability of achieving the earn-out.

                                       62
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                                                    Perrigo Company plc - Item 2
                                         Unallocated, Interest, Other, and Taxes



The Royalty Pharma payments from Biogen for Tysabri® were $337.5 million in
2018, which triggered the $250.0 million milestone payment received during the
first quarter of 2019. There is no contingent milestone based on 2019 sales of
Tysabri®. In order for us to receive the remaining contingent milestone payment
of $400.0 million, Royalty Pharma payments from Biogen for Tysabri® sales, as
defined in the agreement, in 2020 must exceed $351.0 million. If Royalty Pharma
payments from Biogen for Tysabri® sales do not meet the prescribed threshold in
2020, we will write off the $121.2 million asset and record a loss. If the
prescribed threshold is exceeded, we will increase the asset to $400.0 million
and recognize income of $278.8 million in Change in financial assets on the
Condensed Consolidated Statements of Operations (refer to   Item 1. Note 6  ).

Interest Expense, Net

The $3.5 million increase for the three months ended September 26, 2020, compared to the prior year period was due primarily to a reduction in interest income received and changes in our underlying hedge exposure.


The $7.2 million increase for the nine months ended September 26, 2020, compared
to the prior year period was due primarily to changes in our underlying hedge
exposure and the addition of interest expense on our 2020 Notes and two
Promissory Notes related to our equity method investment in Kazmira.

Other (Income) Expense, Net


The $71.4 million increase in expense during the three months ended
September 26, 2020 compared to the prior year period was due primarily to the
absence of the pre-tax gain of $71.7 million on the sale of our animal health
business (refer to   Item 1. Note 3  ).

The $82.7 million increase in expense during the nine months ended September 26,
2020 compared to the prior year period was due primarily to the absence of the
pre-tax gain of $71.7 million on the sale of our animal health business and the
$18.7 million pre-tax loss on the divestiture of our Rosemont Pharmaceuticals
business, partially offset by a decrease of $5.3 million in losses on investment
securities (refer to   Item 1. Note 3  ).

Loss on Extinguishment of Debt


During the three months ended September 26, 2020, we recorded a loss of $20.0
million as a result of the early redemption of the 2021 Notes, consisting of the
premium on debt repayments, the write-off of deferred financing fees, and the
write-off of the remaining bond discounts (refer to   Item 1. Note 10  ).

© Edgar Online, source Glimpses

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