-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DbOmde22Xw7PiD9zGFEtRF2RQNJ8i9xvzzn40SHPUrwV5hWNQLcYz21Oj2//ix0M rg4X/YOVy6ix7TM58YYf/Q== 0000950137-05-012955.txt : 20051027 0000950137-05-012955.hdr.sgml : 20051027 20051027084629 ACCESSION NUMBER: 0000950137-05-012955 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050924 FILED AS OF DATE: 20051027 DATE AS OF CHANGE: 20051027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERRIGO CO CENTRAL INDEX KEY: 0000820096 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 382799573 STATE OF INCORPORATION: MI FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19725 FILM NUMBER: 051158535 BUSINESS ADDRESS: STREET 1: 515 EASTERN AVENUE CITY: ALLEGAN STATE: MI ZIP: 49010 BUSINESS PHONE: 6166738451 MAIL ADDRESS: STREET 1: 515 EASTERN AVENUE CITY: ALLEGAN STATE: MI ZIP: 49010 10-Q 1 c99334e10vq.txt QUARTERLY REPORT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 24, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____ COMMISSION FILE NUMBER 0-19725 PERRIGO COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MICHIGAN 38-2799573 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 515 EASTERN AVENUE ALLEGAN, MICHIGAN 49010 (ADDRESS OF PRINCIPAL (ZIP CODE) EXECUTIVE OFFICES)
(269) 673-8451 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NOT APPLICABLE (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] YES [X] NO As of October 21, 2005 the registrant had 93,411,992 outstanding shares of common stock. ================================================================================ PERRIGO COMPANY FORM 10-Q INDEX
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated statements of income -- For the quarters ended September 24, 2005 and September 25, 2004 1 Condensed consolidated balance sheets -- September 24, 2005, June 25, 2005 and September 25, 2004 2 Condensed consolidated statements of cash flows -- For the quarters ended September 24, 2005 and September 25, 2004 3 Notes to condensed consolidated financial statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risks 18 Item 4. Controls and Procedures 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20 Item 6. Exhibits 21 SIGNATURES 22
PERRIGO COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) (unaudited)
First Quarter -------------------- 2006 2005 -------- --------- Net sales $319,734 $227,719 Cost of sales 232,818 163,006 -------- -------- Gross profit 86,916 64,713 -------- -------- Operating expenses Distribution 7,150 4,193 Research and development 12,649 6,354 Selling and administration 46,388 27,540 -------- -------- Total 66,187 38,087 Operating income 20,729 26,626 Interest and other, net 2,780 (840) -------- -------- Income before income taxes 17,949 27,466 Income tax expense 5,038 9,888 -------- -------- Net income $ 12,911 $ 17,578 ======== ======== Earnings per share Basic $ 0.14 $ 0.25 Diluted $ 0.14 $ 0.24 Weighted average shares outstanding Basic 93,188 70,948 Diluted 94,314 73,043
See accompanying notes to condensed consolidated financial statements. -1- PERRIGO COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
September 24, June 25, September 25, 2005 2005 2004 ------------- ---------- ------------- (unaudited) (unaudited) Assets Current assets Cash and cash equivalents $ 25,118 $ 16,707 $ 9,734 Investment securities 15,823 17,761 132,080 Accounts receivable 212,433 210,308 112,624 Inventories 269,695 272,980 181,837 Current deferred income taxes 49,870 55,987 29,306 Prepaid expenses and other current assets 39,270 35,064 11,017 ---------- ---------- -------- Total current assets 612,209 608,807 476,598 Property and equipment 594,464 586,306 463,241 Less accumulated depreciation 275,758 262,505 240,144 ---------- ---------- -------- 318,706 323,801 223,097 Restricted cash 400,000 400,000 -- Goodwill 144,362 150,293 35,919 Other intangible assets 144,315 147,967 8,039 Non-current deferred income taxes 26,828 26,964 8,761 Other non-current assets 44,617 47,144 9,716 ---------- ---------- -------- $1,691,037 $1,704,976 $762,130 ========== ========== ======== Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 142,361 $ 142,789 $ 83,516 Notes payable 19,303 25,345 9,465 Payroll and related taxes 37,788 42,326 20,857 Accrued customer programs 40,129 41,666 16,210 Accrued liabilities 56,821 57,532 28,541 Accrued income taxes 25,903 21,225 7,417 Current deferred income taxes 10,980 9,659 4,044 ---------- ---------- -------- Total current liabilities 333,285 340,542 170,050 Non-current liabilities Long-term debt 670,814 656,128 -- Non-current deferred income taxes 56,586 74,379 29,259 Other non-current liabilities 37,715 43,090 6,898 ---------- ---------- -------- Total non-current liabilities 765,115 773,597 36,157 Shareholders' equity Preferred stock, without par value, 10,000 shares authorized -- -- -- Common stock, without par value, 200,000 shares authorized 523,093 527,748 108,321 Accumulated other comprehensive income (loss) (4,402) (1,687) 2,817 Retained earnings 73,946 64,776 444,785 ---------- ---------- -------- Total shareholders' equity 592,637 590,837 555,923 ---------- ---------- -------- $1,691,037 $1,704,976 $762,130 ========== ========== ======== Supplemental Disclosures of Balance Sheet Information Allowance for doubtful accounts $ 10,207 $ 10,370 $ 7,971 Allowance for inventory $ 37,164 $ 34,028 $ 21,124 Working capital $ 278,924 $ 268,265 $306,548 Preferred stock, shares issued -- -- -- Common stock, shares issued 93,561 93,903 71,208
See accompanying notes to condensed consolidated financial statements. -2- PERRIGO COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
First Quarter ------------------- 2006 2005 -------- -------- Cash Flows From (For) Operating Activities Net income $ 12,911 $ 17,578 Adjustments to derive cash flows Depreciation and amortization 14,296 7,092 Share-based compensation 2,403 1,578 Deferred income taxes (1,072) (410) Changes in operating assets and liabilities Accounts receivable (1,559) (25,543) Inventories 3,776 (6,676) Accounts payable (723) (5,463) Payroll and related taxes (4,631) (20,535) Accrued customer programs (1,537) 2,999 Accrued liabilities (2,938) (1,937) Accrued income taxes 2,757 7,422 Other (5,961) 918 -------- -------- Net cash from (for) operating activities 17,722 (22,977) -------- -------- Cash Flows (For) From Investing Activities Purchase of securities (19,438) (29,900) Proceeds from sales of securities 21,372 60,950 Additions to property and equipment (8,228) (2,394) Acquisition of assets -- (5,000) -------- -------- Net cash (for) from investing activities (6,294) 23,656 -------- -------- Cash (For) From Financing Activities Repayments of short-term debt, net (6,104) (92) Borrowings of long-term debt 15,000 -- Tax (expense) benefit of stock transactions (500) 118 Issuance of common stock 2,000 3,101 Repurchase of common stock (8,558) (122) Cash dividends (3,741) (2,487) -------- -------- Net cash (for) from financing activities (1,903) 518 -------- -------- Net increase in cash and cash equivalents 9,525 1,197 Cash and cash equivalents, at beginning of period 16,707 8,392 Effect of exchange rate changes on cash (1,114) 145 -------- -------- Cash and cash equivalents, at end of period $ 25,118 $ 9,734 ======== ======== Supplemental Disclosures of Cash Flow Information Cash paid/received during the period for: Interest paid $ 9,210 $ 141 Interest received $ 5,641 $ 562 Income taxes paid $ 2,928 $ 815 Income taxes refunded $ 4,866 $ 4,062
See accompanying notes to condensed consolidated financial statements. -3- PERRIGO COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 24, 2005 (in thousands, except per share amounts) Perrigo Company is a leading global healthcare supplier and the world's largest manufacturer of over-the-counter (OTC) pharmaceutical and nutritional products for the store brand market. The Company also develops and manufactures generic prescription (Rx) drugs, active pharmaceutical ingredients (API) and consumer products. NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and other adjustments) considered necessary for a fair presentation have been included. The Company has reclassified certain amounts in the prior years to conform to the current year presentation. An evaluation of the Company's classification of cash equivalents indicated that, due to their contractual maturity date, floating and adjustable rate securities were more appropriately classified as investment securities. Accordingly, the Company reclassified floating and adjustable rate securities of $126,810 as of September 25, 2004 from cash and cash equivalents to investment securities in its consolidated balance sheets. The Company has also reclassified the purchases of and proceeds from sales of these securities in its consolidated statements of cash flows, which increased cash flows from investing activities by $26,050 for the three months ended September 25, 2004. Operating results for the quarter ended September 24, 2005 are not necessarily indicative of the results that may be expected for a full year. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended June 25, 2005. Significant Events Update on Pseudoephedrine Sales - The Company continued to be impacted by the legislative and market changes related to products containing pseudoephedrine, which have resulted from concerns over the use of pseudoephedrine in the production of methamphetamine, an illegal drug. Sales of these products in the first quarter of fiscal 2006 were approximately $23,000 lower than the first quarter of fiscal 2005. The Company monitors this issue continuously and consequently, recorded an additional charge of $2,400 in the first quarter of fiscal 2006 for estimated obsolete inventory on hand. Products containing pseudoephedrine generated approximately $182,000 of the Company's revenues in fiscal 2005. Sales for fiscal 2006 are expected to be $110,000 to $120,000. Based on recent events in the retail market, legislative actions and the resulting lost sales, management believes that these issues will continue to have a significant adverse effect on the Company's results of operations in fiscal 2006. Product Recall - In September 2005, the Company initiated a voluntary retail-level recall of all affected -4- lots of mesalamine rectal suspension, an anti-inflammatory agent used to treat mild to moderate ulcerative colitis, following reports of leakage related to the bottle closure cap. The recall is not safety related and there have been no reports of injury or illness related to the leakage of this product. The cost to write off the Company's on-hand inventories and the cost of return and disposal are estimated to be $2,750. The charge reduced operating income by $2,750 and earnings per share by $0.03 for the first quarter of fiscal 2006. New Accounting Pronouncements During the first quarter of fiscal 2006, the Company adopted the provisions of the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) 123(R), "Share-Based Payment". All share-based compensation for employees, directors and others is granted under the Company's 2003 Long-Term Incentive Plan. The weighted average fair value per share for options granted was estimated using the Black-Scholes option pricing model. Share-based compensation costs are included in operating expenses. Since the Company began expensing stock-based compensation using the fair value based method of accounting as permitted under SFAS 123 in December 2002, the adoption of SFAS 123(R) did not have a significant impact on its consolidated financial statements or results of operations. In accordance with the disclosure requirements of the pronouncement, the Company reclassified unearned compensation to common stock in the Company's condensed consolidated balance sheets as of June 25, 2005 and September 25, 2004. During the first quarter of fiscal 2006, the Company prospectively adopted the provisions of SFAS 151, "Inventory Costs - An amendment of ARB No. 43, Chapter 4". SFAS 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and spoilage should be expensed as incurred and not included in overhead. Further, SFAS 151 requires that allocation of fixed production overheads to conversion costs should be based on normal capacity of the production facilities. The Company's accounting policies align to the rules and the adoption of this statement did not impact the Company's consolidated financial position or results of operations. In October 2004, the FASB issued FSP 109-1, "Application of FASB Statement 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004", effective upon issuance. The FSP provides guidance on the application of SFAS 109, "Accounting for Income Taxes", to the provision within the American Jobs Creation Act of 2004 that provides a tax deduction on qualified production activities. According to FSP 109-1, the deduction should be accounted for as a special deduction in accordance with SFAS 109. Based on preliminary evaluations of FSP 109-1, the Company does not anticipate a significant impact on fiscal 2006 results of operations. NOTE B - EARNINGS PER SHARE A reconciliation of the numerators and denominators used in the basic and diluted earnings per share (EPS) calculation follows: -5-
First Quarter ----------------- 2006 2005 ------- ------- Numerator: Net income used for both basic and diluted EPS $12,911 $17,578 ======= ======= Denominator: Weighted average shares outstanding for basic EPS 93,188 70,948 Dilutive effect of share-based awards 1,126 2,095 ------- ------- Weighed average shares outstanding for diluted EPS 94,314 73,043 ======= =======
Share-based awards outstanding that are anti-dilutive were 3,852 and 481 for the first quarter of fiscal 2006 and 2005, respectively. These share-based awards were excluded from the diluted EPS calculation. NOTE C - INVENTORIES Inventories are summarized as follows:
September 24, June 25, September 25, 2005 2005 2004 ------------- -------- ------------- Finished goods $133,347 $135,955 $ 75,045 Work in process 60,708 58,588 59,411 Raw materials 75,640 78,437 47,381 -------- -------- -------- $269,695 $272,980 $181,837 ======== ======== ========
The Company maintains an allowance for estimated obsolete or unmarketable inventory based on the difference between the cost of inventory and its estimated market value. The inventory balances stated above are net of an inventory allowance of $37,164 at September 24, 2005, $34,028 at June 25, 2005 and $21,124 at September 25, 2004. NOTE D - GOODWILL There were no acquisitions, dispositions or impairments of goodwill during the first quarter of fiscal 2006. The Company recorded an adjustment to goodwill that was originally established in connection with the Company's acquisition of Agis Industries (1983) Ltd. (Agis) on March 17, 2005. The adjustment was for changes in tax-related assets and liabilities and additional termination liabilities for the Company's New York facility. A summary of goodwill, by reportable segment is as follows:
Consumer Rx Healthcare Pharmaceuticals API Total ---------- --------------- ------- -------- Balance as of June 25, 2005 $35,919 $65,608 $48,766 $150,293 Goodwill adjustment -- (3,795) (2,136) (5,931) ------- ------- ------- -------- Balance as of September 24, 2005 $35,919 $61,813 $46,630 $144,362 ======= ======= ======= ========
-6- NOTE E - OUTSTANDING DEBT Total borrowings outstanding are summarized as follows:
September 24, June 25, September 25, 2005 2005 2004 ------------- -------- ------------- Short-term debt: Swingline loan $ 4,135 $ 10,198 -- Bank loan - Germany subsidiary 8,651 8,652 -- Bank loan - U.K. subsidiary 2,161 2,188 $3,927 Bank loans - Mexico subsidiary 4,356 4,307 5,538 -------- -------- ------ Total 19,303 25,345 9,465 -------- -------- ------ Long-term debt: Revolving line of credit 130,000 115,000 -- Term loan 100,000 100,000 -- Letter of undertaking - Israel subsidiary 400,000 400,000 -- Debenture - Israel subsidiary 40,814 41,128 -- -------- -------- ------ Total 670,814 656,128 -- -------- -------- ------ Total debt $690,117 $681,473 $9,465 ======== ======== ======
The terms of the loan related to the letter of undertaking indicated above require that the Company maintain a deposit of $400,000 in an uninsured account with the lender as security for the loan. NOTE F - POSTRETIREMENT MEDICAL BENEFITS The Company has an unfunded postretirement plan (plan) that provides medical benefits to eligible retired employees and their dependents. The cost of postretirement medical benefits is accrued by the Company over the service lives of the employees based on actuarial calculations for the plan. Effective January 1, 2004, the plan was modified to limit the amount of benefits the Company provides to retirees each year, adjusted annually for inflation.
First Quarter ------------- 2006 2005 ----- ----- Components of expense as provided by the Company's actuary: Service cost $ 151 $ 103 Interest cost 53 56 Amortization of prior year service cost (112) (111) Amortization of unrecognized net actuarial loss 39 34 ----- ----- Net expense $ 131 $ 82 ===== =====
Retirement benefit claims paid for the first quarter of fiscal 2006 were $25 and are expected to be approximately $135 for the remainder of fiscal 2006. NOTE G - SHAREHOLDERS' EQUITY The Company has a common stock repurchase program. Purchases are made on the open market, subject to market conditions, and are funded by available cash or borrowings. All common stock repurchased is retired upon purchase. On April 22, 2005, the Board of Directors approved a plan to -7- repurchase shares of common stock with a value of up to $30,000. This plan will expire on April 26, 2006. On June 21, 2005, the Company announced the implementation of a 10b5-1 plan that allows brokers selected by the Company to repurchase shares on behalf of the Company at times when it would ordinarily not be in the market because of the Company's trading policies. The Company repurchased 606 shares of its common stock for $8,558 and 7 shares for $122 during the first quarter of fiscal 2006 and 2005, respectively. Private party transactions accounted for 110 shares in the first quarter of fiscal 2006 and 7 shares in the first quarter of fiscal 2005. NOTE H - COMPREHENSIVE INCOME Comprehensive income is comprised of all changes in shareholders' equity during the period other than from transactions with shareholders. Comprehensive income consists of the following:
First Quarter ---------------- 2006 2005 ------- ------- Net income $12,911 $17,578 Other comprehensive income: Change in fair value of derivative instruments, net of tax 2,029 -- Foreign currency translation adjustments (5,074) (75) Change in fair value of investment securities, net of tax 330 -- ------- ------- Comprehensive income $10,196 $17,503 ======= =======
NOTE I - COMMITMENTS AND CONTINGENCIES The Company is not a party to any litigation, other than routine litigation incidental to its business except for the litigation described below. The Company believes that none of the routine litigation, individually or in the aggregate, will be material to the business of the Company. In August 2004, the Company agreed to settle with the FTC and states' attorneys general offices which had been investigating a 1998 agreement between Alpharma, Inc. and the Company related to a children's ibuprofen suspension product. The agreement between Alpharma, Inc. and the Company is no longer in effect. The consent order included payment of $4,750 to resolve all claims by the FTC and state governments as well as certain restrictions on future contractual agreements of this nature. These restrictions are not expected to have a material impact on the Company's future results of operations. The $4,750 charge was recorded in the fourth quarter of fiscal 2004 and paid in the first quarter of fiscal 2005. In connection with the Alpharma, Inc. agreement and the related FTC settlement in fiscal 2004, the Company has been named as a defendant in three suits, two of which are class actions that have been consolidated with one another, filed on behalf of Company customers (i.e., retailers) and the other consisting of four class action suits filed on behalf of indirect Company customers (i.e., consumers), alleging that the plaintiffs overpaid for children's ibuprofen suspension product as a result of the Company's agreement with Alpharma, Inc. While the Company has been defending these claims, it has also participated in settlement negotiations with the plaintiffs. The most recent negotiations lead the Company to believe it may settle all of the lawsuits for a combination of cash payments and product donations, the aggregate value of which the Company anticipates will approximate $4,500. The Company recorded a charge of $4,500 in the fourth quarter of fiscal 2005 as its best estimate of the -8- combined expected cost of the settlements. While the Company believes the estimates are reasonable, the amount of future payments cannot be assured and may be materially different than the recorded charge. The Company is currently defending numerous individual lawsuits pending in various state and federal courts involving phenylpropanolamine (PPA), an ingredient used in the manufacture of certain OTC cough/cold and diet products. The Company discontinued using PPA in the U.S. in November 2000 at the request of the FDA. These cases allege that the plaintiff suffered injury, generally some type of stroke, from ingesting PPA-containing products. Many of these suits also name other manufacturers or retailers of PPA-containing products. These personal injury suits seek an unspecified amount of compensatory, exemplary and statutory damages. The Company maintains product liability insurance coverage for the claims asserted in these lawsuits. The Company believes that it has meritorious defenses to these lawsuits and intends to vigorously defend them. At this time, the Company cannot determine whether it will be named in additional PPA-related suits, the outcome of existing suits or the effect that PPA-related suits may have on its financial condition or operating results. The Company's Israeli subsidiary has provided a guaranty to a bank to secure the debt of a 50% owned joint venture for approximately $460, not to exceed 50% of the joint venture's debt, that is not recorded on the Company's condensed consolidated balance sheets as of September 24, 2005. NOTE J - SEGMENT INFORMATION The Company has three reportable segments, aligned primarily by product: Consumer Healthcare, Rx Pharmaceuticals and API as well as an Other category. Prior year's segment information has been restated to conform to the current year presentation. The Consumer Healthcare segment, API segment and Other category include charges of $318, $1,747 and $2,697, respectively, for the write-off of the step-up in the value of inventory resulting from the Agis acquisition. The write-off of the inventory step-up value was completed in the first quarter of fiscal 2006. The majority of corporate expenses, which generally represent shared services, are charged to operating segments as part of a corporate allocation. Unallocated expenses related to one-time acquisition integration costs and certain corporate services that are not allocated to the segments. Acquisition integration costs were $600 for the first quarter of fiscal 2006.
Consumer Rx Pharma- Unallocated Healthcare ceuticals API Other expenses Total ---------- ---------- ------- -------- ----------- -------- First Quarter 2006 Net sales $228,633 $29,094 $26,791 $ 35,216 -- $319,734 Operating income (loss) $ 13,122 $ 3,836 $ 6,586 $ (659) $(2,156) $ 20,729 Operating income (loss)% 5.7% 13.2% 24.6% (1.9)% -- 6.5% Amortization of intangibles $ 1,382 $ 1,584 $ 429 $ 240 -- $ 3,635 First Quarter 2005 Net sales $227,719 -- -- -- -- $227,719 Operating income (loss) $ 27,925 $(1,299) $ 26,626 Operating income % 12.3% -- -- -- -- 11.7% Amortization of intangibles $ 178 -- -- -- -- $ 178
-9- NOTE K - RESTRUCTURING In connection with the Agis acquisition, the Company reviewed its Consumer Healthcare operating strategies. As a result, the Company approved a restructuring plan and recorded a charge to the Company's Consumer Healthcare segment. The implementation of the plan began on March 24, 2005 and is expected to be completed in its entirety by March 2006. The Company terminated 22 employees performing in certain executive and administrative roles. Accordingly, the Company recorded employee termination benefits of $3,150 in the fourth quarter of fiscal 2005. The activity of the restructuring reserve is as follows:
Fiscal 2005 Restructuring Employee Termination ------------------------- Balance at June 25, 2005 $2,152 Payments (700) ------ Balance at September 24, 2005 $1,452 ======
In connection with the Agis acquisition, the Company accrued $2,727 of restructuring costs, consisting of employee termination benefits for 60 employees and certain lease termination costs. The Company accrued an additional amount of $1,206 for employee termination benefits in the first quarter of fiscal 2006. For accounting purposes, these restructuring costs were included in the allocation of the total purchase price. Employee termination benefits are expected to be paid over the next six to nine months. The activity related to these restructuring costs is as follows:
Fiscal 2005 Restructuring ------------------------- Employee Lease Termination Termination ----------- ----------- Balance at June 25, 2005 $ 374 $1,592 Additions $1,206 -- ------ ------ Balance at September 24, 2005 $1,580 $1,592 ====== ======
-10- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST QUARTER FISCAL YEARS 2006 AND 2005 (in thousands, except per share amounts) OVERVIEW Acquisition On March 17, 2005, the Company acquired Agis Industries (1983) Ltd. (Agis). The acquisition resulted in the establishment of new operating and reportable segments. The results of operations related to the Agis acquisition are distributed throughout all of the Company's reportable segments, as described below. Segments The Company has three reportable segments, aligned primarily by product: Consumer Healthcare, Rx Pharmaceuticals and API as well as an Other category. Segment information for prior periods has been restated to conform to the current year presentation. The Consumer Healthcare segment includes the U.S., U.K. and Mexico operations supporting the sale of OTC pharmaceutical and nutritional products worldwide. The Rx Pharmaceuticals segment supports the development and sale of prescription drug products. The API segment supports the development and manufacturing of API products in Israel and Germany, with sales to customers worldwide. The Other category consists of two operating segments, Israel Consumer Products and Israel Pharmaceutical and Diagnostic Products, with sales primarily to the Israeli market, including cosmetics, toiletries, detergents, manufactured and imported pharmaceutical products and medical diagnostic products. Neither of these operating segments meets the quantitative thresholds required to be separately reportable segments. Significant Factors Impacting Earnings The Company continued to be impacted by the legislative and market concerns related to products containing pseudoephedrine, which have resulted from concerns over the use of pseudoephedrine in the production of methamphetamine, an illegal drug. Sales of these products in the first quarter of fiscal 2006 were approximately $23,000 lower than the first quarter of fiscal 2005. The Company took an additional charge of $2,400 in the first quarter of fiscal 2006 for estimated obsolete inventory on hand. The Company recorded a charge of $2,750 in the first quarter of fiscal 2006 as the Company initiated a voluntary retail-level recall of all affected lots of mesalamine rectal suspension, an anti-inflammatory agent used to treat mild to moderate ulcerative colitis, following reports of leakage related to the bottle closure cap. The Company's sales of OTC pharmaceutical and nutritional products are subject to the seasonal demands for cough/cold/flu and allergy products. Accordingly, operating results for the first quarter of fiscal 2006 are not necessarily indicative of the results that may be expected for a full year. -11- RESULTS OF OPERATIONS CONSUMER HEALTHCARE
First Quarter ------------------- 2006 2005 -------- -------- Net sales $228,633 $227,719 Gross profit $ 52,791 $ 64,713 Gross profit % 23.1% 28.4% Operating expenses $ 39,669 $ 36,788 Operating expenses % 17.4% 16.2% Operating income $ 13,122 $ 27,925 Operating income % 5.7% 12.3%
Net Sales First quarter net sales for fiscal 2006 increased $914 compared to fiscal 2005. The increase included topical OTC products produced at the New York facility acquired in conjunction with the Agis acquisition of approximately $19,000 and new product sales. This increase was largely offset by sales of pseudoephedrine-containing products that were $23,000 lower in the first quarter of fiscal 2006 compared to the first quarter of fiscal 2005. Gross Profit First quarter gross profit for fiscal 2006 decreased 18% or $11,922 compared to fiscal 2005 primarily due to the lower volume of pseudoephedrine-containing products. Inventory obsolescence expenses were higher than fiscal 2005, including a charge of $2,400 for estimated obsolete pseudoephedrine inventory on hand, but were generally offset by lower production-related costs. The decrease in the first quarter gross profit percentage was primarily attributable to an unfavorable mix of products sold and the lower volume of pseudoephedrine-containing products, which were typically sold at a margin higher than the average product in the Consumer Healthcare segment. Operating Expenses First quarter operating expenses for fiscal 2006 increased 8% or $2,881 during fiscal 2006 compared to fiscal 2005 primarily due to expenses related to the New York facility and amortization of intangible assets related to the Agis acquisition. Amortization expense in the first quarter was $1,382 for fiscal 2006 and $178 for fiscal 2005. -12- RX PHARMACEUTICALS
First Quarter ----------------- 2006 2005 ------- ------- Net sales $29,094 -- Gross profit $11,625 -- Gross profit % 40.0% -- Operating expenses $ 7,789 $ 1,299 Operating expenses % 26.8% -- Operating income (loss) $ 3,836 $(1,299) Operating income % 13.2% --
Net Sales and Gross Profit First quarter net sales and gross profit for fiscal 2006 resulted almost entirely from the Agis acquisition. Gross profit includes a charge of $1,584 for amortization of product-related intangible assets. In September 2005, the Company initiated a voluntary retail-level recall of all affected lots of mesalamine rectal suspension, an anti-inflammatory agent used to treat mild to moderate ulcerative colitis, following reports of leakage related to the bottle closure cap. The recall is not safety related and there have been no reports of injury or illness related to the leakage of this product. The cost to write off the value of the Company's on-hand inventories and the cost of return and disposal are estimated to be $2,750. The charge reduced operating income by $2,750 and earnings per share by $0.03 for the first quarter of fiscal 2006. Operating Expenses First quarter fiscal 2006 operating expenses increased $6,490. Approximately 80% of the increase resulted from the Agis acquisition. Research and development spending in this segment increased $4,243 from the first quarter of fiscal 2005. ADDITIONAL INFORMATION
Unallocated First Quarter 2006 API Other Expenses ------- -------- ----------- Net sales $26,791 $ 35,216 -- Gross profit $12,004 $ 10,496 -- Gross profit % 44.8% 29.8% Operating expenses $ 5,418 $ 11,155 $ 2,156 Operating expenses % 20.2% 31.7% -- Operating income (loss) $ 6,586 $ (659) $(2,156) Operating income (loss) % 24.6% (1.9)% --
-13- Three new operating segments were established as a result of the Agis acquisition. The API segment is a reportable segment. The remaining two operating segments, Israel Consumer Products and Israel Pharmaceutical and Diagnostic Products, which comprise the Other category, do not meet the quantitative thresholds required to be separately reportable. Gross profit of the API segment and Other category include charges of $1,747 and $2,697, respectively, for the write-off of the step-up in the value of inventory resulting from the Agis acquisition. Amortization expense was $429 and $240 for the API segment and Other category, respectively. Unallocated expenses relate to one-time acquisition integration costs and certain corporate services that are not allocated to the segments. Acquisition integration costs were $600 for the first quarter of fiscal 2006. INTEREST AND OTHER (CONSOLIDATED) First quarter fiscal 2006 net interest expense was $3,869, which included interest expense of $9,347 and interest income of $5,478. Net interest income was $357 for the first quarter of fiscal 2005. The overall higher interest expense in the first quarter of fiscal 2006 was due to the level of long-term debt held by the Company compared to the level of invested cash balances in the first quarter of fiscal 2005. The gross amounts of interest expense and income were high in the first quarter of fiscal 2005 due to the outstanding loan and restricted cash deposit of $400,000 established in connection with the Agis acquisition. Other income was $1,089 for the first quarter of fiscal 2006 compared to $483 for the first quarter of fiscal 2005. INCOME TAXES (CONSOLIDATED) First quarter effective tax rate was 28.1% for fiscal 2006 and 36% for fiscal 2005. The Agis acquisition changed the relative composition of U.S. and Foreign income, which is expected to result in a lower effective tax rate than the Company has historically experienced. This tax rate will fluctuate from quarter to quarter depending on the composition of income before tax. Forty-seven percent of income before tax in the first quarter of fiscal 2006 was contributed by foreign entities, generally Israeli, with a tax rate lower than the U.S. statutory rate. The effective tax rate for succeeding quarters is expected to be higher as the Company's U.S. income is likely to be a higher percentage of the total income than in the first quarter. Additionally, due to its intended sale of an equity investment that will result in a capital gain, the Company released a valuation allowance of $1,090 on a capital loss carry forward, which reduced income tax expense in the first quarter of fiscal 2006. The Company recorded additional tax expense of $623 as certain deferred tax assets and liabilities were adjusted as a result of changes in statutory tax rates in Israel. The estimated annualized effective tax rate for fiscal 2006 is between 33% and 34%. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents and investment securities decreased $100,873 to $40,941 at September 24, 2005 from $141,814 at September 25, 2004. Working capital, including cash, decreased $27,624 to $278,924 at September 24, 2005 from $306,548 at September 25, 2004. The Company's priorities for use of cash and investment securities include support of seasonal working capital demands, investment in capital assets, repurchase of common stock and acquisition of complementary businesses that could leverage retailer relationships, offer a product niche opportunity or support geographic expansion. First quarter net cash provided from operating activities increased by $40,699 to $17,722 for fiscal 2006 compared to cash used for operating activities of $22,977 for fiscal 2005. The contribution of cash flow from operating income of the subsidiaries related to the Agis acquisition offset the reduction in operating income of the Consumer Healthcare segment. The decreased use of cash was primarily due to lower employee bonuses paid in fiscal 2006 and lower accounts receivable from the timing of sales in the Consumer Healthcare segment coupled with reductions in inventory and accounts -14- payable from lower production volumes. First quarter net cash used for investing activities increased $29,950 to $6,294 for fiscal 2006 compared to cash provided by investing activities of $23,656 for fiscal 2005. In the first quarter of fiscal 2005, the Company liquidated securities held in the U.S. in support of seasonal working capital demands. First quarter capital expenditures for facilities and equipment were for normal replacement and productivity enhancements. Capital expenditures are anticipated to be $45,000 to $50,000 for fiscal 2006. First quarter net cash used for financing activities increased $2,421 to $1,903 for fiscal 2006 compared to cash provided by financing activities of $518 for fiscal 2005. The increase was primarily due to an increase in repurchases of common stock of $8,436, an increase in payments of short-term debt of $6,012 and an increase in dividend payments of $1,254 offset by borrowings of long-term debt of $15,000. The Company repurchased 606 shares of its common stock for $8,558 and 7 shares for $122 during the first quarter of fiscal 2006 and 2005, respectively. Private party transactions accounted for 110 shares in the first quarter of fiscal 2006 and 7 shares in the first quarter of fiscal 2005. The Company paid quarterly dividends in the first quarter of $3,741 and $2,487, or $0.04 and $0.035 per share, for fiscal 2006 and 2005, respectively. The declaration and payment of dividends, if any, is subject to the discretion of the Board of Directors and will depend on the earnings, financial condition and capital and surplus requirements of the Company and other factors the Board of Directors may consider relevant. GUARANTIES AND CONTRACTUAL OBLIGATIONS The Company's Israeli subsidiary has provided a guaranty to a bank to secure the debt of a 50% owned joint venture for approximately $460, not to exceed 50% of the joint venture's debt that is not recorded on the Company's condensed consolidated balance sheets as of September 24, 2005. During the first quarter of fiscal 2006, no material change in contractual obligations occurred. CRITICAL ACCOUNTING POLICIES Determination of certain amounts in the Company's financial statements requires the use of estimates. These estimates are based upon the Company's historical experiences combined with management's understanding of current facts and circumstances. Although the estimates are considered reasonable, actual results could differ from the estimates. The accounting policies, discussed below, are considered by management to require the most judgment and are critical in the preparation of the financial statements. These policies are reviewed by the Audit Committee. Other significant accounting policies are included in Note A of the notes to the consolidated financial statements in the Company's annual report on Form 10-K for the fiscal year ended June 25, 2005. Revenue Recognition and Customer Programs - The Company records revenues from product sales when the goods are shipped to the customer. For customers with Free on Board destination terms, a provision is recorded to exclude shipments estimated to be in-transit to these customers at the end of the reporting period. A provision is recorded and accounts receivable are reduced as revenues are -15- recognized for estimated losses on credit sales due to customer claims for discounts, price discrepancies, returned goods and other items. A liability is recorded as revenues are recognized for estimated customer program liabilities, as discussed below. The Company maintains accruals for customer programs that consist primarily of chargebacks, rebates and shelf stock adjustments. A chargeback relates to an agreement the Company has with a wholesaler, a retail customer that will ultimately purchase product from a wholesaler or a pharmaceutical buying group for a contracted price that is different than the Company's price to the wholesaler. The wholesaler will issue an invoice to the Company for the difference in the contract prices. The accrual for chargebacks is based on historical chargeback experience and estimated wholesaler inventory levels, as well as expected sell-through levels by wholesalers to retailers. Rebates are payments issued to the customer when certain criteria are met which may include specific levels of product purchases, introduction of new products or other objectives. The accrual for rebates is based on contractual agreements and estimated purchasing levels by customers with such programs. Medicaid rebates are payments made to states for pharmaceutical products covered by the program. The accrual for Medicaid rebates is based on historical trends of rebates paid and current period sales activity. Shelf stock adjustments are credits issued to reflect decreases in the selling price of a product and are based upon estimates of the amount of product remaining in a customer's inventory at the time of the anticipated price reduction. In many cases, the customer is contractually entitled to such a credit. The accrual for shelf stock adjustments is based on specified terms with certain customers, estimated launch dates of competing products and estimated declines in market price. Changes in these estimates and assumptions related to customer programs may result in additional accruals. The following table summarizes the activity for the balance sheet for accounts receivable allowances and customer program accruals:
First Quarter Fiscal Year First Quarter 2006 2005 2005 ------------- ----------- ------------- ACCOUNTS RECEIVABLE ALLOWANCES, excluding allowance for doubtful accounts Balance, beginning of period $ 10,403 $ 3,691 $ 3,691 Acquisition -- 5,038 -- Provision recorded 4,167 6,631 -- Credits processed (4,620) (4,957) -- -------- -------- ------- Balance, end of the period $ 9,950 $ 10,403 $ 3,691 ======== ======== ======= CUSTOMER PROGRAM ACCRUALS Balance, beginning of period $ 41,666 $ 13,212 $13,212 Acquisition -- 20,488 -- Provision recorded 29,812 49,612 8,342 Credits processed (31,349) (41,646) (5,344) -------- -------- ------- Balance, end of the period $ 40,129 $ 41,666 $16,210 ======== ======== =======
-16- Allowance for Doubtful Accounts - The Company maintains an allowance for customer accounts that reduces receivables to amounts that are expected to be collected. In estimating the allowance, management considers factors such as current overall economic conditions, industry-specific economic conditions, historical and anticipated customer performance, historical experience with write-offs and the level of past-due amounts. Changes in these conditions may result in additional allowances. The allowance for doubtful accounts was $10,207 at September 24, 2005, $10,370 at June 25, 2005 and $7,971 at September 25, 2004. Inventory - The Company maintains an allowance for estimated obsolete or unmarketable inventory based on the difference between the cost of the inventory and its estimated market value. In estimating the allowance, management considers factors such as excess or slow moving inventories, product expiration dating, products on quality hold, current and future customer demand and market conditions. Changes in these conditions may result in additional allowances. The allowance for inventory was $37,164 at September 24, 2005, $34,028 at June 25, 2005 and $21,124 at September 25, 2004. Goodwill - Goodwill is tested for impairment annually or more frequently if changes in circumstances or the occurrence of events suggest impairment exists. The test for impairment requires the Company to make several estimates about fair value, most of which are based on projected future cash flows. The estimates associated with the goodwill impairment tests are considered critical due to the judgments required in determining fair value amounts, including projected future cash flows. Changes in these estimates may result in the recognition of an impairment loss. The required annual testing is performed in the second quarter of the fiscal year. Goodwill was $144,362 at September 24, 2005, $150,293 at June 25, 2005 and $35,919 at September 25, 2004. Other Intangible Assets - Other intangible assets subject to amortization consist of developed product technology, distribution and license agreements, customer relationships and trademarks. Most of these assets are amortized over their estimated useful economic lives using the straight-line method. An accelerated method of amortization is used for customer relationships. For intangible assets subject to amortization, an impairment analysis is performed whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss is recognized if the carrying amount of the asset is not recoverable and its carrying amount exceeds its fair value. Other intangible assets were $144,315 at September 24, 2005, $147,967 at June 25, 2005 and $8,039 at September 25, 2004. Product Liability and Workers' Compensation - The Company maintains accruals to provide for claims incurred that are related to product liability and workers' compensation. In estimating these accruals, management considers actuarial valuations of exposure based on loss experience. These actuarial valuations include significant estimates and assumptions, which include, but are not limited to, loss development, interest rates, product sales, litigation costs, accident severity and payroll expenses. Changes in these estimates and assumptions may result in additional accruals. The accrual for product liability claims was $2,182 at September 24, 2005, $1,930 at June 25, 2005 and $4,074 at September 25, 2004. The accrual for workers' compensation claims was $2,703 at September 24, 2005, $2,472 at June 25, 2005 and $2,249 at September 25, 2004. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS Certain statements in Management's Discussion and Analysis of Results of Operations and Financial Condition and other portions of this report are forward-looking statements within the meaning of Section -17- 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. These statements relate to future events or the Company's future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Company or its industry to be materially different from those expressed or implied by any forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential" or other comparable terminology. Please see the "Cautionary Note Regarding Forward-Looking Statements" in the Company's Form 10-K for the year ended June 25, 2005 for a discussion of certain important risk factors that relate to forward-looking statements contained in this report. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Item 3. Quantitative and Qualitative Disclosures About Market Risks The Company is exposed to market risks due to changes in currency exchange rates and interest rates. The Company is exposed to interest rate changes primarily as a result of interest expense on borrowings used to finance the Agis acquisition and working capital requirements and interest income earned on its investment of cash on hand. As of September 24, 2005, the Company had invested cash, cash equivalents and investment securities of approximately $41,000 and short and long-term debt, net of restricted cash, of approximately $290,000. The Company enters into certain derivative financial instruments, when available on a cost-effective basis, to hedge its underlying economic exposure, particularly related to the management of interest rate risk. Because of the use of certain derivative financial instruments, the Company believes that a significant fluctuation in interest rates in the near future will not have a material impact on the Company's consolidated financial statements. These instruments are managed on a consolidated basis to efficiently net exposures and thus take advantage of any natural offsets. Derivative financial instruments are not used for speculative purposes. Gains and losses on hedging transactions are offset by gains and losses on the underlying exposures being hedged. The Company has operations in the U.K., Israel, Germany and Mexico. These operations transact business in their local currency and foreign currencies, thereby creating exposures to changes in exchange rates. Significant currency fluctuations could adversely impact foreign revenues; however, the Company cannot predict future changes in foreign currency exposure. Item 4. Controls and Procedures As of September 24, 2005, the Company's management, including its Chief Executive Officer and its Chief Financial Officer, has performed an interim review on the effectiveness of the Company's disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934. Based on that review, as well as an evaluation and consideration of the update described below, the Chief Executive Officer and Chief Financial Officer have concluded the Company's disclosure controls and procedures are not effective at a reasonable assurance level. Certain material weaknesses in internal control over financial reporting (ICFR) were identified in fiscal year 2005 in connection with integration and initial internal control assessment activities related to the Agis acquisition (this section of -18- Item 4. Controls and Procedures should be read in conjunction with Item 9A. Controls and Procedures, included in the Company's Form 10-K for the fiscal year ended June 25, 2005). As of September 24, 2005, total assets subject to Agis' ICFR represented approximately 40% of the Company's consolidated total assets. Net sales subject to Agis' ICFR represented approximately 35% of the Company's consolidated total net sales for the quarter ended September 24, 2005. The Company is actively seeking to remedy these material weaknesses. Other than the deficiencies related to the Agis entities, the Chief Executive Officer and Chief Financial Officer did not note any other material weaknesses in the Company's disclosure controls and procedures during their evaluation. The following is an update on the Company's remediation plan: - The New York location's information systems infrastructure and related policies were converted to align with the Company's existing infrastructure and policies. Additionally, significant progress has been made on converting this location to the Company's ERP system. This conversion is moving in accordance with the timeline of the plan with expected completion late in the second quarter of fiscal 2006. - Formal policies to reflect the tone of top management have been introduced to the New York location. - The Company still expects to report the ICFR for the New York and Germany locations will be effective by the end of fiscal 2006. These two locations represent approximately 18% of the Company's consolidated fiscal 2006 first quarter revenue. - Limited progress has been made in modification of the Israel locations' information systems infrastructure to align with the Company's standards. However, several formal policies and internal control enhancements are expected to be in place late in the second quarter of fiscal 2006. The Company still anticipates completion of this aspect of the remediation plan in the fourth quarter of fiscal 2006. - Company management is in the process of deploying certain formal policies to reflect the tone of top management at the Israel locations. This process is expected to be completed late in the second quarter of fiscal 2006. - The first stages of an ERP system implementation in Israel are underway. In connection with the interim evaluation by the Company's management, including its Chief Executive Officer and Chief Financial Officer, of the Company's ICFR pursuant to Rule 13a-15(d) of the Securities Exchange Act of 1934, no changes during the quarter ended September 24, 2005 were identified that have materially affected, or are reasonably likely to materially affect, the Company's ICFR, other than the infrastructure conversion and implementation of policies at the New York location described above. PART II. OTHER INFORMATION Item 1. Legal Proceedings In August 2004, the Company agreed to settle with the FTC and states' attorneys general offices which had been investigating a 1998 agreement between Alpharma, Inc. and the Company related to a children's ibuprofen suspension product. The agreement between Alpharma, Inc. and the Company is no longer in effect. The consent order included payment of $4,750 to resolve all claims by the FTC and state governments as well as certain restrictions on future contractual agreements of this nature. These restrictions are not expected to have a material impact on the Company's future results of operations. The $4,750 charge was recorded in the fourth quarter of fiscal 2004 and paid in the first quarter of fiscal -19- 2005. In connection with the Alpharma, Inc. agreement and the related FTC settlement in fiscal 2004, the Company has been named as a defendant in three suits, two of which are class actions that have been consolidated with one another, filed on behalf of Company customers (i.e., retailers) and the other consisting of four class action suits filed on behalf of indirect Company customers (i.e., consumers), alleging that the plaintiffs overpaid for children's ibuprofen suspension product as a result of the Company's agreement with Alpharma, Inc. While the Company has been defending these claims, it has also participated in settlement negotiations with the plaintiffs. The most recent negotiations lead the Company to believe it may settle all of the lawsuits for a combination of cash payments and product donations, the aggregate value of which the Company anticipates will approximate $4,500. The Company recorded a charge of $4,500 in the fourth quarter of fiscal 2005 as its best estimate of the combined expected cost of the settlements. While the Company believes the estimates are reasonable, the amount of future payments cannot be assured and may be materially different than the recorded charge. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On April 22, 2005, the Board of Directors approved a plan to repurchase shares of common stock with a value of up to $30,000. This plan will expire on April 21, 2006. On June 21, 2005, the Company announced the implementation of a 10b5-1 plan that allows brokers selected by the Company to repurchase shares on behalf of the Company at times when it would ordinarily not be in the market because of the Company's trading policies. All common stock repurchased is retired upon purchase. The table below lists the Company's repurchases of shares of common stock during its most recently completed quarter:
Total Total Average Number of Shares Value Number of Price Purchased as of Shares Shares Paid per Part of Publicly Available for Fiscal 2006 Purchased (1) Share Announced Plans Purchase - ------------------------- ------------- -------- ---------------- ------------- $27,100 June 26 to July 30 231 $13.95 231 $23,882 July 31 to August 27 187 $13.74 174 $21,490 August 28 to September 24 188 $14.70 91 $20,160 --- --- Total 606 496
(1) Private party transactions accounted for the purchase of 13 shares in the period from July 31 to August 27 and 97 shares in the period from August 28 to September 24. -20- Item 6. Exhibits
Exhibit Number Description - -------------- ----------- 2(a) Agreement and Plan of Merger dated as of November 14, 2004, among Registrant, Agis Industries (1983) Ltd. and Perrigo Israel Opportunities Ltd., incorporated by reference from Appendix A to the Registrant's Proxy Statement/Prospectus included in the Registrant's Registration Statement on Form S-4 (No. 333-121574), filed and declared effective on February 14, 2005. 10(a) First Amendment to Credit Agreement, dated as of September 30, 2005, among Perrigo Company, the Foreign Subsidiary Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent for the Lenders, Bank Leumi USA, as Syndication Agent, and Bank of America, N.A., Standard Federal Bank N.A. and National City Bank of the Midwest, as Documentation Agents. 10(b) Foreign Subsidiary Borrower Agreement, dated as of September 26, 2005, among Chemagis (Germany) GmbH, Perrigo Company and JPMorgan Chase Bank, N.A., as Administrative Agent, pursuant to the Credit Agreement, dated as of March 16, 2005, among Perrigo Company, the Foreign Subsidiary Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank Leumi USA, as Syndication Agent, and Bank of America, N.A., Standard Federal Bank N.A. and National City Bank of the Midwest, as Documentation Agents. 31 Rule 13a-14(a) Certifications. 32 Section 1350 Certifications.
-21- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PERRIGO COMPANY (Registrant) Date: October 26, 2005 By: /s/ David T. Gibbons ------------------------------------------------------- David T. Gibbons Chairman, President and Chief Executive Officer Date: October 26, 2005 By: /s/ Douglas R. Schrank ------------------------------------------------------- Douglas R. Schrank Executive Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) -22- EX-10.A 2 c99334exv10wa.txt AMENDMENT TO CREDIT AGREEMENT Exhibit 10(a) FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of September 30, 2005 (this "Amendment"), is among Perrigo Company (the "U.S. Borrower"), the Foreign Subsidiary Borrowers party hereto, the Lenders party hereto, JPMorgan Chase Bank, N.A., as Administrative Agent for the Lenders (in such capacity, the "Administrative Agent"), Bank Leumi USA, as Syndication Agent, and Bank of America, N.A., Standard Federal Bank N.A. and National City Bank of the Midwest, as Documentation Agents. RECITAL The Borrowers, the Lenders, the Administrative Agent, the Syndication Agent and the Documentation Agents are parties to a Credit Agreement dated as of March 16, 2005 (the "Credit Agreement"). The Borrowers desire to amend the Credit Agreement as set forth herein and the Lenders are willing to do so in accordance with the terms hereof. TERMS In consideration of the premises and of the mutual agreements herein contained, the parties agree as follows: ARTICLE 1. AMENDMENTS. The Credit Agreement is amended as follows: 1.1 The following definitions are added to Section 1.01 in appropriate alphabetical order: "Israeli Borrower" means, collectively, Agis and/or Agis Commercial Agencies (1989) Ltd. and all other Foreign Subsidiary Borrowers organized under the laws of the State of Israel, provided that, regarding each Israeli Borrower, there shall be no limitation or restriction under Israeli law and regulations of the Bank of Israel or of other regulatory entities, to the granting of the Swingline Shekel Loans by the Swingline Shekel Lender to it, and further provided that, regarding each such other Foreign Subsidiary Borrower, its financial condition shall, in the opinion of the Swingline Shekel Lender, support and justify the Swingline Shekel Loans requested by it in the amounts requested by it.. "Swingline Shekel Lender" means Bank Leumi, or any of its Affiliates designated as the Swingline Shekel Lender hereunder by Bank Leumi in writing to the Administrative Agent, in its capacity as the Swingline Lender of Swingline Shekel Loans. Bank Leumi hereby designates Bank Leumi le-Israel B.M., an Affiliate of Bank Leumi and the parent company of Bank Leumi, as the initial Swingline Shekel Lender. "Swingline Shekel Loan" means a Swingline Loan denominated in Shekels or a Swingline Loan otherwise made to an Israeli Borrower. 1.2 The definitions Agis, Business Day, Foreign Currency, Local Time and Swingline Lender in Section 1.01 are restated as follows: "Agis" means Perrigo Israel Pharmaceuticals Ltd., formerly known as Agis Industries (1983) Ltd., an Israeli public company. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City or Chicago are authorized or required by law to remain closed; provided that, (i) when used in connection with a Eurocurrency Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in deposits in the currency in which such Eurocurrency Loan is denominated in the London interbank market, (ii) when used in connection with an Ancillary Loan, the term "Business Day" shall mean any day defined as a Business Day in the relevant Ancillary Facility Document, and (iii) when used in connection with a Swingline Shekel Loan, the term "Business Day" shall mean any day on which banks generally are open in Israel for the conduct of substantially all of their commercial lending activities. "Foreign Currency" means (a) with respect to an Ancillary Loan, any currency acceptable to the Administrative Agent that is freely available, freely transferable and freely convertible into Dollars, including the Shekel and the Peso, and agreed to by the Ancillary Lenders making such Ancillary Loan, (b) with respect to any Revolving Loan, Euros, Sterling and any other currency acceptable to the Administrative Agent that is freely available, freely transferable and freely convertible into Dollars and in which dealings in deposits are carried on in the London interbank market, (c) with respect to any Letter of Credit, any currency acceptable to the Administrative Agent that is freely available, freely transferable and freely convertible into Dollars, and agreed to by the Issuing Bank issuing such Letter of Credit, (d) with respect to any Swingline Foreign Currency Loan other than Swingline Shekel Loans, any currency acceptable to the Administrative Agent that is freely available, freely transferable and freely convertible into Dollars and agreed to by JPMorgan or any of its Affiliates in its capacity as a Swingline Lender and (e) with respect to any Swingline Shekel Loans, Shekels (so long as Shekels are freely available, freely transferable and freely convertible into Dollars) or any other currency acceptable to the Administrative Agent that is freely available, freely transferable and freely convertible into Dollars and agreed to by the Swingline Shekel Lender. "Local Time" means (a) with respect to a Loan or Borrowing denominated in Dollars, Chicago time, (b) with respect to a Loan or Borrowing denominated in any Foreign Currency (other than an Ancillary Loan or Swingline Shekel Loan), London time, (c) with respect to a Swingline Shekel Loan, Israeli time, and (d) with respect to an Ancillary Loan, such time as designated as the local time in the relevant Ancillary Facility Documents. "Swingline Lender" means each of JPMorgan, in its capacity as lender of Swingline Loans hereunder, and the Swingline Shekel Lender, and their respective successors in such capacity. Each Swingline Lender may, in its discretion, arrange for one or more Swingline Loans to be made by Affiliates of such Swingline Lender, in which case the term "Swingline Lender" shall include any such Affiliate with respect to Swingline Loans made by such Affiliate. References herein to the Swingline Lender shall be deemed references to the Swingline Lender that made the relevant Swingline Loan. 1.3 Reference in clause (b) of the definition of Interest Period to "which shall not be later than thirty days thereafter" shall be amended by adding the following words thereafter "unless, in the case of Swingline Shekel Loans, otherwise agreed between the Swingline Shekel Lender and the Israeli Borrower in respect of any particular Swingline Shekel Loan or Loans, and unless, in the case of any 2 other Swingline Loan, otherwise agreed between the applicable Swingline Lender thereof and the Borrower thereof in respect of such Swingline Loans,". 1.4 Section 2.01(a)(iii) is restated as follows: (iii) the Dollar Equivalent of the aggregate amount of all Revolving Loans and Swingline Loans denominated in Foreign Currencies exceeding $55,000,000. 1.5 Section 2.04 is restated as follows: SECTION 2.04. Swingline Loans. (a) Subject to the terms and conditions set forth herein, a Swingline Lender may make Swingline Loans to any Borrower from time to time during the Availability Period, in an aggregate principal amount at any time outstanding that will not result in (i) the Dollar Equivalent of the aggregate principal amount of outstanding Swingline Loans, other than Swingline Shekel Loans, exceeding $25,000,000, (ii) the Dollar Equivalent of the aggregate principal amount of outstanding Swingline Shekel Loans exceeding $15,000,000, (iii) the (A) Aggregate Revolving Credit Exposure exceeding (B) the Aggregate Revolving Commitments minus the Aggregate Ancillary Commitments or (iv) the Aggregate Total Revolving Exposure exceeding the Aggregate Revolving Commitments. Notwithstanding the foregoing, the Swingline Shekel Lender may only make Swingline Shekel Loans and shall not make any other Swingline Loans, and any other Swingline Lender may not make Swingline Shekel Loans. Within the foregoing limits and subject to the terms and conditions set forth herein, such Borrowers may borrow, prepay and reborrow Swingline Loans. (b) To request a Swingline Borrowing: (i) in the case of a Swingline Loan denominated in Dollars to the U.S. Borrower, the applicable Borrower shall notify the Applicable Agent of such request by telephone (confirmed in a writing acceptable to the Applicable Agent if requested by the Applicable Agent), not later than 2:00 p.m. (or such other time agreed to by the U. S. Borrower and the applicable Swingline Lender), Chicago time, on the day of such proposed Swingline Loan, (ii) in the case of a Swingline Shekel Loan, the Israeli Borrower shall notify the Swingline Shekel Lender directly by telephone or in writing (in accordance with the standard borrowing procedures and written terms and conditions signed by Agis in favor the Swingline Shekel Lender prior to the date hereof) by 2:00 p.m. (or such later time agreed to by the Israeli Borrower and the Swingline Shekel Lender), Local Time, on the day of a proposed Swingline Shekel Loan, and (iii) in the case of any other Swingline Loan, the applicable Borrower shall notify the Applicable Agent of such request by telephone (confirmed in a writing acceptable to the Applicable Agent if requested by the Applicable Agent), not later than 10:00 a.m. (or such other time agreed to by the applicable Borrower and such Swingline Lender), Local time, on the day of such proposed Swingline Loan. Each such notice shall be irrevocable and shall specify (A) the requested date (which shall be a Business Day), (B) whether such Swingline Loan is to be denominated in Dollars or a Foreign Currency, (C) the amount of the requested Swingline Borrowing, and (D) in the case of a Swingline Borrowing denominated in a Foreign Currency, the Interest Period requested to be applicable thereto, which shall be 3 a period contemplated by clause (b) of the definition of the term "Interest Period". The Applicable Agent shall promptly advise JPMorgan or the Affiliate designated by JPMorgan for such Swingline Borrowing of any such notice received. The applicable Swingline Lender and the applicable Borrower shall agree upon the interest rate applicable to such Swingline Loan, provided that if such agreement cannot be reached prior to 2:00 p.m., Chicago time, on the day of a proposed Swingline Loan in the case of Swingline Loans denominated in Dollars to the U.S. Borrower, prior to 2:00 p.m., Local Time, on the day of a proposed Swingline Shekel Loan and prior to 10:00 a.m., Local Time, on the day of any other proposed Swingline Loan, or, in each of the foregoing cases, such other time agreed to by the applicable Swingline Lender and applicable Borrower, then such Swingline Loan shall not be made. In addition to any other requirements for obtaining a Swingline Loan, the applicable Borrower shall comply with all applicable legal and regulatory requirements. Any funding of a Swingline Loan by a Swingline Lender shall be made on the proposed date thereof by 3:00 p.m., Local Time, to the account of the Applicable Agent or, in case of a Swingline Shekel Loan, to the account of the Swingline Shekel Lender by 3:00 p.m. (or such later time agreed to by the Israeli Borrower and the Swingline Shekel Lender), Local Time. The Applicable Agent will make such Swingline Loan available to the applicable Borrower by promptly crediting the amounts so received, in like funds, to the account of the applicable Borrower with the Applicable Agent (or, in the case of a Swingline Borrowing made to finance the reimbursement of an LC Disbursement as provided in Section 2.05(e), by remittance to the applicable Issuing Bank); provided that, in the case of a Swingline Shekel Loan, the Swingline Shekel Lender will make such Swingline Loan available to the applicable Israeli Borrower by promptly crediting the amounts so received, in like funds, to the account of the applicable Israeli Borrower with the Swingline Shekel Lender. The Administrative Agent shall determine the procedures to be followed by the Swingline Lenders to ensure that the Dollar Equivalent of the aggregate principal amount of the Swingline Loans does not exceed the amount permitted by Section 2.04(a) at the time any Swingline Loan is made and to ensure that the amount of Advances made does not exceed the amounts permitted by Section 2.01(a), and each Swingline Lender and the other parties hereto agrees to abide by such procedures. Without limiting such procedures, for purposes of determining the amount of any Borrowing that is permitted to be made under Section 2.01(a) or 2.04(a), the Administrative Agent may at any time assume that the Dollar Equivalent of the aggregate amount of Swingline Shekel Loans is equal to $15,000,000 unless the request for such Borrowing delivered to the Administrative Agent specifies the Dollar Equivalent of the aggregate amount of Swingline Shekel Loans on the day of such request and on the day such Borrowing is to be made, and the Administrative Agent shall be entitled to rely thereon in determining the permissible amount of such Borrowing. If the Swingline Loans at any time exceed any of the amounts permitted by Section 2.01(a) or 2.04(a), the relevant Borrower or Borrowers shall promptly prepay the relevant Swingline Loans by the amount of such excess. (c) Each Swingline Lender may by written notice given to the Applicable Agent not later than 1:00 p.m., Chicago time (or 11:00 a.m. London time in the case of any Swingline Loan denominated in any Foreign Currency or made to any Foreign Subsidiary Borrower), on any Business Day require the Lenders to acquire participations on such Business Day in all or a portion of the outstanding Swingline Loans, provided that the Swingline Shekel Lender may do so only upon and during the continuance of an Event of Default. Such notice shall specify the aggregate amount of such Swingline Loans in which the Lenders will participate, and such Swingline Loans, if denominated in Foreign Currency, shall be converted to Dollars and shall bear interest at the Alternate Base Rate. Promptly upon receipt of such notice, the Applicable Agent will give notice thereof to each Lender, specifying in such notice such Lender's Applicable Adjusted 4 Percentage of such Swingline Loan or Loans. Each Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Applicable Agent, for the account of the applicable Swingline Lender, such Lender's Applicable Adjusted Percentage of such Swingline Loan or Loans. Each Lender acknowledges and agrees that its respective obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Applicable Agent shall promptly pay to the applicable Swingline Lender the amounts so received by it from the Lenders. The Applicable Agent shall notify the applicable Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph (c), and thereafter payments in respect of such Swingline Loan shall be made to the Applicable Agent and not to the applicable Swingline Lender. Any amounts received by a Swingline Lender from the applicable Borrower (or other party on behalf of such Borrower) in respect of a Swingline Loan after receipt by such Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Applicable Agent; any such amounts received by the Applicable Agent shall be promptly remitted by the Applicable Agent to the Lenders that shall have made their payments pursuant to this paragraph and to such Swingline Lender, as their interests may appear; provided that any such payment so remitted shall be repaid to such Swingline Lender or to the Applicable Agent, as applicable, if and to the extent such payment is required to be refunded to the applicable Borrower for any reason. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the applicable Borrower of any default in the payment thereof and the applicable Borrower shall reimburse each Lender for any amounts that may be due under Section 2.14, 2.16. 2.20 or any other term of this Agreement. 1.6 The last sentence of Section 2.09(a) is restated as follows: Each Foreign Subsidiary Borrower hereby unconditionally promises to pay (x) to the Applicable Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan and Ancillary Loan to such Foreign Subsidiary Borrower on the Maturity Date and (y) to the applicable Swingline Lender the then unpaid principal amount of each Swingline Loan owing by it on the earlier of the Maturity Date and the date agreed to between the such Foreign Subsidiary Borrower and such Swingline Lender. 1.7 The last paragraph of Section 6.01 is restated as follows: Notwithstanding the foregoing, the aggregate amount of all Indebtedness of all Material Non-Guarantor Subsidiaries, other than Indebtedness permitted under Section 6.01(a), (b) or (e) above, shall not exceed $15,000,000. 1.8 Clause (iii) of Section 2.10(b) is restated as follows: "(iii) in the case of prepayment of a Swingline Shekel Loan, not later than 2:00 p.m., (or such later time agreed to by the Israeli Borrower and the Swingline Shekel Lender) Local time, and in the case of prepayment of any other Swingline Loan, not later than 12:00 noon, Local time, on the date of prepayment, or such other time agreed to by the applicable Borrower and Swingline Lender". 5 ARTICLE 2. REPRESENTATIONS. Each Borrower represents and warrants to the Lenders and Administrative Agent that: 2.1 The execution, delivery and performance of this Amendment are within its powers and have been duly authorized by it. This Amendment is the legal, valid and binding obligation of it, enforceable against it in accordance with the terms thereof. 2.2 After giving effect to the amendments and waiver herein contained, the representations and warranties contained in the Credit Agreement and the representations and warranties contained in the other Loan Documents are true in all material respects on and as of the date hereof with the same force and effect as if made on and as of the date hereof, and no Default or Event of Default exists or has occurred and is continuing on the date hereof. ARTICLE 3. CONDITIONS PRECEDENT. This Amendment shall be effective as of the date hereof when this Amendment shall be executed by the Borrowers, the Required Lenders, the Administrative Agent and the Syndication Agent and the Consent and Agreement attached hereto is signed by the Guarantors. ARTICLE 4. WAIVER. The Lenders hereby waive compliance with Section 5.01(c) of the Credit Agreement for the fiscal quarter ending March 31, 2005 and any Default or Event of Default that may have occurred as a result of any non-compliance with such Section 5.01(c) for the fiscal quarter ending March 31, 2005, but do not waive compliance with such Section 5.01(c) for any other fiscal quarter and do not waive any other Default or Event of Default. ARTICLE 5. MISCELLANEOUS. 5.1 References in the Credit Agreement or in any other Loan Document to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby and as further amended from time to time. 6 5.2 Except as expressly amended hereby, each Borrower agrees that the Loan Documents are ratified and confirmed and shall remain in full force and effect and that it has no set off, counterclaim, defense or other claim or dispute with respect to any of the foregoing. The terms used but not defined herein shall have the respective meanings ascribed thereto in the Credit Agreement. 5.3 This Amendment may be signed upon any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument, and telecopied signatures shall be enforceable as originals. [Signatures on the following pages] 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. PERRIGO COMPANY By /s/ James R. Ondersma ----------------------------------- Name: James R. Ondersma Title: Treasurer JPMORGAN CHASE BANK, N.A., as a Lender and as Administrative Agent By /s/ Christopher C. Cavaiani ----------------------------------- Name: Christopher C. Cavaiani Title: Vice President BANK LEUMI USA, as a Lender and as Syndication Agent By /s/ Dr. Avram Keusch ----------------------------------- Name: Dr. Avram Keusch Title: Vice President BANK OF AMERICA, N.A., as a Lender and as Documentation Agent By /s/ B. Kenneth Burton, Jr. ----------------------------------- Name: B. Kenneth Burton, Jr. Title: Vice President LASALLE BANK MIDWEST N.A., formerly known as STANDARD FEDERAL BANK N.A., as a Lender and as Documentation Agent By /s/ Rachel Glupker ----------------------------------- Name: Rachel Glupker Title: Assistant Vice President 8 NATIONAL CITY BANK OF THE MIDWEST, as a Lender and as Documentation Agent By /s/ Jason T. Byrd ----------------------------------- Name: Jason T. Byrd Title: Vice President FIFTH THIRD BANK By /s/ Randal S. Wolffis ----------------------------------- Name: Randal S. Wolffis Title: Vice President HARRIS N.A., successor by merger to HARRIS TRUST AND SAVINGS BANK By /s/ Patrick J. McDonnell ----------------------------------- Name: Patrick J. McConnell Title: Managing Director COMERICA BANK By /s/ Jeffrey J. Judge ----------------------------------- Name: Jeffrey J. Judge Title: Vice President THE NORTHERN TRUST COMPANY By /s/ Mark Taylor ----------------------------------- Name: Mark Taylor Title: Vice President 9 CONSENT AND AGREEMENT As of the date and year first above written, each of the undersigned hereby: (a) fully consents to the terms and provisions of the above Amendment and the consummation of the transactions contemplated thereby; (b) agrees that the Guaranty to which it is a party and each other Loan Document to which it is a party are hereby ratified and confirmed and shall remain in full force and effect, acknowledges and agrees that it has no setoff, counterclaim, defense or other claim or dispute with respect the Guaranty to which it is a party and each other Loan Document to which it is a party; and (c) represents and warrants to the Administrative Agent and the Lenders that the execution, delivery and performance of this Consent and Agreement are within its powers, have been duly authorized and are not in contravention of any statute, law or regulation or of any terms of its organizational documents or of any material agreement or undertaking to which it is a party or by which it is bound, and this Consent and Agreement is the legal, valid and binding obligations of it, enforceable against it in accordance with the terms hereof and thereof. Terms used but not defined herein shall have the respective meanings ascribed thereto in the Credit Agreement. L. PERRIGO COMPANY By /s/ James R. Ondersma ----------------------------------- Name: James R. Ondersma Title: Treasurer PERRIGO COMPANY OF SOUTH CAROLINA, INC. By /s/ James R. Ondersma ----------------------------------- Name: James R. Ondersma Title: Treasurer PERRIGO PHARMACEUTICALS COMPANY By /s/ James R. Ondersma ----------------------------------- Name: James R. Ondersma Title: Treasurer PERRIGO INTERNATIONAL, INC. By /s/ James R. Ondersma ----------------------------------- Name: James R. Ondersma Title: Treasurer PERRIGO INTERNATIONAL HOLDINGS, INC. By /s/ James R. Ondersma ----------------------------------- Name: James R. Ondersma Title: Treasurer 10 EX-10.B 3 c99334exv10wb.txt FOREIGN SUBSIDIARY BORROWER AGREEMENT Exhibit 10(b) FOREIGN SUBSIDIARY BORROWER AGREEMENT THIS FOREIGN SUBSIDIARY BORROWER AGREEMENT (this "Agreement"), dated as of September 26, 2005, is entered into by Chemagis (Germany) GmbH, an entity organized under the laws of the Federal Republic of Germany (the "New Foreign Subsidiary Borrower"), Perrigo Company (the "U.S. Borrower") and JPMorgan Chase Bank, N.A., as Administrative Agent, pursuant to the Credit Agreement (as amended or modified from time to time, the "Credit Agreement"), dated as of March 16, 2005, among the U.S. Borrower, the Foreign Subsidiary Borrowers party hereto, the Lenders party hereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank Leumi USA, as Syndication Agent, and Bank Of America, N.A., Standard Federal Bank N.A. and National City Bank Of The Midwest as Documentation Agents. WITNESSETH: WHEREAS, the parties to this Foreign Subsidiary Borrower Agreement wish to designate the New Foreign Subsidiary Borrower as a Foreign Subsidiary Borrower under the Credit Agreement in the manner hereinafter set forth; and WHEREAS, this Foreign Subsidiary Borrower Agreement is entered into pursuant to the Credit Agreement; NOW, THEREFORE, in consideration of the premises, the parties hereto hereby agree as follows: 1. The New Foreign Subsidiary Borrower hereby acknowledges that it has received and reviewed a copy of the Credit Agreement and the other Loan Documents and unconditionally agrees to: (a) join the Credit Agreement and the other Loan Documents as a Foreign Subsidiary Borrower, (b) be bound by, and hereby ratifies and confirms, all covenants, agreements, consents, submissions, appointments, acknowledgments and other terms and provisions attributable to a Foreign Subsidiary Borrower in the Credit Agreement and the other Loan Documents; and (c) perform all obligations required of it as a Foreign Subsidiary Borrower by the Credit Agreement and the other Loan Documents. 2. The New Foreign Subsidiary Borrower hereby represents and warrants to the Agents and the Lenders that: (a) The New Foreign Subsidiary Borrower is a Wholly-Owned Subsidiary of the U.S. Borrower and satisfies all conditions to becoming a Foreign Subsidiary Borrower under the Credit Agreement. (b) The representations and warranties with respect to it contained in, or made or deemed made by it in, the Credit Agreement and any other Loan Document are true and correct in all material respects on the date hereof. (c) The execution, delivery and performance by the New Foreign Subsidiary Borrower of this Agreement are within its corporate powers and have been duly authorized by all necessary corporate, stockholder and other action. This Agreement has been duly executed and delivered by the New Foreign Subsidiary Borrower and constitutes a legal, valid and binding obligation of the New Foreign Subsidiary Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. (d) The execution, delivery and performance by the New Foreign Subsidiary Borrower of this Agreement (i) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (ii) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the New Foreign Subsidiary Borrower or any of its Subsidiaries or any order of any Governmental Authority, (iii) will not violate or result in a default under any indenture, agreement or other instrument binding upon the New Foreign Subsidiary Borrower or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the New Foreign Subsidiary Borrower or any of its Subsidiaries, and (iv) will not result in the creation or imposition of any Lien on any asset of the New Foreign Subsidiary Borrower or any of its Subsidiaries. (e) The address and jurisdiction of incorporation of the Foreign Subsidiary Borrower is set forth in Schedule A to this Agreement. 3. The U.S. Borrower represents and warrants to the Agents and the Lenders that (a) no Default shall have occurred and be continuing hereunder as of the date hereof; and (b) the representations and warranties made by the Borrowers and contained in Article III of the Credit Agreement are true and correct in all material respects on and as of the date hereof with the same effect as if made on and as of such date (other than those representations and warranties that by their terms speak as of a particular date, which representations and warranties shall be true and correct in all material respects as of such particular date). 4. The U.S. Borrower and each other Guarantor agrees that its Guaranty shall remain in full force and effect after giving effect to this Foreign Subsidiary Borrower Agreement, including without limitation after including the New Foreign Subsidiary Borrower as a Foreign Subsidiary Borrower under the Credit Agreement. 5. The New Foreign Subsidiary shall be entitled to obtain Revolving Loans. 6. The New Foreign Subsidiary Borrower shall not become a Foreign Subsidiary Borrower under the Credit Agreement until (a) this Agreement is signed by all parties hereto and by the Administrative Agent and where indicated below and (b) the Administrative Agent shall have received such documents (including legal opinions) and certificates as the Administrative Agent or its counsel may reasonably request relating to the formation, existence and good standing of the New Foreign Subsidiary Borrower, the authorization of Borrowings as they relate to the New Foreign Subsidiary Borrower and any other legal matters relating to the New Foreign Subsidiary Borrower and this Agreement, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel. 7. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Credit Agreement. This Foreign Subsidiary Borrower Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. Except as expressly amended hereby, each Borrower agrees that the Credit Agreement and the other Loan Documents are ratified and confirmed and shall remain in full force and effect, and that it has no set off, counterclaim, or defense with respect to any of the foregoing. This Foreign Subsidiary Borrower Agreement may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Foreign Subsidiary Borrower Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Foreign Subsidiary Borrower Agreement. This Foreign Subsidiary Borrower Agreement shall be governed by, and construed in accordance with, the law of the State of Michigan. 2 IN WITNESS WHEREOF, each of the undersigned has caused this Foreign Subsidiary Borrower Agreement to be duly executed and delivered as of the day and year set forth above. Chemagis (Germany) GmbH, as a Foreign Subsidiary Borrower By /s/ Dr. Holger Faasch ------------------------------------- Name: Dr. Holger Faasch Title: General Manager PERRIGO COMPANY, as the U.S Borrower By /s/ James R. Ondersma ------------------------------------- Name: James R. Ondersma Title: Treasurer L. PERRIGO COMPANY, as a Guarantor By /s/ James R. Ondersma ------------------------------------- Name: James R. Ondersma Title: Treasurer PERRIGO COMPAY OF SOUTH CAROLINA, INC. as a Guarantor By /s/ James R. Ondersma ------------------------------------- Name: James R. Ondersma Title: Treasurer PERRIGO PHARMACEUTICALS COMPANY, as a Guarantor By /s/ James R. Ondersma ------------------------------------- Name: James R. Ondersma Title: Treasurer PERRIGO INTERNATIONAL, INC. as a Guarantor By /s/ James R. Ondersma ------------------------------------- Name: James R. Ondersma Title: Treasurer 3 PERRIGO INTERNATIONAL HOLDINGS, INC. as a Guarantor By /s/ James R. Ondersma ------------------------------------- Name: James R. Ondersma Title: Treasurer Acknowledged and Consented to: JPMORGAN CHASE BANK, N.A., as Administrative Agent By /s/ Christopher C. Cavaiani ------------------------------------- Name: Christopher C. Cavaiani Title: Vice President 4 SCHEDULE A ADMINISTRATIVE INFORMATION Jurisdiction of organization: Germany Address: Chemagis (Germany) GmbH Rheingaustrasse 190-196 65203 Wiesbaden, Germany 5 EX-31 4 c99334exv31.txt CERTIFICATIONS Exhibit 31 CERTIFICATION I, David T. Gibbons, certify that: 1. I have reviewed this report on Form 10-Q of Perrigo Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 26, 2005 /s/ David T. Gibbons ------------------------------------------ David T. Gibbons Chairman of the Board, President and Chief Executive Officer Exhibit 31 CERTIFICATION I, Douglas R. Schrank, certify that: 1. I have reviewed this report on Form 10-Q of Perrigo Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end the period covered by this report based on such evaluation; and d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 26, 2005 /s/ Douglas R. Schrank ----------------------------------------- Douglas R. Schrank Executive Vice President and Chief Financial Officer EX-32 5 c99334exv32.txt CERTIFICATIONS Exhibit 32 THE FOLLOWING STATEMENT IS BEING MADE TO THE SECURITIES AND EXCHANGE COMMISSION SOLELY FOR THE PURPOSES OF SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350), WHICH CARRIES WITH IT CERTAIN CRIMINAL PENALTIES IN THE EVENT OF A KNOWING OR WILLFUL MISREPRESENTATION. Securities and Exchange Commission 450 Fifth Street NW Washington, DC 20549 Re: Perrigo Company Ladies and Gentlemen: In accordance with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 USC 1350), each of the undersigned hereby certifies that: (i) this Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (ii) the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Perrigo Company. Dated as of this 26th day of October, 2005. /s/ David T. Gibbons /s/ Douglas R. Schrank - -------------------------------------- -------------------------------------- David T. Gibbons Douglas R. Schrank Chairman of the Board, President and Executive Vice President and Chief Executive Officer Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----