Perrigo Company plc Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed on April 25, 2017, by Perrigo Company plc, an Ireland-based pharmaceutical company. The report addresses significant accounting restatements, amendments to credit facilities, and the redemption of senior notes. The filing covers events occurring primarily in April 2017, with retrospective impacts on financial periods dating back to fiscal year 2014.
Key Financial Metrics and Obligations
- Debt Redemption: The Company issued a notice to redeem $600.0 million in aggregate principal amount of 2.300% senior notes due 2018. The redemption is expected to occur on May 8, 2017, funded by proceeds from the sale of the Tysabri royalty stream.
- Deferred Tax Assets: Approximately $220 million in deferred tax assets were identified related to the 2015 acquisition of Omega Pharma Invest N.V., requiring a reduction of goodwill and net deferred tax liabilities.
- Revenue Recognition: The filing does not provide specific revenue or profit figures for the current period, noting only that preliminary unaudited net sales results for the quarter ended April 1, 2017, were released in a separate press release (Exhibit 99.1).
- Cash Flow Impact: Management does not expect the accounting changes to have a material impact on net cash flows. However, cash received from the Tysabri royalty stream will be reclassified from operating activities to investing activities in restated statements.
Material Changes and Accounting Restatements
The Company announced a non-reliance on previously issued financial statements for fiscal years 2014 and 2015, the transition period ended December 31, 2015, and various quarterly periods through October 1, 2016. This follows a correction in accounting under U.S. GAAP regarding the Tysabri royalty stream.
- Tysabri Reclassification: The Tysabri royalty stream, previously recorded as an intangible asset with revenue recognized in net sales, is being reclassified as a financial asset. Consequently, royalty payments will be removed from net sales, and changes in fair value will be recorded in other income/expense.
- Amendments to Credit Agreements: On April 19, 2017, the Company amended its Revolving Credit Agreement and Term Loan Credit Agreement. These amendments modify the definition of "Consolidated EBIT" to address valuation adjustments related to Tysabri and include waivers for any defaults arising from the required restatements of financial statements.
Outlook, Risks, and Management Commentary
Management anticipates filing a Form 10-K for the fiscal year ended December 31, 2016, containing audited restated financial statements, as well as amended Form 10-Qs for specific quarterly periods. The Company is currently assessing its internal controls over financial reporting and acknowledges the possibility of identifying one or more material weaknesses.
Key Risks and Contingencies:
- Internal Controls: Potential identification of material weaknesses in internal controls could delay the completion of restatements or filings.
- Regulatory Compliance: Risks include the inability to regain compliance with NYSE continued listing rules and potential breaches of Irish company legislation regarding prior financial statements.
- Financial Adjustments: The Company may incur additional tax liabilities for 2016 and prior years, as well as unanticipated material issues or additional adjustments during the restatement process.
- Leadership Changes: Ronald L. Winowiecki was appointed as the Company's principal accounting officer and acting Chief Financial Officer effective April 19, 2017.
Investor Verification Checklist
- Verify the specific impact of the Tysabri reclassification on historical net sales and earnings per share once the restated 10-K and 10-Qs are filed.
- Confirm the successful redemption of the $600 million 2.300% senior notes on May 8, 2017.
- Monitor the Company's assessment of internal controls for the disclosure of any material weaknesses.
- Review the amended credit agreements (Exhibits 10.1 and 10.2) for specific covenant modifications related to the EBIT definition.
- Check for any additional tax liabilities or penalties arising from the restatement of prior periods.