Perrigo Company plc — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request references Q4, this filing is an annual report; the provided text does not give a clear standalone fourth-quarter income statement.
Business context
Perrigo completed its shift toward consumer self-care after selling its generic prescription pharmaceuticals business in July 2021. Continuing operations comprise Consumer Self-Care Americas (CSCA) and Consumer Self-Care International (CSCI). The company also agreed to acquire HRA Pharma, with closing expected in the first half of 2022, and agreed to sell its Latin American businesses.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $4,138.7 million | $4,088.2 million |
| Gross profit / margin | $1,416.2 million / 34.2% | $1,494.9 million / 36.6% |
| Operating income / margin | $410.4 million / 9.9% | $265.2 million / 6.5% |
| Continuing operations income (loss) | $(130.9) million | $44.2 million |
| Net income (loss) | $(68.9) million | $(162.6) million |
| Net cash from operating activities | $156.3 million | $636.2 million |
Sales rose 1%, while gross margin fell 2.4 percentage points, reflecting lower production and unfavorable overhead absorption, higher freight and input costs, and product mix. Operating income benefited substantially from the $417.6 million Omega arbitration award recorded as a reduction in operating expenses; it also included $173.1 million of impairment charges, primarily related to the planned Latin America sale and CSCI goodwill. The continuing-operations tax expense was $389.6 million, including the $307.5 million cash settlement of the Irish tax assessment. These unusual items materially affect comparisons of reported earnings.
Cash and cash equivalents were $1,864.9 million at year-end, compared with $631.5 million a year earlier. Total borrowings outstanding were $3,520.5 million, including $603.8 million classified as current; the $600 million term loan was due in August 2022. The company had no borrowings outstanding under its $1.0 billion revolver at year-end. It paid $129.6 million in dividends and reported $156.3 million of operating cash flow. Expected capital expenditures for the next 12 months were $100–$140 million.
The company received lender waivers after leverage covenant non-compliance in 2021 and amended the covenants: the maximum leverage ratio was temporarily raised to 5.75x for Q4 2021 and Q1 2022, then set to return to 3.75x in Q2 2022. Perrigo reported compliance with debt covenants at December 31, 2021. Moody’s and S&P downgraded its ratings to below investment grade in Q3; Fitch rated it BBB- with a negative outlook at year-end.
Changes versus prior year
- Consolidated sales increased $50.5 million; CSCA was essentially flat at $2,693.1 million, while CSCI sales rose 3.6% to $1,445.6 million, including favorable currency translation.
- CSCA operating income declined to $206.5 million from $465.0 million, with lower gross profit and the Latin America impairment. CSCI operating income increased to $36.1 million from $32.3 million.
- Operating cash flow fell $479.9 million, mainly due to earnings adjustments and working-capital movements, including accounts receivable and tax payments.
- The RX divestiture generated approximately $1.5 billion in net sale proceeds. The $417.6 million Omega award and the Irish tax settlement were significant one-time cash and earnings events.
Outlook, risks, and contingencies
Management expected supply-chain conditions to improve through 2022 but said disruption, freight constraints, inflation, and higher input costs would continue in the near term. Pricing actions and cost reductions were among the mitigation measures. Consumer demand for cough, cold, and pain products had rebounded as restrictions eased, but demand remained dependent on the pandemic and seasonal illness patterns. The filing provides no specific consolidated revenue or earnings guidance in the text presented.
HRA Pharma’s approximately €1.8 billion enterprise value purchase was expected to be funded with cash and, depending on market conditions, existing credit capacity or new debt. The Latin America divestiture was expected to close in the first half of 2022. Key risks include acquisition execution and financing, debt and covenant capacity, supply-chain reliability, customer concentration (Walmart represented 14% of 2021 sales), regulatory and product-quality matters, foreign exchange, and further impairment risk. CSCI goodwill fair value exceeded carrying value by less than 10%, making it sensitive to higher discount rates or weaker performance.
Material unresolved matters include U.S. IRS disputes involving transfer pricing and interest deductibility, generic-drug price-fixing litigation, talc and ranitidine product-liability claims, and insurance coverage litigation. Perrigo reported $96.9 million of litigation accruals and a $79.0 million insurance recovery receivable at year-end; ultimate losses and insurance recovery remain uncertain. The Irish tax assessment dispute was settled, and the related U.S. securities class action settlement was funded by insurance and received final approval in February 2022.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Goodwill valuation and uncertain tax positions were identified as critical audit matters.
Investor facts to verify
- How much of the reported operating-income improvement is attributable to the Omega award, and what are underlying operating trends excluding unusual items?
- Whether supply-chain actions restore shipments and margins, and whether input-cost increases can be passed through to customers.
- HRA Pharma’s closing, financing mix, integration costs, and realized benefits; and completion economics of the Latin America sale.
- Debt refinancing and covenant headroom, especially around the 2022 term-loan maturity and the return to tighter leverage limits.
- Potential cash exposure from IRS disputes and litigation, and whether insurance recoveries are ultimately collectible.
- Cash conversion and working-capital needs, given the substantial year-over-year decline in operating cash flow.