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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The following Management's Discussion and Analysis ("MD&A") is intended to provide readers with an understanding of our financial condition, results of operations, and cash flows by focusing on changes in certain key measures from year to year. This MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and accompanying Notes found in Item 8 of this report. See also "Cautionary Note Regarding Forward-Looking Statements." This discussion and analysis compares 2022 results to 2021. For discussion and analysis that compares 2021 results to 2020, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7. of our Annual Report on Form 10-K for the year ended December 31, 2021.

EXECUTIVE OVERVIEW

We are a leading provider of over-the-counter ("OTC") health and wellness solutions that are designed to enhance individual well-being and empower consumers to proactively prevent or treat conditions that can be self-managed. Our vision is to make lives better by bringing Quality, Affordable Self-Care Products that consumers trust everywhere they are sold. We are headquartered in Ireland and sell our products primarily in North America and Europe as well as in other markets around the world.

Our core competencies are geared to fully take advantage of the massive global trend towards self-care. We define self-care as not just treating disease or helping individuals feel better after taking a product, but also maintaining and enhancing their overall health and wellness. Consistent with our vision, we recently completed our three-year strategy to transform the Company into a consumer self-care leader by reconfiguring our portfolio through the divestiture of our Rx business in 2021 and acquiring Héra SAS (“HRA Pharma”) in 2022. Additionally, we removed significant uncertainty in 2021 through final settlement of the Irish Revenue Notice of Amended Assessment. Upon completion of our transformation, we have transitioned our strategy to ‘Optimizing’ its business and ‘Accelerating’ profitable growth. Several initiatives are anticipated to propel this strategy, including plans to achieve significant synergies from our acquisitions and implementation of our Supply Chain Reinvention Program. In addition, we continue to invest in other initiatives, including innovation, information systems and tools, and our people to drive consistent and sustainable results in line with consumer-packaged goods peers.

Our fiscal year begins on January 1 and ends on December 31. We end our quarterly accounting periods on the Saturday closest to the end of the calendar quarter, with the fourth quarter ending on December 31 of each year.

Our Segments

Our reporting and operating segments reflect the way our chief operating decision maker, who is our CEO, makes operating decisions, allocates resources and manages the growth and profitability of the Company. Our reporting and operating segments are:

•Consumer Self-Care Americas ("CSCA") comprises our consumer self-care business in the U.S. and Canada. CSCA previously included our Latin American businesses until they were disposed on March 9, 2022.

•Consumer Self-Care International ("CSCI") comprises our consumer self-care business outside of the U.S. and Canada, primarily in Europe and Australia.

For information on each segment, our business environment, and competitive landscape, refer to Item 1. Business. For results by segment and geographic locations see below Segment Results and Item 8. Note 2 and Note 20.

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Executive Overview

Recent Highlights

Market Factors

Economic Uncertainty

While many consumer self-care market factors from the COVID-19 pandemic are trending towards a "new normal" , current macroeconomic conditions remain very dynamic, including impacts from rising inflation and interest rates, volatile changes in foreign currency exchange rates, political unrest, and legislative and regulatory changes. Any causes of market size contraction could reduce our sales or erode our operating margin and consequently reduce our net earnings and cash flows.

Inflationary Costs and Supply Chain

Supply chain disruptions, including constraints in availability of freight containers and truck drivers, record delays at global shipping ports, and volatility in both cost and availability of agricultural, oil and paper based commodities driven by the war in Ukraine has led to higher unfulfilled customer orders and higher input costs. Additionally, we experienced employment vacancies and attrition as the labor market negatively impacted productivity and drove the need for wage rate increases and other retention benefits. We implemented a series of actions to substantially mitigate these and other inflationary cost pressures such as strategic pricing and our Supply Chain Reinvention Program. Benefits from our actions are anticipated to substantially offset inflationary pressures, however, the duration and extent of inflation pressure, including impacts from the war in Ukraine, changes in labor market availability and wage rates, as well as the acceptance of any further pricing actions we may take in the markets we operate, is uncertain.

Impact of COVID-19 Pandemic

The COVID-19 global pandemic, and actions to slow such outbreaks and the emergence of any new variants, have impacted, and continue to impact, our business and the global self-care markets in which we sell our products. This evolution may contribute to economic recessions or a slowdown of economic growth in certain countries or globally, which may impact demand for our products, some of which may be more than temporary. COVID-19 has and could lead to future volatility in consumer preferences and access to our products (due to government actions or key material, transportation and labor shortages impacting our ability to produce and ship products), or impact consumers’ movements and access to our products.

War in Ukraine

The invasion of Ukraine by Russia and resulting economic and political sanctions imposed by the United States, United Kingdom, European Union, and other countries on Russia, Belarus, and occupied regions in Ukraine have negatively impacted our results from operations in the region. We currently have 90 employees working in our Ukraine subsidiary. We do not have a subsidiary or employees in Russia. We have no manufacturing facilities in either Russia or Ukraine and we previously sold products into Russia entirely through distributors. In March 2022, we halted all sales to distributors in Russia and sales in Ukraine were severely depressed. For the year ended December 31, 2022, Ukraine operations accounted for approximately $9 million of net sales, $6 million of gross profit, and $2 million of operating income, and there were no sales in Russia. During 2021, these countries accounted for approximately $27 million of net sales, $15 million of gross profit, and $8 million of operating income combined. Future impacts are difficult to predict due to the high level of uncertainty related to the war’s duration, evolution and resolution. If the conflict spreads or materially escalates, or economic conditions deteriorate, the impact on our business and results of operations could be material.

Foreign Exchange

We have both translation and transaction exposure to the fluctuation of exchange rates. Translation exposures relate to exchange rate impacts of measuring income statements of foreign subsidiaries that do not use the U.S. dollar as their functional currency. Transaction exposures relate to 1) the impact from input costs that are denominated in a currency other than the local reporting currency and 2) the revaluation of transaction-related working capital balances denominated in currencies other than the functional currency. In 2022, significant exchange rate fluctuations, especially weakening of the Euro and the British Pound Sterling compared to the U.S. dollar had a significant foreign exchange impacts leading to lower net sales, net earnings and cash flows. Significant

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Executive Overview

exchange rate fluctuations, especially in the Euro or the British Pound Sterling, have had, and could continue to have, a significant impact on our net sales, net earnings and cash flows, and have significantly impacted our historical net sales, costs and net earnings and could do so in the future.

Acquisitions, Disposals and Restructuring

In March 2022 we completed the sale of our Latin American businesses to Advent International. This transaction was part of Perrigo's margin improvement and Project Momentum cost savings initiatives.

In April 2022 we completed the previously announced acquisition of HRA Pharma for €1.8 billion, or approximately $1.9 billion based on exchange rates at the time of closing. Upon completion of the acquisition, we updated our global reporting product categories. Refer to Item 8. Note 2 for further details.

In 2022, we initiated a Supply Chain Reinvention Program to reduce structural costs, improve profitability and our service levels to our retail partners, and strengthen our resiliency by streamlining and simplifying our global supply chain. Through this initiative, we plan to reduce portfolio complexity, invest in advanced planning capabilities, diversify sourcing, and optimize our manufacturing assets and distribution models. We have identified a total annual run-rate potential savings opportunity by the end of fiscal year 2028 of between an estimated $200 million to $300 million (not including related depreciation expense on capital investments) if all facets of the Program are successfully implemented and executed. To obtain these potential benefits, we anticipate incurring costs of between $350 million to $570 million by the end of fiscal year 2028 to complete the program implementation, including capital investments, restructuring expenses, and implementation costs. A significant portion of the annual run-rate potential savings of the Program, between $150 million to $200 million (not including related depreciation expense on capital investments), are anticipated by the end of fiscal year 2025, along with associated potential spend of between $300 million and $450 million. During the year ended December 31, 2022, we recorded total Supply Chain Reinvention Program restructuring and implementation charges of approximately $25 million, comprised primarily of consulting and severance expenses.

We initiated the first phase of our Supply Chain Reinvention Program by announcing on November 1, 2022, a $170 million strategic investment to expand and strengthen our U.S. infant formula manufacturing. This strategic investment included the $110 million purchase of Nestlé’s Gateway infant formula plant in Eau Claire, Wisconsin, along with the U.S. and Canadian rights to the GoodStart® infant formula brand and other related formula brands ("Gateway"), and an additional $60 million investment into the plant to expand its capacity. Refer to Item 8. Note 3 for further details of these transactions.

Indebtedness and Capital

In April 2022, we entered into new senior secured credit facilities as further explained in Item 8. Note 12. We used a portion of the proceeds to finance the acquisition of HRA Pharma and to repay our outstanding term loan facility. We also entered into several financing hedge activities to economically hedge the purchase price for HRA Pharma, fix the interest rate on a substantial portion of the 2022 financing agreements, and to reduce the Euro exposure of our net investment in European operations.

Tax Updates

On December 28, 2022, we reached an agreement with IRS Appeals providing for settlement of a Notice of Proposed Adjustment ("NOPA") issued on December 11, 2019. The NOPA proposed to disallow reductions to gross sales income on the sale of prescription products to wholesalers for accrued wholesale customer pipeline chargebacks where the prescription products were not re-sold by such wholesalers to covered retailers by the end of the tax year. The settlement agreement resolved this issue for all tax years through 2021, the last tax year with chargebacks due to the sale of the Rx business in July 2021. The required settlement payment of $8.3 million was fully covered by reserves for this issue. Refer to Item 8. Note 18 for additional information and Item 1A. Risk Factors - Tax Related Risks for risks associated with tax disputes.

RESULTS OF OPERATIONS

Currency Translation

Currency translation effects described below represent estimates of the net differences between translation of foreign currency transactions into U.S. dollars for the year ended December 31, 2022 at the average exchange rates for the reporting period and average exchange rates for the year ended December 31, 2021.

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Consolidated

CONSOLIDATED

Consolidated Financial Results

Year Ended

(in millions, except percentages) December 31, 2022 December 31, 2021

Operating income % 1.8 % 9.9 %

Net sales increased $312.9 million, or 7.6%, due to:

•$354.8 million increase, or 8.8%, due primarily to $155.9 million in strategic pricing actions and $140.5 million stemming from global category growth and U.S. store brand market share gains resulting in higher net sales across several Perrigo global product categories. These include increases in Upper Respiratory due to a strong global cough, cold and flu season and the U.S. launch of Nasonex®24HR, Nutrition due primarily to benefits from the recall of a national brand infant formula manufacturer and Skin Care due primarily to new products and anti-parasite offerings. An incremental six months of contract manufacturing sales to the divested Rx business, which closed on July 6, 2021, also contributed $62.0 million of net sales; and

•$236.3 million increase from our acquisitions of HRA Pharma and Gateway, inclusive of a $23.9 million unfavorable effect of currency translation; partially offset by

•$193.2 million decrease from unfavorable foreign currency translation excluding acquisitions; and

•$85.6 million decrease from the divestitures of the Latin American businesses and ScarAway® brand asset.

Operating income decreased $331.5 million, or 80.8%, due to:

•$39.2 million increase in gross profit driven by higher gross profit flow-through resulting from higher net sales, $104.2 million from the addition of HRA Pharma and Gateway, partially offset by $122.0 million of cost of goods sold inflation and freight, and lower productivity, and $94.0 million of unfavorable foreign currency translation excluding acquisitions, as well as divestitures of the Latin American businesses and ScarAway® brand asset. Gross profit as a percentage of net sales decreased 150 basis points compared to the prior year due to acquisition related inventory values stepped up to fair value, partially offset by the same factors that drove gross profit.

•$370.7 million increase in operating expenses due primarily to:

•The absence of the $417.6 million Omega arbitration award received in the prior year;

•$151.9 million increase from the addition of HRA Pharma and Gateway; and

•$56.0 million increase due primarily to increased distribution, higher employee expenses; and

•$25.6 million of higher restructuring expenses in the current year; partially offset by

•$63.0 million decrease from foreign currency translation excluding acquisitions; and

•$173.1 million of prior year impairment charges primarily related to the divested Latin American businesses, and $14.2 million decrease from the divestitures of the Latin American businesses and ScarAway® brand asset, and approximately $44.3 million of lower litigation expense.

Impairments

During the year ended December 31, 2022, we recorded a loss from disposal of a fixed asset of $4.6 million in our Unallocated segment. During the year ended December 31, 2021, we recorded an impairment associated with our CSCA Latin American divestiture announcement totaling $162.2 million, of which $6.1 million related to goodwill and the remainder related to assets held-for-sale. Also during the year ended December 31, 2021, we recorded an impairment within our annual impairment testing on our CSCI Oral Care International reporting unit totaling $10.0 million of goodwill and $0.9 million of IPR&D.

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Consolidated

CONSUMER SELF-CARE AMERICAS

Segment Financial Results

Year Ended

(in millions, except percentages) December 31, 2022 December 31, 2021

Operating income % 12.5 % 7.7 %

Net sales increased $232.8 million, or 8.6% due to:

•$247.4 million increase, or 9.5%, due primarily to strategic pricing actions, total category growth, and store brand market share gains versus national brands and store brand competitors. Growth was achieved across several product categories, including Upper Respiratory due to a strong cough, cold and flu season and the launch of Nasonex®24HR, and Nutrition due primarily to benefits from the recall of a national brand infant formula manufacturer. An incremental six months of contract manufacturing sales to the divested Rx business, which closed on July 6, 2021, also contributed $62.0 million of net sales. These drivers also benefited from e-commerce growth and other new products; and

•$71.5 million increase from the additions of HRA Pharma and Gateway; partially offset by

•$85.5 million decrease from the divestitures of the Latin American businesses and the ScarAway® brand asset; and

•$0.7 million decrease from foreign currency translation excluding acquisitions.

CSCA net sales by product category were as follows:

Sales Year Ended

Vitamins, Minerals, and Supplements ("VMS") 27.9 31.7 (3.8) (12.0) %

(1) The Company updated its global reporting product categories during 2022. These product category updates have been adjusted retroactively to reflect the changes. Refer to Item 8. Note 2

Sales in each category were driven primarily by:

•Upper Respiratory: Net sales of $564.6 million increased 16.9% due primarily to higher demand for cough/cold products stemming from elevated and sustained incidences of RSV, flu and COVID throughout most of the year, demand for allergy products and the successful launch of Nasonex®24HR; partially offset by the divestiture of the Latin American businesses;

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CSCA

•Nutrition: Net sales of $520.4 million increased 29.5% driven by strong growth in contract and store brand infant formula, both of which benefited in part from a national brand recall and the acquisition of the GoodStart® infant formula brand;

•Digestive Health: Net sales of $495.5 million increased 4.3% due primarily to increased manufacturing capacity and demand for Polyethylene Glycol 3350 as well as new products, including Omeprazole Cool Mint and orange flavored Polyethylene Glycol 3350; partially offset by the divestiture of the Latin American businesses;

•Pain and Sleep-Aids: Net sales of $412.2 million increased 1.7% due primarily to higher demand for children's analgesics products stemming from elevated and sustained incidences of RSV, flu and COVID; partially offset by the divestiture of the Latin American businesses;

•Oral Care: Net sales of $312.9 million increased 0.3% due primarily to higher net sales in the store brand business that were offset by supply chain disruptions, including delayed receipt of products manufactured outside the U.S. that led to unfulfilled customer orders in the first half of 2022, and the purposeful loss of distribution of relatively lower margin products at a specific customer;

•Healthy Lifestyle: Net sales of $288.9 million decreased 2.1% due primarily to the discontinuation of diabetes products;

•Skin Care: Net sales of $187.8 million increased 2.2% due primarily to the addition of HRA Pharma brands; partially offset by the divested ScarAway® brand asset and discontinued products;

•Women's Health: Net sales of $45.2 million increased 18.3% due primarily to the addition of HRA Pharma brands, including ellaOne®;

•VMS and Other: Net sales of $98.4 million decreased 0.4% due primarily to the divestiture of Latin American businesses.

Operating income increased $159.6 million, or 77.3%, due primarily to:

•$22.1 million increase in gross profit, driven by higher gross profit flow-through resulting from net sales growth, $34.0 million from the addition of HRA Pharma and Gateway inclusive of unfavorable foreign currency translation, partially offset by $75.1 million of inflation, including higher freight & distribution expenses, and lower productivity, and $23.7 million from the divestitures of the Latin American businesses and ScarAway® brand asset. Gross profit as a percentage of net sales decreased 210 basis points compared to the prior year due to inflation, lower productivity, and the addition of third party sales to the divested Rx business, which have a lower margin profile.

•$137.5 million decrease in operating expenses due primarily to the absence of $162.2 million of prior year impairment charges and operating expenses related to the divested Latin American businesses; partially offset by $25.0 million from the additions of HRA Pharma and Gateway and increased distribution and selling expenses.

CONSUMER SELF-CARE INTERNATIONAL

Segment Financial Results

Year Ended

(in millions, except percentages) December 31, 2022 December 31, 2021

Operating (loss) income $ (30.0) $ 36.1

Operating (loss) income % (2.0) % 2.5 %

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CSCI

Net sales increased $80.1 million, or 5.5% due to:

•$107.9 million, or 7.5%, net increase driven primarily by strategic pricing actions, holding market share in growing categories resulting in higher net sales across several CSCI product categories, including Upper Respiratory due to a strong global cough, cold and flu season and Skin Care due primarily to new products and anti-parasite offerings. These drivers also benefited from e-commerce growth and new product sales, and;

•the addition of $164.8 million from HRA Pharma, inclusive of a $23.8 million unfavorable effect of currency translation; partially offset by

•$192.6 million decrease from unfavorable foreign currency translation excluding acquisitions.

CSCI net sales by product category were as follows:

Sales Year Ended

(1) The Company updated its global reporting product categories during 2022. These product category updates have been adjusted retroactively to reflect the changes. Refer to Item 8. Note 2

Sales in each category were driven primarily by:

•Skin Care: Net sales of $432.2 million increased 14.2%, inclusive of a 18.0% unfavorable effect of currency translation, driven primarily by increased market share in the ACO skin care franchise and new product launches in the Sebamed skin care portfolio and increased net sales of anti-parasite products;

•Upper Respiratory: Net sales of $258.8 million increased 18.0%, inclusive of a 15.2% unfavorable effect of currency translation, due primarily to increased demand for both traditional and natural cough/cold products stemming from a strong cough/cold and flu season;

•VMS: Net sales of $191.8 million decreased 15.1%, inclusive of a 10.8% unfavorable effect of currency translation, due primarily to stronger performance of VMS products in the prior year and lower overall category consumption and net sales of Davitamon in the Netherlands; partially offset by solid performance of Abtei in Germany;

•Pain & Sleep-Aids: Net sales of $183.0 million decreased 1.0%, inclusive of a 11.4% unfavorable effect of currency translation, partially offset by higher demand for Solpadeine, an analgesics product, U.K. store brand products and Tiger Balm stemming from a strong cough/cold and flu season;

•Healthy Lifestyle: Net sales of $136.4 million decreased 21.3%, inclusive of a 9.2% unfavorable effect of currency translation, driven primarily by lower category consumption in weight management and smoking cessation;

•Women's Health: Net sales of $99.0 million increased 81.7%, inclusive of a 23.4% unfavorable effect of currency translation, due primarily to the acquisition of HRA Pharma;

•Oral Care: Net sales of $88.6 million decreased 5.7% inclusive of a 11.3% unfavorable effect of currency translation, due primarily to strong growth of store brand oral care products and Plackers®;

•Digestive Health and Other: Net sales of $135.9 million increased 17.7%, inclusive of a 20.3% unfavorable effect of currency translation, due primarily to the addition of the HRA Pharma Rare Diseases portfolio in the Other category.

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CSCI

Operating income decreased $66.1 million, or 183.1%, due to:

•$17.1 million increase in gross profit due primarily to strategic price increases, higher gross profit flow-through resulting from net sales growth, and $70.0 million from the addition of HRA Pharma, partially offset by unfavorable foreign currency translation excluding acquisitions and the impact of inflation. Gross profit as a percentage of net sales decreased 120 basis points due to lost market share on higher margin products offset by the addition of HRA Pharma; which was more than offset by

•$83.2 million increase in operating expenses due primarily to $113.6 from the addition of HRA Pharma and higher employee expenses, partially offset by $62.1 million from foreign currency translation excluding acquisitions.

Unallocated Expenses

Unallocated expenses are comprised of certain corporate services not allocated to our reporting segments and are recorded above Operating income on the Consolidated Statements of Operations. Unallocated expenses were as follows (in millions):

Year Ended

The increase of $425.0 million in unallocated expenses during the year ended December 31, 2022 compared to the prior year period was due primarily to the absence of the $417.6 million Omega Pharma Invest N.V. ("Omega") arbitration awarded in the prior year, partially offset by the absence of transaction fees associated with the sale of the Rx business and litigation expense incurred in the prior year. Additionally, the current year included higher acquisition expenses of $49.3 million associated with the HRA Pharma and Gateway acquisitions and initial expenses of $24.3 million associated with our Supply Chain Reinvention Program.

Interest expense, net, Other (income) expense, net and Loss on extinguishment of debt (Consolidated)

Year Ended

Other (income) expense, net $ 53.1 $ 26.7

Loss on extinguishment of debt $ 8.9 $ —

Interest Expense, net

The $31.0 million increase during the year ended December 31, 2022 compared to the prior year was due primarily to an increase in interest expense associated with an increase in outstanding borrowings under our New Senior Secured Credit Facilities and less interest income associated with lower cash balances.

Other (Income) Expense, Net

The $26.4 million increase in expense during the year ended December 31, 2022 compared to the prior year was due primarily to unfavorable changes in revaluation of foreign currency expense associated with the acquisition of HRA Pharma and termination expense of the forward currency options related to the acquisition of HRA Pharma.

Loss on extinguishment of debt

The $8.9 million loss on extinguishment of debt during the year ended December 31, 2022 is related to the write-off of certain new and previously deferred financing fees and make whole payments due in connection with repaying outstanding borrowings prior to maturity (refer to Item 8. Note 12).

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Unallocated, Interest, Other, and Taxes

Income Taxes (Consolidated)

The effective tax rates were as follows:

Year Ended

The effective tax rate on the pre-tax loss for the year ended December 31, 2022, decreased when compared to the effective tax rate on the pre-tax income for the year ended December 31, 2021, primarily due to the income tax expense on the settlement of the Irish Notice of Assessment recorded in 2021 as well as settlement in 2022 of a NOPA with the IRS resulting in a reduction of our liability for uncertain tax positions, offset in part by the Omega arbitration pre-tax income received in 2021, which was largely non-taxable.

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

Overview

We finance our operations with internally generated funds, supplemented by credit arrangements with third parties and capital market financing. We routinely monitor current and expected operational requirements and financial market conditions to evaluate other available financing sources including term and revolving bank credit and securities offerings. In determining our future capital requirements, we regularly consider, among other factors, known trends and uncertainties, such as the Notices of Proposed Adjustment ("NOPAs") from the IRS, the COVID-19 pandemic, the war in Ukraine, inflation and interest rates and other contingencies. We note that no payment of the additional amounts proposed by the IRS in the NOPAs is currently required, and no such payment is expected to be required, unless and until a settlement or other final determination of the matter is reached that is adverse to us. Refer to Item 8. Note 18 for additional information on the NOPAs. Based on the foregoing, management believes that our operations and borrowing resources are sufficient to provide for our short-term and long-term capital requirements, as described below. However, an adverse result with respect to our appeal of any material outstanding tax assessments or litigation, including securities or drug pricing matters and product liability cases, damages resulting from third-party claims, and related interest and/or penalties, could ultimately require the use of corporate assets to pay such assessments and any such use of corporate assets would limit the assets available for other corporate purposes. As such, we continue to evaluate the impact of the above factors on liquidity and may determine that modifications to our capital structure are appropriate if market conditions deteriorate, favorable capital market opportunities become available, or any change in conditions relating to the NOPAs, the COVID-19 pandemic, the war in Ukraine, inflation and interest rates or other contingencies have a material impact on our capital requirements.

We previously had an Rx segment which was comprised of our generic prescription pharmaceuticals business in the U.S. and other pharmaceuticals and diagnostic businesses in Israel, which have been divested. The Rx segment was reported as Discontinued Operations in 2021, and is presented as such for all periods in this report. Cash flows from discontinued operations are reported within the consolidated statement of cash flows, and select cash flow information related to discontinued operations are presented in Item 8. Note 4. We received $1.55 billion in cash upon the completion of the Rx business sale on July 6, 2021.

We also received $417.6 million in September 2021 relating to the claim arising from the 2015 Omega Acquisition. A portion of these proceeds were used for the settlement of the NoA dispute with Irish Revenue.

Cash and Cash Equivalents

Year Ended

(1) Working capital represents current assets less current liabilities, excluding cash and cash equivalents, assets and liabilities held for sale, and excluding current indebtedness.

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Financial Condition, Liquidity and Capital Resources

Cash, cash equivalents, cash flows from operations, and borrowings available under our credit facilities are expected to be sufficient to finance our liquidity and capital expenditures in both the short and long term. Although our lenders have made commitments to make funds available to us in a timely fashion under our revolving credit agreements and overdraft facilities, if economic conditions worsen or new information becomes publicly available impacting the institutions’ credit rating or capital ratios, these lenders may be unable or unwilling to lend money pursuant to our existing credit facilities. Should our outlook on liquidity requirements change substantially from current projections, we may seek additional sources of liquidity in the future.

Cash Flows

The following table includes summarized cash flow activities:

Year Ended

Net cash from (for) Operating Activities

The $151.0 million increase in operating cash inflow was primarily driven by a reduction in accounts receivable in 2022 compared to a significant increase in 2021, primarily related to timing of sales and receipt of payments. This was partially offset by higher inventory level as we invest to improve customer service, combined with lower demand for certain products and decrease in customer inventories and a decrease in cash flow from the change in net earnings after adjustments for non-cash operating items. Operating cash flows also benefited from a refund on the majority of the $45 million cash escrow deposit to the Israel Tax Authority in the prior year.

Net cash from (for) Investing Activities

The $3.2 billion decrease in cash from investing cash flow was due primarily to the $1.9 billion cash paid for the acquisitions of HRA Pharma in the current year and $1.4 billion of net differential cash received from the sale of our Rx business, partially offset by related hedging activities and other acquisitions, divestitures (refer to Item 8. Note 3) and asset transactions.

Capital expenditures totaled approximately $96 million in 2022. We anticipate 2023 capital expenditures to be between $125 million and $140 million, depending on the progression of Gateway infant formula plant investments, our Supply Chain Reinvention Program, and project timelines related to manufacturing productivity and efficiency upgrades, software and technology initiatives, and general plant maintenance. We expect to fund these estimated capital expenditures with funds from operating cash flows.

Net cash from (for) Financing Activities

The $600 million increase in financing cash flow was due primarily to a $1.6 billion increase from the entry into our New Senior Secured Credit Facilities and related financing fees. We used a portion of the proceeds from the New Senior Secured Credit Facilities to finance the acquisition of HRA Pharma and to repay outstanding borrowings totaling $959 million (refer to Item 8. Note 12). Additionally we increased our dividend payment by $12.8 million compared to the prior year.

Share Repurchases

In October 2018, our Board of Directors authorized up to $1.0 billion of share repurchases with no expiration date, subject to the Board of Directors’ approval of the pricing parameters and amount that may be repurchased under each specific share repurchase program. We did not repurchase any shares during the year ended December 31, 2022 or December 31, 2021. The future repurchase of shares, if any, is subject to the discretion of our Board of Directors and is currently not anticipated in the near term.

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Financial Condition, Liquidity and Capital Resources

Dividends

In January 2003, the Board of Directors adopted a policy of paying quarterly dividends. We paid dividends as follows:

Year Ended

Dividends paid (in millions) $ 142.4 $ 129.6

Dividends paid per share $ 1.04 $ 0.96

The declaration and payment of dividends, if any, is subject to the discretion of our Board of Directors and will depend on our earnings, financial condition, availability of distributable reserves, capital and surplus requirements, and other factors our Board of Directors may consider relevant.

Borrowings and Capital Resources

On April 20, 2022, we and our indirect wholly-owned subsidiary, Perrigo Investments, LLC (the "Borrower"), entered into the New Senior Secured Credit Facilities, which consist of (i) a $1.0 billion five-year revolving credit facility (the "2022 Revolver"), (ii) a $500 million five-year Term Loan A facility (the "2022 Term Loan A Facility"), and (iii) a $1.1 billion seven-year Term B facility (the "2022 Term Loan B Facility") and, together with the 2022 Revolver and 2022 Term Loan A Facility, the "New Senior Secured Credit Facilities", all pursuant to a new Term Loan and Revolving Credit Agreement (the "Credit Agreement"). The New Senior Secured Credit Facilities are guaranteed, along with any hedging or cash management obligations entered into with a lender and a limited amount of hedging or cash management obligations entered into with entities that are not lenders, by us and certain of our wholly-owned subsidiaries organized in the U.S., Ireland, Belgium, England and Wales (subject to certain exceptions) (the “Guarantor Subsidiaries” and together with the Company, the “Guarantors”). We refer to the Borrower and the Guarantors collectively as the “Loan Parties”. Refer to Item 8. Note 12. We also entered into several financing hedge activities to economically hedge the purchase price for HRA Pharma, fix the interest rate on a substantial portion of the 2022 financing agreements, and to reduce the Euro exposure of our net investment in European operations.

Our short term debt as of December 31, 2022 of $36.2 million is comprised of (i) principal payments of the 2022 Term Loan A Facility and the 2022 Term Loan B Facility and (ii) leases.

Term Loans and Notes

As of December 31, 2022, we had $1,588.3 million outstanding under our 2022 Term Loan A Facility and Term Loan B Facility. We had $600.0 million outstanding under our 2019 Term Loan as of December 31, 2021. We repaid the $600.0 million 2019 Term Loan with the proceeds of the New Senior Secured Credit Facilities during 2022. The remaining $500.0 million of proceeds were used to (i) redeem the 4.00% Senior Notes due 2023 and the 5.1045% Guaranteed Senior Notes due 2023, on May 19, 2022 (collectively, the “Redeemed Notes”), (ii) to fund a portion of the cash consideration payable in connection with the acquisition of HRA Pharma (Refer to Item 8. Note 3), and (iii) to pay related fees and expenses. Upon the repayment in full of loans under the 2019 Term Loan and termination of the 2018 Revolver, such facilities were terminated and all guarantees thereunder were released. Upon the redemption of the Redeemed Notes, the guarantees related thereto were released.

Loans under the New Senior Secured Credit Facilities bear interest at a rate equal to, at the Borrower’s option and depending on the currency borrowed, either the adjusted Term SOFR Rate, EURIBOR Rate, the prime lending rate or the daily simple RFR rate (each as defined in the Credit Agreement), in each case, plus an applicable margin. Applicable margins and fees are outlined below;

Applicable Margins

(1) Applicable margins are dependent upon our total net leverage ration

(2) Payable on the undrawn amount

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Financial Condition, Liquidity and Capital Resources

The Loan Parties’ obligations under the Credit Agreement are secured, subject to customary permitted liens and other exceptions, by a security interest in all tangible and intangible assets of the Loan Parties, except for certain excluded assets. We may make voluntary prepayments at any time without payment of a premium or penalty, subject to certain exceptions, and are required to make certain mandatory prepayments of outstanding indebtedness under the Credit Agreement in certain circumstances. Principal repayments of the 2022 Term Loan B Facility, which are due quarterly, began in September 2022 and are equal to 1.0% per annum of the original principal amount of the 2022 Term Loan B Facility incurred with any remaining balance payable on the maturity date. Principal repayments of the 2022 Term Loan A Facility, which are due quarterly, began in September 2022 and are equal to (i) for the first year anniversary of the Closing Date (as defined in the Credit Agreement), 2.5% per annum of the original principal amount of the 2022 Term Loan A Facility incurred and (ii) after the first year anniversary of the Closing Date, 5.0% per annum of the original principal amount of the 2022 Term Loan A Facility incurred, with any remaining balance payable on the maturity date. The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Borrower and its restricted subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of junior indebtedness and dividends and other distributions. The Credit Agreement contains financial covenants that require the Borrower and its restricted subsidiaries to (a) not exceed a maximum first lien secured net leverage ratio of 3.00 to 1.00 at the end of each fiscal quarter and (b) not fall below a minimum interest coverage ratio of 3.00 to 1.00 at the end of each fiscal quarter, provided that such covenants apply only to the 2022 Revolver and the 2022 Term Loan A Facility. The Credit Agreement also contains customary events of default relating to, among other things, failure to make payments, breach of covenants and breach of representations. If we consummate certain qualifying acquisitions during the term of the loan, the maximum first lien secured net leverage ratio covenant would increase to 3.25 to 1.00 for such quarter and the three following fiscal quarters thereafter.

Leases

We had $238.6 million and $199.1 million of lease liabilities and $239.1 million and $194.8 million of lease assets as of December 31, 2022 and December 31, 2021, respectively.

Available Resources

We have overdraft facilities available that we use to support our cash management operations. We report any balances outstanding in "Other Financing" in Item 8. Note 12. There were no borrowings outstanding under the overdraft facilities as of December 31, 2022 and December 31, 2021.

During 2022 we terminated the 2018 Revolver and entered into the 2022 Revolver. There were no borrowings outstanding under the 2022 Revolver as ofDecember 31, 2022 or December 31, 2021. We are subject to certain financial covenants in the 2022 Revolver and 2019 Term Loan. As of December 31, 2022, we were in compliance with all such covenants under our debt agreements.

Other Financing

On June 17, 2020, we incurred debt of $34.3 million related to our equity method investment in Kazmira pursuant to two promissory notes, with $3.7 million, $5.8 million and $24.8 million to be settled in November 2020, May 2021 and November 2021, respectively. On December 8, 2020, we repaid the $3.7 million balance due on the November 2020 portion of the Promissory Notes. During the year ended December 31, 2021, we repaid the $5.8 million balance due on the May 2021 portion of the Promissory Notes and the $24.8 million balance due on the November 2021 portion, settling the debt in full.

Credit Ratings

The interest of the 3.150% Senior Notes due 2030 stepped up from 3.900% to 4.400% on payments made after June 15, 2022 due to a credit ratings downgrade by S&P Global Ratings and Moody’s Investor Services in the first quarter of 2022. On December 31, 2022, our credit rating was Ba1 (negative), BB (stable), and BB+ (stable), by Moody's Investor Services, S&P Global Ratings, and Fitch Ratings Inc., respectively. Credit rating agencies review their ratings periodically and, therefore, the credit rating assigned to us by each agency may be subject to revision at any time. Accordingly, we are not able to predict whether current credit ratings will remain as disclosed above. Factors that can affect our credit ratings include changes in operating performance, the economic environment, our financial position, and changes in business strategy. If changes in our credit ratings were to occur, they could

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Financial Condition, Liquidity and Capital Resources

impact, among other things, future borrowing costs, access to capital markets, and vendor financing terms. A credit rating is not a recommendation to buy, sell or hold securities.

Guarantor Financial Information

The Guarantor Subsidiaries and the Borrower provide full and unconditional guarantees, jointly and severally, on a senior unsecured basis, of the 5.300% Notes due 2043 issued by the Company, and the Loan Parties provide full and unconditional guarantees, jointly and severally, on a senior unsecured basis, of the 3.900% Notes due 2024, the 4.375% Notes due 2026, the 4.400% Notes due 2030 and the 4.900% Notes due 2044 issued by Perrigo Investments, LLC.

The guarantees of the Guarantor Subsidiaries, the Company and the Borrower are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The guarantees of the Guarantor Subsidiaries, the Company and the Borrower rank senior in right of payment to any future subordinated indebtedness of the Company, equal in right of payment with all of the Company’s existing and future senior indebtedness and effectively subordinated to any of the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing such indebtedness.

Basis of Presentation

The following tables include summarized financial information of the obligor groups of debt issued by Perrigo Investments, LLC and Perrigo Company plc. The summarized financial information of each obligor group is presented on a combined basis with balances and transactions within the obligor group eliminated. Investments in and the equity in earnings of non-guarantor subsidiaries, which would otherwise be consolidated in accordance with U.S. GAAP, are excluded from the below summarized financial information pursuant to SEC Regulation S-X Rule 13-01.

The summarized balance sheet information for the consolidated obligor group of debt issued by Perrigo Investments, LLC and Perrigo Company plc is presented in the table below:

Year Ended

The summarized results of operations information for the consolidated obligor group of debt issued by Perrigo Investments, LLC and Perrigo Company plc is presented in the table below:

Year Ended

Operating Income (loss) $ (36.9) $ 342.2

Revenue from non-guarantors $ 274.7 $ 241.7

Operating Expenses to non-guarantors $ (0.7) $ 2.3

Other (income) expense to non-guarantors $ 105.8 $ (30.7)

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have a material current effect or that are reasonably likely to have a material future effect on our financial condition, changes in financial condition, net sales or expenses, results of operations, liquidity, capital expenditures, or capital resources.

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Financial Condition, Liquidity and Capital Resources

Contractual Obligations

Our enforceable and legally binding obligations as of December 31, 2022 are set forth in the following table. Some of the amounts included in this table are based on management’s estimates and assumptions about these obligations, including the duration, the possibility of renewal, anticipated actions by third parties and other factors. Because these estimates and assumptions are necessarily subjective, the enforceable and legally binding obligations actually paid in future periods may vary from the amounts reflected in the table (in millions):

Payment Due

Other contractual liabilities reflected on the consolidated balance sheets:

Deferred compensation and benefits (4) — — — 64.1 64.1

(1)Short-term and long-term debt includes interest payments, which were calculated using the effective interest rate at December 31, 2022.

(2)Consists of commitments for both materials and services.

(3)Used in normal course of business, principally for warehouse facilities and computer equipment.

(4)Includes amounts associated with non-qualified plans related to deferred compensation, executive retention and post-employment benefits. Of this amount, we have funded $35.4 million, which is recorded in Other non-current assets on the balance sheet. These amounts are assumed payable after five years, although certain circumstances, such as termination, would require earlier payment.

(5)Primarily includes consulting fees, legal settlements, restructuring accruals, insurance obligations, and electrical and gas purchase contracts, which were accrued in Other current liabilities and Other non-current liabilities at December 31, 2022 for all years.

We fund our U.S. qualified profit-sharing and investment plan in accordance with the Employee Retirement Income Security Act of 1974 regulations for the minimum annual required contribution and Internal Revenue Service regulations for the maximum annual allowable tax deduction. We are committed to making the required minimum contributions, which we expect to be approximately $37.9 million over the next 12 months. Future contributions are dependent upon various factors, including employees’ eligible compensation, plan participation and changes, if any, to current funding requirements. Therefore, no amounts were included in the Contractual Obligations table above. We generally expect to fund all future contributions with cash flows from operating activities.

As of December 31, 2022, we had approximately $417.4 million of liabilities for uncertain tax positions, including interest and penalties. These liabilities have been excluded from the Contractual Obligations table above, and the related tax benefits have not been recognized, due to uncertainty as to the amounts and timing of settlement with taxing authorities.

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, which affect the reported earnings, financial position and various disclosures. Critical accounting estimates involve a significant level of uncertainty and could have a material impact on results. These estimates are based on judgment and available information. Actual results could differ materially from the estimates.

Revenue Recognition

Net product sales include estimates of variable consideration for which accruals and allowances are established. Variable consideration for product sales consists primarily of rebates and other incentive programs recorded on the Consolidated Balance Sheets as Accrued customer programs. Where appropriate, these estimates take into consideration a range of possible outcomes in which relevant factors, such as historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns, are either probability-weighted to derive an estimate of expected value or the estimate reflects the single most likely outcome. Overall, these reserves reflect our best estimate of the amount of consideration to which we are entitled based on the terms of the contract. If actual results in the future vary from

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Critical Accounting Estimates

the estimates, these estimates are adjusted, which would affect revenue and earnings in the period such variances become known.

Income Taxes

Our tax rate is subject to adjustment over the balance of the year due to, among other things, income tax rate changes by governments; the jurisdictions in which our profits are determined to be earned and taxed; changes in the valuation of our deferred tax assets and liabilities; adjustments to estimated taxes upon finalization of various tax returns; adjustments to our interpretation of transfer pricing standards; changes in available tax credits, grants and other incentives; changes in stock-based compensation expense; changes in tax laws or the interpretation of such tax laws; changes in U.S. GAAP; expiration of or the inability to renew tax rulings or tax holiday incentives; and the repatriation of earnings with respect to which we have not previously provided taxes. For the year ended December 31, 2022, we recorded a net decrease in valuation allowances of $56.2 million, comprised primarily of a decrease in valuation allowance on deferred tax assets of our Latin American businesses which were sold in 2022.

Additionally, the final determination with respect to any tax audit, and any related litigation, could be materially different from our estimates or from our historical income tax provisions and accruals. Future period earnings may also be adversely impacted by litigation costs, settlements, penalties, and/or interest assessments (refer to Item 8. Note 18).

Legal Contingencies

We are involved in product liability, patent, commercial, regulatory and other legal proceedings that arise in the normal course of business. We record a liability when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range and no amount within that range is a better estimate, the minimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. We have established reserves for certain of our legal matters (refer to Item 8. Note 19). We do not incorporate insurance recoveries into our reserves for legal contingencies. We separately record receivables for amounts due under insurance policies when we consider the realization of recoveries for claims to be probable, which may be different than the timing in which we establish the loss reserves.

Acquisition Accounting

We account for acquired businesses using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at fair value, with limited exceptions. Any excess of the purchase price over the fair value of the specifically identified assets is recorded as goodwill. If the acquired net assets do not constitute a business, or substantially all of the fair value is in a single asset or group of similar assets, the transaction is accounted for as an asset acquisition and no goodwill is recognized. In an asset acquisition, acquired IPR&D with no alternative future use is charged to expense at the acquisition date.

Significant judgment is required in estimating the fair value of intangible assets and in assigning their respective useful lives. The acquired intangible assets can include customer relationships, trademarks, trade names, brands, developed product technology and IPR&D assets. For acquisitions accounted for as business combinations, IPR&D is considered to be an indefinite-lived intangible asset until the research is completed, at which point it then becomes a definite-lived intangible asset, or is determined to have no future use and is then impaired and charged to expense. There are several methods that can be used to determine the fair value of our intangible assets. We typically use an income approach to value the specifically identifiable intangible assets which is based on forecasts of the expected future cash flows. We have historically used a relief from royalty or multi-period excess earnings methodology. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management. We typically consult with an independent advisor to assist in the valuation of these intangible assets. Significant estimates and assumptions inherent in the valuations include discount rates, revenue growth assumptions and expected profit margins. We consider marketplace participant assumptions in determining the amount and timing of future cash flows along with the length of our customer relationships, attrition, product or technology life cycles, barriers to entry and the risk associated with the cash flows in concluding upon our discount rate. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, we may record adjustments to the purchase accounting. In addition, unanticipated market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and assumptions.

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Critical Accounting Estimates

Our assessment as to the useful lives of intangible assets is based on a number of factors including competitive environment, market share, trademark, brand history, underlying product life cycles, operating plans and the macroeconomic environment of the countries in which the trademarked or branded products are sold. Determining the useful life of an intangible asset requires judgement, as different assets will have different useful lives or may even have an indefinite life. Definite-lived intangible assets are amortized to expense over their estimated useful life.

Goodwill

Goodwill represents amounts paid for an acquisition of a business in excess of the fair value of net assets received. We perform annual goodwill impairment testing on the first day of the fourth quarter. Following the acquisition of HRA Pharma, we have an additional reporting unit representing the Rare Diseases pharmaceutical business. In addition, the respective HRA Pharma OTC consumer Americas and International businesses have been included with the existing CSCA and CSCI reporting units. As of December 31, 2022, we have three reporting units. Our CSCA operating segment is equivalent to our CSCA reporting unit. Our CSCI operating segment includes two reporting units, CSCI and Rare Diseases.

The test for impairment requires us to make several significant assumptions that impact our estimate of the fair value of a reporting unit, including the perpetual growth rate and discount rate. These assumptions are considered critical due to the sensitivity of changes in these assumptions to the related estimate of fair value. The discount rates used in testing each of our reporting units’ goodwill for impairment during our testing were based on the weighted average cost of capital determined for each of our reporting units. In our annual impairment test as of October 2, 2022, discount rates ranged from 10.25% to 11.00%, and perpetual growth rates were 2.50%. In our annual impairment test as of October 3, 2021, discount rates ranged from 7.75% to 9.75%, and perpetual growth rates were 2.50%.

The cash flow forecasts used for our reporting units include assumptions about future activity levels in the near term and longer-term. If growth in our reporting units is lower than expected, we may experience deterioration in our cash flow forecasts that may indicate goodwill in one or more reporting units is impaired in future impairment tests. An increase in the discount rate could negatively impact the estimated fair value of the reporting units and lead to future impairment. Certain macroeconomic factors which are not controlled by the reporting units, such as rising inflation or interest rates, could cause an increase in the discount rate to occur. Deterioration in performance of our reporting units, such as lower than expected revenue or profitability that has a sustained impact on future periods, could also represent potential indicators of impairment requiring further analysis.

We performed sensitivity analyses on the discounted cash flow valuations that were prepared to estimate the fair value of each reporting unit. Discount rates and perpetual revenue growth rates were increased and decreased by increments of 25 or 50 basis points. For the CSCI reporting unit, the fair value exceeds our carrying amount by less than 10%.Therefore, a 50 basis point increase in the discount rate, or a 25 basis point increase in the discount rate combined with a 25 basis point decrease in the perpetual growth rate, would indicate potential impairment for this reporting unit. The CSCI reporting unit's fair value includes material benefits from the Supply Chain Reinvention program and synergies from integrating HRA Pharma. Therefore, the reporting unit is sensitive to changes in estimates related to the Supply Chain Reinvention Program and the forecasted HRA synergies. Reductions in the net projected benefits could represent a potential indicator of impairment requiring further impairment analysis. For the recently acquired Rare Diseases reporting unit, the fair value exceeds our carrying amount by less than 10% as a result of establishing the carrying value at predominately fair value through purchase accounting.Therefore, a 50 basis point increase in the discount rate, or a 25 basis point increase in the discount rate combined with a 25 basis point decrease in the perpetual growth rate, would indicate potential impairment for this reporting unit. Our sensitivities assume a corresponding decrease in market valuation multiples. Based on the sensitivity of the discount rate assumptions on these analyses, an increase in the discount rate over the next twelve months could negatively impact the estimated fair value of the reporting units and lead to a future impairment. Certain macroeconomic factors which are not controlled by the reporting units, such as rising inflation or interest rates, could cause an increase in the discount rate to occur. Deterioration in performance of our reporting units over the next twelve months, such as lower than expected revenue or profitability that has a sustained impact on future periods, could also represent potential indicators of impairment requiring further impairment analysis.

We continue to monitor the progress of our reporting units and assess them for potential impairment should impairment indicators arise, as applicable, and at least annually during our fourth quarter impairment testing.

See Item 8. Note 9 and Note 10 for further information.

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Perrigo Company plc - Item 7

Critical Accounting Estimates

Recently Issued Accounting Standards Pronouncements

See Item 8. Note 1 for information regarding recently issued accounting standards.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Risk

We are a global company with operations primarily throughout North America, Europe, China, and Australia. We transact business in each location's local currency and in foreign currencies, thereby creating exposures to changes in exchange rates. Our largest exposure is the movement of the U.S. dollar relative to the euro.

Due to different sales and cost structures, certain segments experience a negative impact and certain segments a positive impact as a result of changes in exchange rates. We estimate the translation effect of a ten percent devaluation of the U.S. dollar relative to the other foreign currencies in which we transact business would not materially affect operating income of our non U.S. operating units for the year ended December 31, 2022. This sensitivity analysis has inherent limitations. The analysis disregards the possibility that rates of multiple foreign currencies will not always move in the same direction relative to the value of the U.S. dollar over time and does not account for foreign exchange derivatives that we utilize to mitigate fluctuations in exchange rates.

In addition, we enter into certain purchase commitments for materials that, although denominated in U.S. dollars, are linked to foreign currency valuations. These commitments generally contain a range for which the price of materials may fluctuate over time given the value of a foreign currency.

The translation of the assets and liabilities of our non-U.S. dollar denominated operations is made using local currency exchange rates as of the end of the year. Translation adjustments are not included in determining net income but are disclosed in Accumulated Other Comprehensive Income ("AOCI") within shareholders’ equity on the Consolidated Balance Sheets until a sale or substantially complete liquidation of the net investment in the subsidiary takes place. In certain markets, we could recognize a significant gain or loss related to unrealized cumulative translation adjustments if we were to exit the market and liquidate our net investment. As of December 31, 2022, cumulative net currency translation adjustments increased shareholders’ equity by $58.6 million.

We monitor and strive to manage risk related to foreign currency exchange rates. Exposures that cannot be naturally offset within a local entity to an immaterial amount are often hedged with foreign exchange derivatives or netted with offsetting exposures at other entities. We cannot predict future changes in foreign currency movements and fluctuations that could materially impact earnings.

Interest Rate Risk

We are exposed to interest rate changes primarily as a result of interest income earned on our investment of cash on hand and interest expense on borrowings. We have in the past, and may in the future, enter into certain derivative financial instruments related to the management of interest rate risk, when available on a cost-effective basis. These instruments are managed on a consolidated basis to efficiently net exposures and thus take advantage of any natural offsets. Gains and losses on hedging transactions are offset by gains and losses on the underlying exposures being hedged. We do not use derivative financial instruments for speculative purposes. A 1% increase in interest rates would result in approximately $3.9 million of additional annual interest expense in 2023.

Inflation Risk

Inflationary factors such as increases in the cost of our products and overhead costs may adversely affect our operating results. A high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling and administration expenses if the selling prices of our products do not increase with these increased costs. We manage the impact of inflation through pricing and supply chain cost reduction and optimization initiatives. Refer to Item 8. Note 1 and Note 11 for further information regarding our derivative instruments and hedging activities.

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Perrigo Company plc - Item 8

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE NO.

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 56

Management’s Annual Report on Internal Control over Financial Reporting 59

Report of Independent Registered Public Accounting Firm 60

Consolidated Statements of Operations 61

Consolidated Balance Sheets 62

Consolidated Statements of Comprehensive Income (Loss) 63

Consolidated Statements of Cash Flows 64

Consolidated Statements of Shareholders' Equity 66

Notes to Consolidated Financial Statements

1 Summary of Significant Accounting Policies 67

2 Revenue Recognition 74

3 Acquisitions and Divestitures 76

4 Discontinued Operations 82

5 Inventories 84

6 Investments 84

7 Property, Plant and Equipment, net 84

9 Goodwill and Intangible Assets 86

10 Fair Value Measurements 88

11 Derivative Instruments and Hedging Activities 90

13 Post-Employment Plans 98

14 Earnings per Share and Shareholders' Equity 103

15 Share-Based Compensation Plans 104

16 Accumulated Other Comprehensive Income (Loss) 107

17 Restructuring Charges 107

19 Commitments and Contingencies 114

20 Segment and Geographic Information 119

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Perrigo Company plc - Item 8

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Perrigo Company plc

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Perrigo Company plc (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Goodwill for the CSCI Reporting Unit

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Perrigo Company plc - Item 8

Uncertain Tax Positions

57

Perrigo Company plc - Item 8

Acquisition of HRA Pharma

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2008.

Grand Rapids, Michigan

February 28, 2023

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Perrigo Company plc - Item 8

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Perrigo Company plc is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:

•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

All systems of internal control, no matter how well designed, have inherent limitations. Therefore, even those systems deemed to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. The framework used in carrying out our evaluation was the 2013 Internal Control - Integrated Framework published by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission. In evaluating our information technology controls, we also used components of the framework contained in the Control Objectives for Information and Related Technology, which was developed by the Information Systems Audit and Control Association’s IT Governance Institute, as a complement to the COSO internal control framework. Management has concluded that our internal control over financial reporting was effective as of December 31, 2022. The results of management’s assessment have been reviewed with our Audit Committee.

We acquired Héra SAS (“HRA Pharma”) during the second quarter of 2022 and Nestlé’s Gateway Infant Formula Plant and GoodStart® infant formula brand ("Gateway") during the fourth quarter of 2022 (refer to Item 8. Note 3). As permitted by Securities and Exchange Commission Staff interpretive guidance for newly acquired businesses, management excluded HRA Pharma and Gateway from its evaluation of internal control over financial reporting as of December 31, 2022. We are in the process of documenting and testing HRA Pharma's and Gateway's internal controls over financial reporting. We will incorporate HRA Pharma and Gateway into our annual report on internal control over financial reporting for our year ending December 31, 2023. As of December 31, 2022, HRA Pharma and Gateway net assets totaled $2.1 billion. HRA Pharma and Gateway contributed $236.3 million of net sales and $47.9 million of operating loss, inclusive of $99.3 million of cost of goods sold related to the acquisition step up to fair value on inventories sold and amortization related to intangible assets recognized on acquisition, in our Consolidated Statements of Operations for the year ended December 31, 2022.

Ernst & Young LLP, the independent registered public accounting firm that audited our financial statements included in this Annual Report on Form 10-K, also audited the effectiveness of our internal control over financial reporting, as stated in their report that is included herein.

59

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Perrigo Company plc

Opinion on Internal Control Over Financial Reporting

We have audited Perrigo Company plc’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Perrigo Company plc (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

As indicated in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Héra SAS (“HRA Pharma”) and Nestlé’s Gateway, which were included in the 2022 consolidated financial statements of the Company and constituted $2.1 billion of net assets as of December 31, 2022, and $236.3 million of net sales, and $47.9 million of operating loss for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of HRA Pharma and Nestlé’s Gateway.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 28, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Grand Rapids, Michigan

February 28, 2023

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CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

Year Ended

Operating expenses

Impairment charges — 173.1 —

Other operating expense (income), net 0.8 (417.6) (4.3)

Change in financial assets — — 95.3

Loss on extinguishment of debt 8.9 — 20.0

Income (loss) from continuing operations before income taxes (139.1) 258.7 5.9

Income tax expense (benefit) (8.2) 389.6 (38.3)

Income (loss) from continuing operations (130.9) (130.9) 44.2

Income (loss) from discontinued operations, net of tax (9.7) 62.0 (206.8)

Earnings (loss) per share

Basic

Continuing operations $ (0.97) $ (0.98) $ 0.32

Discontinued operations $ (0.07) $ 0.46 $ (1.52)

Basic earnings per share $ (1.04) $ (0.52) $ (1.20)

Diluted

Continuing operations $ (0.97) $ (0.98) $ 0.32

Discontinued operations $ (0.07) $ 0.46 $ (1.51)

Diluted earnings per share $ (1.04) $ (0.52) $ (1.19)

Weighted-average shares outstanding

See accompanying Notes to Consolidated Financial Statements.

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CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts)

Assets

Prepaid expenses and other current assets 271.8 305.8

Current assets held for sale — 16.1

Property, plant and equipment, net 926.3 864.1

Goodwill and indefinite-lived intangible assets 3,549.0 3,004.7

Definite-lived intangible assets, net 3,230.2 2,146.1

Deferred income taxes 7.1 6.5

Liabilities and Shareholders’ Equity

Current liabilities held for sale — 32.9

Long-term debt, less current portion 4,070.4 2,916.7

Other non-current liabilities 623.0 530.1

Contingencies - Refer to Note 19

Shareholders’ equity

Controlling interests:

Preferred shares, $0.0001 par value per share, 10 shares authorized — —

Accumulated other comprehensive income (27.0) 35.5

Retained earnings (accumulated deficit) (2,067.6) (1,927.0)

Total liabilities and shareholders' equity $ 11,017.3 $ 10,425.7

Supplemental Disclosures of Balance Sheet Information

Preferred shares, issued and outstanding — —

Ordinary shares, issued and outstanding 134.7 133.8

See accompanying Notes to Consolidated Financial Statements.

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PERRIGO COMPANY PLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

Year Ended

Other comprehensive income (loss):

Foreign currency translation adjustments (126.0) (339.9) 274.4

Change in fair value of derivative financial instruments(1) 46.5 (21.3) (13.4)

Change in post-retirement and pension liability 17.0 1.7 (5.4)

Other comprehensive loss, net of tax (62.5) (359.5) 255.6

(1) Net of tax of $13.1 million, ($0.7) million and $1.1 million, respectively.

See accompanying Notes to Consolidated Financial Statements.

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PERRIGO COMPANY PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

Year Ended

Cash Flows From (For) Operating Activities

Adjustments to derive cash flows:

Gain on sale of business — (47.5) 20.9

Change in financial assets — — 96.4

Foreign currency remeasurement loss 39.4 — —

Amortization of debt premium (0.7) (3.8) (2.4)

Other non-cash adjustments, net 3.7 0.2 14.0

Increase (decrease) in cash due to:

Accrued customer programs 11.2 1.4 (43.3)

Cash Flows From (For) Investing Activities

Proceeds from royalty rights 3.3 3.8 4.1

Acquisitions of businesses, net of cash acquired (2,011.4) — (168.5)

Purchase of equity method investment — — (15.0)

Asset (acquisitions) sales, net 25.5 (70.6) (35.2)

Settlement of acquisition and designated foreign currency derivatives 61.7 — —

Additions to property, plant and equipment (96.4) (152.1) (170.4)

Other investing, net — 2.8 9.4

Cash Flows From (For) Financing Activities

Payments on long-term debt (958.9) — (590.0)

Deferred financing fees (20.9) — (6.7)

Premiums on early debt retirement — — (19.0)

Payments for debt issuance costs (12.2) — —

Repurchase of ordinary shares — — (164.2)

Net cash from (for) financing activities 421.6 (178.7) (181.1)

Effect of exchange rate changes on cash and cash equivalents (48.9) (15.6) 19.9

Net increase (decrease) in cash and cash equivalents (1,278.6) 1,237.8 287.2

Cash and cash equivalents held for sale, beginning of period 14.4 10.0 9.8

Less cash and cash equivalents held for sale, end of period — (14.4) (10.0)

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Year Ended

Supplemental Disclosures of Cash Flow Information

Cash paid/received during the year for:

Income taxes refunded $ 3.4 $ 17.1 $ 38.3

See accompanying Notes to Consolidated Financial Statements.

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PERRIGO COMPANY PLC

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in millions, except per share amounts)

Shares Amount

Other comprehensive income (loss) — — 255.6 — 255.6

Issuance of ordinary shares under:

Restricted stock plan 0.6 — — — —

Compensation for stock options — 2.0 — — 2.0

Compensation for restricted stock — 56.5 — — 56.5

Repurchases of ordinary shares (3.4) (164.2) — — (164.2)

Purchase of subsidiary's minority interest — (1.4) — — (1.4)

Other comprehensive income (loss) — — (359.5) — (359.5)

Issuance of ordinary shares under:

Restricted stock plan 1.0 — — — —

Compensation for stock options — 0.9 — — 0.9

Compensation for restricted stock — 66.9 — — 66.9

Other comprehensive income (loss) — — (62.5) — (62.5)

Issuance of ordinary shares under:

Restricted stock plan 1.4 — — — —

Compensation for restricted stock — 54.9 — — 54.9

See accompanying Notes to Consolidated Financial Statements.

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Note 1

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General Information

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

We are a leading provider of over-the-counter ("OTC") health and wellness solutions that are designed to enhance individual well-being and empower consumers to proactively prevent or treat conditions that can be self-managed. Our vision is to make lives better by bringing Quality, Affordable Self-Care Products that consumers trust everywhere they are sold. We are headquartered in Ireland and sell our products primarily in North America and Europe as well as in other markets around the world.

Basis of Presentation

Our Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include our accounts and accounts of all majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation. Our fiscal year begins on January 1 and ends on December 31. We end our quarterly accounting periods on the Saturday closest to the end of the calendar quarter, with the fourth quarter ending on December 31 of each year.

We have arrangements with certain companies that we determined to be variable interest entities ("VIEs"). We did not consolidate the VIEs in our financial statements as we lack the power to direct activities that most significantly impact their economic performance and thus are not considered the primary beneficiaries of these entities.

Segment Reporting

Our reporting and operating segments are as follows:

•Consumer Self-Care Americas ("CSCA") comprises our consumer self-care business in the U.S. and Canada. CSCA previously included our Latin American businesses until they were disposed on March 9, 2022.

•Consumer Self-Care International ("CSCI") comprises our consumer self-care business outside of the U.S. and Canada, primarily in Europe and Australia.

We previously had an Rx segment which was comprised of our generic prescription pharmaceuticals business in the U.S., and other pharmaceuticals and diagnostic business in Israel, which have been divested. Following the divestiture, there were no substantial assets or operations left in this segment. The Rx segment was reported as Discontinued Operations in 2021, and is presented as such for all periods in this report (refer to Note 4).

Our segments reflect the way in which our chief operating decision maker, who is our CEO, makes operating decisions, allocates resources and manages the growth and profitability of the Company. Financial information related to our business segments and geographic locations can be found in Note 2 and Note 20.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, which affect the reported earnings, financial position and various disclosures. These estimates are based on judgment and available information. Actual results could differ materially from the estimates.

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Note 1

Foreign Currency Translation and Transactions

We translate our non-U.S. dollar-denominated operations’ assets and liabilities into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in the cumulative translation account, a component of Accumulated other comprehensive income (loss) ("AOCI"). Gains or losses from foreign currency transactions are included in Other (income) expense, net.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of demand deposits and other short-term investments with maturities of three months or less at the date of purchase.

Allowance for Credit Losses

Expected credit losses on trade receivables and contract assets are measured collectively by geographic location. Historical credit loss experience provides the primary basis for estimation of expected credit losses and is adjusted for current conditions and for reasonable and supportable forecasts. Receivables that do not share risk characteristics are evaluated on an individual basis and are not included in the collective evaluation.The following table presents the allowance for credit losses activity (in millions):

Year Ended

Balance at beginning of period $ 7.2 $ 6.5 $ 6.0

Provision for credit losses, net 3.2 4.0 2.3

Receivables written-off (4.0) (0.7) (2.2)

Transfer to held for sale — (1.4) —

Currency translation adjustment 0.4 (1.2) 0.4

Balance at end of period $ 6.8 $ 7.2 $ 6.5

Trade receivables and contract assets are charged off against the allowance when the balance is no longer deemed collectible.

Inventories

Inventories are stated at the lower of cost or net realizable value using the first-in first-out method. Inventory related to research and development ("R&D") is expensed when it is determined the materials have no alternative future use. We maintain reserves for estimated obsolete or unmarketable inventory based on the difference between the cost of the inventory and its estimated net realizable value. Factors utilized in the determination of net realizable value include excess or slow-moving inventories, product expiration dating, products on quality hold, customer demand and market conditions.

Investments

Equity Method Investments

The equity method of accounting is used for unconsolidated entities over which we have significant influence; generally, this represents ownership interests of at least 20% and not more than 50%. Under the equity method of accounting, we record the investments at carrying value and adjust for a proportionate share of the profits and losses of these entities each period. We evaluate our equity method investments for recoverability. If we determine that a loss in the value of an investment is other than temporary, the investment is written down to its estimated fair value. Evaluations of recoverability are based primarily on projected cash flows.

Fair Value Method Investments

Equity investments in which we own less than a 20% interest and cannot exert significant influence are recorded at fair value with unrealized gains and losses included in net income. For equity investments without readily determinable fair values, we may use the Net Asset Value ("NAV") per share as a practical expedient to measure the fair value, if eligible. If the NAV practical expedient cannot be applied, we may elect to use a measurement

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Note 1

alternative until the investment’s fair value becomes readily determinable. Under the alternative method, the equity investments are accounted for at cost, less any impairment, plus or minus changes resulting from observable price changes in an orderly transaction for an identical or similar investment of the same issuer.

Derivative Instruments

We recognize the entire change in the fair value of the derivatives designated as:

•Cash flow hedges in Other Comprehensive Income ("OCI"). The amounts recorded in OCI are reclassified to earnings in the same line item on the Consolidated Statements of Operations as impacted by the hedged item when the hedged item affects earnings;

•Fair value hedges in the same line item on the Consolidated Statements of Operations that is used to present the earnings effect of the hedged item; and

•Net investment hedges in OCI classified as a currency translation adjustment. The amounts recorded in OCI are reclassified to earnings when the net investment in foreign operations is sold or substantially liquidated.

We exclude option premiums, forward points, and cross-currency basis spread from our assessment of hedge effectiveness, as allowable excluded components from certain of our cash flow and net investment hedges. We have elected to recognize the initial value of the excluded component on a straight-line basis over the life of the derivative instrument, within the same line item on the Consolidated Statements of Operations that is used to present the earnings effect of the hedged item.

We record derivative instruments on the balance sheet on a gross basis as either an asset or liability measured at fair value (refer to Note 10). Changes in a derivative's fair value are measured at the end of each period and are recognized in earnings unless a derivative can be designated in a qualifying hedging relationship. All realized and unrealized gains and losses are included within operating activities in the Consolidated Statements of Cash Flows.

Designated derivatives meet hedge accounting criteria, which means the fair value of the hedge is recorded in shareholders’ equity as a component of OCI, net of tax. The deferred gains and losses are recognized in income in the period in which the hedged item affects earnings. All of our designated derivatives are assessed for hedge effectiveness quarterly.

We also have economic non-designated derivatives that we have not elected hedge accounting. These derivative instruments are adjusted to current market value at the end of each period through earnings. Gains or losses on these instruments are offset substantially by the remeasurement adjustment on the related hedged item.

We are exposed to credit loss in the event of nonperformance by the counterparties on derivative contracts. We manage our credit risk on these transactions by dealing only with financial institutions that have short-term credit ratings of at least A-2/P-2 and long-term credit ratings of at least A-/A3, and by distributing the contracts among several financial institutions to diversify credit concentration risk. Should a counterparty default, our maximum exposure to loss is the asset balance of the instrument. The maximum term of our forward currency exchange contracts is 60 months.

We enter into certain derivative financial instruments, when available on a cost-effective basis, to mitigate our risk associated with changes in interest rates and foreign currency exchange rates as follows:

Interest rate risk management - We are exposed to the impact of interest rate changes through our cash investments and borrowings. We utilize a variety of strategies to manage the impact of changes in interest rates including using a mix of debt maturities along with both fixed-rate and variable-rate debt. In addition, we may enter into treasury-lock agreements and interest rate swap agreements on certain investing and borrowing transactions to manage our exposure to interest rate changes and our overall cost of borrowing.

Interest rate swap agreements are contracts to exchange floating rate for fixed rate payments (or vice versa) over the life of the agreement without the exchange of the underlying notional amounts. The notional amounts of the interest rate swap agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap agreements is recognized as an adjustment to interest expense.

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Foreign currency exchange risk management - We conduct business in several major currencies other than the U.S. dollar and are subject to risks associated with changing foreign exchange rates. Our objective is to reduce cash flow volatility associated with foreign exchange rate changes on a consolidated basis to allow management to focus its attention on business operations. Accordingly, we enter into various contracts that change in value as foreign exchange rates change to protect the value of existing foreign currency assets and liabilities, commitments, anticipated foreign currency sales and expenses, and net investments in foreign operations.

All derivative instruments are managed on a consolidated basis to efficiently net exposures and thus take advantage of any natural offsets. Gains and losses related to the derivative instruments are expected to be offset largely by gains and losses on the original underlying asset or liability. We do not use derivative financial instruments for speculative purposes.

The impact of gains and losses on foreign exchange contracts not designated as hedging instruments related to changes in the fair value of assets and liabilities denominated in foreign currencies are generally offset by net foreign exchange gains and losses, which are also included on the Consolidated Statements of Operations in Other (income) expense, net for all periods presented. When we enter into foreign exchange contracts not designated as hedging instruments to mitigate the impact of exchange rate volatility in the translation of foreign earnings, gains and losses will generally be offset by fluctuations in the U.S. dollar-translated amounts of each Income Statement account in current and/or future periods.

For more information on our derivatives, refer to Note 11.

Property, Plant and Equipment, net

Property, plant and equipment, net is recorded at cost and is depreciated using the straight-line method. We capitalize certain computer software and development costs, included in machinery and equipment, when incurred in connection with developing or obtaining computer software for internal use. Maintenance and repair costs are charged to earnings, while expenditures that increase asset lives are capitalized.

Leases

Lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. We evaluate arrangements at inception to determine if lease components are included. For new leases beginning January 1, 2019 or later, we have elected not to separate lease components from the non-lease components included in an arrangement when measuring the leased asset and leased liability for all asset classes.

Lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense for leases on a straight-line basis over the lease term. We apply the portfolio approach to certain groups of computer equipment and vehicle leases when the term, classification, and asset type are identical. The discount rate selected is the incremental borrowing rate we would obtain for a secured financing of the lease asset over a similar term.

Many of our leases include one or more options to extend the lease term. Certain leases also include options to terminate early or purchase the leased property, all of which are executed at our sole discretion. Optional periods may be included in the lease term and measured as part of the lease asset and lease liability if we are reasonably certain to exercise our right to use the leased asset during the optional periods. We generally consider renewal options to be reasonably certain of execution and included in the lease term when significant leasehold improvements have been made by us to the leased assets. The depreciable lives of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.

Certain of our lease agreements include contingent rental payments based on per unit usage over contractual levels (e.g., miles driven or machine hours used) and others include rental payments adjusted periodically for market reviews or inflationary indexes. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. For more information on our leases, refer to Note 8.

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Note 1

Goodwill and Intangible Assets

Goodwill represents amounts paid for an acquisition in excess of the fair value of net assets acquired. Goodwill is tested for impairment annually on the first day of our fourth quarter, or more frequently if changes in circumstances or the occurrence of events suggest an impairment exists. The test for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows and market valuation multiples. The estimates associated with the goodwill impairment tests include projected discounted future cash flows. We have three reporting units that are evaluated for impairment as of December 31, 2022.

Intangible assets are typically valued initially using the relief from royalty method or the multi-period excess earnings method ("MPEEM"). We test indefinite-lived trademarks, trade names, and brands for impairment annually, or more frequently if changes in circumstances or the occurrence of events suggest impairment exists, by comparing the carrying value of the assets to their estimated fair values. An impairment loss is recognized if the carrying amount of the asset exceeds its fair value. Definite-lived intangible assets are amortized on either a straight-line basis or proportionately to the benefits derived from those relationships or agreements. Useful lives vary by asset type and are determined based on the period over which the intangible asset is expected to contribute directly or indirectly to our future cash flows. We also review all other long-lived assets that have finite lives and that are not held for sale for impairment when indicators of impairment are evident by comparing the carrying value of the assets to their estimated future undiscounted cash flows.

In-process research and development ("IPR&D") assets are recognized at fair value and are classified as indefinite-lived assets until the successful completion or abandonment of the associated R&D efforts. If the associated R&D is completed, the IPR&D asset becomes a definite-lived intangible asset and is amortized over the asset's assigned useful life. If it is abandoned, an impairment loss is recorded.

Goodwill, indefinite-lived intangible asset, and definite-lived intangible asset impairments are recorded in Impairment charges on the Consolidated Statement of Operations. See Note 9 for further information on our goodwill and intangible assets.

Defined Benefit Plans

We operate a number of defined benefit plans for employees globally. The liability recognized in the balance sheet is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The defined benefit obligation is calculated periodically by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of either high quality corporate bonds or long term government bonds depending on the depth and liquidity of the high quality corporate bond market in the different geographies where we have pension liabilities. The bonds are denominated in the currency in which the benefits will be paid and have terms to maturity approximating the terms of the related pension liability. As a result, annual updates related to discount rate and the expected rate of return on plan assets are among the most important elements of expense and liability measurement.

Actuarial gains and losses are recognized on the Consolidated Statement of Operations using the corridor method. Under the corridor method, to the extent that any cumulative unrecognized net actuarial gain or loss exceeds 10% of the greater of the present value of the defined benefit obligation and the fair value of the plan assets, that portion is recognized over the expected average remaining working lives of the plan participants. Otherwise, the net actuarial gain or loss is recorded in OCI. We recognize the funded status of benefit plans on the Consolidated Balance Sheets. In addition, we recognize the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic pension cost of the period as a component of OCI (refer to Note 13).

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Note 1

Legal Contingencies

We are involved in product liability, patent, commercial, regulatory and other legal proceedings that arise in the normal course of business. We record a liability when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range and no amount within that range is a better estimate, the minimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. We have established reserves for certain legal matters (refer to Note 19). We do not incorporate insurance recoveries into our reserves for legal contingencies. We separately record receivables for amounts due under insurance policies when we consider the realization of recoveries for claims to be probable, which may be different than the timing in which we establish the loss reserves.

Revenue

Product Revenue

Revenue is recognized when or as a customer obtains control of promised products. The amount of revenue recognized reflects the consideration we expect to be entitled to receive in exchange for these products. We generally recognize product revenue for our contract performance obligations at a point in time, typically upon shipment or delivery of products to customers. For point in time customers for which control transfers on delivery to the customer due to free on board destination terms (“FOB”), an adjustment is recorded to defer revenue recognition over an estimate of days until control transfers at the point of delivery. Where we recognize revenue at a point in time, the transfer of title is the primary indicator that control has transferred. In other limited instances, primarily relating to those contracts that relate to contract manufacturing performed for our customers and certain store branded products, control transfers as the product is manufactured. Control is deemed to transfer over time for these contracts as the product does not have an alternative use and we have a contractual right to payment for performance completed to date. Revenue for contract manufacturing contracts is recognized over the transfer period using an input method that measures progress towards completion of the performance obligation as costs are incurred. For store branded product revenue recognized over time, an output method is used to recognize revenue when production of a unit is completed because product customization occurs when the product is packaged as a finished good under the store brand label of the customer.

Net product sales include estimates of variable consideration for which accruals and allowances are established. Variable consideration for product sales consists primarily of rebates and other incentive programs recorded on the Consolidated Balance Sheets as Accrued customer programs. Where appropriate, these estimates take into consideration a range of possible outcomes in which relevant factors, such as historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns, are either probability weighted to derive an estimate of expected value or the estimate reflects the single most likely outcome. Overall, these reserves reflect the estimates of the amount of consideration to which we are entitled based on the terms of the contract. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from the estimates, these estimates are adjusted, which would affect revenue and earnings in the period such variances become known.

Other Revenue Policies

We receive payments from our customers based on billing schedules established in each contract. Amounts are recorded as accounts receivable when our right to consideration is unconditional. In most cases, the timing of the unconditional right to payment aligns with shipment or delivery of the product and the recognition of revenue; however, for those customers where revenue is recognized at a time prior to shipment or delivery due to over time revenue recognition, a contract asset is recorded and is reclassified to accounts receivable when it becomes unconditional under the contract upon shipment or delivery to the customer.

Our performance obligations are generally expected to be fulfilled in less than one year. Therefore, we do not provide quantitative information about remaining performance obligations.

We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised products to the customer will be one year or less, which is the case with substantially all customers.

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Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue.

Shipping and handling costs billed to customers are included in Net sales. Conversely, shipping and handling expenses we incur are included in Cost of sales.

Share-Based Awards

We measure and record compensation expense for all share-based awards based on estimated grant date fair values. For awards with only service conditions that are based on graded vesting schedules, we recognize the compensation expense on a straight-line basis over the entire award. Forfeitures on share-based awards are recognized in compensation expense in the period in which they occur.

We estimate the fair value of stock option awards granted based on the Black-Scholes option pricing model, which requires the use of subjective and complex assumptions. These assumptions include estimating the expected term that awards granted are expected to be outstanding, the expected volatility of our stock price for a period commensurate with the expected term of the related options, and the risk-free rate with a maturity closest to the expected term of the related awards. Restricted stock and restricted stock units, both service based and performance based restricted share units, are valued based on our stock price on the day the awards are granted. The estimated fair value of outstanding Relative Total Shareholder Return performance units (“RTSR”) is based on the grant date fair value of RTSR awards using a Monte Carlo simulation, which includes estimating the movement of stock prices and the effects of volatility, interest rates, and dividends (refer to Note 15).

Research and Development

All R&D costs, including payments related to products under development and research consulting agreements, are expensed as incurred. We incur costs throughout the development cycle, including costs for research, clinical trials, manufacturing validation, and other pre-commercialization approval costs that are included in R&D. We may continue to make non-refundable payments to third parties for new technologies and for R&D work that has been completed. These payments may be expensed at the time of payment depending on the nature of the payment made.