ITEM 1A. RISK FACTORS
SUMMARY OF RISK FACTORS
Operational Risks
•We face competition from other consumer packaged goods and pharmaceutical companies, which may threaten the demand for and pricing of our products.
•If we do not continue to develop, manufacture, and market innovative products, introduce new line extensions, and expand into adjacent categories that meet customer demands, our net sales may be negatively impacted and we may lose market share.
•We operate in highly regulated industries, and any inability to timely meet current or future regulatory requirements could have a material adverse effect on our business and operating results.
•Limitations on reimbursement, continuing healthcare reforms, and changes to reimbursement methods in the United States and other countries may have an adverse effect on our financial condition and operating results.
•Unfavorable publicity or consumer perception of the safety, quality, and efficacy of our products could have a material adverse effect on our business.
•Lack of availability, or significant increases in the cost, of raw materials used in manufacturing our products could have a material adverse effect on our profit margins and operating results.
•The effects of public health outbreaks, including pandemics and epidemics, and related public and governmental actions could have a material adverse impact on our operations and our business and financial condition in the future.
•Disruption of our supply chain, including as a result of pandemics, global health crises, or wars or other civil unrest, including war in Ukraine, or in the Middle East, could have a material adverse effect on our businesses, financial condition, results of operations and cash flows.
•A disruption at any of our main manufacturing facilities could have a material adverse effect on our business, financial position, and results of operations.
•Our business could be negatively affected by the performance of our collaboration partners and suppliers, and any such adverse impact could be material.
•Our business depends upon certain customers for a significant portion of our sales, therefore our business would be adversely affected by a disruption of our relationship with these customers or any material adverse change in these customers' businesses.
•Our businesses could be adversely affected by deteriorating economic conditions in the countries in which we operate, and our results may be volatile due to these or other circumstances beyond our control.
•A cybersecurity breach, disruption or misuse of our information systems, or our external business partners’ information systems could have a material adverse effect on our business.
•Management transition creates uncertainties, and any difficulties we experience in managing such transitions may negatively impact our business.
Strategic Risks
•We may not realize the benefits of business acquisitions, divestitures, and other strategic transactions, which could have a material adverse effect on our operating results.
•We have acquired significant assets that could become impaired or subject us to losses and may result in an adverse impact on our results of operations, which could be material.
•There can be no assurance that our business strategy and related strategic initiatives, including restructurings, will be executed effectively or achieve their intended effects.
•The synergies and benefits expected from acquiring HRA Pharma and Gateway may not be realized in the amounts anticipated or at all and integrating HRA Pharma and Gateway's business may be more difficult, time consuming or costly than expected.
•Failure to effectively monitor and respond to ESG matters, including our ability to set and meet reasonable goals related to climate change and sustainability efforts, may negatively affect our business and operations.
•If we are unable to maintain effective internal control over financial reporting, investors could lose confidence in the accuracy and completeness of our financial reports and the market price of shares could be adversely affected.
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Risk Factors
Global Risks
•Our business, financial condition, and results of operations are subject to risks arising from the international scope of our operations.
•We operate in jurisdictions that could be affected by economic and geopolitical instability, which could have a material adverse effect on our business.
•The international scope of our business exposes us to risks associated with foreign exchange rates.
Litigation and Insurance Risks
•We are or may become involved in lawsuits and may experience unfavorable outcomes of such proceedings.
•Increased scrutiny on pricing practices and competition, including antitrust enforcement activity by government agencies and class action litigation, may have an adverse impact on our business and operating results, which could be material.
•Third-party patents and other intellectual property rights may limit our ability to bring new products to market and may subject us to potential legal liability, which could have a material adverse effect on our business and operating results.
•The success of certain of our products depends on the effectiveness of measures we take to protect our intellectual property rights and patents.
•Our ability to achieve operating results in line with published guidance is inherently subject to numerous risks and other factors beyond our control. Publishing earnings guidance subjects us to risks, including increased stock volatility, that could lead to potential lawsuits by investors.
•Significant increases in the cost or decreases in the availability of the insurance we maintain could adversely impact our operating results and financial condition. Disputes with insurers on the scope of existing policies may limit the coverage available under such policies.
Tax Related Risks
•The resolution of uncertain tax positions and ongoing disputes with U.S. and foreign tax authorities could be unfavorable, which could have a material adverse effect on our business.
•Changes to tax laws and regulations or the interpretation thereof could have a material adverse effect on our results of operations and the ability to utilize cash in a tax efficient manner.
•Our effective tax rate or cash tax payment requirements may change in the future, which could adversely impact our future results of operations.
Capital and Liquidity Risks
•Our indebtedness could adversely affect our ability to invest in our business and implement our strategic initiatives.
•We cannot guarantee that we will buy back our ordinary shares pursuant to our announced share repurchase plan or that our share repurchase plan will enhance long-term shareholder value.
•Any additional shares we may issue could dilute your ownership in the Company.
•We are incorporated in Ireland; Irish law differs from the laws in effect in the United States and may afford less protection to, or otherwise adversely affect, our shareholders.
•We may be limited in our ability to pay dividends in the future.
Operational Risks
We face competition from other consumer packaged goods and pharmaceutical companies, which may threaten the demand for and pricing of our products.
Our Perrigo-branded products compete against store brand, generic, and branded health and wellness products. In addition, our products sold under labels of others (store brand) compete against other store brands, generic, and branded health and wellness products. If we or our store brand customers are unable to compete successfully, our business may lose customers or face negative pricing pressures. In particular:
•Our CSCA and CSCI segments experience direct competition from other companies, including brand name companies, that may try to prevent, discourage or delay the use of our products through various measures, including introduction of new products, legislative initiatives, changing dosage forms or dosing regimens,
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regulatory processes, filing new patents or patent extensions, lawsuits, citizens’ petitions, and attempts to generate negative publicity prior to our introduction of a new competitive product. Moreover, other companies may produce the same products as us, sometimes sold at dramatically lower margins in order to gain market share. Other companies may also introduce new products or delivery techniques that make our current products less desirable.
•Our competitors may be able to adapt more quickly to changes in customer requirements or develop products comparable or superior to those offered by us at more competitive prices.
•Competition in the markets in which we operate may also be impacted by changes in regulations and government pricing programs that may give certain competitors an advantage.
If we do not continue to develop, manufacture, and market innovative products, introduce new line extensions, and expand into adjacent categories that meet customer demands, our net sales may be negatively impacted and we may lose market share.
The growth of our business is due in large part to our ability to develop, manufacture, and market products that meet customer requirements for quality, safety, efficacy, and cost-effectiveness. Margins for existing products tend to decline over time due to aging product life cycles, changes in consumer preferences, pricing pressure from customers, and increased competition. Accordingly, our business model relies heavily on the continuous introduction of innovative products and new product categories. If we do not continue to develop, manufacture, and market new products, or if we fail to stay current with the latest manufacturing information, and packaging technology, we could lose market share, and our net sales may be negatively affected.
The development and commercialization process, particularly with respect to innovative products, is both time consuming and costly, and subject to a high degree of business risk. Products currently under development may require re-design to meet evolving regulatory standards, may not perform as expected, may not pass required bioequivalence studies, or may be the subject of intellectual property challenges. Necessary regulatory approvals may not be obtained in a timely manner, if at all. Even if we are successful in developing a product, our customers' failure to launch one of our products successfully, or delays in manufacturing developed products, could adversely affect our operating results. In addition, regulatory agencies may impose higher standards or additional requirements, as a condition to clearing new products, such as requiring more supporting data and clinical data than previously required, which could negatively impact our net sales. In our CSCA segment, we must prove that the regulated generic drug products are bioequivalent to their branded counterparts, which may require bioequivalence studies, and, in the case of topical products, even more extensive clinical endpoint trials to demonstrate their efficacy, and the failure to do so could also negatively impact our sales.
We operate in highly regulated industries, and any inability to timely meet current or future regulatory requirements could have a material adverse effect on our business and operating results.
We operate in highly regulated industries in numerous countries and are subject to the regulations of a variety of U.S. and non-U.S. agencies related to the manufacturing, processing, formulation, packaging, labeling, testing, storing, distribution, import, export, advertising, and sale (including cost, pricing and reimbursement) of our products, as described in detail in Item 1. Business - Government Regulation and Pricing. Changes in laws, regulations, and practices in the countries in which we operate, including changes in interpretation of existing regulations (which may have retroactive effect), may be difficult or expensive for us to comply with, could restrict or delay our ability to manufacture, distribute, sell or market our products, and may adversely affect our revenue, operating results, and financial condition or impose significant administrative burdens. Moreover, changes in the interpretation of existing regulations or practices by such regulators could result in changes in the legal requirements affecting us (including with retroactive effect). Divergence in regulatory approach from country to country, and between the EU and individual member states, adds cost and complexity to the compliance framework; and differences in requirements and/or implementation dates in different jurisdictions may provide competitive advantages to manufacturers that operate in other locations. If our products fail to meet regulatory requirements, our sales may be adversely affected, we may incur fines and penalties, and our exposure to liability relating to product-based claims may increase. Below are some examples of ways in which regulatory risk may impact us:
•On July 14, 2021, the European Commission adopted a set of proposals to ensure polices are aligned with the goal of reducing net greenhouse gas emissions by at least 55% by 2030 in comparison to 1990 (the "EU Green Deal"). As required under the Climate Law, the Commission also recommended, in February 2024, an additional intermediate target of 90% less emissions by 2040. There is a growing focus on environmental impact of self-care products, their ingredients, components, packaging, manufacturing, and disposal. This focus could lead to new requirements and restrictions in the coming years across all product categories.
•U.S. law encourages generic competition by providing eligibility for first generic marketing exclusivity if certain conditions are met. If we are granted generic exclusivity, the exclusivity may be shared with other
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Risk Factors
companies; or we may forfeit 180-day exclusivity if we fail to obtain regulatory approval and begin marketing within the statutory requirements. If we are not the first to file our ANDA, the FDA may grant 180-day exclusivity to another company, thereby effectively delaying the launch of our product and/or possibly reducing our market share.
•U.S. and global regulatory agencies regularly inspect our manufacturing facilities and the facilities of our third-party suppliers for good manufacturing practices ("GMP") and other regulatory compliance. The failure of one of these facilities to comply with applicable laws and regulations may lead to a breach of representations made to our customers, or to regulatory or government action against us related to the products made in that facility, including suspension of or delay in regulatory approvals and product seizure, injunction, recall, suspension of production or distribution of our products, a total or partial shutdown of production in one or more facilities, loss of licenses or other governmental penalties, or civil or criminal prosecution, which could result in increased cost, lost revenue, or reputational damage.
•Regulatory agencies globally, including the FDA and the European Medicines Agency, have issued guidance on assessing and controlling nitrosamine impurities in medicine products. We are continuing to undertake a review of our product portfolio in accordance with regulatory guidance to assess the risk of the presence of nitrosamine impurities. Any finding of nitrosamine impurities exceeding levels set by regulatory authorities may require us to adopt modified product sourcing and/or manufacturing processes or to initiate product withdrawal.
•Rx-to-OTC switches are part of our future growth. If regulatory agencies fail to approve Rx-to-OTC switches in new product categories or reassess the terms of existing OTC classifications, our growth prospects and product mix would be impaired. Further, regulatory agencies may reassess the terms of OTC classification if they perceive a shift in the previously assessed benefit/risk profile. Any such reassessment could lead to OTC products reverting to prescription. For example, as described in Item 1. Business - Government Regulation and Pricing, Irish regulators are undertaking a formal review of non-prescription codeine products, which could result in the reclassification of codeine to prescription only after a brief transition period. A final opinion is expected in 2025. Sales of products containing codeine in Ireland were approximately $21 million in 2024. Moreover, a reclassification by Ireland could lead to reviews in other jurisdictions as well.
•Our infant formula products may be subject to barriers or sanctions imposed by countries or international organizations limiting international trade and dictating the content of such products. If governments enhance regulations on the infant formula industry through actions such as requiring additional testing or compulsory batch-by-batch inspection, or impose additional requirements on manufacturing practices, our sales and operating margins in this category could be adversely affected as it is costly to comply with such new regulations or requirements, and to develop compliant products and processes for our infant formula products. For example, in March 2023, the FDA released its "Immediate National Strategy to Increase the Resiliency of the U.S. Infant Formula Market" and issued a letter to the powdered infant formula industry to share information to assist the industry in improving the microbiologic safety of powdered infant formula and resiliency of the infant formula market. In response to the FDA's evolving regulatory expectations on infant formula and observations at our facilities, we shortened our production campaigns to perform more frequent major cleanings, implemented enhanced product testing and quality procedures, adopted new manufacturing protocols, and made additional infrastructure investments.As a result, we have been experiencing increased costs and lower production volumes and expect higher compliance costs moving forward.
•The regulation of List I chemicals complicate our supply chain, and adverse regulatory actions may result in temporary or permanent interruption of distribution of our products, withdrawal of our products from the market, or other penalties. If we are unable to obtain necessary quotas for List I chemicals, we risk having delayed product launches or failing to meet commercial supply obligations.
•In 2023, the European Parliament voted on a proposal to extend the EU's Medical Device Regulation ("MDR") transition periods until 2027-2028, together with an extended validity of existing medical device certificates and the possibility to sell off existing medical device products until end of shelf-life. With this decision the European Parliament took into account that there is currently a shortage in the number of Notified Bodies authorized to carry out conformity assessments required under MDR.
•Increased scrutiny of product classifications by government agencies can result in investigations and prosecutions, which carry the risk of significant civil and criminal penalties, including but not limited to, debarment from government business and prohibition to continue the business.
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Risk Factors
Limitations on reimbursement, continuing healthcare reforms, and changes to reimbursement methods in the United States and other countries may have an adverse effect on our financial condition and operating results.
Increasing healthcare expenditures have received considerable public attention in many of the countries in which we operate. In the U.S., government programs such as Medicaid, as well as private insurers, have been focused on cost containment. In some markets in the EU and outside the U.S., the government provides healthcare at low direct cost to consumers and regulates pharmaceutical prices or patient reimbursement levels to control costs for the government-sponsored healthcare system. Both private and governmental entities are seeking ways to reduce or contain healthcare costs through legislative and regulatory efforts, as further described in Item 1. Business - Government Regulation and Pricing, which could place further pricing pressure on our products and could negatively impact our operating results.
Under the Medicaid Drug Rebate Program ("MDRP"), a number of our products are considered non-innovator products and therefore subject to Medicaid federal upper limits ("FUL"), which restrict the amount state Medicaid programs reimburse for non-innovator covered outpatient drugs. While utilization of our products under the Medicaid program is limited, our products generally are subject to state Medicaid program payment methodologies, and may be subject to reimbursement pressures beyond our control.
Unfavorable publicity or consumer perception of the safety, quality, and efficacy of our products could have a material adverse effect on our business.
We are dependent upon consumers' perception of the safety, quality, and efficacy of our products. Negative consumer perception may arise from media reports, social media posts, product liability claims, regulatory investigations, or recalls affecting our products or our industry, any of which may reduce demand or could damage our reputation and adversely affect our business.
•Our products involve risks such as product contamination, spoilage, mislabeling, and tampering that could require us to recall one or more of our products or could result in death or injury to consumers. Serious product quality concerns could also result in product liability lawsuits or governmental actions against us that, among other things, could result in additional costs, the suspension of production or distribution of our products, product seizures, loss of certain licenses, delays in the issuance of governmental approvals for new products, or other governmental penalties.
•We cannot guarantee that counterfeiting, imitation or other tampering with our products will not occur or that we will be able to detect and resolve it, which could lead to death or injury of consumers and negatively impact our reputation.
•Our nutritional product category is subject to certain consumer preferences and concerns, including the number of mothers who choose to use infant formula products rather than breastfeed their babies, which could change based on factors including increased promotion of the benefits of breastfeeding over the use of infant formula by private, public and government sources and changes in the number of families that are provided with infant formula by the U.S. federal government through the Women, Infants and Children program, which we do not participate in.
•With respect to our powdered infant formula products, a risk of contamination or deterioration may exist at each stage of the production cycle, including the purchase and delivery of raw materials, the processing and packaging of food products, and the use and handling by consumers, hospital personnel, and healthcare professionals. If certain of our infant formula products are found or alleged to have suffered contamination or deterioration, whether or not under our control, our reputation and our infant formula product category sales could be materially adversely affected. As described in Part II. Item 7, in response to the warning letter from the FDA in August 2023 and additional inspection observations at our Wisconsin infant formula facility, we have implemented new protocols and made additional infrastructure investments to address these observations. While all sites have returned to reliable, quality-assured production, we incurred certain extraordinary costs associated with the remediation and enhancement actions and expect higher ongoing operating costs at our infant formula manufacturing sites moving forward. Moreover, if we are unable to address the FDA's past or future observations to the FDA's satisfaction, we could incur additional compliance costs, and our reputation could be adversely affected if we are perceived by consumers to not be in compliance with such framework.
•Our financial success is dependent on positive brand recognition, which results in part from large investments in marketing over a period of years. The success of our brands may suffer if we do not continue to invest in marketing, or if our marketing plans or product initiatives are unsuccessful. In addition, an issue with one of our products could negatively affect the reputation of other products, potentially hurting our financial results.
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•Negative social media posts or comments about us, store brands or generic pharmaceuticals, or our products could damage our reputation and adversely affect our business. Negative posts or comments about our products could result in increased pharmacovigilance reporting requirements, which may give rise to liability if we fail to fully comply with such requirements.
Lack of availability, or significant increases in the cost, of raw materials used in manufacturing our products could have a material adverse effect on our profit margins and operating results.
We rely on third parties to source many of our raw materials and to manufacture certain dosage forms that we distribute. Refer toItem 1. Business - Materials Sourcing. Certain raw materials may experience rapid cost increases due to increased labor, relevant commodities, energy costs and other inflationary pressures, and this may have a material negative impact on our financial results, whether or not we are able to pass on such increases to our customers. We maintain several single-source supplier relationships, either because alternative sources are not available or because the relationship is advantageous due to regulatory, performance, quality, support, or price considerations. Unavailability or delivery delays of single-source components or products could adversely affect our ability to ship the related product in a timely manner, a particularly severe effect for higher volume or more profitable products. It can take substantial time and investment to qualify an alternative supplier or material sources and establish reliable supply.
We maintain a strict program of verification and product testing throughout the ingredient sourcing and manufacturing process to identify potential counterfeit ingredients, adulterants, and toxic substances. Nevertheless, discovery of previously unknown problems with raw materials, product manufacturing processes, or new data suggesting an unacceptable safety risk, could result in a voluntary or mandatory withdrawal of the contaminated product from the marketplace, either temporarily or permanently. Any future recall or removal would result in additional costs and lost revenue, harm our reputation, and may give rise to product liability litigation.
Changes in regulation could impact the supply of the API and certain other raw materials used in our products. For example, the EU promulgated new standards requiring all API imported into the EU be certified as complying with Good Manufacturing Practices established by the EU. The regulations placed the certification requirement on the regulatory bodies of the exporting countries, which led to an API supply shortage in Europe as certain governments were not willing or able to comply with the regulation in a timely fashion, or at all. A shortage in API or other raw ingredients could cause us to have to cease manufacture of certain products, or to incur costs and delays to qualify other suppliers to substitute for those API manufacturers who are unable to export. This could have a material adverse effect on our business, results of operations, financial condition, and cash flow.
Moreover, our infant formula products require certain key raw ingredients that are derived from raw milk, which is influenced by factors beyond our control including seasonal and environmental factors, governmental agricultural and environmental policy, and global demand. Due to these factors, we cannot guarantee that there will be sufficient supplies of these key ingredients to produce infant formula.
The effects of public health outbreaks, including pandemics and epidemics, and related public and governmental actions could have a material adverse impact on our operations and our business and financial condition in the future.
As the COVID-19 pandemic demonstrated, the global economy and the self-care markets in which we compete are susceptible to impacts from public health crises.
Going forward, variants of COVID-19 or other public health incidents, including the actions taken to slow their spread, could have an adverse impact on our financial condition, our supply chains and other operations, our results of operations, consumer demand for our products and our ability to access capital. The magnitude of any such adverse impacts are not determinable, but could be material, depending on: the duration, intensity, and continued spread of the disease; the imposition of business or movement restrictions in various jurisdictions; the ability to develop vaccines and their availability, acceptance and efficacy; the severity and duration of any economic downturn resulting from such pandemic or other public health incidents; the effect of global supply chain and shipping challenges on the Company; the effectiveness of the Company's efforts at mitigation; and other factors, both known and unknown, many of which are likely to be outside our control.
Disruption of our supply chain, including as a result of the pandemics, global health crises, or wars or other civil unrest, including the war in Ukraine, or in the Middle East, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our ability to manufacture, deliver and sell our products is critical to our success. Damage or disruption to our collective supply or distribution capabilities resulting from pandemics and other health crises, including government
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Risk Factors
responses thereto, labor shortages, armed hostilities, border closures, weather conditions, freight carrier availability, any potential effects of climate change, natural disasters, strikes or other labor unrest or other reasons could impair our ability to source inputs or ship, sell or timely deliver our products. Competitors can be affected differently by any of these events depending on a number of factors, including the location of their suppliers and operations. Failure to take adequate steps to reduce the likelihood or mitigate the potential impact of any of these events, or to effectively manage such events if they occur, particularly when a commodity or raw material is sourced from or a product is manufactured at a single location, could adversely affect our business, financial condition, results of operations and cash flows and require additional resources to restore our supply chain.
As the war in Ukraine continues, supply chain disruptions in specific categories such as oil, agricultural and paper based commodities continue to lead to inflationary pressures in those areas. Any escalation of the conflict could lead to wider disruptions in our supply chain or have larger macroeconomic effects. Additionally, the conflict in the Middle East could impact our supply of API. Israel is a global technology research and development center that plays a critical role to the global API market, as a number of key suppliers are located within Israel. Perrigo sources some raw materials and finished goods from suppliers in Israel for certain self-care products, including Omeprazole. There is potential for some disruption as it relates to in-country logistics, including freight. As a precaution, Perrigo has engaged alternate suppliers to help minimize a potential supply disruption. Although there has not been any material impact on operations and we believe we have a strong mitigation plan in place, the conflict in the Middle East remains active and fluid and we could experience disruptions to our API supply. Future supply chain disruptions and inflationary pressures from the continuation of the conflicts between Russia and Ukraine, and escalating conflicts in the Middle East and neighboring regions, are uncertain.
A disruption at any of our main manufacturing facilities could have a material adverse effect on our business, financial position, and results of operations.
Our manufacturing operations are concentrated in a few locations. Refer toItem 1. Business - Manufacturing and Distribution for more information. A significant disruption at one or more of these facilities, whether due to fire, natural disaster, power loss, intentional acts of vandalism, climate change, war, terrorism, insufficient quality, or pandemic could materially and adversely affect our business.
Our business could be negatively affected by the performance of our collaboration partners and suppliers, and any such adverse impact could be material.
We have entered into strategic alliances with partners and suppliers to develop, manufacture, market and/or distribute certain products, or components of our products in various markets. We commit substantial effort, funds and other resources to these various collaborations. There is a risk that our investments in these collaborative arrangements will not generate the anticipated financial returns. While we believe our relationships with our partners and suppliers generally are successful, disputes, conflicting priorities or regulatory or legal intervention could be a source of delay or uncertainty as to the expected benefit of the collaboration. A failure or inability of our partners or suppliers to fulfill their collaboration obligations, or the occurrence of any of the risks above, could have an adverse effect on our business, financial condition, and results of operations.
Our business depends upon certain customers for a significant portion of our sales, therefore our business would be adversely affected by a disruption of our relationship with these customers or any material adverse change in these customers' businesses.
We have one significant customer that represented 11.9% of our consolidated net sales for the year ended December 31, 2024. While we have other important customers, no other individual customer represents more than 10% of net sales. However, the loss of one or more of our customers could be material. We believe we have good relationships with all our customers. If our relationship with any of our significant customers, including the terms of doing business with the customers, changes significantly, or if one or more such customers were to experience difficulty in paying us on a timely basis, it could have a material adverse impact on us. The risk of such impacts would be increased by continued consolidation in the sector in which our customers operate. Refer toItem 1. Business - Significant Customers.
Additionally, if we are unable to maintain adequately high levels of customer service over time, customers may choose to assess penalties (where such penalties are contractually permitted), obtain alternate sources for products, and/or end their relationships with us.
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Our businesses could be adversely affected by deteriorating economic conditions in the countries in which we operate, and our results may be volatile due to these or other circumstances beyond our control.
Our customers could be adversely impacted if economic conditions worsen in the U.S. or other countries in which we operate. In the U.S., our consumer self-care business does not advertise our store brand products like national brand companies and thus, is largely dependent on retailer promotional activities to drive sales volume and increase market share. If our customers do not have the ability to invest in store brand promotional activities, our sales may suffer. Additionally, while we actively review the credit worthiness of our customers and suppliers, we cannot fully predict to what extent they may be negatively impacted by slowing economic growth. Our stock price may decline due to any earnings release or guidance that does not meet market expectations or other circumstances, which may be beyond our control, such as the severity, length and timing of the cough/cold/flu and allergy seasons, the timing of new product approvals and introductions by us and our competitors, and the timing of retailer promotional programs.
A cybersecurity breach, disruption or misuse of our information systems, or our external business partners’ information systems could have a material adverse effect on our business.
Our business operations are increasingly dependent upon information technology systems that are highly complex, interrelated with our external business partners, and may contain confidential information (including personal data, trade secrets or other intellectual property, or proprietary business information). The nature of digital systems, both internally and externally, makes them potentially vulnerable to disruption or damage from human error and/or security breaches, which include, but are not limited to, ransomware, data theft, denial of service attacks, sabotage, industrial espionage, interruptions or other system issues, unauthorized access and computer viruses. Such events may be difficult to detect, and once detected, their impact may be difficult to assess and address.
Cyber-attacks have become increasingly common. We have experienced immaterial business disruption, monetary loss and data loss as a result of phishing, business email compromise and other types of attacks. In addition, the rapid evolution and increased adoption of new technologies, such as artificial intelligence, may intensify our cybersecurity risks. While we continue to employ resources to monitor our systems and protect our infrastructure, these measures may prove insufficient, and that could subject us to significant risks, including, without limitation:
•Ransomware attacks, other cyber breaches or disruptions that impair our ability to develop products, meet regulatory approval requirements or deadlines, produce or ship products, take or fulfill orders, and/or collect or make payments on a timely basis;
•System issues, whether as a result of an intentional breach, a natural disaster or human error that damage our reputation and cause us to lose customers, experience lower sales volume, and/or incur significant liabilities;
•Significant expense to remediate the results of any attack or breach and to ensure compliance with any required disclosures mandated by the numerous global privacy and security laws and regulations; and
•Interruptions, security breaches, or loss, misappropriation, or unauthorized access, use or disclosure of confidential information,
which, individually or collectively, could result in financial, legal, business or reputational harm to us and could have a material adverse effect on our business, financial condition and results of operations.
We are also subject to numerous laws and regulations designed to protect personal data, such as the California Consumer Privacy Act in the U.S., the U.K.'s Data Protection Act of 2018 and the European General Data Protection Regulation ("GDPR"). These data protection laws introduced more stringent data protection requirements and significant potential fines, as well as increased our responsibility and potential liability in relation to personal data that we process and possess. Compliance with such laws require significant time and resources and may impose significant challenges that are likely to continue to increase over time, particularly as additional regulatory agencies adopt similar or new requirements. We have put mechanisms in place to ensure compliance with applicable data protection laws,but there can be no guarantee of their effectiveness. For more information regarding our cybersecurity activities, please refer to Item 1C. Cybersecurity.
Management transition creates uncertainties, and any difficulties we experience in managing such transitions may negatively impact our business.
We have experienced significant changes to our leadership team over the past several years. Patrick Lockwood-Taylor was appointed President, Chief Executive Officer and Board Member in 2023. In 2024, the Company appointed new leaders of its CSCA and CSCI segments with the appointments of Catherine "Triona" Schmelter as President Consumer Self-Care Americas and Roberto Khoury as President Consumer Self-Care International. We also appointed Charles Atkinson as our new General Counsel and Abbie Lennox as our Chief Science Officer and
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expanded our Chief Scientific Office, with Allison Ives tasked to head our new Disruptive Growth Team. Additionally, David Ball was appointed as Chief Brand and Digital Officer. Although we believe these leadership transitions are in the best interest of our stakeholders, any change in executive management creates uncertainty. Moreover, changes in our Company as a result of management transition could have a disruptive impact on our ability to implement, or result in changes to, our strategy and could negatively impact our business, financial condition and results of operations.
Strategic Risks
We may not realize the benefits of business acquisitions, divestitures, and other strategic transactions, which could have a material adverse effect on our operating results.
In the normal course of business, we engage in discussions relating to possible acquisitions, divestitures, and other strategic transactions, some of which may be significant in size or impact. Transactions of this nature create substantial demands on management, operational resources, technology, and financial and internal control systems, and can be subject to government approvals or other closing conditions beyond the parties' control. In the case of acquisitions, we may face difficulties with integrating these businesses, managing expanded operations, achieving operating or financial synergies in expected timeframes or in new products or geographic markets. In the case of divestitures, including the disposition of the Rare Disease Business and the separation of the Rx business, we may face difficulty in effectively transferring contracts, obligations, facilities, and personnel to the purchaser, while minimizing continued exposure to risks and liabilities of the divested business. Moreover, the agreement for the sale of the Rare Diseases Business provided for up to €85 million in potential earnout payments based on the Rare Diseases Business achieving certain sales milestones. Should the business not perform up to these standards, we may not receive some or all of the earnout payments.
There are inherent uncertainties involved in identifying and assessing the value, strengths, and profit potential, as well as the weaknesses, risks, and contingent and other liabilities of acquisition targets, which can be affected by risks and uncertainties relating to government regulations and oversight as well as changes in business, industry, market or general economic conditions. For example, after our acquisition of Gateway, in response to the FDA's evolving regulatory expectations on infant formula and observations at our facilities, we have shortened our production campaigns to perform more frequent major cleanings and implemented enhanced product testing and quality procedures, resulting in additional costs and lower production volumes of infant formula than previously anticipated.
Moreover, the financing of any acquisition can have a material impact on our liquidity, credit ratings and financial position. Alternatively, issuing equity to pay all or a portion of acquisition purchase price would dilute our existing shareholders.
Acquisitions and divestitures also involve costs, including fees and expenses of financial advisors, lawyers, accountants, and other professionals, and can involve retention bonuses and other additional compensation of employees or increase turnover in personnel. Any of these risks or expenses could have a negative effect on our financial condition or results of operations.
We have acquired significant assets that could become impaired or subject us to losses and may result in an adverse impact on our results of operations, which could be material.
We have recorded significant goodwill and intangible assets on our balance sheet as a result of previous acquisitions, which could become impaired and lead to material charges in the future.
We perform an impairment analysis on intangible assets subject to amortization when there is an indication that the carrying amount of any individual asset may not be recoverable. Any significant change in market conditions, estimates or judgments used to determine expected future cash flows that indicates a reduction in carrying value may give rise to impairment in the period that the change becomes known. Goodwill, indefinite-lived intangible asset, and definite-lived intangible asset impairments are recorded in Impairment charges on the Consolidated Statements of Operations. As of December 31, 2024, the net book value of our goodwill and intangible assets were $3.3 billion and $2.4 billion, respectively. In the past three years, we have recognized a total of $178.9 million in asset impairments, across all segments and asset categories. Refer toItem 8. Note 9 for additional information related to our goodwill and intangible assets.
23
Perrigo Company plc- Item 1A
Risk Factors
There can be no assurance that our business strategy and related strategic initiatives, including restructurings, will be executed effectively or achieve their intended effects.
Our success is dependent in large part on our ability to implement our One Perrigo strategy and business model successfully. To drive our business model and improve financial performance, we are engaged in certain ongoing restructuring programs.In late 2022, we initiated our Supply Chain Reinvention Program, designed to increase operational efficiency and improve our return on invested capital by, among other goals, reducing portfolio complexity, investing in advanced planning capabilities, diversifying sourcing, and optimizing our manufacturing assets and distribution models. In addition, in 2024 we launched Project Energize, a global investment and efficiency program to drive the next evolution of the Company's capabilities and organizational agility. We also continue to invest in other initiatives, including innovation, information systems and tools, and our people to drive consistent and sustainable results. We believe these initiatives will reduce operating costs and/or enhance our net sales, operating margins, and earnings; however, certain of these initiatives require substantial costs during implementation, and there can be no assurance any of these initiatives will produce the anticipated benefits. Any increase in such costs or delay or failure to achieve the anticipated benefits could have a material adverse effect on our projected results.
Various factors may impact our ability to implement our strategies and realize their anticipated benefits.These factors include circumstances outside of our control such as increased competition, legal developments, government regulation, general economic conditions, increased operating costs or expenses and changes in industry trends or consumer preferences. In addition, implementing these changes will require a significant amount of management time and effort, which may disrupt our business or otherwise divert management’s attention from other aspects of our business, including our other strategic initiatives, possible organic or inorganic growth opportunities, and customer and vendor relationships. Any of the foregoing risks could materially adversely affect our business, results of operations, liquidity, and financial condition.
The synergies and benefits expected from acquiring HRA Pharma and Gateway may not be realized in the amounts anticipated or at all and integrating HRA Pharma and Gateway's business may be more difficult, time consuming or costly than expected.
We may experience challenges integrating the Gateway business and managing our expanded operations, including the acquisition of HRA Pharma. Our ability to realize the benefits expected from the HRA Pharma and Gateway acquisitions will depend, in part, on our ability to successfully integrate the business, control costs and maintain growth. Integrations can be complex and time consuming, and the integration may result in temporarily depressed sales while integration of supply chain and distribution channels take place. Any delays, additional unexpected costs, or other difficulties encountered in the integration process could have a material adverse effect on the Company’s revenues, expenses, operating results and/or financial condition. While the integration of HRA Pharma was completed during 2023, activities related to the integration of Gateway continued into 2024.
Even if integration occurs successfully, we may not achieve projected synergies or level of anticipated sales growth in new products, brands, or geographic markets within the anticipated timeframe, or at all. There are inherent uncertainties involved in identifying and assessing the profit potential, value, strengths, weaknesses, risks, and contingent and other liabilities of acquisitions, such as HRA Pharma and Gateway, some of which can be affected by risks and uncertainties relating to government regulations and oversight as well as changes in the business, the industry, competition, consumer trends or general economic conditions. For instance, in response to the FDA's evolving regulatory expectations on infant formula, we have shortened our production campaigns to perform more frequent major cleanings and implemented enhanced product testing and quality procedures, resulting in additional costs and lower production volumes of infant formula.
24
Perrigo Company plc- Item 1A
Risk Factors
Failure to effectively monitor and respond to ESG matters, including our ability to set and meet reasonable goals related to climate change and sustainability efforts, may negatively affect our business and operations.
Regulatory developments and stakeholder expectations relating to ESG matters are rapidly changing. Concern over climate and other environmental and social topics has increased focus on the sustainability of practices and products in the markets we serve, and compliance with new laws and regulations regarding these ESG topics may result in increased costs and disruption to operations. For example, The European Union’s Corporate Sustainability Reporting Directive (“CSRD”) significantly expands mandatory sustainability reporting in accordance with European Sustainability Reporting Standards (“ESRS”). While CSRD rules are prescriptive for the types of data to be reported, the standards to quantify and qualify such data are still evolving and uncertain. However, it is likely to impose significant increased costs on us related to complying with our reporting obligations and increase risks of noncompliance with ESRS and the CSRD. We are monitoring the rules and regulations related to CSRD and anticipate to be included in the CSRD’s scope beginning in 2025, with the initial reporting expected in 2026. In March 2024, the SEC released its final rule on climate-related disclosures, which would have required the disclosure of certain climate-related risks and financial impacts, as well as GHG emissions. Following a number of legal challenges, the implementation of these rules has been stayed pending review by the U.S. Court of Appeals for the Eight Circuit. In light of such pending litigation and the change in presidential administration, it is uncertain if and when such rules would take effect or in what form.
Moreover, the standards by which ESG matters are measured are rapidly evolving, and certain areas are subject to assumptions that could change over time. Stakeholder expectations are not uniform, and both opponents and proponents of various ESG-related matters have increasingly resulted in a range of activism and action to advocate for their positions. Navigating varying expectations of policymakers and other stakeholders has inherent costs, and any failure to successfully navigate such expectations may expose us to negative publicity, shareholder activism, and litigation of other engagement from stakeholders with opposing views, as well as the potential for civil investigations and enforcement by federal governmental authorities. If we are unable to recognize and respond to such developments, or if our existing practices and procedures are not adequate to meet new and changing regulatory requirements, market standards or investor expectations, some of which may be conflicting, we may miss corporate opportunities, become subject to regulatory scrutiny, litigation or third-party claims, or incur costs to revise operations to meet new or revised standards.
As a global organization, we have set goals to address the impact of our operations on climate change and related environmental and social issues. These targets include reducing carbon emissions and water usage as well as becoming fully reliant on renewable energy sources. Refer to Item 1. Business - Environmental. While challenging and aspirational, we believe these goals are obtainable, however, any failure or perceived failure to achieve our sustainability goals or to act responsibly with respect to such matters may negatively impact our operations and/or financial condition. While we monitor a broad range of ESG issues, there can be no assurance that we will manage such issues successfully, or that we will successfully meet the expectations of our stakeholders, consumers and employees.
If we are unable to maintain effective internal control over financial reporting, investors could lose confidence in the accuracy and completeness of our financial reports and the market price of shares could be adversely affected.
As a publicly traded company, we are required to maintain effective internal controls over financial reporting and to report any material weaknesses in our internal control. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the accuracy and completeness of our financial reporting for external purposes in accordance with generally accepted accounting principles. We spend a substantial amount of management and other employee time and resources to comply with laws, regulations and standards relating to corporate governance and public disclosure. In particular, Section 404 of the Sarbanes-Oxley Act of 2002 requires management’s annual review and evaluation of our internal control over financial reporting and attestation as to the effectiveness of these controls by our independent registered public accounting firm. If we fail to maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting.
25
Perrigo Company plc- Item 1A
Risk Factors
Global Risks
Our business, financial condition, and results of operations are subject to risks arising from the international scope of our operations.
We manufacture, source raw materials, and sell our products in a number of countries. The percentage of our business outside the U.S. has been increasing. We are subject to risks associated with international manufacturing and sales, including changes in regulatory requirements. Refer to Item 1. Business - Government Regulations and Pricing, for changes to tax and import/export laws and trade and customs policies (including the enactment of tariffs on goods imported into the U.S., including but not limited to, goods imported from China), problems related to markets with different cultural norms or political systems, possible difficulties in enforcing agreements, longer payment cycles and shipping lead-times, difficulties obtaining export or import licenses, and imposition of withholding or other taxes. Moreover, the trade policies of the new U.S. presidential administration could result in substantial changes to tax or fiscal policies that could impact our business. For example, the administration has imposed, or indicated a willingness to impose, significant tariffs on products imported from a number of countries, which could impact our API procurement, products and manufacturing, or give rise to retaliatory tariffs on U.S. goods by those countries.
Additionally, we are subject to periodic reviews and audits by governmental authorities responsible for administering import and export regulations. To the extent that we are unable to successfully defend against an audit or review, we may be required to pay assessments, penalties, and increased duties.
Certain of our facilities operate in a special purpose sub-zone established by the U.S. Department of Commerce Foreign Trade Zone Board, which allows us certain tax advantages on products and raw materials shipped through these facilities. If the Foreign Trade Zone Board were to revoke the sub-zone designation or limit our use, we could be subject to increased duties.
Although we believe that we conduct our business in compliance with applicable anti-corruption, anti-bribery and economic sanctions laws, if we are found to not be in compliance with such laws or other anti-corruption laws, we could be subject to governmental investigations, legal or regulatory proceedings, substantial fines, and/or other legal or equitable penalties. This risk increases in locations outside of the U.S., particularly in locations that have not previously had to comply with the FCPA, U.K. Bribery Act 2010, Irish Criminal Justice (Corruption Offenses) Act 2018, and similar laws.
We operate in jurisdictions that could be affected by economic and geopolitical instability, which could have a material adverse effect on our business.
Our operations and supply partners could be affected by economic or political instability, embargoes, military hostilities, unstable governments and legal systems, inter-governmental disputes, travel restrictions, terrorist acts, and other armed conflicts. The global nature of our business involves the following risks, among others:
•The U.S. Department of State and other governments have at times issued advisories regarding travel to certain countries in which we do business, causing regulatory agencies to curtail or prohibit their inspectors from traveling to inspect facilities. If these inspectors are unable to inspect our facilities, the regulatory agencies could withhold approval for new products intended to be produced at those facilities.
•As a result of the exit of the U.K. from the E.U. (“Brexit”), which occurred in 2020, we continue to experience uncertainty surrounding certain of our businesses. While the E.U. and U.K. ratified a Trade and Cooperation Agreement (the “TCA”) that sets forth a framework for cooperation between the E.U. and U.K., including the mutual recognition of GMP inspections of manufacturing facilities for medicinal products, it does not contain wholesale mutual recognition of pharmaceutical regulations and product standards, and the E.U. and the U.K. continue to amend legislation and regulations post-Brexit. We continue to monitor for divergence between E.U. and U.K. regulations that could negatively impact our supply chain operations or other product development or sales operations.
Moreover, financial volatility and geopolitical instability outside the U.S. may impact our operations or affect global markets. As noted above, the war in Ukraine and the conflict in the Middle East continue to impact our operations and supply chain and any escalation of these conflicts could have a larger impact that expands into other markets where we do business, including our supply chain, business partners and customers in the broader region, which could result in lost sales, supply shortages, increase manufacturing costs and lost efficiencies. Further, the conflict may adversely impact macroeconomic conditions and increase volatility in and affect our ability to access capital markets and external financing sources on acceptable terms or at all. Given the international scope of our operations, such effects of ongoing wars and armed conflicts, and others we cannot anticipate, could adversely affect our business, business opportunities, operations, and financial results.
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Perrigo Company plc- Item 1A
Risk Factors
The international scope of our business exposes us to risks associated with foreign exchange rates.
We report our financial results in U.S. dollars. However, a significant portion of our revenues, expenses, assets, indebtedness and other liabilities are denominated in foreign currencies. These currencies include, among others, the Euro, British pound, Canadian dollar, Swedish Krona, Chinese Yuan, Danish Krone, and Polish Zloty. Fluctuations in currency exchange rates, including as a result of inflation, central bank monetary policies, currency controls or other currency exchange restrictions have had, and could continue to have, an adverse impact on our financial performance. We may seek to mitigate the risk of such impacts through hedging, but such hedging activities may be costly and may not be effective.
In addition, emerging market economies in which we operate may be particularly vulnerable to the impact of rising interest rates, inflationary pressures, weaker oil and other commodity prices, and large external deficits. Risks in one country can limit our opportunities for portfolio growth and negatively affect our operations in another country or countries. Such conditions or developments could have an adverse impact on our operations. In addition, we may be exposed to credit risks in some of those markets.
Litigation and Insurance Risks
We are or may become involved in lawsuits and may experience unfavorable outcomes of such proceedings.
We may become involved in lawsuits arising from a wide variety of commercial, manufacturing, development, marketing, sales and other business-related matters, including, but not limited to, competitive issues, pricing, contract issues, intellectual property matters, false advertising, antitrust or unfair competition, taxation matters, workers' compensation, product quality/recall, environmental remediation, securities law, disclosure, product liability and regulatory issues. Litigation is unpredictable and could result in potentially significant monetary damages, and we could incur substantial legal expenses, even if a claim against us is unsuccessful. We intend to vigorously defend against any lawsuits, however, we cannot predict how the cases will be resolved. Adverse results in, or settlements of, such cases could result in substantial monetary judgments. No assurance can be made that litigation will not have a material adverse effect on our reputation, financial position or results of operations in the future. Refer to Item 8. Note 19.
The actual or alleged presence of certain hazardous substances or petroleum products on, under or in our currently or formerly owned property, or from a third-party disposal facility that we may have used, or the failure to remediate them, could have adverse effects, including, for example, substantial investigative or remedial obligations and limitations on our ability to sell or rent affected property or to borrow funds using affected property as collateral. There can be no assurance that environmental liabilities and costs will not have a material adverse effect on us. Refer to Item 1. Business - Environmental for more information related to environmental remediation matters.
Increased scrutiny on pricing practices and competition, including antitrust enforcement activity by government agencies and class action litigation, may have an adverse impact on our business and operating results, which could be material.
There has been increased scrutiny regarding sales, marketing, and pricing practices, including criminal antitrust investigations regarding drug pricing, civil False Claims Act investigations relating to drug pricing and marketing, multiple civil antitrust litigation initiated by governmental and private plaintiffs against pharmaceutical manufacturers and individuals, and related media reports.
Perrigo has been named as a co-defendant with certain other generic manufacturers in a number of class action, individual plaintiff direct action, State Attorney General, and county lawsuits alleging that we engaged in anti-competitive behavior to fix or raise the prices of certain drugs starting, in some instances, as early as calendar year 2010. Refer to Item 8. Note 19. While we intend to defend these lawsuits vigorously, any adverse decision could have a material adverse impact on our business, results of operations and reputation.
In addition, in May 2018, Perrigo was also served with and responded to a civil investigative demand in connection with a related civil False Claims Act investigation by the Civil Division of the Department of Justice. Although no charges or other related civil claims have been brought to date against Perrigo or any of our current employees (or, to the best of our knowledge, former employees), by the Department of Justice, we take the investigation very seriously.
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Perrigo Company plc- Item 1A
Risk Factors
Third-party patents and other intellectual property rights may limit our ability to bring new products to market and may subject us to potential legal liability, which could have a material adverse effect on our business and operating results.
The manufacture, use and sale of new products that are the subject of conflicting patent rights have been the subject of substantial litigation in the self-care and pharmaceutical industries.
•As a manufacturer of generic products, the ability of our CSCA and CSCI segments to bring new products to market is often limited by third-party patents or proprietary rights and regulatory exclusivity periods awarded on products. Launching new products prior to resolution of intellectual property issues may result in us incurring legal liability if the related litigation is later resolved against us. The cost and time for us to develop Rx-to-OTC switch products is significantly greater than the rest of the new products that we introduce. Any failure to bring new products to market in a timely manner could cause us to lose market share, and our operating results could suffer.
•We may have to defend against charges that we infringed patents or violated proprietary rights of third parties. This could require us to incur substantial expense and could divert significant effort of our technical and management personnel. If we are found to have infringed rights of others, we could lose our right to develop or manufacture some products or could be required to pay monetary damages or royalties to license proprietary rights from third parties. Additionally, if we choose to settle a dispute through licensing or similar arrangements, the costs associated with these arrangements may be substantial and could include ongoing royalties. An adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling a number of our products.
•At times, our CSCA segment may seek approval to market drug products before the expiration of a third party's patents for therapeutically equivalent products, based upon our belief that such patents are invalid, unenforceable or would not be infringed by our products. In these cases, we may face significant patent litigation. Depending upon a complex analysis of a variety of legal and commercial factors, we may, in certain circumstances, elect to market a store brand or generic product while litigation is pending, before any court decision, or while an appeal of a lower court decision is pending, known as an "at risk" launch. The risk involved in an "at risk" launch can be substantial because, if a patent holder ultimately prevails, the remedies available to the patent holder may include, among other things, damages measured by the profits lost by the holder, which are often significantly higher than the profits we make from selling the generic version of the product. By electing to proceed in this manner, we could face substantial damages if we receive an adverse final court decision. In the case where a patent holder is able to prove that our infringement was "willful" or "exceptional," under applicable law, the patent holder may be awarded up to three times the amount of its actual damages or we may be required to pay attorneys’ fees.
The success of certain of our products depends on the effectiveness of measures we take to protect our intellectual property rights and patents.
If we fail to adequately protect our intellectual property, competitors may manufacture and market similar products.
•We have been issued patents covering certain of our products, and we have filed, and expect to continue to file, patent applications seeking to protect newly developed technologies and products in various countries. Any existing or future patents issued to or licensed by us may not provide us with any significant competitive advantages for our products or may even be challenged, invalidated, or circumvented by competitors. In addition, patent rights may not prevent our competitors from developing, using, or commercializing non-infringing products that are similar or functionally equivalent to our products.
•We also rely on trade secrets, unpatented proprietary know-how, and continuing technological innovation that we seek to protect, in part by confidentiality agreements with licensees, suppliers, employees, and consultants. If these agreements are breached, we may not have adequate remedies for any such breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Furthermore, trade secrets and proprietary technology may otherwise become known or be independently developed by competitors or, if patents are not issued with respect to products arising from research, we may not be able to maintain the value of such intellectual property rights.
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Perrigo Company plc- Item 1A
Risk Factors
Our ability to achieve operating results in line with published guidance is inherently subject to numerous risks and other factors beyond our control. Publishing earnings guidance subjects us to risks, including increased stock volatility, that could lead to potential lawsuits by investors.
Because we publish earnings guidance, we are subject to several risks. Earnings guidance is inherently uncertain and subject to factors beyond our control. Actual results may vary from the guidance we provide investors from time to time, such that our stock price may decline following, among other things, any earnings release or guidance that does not meet market expectations.
It has become increasingly commonplace for investors to file lawsuits against companies following a rapid decrease in market capitalization. We have been in the past, are currently, and may be in the future, named in these types of lawsuits. These types of lawsuits can be costly and divert management attention and other resources away from our business, regardless of their merits, and could result in adverse settlements or judgments. The inherent uncertainty of earnings guidance and related lawsuits could have a material impact on us.
Significant increases in the cost or decreases in the availability of the insurance we maintain could adversely impact our operating results and financial condition. Disputes with insurers on the scope of existing policies may limit the coverage available under such policies.
To protect against various potential liabilities, we maintain a variety of insurance programs, including property, general, product, and directors' and officers' liability. We may reevaluate and change the types and levels of insurance coverage that we purchase. Insurance costs, including deductible or retention amounts, may increase, or our coverage could be reduced, which could lead to an adverse effect on our financial results depending on the nature of a loss and the level of insurance coverage we maintained. Moreover, we are self-insured when insurance is not available, not offered at economically reasonable premiums or does not adequately cover claims brought against us. Our business inherently exposes us to claims, and an unanticipated payment of a large claim may have a material adverse effect on our business.
We may also disagree with our insurers on the scope of coverage provided. For example, in May 2021, insurers on multiple policies of D&O insurance filed an action in the High Court in Dublin against us and our current and former directors and officers seeking declaratory judgments on certain coverage issues. While we were successful in the High Court action, and ultimately reached a settlement of this matter while it was on appeal, as noted in Item 8. Note 19, future disputes with insurers regarding the scope of coverage under the existing or future policies may result in reductions in coverage or increased costs.
Tax Related Risks
The resolution of uncertain tax positions, including any ongoing disputes with U.S. and foreign tax authorities, could be unfavorable, which could have a material adverse effect on our business.
Although we believe our tax estimates are reasonable and our tax filings are prepared in accordance with applicable tax laws, the final determination with respect to any tax audit or any related litigation could be materially different from our estimates or from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on operating results or cash flows in the periods for which that determination is made and in future periods after the determination. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties or interest assessments. See Item 8. Note 18 for a description of current audits and adjustment-related disputes and related litigation.
Changes to tax laws and regulations or the interpretation thereof could have a material adverse effect on our results of operations and the ability to utilize cash in a tax efficient manner.
Although we are incorporated in Ireland, the IRS may assert that we should be treated as a U.S. corporation (and, therefore, a U.S. tax resident) for U.S. federal tax purposes pursuant to section 7874 of the U.S. Internal Revenue Code of 1986, as amended ("Code"). For U.S. federal tax purposes, a corporation generally is considered a tax resident in the jurisdiction of its organization or incorporation. Because we are an Irish incorporated entity, we would generally be classified as a foreign corporation (and, therefore, a non-U.S. tax resident) under these rules. Section 7874 of the Code provides an exception under which a foreign incorporated entity may, in certain circumstances, be treated as a U.S. corporation for U.S. federal tax purposes. Refer to Item 1. Business - Government Regulation and Pricing.
We believe that under current law, we should be treated as a foreign corporation for U.S. federal tax purposes. However, there is limited guidance regarding the section 7874 provisions. An unfavorable determination on Perrigo Company plc’s treatment as a foreign corporation under section 7874 of the Code or changes to the inversion rules
29
Perrigo Company plc- Item 1A
Risk Factors
in section 7874 of the Code, the IRS Treasury regulations promulgated thereunder, or other IRS guidance and legislative proposals aimed at expanding the scope of U.S. corporate tax residence could adversely affect our status as a foreign corporation for U.S. federal tax purposes, which could have a material impact on our Consolidated Financial Statements in future periods.
Additionally, we are subject to tax laws in various jurisdictions globally. Refer to Item 1. Business - Government Regulation and Pricing for a discussion of recent changes to U.S. and EU tax laws. Any of these changes could have a prospective or retroactive application to us, our shareholders, and affiliates, and could adversely affect us by changing our effective tax rate and limiting our ability to utilize cash in a tax efficient manner.
Our effective tax rate or cash tax payment requirements may change in the future, which could adversely impact our future results of operations.
A number of factors may adversely impact our future effective tax rate or cash tax payment requirements, which may impact our future results and cash flows from operations. Refer toItem 8. Note 18. These factors include, but are not limited to: changes to income tax rates, to tax laws or the interpretation of such tax laws (including additional proposals for fundamental international tax reform globally); 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, treatment or characterization of intercompany transactions, changes in available tax credits, grants and other incentives; changes in stock-based compensation expense; changes in U.S. generally accepted accounting principles; expiration or the inability to renew tax rulings or tax holiday incentives; and divestitures of current operations.
Capital and Liquidity Risks
Our indebtedness could adversely affect our ability to invest in our business and implement our strategic initiatives.
Our business requires continuous capital investments, and there can be no assurance that financial capital will always be available on favorable terms or at all. Additionally, our leverage and debt service obligations could adversely affect the business. At December 31, 2024, our total indebtedness outstanding was $3.6 billion.
The agreements governing our Senior Secured Credit Facilities (as defined in Item 8. Note 12) impose material operating and financial restrictions that limit our operating flexibility, including the following:
•The Credit Agreement (as defined below) governing our Senior Secured Credit Facilities contain, and agreements governing our other indebtedness may contain, a number of restrictions and covenants that, among other things, limit our ability and/or our restricted subsidiaries’ ability to:
•incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons;
•pay dividends or distributions or redeem or repurchase capital stock;
•prepay, redeem or repurchase certain debt;
•make loans, investments, acquisitions (including certain acquisitions of exclusive licenses) and capital expenditures;
•enter into agreements that restrict distributions from our subsidiaries;
•enter into transactions with affiliates;
•enter into sale and lease-back transactions;
•sell, transfer or exclusively license certain assets, including material intellectual property, and capital stock of our subsidiaries; and
•consolidate or merge with or into, or sell substantially all of our assets to, another person.
•The Credit Agreement governing our Senior Secured Credit Facilities contains certain covenants, including certain limitations on incurring liens and indebtedness and maintenance of certain financial ratios, including a maximum first lien secured leverage ratio.
•As a result of these restrictions, we may be limited in how we conduct our business; unable to raise additional debt or equity financing to operate during general economic or business downturns; or unable to compete effectively, take advantage of new business opportunities or grow in accordance with our plans.
•Our failure to comply with any of the covenants could result in a default under the Credit Agreement and certain other indebtedness, which, if not cured or waived, could result in us having to repay our borrowings
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Perrigo Company plc- Item 1A
Risk Factors
before their due dates. Such default may allow the lenders or other note holders to accelerate the related debt and may result in the acceleration of any other debt to which cross-acceleration or cross-default provision applies. If we are forced to refinance these borrowings on less favorable terms or if we were to experience difficulty in refinancing the debt prior to maturity, our results of operations or financial condition could be materially affected. In addition, an event of default under the Credit Agreement may permit the lenders to refuse to permit additional borrowings under the Revolver (as defined below) or to terminate all commitments to extend further credit under the Revolver. Furthermore, if we are unable to repay the amounts due and payable under the Credit Agreement or other debt instruments, the lenders and note holders may be able to proceed against the collateral granted to them to secure that indebtedness. If our indebtedness is accelerated, there can be no assurance that we would be able to repay or refinance our debt or obtain sufficient new financing.
•Future downgrades to our credit ratings may limit our access to capital and materially increase borrowing costs on current or future financing, including via trade payables with vendors. Customers' inclination to purchase goods from us may also be affected by the publicity associated with deterioration of our credit ratings.
•There are various maturity dates associated with our Senior Secured Credit Facilities, senior notes, and other debt facilities. There is no assurance that cash, future borrowings or equity financing will be available for the payment or refinancing of our indebtedness. Further, there is no assurance that any future refinancing or renegotiation of our Senior Secured Credit Facilities, senior notes or other debt facilities, or additional agreements will not have materially different or more stringent terms. Refer toItem 7. Management’s Discussion and Analysis - Capital Resources.
We cannot guarantee that we will buy back our ordinary shares pursuant to our announced share repurchase plan or that our share repurchase plan will enhance long-term shareholder value.
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. During the years ended December 31, 2024 and December 31, 2023, we did not repurchase any shares under such authorization, and there can be no assurances that we will do so in the future. The specific timing and amount of additional buybacks under the authorization, if any, will depend upon several factors, including market and business conditions, the trading price of our ordinary shares, the nature of other investment opportunities, the availability of our distributable reserves and the tax consequences of any buybacks. In addition, our ability to repurchase shares may be limited in the future under Irish law, if at any time we do not have sufficient distributable reserves. No share repurchases are currently anticipated in the near term.
Buybacks of our ordinary shares could affect the market price of our ordinary shares, increase their volatility or diminish our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions. Although our share repurchase plan is intended to enhance long-term shareholder value, there is no assurance that it will do so, and short-term share price fluctuations could reduce the plan’s effectiveness.
Any additional shares we may issue could dilute your ownership in the Company.
Under Irish law, our authorized share capital can be increased by an ordinary resolution of our shareholders, and the directors may issue new ordinary or preferred shares up to a maximum amount equal to the authorized but unissued share capital, without shareholder approval, once authorized to do so by the articles of association or by an ordinary resolution of our shareholders.
Subject to specified exceptions, Irish law grants statutory preemption rights to existing shareholders to subscribe for new issuances of shares for cash, but allows shareholders to authorize the waiver of the statutory preemption rights either in our articles of association or by way of a special resolution. Such disapplication of these preemption rights can either be generally applicable or be in respect of a particular allotment of shares.
We are incorporated in Ireland; Irish law differs from the laws in effect in the United States and may afford less protection to, or otherwise adversely affect, our shareholders.
As an Irish company, we are governed by the Irish Companies Act 2014 (the "Act"). The Act differs in some material respects from laws generally applicable to U.S. corporations and shareholders, including the provisions relating to interested directors, mergers, amalgamations and acquisitions, takeovers, shareholder lawsuits, and indemnification of directors.
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Perrigo Company plc- Item 1A
Risk Factors
•Under Irish law, the duties of directors and officers of a company are generally owed to the company only. As a result, shareholders of Irish companies do not have the right to bring an action against the directors or officers of a company for the breach of such duties, except in limited circumstances.
•Shareholders may be subject to different or additional tax consequences under Irish law as a result of the acquisition, ownership and/or disposition of ordinary shares, including, but not limited to, Irish stamp duty, dividend withholding tax, Irish income tax, and capital acquisitions tax.
•There is no treaty between Ireland and the U.S. providing for the reciprocal enforcement of foreign judgments. Before a foreign judgment would be deemed enforceable in Ireland, the judgment must be (i) for a definite sum, (ii) provided by a court of competent jurisdiction and (iii) final and conclusive. An Irish High Court may exercise its right to refuse to recognize and enforce a foreign judgment if the foreign judgment was obtained by fraud, if it violated Irish public policy, if it is in breach of natural justice, or if it is irreconcilable with an earlier judgment.
•An Irish High Court may stay proceedings if concurrent proceedings are being brought elsewhere. Judgments of U.S. courts of liabilities predicated upon U.S. federal securities laws may not be enforced by Irish High Courts if deemed to be contrary to public policy in Ireland.
•It could be more difficult for us to obtain shareholder approval for a merger or negotiated transaction than if we were a U.S. company because the shareholder approval requirements for certain types of transactions differ, and in some cases are greater, under Irish law.
•Additionally, under the Irish Takeover Panel Act issued in 1997 and Takeover Rules issued in 2022, the Board of Directors is not permitted to take any action that might frustrate an offer for our ordinary shares, including issuing additional ordinary shares or convertible equity, making material acquisitions or dispositions, or entering into contracts outside the ordinary course of business, once the Board of Directors has received an approach that may lead to an offer or has reason to believe that such an offer is or may be imminent, subject to certain exceptions. These provisions may give the Board of Directors less ability to control negotiations with hostile offerors and protect the interests of holders of ordinary shares than would be the case for a corporation incorporated in a jurisdiction of the United States.
We may be limited in our ability to pay dividends in the future.
A number of factors may limit our ability to pay dividends, including, among other things:
•Our ability to receive cash dividends and distributions from our subsidiaries;
•Compliance with applicable laws and debt covenants;
•Our financial condition, results of operations, capital requirements, general business conditions, and other factors that our Board of Directors may deem relevant; and
•The availability of our distributable reserves.
Under Irish law, distributable reserves are the accumulated realized profits so far as not previously utilized by distribution or capitalization, less accumulated realized losses so far as not previously written off in a reduction or a reorganization of capital duly made, subject to adjustments for any increases to, or reductions of, share premium. In addition, no distribution or dividend may be made if, at the time of the distribution or dividend, our net assets are not, or would not be, after giving effect to such distribution or dividend, be equal to, or in excess of, the aggregate of our called-up share capital plus undistributable reserves.
While we currently expect to continue paying dividends, significant changes in our business or financial condition such as asset impairments, sustained operating losses and the selling of assets, could impact the amount of distributable reserves available to us. On July 18, 2023, the Irish High Court approved the creation of $4,900 million of distributable reserves of the Company through the reduction of the Share Premium account. The court order authorizing the creation of distributable reserves was filed with the Registrar of Companies in Ireland and became effective on July 20, 2023.
Additionally, we are subject to financial covenants in our Senior Secured Credit Facilities. Our failure to comply with these covenants could trigger events, which could result in the acceleration of the related debt. Refer to Item 7. Management's Discussion and Analysis - Capital Resources for more information.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
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Perrigo Company plc- Item 1C
Cybersecurity
ITEM 1C. CYBERSECURITY
RISK MANAGEMENT AND STRATEGY
Cybersecurity is an important part of our risk management program and an area of increasing focus for our Board of Directors and management. We use a risk-based approach to identify, assess, protect, detect, respond to and recover from cybersecurity threats. While management is responsible for the day to day risk management, the Board of Directors, is responsible for the Company's overall risk oversight function, including cybersecurity risks. The Nominating & Governance Committee ("NGC") supports the Board of Directors by overseeing cybersecurity risks, policies and objectives. The Audit Committee supports the Board of Directors in overseeing the framework for risk assessments and enterprise risk management ("ERM") process. The Company’s cybersecurity policies, standards and processes are designed and implemented in light of the requirements of the National Institute of Standards and Technology ("NIST") frameworks for cybersecurity and privacy.
Recognizing that no single technology, process or business control can effectively prevent or mitigate all risks, we employ multiple technologies, processes and controls, all working as part of a cohesive strategy to minimize risk including the following:
•We emphasize security and resiliency through business assurance capabilities and incident response plans designed to identify, evaluate, and remediate incidents when they occur. We regularly review and update our plans, policies and technologies and conduct regular training exercises and crisis management preparedness activities to test their effectiveness.
•Perrigo leverages the NIST cybersecurity framework to measure the capability of its cybersecurity program and we conduct third party assessments to measure the NIST ratings.
•We maintain a cybersecurity risk register which is reviewed periodically with relevant stakeholders. Risks that are higher in impact are included within our Enterprise Risk Register which is reviewed with Executive Leadership and the Board of Directors.
•Our processes used to identify, assess, protect, detect, respond to and recover from cybersecurity threats is regularly tested by external parties through penetration testing, and other exercises designed to assess and test our cybersecurity health, resiliency and the effectiveness of our program.
•Management invests in organization capability and technology to manage and identify cybersecurity and information security risks. Our Company has information security employees across the globe, enabling us to monitor and promptly respond to threats and incidents, identify and maintain oversight of cybersecurity risks associated with third parties, evaluate and deploy cybersecurity technologies, and educate associates on cybersecurity risks.
•We maintain cyber insurance coverage to help mitigate possible costs associated with a potential incident.
•We have implemented an information and cybersecurity awareness program designed to educate and test employee maturity at least annually, and regularly throughout the year employees receive training regarding phishing and other threat actor schemes, the inherent risks involved in human interaction with information and operational technology, and new and emerging technologies.
We have processes in place designed to allow us to oversee and identify risks from cybersecurity threats associated with our use of third party service providers and suppliers through our Supplier Cyber Risk Assessment process, which assesses third-party cybersecurity controls through a combination of risk assessment questionnaires, commercially available risk data and security rating platforms. We also include cybersecurity and information security language in our contracts where applicable. We require our suppliers and partners to report cybersecurity incidents to us so that we can assess the impact of such an incident on us and have dedicated processes to respond to cybersecurity incidents at third parties. We have established processes to contain the impact of potential security incidents on Perrigo's third party service providers.
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Perrigo Company plc- Item 1C
Cybersecurity
As of December 31, 2024, we are unaware of any risks from cybersecurity threats (including previous cybersecurity incidents) that may have materially affected or are reasonably likely to materially affect the Company's business strategy, results of operations or financial condition. We have experienced and may continue to experience cybersecurity incidents; however, we do not believe any cybersecurity incidents incurred to date have materially affected our Company, including our business strategy, results of operations, or financial condition. While we continue to employ resources to monitor our systems and protect our infrastructure, these measures may prove insufficient, and that could subject us to significant risks. For further discussion of how these and other potential cybersecurity risks may impact our business, refer to the risk factor under heading “A cybersecurity breach, disruption or misuse of our information systems, or our external business partners’ information systems could have a material adverse effect on our business” in Item 1A. Risk Factors – Operational Risks.
GOVERNANCE
Our overall information security efforts are led by the Chief Information Security Officer ("CISO"). The CISO has substantial experience in cybersecurity, including knowledge, skills, certifications, and background in the field. The CISO holds several key certifications including Certified Information Systems Security Professional ("CISSP"), Certified Secure Software Lifecycle Professional ("CSSLP") and Certified Ethical Hacker ("CeH").
While management is responsible for day-to-day risk management, the Board of Directors is responsible for the Company’s overall risk oversight function, including cybersecurity risks, and includes oversight by several committees. The NGC, comprised solely of independent directors, supports the Board of Directors by overseeing cybersecurity risks, policies and objectives. As a part of its duties, the NGC regularly provides reports to the full Board of Directors.
The NGC routinely engages with the Chief Financial Officer (“CFO”), the CISO and Senior Vice President on a range of cybersecurity-related topics, including threats to the environment and vulnerability assessments, policies and practices, technology trends and regulatory developments. The NGC conducts regular committee meetings prior to each regular Board of Directors meeting and convenes additional sessions as necessary to address a specific cybersecurity threat.
Perrigo has an incident response team comprised of the CISO and senior leadership from Legal, Human Resources and Finance. We have a formalized breach management protocol and playbooks that are tested periodically. Perrigo uses a panel of forensic and third party service providers to assist the Company with its response in the event of a cybersecurity incident. We employ escalation procedures designed to notify management of certain specific cybersecurity threats or incidents. If deemed appropriate, management will notify the NGC, which may convene to discuss the cybersecurity threat before reporting to the Board of Directors on the matter.
ITEM 2. PROPERTIES
Our world headquarters is located in Dublin, Ireland, and our North American base of operations is located in Grand Rapids, Michigan. We manufacture products at 16 worldwide locations and have R&D, logistics, and office support facilities in many of the regions in which we operate. We own approximately 80% of our facilities and lease the remainder. Our primary facilities by geographic area were as follows at December 31, 2024:
Country Number of Facilities Segment(s) Supported
Ireland 1 CSCA, CSCI
United States 40 CSCA, CSCI
France 6 CSCI
Belgium 3 CSCI
China 4 CSCA
United Kingdom 4 CSCI
Germany 3 CSCI
Switzerland 3 CSCI
Austria 3 CSCI
Greece 2 CSCI
Spain 2 CSCI
We believe that our production facilities are adequate to support the business, and our property and equipment are well maintained. Our manufacturing plants are suitable for their intended purposes and have capacities for current and near term projected needs of our existing products.
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Perrigo Company plc - Item 2
ITEM 3. LEGAL PROCEEDINGS
Information regarding our current legal proceedings is presented in Item 8. Note 19.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ADDITIONAL ITEM. INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Our executive officers and their ages and positions as of February 21, 2025 were:
Title and Business Experience Age
35
Perrigo Company plc - Item 5
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common equity has traded on the New York Stock Exchange under the symbol PRGO since June 6, 2013. Prior to that, our common equity traded on the Nasdaq Global Select Market under the same symbol.
As of February 21, 2025, there were 4,088 record holders of our ordinary shares.
In January 2003, the Board of Directors adopted a policy of paying quarterly dividends. During the year ended December 31, 2024, we declared and paid $152.5 million in dividends. We expect to continue the payment of cash dividends in the future, but there can be no assurance as to the amounts of any dividends declared or that the Board of Directors will continue to declare them.
The graph below shows a comparison of our cumulative total return with the cumulative total returns for the S&P 500 Index, and the S&P Consumer Staples Index. The graph assumes an investment of $100 at the beginning of the period and the reinvestment of any dividends. Information in the graph is presented for the years ended December 31, 2019 through December 31, 2024.
* $100 invested on December 31, 2019 - in stock or index - including reinvestment of dividends. Indexes calculated on month-end basis.
Our Board of Directors authorized up to $1.0 billion of share repurchases with no expiration date in October 2018, subject to the Board of Directors’ approval of the pricing parameters and amount that may be repurchased under each specific share repurchase program (the "2018 Authorization"). We did not repurchase any shares during the year ended December 31, 2024 or December 31, 2023. During the year ended December 31, 2021, we repurchased 3.4 million ordinary shares at an average purchase price of $48.28 per share for a total of $164.2 million under the 2018 Authorization. As of December 31, 2024, the approximate value of shares available for purchase under the 2018 Authorization was $835.8 million.
ITEM 6. [RESERVED]
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Perrigo Company plc - Item 7
Executive Overview
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 2024 results to 2023. For discussion and analysis that compares 2023 results to 2022, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of our Annual Report on Form 10-K for the year ended December 31, 2023.
EXECUTIVE OVERVIEW
Perrigo is a leading pure-play self-care company with more than a century of providing high-quality health and wellness solutions to meet the evolving needs of consumers. As one of the originators of the over-the-counter ("OTC") self-care market, Perrigo is led by its vision "To Provide The Best Self-Care For Everyone" and its purpose to "Make Lives Better Through Trusted Health and Wellness Solutions, Accessible To All".
Perrigo provides access to trusted self-care solutions that can be used without the need to visit a health practitioner for a prescription. Guided by our vision and purpose, our strategic goal is to create sustainable and value accretive growth by 1) delivering consumer preferred brands and innovation, 2) driving category growth with our customers, 3) powering our business with our world-class, quality assured supply chain, including a focus on sustainability with meaningful goals to reduce greenhouse gas emissions, water, and waste, in addition to increasing the recyclability of our packaging, and 4) evolving our global organization to one cohesive operating model. Our unique competency is to deliver health and wellness solutions across multiple price and value tiers that improve access and choice for consumers.
Perrigo's broad offerings are well diversified across several major product categories as well as across geographies, primarily in North America and Europe, with no one product representing more than 5% of total revenue. In North America, Perrigo is the leading store brand private label provider of self-care products in many categories, including upper respiratory, nutrition and women's health, along with brands including Opill® and Mederma®. In Europe, our portfolio consists primarily of brands, including Compeed®, EllaOne®, Solpadeine®, and ACO®.
Two key initiatives are fundamental to advancing our self-care strategy — our Supply Chain Reinvention Program, a global supply chain efficiency program, and Project Energize, a global investment and efficiency 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.
Perrigo’s unique complementary businesses enables each individually to play a specific reinforcing role, where 1) store brands and infant formula generate cash for investments into the Company’s key higher margin, higher growth or ‘High-Grow’ brands, 2) branding and innovation capabilities that deliver brand and store brand demand generation leading to stronger customer partnerships, 3) consumer-led innovation that is scaled across brands, store brands and geographies, and 4) the Company’s global supply chain scale and reach with 100-plus molecules, at 100% consumer price point coverage, serves the most consumers.
The Company’s plan to drive cash flow and total shareholder return is anchored behind its ‘Three-S’ plan – ‘Stabilizing’ Consumer Self-Care Americas store brand and infant formula businesses; ‘Streamlining’ the global portfolio, enterprise operating model and Consumer Self-Care International business; and ‘Strengthening’ what is working by prioritizing and increasing investments behind key ‘High-Grow’ brands.
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
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Perrigo Company plc - Item 7
Executive Overview
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.
•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.
Recent Developments
Market Factors and Trends
Economic Uncertainty
Current macroeconomic conditions remain very dynamic, including impacts from inflation and interest rates, volatile changes in foreign currency exchange rates, political unrest and uncertainty 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.
Our interest expense is impacted by the overall global economic and interest rate environment. We manage interest rate risk through our capital structure and the use of interest rate swaps to fix the interest rate on greater than 90% of our outstanding debt.
Inflationary Costs and Supply Chain
Supply chain disruptions continue in specific categories such as agricultural commodities due to climate impacts, and with supply shortages due to the Middle East conflict. While reducing in impact, inflationary pressures are still a factor on cost in major economies globally across food, energy and labor. We continue to experience employment vacancies and attrition in the labor market which negatively impacts productivity and has driven 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 have substantially offset the impacts of inflation to date. However, future supply chain disruptions and inflationary pressures from the continuation of the conflicts between Russia and Ukraine and any escalating conflicts in the Middle East and neighboring regions are uncertain.
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. 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.
Middle East Conflicts
We continue to closely monitor the ongoing conflict and the social, political and economic environment in Israel and in the surrounding region to evaluate the impacts on our operations and supply chain. Israel is a global technology research and development center that plays a critical role to the global Active Pharmaceutical Ingredients ("API") market, as a number of key suppliers are located within Israel. The Company sources some raw materials and finished goods from suppliers in Israel for certain self-care products, including Omeprazole. To date, Perrigo has confirmed that our suppliers in the region have active operations and continue to manufacture materials for us, and we have not received any reports of restrictions on imports or exports in Israel. However, there is potential for some disruption as it relates to in-country logistics, including freight. As a precaution, Perrigo has engaged alternate suppliers to help minimize a potential supply disruption. If the conflict spreads or materially escalates, or if the conflict leads to further volatility and uncertainty in financial markets or economic conditions, the impact on our business and results of operations could be material. This includes the related events developing in the Red Sea and their potential to disrupt supply chains and lead to further inflationary pressures which we are also continuing to monitor closely.
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Perrigo Company plc - Item 7
Executive Overview
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. Significant 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.
Infant Formula
As part of its efforts to prevent supply interruptions and risk of Cronobacter spp. illnesses associated with powdered infant formula, in March 2023, the FDA released an “Immediate National Strategy to Increase the Resiliency of the U.S. Infant Formula Market” and issued a letter to the powdered infant formula industry to share information to assist the industry in improving the microbiologic safety of powdered infant formula. In response to those changes, we made considerable investments in all our infant formula manufacturing sites. These investments included, among other things, enhancing our cleaning and sanitation protocols, our environmental monitoring programs, and quality oversight, as well as increasing the number of quality and operations personnel at the sites. These changes resulted in higher costs, lower manufacturing output, and lower production yields across our infant formula network.
As previously disclosed, the Company received a warning letter from the FDA on August 30, 2023 relating to the Perrigo Wisconsin infant formula facility, which was acquired from a third party in November 2022. While the Company was working to resolve the issues raised in the August 30 letter, on November 29, 2023, the Company received notice from the FDA of additional inspection observations relating to Perrigo Wisconsin. Consistent with the Company’s commitment to quality, the Company temporarily paused all production at that facility to address the FDA's observations. As part of this effort, the Company conducted an extended site-wide assessment and cleaning.
The Company also bolstered its internal resources and brought in additional outside expertise to help revise, enhance and strengthen comprehensive standards and processes across our infant formula network, including in some instances, pausing production for comprehensive cleaning and infrastructure improvements. All planned large-scale manufacturing plant improvements were completed in 2024, but the Company continues to implement the next phase of our quality enhancements, including further protocol, process and procedural improvements at the site level, and make additional investments to upgrade infrastructure. We do not expect these continuing improvements to result in extended shutdowns beyond those required for typical planned maintenance activities.
In October and November 2024, the FDA conducted its first inspection of the Perrigo Wisconsin infant formula facility since the November 2023 inspection.Following this 2024 inspection, the FDA did not issue written observations via a Form FDA 483.
Currently, all our infant formula manufacturing sites are up and running and have returned to reliable, quality-assured production with recent output across our infant formula network near historical levels. Our focus now lies in continuing to rebuild customer service levels and getting these critical products back on the shelves for consumers who need high-quality, affordable infant formula. With production now stabilized, we're driving strategic investments to strengthen the infant formula operations network to ensure the long-term sustainability of a key component of our CSCA business.
We have incurred certain extraordinary non-recurring costs associated with the remediation and enhancement actions described above and the evolving U.S. infant formula regulatory landscape, including consulting and legal fees relating to the Company’s responses to the FDA and the development and implementation of new protocols across our infant formula manufacturing sites, as well as other costs relating to the extended cleaning and sanitization and the pausing and restarting of production. Cash costs in 2024 to achieve the remediation and enhancement actions described above totaling $21.7 million were incurred. We also expect higher ongoing operating costs at our infant formula manufacturing sites moving forward as we continue to implement our enhanced program with additional internal capabilities. Due to these costs and the unabsorbed overhead and depressed sales volumes resulting from these actions, infant formula results in 2024 were below 2023 levels.
U.S. Department of Justice Antitrust Division Investigation
On July 29, 2024, the Antitrust Division of the U.S. Department of Justice advised us that it no longer considers Perrigo a subject or target of the division’s grand jury investigation of antitrust violations in the generic drug industry. That investigation had stemmed from the Company’s Rx Pharmaceuticals business, which was divested in 2021.
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Perrigo Company plc - Item 7
Executive Overview
Restructuring
Supply Chain Reinvention Program
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 are reducing portfolio complexity, investing in advanced planning capabilities, diversifying sourcing, and optimizing our manufacturing assets and distribution models. We estimate a total annual run-rate potential savings opportunity by the end of fiscal year 2028 of between $200 million to $300 million (not including related depreciation expense on capital investments). To obtain these potential benefits, we anticipate incurring costs between $300 million to $350 million by the end of fiscal year 2028 to complete the program implementation, with the substantial portion of the costs incurred by the end of 2025, 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.Refer to Item 8. Note 17 for further details on restructuring charges.
Project Energize
Perrigo has successfully transformed into a pure-play consumer self-care company and is now embarking on the next stage of its self-care journey - evolving to One Perrigo. This evolution will create sustainable, value accretive growth through a business model that better positions the Company to win in self-care.
As part of the Company's sustainable, value accretive growth strategy, the Company launched Project Energize - a global investment and efficiency program to drive the next evolution of capabilities and organizational agility. This three-year program is expected to produce significant benefits in the Company’s long-term business performance by enabling our One Perrigo growth strategy, increasing organizational agility and mitigating impacts from stabilizing and strengthening the infant formula business.
Project Energize was initiated in the first quarter of 2024, subject to local law and consultation requirements, and is expected to deliver annualized pre-tax savings in the range of $140 million to $170 million by the end of 2026. The Company expects an annual reinvestment of approximately $40 million to $60 million of these savings to drive its business model. Restructuring and related charges associated with these actions are estimated to be in the range of $140 million to $160 million, including $20 million to $40 million in investments to enhance capabilities, and are expected to be substantially incurred by the end of 2026. Restructuring activities as part of Project Energize are expected to result in the net reduction of approximately 6% of total Perrigo roles. Refer to Item 8. Note 17 for further details on restructuring charges.
Indebtedness and Capital
On September 17, 2024, Perrigo Finance Unlimited Company ("Perrigo Finance"), a public unlimited company incorporated under the laws of Ireland and an indirect wholly-owned finance subsidiary of Perrigo whose primary purpose is to finance the business and operations of Perrigo and its affiliates, issued $715 million in aggregate principal amount of 6.125% Senior Notes due 2032 (the "USD Notes due 2032") and €350 million in aggregate principal amount of 5.375% Senior Notes due 2032 (the "Euro Notes due 2032" and together with the USD Notes due 2032, the "2032 Notes"). Net proceeds from the 2032 Notes were used to prepay a portion of the Term Loan B Facility (as defined below) on September 19, 2024 and the remaining proceeds were used to fund the redemption of $700.0 million of the 4.375% Notes due 2026 on October 2, 2024.
In December 2024, we and the Borrower entered into Amendment No. 2, an Incremental Assumption Agreement to our Term Loan and Revolving Credit Agreement that provides for the refinancing of the Term B Loans outstanding under the Credit Agreement in the aggregate principal amount of $984.7 million. Refer to Item 8. Note 12.
40
Perrigo Company plc - Item 7
Executive Overview
Divestitures
On July 10, 2024, we completed the sale of our HRA Pharma Rare Diseases Business (the "Rare Diseases Business") to Esteve Healthcare S.L. ("ESTEVE") for total consideration of $244.5 million, inclusive of net cash received, an estimated working capital adjustment, and contingent consideration with a fair value of $34.5 million as of December 31, 2024. The sale resulted in a pre-tax gain of $5.8 million, net of professional fees, recorded in Other (income) expense, net on the Condensed Consolidated Statement of Operations within our CSCI segment. Refer to Item 8. Note 3 and Note 9 for additional details of the divestiture and impairments recognized as a result of the sale.
On November 1, 2024, we completed the sale of Orion Laboratories Hospital & Specialty Business (the "Hospital & Specialty Business") to General Pharma BidCo Pty Ltd, being an Australian incorporated entity which is ultimately owned by funds managed by Genesis Capital ("Genesis Capital") for total consideration of $13.3 million, which resulted in a pre-tax gain of $0.6 million, net of professional fees, recorded in Other (income) expense, net on the Consolidated Statements of Operations within our CSCI segment. Refer to Item 8. Note 3 and Note 9 for additional details of the divestiture and impairments recognized as a result of the sale.
Additionally, during the year ended December 31, 2024, we sold 7 branded products in 4 separate transactions for total cash consideration of $37.9 million, which resulted in a pre-tax gain of $28.1 million recorded in Other operating (income) expense, net on the Consolidated Statements of Operations within our CSCI segment.
RESULTS OF OPERATIONS
Currency Translation
Any 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, 2024 at the average exchange rates for the reporting period and average exchange rates for the year ended December 31, 2023.
CONSOLIDATED
Consolidated Financial Results
Year Ended
(in millions, except percentages) December 31, 2024 December 31, 2023
Operating income % 2.6 % 3.3 %
Net sales decreased $282.2 million, or 6.1%, primarily due to:
•$206.1 million decrease, or 4.5%, due primarily to $179.2 million of lower net sales volumes, previously disclosed lost distribution of lower margin products, and a later start to the cough and cold season, primarily impacting the Pain & Sleep Aids, Upper Respiratory Digestive Health, and Oral Care categories compared to the prior year and $108.4 million of lower net sales in U.S. Nutrition category driven by actions to augment and strengthen infant formula network. These factors were partially offset by growth in Women's Health and Skin Care; and
•$50.6 million decrease from the divestitures of the Rare Diseases Business, Hospital and Specialty Business and the sale of branded products; and
•$15.1 million decrease from exited product lines; and
•$10.4 million decrease from unfavorable foreign currency translation.
Operating income decreased $39.0 million, or 25.7%, due to:
•$137.7 million decrease in gross profit driven by the impact of lower global OTC net sales volumes resulting from a focus on production of higher margin products, including positive impacts from $57.1 million of new products, and lower infant formula volumes within U.S. Nutrition driven by actions to augment and strengthen the infant formula network. These lower sales volumes led to lower manufacturing productivity of
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Perrigo Company plc - Item 7
Consolidated
$131.1 million which was partially offset by benefits from strategic pricing actions and savings achieved through Supply Chain Reinvention and Project Energize of $56.6 million. Additionally, exited products and divested businesses negatively impacted gross profit by $35.8 million and $17.5 million negative impact from infant formula remediation. Gross profit as a percentage of net sales decreased 80 basis points compared to the prior year due to the same factors that impacted gross profit; and
•$98.7 million decrease in operating expenses due primarily to lower selling and administrative costs of $149.4 million due primarily to Project Energize and lower variable employee costs. These decreases were partially offset by increased restructuring expense of approximately $68 million and higher advertising and promotion costs compared to the prior year.
CONSUMER SELF-CARE AMERICAS
Segment Financial Results
Year Ended
(in millions, except percentages) December 31, 2024 December 31, 2023
Operating income % 10.0 % 13.2 %
Net sales decreased $268.6 million, or 9.1% primarily due to:
•$253.0 million decrease, or 8.6%, due primarily to $178.3 million of lower net sales volumes, previously disclosed lost distribution of lower margin products, and a later start to the cough and cold season, primarily impacting the Pain & Sleep Aids, Upper Respiratory Digestive Health, and Oral Care categories compared to the prior year and $108.4 million of lower net sales in U.S. Nutrition category driven by actions to augment and strengthen infant formula network. These factors were partially offset by growth in Women's Health category, primarily driven by new product sales of Opill®; and
•$15.1 million decrease from exited product lines.
CSCA net sales by product category were as follows:
Sales Year Ended
Vitamins, Minerals, and Supplements ("VMS") 14.5 18.5 (4.0) (21.6) %
(1) We updated our global reporting product categories as a result of legacy sales being moved out of Other CSCA and into respective categories. These product categories have been adjusted retroactively to reflect the changes and have no impact on historical financial position, results of operations, or cash flows.
Sales in each category were driven primarily by:
•Upper Respiratory: Net sales of $500.3 million decreased 10.9% due primarily to 7.3 percentage points reduction from portfolio optimization actions and net lost distribution of lower margin products, in addition to lower consumer demand for cough cold and allergy products. These impacts more than offset strong growth of Nasonex® and Triamcinolone Acetonide in the category;
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CSCA
•Digestive Health: Net sales of $497.4 million decreased 2.0% as higher volumes of antacid and laxative products, including Polyethylene Glycol, were more than offset by 3.4 percentage points reduction from exited product lines and portfolio optimization actions, lost distribution of lower margin products in U.S. Store Brand and lower volume of proton pump inhibitors, including Omeprazole, Esomeprazole and Lansoprazole, despite Perrigo share gains;
•Nutrition: Net sales of $449.5 million decreased 20.2% as increases in net sales of infant formula products as the Company continues to refill store brand and contract customer inventories and regain market share was more than offset by lower shipments to customers in the first half of the year as the Company worked through its infant formula plant remediation plans and a 0.8 percentage points decline from exited product lines in the category;
•Pain and Sleep-Aids: Net sales of $345.5 million decreased 13.0% due primarily to net lost distribution of lower margin products, purposeful SKU prioritization actions and exited product lines, which had an aggregate negative impact of 10.3 percentage points. In addition, inventory reductions by U.S. retail customers resulted in lower net sales of pain and sleep-aid products;
•Healthy Lifestyle: Net sales of $306.8 million decreased 1.5% due primarily to lower category consumption compared to the prior year, partially offset by higher net sales of nicotine lozenges, including the new product launch of the Nicotine Ice Mint Lozenge, higher net sales of nicotine gums and market share gains;
•Oral Care: Net sales of $275.4 million decreased 11.3% due primarily to lower distribution at specific retail customers and lower net sales of store brand whitening, partially offset by higher net sales of Reach® travel kits;
•Skin Care: Net sales of $220.1 million decreased 8.5% due primarily to net lost distribution of lower margin products, portfolio optimization actions and exited product lines, which had an aggregate negative impact of 8.4 percentage points. These impacts more than offset strong growth of Mederma® and growth within the Minoxidil franchise;
•Women's Health: Net sales of $81.1 million increased 67.0% due primarily to the new product launch of Opill® and higher net sales of feminine hygiene products, partially offset by 3.9 percentage point reduction from exited product lines;
•VMS and Other: Net sales of $17.6 million decreased 20.4% due primarily to volume decline in Other and purposeful SKU prioritization actions.
Operating income decreased $119.7 million, or 30.7%, due primarily to:
•$129.3 million decrease in gross profit driven primarily by the impact of lower OTC net sales volumes resulting from a focus on production of higher margin products, including positive impacts from $27.1 million of new products, and lower infant formula volumes of $75.1 million within U.S. Nutrition driven by actions to augment and strengthen the infant formula network. These lower sales volumes led to lower manufacturing productivity of $111.4 million which was partially offset by the savings from strategic pricing benefits and savings achieved through Supply Chain Reinvention and Project Energize of $55.8 million. Gross profit as a percentage of net sales decreased 180 basis points compared to the prior year due to the same factors that impacted gross profit, partially offset by favorable product mix, including higher margin new products and lost distribution of lower margin products.
•$9.6 million decrease in operating expenses due primarily to lower administrative and selling costs of $57.4 million due primarily to Project Energize and lower variable employee costs. These decreases were partially offset by impairment charges of $38.6 million, higher restructuring costs and higher advertising and promotion compared to the prior year, primarily for Opill®.
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CSCI
CONSUMER SELF-CARE INTERNATIONAL
Segment Financial Results
Year Ended
(in millions, except percentages) December 31, 2024 December 31, 2023
Operating income (loss) $ 105.0 $ (35.2)
Operating income % 6.3 % (2.1) %
Net sales decreased $13.7 million, or 0.8% primarily due to:
•$50.6 million decrease from the divestiture of the Rare Diseases and Hospital and Specialty Businesses and the sale of branded products; and
•$10.0 million decrease from unfavorable foreign currency translation; partially offset by
•$46.9 million, or 2.9%, net increase due primarily to approximately $154 million of strategic pricing actions and new products, partially offset by lower net sales across most product categories, primarily Upper Respiratory due to lower cough cold and allergy seasonal demand compared to the prior year.
CSCI net sales by product category were as follows:
Sales Year Ended
(1) We updated our global reporting product categories as a result of our product portfolio reconfiguration. These product category updates have been adjusted retroactively to reflect the changes and have no impact on historical financial position, results of operations, or cash flows. Refer to Item 8. Note 2.
Sales in each category were driven primarily by:
•Skin Care: Net sales of $410.0 million increased 10.1%, inclusive of a 2.7% unfavorable effect of currency translation, driven primarily by strong growth in Compeed® driven by the new product launch of Compeed Spots, and strong sales within the Sebamed and ACO brand lines. The category also benefited from the absence of prior year distribution transitions;
•Upper Respiratory: Net sales of $282.1 million decreased 5.7%, inclusive of a 1.1% favorable effect of currency translation, due primarily to lower net sales of cough cold products stemming from lower incidence of cough cold throughout the E.U. compared to the prior year, partially offset by higher net sales of Bronchenolo®, Bronchostop® and Coldrex® which benefited from category growth and market share gains;
•Healthy Lifestyle: Net sales of $225.8 million remained flat, inclusive of a 3.4% unfavorable effect of currency translation, due primarily to higher net sales of anti-parasite offerings, including Paranix and Jungle Formula, were offset by lower category consumption in weight loss, impacting XLS Medical®;
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CSCI
•Pain & Sleep-Aids: Net sales of $222.2 million decreased 0.4%, inclusive of a 1.8% favorable effect of currency translation, due primarily to lower net sales of QAH, partially offset by higher net sales of Solpadeine and store brand products;
•VMS: Net sales of $173.5 million decreased 6.6%, inclusive of a neutral effect of currency translation, due primarily to lower net sales of Davitamon,Granufink and Arterin, stemming from lower consumption. These dynamics were partially offset by higher net sales of Vitamax;
•Women's Health: Net sales of $132.8 million increased 11.0%, inclusive of a 0.3% unfavorable effect of currency translation, due primarily to higher net sales of contraceptive products including ellaOne®, driven by market share gains and the absence of prior year distribution transitions;
•Oral Care: Net sales of $99.4 million decreased 2.0% inclusive of a 1.2% favorable effect of currency translation, due primarily to lower net sales of store brand oral care products and Plackers®;
•Digestive Health and Other: Net sales of $133.8 million decreased 19.6%, inclusive of a 0.4% favorable effect of currency translation, due primarily to the divestiture of the Rare Diseases Business, partially offset by higher net sales of store brand digestive health products.
Operating income increased $140.2 million, or 398.3%, due to:
•$8.5 million decrease in gross profit due primarily to the impact of lower net sales volumes of $85.5 million, divested businesses and exited product lines of approximately $34 million, and negative impacts from cost of goods sold inflation. The impact of lower net sales volumes was partially offset by higher gross profit flow through from strategic pricing actions and new products of $141.5 million. Gross profit as a percentage of net sales remained flat compared to the prior year due to the same factors that impacted gross profit; and
•$148.7 million decrease in operating expenses due primarily to lower selling and administrative costs of $110.8 million due primarily to Project Energize and lower variable employee costs, $39.6 million decrease in impairment charges compared to the prior year, and approximately $28 million of income recognized as a gain on the sale of branded products during the current year. These decreases were partially offset by increased restructuring expense of approximately $32 million.
Unallocated Expenses
Unallocated expenses are comprised of certain corporate services not allocated to our reporting segments and are recorded in Operating income on the Consolidated Statements of Operations. Unallocated expenses were as follows (in millions):
Year Ended
The increase of $59.6 million in unallocated expenses during the year ended December 31, 2024 compared to the prior year period was due primarily to an increase in expenses for litigation as well as restructuring costs associated primarily with Project Energize.
Interest expense, net, Other (income) expense, net and (Gain) Loss on extinguishment of debt (Consolidated)
Year Ended
Other (income) expense, net $ (0.9) $ (10.4)
(Gain) loss on extinguishment of debt $ 6.7 $ (3.2)
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Unallocated, Interest, Other, and Taxes
Interest Expense, net
The $14.0 million increase during the year ended December 31, 2024 compared to the prior year was due primarily to the de-designation of interest rate swap agreements. There were several derivative and debt transactions entered into over the course of the year to manage interest expense, refer to Item 8. Note 11 and Note 12 for details.
Other (Income) Expense, net
The $9.5 million decrease in income during the year ended December 31, 2024 compared to the prior year was due primarily to higher prior year milestone income related to legacy royalty rights.
(Gain) loss on extinguishment of debt
The $6.7 million loss on extinguishment of debt during the year ended December 31, 2024 is primarily related to the unamortized fees associated with the partial payment on the Term Loan B Facility (refer to Item 8. Note 12). The $3.2 million gain on extinguishment of debt during the year ended December 31, 2023 is related to the debt refinancing and tender offer activity during the fourth quarter of 2023.
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, 2024, increased when compared to the effective tax rate on the pre-tax loss for the year ended December 31, 2023, primarily due to the net impact of an intercompany intellectual property sale, and the establishment of a partial valuation allowance in the United States, offset by the impact of audit settlements in the prior year.
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 war in Ukraine and conflicts in the Middle East, inflation and interest rates, the status of material contingent liabilities, recent financial market volatility and other uncertainties. Additionally, we have considered investments in capital expenditures related to the progression of infant formula plant investments, our Supply Chain Reinvention Program, and Project Energize. Subject to relevant restrictions under our debt agreements, our cash requirements for other purposes and other factors management deems relevant, we may from time to time use available funds to redeem, repurchase or refinance our debt in privately negotiated or open market transactions, by tender offer or otherwise, in compliance with applicable laws, rules and regulations, at prices and on terms we deem appropriate (which may be below par).
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 war in Ukraine and conflicts in the Middle East, inflation and interest rates, the status of material contingent liabilities, financial market volatility or other uncertainties have a material impact on our capital requirements.
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Financial Condition, Liquidity and Capital Resources
Cash, Cash Equivalents and Restricted Cash
Year Ended
Cash, cash equivalents and restricted cash(1) $ 558.8 $ 751.3
(1)We had $7.0 million of restricted cash on the Consolidated Balance Sheets as of December 31, 2023. We had no restricted cash on the Consolidated Balance Sheets as of December 31, 2024.
(2)Working capital represents current assets less current liabilities, excluding cash, cash equivalents and restricted cash and excluding current indebtedness.
Cash, cash equivalents, restricted cash, 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 operating activities $ 362.9 $ 405.5 $ (42.6)
Net cash from (for) investing activities 78.8 (77.5) 156.3
Net cash from (for) financing activities (611.0) (187.2) (423.8)
Effect of exchange rate changes on cash and cash equivalents (23.2) 9.8 (33.0)
Net increase (decrease) in cash and cash equivalents $ (192.5) $ 150.6 $ (343.1)
Net cash from Operating Activities
The $42.6 million decrease in operating cash inflow was primarily driven by a decrease in cash flow from the change in net earnings after adjustments including deferred income taxes, restructuring charges, settlement of interest rate derivatives, the gain on sale of branded products in addition to higher working capital, primarily related to restructuring costs.
Net cash (for) from Investing Activities
The $156.3 million increase in cash from investing cash flow was due primarily to the proceeds from the sale of the Rare Diseases and Hospital & Specialty Businesses, proceeds from the sale of branded products in the current year, partially offset by the settlement of foreign currency derivatives and purchase of an intangible asset in the current year.
Capital expenditures totaled $118.3 million in 2024. We anticipate 2025 capital expenditures to be between $120 million and $160 million, depending on the progression of infant formula plant investments, our Supply Chain Reinvention Program, Project Energize, 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.
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Financial Condition, Liquidity and Capital Resources
Net cash (for) from Financing Activities
The $423.8 million decrease in financing cash flow was due to the pay down of the 2024 Notes utilizing cash on hand and proceeds from the sale of the Rare Diseases Business. Additionally, we redeemed in full $700 million in aggregate principal amount of the 4.375% senior notes due 2026 and made a principal prepayment of $391.0 million on the Term Loan B facility during the current year utilizing proceeds from debt issuances of approximately $1.1 billion from the 2032 Notes, as defined in Item 8. Note 12. Additionally, we increased our dividend payment by $2.8 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, 2024 or December 31, 2023. The future repurchase of shares, if any, is subject to the discretion of our Board of Directors.
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) $ 152.5 $ 149.7
Dividends paid per share $ 1.10 $ 1.09
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
Note Issuances
On September 17, 2024, Perrigo Finance issued the 2032 Notes as defined in Item 8. Note 12. The 2032 Notes are fully and unconditionally guaranteed on a senior unsecured basis by Perrigo and its subsidiaries that provide guarantees under Perrigo's Senior Secured Credit Facilities (as defined below). Net proceeds from the 2032 Notes were used to prepay a portion of the Term Loan B Facility (as defined below) on September 19, 2024 and the remaining proceeds were used to fund the redemption of $700 million of the 4.375% Notes due 2026 on October 2, 2024. As a result of the redemption, we recognized an extinguishment loss of $6.7 million during the year.
Credit Agreements
On April 20, 2022, we and our indirect wholly-owned subsidiary, Perrigo Investments, LLC (the "Borrower") entered into the senior secured credit facilities, which consisted of (i) a $1.0 billion five-year revolving credit facility (the "Revolver"), (ii) a $500.0 million five-year Term Loan A facility (the "Term Loan A Facility" and the Term A Loans thereunder, the "Term A Loans"), and (iii) a $1.1 billion seven-year Term Loan B Facility (the "Term Loan B Facility" and the Term B Loans thereunder borrowed on April 20, 2022, the "2022 Term B Loans" and, together with the Revolver and Term Loan A Facility, the "Senior Secured Credit Facilities"), pursuant to a Term Loan and Revolving Credit Agreement (the "Credit Agreement").
On December 15, 2023, we and the Borrower entered into Amendment No. 1, an Incremental Assumption Agreement (the "Amendment") to the Credit Agreement. The Amendment provides for a fungible add on to the 2022 Term B Loans in an aggregate principal amount of $300.0 million (the "Incremental Term B Loans" and together with the 2022 Term B Loans, the “Term B Loans”). The terms of the Incremental Term B Loans, including pricing and maturity, are identical to the 2022 Term B Loans. The Term B Loans will mature on April 20, 2029. The net proceeds from the Incremental Term B Loans were used to settle the cash tender offer by Perrigo Finance for $300.0 million in aggregate principal amount of 3.900% Senior Notes due 2024 ("2024 Notes"). The tender offer was settled on
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Financial Condition, Liquidity and Capital Resources
December 15, 2023, and Perrigo Finance accepted for purchase $300.0 million of the 2024 Notes and paid approximately $295.1 million in aggregate cash consideration (excluding accrued interest).
In December 2024, we and the Borrower entered into Amendment No. 2, an Incremental Assumption Agreement to our Term Loan and Revolving Credit Agreement that provides for the refinancing of the Term B Loans outstanding under the Credit Agreement in the aggregate principal amount of $984.7 million. Refer to Item 8. Note 12.
Our short term debt as of December 31, 2024 of $36.4 million is comprised of (i) amortization payments for the Term A Loans and the Term B Loans and (ii) lease payments.
Term Loans and Notes
As of December 31, 2024 and December 31, 2023, we had $1,429.1 million and $1,858.1 million, respectively, outstanding under our Term Loan A Facility and Term Loan B Facility.
The interest rate net of derivatives results in a fixed rate on a substantial portion of our long-term debt, the earliest of which matures in April 2027.
We are in compliance with all the covenants under our debt agreements as of December 31, 2024.
Loans under the Credit Agreement 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 ratio
(2) Payable on the undrawn amount