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Actionable news in PRGO: PERRIGO COMPANY PLC,

SECURITIES AND EXCHANGE COMMISSION

IrelandNot Applicable
(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification No.)
Treasury Building, Lower Grand Canal Street, Dublin 2, Ireland -
(Address of principal executive offices)(Zip Code)
Large accelerated filer[X]Accelerated filer [ ]Non-accelerated filer [ ](Do not check if smaller reporting company)
Smaller reporting company[ ]Emerging growth company[ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.[ ]
PAGENUMBER
Cautionary Note Regarding Forward-Looking Statements 1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and October 1, 2016 2
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2017 and October 1, 2016 3
Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and October 1, 2016 5
Notes to the Condensed Consolidated Financial Statements
1Summary of Significant Accounting Policies 6
2Divestitures 10
3Goodwill and Other Intangible Assets 10
4Accounts Receivable Factoring 12
5Inventories 12
6Fair Value Measurements 12
7Investments 17
8Derivative Instruments and Hedging Activities 18
9Assets Held For Sale 21
10Indebtedness 22
11Earnings per Share and Shareholders' Equity 24
12Accumulated Other Comprehensive Income (Loss) 25
13Income Taxes 25
14Commitments and Contingencies 26
15Restructuring Charges 30
16Segment Information 30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
Item 3. Quantitative and Qualitative Disclosures About Market Risk 52
Item 4. Controls and Procedures 52
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 55
Item 1A. Risk Factors 55
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 57
Item 5. Other Information 57
Item 6. Exhibits 58
SIGNATURES 59
Three Months EndedNine Months Ended
September 30,
2017
October 1,
2016
September 30,
2017
October 1,
2016
Net sales$1,231.3
$1,261.6
$3,663.1
$3,949.3
Cost of sales733.5
777.1
2,196.4
2,385.2
Gross profit497.8
484.5
1,466.7
1,564.1
Operating expenses
Distribution21.5
21.6
64.2
65.9
Research and development38.4
50.2
120.8
142.5
Selling143.5
154.6
454.1
506.9
Administration123.3
105.4
326.9
317.2
Impairment charges7.8
1,614.4
47.4
2,028.8
Restructuring3.8
6.6
54.7
17.9
Other operating income(2.9)
(41.0)
Total operating expenses335.4
1,952.8
1,027.1
3,079.2
Operating income (loss)162.4
(1,468.3)439.6
(1,515.1)
Change in financial assets2.6
377.4
24.2
1,492.6
Interest expense, net34.7
54.6
133.1
163.2
Other (income) expense, net(3.6)1.0
(1.1)32.4
Loss on extinguishment of debt
0.7
135.2
1.1
Income (loss) before income taxes128.7
(1,902.0)148.2
(3,204.4)
Income tax expense (benefit)84.2
(311.8)101.8
(550.7)
Net income (loss)$44.5
$(1,590.2)$46.4
$(2,653.7)
Earnings (loss) per share
Basic0.31
(11.10)$0.33
$(18.53)
Diluted$0.31
$(11.10)$0.32
$(18.53)
Weighted-average shares outstanding
Basic141.3
143.3
142.5
143.2
Diluted141.7
143.3
142.8
143.2
Dividends declared per share$0.160
$0.145
$0.480
$0.435
Three Months EndedNine Months Ended
September 30,
2017
October 1,
2016
September 30,
2017
October 1,
2016
Net income (loss)$44.5
$(1,590.2)$46.4
$(2,653.7)
Other comprehensive income:
Foreign currency translation adjustments69.9
27.5
289.9
71.5
Change in fair value of derivative financial instruments, net of tax0.1
3.6
8.7
(3.5)
Change in fair value of investment securities, net of tax(8.1)9.8
(24.4)18.4
Change in post-retirement and pension liability, net of tax(1.2)(0.2)(1.2)0.4
Other comprehensive income, net of tax60.7
40.7
273.0
86.8
Comprehensive income (loss)$105.2
$(1,549.5)$319.4
$(2,566.9)
September 30,
2017
December 31,
2016
Assets
Cash and cash equivalents$775.9
$622.3
Accounts receivable, net of allowance for doubtful accounts of $6.2 million and $6.3 million, respectively1,076.6
1,176.0
Inventories821.9
795.0
Prepaid expenses and other current assets297.4
212.0
Total current assets2,971.8
2,805.3
Property, plant and equipment, net822.3
870.1
Financial assets
2,350.0
Goodwill and other indefinite-lived intangible assets4,255.4
4,163.9
Other intangible assets, net3,347.4
3,396.8
Non-current deferred income taxes22.4
72.1
Other non-current assets423.3
211.9
Total non-current assets8,870.8
11,064.8
Total assets$11,842.6
$13,870.1
Liabilities and Shareholders’ Equity
Accounts payable$477.1
$471.7
Payroll and related taxes133.4
115.8
Accrued customer programs368.8
380.3
Accrued liabilities274.6
263.3
Accrued income taxes61.5
32.4
Current indebtedness417.1
572.8
Total current liabilities1,732.5
1,836.3
Long-term debt, less current portion3,275.7
5,224.5
Non-current deferred income taxes357.7
389.9
Other non-current liabilities434.9
461.8
Total non-current liabilities4,068.3
6,076.2
Total liabilities5,800.8
7,912.5
Commitments and contingencies - Note 14
Shareholders’ equity
Controlling interest:
Preferred shares, $0.0001 par value, 10 million shares authorized

Ordinary shares, €0.001 par value, 10 billion shares authorized7,900.1
8,135.0
Accumulated other comprehensive income (loss)191.2
(81.8)
Retained earnings (accumulated deficit)(2,049.6)(2,095.1)
Total controlling interest6,041.7
5,958.1
Noncontrolling interest0.1
(0.5)
Total shareholders’ equity6,041.8
5,957.6
Total liabilities and shareholders' equity$11,842.6
$13,870.1
Supplemental Disclosures of Balance Sheet Information
Ordinary shares, issued and outstanding (in millions)140.8
143.4
Nine Months Ended
September 30,
2017
October 1,
2016
Cash Flows From (For) Operating Activities
Net income (loss)$46.4
$(2,653.7)
Adjustments to derive cash flows
Depreciation and amortization333.1
338.4
Share-based compensation28.1
15.3
Impairment charges47.4
2,028.8
Change in financial assets24.2
1,492.6
Loss on extinguishment of debt135.2
1.1
Restructuring charges54.7
17.9
Deferred income taxes(16.3)(674.1)
Amortization of debt premium(18.4)(24.6)
Other non-cash adjustments, net(27.2)34.5
Subtotal607.2
576.2
Increase (decrease) in cash due to:
Accounts receivable38.4
113.0
Inventories(28.3)25.1
Accounts payable(6.0)(57.7)
Payroll and related taxes(36.7)(40.0)
Accrued customer programs(15.8)(73.7)
Accrued liabilities(18.8)(90.0)
Accrued income taxes(61.5)5.2
Other, net 3.5
(9.4)
Subtotal(125.2)(127.5)
Net cash from operating activities482.0
448.7
Cash Flows From (For) Investing Activities
Proceeds from royalty rights86.4
259.5
Acquisitions of businesses, net of cash acquired
(436.8)
Asset acquisitions
(65.1)
Additions to property, plant and equipment(55.2)(84.6)
Net proceeds from sale of business and other assets46.7
58.5
Proceeds from sale of the Tysabri® financial asset2,200.0

Other investing, net(5.8)(1.0)
Net cash from (for) investing activities2,272.1
(269.5)
Cash Flows From (For) Financing Activities
Issuances of long-term debt
1,190.3
Payments on long-term debt(2,243.7)(545.8)
Borrowings (repayments) of revolving credit agreements and other financing, net
(803.6)
Deferred financing fees (4.2)(2.8)
Premium on early debt retirement(116.1)(0.6)
Issuance of ordinary shares0.5
8.2
Repurchase of ordinary shares(191.5)
Cash dividends(68.7)(62.4)
Other financing2.7
(17.4)
Net cash (for) financing activities(2,621.0)(234.1)
Effect of exchange rate changes on cash and cash equivalents20.5
(0.2)
Net increase (decrease) in cash and cash equivalents153.6
(55.1)
Cash and cash equivalents, beginning of period622.3
417.8
Cash and cash equivalents, end of period$775.9
$362.7
Recently Issued Accounting Standards Adopted
StandardDescriptionDate of adoptionEffect on the Financial Statements or Other Significant Matters
Clarifying the Definition of a BusinessThis update clarifies the definition of a business and addresses whether transactions should be accounted for as asset acquisitions or business combinations (or divestitures). The guidance includes an initial threshold that an acquired set of assets will not be considered a business if substantially all of the fair value of the assets acquired is concentrated in a single tangible or identifiable intangible asset (or group of similar assets). If the acquired set does not pass the initial threshold, then the guidance requires that, to be a business, the set must include an input and a substantive process that together significantly contribute to the ability to create outputs. Different factors are considered to determine whether the set includes a substantive process, such as the inclusion of an organized workforce. Further, the guidance removes language stating that a business need not include all of the inputs and processes that the seller used in operating the business.January 1, 2017We early adopted this new standard and will apply it prospectively when determining whether transactions should be accounted for as asset acquisitions (divestitures) or business combinations (divestitures). During the nine months ended September 30, 2017, we applied the new guidance when determining whether certain product divestitures represented sales of assets or businesses.
Improvements to Employee Share-Based Payment Accounting
This guidance is intended to simplify several aspects of the accounting for share-based payment award transactions. It will require all income tax effects of awards to be recorded through the income statement when the awards vest or settle as opposed to certain amounts being recorded in additional paid-in capital. An entity will also have to elect whether to account for forfeitures as they occur or by estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change (as currently required). The guidance will also increase the amount an employer can withhold to cover income taxes on awards. January 1, 2017We adopted this standard as of January 1, 2017. We elected to estimate the number of awards expected to be forfeited and adjust the estimate when it is likely to change, consistent with past practice. We did not change the amounts that we withhold to cover income taxes on awards. As the requirement to record all income tax effects of vested or settled awards through the income statement is prospective in nature, there was no cumulative effect of adopting the standard on our balance sheet.
Recently Issued Accounting Standards Not Yet Adopted
StandardDescriptionEffective DateEffect on the Financial Statements or Other Significant Matters
Revenue from Contracts with Customers The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation. This guidance allows for two adoption methods, full retrospective approach or modified retrospective approach.January 1, 2018We continue to evaluate the implications of adoption of the new revenue standard on our Consolidated Financial Statements. We have completed an initial assessment and are in the process of quantifying the adoption impact, if any, related to certain topics identified through our evaluation process. Our assessment of the new revenue standard has been focused on, but has not been limited to, the concepts of over-time versus point-in-time revenue recognition patterns, variable consideration, and identification of performance obligations. We will not complete our final assessment and quantification of the impact of the new revenue standard on our Consolidated Financial Statements until the adoption date. Our analysis indicates that certain contract manufacturing and private label arrangements may require revenue recognition over-time in situations in which we produce products that have no alternative use and we have an enforceable right to payment for performance completed to date, inclusive of a reasonable profit margin. This may result in an acceleration of revenue recognition for certain contractual arrangements as compared to recognition under current accounting literature. We plan to adopt the new revenue standard effective January 1, 2018 using the modified retrospective method.
Intra-Entity Asset Transfers of Assets Other Than InventoryUnder the new guidance, the tax impact to the seller on the profit from the transfers and the buyer’s deferred tax benefit on the increased tax basis would be recognized when the transfers occur, resulting in the recognition of expense sooner than under historical guidance. The guidance excludes intra-entity transfers of inventory. For intra-entity transfers of inventory, the Financial Accounting Standards Board ("FASB") decided to retain current GAAP, which requires an entity to recognize the income tax consequences when the inventory has been sold to an outside party. January 1, 2018We are currently evaluating the implications of adoption on our Consolidated Financial Statements.
Financial Instruments - Recognition and Measurement of Financial Assets and LiabilitiesThe objective of this simplification update is to improve the decision usefulness of financial instrument reporting, and it principally affects accounting for equity investments currently classified as available for sale and financial liabilities where the fair value option has been elected. Entities will have to measure many equity investments at fair value and recognize changes in fair value in net income rather than other comprehensive income as required under current U.S. GAAP. January 1, 2018We have identified certain investments that will require an adjustment, however, at this time, we are unable to estimate the impact of adopting this standard as the significance of the impact will depend upon our equity investments as of the date of adoption.
Recently Issued Accounting Standards Not Yet Adopted (continued)
StandardDescriptionEffective DateEffect on the Financial Statements or Other Significant Matters
LeasesThis guidance was issued to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. For leases with a term of 12 months or less, lessees are permitted to make an election to not recognize right-of-use assets and lease liabilities. Upon adoption, lessees will apply the new standard as of the beginning of the earliest comparative period presented in the financial statements, however lessees will be able to exclude leases that expire as of the implementation date. Early adoption is permitted.January 1, 2019We are currently evaluating the implications of adoption on our Consolidated Financial Statements and have commenced the first step of identifying a task force to take the lead in implementing the new Lease standard.
Derivatives and HedgingThis update was issued to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. In addition, the amendments simplify the application of hedge accounting in certain situations. Under the new rule, the entity’s ability to hedge non-financial and financial risk components is expanded. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and also eases certain documentation and assessment requirements. Early adoption is permitted.January 1, 2019We are currently evaluating the implications of adoption on our Consolidated Financial Statements.
Measurement of Credit Losses on Financial InstrumentsThis guidance changes the impairment model for most financial assets and certain other instruments, replacing the current "incurred loss" approach with an "expected loss" credit impairment model, which will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, and off-balance sheet credit exposures such as letters of credit. Early adoption is permitted.January 1, 2020We are currently evaluating the new standard for potential impacts on our receivables, debt, and other financial instruments.
Intangibles - Goodwill and Other Simplifying the Test for Goodwill The objective of this update is to reduce the cost and complexity of subsequent goodwill accounting by simplifying the impairment test by removing the Step 2 requirement to perform a hypothetical purchase price allocation when the carrying value of a reporting unit exceeds its fair value. If a reporting unit’s carrying value exceeds its fair value, an entity would record an impairment charge based on that difference, limited to the amount of goodwill attributed to that reporting unit. The proposal would not change the guidance on completing Step 1 of the goodwill impairment test. The proposed guidance would be applied prospectively. Early adoption is permitted.January 1, 2020We are currently evaluating the implications of adoption on our Consolidated Financial Statements.
Reporting Segments:December 31,
2016
Business divestituresRe-class to assets held-for-saleCurrency translation adjustmentSeptember 30,
2017
CHCA$1,810.6
$
$
$2.9
$1,813.5
CHCI1,070.8
(4.1)
122.3
1,189.0
RX1,086.6


6.5
1,093.1
Other81.4

(32.6)7.6
56.4
Total goodwill$4,049.4
$(4.1)$(32.6)$139.3
$4,152.0
September 30, 2017December 31, 2016
GrossAccumulated AmortizationGrossAccumulated Amortization
Definite-lived intangibles:
Distribution and license agreements, supply agreements$310.2
$157.5
$305.6
$120.4
Developed product technology, formulations, and product rights1,355.4
568.8
1,418.1
526.0
Customer relationships and distribution networks1,623.7
424.5
1,489.9
307.5
Trademarks, trade names, and brands1,317.5
111.0
1,189.3
55.3
Non-compete agreements14.7
12.3
14.3
11.2
Total definite-lived intangibles$4,621.5
$1,274.1
$4,417.2
$1,020.4
Indefinite-lived intangibles:
Trademarks, trade names, and brands$52.0
$
$50.5
$
In-process research and development51.4

64.0

Total indefinite-lived intangibles103.4

114.5

Total other intangible assets$4,724.9
$1,274.1
$4,531.7
$1,020.4
September 30,
2017
December 31,
2016
Finished goods$471.4
$431.1
Work in process146.8
165.7
Raw materials203.7
198.2
Total inventories$821.9
$795.0
Level 2:Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3:Valuations derived from valuation techniques in which one or more significant inputs are not observable.
Fair Value
Fair Value HierarchySeptember 30,
2017
December 31,
2016
Measured at fair value on a recurring basis:
Assets:
Investment securitiesLevel 1$6.1
$38.2
Foreign currency forward contractsLevel 2$13.1
$3.8
Funds associated with Israeli severance liabilityLevel 216.1
15.9
Total level 2 assets$29.2
$19.7
Royalty Pharma contingent milestone paymentsLevel 3$143.2
$
Financial assetsLevel 3
2,350.0
Total level 3 assets$143.2
$2,350.0
Liabilities:
Foreign currency forward contractsLevel 2$3.3
$5.0
Contingent considerationLevel 3$44.9
$69.9
Measured at fair value on a non-recurring basis:
Assets:
Goodwill(1)Level 3$
$1,148.4
Indefinite-lived intangible assets(2)Level 313.3
0.3
Definite-lived intangible assets(3)Level 311.5
758.0
Assets held for sale, netLevel 395.1
18.2
Total level 3 assets$119.9
$1,924.9
(2)As of September 30, 2017, indefinite-lived intangible assets with a carrying amount of $26.0 million were written down to a fair value of $13.3 million. As of December 31, 2016, indefinite-lived intangible assets with a carrying amount of $0.7 million were written down to a fair value of $0.3 million.
(3)As of July 1, 2017, definite-lived intangible assets with a carrying amount of $31.1 million were written down to a fair value of $11.5 million. As of December 31, 2016, definite-lived intangible assets with a carrying amount of $2.3 billion were written down to a fair value of $758.0 million. Included in this balance are indefinite-lived intangible assets with a fair value of $364.5 million and $674.2 million that were reclassified to definite-lived assets at April 3, 2016 and October 2, 2016, respectively.
Three Months EndedNine Months Ended
September 30,
2017
September 30,
2017
Royalty Pharma Contingent Milestone Payments
Beginning balance$145.8
$
Additions
184.5
Foreign currency effect0.3
0.8
Change in fair value(2.9)(42.1)
Ending balance$143.2
$143.2
Three Months EndedNine Months Ended
September 30,
2017
October 1,
2016
September 30,
2017
October 1,
2016
Contingent Consideration
Beginning balance$49.7
$44.9
$69.9
$17.9
Net realized losses(2.9)(0.4)(18.5)(4.0)
Purchases or additions
30.6

61.1
Foreign currency effect0.2

1.5
0.1
Settlements(2.1)(0.1)(8.0)(0.1)
Ending balance$44.9
$75.0
$44.9
$75.0
Nine Months Ended
September 30, 2017
Lumara
5-year average growth rate(4.1)%
Discount rate13.5%
Valuation methodMPEEM
Year Ended
December 31, 2016
Omega - LifestyleOmega - XLSEntocort® - Branded ProductsEntocort® - AG ProductsHerron Trade Names and Trademarks
5-year average growth rate2.5%3.2%(31.7)%(30.4)%4.6%
Long-term growth rates2.0%NA(10.0)%(4.7)%2.5%
Discount rate9.3%9.5%13.0%10.5%10.8%
Royalty rateNA4.0%NANA11.0%
Valuation methodMPEEMRelief from RoyaltyMPEEMMPEEMRelief from Royalty
September 30,
2017
December 31, 2016
Equity securities, at cost less impairments$15.5
$16.5
Gross unrealized gains
21.7
Gross unrealized losses(9.4)
Estimated fair value of equity securities$6.1
$38.2
Asset Derivatives
Balance Sheet LocationFair Value
September 30,
2017
December 31,
2016
Designated derivatives:
Foreign currency forward contractsOther current assets$4.6
$3.1
Non-designated derivatives:
Foreign currency forward contractsOther current assets$8.5
$0.7
Liability Derivatives
Balance Sheet LocationFair Value
September 30,
2017
December 31,
2016
Designated derivatives:
Foreign currency forward contractsAccrued liabilities$2.6
$3.0
Non-designated derivatives:
Foreign currency forward contractsAccrued liabilities$0.7
$2.0
Amount of Gain/(Loss) Recorded in OCI
(Effective Portion)
Three Months EndedNine Months Ended
Designated Cash Flow HedgesSeptember 30,
2017
October 1,
2016
September 30,
2017
October 1,
2016
Interest rate swap agreements$
$
$
$(9.0)
Foreign currency forward contracts1.1
3.4
6.3
4.7
Total$1.1
$3.4
$6.3
$(4.3)
Amount of Gain/(Loss) Reclassified from AOCI into Earnings
(Effective Portion)
Three Months EndedNine Months Ended
Designated Cash Flow HedgesIncome Statement LocationSeptember 30,
2017
October 1,
2016
September 30,
2017
October 1,
2016
Treasury locksInterest expense, net$
$
$
$(0.1)
Interest rate swap agreementsInterest expense, net(0.4)(0.6)(1.7)(1.7)
Other (income) expense, net

(5.9)
Foreign currency forward contractsNet sales
(0.1)0.9
0.3
Cost of sales1.8
0.9
3.5
1.8
Interest expense, net(0.7)(0.4)(1.8)(1.3)
Other (income) expense, net(1.2)(1.2)(1.7)0.7
Total$(0.5)$(1.4)$(6.7)$(0.3)
Amount of Gain/(Loss) Recognized against Earnings
(Ineffective Portion)
Three Months EndedNine Months Ended
Designated Cash Flow HedgesIncome StatementLocationSeptember 30,
2017
October 1,
2016
September 30,
2017
October 1,
2016
Interest rate swap agreementsOther (income) expense, net$
$
$
$(0.1)
Foreign currency forward contractsNet sales0.2

0.1
0.1
Cost of sales0.1

0.1

Other (income) expense, net

1.0
0.6
Total$0.3
$
$1.2
$0.6
Amount of Gain/(Loss) Recognized against Earnings
Three Months EndedNine Months Ended
Non-Designated DerivativesIncome Statement LocationSeptember 30,
2017
October 1,
2016
September 30,
2017
October 1,
2016
Foreign currency forward contractsOther (income) expense, net$10.1
$(0.2)$(3.8)$(8.7)
Interest expense, net(1.8)(1.0)(2.9)(1.5)
Total$8.3
$(1.2)$(6.7)$(10.2)
September 30,
2017
December 31,
2016
OtherCHCAOther
Assets held for sale
Current assets$44.0
$
$5.1
Goodwill32.6

5.5
Intangible assets5.5


Property, plant and equipment45.9
13.5
33.2
Other assets3.1

3.8
Less: impairment reserves(3.3)(3.7)(35.3)
Total assets held for sale $127.8
$9.8
$12.3
Liabilities held for sale
Current liabilities$7.6
$0.1
$1.9
Other liabilities25.1

1.9
Total liabilities held for sale$32.7
$0.1
$3.8
September 30,
2017
December 31,
2016
Term loans
2014 term loan due December 5, 2019(1)$428.3
$420.7
Notes and Bonds
CouponDue
4.500%May 23, 2017(1)(2)
189.3
5.125%December 12, 2017(1)(2)354.5
315.6
2.300%November 8, 2018

600.0
5.000%May 23, 2019(1)(2)141.8
126.2
3.500%March 15, 2021
280.4
500.0
3.500%December 15, 2021
309.6
500.0
5.105%July 19, 2023(1)(2)159.5
142.0
4.000%November 15, 2023
215.6
800.0
3.900%December 15, 2024
700.0
700.0
4.375%March 15, 2026
700.0
700.0
5.300%November 15, 2043
90.5
400.0
4.900%December 15, 2044
303.9
400.0
Total notes and bonds3,255.8
5,373.1
Other financing2.9
3.6
Unamortized premium (discount), net24.8
33.0
Deferred financing fees(19.0)(33.1)
Total borrowings outstanding3,692.8
5,797.3
Current indebtedness(417.1)(572.8)
Total long-term debt less current portion$3,275.7
$5,224.5
(1)Debt denominated in Euros subject to fluctuations in the euro-to-U.S. dollar exchange rate.
DateSeriesTransaction TypePrincipal Retired
April 1, 20172014 term loan due December 5, 2019Scheduled quarterly payment$13.3
July 1, 20172014 term loan due December 5, 2019Scheduled quarterly payment14.3
September 30, 20172014 term loan due December 5, 2019Scheduled quarterly payment14.8
May 8, 2017$600.0 2.300% senior notes due 2018Early redemption600.0
May 23, 2017€180.0 4.500% retail bonds due 2017Scheduled maturity201.3
June 15, 2017$500.0 3.500% senior notes due 2021Tender offer190.4
June 15, 2017$500.0 3.500% senior notes due 2021Tender offer219.6
June 15, 2017$800.0 4.000% senior notes due 2023Tender offer584.4
June 15, 2017$400.0 5.300% senior notes due 2043Tender offer309.5
June 15, 2017$400.0 4.900% senior notes due 2044Tender offer96.1
$2,243.7
Premium on debt repayment$116.1
Transaction costs3.8
Write-off of deferred financing fees10.6
Write-off of remaining discount on bond4.7
Total loss on extinguishment of debt$135.2
Three Months EndedNine Months Ended
September 30,
2017
October 1,
2016
September 30,
2017
October 1,
2016
Numerator:
Net income (loss)$44.5
$(1,590.2)$46.4
$(2,653.7)
Denominator:
Weighted average shares outstanding for basic EPS141.3
143.3
142.5
143.2
Dilutive effect of share-based awards*0.4

0.3

Weighted average shares outstanding for diluted EPS141.7
143.3
142.8
143.2
Anti-dilutive share-based awards excluded from computation of diluted EPS*1.0

0.8

Foreign currency translation adjustmentsFair value of derivative financial instruments, net of taxFair value of investment securities, net of taxPost-retirement and pension liability adjustments, net of taxTotal AOCI
Balance at December 31, 2016$(67.9)$(19.5)$15.1
$(9.5)$(81.8)
OCI before reclassifications289.9
4.4
(22.8)(1.2)270.3
Amounts reclassified from AOCI
4.3
(1.6)
2.7
Other comprehensive income (loss)289.9
8.7
(24.4)(1.2)273.0
Balance at September 30, 2017$222.0
$(10.8)$(9.3)$(10.7)$191.2
Three Months EndedNine Months Ended
September 30,
2017
October 1,
2016
September 30,
2017
October 1,
2016
Beginning balance$39.7
$12.2
$19.7
$20.7
Additional charges3.8
6.6
54.7
17.9
Payments(17.8)(8.6)(47.6)(33.3)
Non-cash adjustments0.4
0.1
(0.7)5.0
Ending balance$26.1
$10.3
$26.1
$10.3
Total Assets
September 30,
2017
December 31,
2016
CHCA$3,833.7
$3,351.3
CHCI5,114.2
4,795.2
RX2,597.0
2,646.4
Specialty Sciences
2,775.8
Other297.7
301.4
Total$11,842.6
$13,870.1
Three Months Ended
September 30, 2017October 1, 2016
Net SalesOperating Income (Loss)Intangible Asset AmortizationNet SalesOperating Income (Loss)Intangible Asset Amortization
CHCA$598.8
$124.3
$16.9
$611.2
$99.0
$17.6
CHCI365.4
4.6
50.2
377.4
(1,615.5)44.4
RX250.6
82.1
21.0
251.9
74.4
27.2
Specialty Sciences



3.2

Other16.5
(0.4)0.4
21.1
(1.5)0.5
Unallocated
(48.2)

(27.9)
Total$1,231.3
$162.4
$88.5
$1,261.6
$(1,468.3)$89.7
Nine Months Ended
September 30, 2017October 1, 2016
Net SalesOperating Income (Loss)Intangible Asset AmortizationNet SalesOperating Income (Loss)Intangible Asset Amortization
CHCA$1,786.4
$303.6
$51.1
$1,880.2
$316.4
$53.3
CHCI1,116.8
8.7
143.4
1,232.7
(2,011.3)130.6
RX708.4
239.6
65.6
776.9
258.3
78.6
Specialty Sciences



(1.9)
Other51.5
9.4
1.2
59.5
2.6
1.4
Unallocated
(121.7)

(79.2)
Total$3,663.1
$439.6
$261.3
$3,949.3
$(1,515.1)$263.9
Consumer Healthcare International ("CHCI"), comprises our legacy Branded Consumer Healthcare segment and now includes our consumer focused businesses in the U.K., Australia, and Israel. This segment also includes our U.K. liquid licensed products business.
On March 27, 2017, we completed the sale of our Tysabri® financial asset, effective January 1, 2017, to Royalty Pharma for up to $2.85 billion, which consists of $2.2 billion in cash and up to $250.0 million and $400.0 million in milestone payments if the royalties on global net sales of Tysabri® that are received by Royalty Pharma meet specific thresholds in 2018 and 2020, respectively. As a result of this transaction, we derecognized the Tysabri® financial asset and recorded a $17.1 million gain (refer to Item 1. Note 6).
Three Months EndedNine Months Ended
($ in millions)October 1,
2016
September 30,
2017
October 1,
2016
September 30,
2017
Net sales$1,261.6
$1,231.3
$3,949.3
$3,663.1
Gross profit$484.5
$497.8
$1,564.1
$1,466.7
Gross profit %38.4 %40.4%39.6 %40.0%
Operating expenses$1,952.8
$335.4
$3,079.2
$1,027.1
Operating expenses %154.8 %27.2%78.0 %28.0%
Operating income (loss)$(1,468.3)$162.4
$(1,515.1)$439.6
Operating income (loss) %(116.4)%13.2%(38.4)%12.0%
Change in financial assets$377.4
$2.6
$1,492.6
$24.2
Interest and other, net$55.6
$31.1
$195.6
$132.0
Loss on extinguishment of debt$0.7
$
$1.1
$135.2
Income tax expense (benefit)$(311.8)$84.2
$(550.7)$101.8
Net income (loss)$(1,590.2)$44.5
$(2,653.7)$46.4
We continue to experience a reduction in pricing expectations within our CHCA segment, primarily in the cough/cold, animal health, and analgesics categories due to various factors, including increased focus from customers to capture supply chain productivity savings and competition in specific product categories. We expect this pricing environment to continue to impact our CHCA segment for the foreseeable future.
Decreased selling and administrative expenses of $4.8 million due primarily to timing of promotions related to our animal health category and savings related to our previously announced strategic initiatives;
Gross profit as a percentage of net sales was 1.8% higher due primarily to favorable product mix and supply chain efficiencies as discussed above.
New product sales of $51.2 million related primarily to the launches of fluticasone nasal spray (store brand equivalent to Flonase®), smoking cessation products and Esomemprazole Magnesium (store brand equivalent to Nexium®); more than offset by
Pricing pressures in the cough/cold, analgesics, and gastrointestinal categories; and
Decreased selling and administrative expenses of $10.8 million due primarily to timing of promotions related to our animal health category and savings related to our cost reduction initiatives taken in the prior year;
Decreased R&D expenses of $7.6 million due to timing of clinical trials, reduced spending on infant formula clinical trials and lower costs related to our cost reduction initiatives; offset partially by
We continue to make progress on our previously announced restructuring plans to right-size the Omega business due to the impact of market dynamics on sales volumes. Management continues to evaluate the overall cost structure relative to current and expected market dynamics. During the three and nine months ended September 30, 2017, we recognized $3.6 million and $13.2 million of restructuring expense in the CHCI segment, respectively.
Management continues to evaluate the most effective business model for each country, aligning our sales infrastructure and actively integrating sales strategies with promotional programs.
A decrease of $4.6 million in selling and administrative expenses due to previously announced strategic initiatives to better align promotional investments with sales and cost reduction initiatives taken in the current year; offset partially by
The absence of $118.4 million in sales attributable to the cancellation of unprofitable distribution contracts;
A decrease in sales of existing products of $17.4 million primarily in the anti-parasites and vitamins categories; and
A decrease in selling and administrative expenses of $48.5 million due to previously announced strategic initiatives to better align promotional investments with sales and cost reduction initiatives taken in the current year; offset partially by
We continue to experience a significant reduction in pricing expectations from historical levels in our RX segment due to industry and competitive pressures. This softness in pricing is attributable to various factors, including increased focus from customers to capture supply chain productivity savings, low raw material commodity pricing, competition in specific products, and consolidation of certain customers. We expect this softness to continue to impact the segment for the foreseeable future, and we are forecasting a high single digit pricing decline in this segment for the year ending December 31, 2017.
On November 10, 2016, we announced that as part of our portfolio review process we are conducting a comprehensive internal evaluation of the RX segment's market position, growth opportunities, and interdependencies with our manufacturing and shared service operations to determine if strategic alternatives should be explored.
During the three months ended December 31, 2016, the U.S. market for Entocort® (Budesonide) capsules, including both brand and authorized generic capsules, experienced significant and unexpected increased competition, which reduced our future revenue stream. We expect our net sales in the RX segment for the year ending December 31, 2017 will be negatively impacted by approximately $67.0 million.
New product sales of $30.8 million due primarily to the sale of Scopolamine and Testosterone 2% topical (store brand equivalent to Axiron®); more than offset by
Decreased sales of existing products of $21.5 million due primarily to pricing pressure across the portfolio; and
Decreased selling and administrative expenses of $8.4 million due primarily to the prior year specialty pharmaceuticals sales force restructuring initiative; and
Gross profit as a percentage of net sales was 1.4% lower due primarily to lower sales of Entocort® and pricing pressures.
Operating income as a percentage of net sales was 3.3% higher due primarily to decreased costs related to R&D spend and restructuring initiatives taken in the prior year; offset partially by lower sales of Entocort®.
New product sales of $53.2 million due primarily to sales of Scopolamine and Testosterone 2% topical (store brand equivalent to Axiron®); more than offset by
Decreased selling and administrative expenses of $18.3 million due primarily to the prior year specialty pharmaceuticals sales force restructuring initiative; and
Gross profit as a percentage of net sales was 2.0% lower due primarily to lower sales of Entocort® as discussed above.
Three Months EndedNine Months Ended
($ in millions)October 1,
2016
September 30,
2017
October 1,
2016
September 30,
2017
Change in financial assets$377.4
$2.6
$1,492.6
$24.2
Interest expense, net$54.6
$34.7
$163.2
$133.1
Other (income) expense, net$1.0
$(3.6)$32.4
$(1.1)
Loss on extinguishment of debt$0.7
$
$1.1
$135.2
Nine Months Ended
(in millions)October 1,
2016
September 30,
2017
Increase/(Decrease)
Cash Flows From (For) Operating Activities
Net income (loss)$(2,653.7)$46.4
$2,700.1
Non-cash adjustments3,229.9
560.8
(2,669.1)
Subtotal576.2
607.2
31.0
Increase (decrease) in cash due to:
Accounts receivable113.0
38.4
(74.6)
Inventories25.1
(28.3)(53.4)
Accounts payable(57.7)(6.0)51.7
Payroll and related taxes(40.0)(36.7)3.3
Accrued customer programs(73.7)(15.8)57.9
Accrued liabilities(90.0)(18.8)71.2
Accrued income taxes5.2
(61.5)(66.7)
Other, net (9.4)3.5
12.9
Subtotal$(127.5)$(125.2)$2.3
Net cash from operating activities$448.7
$482.0

$33.3
Changes in accrued liabilities due to deferred revenue associated with BCH-Belgium distribution contracts and the absence of accruals related to the sale of our U.S. VMS business;
Changes in accrued customer-related programs due primarily to the pricing dynamics in the RX segment; and
Changes in accounts payable due primarily to changes to the Omega accounts payable structure that occurred in the prior year period; offset primarily by
Changes in accounts receivable due primarily to timing of receipt of payments and the absence of receivables related to the sale of our U.S. VMS business;
Changes in inventory due to the build up of inventory levels to support customer demands in the current period; offset by improved inventory management in the comparable prior year period; and
Nine Months Ended
($ in millions)October 1,
2016
September 30,
2017
Increase/(Decrease)
Cash Flows From (For) Investing Activities
Proceeds from royalty rights$259.5
$86.4
$(173.1)
Acquisitions of businesses, net of cash acquired(436.8)
436.8
Asset acquisitions(65.1)
65.1
Additions to property, plant and equipment(84.6)(55.2)29.4
Net proceeds from sale of business and other assets58.5
46.7
(11.8)
Proceeds from sale of the Tysabri® financial asset
2,200.0
2,200.0
Other investing, net(1.0)(5.8)(4.8)
Net cash from (for) investing activities$(269.5)$2,272.1
$2,541.6
Nine Months Ended
($ in millions)October 1,
2016
September 30,
2017
Increase/(Decrease)
Cash Flows From (For) Financing Activities
Issuances of long-term debt$1,190.3
$
$(1,190.3)
Borrowings (repayments) of revolving credit agreements and other financing, net(803.6)
803.6
Payments on long-term debt(545.8)(2,243.7)(1,697.9)
Deferred financing fees (2.8)(4.2)(1.4)
Premium on early debt retirement(0.6)(116.1)(115.5)
Issuance of ordinary shares8.2
0.5
(7.7)
Repurchase of ordinary shares
(191.5)(191.5)
Cash dividends(62.4)(68.7)(6.3)
Other financing(17.4)2.7
20.1
Net cash (for) financing activities$(234.1)$(2,621.0)$(2,386.9)
DateSeriesTransaction TypePrincipal Retired
April 1, 20172014 term loan due December 5, 2019Scheduled quarterly payment$13.3
July 1, 20172014 term loan due December 5, 2019Scheduled quarterly payment14.3
September 30, 20172014 term loan due December 5, 2019Scheduled quarterly payment14.8
May 8, 2017$600.0 2.300% senior notes due 2018Early redemption600.0
May 23, 2017€180.0 4.500% retail bonds due 2017Scheduled maturity201.3
June 15, 2017$500.0 3.500% senior notes due 2021Tender offer190.4
June 15, 2017$500.0 3.500% senior notes due 2021Tender offer219.6
June 15, 2017$800.0 4.000% senior notes due 2023Tender offer584.4
June 15, 2017$400.0 5.300% senior notes due 2043Tender offer309.5
June 15, 2017$400.0 4.900% senior notes due 2044Tender offer96.1
$2,243.7
Evaluate the design and operating effectiveness of our controls related to income taxes for business acquisitions and non-routine transactions on an interim and annual basis;
Evaluate and enhance the level of precision in the management review controls related to income taxes.
On August 15, 2017, we filed a complaint in the United States District Court for the Western District of Michigan to recover $163.6 million of Federal income tax, penalties, and interest assessed and collected by the Internal Revenue Service (“IRS”), plus statutory interest thereon from the dates of payment, for the fiscal years ended June 27, 2009, June 26, 2010, June 25, 2011, and June 30, 2012 (the “2009 tax year,” “2010 tax year,” “2011 tax year,” and “2012 tax year,” respectively). The IRS audits of those years culminated in the issuances of two statutory notices of deficiency: (1) on August 27, 2014 for the 2009 and 2010 tax years and (2) on April 20, 2017 for the 2011 and 2012 tax years. The statutory notices of deficiency both included un-agreed income adjustments related principally to transfer pricing adjustments regarding the purchase, distribution, and sale of store-brand OTC pharmaceutical products in the United States. In addition, the statutory notice of deficiency for the 2011 and 2012 tax years included the capitalization of certain expenses that were deducted when paid or incurred in defending against certain patent infringement lawsuits. We fully paid the assessed amounts of tax, interest, and penalties set forth in the statutory notices and filed timely claims for refund on June 11, 2015 and June 7, 2017 for the 2009-2010 tax years and 2011-2012 tax years, respectively. Our claims for refund were disallowed by certified letters dated August 18, 2015 and July 11, 2017, for the 2009-2010 tax years and 2011-2012 tax years, respectively. The complaint was timely, based upon the refund claim denials, and seeks refunds of tax, interest, and penalties of $37.2 million for the 2009 tax year, $61.5 million for the 2010 tax year, $40.2 million for the 2011 tax year and $24.7 million for the 2012 tax year. The amounts sought in the complaint for the 2009 and 2010 tax years were recorded as deferred charges on our balance sheet during the three months ended March 28, 2015, and the amounts sought in the complaint for the 2011 and 2012 tax years were recorded as deferred charges on our balance sheet in the second quarter of the year ending December 31, 2017.
On December 22, 2016, we received a notice of proposed adjustment for the IRS audit of Athena Neurosciences, Inc. (“Athena”), a subsidiary of Elan Corporation plc (“Elan”) acquired in 1996, for the years ended December 31, 2011, December 31, 2012 and December 31, 2013. We acquired Elan in December 2013. This proposed amendment relates to the deductibility of litigation costs. We disagree with the IRS’s position asserted in the notice of proposed adjustment and intend to contest it.

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