Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________
 FORM 10-Q
_______________________________________________
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: October 1, 2016
OR
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 001-36353
_______________________________________________
Perrigo Company plc
(Exact name of registrant as specified in its charter)
_______________________________________________
Ireland
 
Not Applicable
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
Treasury Building, Lower Grand Canal Street, Dublin 2, Ireland
 
-
(Address of principal executive offices)
 
(Zip Code)
+353 1 7094000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
________________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days.    YES [X]    NO  [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  [X]   NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  [X]
  
Accelerated filer  [  ]
Non-accelerated filer  [  ]
  
Smaller reporting company  [  ]
(Do not check if a smaller reporting company)
  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   [ ]  YES  [X] NO
As of November 4, 2016, there were 143,374,427 ordinary shares outstanding.




PERRIGO COMPANY PLC
FORM 10-Q
INDEX
 
PAGE
NUMBER
 
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1
 
 
 
2
 
 
 
3
 
 
 
4
 
 
 
5
 
 
 
6
 
 
 
7
 
 
 
8
 
 
 
9
 
 
 
10
 
 
 
11
 
 
 
12
 
 
 
13
 
 
 
14
 
 
 
15
 
 
 
16
 
 
 
17
 
 
 
 
 
 
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Cautionary Note Regarding Forward-Looking Statements
    
Certain statements in this report are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our, or our industry's, actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. In particular, statements about our expectations, beliefs, plans, objectives, assumptions, future events or future performance contained in this report, including certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or the negative of those terms or other comparable terminology.

Please see Item 1A of our Form 10-KT for the transition period from June 28, 2015 to December 31, 2015 and Part II, Item 1A of this Form 10-Q for a discussion of certain important risk factors that relate to forward-looking statements contained in this report. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control, including the timing, amount and cost of share repurchases, future impairment charges, our ability to achieve our guidance, and the ability to execute and achieve the desired benefits of announced initiatives. These and other important factors, including those discussed in our Form 10-KT for the transition period from June 28, 2015 to December 31, 2015, in this Form 10-Q under "Risk Factors" and in any subsequent filings with the Securities and Exchange Commission, may cause actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. The forward-looking statements in this report are made only as of the date hereof, and unless otherwise required by applicable securities laws, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
    
TRADEMARKS, TRADENAMES AND SERVICE MARKS

This report contains trademarks, trade names and service marks that are the property of Perrigo Company plc, as well as, for informational purposes, trademarks, trade names, and service marks that are the property of other organizations. Solely for convenience, certain trademarks, trade names, and service marks referred to in this report appear without the ®, ™ and SM symbols, but those references are not intended to indicate that we or the applicable owner, as the case may be, will not assert, to the fullest extent under applicable law, our or their rights to such trademarks, trade names, and service marks.


1

Perrigo Company plc - Item 1

PART I.     FINANCIAL INFORMATION

ITEM 1.        FINANCIAL STATEMENTS (UNAUDITED)

PERRIGO COMPANY PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
Net sales
$
1,354.9

 
$
1,344.7

 
$
4,219.1

 
$
3,925.4

Cost of sales
848.6

 
795.9

 
2,622.7

 
2,369.7

Gross profit
506.3

 
548.8

 
1,596.4

 
1,555.7

 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Distribution
21.6

 
24.9

 
65.9

 
63.3

Research and development
50.2

 
41.6

 
142.5

 
139.7

Selling
154.6

 
167.9

 
506.9

 
391.6

Administration
108.6

 
123.6

 
316.8

 
343.3

Impairment charges
1,679.9

 

 
2,127.1

 

Restructuring
6.6

 
2.2

 
17.9

 
3.1

Total operating expenses
2,021.5

 
360.2

 
3,177.1

 
941.0

 
 
 
 
 
 
 
 
Operating income (loss)
(1,515.2
)
 
188.6

 
(1,580.7
)
 
614.7

 
 
 
 
 
 
 
 
Interest expense, net
54.6

 
43.4

 
163.2

 
132.7

Other expense, net
1.0

 
13.0

 
34.1

 
294.2

Loss on extinguishment of debt
0.7

 

 
1.1

 
0.9

Income (loss) before income taxes
(1,571.5
)
 
132.2

 
(1,779.1
)
 
186.9

Income tax expense (benefit)
(316.3
)
 
19.6

 
(383.7
)
 
112.7

Net income (loss)
$
(1,255.2
)
 
$
112.6

 
$
(1,395.4
)
 
$
74.2

 
 
 
 
 
 
 
 
Income (loss) per share
 
 
 
 
 
 
 
Basic
$
(8.76
)
 
$
0.77

 
$
(9.74
)
 
$
0.51

Diluted
$
(8.76
)
 
$
0.77

 
$
(9.74
)
 
$
0.51

 
 
 
 
 
 
 
 
Weighted-average shares outstanding
 
 
 
 
 
 
 
Basic
143.3

 
146.3

 
143.2

 
144.4

Diluted
143.3

 
146.9

 
143.2

 
145.0

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.145

 
$
0.125

 
$
0.435

 
$
0.375

  
See accompanying Notes to the Condensed Consolidated Financial Statements

2

Perrigo Company plc - Item 1

PERRIGO COMPANY PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(unaudited)
 
Three Months Ended
 
Nine Months Ended
 
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
Net income (loss)
$
(1,255.2
)
 
$
112.6

 
$
(1,395.4
)
 
$
74.2

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
27.0

 
(39.8
)
 
71.8

 
50.9

Change in fair value of derivative financial instruments, net of tax
3.6

 
0.1

 
(3.5
)
 
5.6

Change in fair value of investment securities, net of tax
9.8

 
2.5

 
18.4

 
(2.4
)
Change in post-retirement and pension liability adjustments, net of tax
(0.2
)
 

 
0.3

 
3.7

Other comprehensive income (loss), net of tax
40.2

 
(37.2
)
 
87.0

 
57.8

Comprehensive income (loss)
$
(1,215.0
)
 
$
75.4

 
$
(1,308.4
)
 
$
132.0

See accompanying Notes to the Condensed Consolidated Financial Statements


3

Perrigo Company plc - Item 1

PERRIGO COMPANY PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
 
(Unaudited)
 
 
 
October 1,
2016
 
December 31,
2015
Assets
 
 
 
Cash and cash equivalents
$
362.7

 
$
417.8

Accounts receivable, net of allowance for doubtful accounts of $4.4 million and $3.0 million, respectively
1,129.2

 
1,193.1

Inventories
884.6

 
844.4

Prepaid expenses and other current assets
250.6

 
289.1

Total current assets
2,627.1

 
2,744.4

Property and equipment, net
881.3

 
886.2

Goodwill and other indefinite-lived intangible assets
5,282.7

 
7,281.2

Other intangible assets, net
8,340.9

 
8,190.5

Non-current deferred income taxes
129.3

 
54.6

Other non-current assets
206.3

 
237.0

Total non-current assets
14,840.5

 
16,649.5

Total assets
$
17,467.6

 
$
19,393.9

Liabilities and Shareholders’ Equity
 
 
 
Liabilities
 
 
 
Accounts payable
$
507.9

 
$
554.9

Payroll and related taxes
106.8

 
125.3

Accrued customer programs
325.5

 
398.0

Accrued liabilities
258.7

 
308.4

Accrued income taxes
76.2

 
85.2

Current indebtedness
265.0

 
1,018.3

Total current liabilities
1,540.1

 
2,490.1

Long-term debt, less current portion
5,638.0

 
4,971.6

Non-current deferred income taxes
1,169.3

 
1,563.7

Other non-current liabilities
448.9

 
332.4

Total non-current liabilities
7,256.2

 
6,867.7

Total liabilities
8,796.3

 
9,357.8

Commitments and contingencies - Note 14
 
 
 
Shareholders’ equity
 
 
 
Preferred shares, $0.0001 par value, 10 million shares authorized

 

Ordinary shares, €0.001 par value, 10 billion shares authorized
8,151.4

 
8,144.6

Accumulated other comprehensive income
71.5

 
(15.5
)
Retained earnings
449.0

 
1,907.6

Total controlling interest
8,671.9

 
10,036.7

Noncontrolling interest
(0.6
)
 
(0.6
)
Total shareholders’ equity
8,671.3

 
10,036.1

Total liabilities and shareholders' equity
$
17,467.6

 
$
19,393.9

 
 
 
 
Supplemental Disclosures of Balance Sheet Information
 
 
 
Preferred shares, issued and outstanding

 

Ordinary shares, issued and outstanding
143.4

 
143.1


See accompanying Notes to the Condensed Consolidated Financial Statements

4

Perrigo Company plc - Item 1

PERRIGO COMPANY PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Nine Months Ended
 
October 1,
2016
 
September 26,
2015
Cash Flows From (For) Operating Activities
 
 
 
Net income (loss)
$
(1,395.4
)
 
$
74.2

Adjustments to derive cash flows
 
 
 
Depreciation and amortization
556.3

 
470.4

Loss on acquisition-related foreign currency derivatives

 
300.0

Share-based compensation
16.1

 
29.7

Impairment charges
2,127.1

 

Loss on extinguishment of debt
1.1

 
0.9

Non-cash restructuring charges
17.9

 
3.1

Deferred income taxes
(507.2
)
 
7.7

Other non-cash adjustments
34.5

 
15.3

Subtotal
850.4

 
901.3

Increase (decrease) in cash due to:
 
 
 
Accounts receivable
113.6

 
(30.9
)
Inventories
(29.9
)
 
(28.6
)
Accounts payable
(51.8
)
 
(6.5
)
Payroll and related taxes
(40.0
)
 
(26.6
)
Accrued customer programs
(74.7
)
 
17.7

Accrued liabilities
(42.8
)
 
46.7

Accrued income taxes
9.7

 
0.3

Other
(31.0
)
 
(6.7
)
Subtotal
(146.9
)
 
(34.6
)
Net cash from (for) operating activities
703.5

 
866.7

Cash Flows From (For) Investing Activities
 
 
 
Acquisitions of businesses, net of cash acquired
(432.1
)
 
(2,499.9
)
Asset acquisitions
(65.1
)
 
(4.0
)
Additions to property and equipment
(84.6
)
 
(127.6
)
Proceeds from sale of business
58.5

 

Settlement of acquisition-related foreign currency derivatives

 
(304.8
)
Other investing
(1.0
)
 
(2.7
)
Net cash from (for) investing activities
(524.3
)
 
(2,939.0
)
Cash Flows From (For) Financing Activities
 
 
 
Issuances of long-term debt
1,190.3

 

Payments on long-term debt
(545.8
)
 
(903.3
)
Borrowings (repayments) of revolving credit agreements and other financing, net
(803.6
)
 
28.6

Deferred financing fees
(2.8
)
 
(3.3
)
Premium on early debt retirement
(0.6
)
 

Issuance of ordinary shares
8.2

 
6.2

Cash dividends
(62.4
)
 
(54.2
)
Other financing
(17.4
)
 
(15.5
)
Net cash from (for) financing activities
(234.1
)
 
(941.5
)
Effect of exchange rate changes on cash
(0.2
)
 
(75.8
)
Net increase (decrease) in cash and cash equivalents
(55.1
)
 
(3,089.6
)
Cash and cash equivalents, beginning of period
417.8

 
3,596.1

Cash and cash equivalents, end of period
$
362.7

 
$
506.5

 
 
 
 
Supplemental Disclosures of Cash Flow Information
 
 
 
Cash paid/received during the year for:
 
 
 
Interest paid
$
124.1

 
$
92.5

Interest received
$
1.1

 
$
1.0

Income taxes paid
$
116.6

 
$
130.0

Income taxes refunded
$
6.0

 
$
3.1


See accompanying Notes to the Condensed Consolidated Financial Statements

5

Perrigo Company plc - Item 1
Note 1



NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.     General Information

The Company

Perrigo Company plc was incorporated under the laws of Ireland on June 28, 2013 and became the successor registrant of Perrigo Company, a Michigan corporation, on December 18, 2013 in connection with the acquisition of Elan Corporation, plc ("Elan"). Unless the context requires otherwise, the terms "Perrigo," the "Company," "we," "our," "us," and similar pronouns used herein refer to Perrigo Company plc, its subsidiaries, and all predecessors of Perrigo Company plc and its subsidiaries. We are a leading global over-the-counter ("OTC") consumer goods and specialty pharmaceutical company, offering patients and customers high quality products at affordable prices. From our beginning in 1887 as a packager of home remedies, we have grown to become the world's largest manufacturer of OTC healthcare products and supplier of infant formulas for the store brand market. We are also a leading provider of generic extended topical prescription products, and we receive royalties from sales of the multiple sclerosis drug Tysabri®. We provide “Quality Affordable Healthcare Products®” across a wide variety of product categories and geographies, primarily in North America, Europe, and Australia, as well as in other markets, including Israel, China, and Latin America.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and footnotes included in our Transition Report on Form 10-KT for the transition period from June 28, 2015 to December 31, 2015. In the opinion of management, all adjustments (consisting of normal recurring accruals and other adjustments) considered necessary for a fair presentation have been included. The Condensed Consolidated Financial Statements include our accounts and the accounts of all majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Our fiscal year previously consisted of a 52- or 53-week year ending on or around June 30 of each year with each quarter ending on the Saturday closest to each calendar quarter-end. Beginning on January 1, 2016, we changed our fiscal year to begin on January 1 and end on December 31 of each year. We will continue to cut off 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.

During the three months ended April 2, 2016, we identified certain errors in our consolidated financial statements for the transition period of June 28, 2015 to December 31, 2015, related primarily to the accrual estimates associated with product returns and tax-related items in our Branded Consumer Healthcare ("BCH") segment. These errors were corrected during the three months ended April 2, 2016 by increasing the consolidated operating loss by $14.5 million, which when combined with tax-related items, increased the consolidated net loss by $13.7 million within the Condensed Consolidated Statements of Operations. We concluded that these errors were not material to the consolidated financial statements for the transition period of June 28, 2015 to December 31, 2015 and are not expected to be material to the consolidated financial statements for the year ending December 31, 2016.


6

Perrigo Company plc - Item 1
Note 1


b.     Recent Accounting Standard Pronouncements

Below are recent accounting standard updates that we are still assessing to determine the effect on our consolidated financial statements. We do not believe that any other recently issued accounting standards could have a material effect on our consolidated financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
Recently Issued Accounting Standards Not Yet Adopted
Standard
 
Description
 
Effective Date
 
Effect on the Financial Statements or Other Significant Matters
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 they 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. Early adoption is permitted.
 
January 1, 2017
 
We are currently evaluating the implications of adoption on our consolidated financial statements.
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. Early adoption is not permitted.
 
January 1, 2018
 
We are currently evaluating the possible adoption methodologies and the implications of adoption on our consolidated financial statements.
Leases
 
This 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, 2019
 
We are currently evaluating the implications of adoption on our consolidated financial statements and considering whether to early adopt the standard.


7

Perrigo Company plc - Item 1
Note 1


Recently Issued Accounting Standards Not Yet Adopted (continued)
Standard
 
Description
 
Effective Date
 
Effect on the Financial Statements or Other Significant Matters
Measurement of Credit Losses on Financial Instruments
 
This 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, 2020
 
We are currently evaluating the new standard for potential impacts on our receivables, debt, and other financial instruments and considering whether to early adopt the standard.

NOTE 2 – ACQUISITIONS AND DIVESTITURES

All of the below acquisitions, with the exception of the generic Benzaclin™ product purchase, have been accounted for under the acquisition method of accounting based on our analysis of the acquired inputs and processes, and the related assets acquired and liabilities assumed were recorded at fair value as of the acquisition date.

Fair value estimates are based on a complex series of judgments about future events and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations.

The effects of all of the acquisitions described below are included in the Condensed Consolidated Financial Statements prospectively from the date of each acquisition. Unless otherwise indicated, acquisition costs incurred were immaterial and were recorded in Administration expense.

Current Year Acquisitions

Generic Benzaclin Product

On August 2, 2016, we purchased the remaining 60.9% product rights to a generic Benzaclin™ product ("Generic Benzaclin™"), which we had developed and marketed in collaboration with Barr Laboratories, Inc. ("Barr"), a subsidiary of Teva Pharmaceuticals, for $62.0 million in cash. In September 2007, we entered into an initial development, marketing and commercialization agreement with Barr, in which Barr contributed to the product's development costs and we developed and marketed the product in the U.S. and Israel. Under this agreement, we paid Barr a percentage of net income from the product's sales in these territories, adjusted for Barr's contributions to the product's development costs. By purchasing the remaining product right from Barr, we are now entitled to 100% of income from sales of the product. Operating results attributable to Generic Benzaclin™ are included within our Prescription Pharmaceuticals ("Rx") segment. The intangible asset acquired is a distribution and license agreement with a nine-year useful life.

Tretinoin Product Portfolio

On January 22, 2016, we acquired a portfolio of generic dosage forms and strengths of Retin-A® (tretinoin), a topical prescription acne treatment, from Matawan Pharmaceuticals, LLC, for $416.4 million in cash ("Tretinoin Products"), which further expanded our extended topicals portfolio. We were the authorized generic distributor of these products from 2005 to 2013. Operating results attributable to the acquisition are included within our Rx segment. The intangible assets acquired included generic product rights valued using the multi-period excess earnings method and assigned a 20-year useful life, and non-compete agreements valued using the lost income method and assigned a five-year useful life. The goodwill acquired is deductible for tax purposes.


8

Perrigo Company plc - Item 1
Note 2


Development-Stage Rx Products

In May 2015, we entered into an agreement with a clinical stage biotechnology company for two specialty pharmaceutical products in development ("Development-Stage Rx Products"). We paid $18.0 million for an option to acquire the two products, which was recorded in Research and Development expense. On March 1, 2016, to further invest in our specialty Rx portfolio, we exercised the option for both products, which requires us to make contingent payments if we obtain regulatory approval and achieve certain sales milestones. We will also be obligated to make certain royalty payments over periods ranging from seven to ten years from the launch of each product. 

We accounted for the option exercise as a business acquisition within our Rx segment, recording IPR&D and contingent consideration on the balance sheet. The IPR&D was valued using the multi-period excess earnings method and has an indefinite useful life until such time as the research is completed (at which time it will become a definite-lived intangible asset), or is determined to have no future use (at which time it would be impaired). The contingent consideration is an estimate of the future milestone payments and royalties based on probability-weighted outcomes, sensitivity analysis, and discount rates reflective of the risk involved. The amount of contingent consideration recognized was $24.9 million and was recorded in Other non-current liabilities.


9

Perrigo Company plc - Item 1
Note 2


Purchase Price Allocation of Current Year Acquisitions

The purchase accounting allocation for four small product acquisitions in our Consumer Healthcare ("CHC") and Rx segments (included in "All Other" in the table below) are preliminary and are based on the valuation information, estimates, and assumptions available at October 1, 2016. As we finalize the fair value estimate, additional purchase price adjustments may be recorded during the measurement period to contingent consideration and intangible assets.

The below table indicates the purchase price allocation for acquisitions completed in the current year (in millions):
 
Tretinoin Products
 
Development-Stage Rx Products
 
All Other(1)*
Purchase price paid
$
416.4

 
$

 
$
21.9

Contingent consideration

 
24.9

 
30.6

Total purchase consideration
$
416.4

 
$
24.9

 
$
52.5

 
 
 
 
 
 
Assets acquired:
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
3.8

Accounts receivable

 

 
4.9

Inventories
1.4

 

 
7.1

Prepaid expenses and other current assets

 

 
0.1

Property and equipment

 

 
1.2

Goodwill
1.7

 

 
0.2

Definite-lived intangibles:
 
 
 
 
 
Distribution and license agreements, supply agreements

 

 
3.4

Developed product technology, formulations, and product rights
411.0

 

 
23.3

Customer relationships and distribution networks

 

 
8.2

Non-compete agreements
2.3

 

 

Indefinite-lived intangibles:
 
 
 
 
 
In-process research and development

 
24.9

 
7.0

Total intangible assets
$
413.3

 
$
24.9

 
$
41.9

Total assets
$
416.4

 
$
24.9

 
$
59.2

Liabilities assumed:
 
 
 
 
 
Accounts payable
$

 
$

 
$
2.8

Accrued liabilities

 

 
0.1

Long-term debt

 

 
3.3

Net deferred income tax liabilities

 

 
0.5

Total liabilities
$

 
$

 
$
6.7

Net assets acquired
$
416.4

 
$
24.9

 
$
52.5


*    Opening balance sheet is preliminary
(1)
Consists of four product acquisitions in the CHC and Rx segments


10

Perrigo Company plc - Item 1
Note 2


Prior Year Acquisitions

Entocort® 

On December 15, 2015, we completed our acquisition of Entocort® (budesonide) capsules, as well as the authorized generic capsules, for sale within the U.S., from AstraZeneca plc for $380.2 million in cash. Entocort® is a gastroenterology medicine for patients with mild to moderate Crohn's disease. The acquisition complemented our Rx portfolio. Operating results attributable to the acquisition are included within our Rx segment. The intangible assets acquired included branded and authorized generic product rights with useful lives of 10 and 15 years, respectively, which were valued using the multi-period excess earnings method.

Naturwohl Pharma GmbH

On September 15, 2015, we completed our acquisition of 100% of Naturwohl Pharma GmbH ("Naturwohl"), a Munich, Germany-based nutritional business known for its leading German dietary supplement brand, Yokebe®. The acquisition built on our BCH segment's OTC product portfolio and European commercial infrastructure. The assets were purchased through an all-cash transaction valued at €133.5 million ($150.4 million). Operating results attributable to Naturwohl are included in the BCH segment. The intangible assets acquired included a trademark with a 20-year useful life, customer relationships with a 15-year useful life, non-compete agreements with a three-year useful life, and a licensing agreement with a three-year useful life. We utilized the relief from royalty method for valuing the trademark, the multi-period excess earnings method for valuing the customer relationships, and the lost income method for valuing the non-compete agreements and the licensing agreement. The goodwill acquired is not deductible for tax purposes.

ScarAway® 
    
On August 28, 2015, we completed our acquisition of ScarAway®, a leading U.S. OTC scar management brand portfolio comprised of five products, from Enaltus, LLC, for $26.7 million in cash. This acquisition served as our entry into the niche branded OTC business in the U.S. Operating results attributable to ScarAway® are included in the CHC segment. The intangible assets acquired included a trademark with a 25-year useful life, non-compete agreements with a four-year useful life, developed product technology with an eight-year useful life, and customer relationships with a 15-year useful life. We utilized the relief from royalty method for valuing the trademark and developed product technology, the multi-period excess earnings method for valuing the customer relationships, and the lost income method for valuing the non-compete agreements. The goodwill acquired is deductible for tax purposes.

GlaxoSmithKline Consumer Healthcare Product Portfolio
    
On August 28, 2015, we completed our acquisition of a portfolio of well-established OTC brands from GlaxoSmithKline Consumer Healthcare (“GSK Products”). This acquisition further leveraged our European market share and expanded our product offerings. The assets were purchased through an all-cash transaction valued at €200.0 million ($223.6 million). Operating results attributable to the acquired GSK Products are included primarily in the BCH segment. The intangible assets acquired included trademarks with a 20-year useful life and customer relationships with a 15-year useful life. We utilized the relief from royalty method for valuing the trademarks and the multi-period excess earnings method for valuing the customer relationships. The goodwill acquired is deductible for tax purposes and recorded primarily in the BCH segment.

Gelcaps Exportadora de Mexico, S.A. de C.V.

On May 12, 2015, we completed our acquisition of 100% of Gelcaps Exportadora de Mexico, S.A. de C.V. ("Gelcaps"), the Mexican operations of Durham, North Carolina-based Patheon Inc., for $37.9 million in cash. The acquisition added softgel manufacturing technology to our supply chain capabilities and broadened our presence, product portfolio, and customer network in Mexico. Operating results attributable to Gelcaps are included in the CHC segment. The intangible assets acquired included a trademark with a 25-year useful life and customer relationships with a 20-year useful life. We utilized the relief from royalty method for valuing the trademark and the multi-period excess earnings method for valuing the customer relationships.


11

Perrigo Company plc - Item 1
Note 2


Based on valuation estimates utilizing the comparative sales method, a step-up in the value of inventory of $0.6 million was recorded in the opening balance sheet, which was charged to cost of goods sold during the three months ended June 27, 2015. In addition, property, plant and equipment was written up by $0.9 million to its estimated fair market value based on a valuation method that included both the cost and market approaches. This additional step-up in value is being depreciated over the estimated remaining useful lives of the assets. The goodwill recorded is not deductible for tax purposes.

Omega Pharma Invest N.V.

On March 30, 2015, we completed our acquisition of Omega Pharma Invest N.V. ("Omega"), a limited liability company incorporated under the laws of Belgium. Omega was a leading European OTC company and is providing us several key benefits, including advancing our growth strategy outside the U.S. by providing access across a larger global platform with critical mass in key European countries, establishing commercial infrastructure in the high barrier-to-entry European OTC marketplace, strengthening our product portfolio while enhancing scale and distribution, and expanding our international management capabilities.

We purchased 95.77% of the issued and outstanding share capital of Omega (685,348,257 shares) from Alychlo N.V. (“Alychlo”) and Holdco I BE N.V. (together with Alychlo, the “Sellers”), limited liability companies incorporated under the laws of Belgium, under the terms of the Share Purchase Agreement dated November 6, 2014 (the "Share Purchase Agreement"). Omega holds the remaining 30,243,983 shares as treasury shares.

The acquisition was a cash and stock transaction made up of the following consideration (in millions except per share data):
Perrigo ordinary shares issued
 
5.4

Perrigo per share price at transaction close on March 30, 2015
 
$
167.64

Total value of Perrigo ordinary shares issued
 
$
904.9

Cash consideration
 
2,078.3

Total consideration
 
$
2,983.2


The cash consideration shown in the above table was financed by a combination of debt and equity. We issued $1.6 billion of debt as described in Note 10, and issued 6.8 million ordinary shares, which raised $999.3 million, net of issuance costs.

The Sellers agreed to indemnify us for certain potential future losses. The Sellers’ indemnification and other obligations to us under the Share Purchase Agreement are secured by up to €120.9 million ($135.9 million as of October 1, 2016) in cash that has been escrowed or is committed to be escrowed and 1.08 million of our ordinary shares, which are both being held in escrow to secure such obligations. Under the terms of the Share Purchase Agreement, Alychlo and its affiliates are subject to a three-year non-compete in Europe, and the Sellers are subject to a two-year non-solicit, in each case subject to certain exceptions. The Share Purchase Agreement contains other customary representations, warranties, and covenants of the parties thereto. Our Board of Directors has authorized us to issue an arbitral claim against the sellers, which we plan to do.

The operating results attributable to Omega are included in the BCH segment. We incurred general transaction costs (legal, banking and other professional fees), financing fees, and debt extinguishment charges in connection with the Omega acquisition. The amounts recorded were not allocated to a reporting segment. The table below details the acquisition costs, as well as losses on hedging activities associated with the acquisition purchase price, and where they were recorded for the nine months ended September 26, 2015 (in millions):

12

Perrigo Company plc - Item 1
Note 2


 
 
Nine Months Ended
Line item
 
September 26, 2015
Administration
 
$
18.1

Interest expense, net
 
18.7

Other expense, net
 
258.2

Total acquisition-related costs
 
$
295.0


See Note 8 for further details on losses on the Omega-related hedging activities shown above in Other expense, net, and Note 10 for details on the loss on extinguishment of debt.

We acquired the following intangible assets: indefinite-lived brands, a definite-lived trade name with an eight-year useful life, definite-lived brands with a 22-year useful life, a distribution network with a 21-year useful life, and developed product technology with useful lives ranging from four to 13 years. We also recorded goodwill, which is not deductible for tax purposes and represents the value we assigned to the expected synergies described above, in our BCH segment. We utilized the multi-period excess earnings method to value the indefinite-lived brands, the definite-lived brands, and distribution network. We utilized the relief from royalty method to value the developed product technology and definite-lived trade name.

Based on valuation estimates utilizing the comparative sales method, a step-up in the value of inventory of $15.1 million was recorded in the opening balance sheet and was charged to cost of goods sold during the three months ended June 27, 2015. In addition, property, plant and equipment were written up $41.5 million to their estimated fair market value based on a valuation method that included both the cost and market approaches. This additional step-up in value is being depreciated over the estimated remaining useful lives of the assets. Additionally, the fair value of the debt assumed on the date of acquisition exceeded par value by $101.9 million, which was recorded as part of the carrying value of the underlying debt and will be amortized as a reduction of interest expense over the remaining terms of the respective debt instruments. For more information on the debt we assumed from Omega and our subsequent payments on the debt, see Note 10.


13

Perrigo Company plc - Item 1
Note 2


Purchase Price Allocation of Prior Year Acquisitions

The purchase accounting allocation for the Entocort® and GSK Products acquisitions were finalized during the three months ended April 2, 2016. Changes to the allocations were due to adjustments to the intangible asset valuation assumptions. The purchase accounting for all other prior year acquisitions was final as of December 31, 2015. The below table indicates the purchase price allocation for acquisitions completed during the year ended December 31, 2015 (in millions):
 
Entocort®
 
Naturwohl
 
ScarAway®
 
GSK Products
 
Gelcaps
 
Omega
 
All Other(1)
Purchase price paid
$
380.2

 
$
150.4

 
$
26.7

 
$
223.6

 
$
37.9

 
$
2,983.2

 
$
15.3

Contingent consideration

 

 

 

 

 

 
13.9

Total purchase consideration
$
380.2

 
$
150.4

 
$
26.7

 
$
223.6

 
$
37.9

 
$
2,983.2

 
$
29.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets acquired:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
4.6

 
$

 
$

 
$
4.6

 
$
14.7

 
$

Accounts receivable

 
3.3

 

 

 
7.3

 
260.1

 

Inventories
0.2

 
1.5

 
1.0

 

 
7.2

 
202.5

 

Prepaid expenses and other current assets

 

 

 

 
2.1

 
39.2

 

Property and equipment

 

 

 

 
6.0

 
130.8

 

Goodwill

 
61.0

 
3.5

 
32.6

 
6.0

 
1,900.4

 

Definite-lived intangibles:
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution and license agreements, supply agreements

 
21.4

 

 

 

 

 

Developed product technology, formulations, and product rights
380.0

 

 
0.5

 

 

 
27.2

 

Customer relationships and distribution networks

 
25.9

 
9.8

 
61.5

 
6.6

 
1,056.3

 

Trademarks, trade names, and brands

 
64.2

 
11.4

 
129.5

 

 
287.5

 

Non-compete agreements

 
0.3

 
0.5

 

 

 

 

Indefinite-lived intangibles:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trademarks, trade names, and brands

 

 

 

 
4.4

 
2,003.8

 

In-process research and development

 

 

 

 

 

 
29.2

Total intangible assets
$
380.0

 
$
111.8

 
$
22.2

 
$
191.0

 
$
11.0

 
$
3,374.8

 
$
29.2

Other non-current assets

 

 

 

 
0.4

 
2.4

 

Total assets
$
380.2

 
$
182.2

 
$
26.7

 
$
223.6

 
$
44.6

 
$
5,924.9

 
$
29.2

Liabilities assumed:
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
2.8

 
$

 
$

 
$
3.3

 
$
243.1

 
$

Short-term debt

 

 

 

 

 
24.6

 

Accrued liabilities

 
1.6

 

 

 
1.6

 
43.9

 

Payroll and related taxes

 

 

 

 

 
51.3

 

Accrued customer programs

 

 

 

 

 
39.8

 

Long-term debt

 

 

 

 

 
1,471.0

 

Net deferred income tax liabilities

 
27.4

 

 

 
1.4

 
1,014.5

 

Other non-current liabilities

 

 

 

 
0.4

 
53.5

 

Total liabilities

 
31.8

 

 

 
6.7

 
2,941.7

 

Net assets acquired
$
380.2

 
$
150.4

 
$
26.7

 
$
223.6

 
$
37.9

 
$
2,983.2

 
$
29.2


(1)
Consists of eight product acquisitions in the CHC, BCH, and Rx segments


14

Perrigo Company plc - Item 1
Note 2


Actual and Unaudited Pro Forma Impact of Acquisitions

Our Condensed Consolidated Financial Statements include operating results from the Tretinoin Products, Entocort®, Naturwohl, GSK Products, ScarAway®, Omega, and Gelcaps acquisitions, as well as from four small product acquisitions, from the date of each acquisition through October 1, 2016. Net sales and operating income attributable to acquisitions completed in the current year and included in our financial statements totaled $25.3 million and $13.0 million, respectively, for the three months ended October 1, 2016 and totaled $47.7 million and $31.3 million, respectively, for the nine months ended October 1, 2016.

The following unaudited pro forma information gives effect to the Tretinoin Products, Entocort®, Naturwohl, GSK Products, ScarAway®, Omega, and Gelcaps acquisitions, as well as four small product acquisitions, as if the acquisitions had occurred on the first day of the nine months ended September 26, 2015 and had been included in our Results of Operations for all periods presented thereafter (in millions):
 
Three Months Ended
 
Nine Months Ended
(Unaudited)
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
Net sales
$
1,359.6

 
$
1,429.9

 
$
4,243.3

 
$
4,451.4

Net income (loss)
$
(1,254.9
)
 
$
142.0

 
$
(1,392.8
)
 
$
154.7


The historical consolidated financial information of Perrigo, and the Tretinoin Products, Entocort®, Naturwohl, GSK Products, ScarAway®, Omega and Gelcaps acquisitions and the four small product acquisitions, has been adjusted in the pro forma information to give effect to pro forma events that are (1) directly attributable to the transactions, (2) factually supportable and (3) expected to have a continuing impact on combined results. In order to reflect the occurrence of the acquisitions on the first day of the nine months ended September 26, 2015 as required, the unaudited pro forma results include adjustments to reflect the incremental amortization expense to be incurred based on the current values of each acquisition's identifiable intangible and tangible assets, along with the reclassification of acquisition-related costs from the nine months ended October 1, 2016 to the nine months ended September 26, 2015. The unaudited pro forma results do not reflect future events that have occurred or may occur after the acquisitions.

Current Year Divestitures

On August 5, 2016, we completed the sale of our U.S. Vitamins, Minerals, and Supplements ("VMS") business within our CHC segment to International Vitamins Corporation ("IVC") for $61.8 million inclusive of an estimated working capital adjustment. The assets and liabilities related to this sale were classified as held-for-sale at December 31, 2015. Prior to closing the sale, we determined that the carrying value of the VMS business exceeded its fair value less the cost to sell, resulting in an impairment charge of $6.2 million, which was recorded in Impairment charges on the Condensed Consolidated Statements of Operations during the nine months ended October 1, 2016.

NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Changes in the carrying amount of goodwill, by reportable segment, were as follows (in millions):
Reporting Segments:
 
December 31, 2015
 
Business acquisitions
 
Business divestitures
 
Impairments
 
Changes in assets held for sale
 
Currency translation adjustment
 
October 1,
2016
CHC
 
$
1,890.0

 
$
0.2

 
$
(8.5
)
 
$

 
$
13.0

 
$
(6.8
)
 
$
1,887.9

BCH
 
1,980.5

 

 

 
(967.5
)
 

 
92.4

 
1,105.4

Rx
 
1,222.2

 
1.7

 

 

 

 
(13.7
)
 
1,210.2

Specialty Sciences
 
200.7

 

 

 

 

 

 
200.7

Other
 
71.5

 

 

 

 
11.7

 
3.2

 
86.4

Total goodwill
 
$
5,364.9

 
$
1.9

 
$
(8.5
)
 
$
(967.5
)
 
$
24.7

 
$
75.1

 
$
4,490.6



15

Perrigo Company plc - Item 1
Note 3


In connection with the preparation of our financial statements for the three-month period ended April 2, 2016, we identified indicators of goodwill impairment in our BCH - rest of world (“BCH - ROW”) reporting unit, which comprises primarily operations attributable to the Omega acquisition in all geographic regions except for Belgium. The primary impairment indicators included the decline in our 2016 performance expectations and a reduction in our long-range revenue growth forecast. Step one of the goodwill impairment test involved determining the fair value of the reporting unit using a discounted cash flow technique and comparing it to the reporting unit’s carrying value. The main assumptions supporting the cash flow projections used to determine the reporting unit’s fair value included revenue growth based on product line extensions, product life cycle strategies, and geographical expansion within the markets in which the reporting unit distributes products, gross margins consistent with historical trends, and advertising and promotion investments largely consistent with the reporting unit's growth plans. The BCH - ROW reporting unit did not pass step one of goodwill impairment testing. The change in fair value from previous estimates was due primarily to the changes in the market and performance of certain brands such that the evaluation of brand prioritization and product extensions or launches in new regions are being more focused to maximize the potential of all brands in the segment's portfolio.

The second step of the goodwill impairment test required that we determine the implied fair value of the BCH - ROW reporting unit’s goodwill, which involved determining the value of the reporting unit’s individual assets and liabilities. Due to the complex and time-consuming nature of step two, based on our evaluation and initial estimates of the fair values of the assets and liabilities and the deficit of the fair value when compared to the related book value, we recorded an estimated impairment charge of $193.6 million for the three months ended April 2, 2016. We finalized the step two fair value calculation during the three months ended July 2, 2016, which resulted in a $30.3 million reduction to the estimated impairment charge recorded during the three months ended April 2, 2016.

In connection with the preparation of our financial statements for the three months ended October 1, 2016, we identified additional indicators of goodwill impairment in both our BCH - ROW and our BCH - Belgium reporting units. With respect to both reporting units, the primary impairment indicators included an additional decline in our 2016 performance expectations for the remainder of the year and a reduction in our long-range revenue growth and margin forecasts due to the factors outlined below. Step one of the goodwill impairment test involved determining the fair value of the reporting units using a discounted cash flow technique and comparing it to the respective reporting units' carrying value. The main assumptions supporting the cash flow projections used to determine each reporting unit’s fair value included revenue growth based on product line extensions, product life cycle strategies, and geographical expansion within the markets in which the reporting unit distributes products, gross margins consistent with historical trends and including supply chain cost improvement plans, and advertising and promotion investments largely consistent with the reporting unit's growth plans. Both the BCH - ROW and the BCH - Belgium reporting units did not pass step one of goodwill impairment testing. As it relates to the BCH - ROW reporting unit, the changes in fair value from previous estimates were due primarily to (1) changes in the market and performance of certain brands due to moderated new product launch assumptions, (2) execution of certain key product strategies falling short of expectations causing a reduction to baseline forecast models in France, Germany and Italy, (3) certain macro-economic factors having continued to impact the business more than expected in France, Russia and Turkey in addition to unfavorable foreign currency impacts experienced primarily in the UK related to Brexit. As it relates to BCH - Belgium reporting unit, the changes in fair value from previous estimates due to change in the forecast as a result of a reduction in volume with a major wholesaler due to factors consistent with those outlined for BCH - ROW.

The second step of the goodwill impairment test required that we determine the implied fair value of both the BCH - ROW and BCH - Belgium reporting units' goodwill, which involved determining the value of each reporting unit’s individual assets and liabilities. Based on our evaluation and initial estimates of the fair values of the assets and liabilities and the deficit of the fair value when compared to the related book value, we recorded an estimated impairment charge of $734.7 million related to the BCH - ROW reporting unit and $69.4 million related to the BCH - Belgium reporting unit for the three months ended October 1, 2016. Both charges were recorded in Impairment charges on the Condensed Consolidated Statements of Operations within our BCH segment. Due to the complex and time-consuming nature of step two, we expect to finalize the fair value calculation during the fourth quarter of 2016, which could result in an adjustment to the estimated impairment charge. As of October 1, 2016, the implied fair value of goodwill that remains in the BCH - ROW and BCH - Belgium reporting units is $1.0 billion and $70.2 million, respectively.


16

Perrigo Company plc - Item 1
Note 3


While no impairment charges were recorded as a result of the goodwill impairment testing for the transition period of June 28, 2015 to December 31, 2015, our Specialty Sciences reporting unit's fair value exceeded the carrying value by less than 10%. Management evaluated the primary source of cash flow in this segment, the Tysabri® royalty stream, based on a combination of factors including independent external research, information provided from our royalty partner, and internal estimates. Based on this information, management’s assessment of future cash flow from this royalty stream has been reduced primarily due to anticipated new competitors entering the market and unfavorable currency exchange effects. Future performance different from the assumptions utilized in our quantitative analysis may further reduce the fair value of the reporting unit, which may result in the fair value no longer exceeding the carrying value. In February 2016, a competitor's pipeline product, Ocrevus®, received breakthrough therapy designation from the FDA and could potentially be approved in 2016. The product would compete with Tysabri® and could have a significant negative impact on the royalty we receive from Biogen Idec, Inc. ("Biogen") and the performance of the Specialty Sciences segment. We continue to monitor the progress of all potential competing products and assess the reporting unit for potential impairment should impairment indicators arise, as applicable, and at least annually during our fourth quarter impairment testing.

During the three months ended June 27, 2015, we performed our annual goodwill impairment testing, which indicated that our CHC Mexico reporting unit's goodwill fair value was below its net book value as of March 28, 2015. As a result, we initiated the second step of the goodwill impairment test to measure the amount of impairment. We concluded that the goodwill was fully impaired and recorded an impairment of $6.8 million in the CHC segment during the nine months ended September 26, 2015 in Other expense, net.

Intangible Assets

Other intangible assets and related accumulated amortization consisted of the following (in millions):
 
October 1, 2016
 
December 31, 2015
 
Gross
 
Accumulated Amortization
 
Gross
 
Accumulated Amortization
Definite-lived intangibles:
 
 
 
 
 
 
 
Distribution and license agreements, supply agreements
$
6,122.3

 
$
914.0

 
$
6,053.4

 
$
667.2

Developed product technology, formulations, and product rights
1,805.9

 
529.0

 
1,383.5

 
426.0

Customer relationships and distribution networks
1,564.0

 
288.8

 
1,520.7

 
193.0

Trademarks, trade names, and brands
631.6

 
54.7

 
539.4

 
22.8

Non-compete agreements
14.6

 
11.0

 
15.2

 
12.7

Total definite-lived intangibles
$
10,138.4

 
$
1,797.5

 
$
9,512.2

 
$
1,321.7

Indefinite-lived intangibles:
 
 
 
 
 
 
 
Trademarks, trade names, and brands
$
724.2

 
$

 
$
1,868.1

 
$

In-process research and development
67.9

 

 
48.2

 

Total indefinite-lived intangibles
792.1

 

 
1,916.3

 

Total other intangible assets
$
10,930.5

 
$
1,797.5

 
$
11,428.5

 
$
1,321.7


Certain intangible assets are denominated in currencies other than the U.S. dollar; therefore, their gross and net carrying values are subject to foreign currency movements.

We recorded amortization expense of $162.1 million and $147.6 million for the three months ended October 1, 2016 and September 26, 2015, respectively, and $481.8 million and $397.9 million for the nine months ended October 1, 2016 and September 26, 2015, respectively. The increase in amortization expense for the 2016 nine-month period was due primarily to the incremental amortization expense incurred on the definite-lived intangible assets acquired from the Omega, Entocort®, and Tretinoin Products acquisitions.

During our impairment testing for the transition period of June 28, 2015 to December 31, 2015, we identified an impairment of certain indefinite-lived intangible assets purchased in conjunction with the Omega acquisition based on management’s expectations of the prospects for future revenues, profits, and cash flows associated with

17

Perrigo Company plc - Item 1
Note 3


these assets. The assessment resulted in an impairment charge of $185.1 million within our BCH segment, which represented the difference between the carrying amount of the intangible assets and their estimated fair value. See our Transition Report on Form 10-KT filed on February 25, 2016 for a further discussion of this impairment charge.

In connection with the preparation of our financial statements for the three-month period ended April 2, 2016, we identified indicators of impairment associated with certain indefinite-lived intangible assets acquired in conjunction with the Omega acquisition. The primary impairment indicators included the decline in our 2016 performance expectations and a reduction in our long-range revenue growth forecast. The assessment utilized the excess earnings method to determine fair value and resulted in an impairment charge of $273.4 million in Impairment charges on the Condensed Consolidated Statements of Operations within our BCH segment, which represented the difference between the carrying amount of the intangible assets and their estimated fair value. The change in fair value from previous estimates was due primarily to the changes in the market and performance of the brands such that the evaluation of brand prioritization and product extensions or launches in new regions are being more focused to maximize the potential of all brands in the segment's portfolio. The main assumptions supporting the fair value of these assets and cash flow projections included revenue growth based on product line extensions, product life cycle strategies, and geographical expansion within the markets in which the BCH segment distributes products, gross margins consistent with historical trends, and advertising and promotion investments largely consistent with the segment's growth plans.

In connection with the preparation of our financial statements for the three months ended October 1, 2016, we identified additional indicators of impairment associated with certain indefinite-lived and definite-lived intangible brand category assets acquired in conjunction with the Omega acquisition. The primary impairment indicators are discussed above in goodwill. The assessment of the indefinite-lived assets utilized the excess earnings method to determine fair value and resulted in an impairment charge of $575.7 million for the three months ended October 1, 2016. With regards to the definite-lived asset, it was determined that the carrying value of the asset group was not recoverable based on an assessment of the undiscounted future cash flows expected to be generated by the asset group. Given this, the excess earnings method was utilized to determine fair value of the definite-lived asset and resulted in an impairment charge of $290.2 million for the three months ended October 1, 2016. Both charges, which represented the difference between the carrying amount of the intangible assets and their estimated fair value, were recorded in Impairment charges on the Condensed Consolidated Statements of Operations within our BCH segment. The main assumptions supporting the fair value of these assets and cash flow projections are included in the goodwill discussions above.

The carrying value for certain intangible assets and goodwill equals estimated and implied fair values, respectively, and as a result, any further deterioration in those assets' fair value would lead to a further impairment charge. Future performance different from the assumptions utilized in our quantitative analyses may result in additional changes in the fair value. We will continue to monitor and assess these assets for potential impairment should further impairment indicators arise. We will complete our required annual impairment testing during the fourth quarter of 2016.

In addition, given the additional change in performance expectations for our remaining impaired cough/cold/allergy, anti-parasite, personal care and natural health brands previously recorded as indefinite-lived assets, we reclassified the remaining asset balance of $672.4 million related to these four assets to definite-lived assets with a 20-year useful life and began amortizing the assets as of October 2, 2016.

NOTE 4 - ACCOUNTS RECEIVABLE FACTORING

We have multiple accounts receivable factoring arrangements with non-related third-party financial institutions (the “Factors”). Pursuant to the terms of the arrangements, we sell to the Factors certain of our accounts receivable balances on a non-recourse basis for credit approved accounts. An administrative fee ranging from 0.14% to 0.15% per invoice is charged on the gross amount of accounts receivables assigned to the Factors, plus interest is calculated at the applicable EUR LIBOR rate plus 70 basis points. The total amount factored and excluded from accounts receivable was $36.4 million and $106.7 million at October 1, 2016 and December 31, 2015, respectively.


18

Perrigo Company plc - Item 1
Note 5


NOTE 5 – INVENTORIES

Major components of inventory were as follows (in millions):
 
 
October 1,
2016
 
December 31,
2015
Finished goods
$
511.6

 
$
483.4

Work in process
171.0

 
151.4

Raw materials
202.0

 
209.6

Total inventories
$
884.6

 
$
844.4


NOTE 6 – FAIR VALUE MEASUREMENTS

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.

Level 1:
Quoted prices for identical instruments in active markets.

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.

The following table summarizes the valuation of our financial instruments carried at fair value and measured at fair value on a recurring and non-recurring basis by the above pricing categories (in millions):
 
 
 
 
Fair Value
 
 
Fair Value Hierarchy
 
October 1,
2016
 
December 31,
2015
Measured at fair value on a recurring basis:
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Investment securities
 
Level 1
 
$
53.0

 
$
14.9

 
 
 
 
 
 
 
Foreign currency forward contracts
 
Level 2
 
$
5.2

 
$
4.8

 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Interest rate swap agreements
 
Level 2
 
$

 
$
0.3

Foreign currency forward contracts
 
Level 2
 
0.8

 
3.9

Total level 2 liabilities
 
 
 
$
0.8

 
$
4.2

 
 
 
 
 
 
 
Contingent consideration
 
Level 3
 
$
75.0

 
$
17.9

 
 
 
 
 
 
 
Measured at fair value on a non-recurring basis:
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Goodwill(1)
 
Level 3
 
$
1,105.4

 
$

Indefinite-lived intangible assets(2)
 
Level 3
 
672.4

 
1,031.8

Definite-lived intangible assets(3)
 
Level 3
 
66.9

 

Assets held for sale, net
 
Level 3
 
14.1

 
37.5

Total level 3 assets
 
 
 
$
1,858.8

 
$
1,069.3


(1)
Goodwill with a carrying amount of $1.9 billion was written down to its implied fair value of $1.1 billion, resulting in an impairment charge of $804.1 million for the three months ended October 1, 2016; impairment charges totaled $967.5 million for the nine months ended October 1, 2016 and are included in Impairment charges on the Condensed Consolidated Statements of Operations.


19

Perrigo Company plc - Item 1
Note 6


(2)
Indefinite-lived intangible assets with a carrying amount of $1.2 billion were written down to a fair value of $672.4 million resulting in total impairment charges of $575.7 million for the three months ended October 1, 2016; impairment charges totaled $849.1 million for the nine months ended October 1, 2016 and are included in Impairment charges on the Condensed Consolidated Statements of Operations.

(3)
Definite-lived intangible assets with a carrying amount of $357.1 million were written down to a fair value of $66.9 million resulting in an impairment charge of $290.2 million for the three and nine months ended October 1, 2016, which is included in Impairment charges on the Condensed Consolidated Statements of Operations.

There were no transfers among Level 1, 2, and 3 during the three and nine months ended October 1, 2016 and September 26, 2015. Our policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period. See Note 7 for information on our investment securities. See Note 8 for a discussion of derivatives.

Contingent consideration represents milestone payment obligations obtained through product acquisitions, which are valued using estimates based on probability-weighted outcomes, sensitivity analysis, and discount rates reflective of the risk involved. The estimates are updated quarterly and the liabilities are adjusted to fair value depending on a number of assumptions, including the competitive landscape and regulatory approvals that may impact the future sales of a product.

The non-recurring fair values included in the table above represent only those assets whose carrying values were adjusted to fair value during the reporting period. See Note 3 for a more detailed discussion of the impaired goodwill and indefinite-lived intangible assets and the valuation methods used, and Note 9 for information on the impaired assets held for sale, net.

The table below presents a reconciliation for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in millions). Net realized losses in the table were recorded in Administrative expense.
 
Three Months Ended
 
Nine Months Ended
 
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
Contingent Consideration
 
 
 
 
 
 
 
Beginning balance
$
44.9

 
$

 
$
17.9

 
$
12.4

Net realized (gains) losses
(0.4
)
 

 
(4.0
)
 
(12.4
)
Purchases or additions
30.6

 

 
61.1

 

Foreign currency effect

 

 
0.1

 

Settlements
(0.1
)
 

 
(0.1
)
 

Ending balance
$
75.0

 
$

 
$
75.0

 
$


As of October 1, 2016 and December 31, 2015, our fixed rate long-term debt consisted of public bonds, a private placement note, and retail bonds. As of October 1, 2016, the public bonds and private placement note had a carrying value of $4.6 billion and a fair value of $4.7 billion, based on quoted market prices (Level 1). As of December 31, 2015, the public bonds and private placement note had a carrying value of $3.9 billion and fair value of $3.8 billion, based on quoted market prices (Level 1). As of October 1, 2016, our retail bonds had a carrying value of $826.4 million (excluding a premium of $60.7 million) and a fair value of $891.4 million. As of December 31, 2015, our retail bonds had a carrying value of $798.3 million (excluding a premium of $82.5 million) and a fair value of $859.8 million. The fair value of our related bonds for both periods was based on interest rates offered for borrowings of a similar nature and remaining maturities (Level 2).

The carrying amounts of our other financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable, short-term debt and variable rate long-term debt, approximate their fair value.


20

Perrigo Company plc - Item 1
Note 7


NOTE 7 – INVESTMENTS

Available for Sale Securities
    
Our available for sale securities are reported in Prepaid expenses and other current assets. Unrealized investment gains (losses) on available for sale securities were as follows (in millions):
 
October 1,
2016
 
December 31, 2015
Equity securities, at cost less impairments
$
20.1

 
$
6.4

Gross unrealized gains
32.9

 
9.3

Gross unrealized losses

 
(0.8
)
Estimated fair value of equity securities
$
53.0

 
$
14.9


The factors affecting the assessment of impairments include both general financial market conditions and factors specific to a particular company. We recorded impairment charges of $1.8 million related to other-than-temporary impairments of marketable equity securities during the nine months ended October 1, 2016 due to prolonged losses incurred on each of the investments.

Cost Method Investments

Our cost method investments totaled $7.0 million and $6.9 million at October 1, 2016 and December 31, 2015, respectively, and are included in Other non-current assets.

Equity Method Investments

Our equity method investments totaled $4.9 million and $45.5 million at October 1, 2016 and December 31, 2015, respectively, and are included in Other non-current assets.

Due to significant and prolonged losses incurred on one of our equity method investments, we recorded a $22.3 million impairment in Other expense, net, during the nine months ended October 1, 2016. In addition, during the nine months ended October 1, 2016, one of our equity method investments became publicly traded. As a result, we transferred the $15.5 million investment to available for sale and recorded an $8.7 million unrealized gain, net of tax, in Other Comprehensive Income ("OCI"), as reflected in the available for sale securities table above.

We recorded a net gain of $0.1 million and a net loss of $4.1 million during the three months ended October 1, 2016 and September 26, 2015, respectively, and a net loss of $3.8 million and $7.7 million during the nine months ended October 1, 2016, and September 26, 2015, respectively, for our proportionate share of the equity method investment earnings or losses. The gains and losses were recorded in Other expense, net.
    
NOTE 8 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

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

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

21

Perrigo Company plc - Item 1
Note 8


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

All of our designated derivatives were classified as cash flow hedges as of October 1, 2016 and December 31, 2015. Designated derivatives meet hedge accounting criteria, which means the fair value of the hedge is recorded in shareholders’ equity as a component of OCI, net of tax. The deferred gains and losses are recognized in income in the period in which the hedged item affects earnings. Any ineffective portion of the change in fair value of the derivative is immediately recognized in earnings. All of our designated derivatives are assessed for hedge effectiveness quarterly.

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

Interest Rate Swaps and Treasury Locks

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

During the six months ended December 31, 2015, we entered into a forward interest rate swap to hedge against changes in the benchmark interest rate between the date the interest rate swap was entered into and the date of expected future debt issuance. The interest rate swap was designated as a cash flow hedge and had a notional amount totaling $200.0 million. The interest rate swap was settled upon the issuance of an aggregate $1.2 billion principal amount of senior notes on March 7, 2016 for a cumulative after-tax loss of $7.0 million in OCI during the nine months ended October 1, 2016.

In connection with the Omega acquisition, we assumed a $20.0 million private placement note. We also assumed an interest rate swap agreement with a notional amount totaling $20.0 million that was in place to hedge the cross currency exchange differences between the U.S. dollar and the euro on the above-mentioned debt. On May 29, 2015, we repaid the loan and the interest rate swap. We also assumed €500.0 million ($544.5 million) of debt under Omega's revolving credit facility, as well as an interest rate swap agreement with a notional amount of €135.0 million ($147.0 million) that was in place to hedge the change in the floating rate on that credit facility. On April 8, 2015, we repaid the loan and terminated the interest rate swap. Because both interest rate swaps mentioned above were recorded at fair market value on the date of termination, no gain or loss was recorded. For more information on the acquired debt and termination, see Note 10.

During the nine months ended September 26, 2015, we repaid a $300.0 million term loan with floating interest rates priced off the LIBOR yield curve, see Note 10. As a result of the term loan repayment on June 25, 2015, the forward interest rate swap agreements with notional amounts totaling $240.0 million that were in place to hedge the change in the LIBOR rate were terminated as well. We recorded a loss of $3.6 million in Other expense, net, during the nine months ended September 26, 2015 for the amount remaining in Accumulated Other Comprehensive Income ("AOCI") when the hedges were terminated.

Foreign Currency Derivatives

We enter into foreign currency forward contracts, both designated and non-designated, in order to manage the impact of foreign exchange fluctuations on expected future purchases and related payables denominated in a foreign currency, as well as to hedge the impact of foreign exchange fluctuations on expected future sales and related receivables denominated in a foreign currency. Both types of forward contracts have a maximum maturity date of 15 months. The total notional amount for these contracts was $482.5 million and $755.5 million as of October 1, 2016 and December 31, 2015, respectively.

22

Perrigo Company plc - Item 1
Note 8



In order to economically hedge the foreign currency exposure associated with the planned payment of the euro-denominated purchase price of Omega, we entered into non-designated forward contracts that matured during the three months ended March 28, 2015. We recorded losses of $259.8 million during the nine months ended September 26, 2015 related to the settlement of the forward contracts in Other expense, net. The losses on the derivatives due to changes in the euro-to-U.S. dollar exchange rates were economically offset at closing in the final settlement of the euro-denominated Omega purchase price. In June 2015, in order to economically hedge the foreign currency exposure associated with the planned payment of the euro-denominated GSK Products acquisition discussed in Note 2, we entered into a non-designated option contract to protect against a strengthening of the euro relative to the U.S. dollar. We recorded losses of $1.9 million for the change in fair value of the option contract during the nine months ended September 26, 2015 in Other expense, net. Because these derivatives were economically hedging future acquisitions, the cash outflows associated with their settlement are shown as investing activity on the Consolidated Statements of Cash Flows.

Effects of Derivatives on the Financial Statements
    
The below tables indicate the effects of all derivative instruments on the Condensed Consolidated Financial Statements. All amounts exclude income tax effects and are presented in millions.

The balance sheet location and gross fair value of our outstanding derivative instruments were as follows:
 
Asset Derivatives
 
Balance Sheet Location
 
Fair Value
 
 
 
October 1,
2016
 
December 31, 2015
Designated derivatives:
 
 
 
 
 
Foreign currency forward contracts
Other current assets
 
$
3.8

 
$
3.8

Total designated derivatives
 
 
$
3.8

 
$
3.8

Non-designated derivatives:
 
 
 
 
 
Foreign currency forward contracts
Other current assets
 
$
1.4

 
$
1.0

Total non-designated derivatives
 
 
$
1.4

 
$
1.0

 
Liability Derivatives
 
Balance Sheet Location
 
Fair Value
 
 
 
October 1,
2016
 
December 31, 2015
Designated derivatives:
 
 
 
 
 
Foreign currency forward contracts
Accrued liabilities
 
$
0.3

 
$
2.0

Interest rate swap agreements
Other non-current liabilities
 

 
0.3

Total designated derivatives
 
 
$
0.3

 
$
2.3

Non-designated derivatives:
 
 
 
 
 
Foreign currency forward contracts
Accrued liabilities
 
$
0.5

 
$
1.9

Total non-designated derivatives
 
 
$
0.5

 
$
1.9


The gains (losses) recorded in OCI for the effective portion of our designated cash flow hedges were as follows:
 
 
Amount of Gain/(Loss) Recorded in OCI
(Effective Portion)
 
 
Three Months Ended
 
Nine Months Ended
Designated Cash Flow Hedges
 
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
Interest rate swap agreements
 
$

 
$

 
$
(9.0
)
 
$
(12.0
)
Foreign currency forward contracts
 
3.4

 
(0.5
)
 
4.7

 
(1.6
)
Total
 
$
3.4

 
$
(0.5
)
 
$
(4.3
)
 
$
(13.6
)

23

Perrigo Company plc - Item 1
Note 8



The gains (losses) reclassified from AOCI into earnings for the effective portion of our designated cash flow hedges were as follows:
 
 
 
 
Amount of Gain/(Loss) Reclassified from AOCI to Income
(Effective Portion)
 
 
 
 
Three Months Ended
 
Nine Months Ended
Designated Cash Flow Hedges
 
Income Statement Location
 
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
Treasury locks
 
Interest expense, net
 
$

 
$

 
$
(0.1
)
 
$
(0.1
)
Interest rate swap agreements
 
Interest expense, net
 
(0.6
)
 
(0.4
)
 
(1.7
)
 
(18.6
)
Foreign currency forward contracts
 
Net sales
 
0.1

 
(0.1
)
 
1.0

 
1.8

 
 
Cost of sales
 
0.9

 
0.2

 
1.8

 
(4.4
)
 
 
Interest expense, net
 
(0.4
)
 

 
(1.3
)
 

 
 
Other expense, net
 
(1.4
)
 
(0.1
)
 

 
(0.6
)
Total
 
 
 
$
(1.4
)
 
$
(0.4
)
 
$
(0.3
)
 
$
(21.9
)

The gains (losses) recognized against earnings for the ineffective portion of our designated cash flow hedges were as follows:
 
 
 
 
Amount of Gain/(Loss) Recognized in Income
(Ineffective Portion)
 
 
 
 
Three Months Ended
 
Nine Months Ended
Designated Cash Flow Hedges
 
Income Statement
Location
 
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
Interest rate swap agreements
 
Other expense, net
 
$

 
$

 
$
(0.1
)
 
$

Foreign currency forward contracts
 
Net sales
 

 

 
0.1

 
(0.3
)
 
 
Cost of sales
 

 

 

 
0.1

 
 
Other expense, net
 

 

 
0.6

 

Total
 
 
 
$

 
$

 
$
0.6

 
$
(0.2
)

The effects of our non-designated derivatives on the Condensed Consolidated Statements of Operations were as follows:
 
 
 
 
Amount of Gain/(Loss) Recognized in Income
 
 
 
 
Three Months Ended
 
Nine Months Ended
Non-Designated Derivatives
 
Income Statement Location
 
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
Foreign currency forward contracts
 
Other expense, net
 
$
(0.2
)
 
$
(8.9
)
 
$
(8.7
)
 
$
(259.4
)
 
 
Interest expense, net
 
(1.0
)
 
0.1

 
(1.5
)
 
(3.4
)
Total
 
 
 
$
(1.2
)
 
$
(8.8
)
 
$
(10.2
)
 
$
(262.8
)

NOTE 9 – ASSETS HELD FOR SALE

During the six months ended December 31, 2015, management committed to a plan to sell our U.S. VMS and India Active Pharmaceutical Ingredients ("API") businesses. As a result, the net assets attributable to both businesses were classified as held-for-sale beginning at December 31, 2015. As described in Note 2, we completed the sale of our U.S. VMS business to IVC on August 5, 2016. In addition, during the three months ended October 1, 2016, management committed to a plan to sell certain fixed assets associated with our Animal Health pet treats plant. Such assets were classified as held-for-sale beginning at October 1, 2016.

When a group of assets is classified as held-for-sale, the book value is evaluated and adjusted to the lower of its carrying amount or fair value less the cost to sell. At December 31, 2015, we determined that the carrying value of the India API business exceeded its fair value less cost to sell, resulting in an impairment charge of

24

Perrigo Company plc - Item 1
Note 9


$29.0 million. We recorded additional impairment charges totaling $10.8 million during the nine months ended October 1, 2016. The API business is reported primarily in our Other segment.

At October 1, 2016, we determined that the carrying value of the fixed assets associated with our Animal Health pet treats plant exceeded the fair value less the cost to sell, resulting in an impairment charge of $3.4 million. The assets associated with our Animal Health pet treats plant are reported in our CHC segment.

The assets held-for-sale were reported within Prepaid expenses and other current assets and liabilities held-for-sale were reported in Accrued liabilities. The amounts consisted of the following (in millions):
 
October 1,
2016
 
December 31,
2015
 
CHC
 
Other
 
CHC
 
Other
Assets held for sale
 
 
 
 
 
 
 
Current assets
$

 
$
7.3

 
$
55.1

 
$
13.6

Goodwill

 
2.8

 
13.0

 
14.5

Property, plant and equipment
13.3

 
34.0

 
18.8

 
37.4

Other assets

 
3.2

 

 
3.2

Less: impairment reserves
(3.4
)
 
(39.8
)
 

 
(29.0
)
Total assets held for sale
$
9.9

 
$
7.5

 
$
86.9

 
$
39.7

Liabilities held for sale
 
 
 
 
 
 
 
Current liabilities
$
0.3

 
$
0.9

 
$
30.5</