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Press release from PR Newswire

Perrigo Reports Record Quarterly Revenue and Earnings and Raises Full Year Adjusted EPS Guidance

Tuesday, February 01, 2011

Perrigo Reports Record Quarterly Revenue and Earnings and Raises Full Year Adjusted EPS Guidance07:55 EST Tuesday, February 01, 2011ALLEGAN, Mich., Feb. 1, 2011 /PRNewswire/ --Fiscal second quarter revenue from continuing operations increased $135 million, or 23%, to $718 millionFiscal second quarter GAAP income from continuing operations increased 43% to an all-time record $90 million, or $0.96 per shareFiscal second quarter adjusted income from continuing operations increased 46% to $98 million, or $1.05 per shareRecord second quarter cash flow from operations of $129 millionManagement raises full-year fiscal 2011 adjusted diluted earnings from continuing operations guidance to $3.75-$3.90 per share from previously announced $3.60-$3.75 per sharePerrigo Company (Nasdaq: PRGO; TASE) today announced results for its second quarter and six months ended December 25, 2010.Perrigo's Chairman and CEO Joseph C. Papa commented, "We are very pleased with the performance this quarter. We delivered all-time record quarterly revenue and earnings, and record second quarter cash flow. Our Rx, Nutritionals and API segments all contributed to this strong performance. The performance came from core business strength, new product sales of over $63 million, and operating execution. Our Consumer Healthcare segment performed well and is enjoying strong demand for its products; however, despite improving sequentially, we continued to experience throughput pressures in manufacturing.  We will continue to improve during each coming quarter and expect to have those issues behind us by the end of our fiscal year. More consumers are benefitting from the value proposition of Perrigo's quality, affordable healthcare products and we look forward to serving even more of them in the future."  Refer to Table I at the end of this press release for adjustments in the current year and prior year periods and additional non-GAAP disclosure information.The Company's reported results are summarized in the attached Condensed Consolidated Statements of Income, Balance Sheets and Statements of Cash Flows.Perrigo Company(from continuing operations, in thousands, except per share amounts)(see the attached Table I for reconciliation to GAAP numbers)Second QuarterSix Months2011201020112010Net Sales$717,515$582,425$1,358,837$1,110,758Reported Income$89,779$62,791$163,457$113,891Adjusted Income$98,382$67,465$179,732$134,128Reported Diluted EPS$0.96$0.68$1.75$1.22Adjusted Diluted EPS$1.05$0.73$1.93$1.44Diluted Shares93,36392,99993,28093,018Second Quarter ResultsNet sales from continuing operations for the second quarter of fiscal 2011 were approximately $718 million, an increase of 23% over fiscal 2010. The increase was driven primarily by the acquisitions of PBM Holdings, Inc. (PBM) and Orion Laboratories Pty Ltd. (Orion) as well as $63 million in new product sales. Reported income from continuing operations was $90 million, or $0.96 per share, a strong increase over $63 million, or $0.68 per share, a year ago. Excluding charges as outlined in Table I at the end of this release, second quarter fiscal 2011 adjusted income from continuing operations was $98 million, or $1.05 per share.  Six Months Results Net sales for the first half of fiscal 2011 were $1,359 million, an increase of 22% over fiscal 2010. The increase was driven primarily by strong results in the Rx, Nutritionals and API segments and included consolidated new product sales of approximately $112 million. Reported gross profit was $463 million, up 28% over last year, and the reported gross margin was 34.1%, up from 32.5% last year. Reported operating margin increased 270 basis points to 18.0%, and adjusted operating margin increased 200 basis points to 19.7%. Reported income from continuing operations was $163 million, an increase of 44%. Adjusted income from continuing operations was $180 million, or an increase of 34%.Consumer HealthcareConsumer Healthcare segment net sales for the second quarter were $430 million compared with $417 million for the second quarter last year, an increase of 3%. The increase resulted from approximately $24 million of existing product sales, primarily in the analgesics, smoking cessation and feminine hygiene categories, as well as $10 million from new product sales and approximately $7 million of incremental sales from the acquisition of Orion. These increases were partially offset by a decline of approximately $27 million in sales of existing products, primarily in the cough/cold, gastrointestinal and contract manufacturing categories. Reported operating income was $75 million, compared with $84 million a year ago. The decrease was largely driven by increased spending on quality and increased operating expenses. Reported operating margin decreased 280 basis points to 17.5%, and adjusted operating margin decreased 260 basis points to 18.0%.     For the first six months of fiscal 2011, Consumer Healthcare net sales increased $28 million, or 4%, compared to fiscal 2010.  The increase resulted from approximately $31 million of existing product sales, primarily in the analgesics and feminine hygiene categories, and approximately $27 million of new product sales, as well as incremental sales of $14 million from the Company's acquisition of Orion. This growth was partially offset by approximately $37 million in decreased sales of existing products in the cough/cold, gastrointestinal, smoking cessation and contract manufacturing categories and a decrease of $5 million in international sales of existing products.       On September 24, 2010, the Company announced that it had filed an Abbreviated New Drug Application (ANDA) for over-the-counter (OTC) omeprazole/sodium bicarbonate, a generic form of Zegerid OTC®. The Company also announced a patent infringement lawsuit by Schering-Plough Healthcare Products related to this product.    On November 29, 2010, the Company announced that it had launched Naproxen Sodium Soft Gels, a generic equivalent of Aleve® Liquid Gels. NutritionalsNutritionals segment net sales for the second quarter were $133 million, compared with $61 million for the second quarter last year, an increase of 119%. The increase was due primarily to additional sales of approximately $86 million attributable to the acquisition of PBM. The increase was partially offset by a decrease in sales of existing products of approximately $15 million. Reported operating income was $20 million, compared with approximately $3 million a year ago. The increase was driven largely by the acquisition of PBM. The Vitamins, Minerals and Supplements (VMS) category also added to the increase as a result of improvements in operational efficiencies and lower material costs. Reported operating margin increased 1080 basis points to 15.1%, and adjusted operating margin increased 1440 basis points to 19.4%.       For the first six months of fiscal 2011, Nutritionals net sales increased $139 million or 119%, compared to fiscal 2010.  The increase resulted from $161 million of sales attributable to the acquisition of PBM and $3 million of new product sales in the VMS category. This growth was partially offset by $25 million in decreased sales of existing products in the VMS category.   Rx PharmaceuticalsThe Rx Pharmaceuticals segment second quarter net sales were approximately $98 million, compared with $57 million a year ago, an increase of 72%. This increase was due primarily to new product sales of $31 million mainly related to the authorized generic of Aldara® and the generic version of Xyzal®, as well as approximately $5 million of increased sales volume in the Company's existing products. Reported operating income was $33 million, an increase of $15 million from last year. The increase was driven largely by new product sales and increased operating expense leverage. Reported operating margin increased 190 basis points from last year to 34.0%.   For the first six months of fiscal 2011, net sales for the Rx Pharmaceuticals segment increased 61% from fiscal 2010 to $167 million. Net sales increased due primarily to $48 million in new product sales and $9 million in sales of existing products.   On November 29, 2010, the Company announced that, together with its partner Synthon, final U.S. Food and Drug Administration (FDA) approval was received for levocetirizine tablets, a generic version of Xyzal®. Product shipments commenced immediately.  APIThe API segment reported second quarter net sales of $40 million compared with $35 million a year ago, an increase of 14%. The increase was due primarily to new product sales of $17 million related primarily to European sales of temozolomide. The increase was offset partially by an approximately $11 million decrease in sales of existing products and a decrease of approximately $2 million due to unfavorable changes in foreign currency exchange rates. Reported operating income increased $5 million due to higher margin new product sales, decreased operating expenses and improved financial operating leverage. Reported operating margin increased 1080 basis points to 24.9%, and adjusted operating margin increased 1080 basis points to 26.2%.   For the first six months of fiscal 2011, net sales increased 14% to approximately $78 million, compared to $68 million in fiscal 2010. Reported operating margin increased 1310 basis points to 26.2% from last year's 13.1%.   OtherContinuing operations for the Other category, consisting of the Israel Pharmaceutical and Diagnostic Products operating segment, reported second quarter net sales of $16 million, compared with $12 million a year ago. The segment reported an operating loss of $8 thousand, compared to an operating loss of $800 thousand for fiscal 2010. Year-to-date net sales for fiscal 2011 increased 33% compared to fiscal 2010. The increase was due primarily to approximately $7 million in new product sales and approximately $3 million in increased sales of existing products. The increase was offset partially by a decrease of $1 million due to unfavorable changes in foreign currency exchange rates.  GuidanceChairman and CEO Joseph C. Papa concluded, "The strength across our businesses continued this quarter, driving record results. As we look forward to the second half of fiscal 2011, we expect this strength to continue. Our teams are executing on their plans, which are the foundation for sustaining our growth. Reported fiscal 2011 earnings from continuing operations are now expected to be between $3.28 and $3.43 per share. Excluding the charges outlined in Table I at the end of this release, we now expect fiscal 2011 adjusted diluted earnings from continuing operations to be between $3.75 and $3.90 per share, up from our previously announced $3.60-$3.75 per share. This new range implies a year-over-year growth rate of adjusted earnings from continuing operations of 24% to 29% over fiscal 2010 adjusted EPS."            The conference call will be available live via webcast to interested parties on the Perrigo website http://www.perrigo.com or by phone 877-248-9413, International 973-582-2737 and reference ID# 36915185.  A taped replay of the call will be available beginning at approximately 2:00 (ET) Tuesday, February 1, 2011, until midnight Friday, February 18, 2011. To listen to the replay, call 800-642-1687, International 706-645-9291, access code 36915185.  Perrigo Company is a leading global healthcare supplier that develops, manufactures and distributes OTC and generic prescription (Rx) pharmaceuticals, infant formulas, nutritional products, active pharmaceutical ingredients (API) and pharmaceutical and medical diagnostic products.  The Company is the world's largest store brand manufacturer of OTC pharmaceutical products and infant formulas. The Company's primary markets and locations of manufacturing and logistics operations are the United States, Israel, Mexico, the United Kingdom and Australia. Visit Perrigo on the Internet (http://www.perrigo.com).  Note: Certain statements in this press release 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 the Company's future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Company or its industry to be materially different from those expressed or implied by any 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 other comparable terminology. The Company has based these forward-looking statements on its current expectations, assumptions, estimates and projections.  While the Company believes 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 the Company's control. These and other important factors, including those discussed under "Risk Factors" in the Company's Form 10-K for the year ended June 26, 2010, as well as the Company's 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 press release are made only as of the date hereof, and unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.PERRIGO COMPANYCONDENSED CONSOLIDATED STATEMENTS OF INCOME(in thousands, except per share amounts)(unaudited)Second QuarterYear-to-Date20112010As Adjusted (Note 1)20112010As Adjusted (Note 1)Net sales$717,515$582,425$1,358,837$1,110,758Cost of sales468,015384,800895,383749,921Gross profit249,500197,625463,454360,837Operating expenses   Distribution8,8647,08417,19713,555   Research and development24,60420,68642,33139,438   Selling and administration83,79371,822159,920123,682     Subtotal117,26199,592219,448176,675  Write-off of in-process     research and development---14,000      Total117,26199,592219,448190,675Operating income132,23998,033244,006170,162Interest, net10,7165,44720,80311,942Other income, net(633)(1,023)(1,192)(319)Income from continuing operations before      income taxes122,15693,609224,395158,539Income tax expense32,37730,81860,93844,648Income from continuing operations89,77962,791163,457113,891Income (loss) from discontinued operations,      net of tax388(1,978)1,085(1,217)Net income$90,167$60,813$164,542$112,674Earnings (loss) per share (1)   Basic      Continuing operations$0.97$0.69$1.78$1.24      Discontinued operations0.00(0.02)0.01(0.01)      Basic earnings per share$0.98$0.66$1.79$1.23   Diluted      Continuing operations$0.96$0.68$1.75$1.22      Discontinued operations0.00(0.02)0.01(0.01)      Diluted earnings per share $0.97$0.65$1.76$1.21Weighted average shares outstanding   Basic92,23291,63492,03191,646   Diluted93,36392,99993,28093,018Dividends declared per share$0.0700$0.0625$0.1325$0.1175(1) The sum of individual per share amounts may not equal due to rounding.See accompanying notes to condensed consolidated financial statements.PERRIGO COMPANYCONDENSED CONSOLIDATED BALANCE SHEETS(in thousands)(unaudited)December 25, 2010June 26, 2010As Adjusted(Note 1)December 26, 2009As Adjusted(Note 1)AssetsCurrent assets   Cash and cash equivalents$134,779$109,765$282,440   Restricted cash-400,000-   Investment securities-559559   Accounts receivable, net465,257357,185340,465   Inventories483,787452,980411,229   Current deferred income taxes28,97926,13525,516   Income taxes refundable94314,4395,714   Prepaid expenses and other current assets43,25328,40323,830   Current assets of discontinued operations 6,5427,37570,345          Total current assets1,163,5401,396,8411,160,098Property and equipment929,232885,169797,906   Less accumulated depreciation(469,068)(436,586)(435,875)460,164448,583362,031Restricted cash--400,000Goodwill and other indefinite-lived intangible assets639,581624,663274,107Other intangible assets, net578,766587,000209,017Non-current deferred income taxes13,314--Other non-current assets79,65552,67753,862$2,935,020$3,109,764$2,459,115Liabilities and Shareholders' EquityCurrent liabilities   Accounts payable$289,844$267,311$252,523   Short-term debt9719,000-   Payroll and related taxes74,34879,21980,368   Accrued customer programs90,36659,89863,927   Accrued liabilities70,42490,04655,088   Accrued income taxes32,9929,12511,742   Current portion of long-term debt15,000400,000-   Current liabilities of discontinued operations 14,2445,37022,205          Total current liabilities588,189919,969485,853Non-current liabilities   Long-term debt, less current portion875,000935,000825,000   Non-current deferred income taxes16,65254,06453,323   Other non-current liabilities147,139106,791106,227          Total non-current liabilities1,038,7911,095,855984,550Shareholders' equity   Controlling interest shareholders' equity:      Preferred stock, without par value, 10,000 shares authorized ---      Common stock, without par value, 200,000 shares authorized  440,208428,457404,880      Accumulated other comprehensive income93,21943,20061,722      Retained earnings772,713620,439520,8031,306,1401,092,096987,405   Noncontrolling interest1,9001,8441,307          Total shareholders' equity1,308,0401,093,940988,712$2,935,020$3,109,764$2,459,115Supplemental Disclosures of Balance Sheet Information   Related to Continuing Operations          Allowance for doubtful accounts$8,896$8,015$9,408          Working capital $583,053$474,867$626,105          Preferred stock, shares issued and outstanding---          Common stock, shares issued and outstanding92,29791,69491,087See accompanying notes to condensed consolidated financial statements.PERRIGO COMPANYCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)(unaudited)Year-To-Date20112010As Adjusted(Note 1)Cash Flows From (For) Operating Activities   Net income$164,542$112,674   Adjustments to derive cash flows      Write-off of in-process research and development-14,000      Depreciation and amortization50,37034,241      Share-based compensation7,2127,695      Income tax benefit from exercise of stock options2,123(145)      Excess tax benefit of stock transactions(9,607)(4,351)      Deferred income taxes(59,379)(14,489)   Sub-total155,261149,625   Changes in operating assets and liabilities, net of asset and business          acquisitions      Accounts receivable(103,947)(25,179)      Inventories(24,151)(22,682)      Income taxes refundable13,6291,775      Accounts payable19,006(9,067)      Payroll and related taxes(6,100)28,956      Accrued customer programs30,4959,354      Accrued liabilities(14,010)(3,623)      Accrued income taxes37,59618,558      Other14,9608,369   Sub-total(32,522)6,461         Net cash from operating activities122,739156,086Cash Flows (For) From Investing Activities   Proceeds from sales of securities560-   Acquisitions of businesses, net of cash acquired1,998(10,059)   Acquired research and development-(14,000)   Acquisitions of assets(4,000)(10,262)   Additions to property and equipment(30,555)(23,260)         Net cash for investing activities(31,997)(57,581)Cash Flows (For) From Financing Activities   Repayments of short-term debt, net(8,029)-   Borrowings of long-term debt150,000-   Repayments of long-term debt(195,000)(67,771)   Deferred financing fees(3,703)-   Excess tax benefit of stock transactions9,6074,351   Issuance of common stock5,26711,249   Repurchase of common stock(8,214)(70,804)   Cash dividends(12,268)(10,838)         Net cash for financing activities(62,340)(133,813)Effect of exchange rate changes on cash(3,388)111        Net increase (decrease) in cash and cash equivalents25,014(35,197)Cash and cash equivalents of continuing operations, beginning of period109,765317,638Cash balance of discontinued operations, beginning of period-4Cash and cash equivalents, end of period134,779282,445       Less cash balance of discontinued operations, end of period-(5)Cash and cash equivalents of continuing operations, end of period$134,779$282,440Supplemental Disclosures of Cash Flow Information   Cash paid/received during the period for:      Interest paid$25,298$21,846      Interest received$2,266$10,663      Income taxes paid $55,264$28,920      Income taxes refunded$1,303$940See accompanying notes to condensed consolidated financial statements.Table IPERRIGO COMPANYRECONCILIATION OF NON-GAAP MEASURES(in thousands, except per share amounts)(unaudited)Three Months EndedConsolidatedDecember 25, 2010December 26, 2009% ChangeGAAPNon-GAAPAdjustmentsAs AdjustedGAAPNon-GAAPAdjustmentsAs AdjustedGAAPAs AdjustedNet sales$   717,515$              -$   717,515$   582,425$              -$   582,42523%23%Cost of sales468,0157,394(a)460,621384,8005,122 (a, c) 379,67822%21%Gross profit249,5007,394256,894197,6255,122202,74726%27%Operating expensesDistribution8,864-8,8647,084-7,08425%25%Research and development24,604-24,60420,686-20,68619%19%Selling and administration83,7935,296(a, f)78,49771,8221,262 (a) 70,56017%11%Total117,2615,296111,96599,5921,26298,330Operating income132,23912,690144,92998,0336,384104,41735%39%Interest, net10,716-10,7165,447-5,44797%97%Other income, net(633)-(633)(1,023)-(1,023)-38%-38%Income from continuing operations before income taxes122,15612,690134,84693,6096,38499,99330%35%Income tax expense32,3774,087(b)36,46430,8181,710 (b) 32,5285%12%Income from continuing operations$     89,779$       8,603$     98,382$     62,791$       4,674$     67,46543%46%Diluted earnings per share from continuing operations$        0.96$        1.05$        0.68$        0.7341%44%Diluted weighted average shares outstanding93,36393,36392,99992,999Selected ratios as a percentage of net salesGross profit34.8%35.8%33.9%34.8%Operating expenses16.3%15.6%17.1%16.9%Operating income18.4%20.2%16.8%17.9%Six Months EndedConsolidatedDecember 25, 2010December 26, 2009% ChangeGAAPNon-GAAPAdjustmentsAs AdjustedGAAPNon-GAAPAdjustmentsAs AdjustedGAAPAs AdjustedNet sales$1,358,837$              -$1,358,837$1,110,758$              -$1,110,75822%22%Cost of sales895,38314,568 (a) 880,815749,9219,599 (a, d) 740,32219%19%Gross profit463,45414,568478,022360,8379,599370,43628%29%Operating expensesDistribution17,197-17,19713,555-13,55527%27%Research and development42,331-42,33139,438-39,4387%7%Selling and administration159,9209,409 (a, f) 150,511123,6822,397 (a) 121,28529%24%Write-off of in-process research and development---14,00014,000 (e) --100%-Total219,4489,409210,039190,67516,397174,278Operating income244,00623,977267,983170,16225,996196,15843%37%Interest, net20,803-20,80311,942-11,94274%74%Other income, net(1,192)-(1,192)(319)-(319)274%274%Income from continuing operations before income taxes224,39523,977248,372158,53925,996184,53542%35%Income tax expense60,9387,702 (b) 68,64044,6485,759 (b) 50,40736%36%Income from continuing operations$   163,457$     16,275$   179,732$   113,891$     20,237$   134,12844%34%Diluted earnings per share from continuing operations$        1.75$        1.93$        1.22$        1.4443%34%Diluted weighted average shares outstanding93,28093,28093,01893,018Selected ratios as a percentage of net salesGross profit34.1%35.2%32.5%33.3%Operating expenses16.1%15.5%17.2%15.7%Operating income18.0%19.7%15.3%17.7%(a) Deal-related amortization(b) Total tax effect for non-GAAP pretax adjustments(c) Inventory step-ups of $617(d) Inventory step-ups of $937(e) Write-off of in-process R&D related to acquired ANDA(f) Acquisition costs of $1,315Table IIPERRIGO COMPANYREPORTABLE SEGMENTSRECONCILIATION OF NON-GAAP MEASURES(in thousands)(unaudited)Three Months EndedConsumer HealthcareDecember 25, 2010December 26, 2009% ChangeGAAPNon-GAAPAdjustmentsAs AdjustedGAAPNon-GAAPAdjustmentsAs AdjustedGAAPAs AdjustedNet sales$   429,996$              -$   429,996$   417,001$              -$   417,0013%3%Cost of sales292,782694(a)292,088274,865750(a)274,1157%7%Gross profit137,214694137,908142,136750142,886-3%-3%Operating expenses61,8201,188(a)60,63257,680868(a)56,8127%7%Operating income$     75,394$       1,882$     77,276$     84,456$       1,618$     86,074-11%-10%Selected ratios as a percentage of net salesGross profit31.9%32.1%34.1%34.3%Operating expenses14.4%14.1%13.8%13.6%Operating income17.5%18.0%20.3%20.6%Six Months EndedConsumer HealthcareDecember 25, 2010December 26, 2009% ChangeGAAPNon-GAAPAdjustmentsAs AdjustedGAAPNon-GAAPAdjustmentsAs AdjustedGAAPAs AdjustedNet sales$   826,100$              -$   826,100$   797,822$              -$   797,8224%4%Cost of sales563,2941,496(a)561,798532,7491,367(a)531,3826%6%Gross profit262,8061,496264,302265,0731,367266,440-1%-1%Operating expenses116,0932,500(a)113,593106,2001,512(a)104,6889%9%Operating income$   146,713$       3,996$   150,709$   158,873$       2,879$   161,752-8%-7%Selected ratios as a percentage of net salesGross profit31.8%32.0%33.2%33.4%Operating expenses14.1%13.8%13.3%13.1%Operating income17.8%18.2%19.9%20.3%Three Months EndedNutritionalsDecember 25, 2010December 26, 2009% ChangeGAAPNon-GAAPAdjustmentsAs AdjustedGAAPNon-GAAPAdjustmentsAs AdjustedGAAPAs AdjustedNet sales$   133,458$              -$   133,458$     61,010$              -$     61,010119%119%Cost of sales87,9362,999(a)84,93751,500-51,50071%65%Gross profit45,5222,99948,5219,510-9,510379%410%Operating expenses25,3592,793(a)22,5666,913449(a)6,464267%249%Operating income $     20,163$       5,792$     25,955$       2,597$         449$       3,046676%752%Selected ratios as a percentage of net salesGross profit34.1%36.4%15.6%15.6%Operating expenses19.0%16.9%11.3%10.6%Operating income15.1%19.4%4.3%5.0%Six Months EndedNutritionalsDecember 25, 2010December 26, 2009% ChangeGAAPNon-GAAPAdjustmentsAs AdjustedGAAPNon-GAAPAdjustmentsAs AdjustedGAAPAs AdjustedNet sales$   256,142$              -$   256,142$   116,802$              -$   116,802119%119%Cost of sales172,2305,999(a)166,231104,127-104,12765%60%Gross profit83,9125,99989,91112,675-12,675562%609%Operating expenses45,6705,594(a)40,07612,668899(a)11,769261%241%Operating income$     38,242$     11,593$     49,835$             7$         899$         906546214%5401%Selected ratios as a percentage of net salesGross profit32.8%35.1%10.9%10.9%Operating expenses17.8%15.6%10.8%10.1%Operating income14.9%19.5%0.0%0.8%Three Months EndedRx PharmaceuticalsDecember 25, 2010December 26, 2009% ChangeGAAPNon-GAAPAdjustmentsAs AdjustedGAAPNon-GAAPAdjustmentsAs AdjustedGAAPAs AdjustedNet sales$     97,534$              -$     97,534$     56,761$              -$     56,76172%72%Cost of sales53,2782,749(a)50,52928,7082,897(a)25,81186%96%Gross profit44,2562,74947,00528,0532,89730,95058%52%Operating expenses11,061-11,0619,836-9,83612%12%Operating income $     33,195$       2,749$     35,944$     18,217$       2,897$     21,11482%70%Selected ratios as a percentage of net salesGross profit45.4%48.2%49.4%54.5%Operating expenses11.3%11.3%17.3%17.3%Operating income 34.0%36.9%32.1%37.2%(a) Deal-related amortizationTable II (Continued)PERRIGO COMPANYREPORTABLE SEGMENTSRECONCILIATION OF NON-GAAP MEASURES(in thousands)(unaudited)Six Months EndedRx PharmaceuticalsDecember 25, 2010December 26, 2009% ChangeGAAPNon-GAAPAdjustmentsAs AdjustedGAAPNon-GAAPAdjustmentsAs AdjustedGAAPAs AdjustedNet sales$     166,867$              -$     166,867$     103,892$              -$     103,89261%61%Cost of sales94,8395,208(a)89,63153,4405,692(a)47,74877%88%Gross profit72,0285,20877,23650,4525,69256,14443%38%Operating expenses21,078-21,07832,17514,000(b)18,175-34%16%Operating income$      50,950$       5,208$      56,158$      18,277$     19,692$      37,969179%48%Selected ratios as a percentage of net salesGross profit43.2%46.3%48.6%54.0%Operating expenses12.6%12.6%31.0%17.5%Operating income30.5%33.7%17.6%36.5%Three Months EndedAPIDecember 25, 2010December 26, 2009% ChangeGAAPNon-GAAPAdjustmentsAs AdjustedGAAPNon-GAAPAdjustmentsAs AdjustedGAAPAs AdjustedNet sales$      40,333$              -$      40,333$      35,272$              -$      35,27214%14%Cost of sales22,780516(a)22,26421,050497(a)20,5538%8%Gross profit17,55351618,06914,22249714,71923%23%Operating expenses7,521-7,5219,243(55)(a)9,298-19%-19%Operating income $      10,032$         516$      10,548$        4,979$         442$        5,421101%95%Selected ratios as a percentage of net salesGross profit43.5%44.8%40.3%41.7%Operating expenses18.6%18.6%26.2%26.4%Operating income 24.9%26.2%14.1%15.4%Six Months EndedAPIDecember 25, 2010December 26, 2009% ChangeGAAPNon-GAAPAdjustmentsAs AdjustedGAAPNon-GAAPAdjustmentsAs AdjustedGAAPAs AdjustedNet sales$      77,694$              -$      77,694$      68,192$              -$      68,19214%14%Cost of sales43,3601,008(a)42,35243,212986(a)42,2260%0%Gross profit34,3341,00835,34224,98098625,96637%36%Operating expenses13,979-13,97916,052(14)(a)16,066-13%-13%Operating income$      20,355$       1,008$      21,363$        8,928$         972$        9,900128%116%Selected ratios as a percentage of net salesGross profit44.2%45.5%36.6%38.1%Operating expenses18.0%18.0%23.5%23.6%Operating income26.2%27.5%13.1%14.5%Three Months EndedOtherDecember 25, 2010December 26, 2009% ChangeGAAPNon-GAAPAdjustmentsAs AdjustedGAAPNon-GAAPAdjustmentsAs AdjustedGAAPAs AdjustedNet sales$      16,194$              -$      16,194$      12,381$              -$      12,38131%31%Cost of sales11,239436(a)10,8038,677978(a, c)7,69930%40%Gross profit4,9554365,3913,7049784,68234%15%Operating expenses4,963-4,9634,508-4,50810%10%Operating income (loss)$             (8)$         436$           428$          (804)$         978$           174-99%146%Selected ratios as a percentage of net salesGross profit30.6%33.3%29.9%37.8%Operating expenses30.6%30.6%36.4%36.4%Operating income (loss)0.0%2.6%-6.5%1.4%Six Months EndedOtherDecember 25, 2010December 26, 2009% ChangeGAAPNon-GAAPAdjustmentsAs AdjustedGAAPNon-GAAPAdjustmentsAs AdjustedGAAPAs AdjustedNet sales$      32,034$              -$      32,034$      24,050$              -$      24,05033%33%Cost of sales21,660857(a)20,80316,3931,554(a, d)14,83932%40%Gross profit10,37485711,2317,6571,5549,21135%22%Operating expenses9,577-9,5778,173-8,17317%17%Operating income (loss)$           797$         857$        1,654$          (516)$       1,554$        1,038-254%59%Selected ratios as a percentage of net salesGross profit32.4%35.1%31.8%38.3%Operating expenses29.9%29.9%34.0%34.0%Operating income (loss)2.5%5.2%-2.1%4.3%(a) Deal-related amortization(b) Write-off of in-process R&D related to acquired ANDA(c) Inventory step-ups of $617(d) Inventory step-ups of $937Table IIIPERRIGO COMPANYFY 2011 GUIDANCE AND FY 2010 EPSRECONCILIATION OF NON-GAAP MEASURES(unaudited)Full YearFiscal 2011 Guidance*FY11 reported diluted EPS from continuing operations range $3.28 - $3.43   Deal-related amortization (1,2)0.355   Charges associated with acquisition costs (2)0.061   Charge associated with inventory step-up (2)0.054 FY11 adjusted diluted EPS from continuing operations range $3.75 - $3.90 Fiscal 2010* FY10 reported diluted EPS from continuing operations$2.42   Deal-related amortization (1)0.195   Charges associated with acquisition costs0.083   Charges associated with inventory step-ups0.075   Charges associated with restructuring0.100   Charges associated with acquired research and development0.157 FY10 adjusted diluted EPS from continuing operations$3.03 (1)  Amortization of acquired intangible assets related to business combinations and asset acquisitions(2)  Assumes a mid-fourth fiscal quarter close of the Paddock Laboratories acquisition*All information based on continuing operations.SOURCE Perrigo CompanyFor further information: Arthur J. Shannon, Vice President, Investor Relations and Communication, +1-269-686-1709, ajshannon@perrigo.com or Daniel B. Willard, Manager, Investor Relations and Communication, +1-269-686-1597, dbwillard@perrigo.com