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Revenue Recognition
 9 Months Ended
Sep. 29, 2018
Revenue from Contract with Customer [Abstract]  
Revenue recognition
REVENUE RECOGNITION

We adopted ASU 2014-09 Revenue from Contracts with Customers and its related amendments (collectively, "ASC 606"), as required, on January 1, 2018 using the modified retrospective method for all contracts not completed as of the adoption date. The reported results for the periods in 2018 reflect the application of ASC 606 while the results for the comparable reporting periods in 2017 were prepared under the guidance of Revenue Recognition ("ASC 605"). The adoption of ASC 606 represents a change in accounting principle that closely aligns revenue recognition with the transfer of control of our products and will provide enhanced disclosures of the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. In accordance with ASC 606, revenue is recognized when or as a customer obtains control of promised products. The amount of revenue recognized reflects the consideration we expect to be entitled to receive in exchange for these products.

Product Revenue

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

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

Other Revenue Policies

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

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

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

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

Disaggregation of Revenue

We generated net sales in the following geographic locations(1) (in millions):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 29,
2018
U.S.
$
739.0

 
$
2,297.7

Europe(2)
317.2

 
1,023.4

All other countries(3)
76.9

 
215.4

 
$
1,133.1

 
$
3,536.5


(1) Derived from the location of the entity that sells to a third party.
(2) Includes Ireland net sales of $9.9 million and $20.3 million for the three and nine months ended September 29, 2018, respectively.
(3) Includes net sales generated primarily in Israel, Mexico, Australia and Canada.

The following is a summary of our net sales by category (in millions):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 29,
2018
CHCA(1)
 
 
 
Cough/Cold/Allergy/Sinus
$
113.8

 
$
364.6

Infant Nutritionals
112.4

 
325.0

Analgesics
96.8

 
282.7

Gastrointestinal
95.4

 
290.6

Smoking Cessation
72.8

 
209.9

Animal Health
20.4

 
78.6

Vitamins, Minerals and Dietary Supplements
5.0

 
12.3

Other CHCA(2)
79.6

 
230.9

Total CHCA
596.2

 
1,794.6

CHCI
 
 
 
Cough/Cold/Allergy/Sinus
94.8

 
278.2

Lifestyle
70.5

 
246.3

Personal Care and Derma-Therapeutics
60.0

 
215.3

Natural Health and Vitamins, Minerals and Dietary Supplements
32.2

 
93.3

Anti-Parasite
30.2

 
88.7

Other CHCI(3)
69.9

 
218.2

Total CHCI
357.6

 
1,140.0

Total RX
179.3

 
601.9

Total net sales
$
1,133.1

 
$
3,536.5


(1)    Includes net sales from our OTC contract manufacturing business.
(2)
Consists primarily of branded OTC, diabetic care, diagnostic products and other miscellaneous or otherwise uncategorized product lines and markets, none of which is greater than 10% of the segment net sales.
(3)
Consists primarily of liquid licensed products, diagnostic products and other miscellaneous or otherwise uncategorized product lines and markets, none of which is greater than 10% of the segment net sales.

While the majority of revenue is recognized at a point in time, certain of our product revenue is recognized on an over time basis. Predominately, over time customer contracts exist in contract manufacturing arrangements, which occur in both the Consumer Healthcare Americas ("CHCA") and Consumer Healthcare International ("CHCI") segments. Contract manufacturing revenue was $85.6 million and $231.8 million for the three and nine months ended September 29, 2018, respectively.

We also recognized a portion of the store brand OTC product revenues in the CHCA segment on an over time basis; however, the timing between over time and point in time revenue recognition for store brand contracts is not significant due to the short time period between the customization of the product and shipment or delivery.

Contract Balances

The following table provides information about contract assets from contracts with customers (in millions):
 
Balance Sheet Location
 
January 1,
2018
 
September 29,
2018
Short-term contract assets
Prepaid expenses and other current assets
 
$
20.5

 
$
28.8



Impact on consolidated financial statements

Net sales and Cost of sales were higher in the three and nine months ended September 29, 2018 as a result of adopting ASC 606 due to net sales from contract manufacturing and certain OTC product sales being recognized on an over time basis as the performance obligation was satisfied, compared to the previous revenue recognition under ASC 605, which would have occurred when the product was shipped or delivered. This has resulted in the recognition of a contract asset.
Condensed Consolidated Statements of Operations
 
Three Months Ended
 
Nine Months Ended
 
September 29, 2018
 
September 29, 2018
(in millions, except per share amounts)
As
reported
 
Adjustments
 
Before adoption of ASC 606
 
As
reported
 
Adjustments
 
Before adoption of ASC 606
Net sales
$
1,133.1

 
$
(9.7
)
 
$
1,123.4

 
$
3,536.5

 
$
(8.4
)
 
$
3,528.1

Cost of sales
708.3

 
(5.4
)
 
702.9

 
2,148.0

 
(4.3
)
 
2,143.7

Gross profit
424.8

 
(4.3
)
 
420.5

 
1,388.5

 
(4.1
)
 
1,384.4

 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
(122.0
)
 
(4.3
)
 
(126.3
)
 
129.0

 
(4.1
)
 
124.9

 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense (benefit)
(11.5
)
 
0.1

 
(11.4
)
 
37.3

 
—

 
37.3

Net income (loss)
$
(67.5
)
 
$
(4.4
)
 
$
(71.9
)
 
$
49.6

 
$
(4.1
)
 
$
45.5

 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) per share
 
 
 
 
 
 
 
 
 
 
 
Basic
$
(0.49
)
 
$
(0.03
)
 
$
(0.52
)
 
$
0.36

 
$
(0.03
)
 
$
0.33

Diluted
$
(0.49
)
 
$
(0.03
)
 
$
(0.52
)
 
$
0.36

 
$
(0.03
)
 
$
0.33



Condensed Consolidated Statements of Comprehensive Income (Loss)
 
Three Months Ended
 
Nine Months Ended
 
September 29, 2018
 
September 29, 2018
(in millions)
As
reported
 
Adjustments
 
Before adoption of ASC 606
 
As
reported
 
Adjustments
 
Before adoption of ASC 606
Net income (loss)
$
(67.5
)
 
$
(4.4
)
 
$
(71.9
)
 
$
49.6

 
$
(4.1
)
 
$
45.5

Comprehensive income (loss)
$
(79.3
)
 
$
(4.4
)
 
$
(83.7
)
 
$
(59.3
)
 
$
(4.1
)
 
$
(63.4
)


Condensed Consolidated Balance Sheet
 
September 29, 2018
(in millions)
As
reported
 
Adjustments
 
Before adoption of ASC 606
Assets
 
 
 
 
 
Inventories
$
885.3

 
$
19.1

 
$
904.4

Prepaid expenses and other current assets
359.5

 
(28.8
)
 
330.7

Total current assets
2,768.8

 
(9.7
)
 
2,759.1

Total assets
$
10,942.9

 
$
(9.7
)
 
$
10,933.2

Liabilities and Shareholders’ Equity
 
 
 
 
 
Other non-current liabilities
$
423.7

 
$
(0.2
)
 
$
423.5

Total non-current liabilities
3,789.4

 
(0.2
)
 
3,789.2

Total liabilities
5,282.9

 
(0.2
)
 
5,282.7

Shareholders’ equity
 
 
 
 
 
Controlling interests:
 
 
 
 
 
Accumulated deficit
(1,919.7
)
 
(9.5
)
 
(1,929.2
)
Total controlling interests
5,659.8

 
(9.5
)
 
5,650.3

Total shareholders’ equity
5,660.0

 
(9.5
)
 
5,650.5

Total liabilities and shareholders' equity
$
10,942.9

 
$
(9.7
)
 
$
10,933.2



Condensed Consolidated Statement of Cash Flows
 
Nine Months Ended
 
September 29, 2018
(in millions)
As
reported
 
Adjustments
 
Before adoption of ASC 606
Cash Flows From (For) Operating Activities
 
 
 
 
 
Net income
$
49.6

 
$
(4.1
)
 
$
45.5

(Decreases) in cash due to:
 
 
 
 
 
Inventories
(101.3
)
 
(4.3
)
 
(105.6
)
Accrued income taxes
(60.0
)
 
—

 
(60.0
)
Other, net
(4.4
)
 
8.4

 
4.0

Subtotal
(174.1
)
 
4.1

 
(170.0
)
Net cash from operating activities
$
398.7

 
$
—

 
$
398.7