Discontinued Operations

3 Months Ended

Apr. 03, 2021

Discontinued Operations and Disposal Groups [Abstract]

Our discontinued operations primarily consist of our RX segment, which held our prescription pharmaceuticals business in the U.S. and our pharmaceuticals and diagnostic businesses in Israel (collectively, the “RX business”).

On March 1, 2021, we announced a definitive agreement to sell our RX business to Altaris for total consideration of $1.55 billion, including $1.5 billion in cash and the assumption of more than $50.0 million in potential R&D milestone payments and contingent purchase obligations with third-party Rx partners. On March 8, 2021, we purchased an Abbreviated New Drug Application ("ANDA") for a generic topical lotion for $53.3 million, which was the largest contingent purchase obligation to be assumed by Altaris and increased the cash consideration we will receive upon completion of the sale of the RX business to $1.55 billion. The transaction is subject to antitrust and other customary closing conditions and is expected to close in the third quarter of 2021.

As of March 1, 2021, we determined that the RX business met the criteria to be classified as a discontinued operation and, as a result, its historical financial results have been reflected in our consolidated financial statements as a discontinued operation and its assets and liabilities have been classified as held for sale. We ceased recording depreciation and amortization on the RX business assets from March 1, 2021. We have not allocated any general corporate overhead to the discontinued operation.

Under the terms of the agreement, we will provide transition services for up to 24 months after the close of the transaction and also enter into a reciprocal supply agreement pursuant to which Perrigo will supply certain products to the RX business and the RX business will supply certain products to Perrigo. Under the agreed form, the supply agreements will have a term of four years, extendable up to seven years by the party who is the purchaser of the products under such agreement. We will also extend distribution rights to the RX business for certain OTC products owned and manufactured by Perrigo that may be fulfilled through pharmacy channels, in return for a share of the net profits.

The agreement provides that Perrigo will retain certain pre-closing liabilities arising out of antitrust (refer to Note 15 - Contingencies under the header "Price-Fixing Lawsuits") and opioid matters and the Company’s Albuterol recall, subject to, in each case, the buyer's obligation to indemnify the Company for fifty percent of these liabilities up to an aggregate cap on the buyer's obligation of $50.0 million.

Income from discontinued operations, net of tax was as follows (in millions):


	Three Months Ended
	April 3, 2021		March 28, 2020
Net sales	$	200.1	$	257.7
Cost of sales	138.3		165.8
Gross profit	61.8		91.9

Operating expenses
Distribution	3.3		4.0
Research and development	13.4		13.6
Selling	7.4		7.3
Administration	18.2		6.5


Other operating expense (income)	(0.9)		1.1
Total operating expenses	41.4		32.5

Operating income	$	20.4	$	59.4


Interest expense, net	0.6		1.4
Other (income) expense, net	(1.5)		0.7

Income before income taxes	21.3		57.3
Income tax expense (benefit)	(14.0)		8.5
Income from discontinued operations, net of tax	$	35.3	$	48.8

During the three months ended April 3, 2021, we incurred $9.3 million of separation costs related to the sale of the RX business, which are recorded in administration expenses.

Select cash flow information related to discontinued operations was as follows (in millions):


	Three Months Ended
	April 3, 2021		March 28, 2020
Cash flows from discontinued operations operating activities:
Depreciation and amortization	$	15.3	$	24.0







Cash flows from discontinued operations investing activities:
Asset acquisitions	$	(69.7)	$	(0.1)
Additions to property, plant and equipment	$	(3.2)	$	(2.9)

Asset acquisitions related to discontinued operations consisted of two ANDAs purchased under a contractual arrangement entered into on May 15, 2015 with a third party that specializes in research and development and obtaining approval for various drug candidates to develop specific products. On December 31, 2020, we purchased an ANDA for a generic topical gel for $16.4 million, which was subsequently paid during the three months ended April 3, 2021 and on March 8, 2021, we purchased an ANDA for a generic topical lotion for $53.3 million. The generic topical lotion acquisition is being assumed by Altaris in connection with the sale of the RX business.

The assets and liabilities classified as held for sale were as follows (in millions):


	April 3, 2021		December 31, 2020
Cash and cash equivalents	$	9.6	$	10.0

Accounts receivable, net of allowance for credit losses of $1.1 and $1.1, respectively	419.9		460.7
Inventories	136.8		140.8
Prepaid expenses and other current assets	29.7		55.4





Current assets held for sale*			666.9

Property, plant and equipment, net	126.4		131.4
Operating lease assets	29.6		31.3

Goodwill and indefinite-lived intangible assets	678.7		681.2

Definite-lived intangible assets, net	533.0		492.8
Deferred income taxes	3.0		3.6
Other non-current assets	22.4		23.7
Non-current assets held for sale*			1,364.0
Total assets held for sale	$	1,989.1	$	2,030.9

Accounts payable	$	101.1	$	92.2
Payroll and related taxes	16.7		22.3
Accrued customer programs	185.9		237.4
Other accrued liabilities	47.4		67.2


Current indebtedness	0.5		0.5
Current liabilities held for sale*			419.6

Long-term debt, less current portion	0.6		0.7
Deferred income taxes	2.9		3.1
Other non-current liabilities	94.9		104.5
Non-current liabilities held for sale*			108.3
Total liabilities held for sale	$	450.0	$	527.9

*As of April 3, 2021, the non-current assets and liabilities of the RX business have been reclassified to current assets and liabilities held for sale, respectively, due to the expected completion of the sale of the business in the third quarter of 2021, as discussed above.