# PERRIGO Co plc (PRGO) FY 2024 MD&A Verbatim Item 7 Management's Discussion and Analysis from PERRIGO Co plc's 10-K for fiscal year 2024. SEC filing source: https://www.sec.gov/Archives/edgar/data/1585364/000158536425000014/prgo-20241231.htm Accession: 0001585364-25-000014 Filing date: 2025-02-28 Report date: 2024-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/PRGO/ All MD&A years: /company/PRGO/mda/ Previous year: /company/PRGO/mda/fy2023/ (FY 2023) Next year: /company/PRGO/mda/fy2025/ (FY 2025) ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. The following Management's Discussion and Analysis ("MD&A") is intended to provide readers with an understanding of our financial condition, results of operations, and cash flows by focusing on changes in certain key measures from year to year. This MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and accompanying Notes found in Item 8 of this report. See also "Cautionary Note Regarding Forward-Looking Statements." This discussion and analysis compares 2024 results to 2023. For discussion and analysis that compares 2023 results to 2022, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of our Annual Report on Form 10-K for the year ended December 31, 2023. EXECUTIVE OVERVIEW Perrigo is a leading pure-play self-care company with more than a century of providing high-quality health and wellness solutions to meet the evolving needs of consumers. As one of the originators of the over-the-counter ("OTC") self-care market, Perrigo is led by its vision "To Provide The Best Self-Care For Everyone" and its purpose to "Make Lives Better Through Trusted Health and Wellness Solutions, Accessible To All". Perrigo provides access to trusted self-care solutions that can be used without the need to visit a health practitioner for a prescription. Guided by our vision and purpose, our strategic goal is to create sustainable and value accretive growth by 1) delivering consumer preferred brands and innovation, 2) driving category growth with our customers, 3) powering our business with our world-class, quality assured supply chain, including a focus on sustainability with meaningful goals to reduce greenhouse gas emissions, water, and waste, in addition to increasing the recyclability of our packaging, and 4) evolving our global organization to one cohesive operating model. Our unique competency is to deliver health and wellness solutions across multiple price and value tiers that improve access and choice for consumers. Perrigo's broad offerings are well diversified across several major product categories as well as across geographies, primarily in North America and Europe, with no one product representing more than 5% of total revenue. In North America, Perrigo is the leading store brand private label provider of self-care products in many categories, including upper respiratory, nutrition and women's health, along with brands including Opill® and Mederma®. In Europe, our portfolio consists primarily of brands, including Compeed®, EllaOne®, Solpadeine®, and ACO®. Two key initiatives are fundamental to advancing our self-care strategy — our Supply Chain Reinvention Program, a global supply chain efficiency program, and Project Energize, a global investment and efficiency program. In addition, we continue to invest in other initiatives, including innovation, information systems and tools, and our people to drive consistent and sustainable results. Perrigo’s unique complementary businesses enables each individually to play a specific reinforcing role, where 1) store brands and infant formula generate cash for investments into the Company’s key higher margin, higher growth or ‘High-Grow’ brands, 2) branding and innovation capabilities that deliver brand and store brand demand generation leading to stronger customer partnerships, 3) consumer-led innovation that is scaled across brands, store brands and geographies, and 4) the Company’s global supply chain scale and reach with 100-plus molecules, at 100% consumer price point coverage, serves the most consumers. The Company’s plan to drive cash flow and total shareholder return is anchored behind its ‘Three-S’ plan – ‘Stabilizing’ Consumer Self-Care Americas store brand and infant formula businesses; ‘Streamlining’ the global portfolio, enterprise operating model and Consumer Self-Care International business; and ‘Strengthening’ what is working by prioritizing and increasing investments behind key ‘High-Grow’ brands. Our fiscal year begins on January 1 and ends on December 31. We end 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. Our Segments 37 Perrigo Company plc - Item 7 Executive Overview Our reporting and operating segments reflect the way our chief operating decision maker, who is our CEO, makes operating decisions, allocates resources and manages the growth and profitability of the Company. Our reporting and operating segments are: •Consumer Self-Care Americas ("CSCA") comprises our consumer self-care business in the U.S. and Canada. •Consumer Self-Care International ("CSCI") comprises our consumer self-care business outside of the U.S. and Canada, primarily in Europe and Australia. For information on each segment, our business environment, and competitive landscape, refer to Item 1. Business. For results by segment and geographic locations see below Segment Results and Item 8. Note 2 and Note 20. Recent Developments Market Factors and Trends Economic Uncertainty Current macroeconomic conditions remain very dynamic, including impacts from inflation and interest rates, volatile changes in foreign currency exchange rates, political unrest and uncertainty and legislative and regulatory changes. Any causes of market size contraction could reduce our sales or erode our operating margin and consequently reduce our net earnings and cash flows. Our interest expense is impacted by the overall global economic and interest rate environment. We manage interest rate risk through our capital structure and the use of interest rate swaps to fix the interest rate on greater than 90% of our outstanding debt. Inflationary Costs and Supply Chain Supply chain disruptions continue in specific categories such as agricultural commodities due to climate impacts, and with supply shortages due to the Middle East conflict. While reducing in impact, inflationary pressures are still a factor on cost in major economies globally across food, energy and labor. We continue to experience employment vacancies and attrition in the labor market which negatively impacts productivity and has driven the need for wage rate increases and other retention benefits. We implemented a series of actions to substantially mitigate these and other inflationary cost pressures, such as strategic pricing and our Supply Chain Reinvention Program. Benefits from our actions have substantially offset the impacts of inflation to date. However, future supply chain disruptions and inflationary pressures from the continuation of the conflicts between Russia and Ukraine and any escalating conflicts in the Middle East and neighboring regions are uncertain. War in Ukraine The invasion of Ukraine by Russia and resulting economic and political sanctions imposed by the United States, United Kingdom, European Union, and other countries on Russia, Belarus, and occupied regions in Ukraine have negatively impacted our results from operations in the region. Future impacts are difficult to predict due to the high level of uncertainty related to the war’s duration, evolution and resolution. If the conflict spreads or materially escalates, or economic conditions deteriorate, the impact on our business and results of operations could be material. Middle East Conflicts We continue to closely monitor the ongoing conflict and the social, political and economic environment in Israel and in the surrounding region to evaluate the impacts on our operations and supply chain. Israel is a global technology research and development center that plays a critical role to the global Active Pharmaceutical Ingredients ("API") market, as a number of key suppliers are located within Israel. The Company sources some raw materials and finished goods from suppliers in Israel for certain self-care products, including Omeprazole. To date, Perrigo has confirmed that our suppliers in the region have active operations and continue to manufacture materials for us, and we have not received any reports of restrictions on imports or exports in Israel. However, there is potential for some disruption as it relates to in-country logistics, including freight. As a precaution, Perrigo has engaged alternate suppliers to help minimize a potential supply disruption. If the conflict spreads or materially escalates, or if the conflict leads to further volatility and uncertainty in financial markets or economic conditions, the impact on our business and results of operations could be material. This includes the related events developing in the Red Sea and their potential to disrupt supply chains and lead to further inflationary pressures which we are also continuing to monitor closely. 38 Perrigo Company plc - Item 7 Executive Overview Foreign Exchange We have both translation and transaction exposure to the fluctuation of exchange rates. Translation exposures relate to exchange rate impacts of measuring income statements of foreign subsidiaries that do not use the U.S. dollar as their functional currency. Transaction exposures relate to 1) the impact from input costs that are denominated in a currency other than the local reporting currency and 2) the revaluation of transaction-related working capital balances denominated in currencies other than the functional currency. Significant exchange rate fluctuations, especially in the Euro or the British Pound Sterling, have had, and could continue to have, a significant impact on our net sales, net earnings and cash flows. Infant Formula As part of its efforts to prevent supply interruptions and risk of Cronobacter spp. illnesses associated with powdered infant formula, in March 2023, the FDA released an “Immediate National Strategy to Increase the Resiliency of the U.S. Infant Formula Market” and issued a letter to the powdered infant formula industry to share information to assist the industry in improving the microbiologic safety of powdered infant formula. In response to those changes, we made considerable investments in all our infant formula manufacturing sites. These investments included, among other things, enhancing our cleaning and sanitation protocols, our environmental monitoring programs, and quality oversight, as well as increasing the number of quality and operations personnel at the sites. These changes resulted in higher costs, lower manufacturing output, and lower production yields across our infant formula network. As previously disclosed, the Company received a warning letter from the FDA on August 30, 2023 relating to the Perrigo Wisconsin infant formula facility, which was acquired from a third party in November 2022. While the Company was working to resolve the issues raised in the August 30 letter, on November 29, 2023, the Company received notice from the FDA of additional inspection observations relating to Perrigo Wisconsin. Consistent with the Company’s commitment to quality, the Company temporarily paused all production at that facility to address the FDA's observations. As part of this effort, the Company conducted an extended site-wide assessment and cleaning. The Company also bolstered its internal resources and brought in additional outside expertise to help revise, enhance and strengthen comprehensive standards and processes across our infant formula network, including in some instances, pausing production for comprehensive cleaning and infrastructure improvements. All planned large-scale manufacturing plant improvements were completed in 2024, but the Company continues to implement the next phase of our quality enhancements, including further protocol, process and procedural improvements at the site level, and make additional investments to upgrade infrastructure. We do not expect these continuing improvements to result in extended shutdowns beyond those required for typical planned maintenance activities. In October and November 2024, the FDA conducted its first inspection of the Perrigo Wisconsin infant formula facility since the November 2023 inspection. Following this 2024 inspection, the FDA did not issue written observations via a Form FDA 483. Currently, all our infant formula manufacturing sites are up and running and have returned to reliable, quality-assured production with recent output across our infant formula network near historical levels. Our focus now lies in continuing to rebuild customer service levels and getting these critical products back on the shelves for consumers who need high-quality, affordable infant formula. With production now stabilized, we're driving strategic investments to strengthen the infant formula operations network to ensure the long-term sustainability of a key component of our CSCA business. We have incurred certain extraordinary non-recurring costs associated with the remediation and enhancement actions described above and the evolving U.S. infant formula regulatory landscape, including consulting and legal fees relating to the Company’s responses to the FDA and the development and implementation of new protocols across our infant formula manufacturing sites, as well as other costs relating to the extended cleaning and sanitization and the pausing and restarting of production. Cash costs in 2024 to achieve the remediation and enhancement actions described above totaling $21.7 million were incurred. We also expect higher ongoing operating costs at our infant formula manufacturing sites moving forward as we continue to implement our enhanced program with additional internal capabilities. Due to these costs and the unabsorbed overhead and depressed sales volumes resulting from these actions, infant formula results in 2024 were below 2023 levels. U.S. Department of Justice Antitrust Division Investigation On July 29, 2024, the Antitrust Division of the U.S. Department of Justice advised us that it no longer considers Perrigo a subject or target of the division’s grand jury investigation of antitrust violations in the generic drug industry. That investigation had stemmed from the Company’s Rx Pharmaceuticals business, which was divested in 2021. 39 Perrigo Company plc - Item 7 Executive Overview Restructuring Supply Chain Reinvention Program In 2022, we initiated a Supply Chain Reinvention Program to reduce structural costs, improve profitability and our service levels to our retail partners, and strengthen our resiliency by streamlining and simplifying our global supply chain. Through this initiative, we are reducing portfolio complexity, investing in advanced planning capabilities, diversifying sourcing, and optimizing our manufacturing assets and distribution models. We estimate a total annual run-rate potential savings opportunity by the end of fiscal year 2028 of between $200 million to $300 million (not including related depreciation expense on capital investments). To obtain these potential benefits, we anticipate incurring costs between $300 million to $350 million by the end of fiscal year 2028 to complete the program implementation, with the substantial portion of the costs incurred by the end of 2025, including capital investments, restructuring expenses and implementation costs. A significant portion of the annual run-rate potential savings of the Program, between $150 million to $200 million (not including related depreciation expense on capital investments), are anticipated by the end of fiscal year 2025. Refer to Item 8. Note 17 for further details on restructuring charges. Project Energize Perrigo has successfully transformed into a pure-play consumer self-care company and is now embarking on the next stage of its self-care journey - evolving to One Perrigo. This evolution will create sustainable, value accretive growth through a business model that better positions the Company to win in self-care. As part of the Company's sustainable, value accretive growth strategy, the Company launched Project Energize - a global investment and efficiency program to drive the next evolution of capabilities and organizational agility. This three-year program is expected to produce significant benefits in the Company’s long-term business performance by enabling our One Perrigo growth strategy, increasing organizational agility and mitigating impacts from stabilizing and strengthening the infant formula business. Project Energize was initiated in the first quarter of 2024, subject to local law and consultation requirements, and is expected to deliver annualized pre-tax savings in the range of $140 million to $170 million by the end of 2026. The Company expects an annual reinvestment of approximately $40 million to $60 million of these savings to drive its business model. Restructuring and related charges associated with these actions are estimated to be in the range of $140 million to $160 million, including $20 million to $40 million in investments to enhance capabilities, and are expected to be substantially incurred by the end of 2026. Restructuring activities as part of Project Energize are expected to result in the net reduction of approximately 6% of total Perrigo roles. Refer to Item 8. Note 17 for further details on restructuring charges. Indebtedness and Capital On September 17, 2024, Perrigo Finance Unlimited Company ("Perrigo Finance"), a public unlimited company incorporated under the laws of Ireland and an indirect wholly-owned finance subsidiary of Perrigo whose primary purpose is to finance the business and operations of Perrigo and its affiliates, issued $715 million in aggregate principal amount of 6.125% Senior Notes due 2032 (the "USD Notes due 2032") and €350 million in aggregate principal amount of 5.375% Senior Notes due 2032 (the "Euro Notes due 2032" and together with the USD Notes due 2032, the "2032 Notes"). Net proceeds from the 2032 Notes were used to prepay a portion of the Term Loan B Facility (as defined below) on September 19, 2024 and the remaining proceeds were used to fund the redemption of $700.0 million of the 4.375% Notes due 2026 on October 2, 2024. In December 2024, we and the Borrower entered into Amendment No. 2, an Incremental Assumption Agreement to our Term Loan and Revolving Credit Agreement that provides for the refinancing of the Term B Loans outstanding under the Credit Agreement in the aggregate principal amount of $984.7 million. Refer to Item 8. Note 12. 40 Perrigo Company plc - Item 7 Executive Overview Divestitures On July 10, 2024, we completed the sale of our HRA Pharma Rare Diseases Business (the "Rare Diseases Business") to Esteve Healthcare S.L. ("ESTEVE") for total consideration of $244.5 million, inclusive of net cash received, an estimated working capital adjustment, and contingent consideration with a fair value of $34.5 million as of December 31, 2024. The sale resulted in a pre-tax gain of $5.8 million, net of professional fees, recorded in Other (income) expense, net on the Condensed Consolidated Statement of Operations within our CSCI segment. Refer to Item 8. Note 3 and Note 9 for additional details of the divestiture and impairments recognized as a result of the sale. On November 1, 2024, we completed the sale of Orion Laboratories Hospital & Specialty Business (the "Hospital & Specialty Business") to General Pharma BidCo Pty Ltd, being an Australian incorporated entity which is ultimately owned by funds managed by Genesis Capital ("Genesis Capital") for total consideration of $13.3 million, which resulted in a pre-tax gain of $0.6 million, net of professional fees, recorded in Other (income) expense, net on the Consolidated Statements of Operations within our CSCI segment. Refer to Item 8. Note 3 and Note 9 for additional details of the divestiture and impairments recognized as a result of the sale. Additionally, during the year ended December 31, 2024, we sold 7 branded products in 4 separate transactions for total cash consideration of $37.9 million, which resulted in a pre-tax gain of $28.1 million recorded in Other operating (income) expense, net on the Consolidated Statements of Operations within our CSCI segment. RESULTS OF OPERATIONS Currency Translation Any currency translation effects described below represent estimates of the net differences between translation of foreign currency transactions into U.S. dollars for the year ended December 31, 2024 at the average exchange rates for the reporting period and average exchange rates for the year ended December 31, 2023. CONSOLIDATED Consolidated Financial Results [[GREPCENT_TABLE]] [["","Year Ended"],["(in millions, except percentages)","December 31, 2024","","December 31, 2023"],["Net sales","$","4,373.4","","","$","4,655.6"],["Gross profit","$","1,542.7","","","$","1,680.4"],["Gross profit %","35.3","%","","36.1","%"],["Operating income","$","112.9","","","$","151.9"],["Operating income %","2.6","%","","3.3","%"]] [[/GREPCENT_TABLE]] Net sales decreased $282.2 million, or 6.1%, primarily due to: •$206.1 million decrease, or 4.5%, due primarily to $179.2 million of lower net sales volumes, previously disclosed lost distribution of lower margin products, and a later start to the cough and cold season, primarily impacting the Pain & Sleep Aids, Upper Respiratory Digestive Health, and Oral Care categories compared to the prior year and $108.4 million of lower net sales in U.S. Nutrition category driven by actions to augment and strengthen infant formula network. These factors were partially offset by growth in Women's Health and Skin Care; and •$50.6 million decrease from the divestitures of the Rare Diseases Business, Hospital and Specialty Business and the sale of branded products; and •$15.1 million decrease from exited product lines; and •$10.4 million decrease from unfavorable foreign currency translation. Operating income decreased $39.0 million, or 25.7%, due to: •$137.7 million decrease in gross profit driven by the impact of lower global OTC net sales volumes resulting from a focus on production of higher margin products, including positive impacts from $57.1 million of new products, and lower infant formula volumes within U.S. Nutrition driven by actions to augment and strengthen the infant formula network. These lower sales volumes led to lower manufacturing productivity of 41 Perrigo Company plc - Item 7 Consolidated $131.1 million which was partially offset by benefits from strategic pricing actions and savings achieved through Supply Chain Reinvention and Project Energize of $56.6 million. Additionally, exited products and divested businesses negatively impacted gross profit by $35.8 million and $17.5 million negative impact from infant formula remediation. Gross profit as a percentage of net sales decreased 80 basis points compared to the prior year due to the same factors that impacted gross profit; and •$98.7 million decrease in operating expenses due primarily to lower selling and administrative costs of $149.4 million due primarily to Project Energize and lower variable employee costs. These decreases were partially offset by increased restructuring expense of approximately $68 million and higher advertising and promotion costs compared to the prior year. CONSUMER SELF-CARE AMERICAS Segment Financial Results [[GREPCENT_TABLE]] [["","Year Ended"],["(in millions, except percentages)","December 31, 2024","","December 31, 2023"],["Net sales","$","2,693.7","","","$","2,962.3"],["Gross profit","$","779.1","","","$","908.4"],["Gross profit %","28.9","%","","30.7","%"],["Operating income","$","269.9","","","$","389.6"],["Operating income %","10.0","%","","13.2","%"]] [[/GREPCENT_TABLE]] Net sales decreased $268.6 million, or 9.1% primarily due to: •$253.0 million decrease, or 8.6%, due primarily to $178.3 million of lower net sales volumes, previously disclosed lost distribution of lower margin products, and a later start to the cough and cold season, primarily impacting the Pain & Sleep Aids, Upper Respiratory Digestive Health, and Oral Care categories compared to the prior year and $108.4 million of lower net sales in U.S. Nutrition category driven by actions to augment and strengthen infant formula network. These factors were partially offset by growth in Women's Health category, primarily driven by new product sales of Opill®; and •$15.1 million decrease from exited product lines. CSCA net sales by product category were as follows: [[GREPCENT_TABLE]] [["Sales","Year Ended"],["(in millions, except percentages)","December 31, 2024","","December 31, 2023(1)","","$ Change","","% Change"],["Upper Respiratory","$","500.3","","","$","561.4","","","$","(61.1)","","","(10.9)","%"],["Digestive Health","497.4","","","507.5","","","(10.1)","","","(2.0)","%"],["Nutrition","449.5","","","563.2","","","(113.7)","","","(20.2)","%"],["Pain and Sleep-Aids","345.5","","","397.2","","","(51.7)","","","(13.0)","%"],["Healthy Lifestyle","306.8","","","311.4","","","(4.6)","","","(1.5)","%"],["Oral Care","275.4","","","310.4","","","(35.0)","","","(11.3)","%"],["Skin Care","220.1","","","240.5","","","(20.4)","","","(8.5)","%"],["Women's Health","81.1","","","48.6","","","32.5","","","67.0","%"],["Vitamins, Minerals, and Supplements (\"VMS\")","14.5","","","18.5","","","(4.0)","","","(21.6)","%"],["Other CSCA","3.1","","","3.6","","","(0.5)","","","(13.9)","%"],["Total CSCA","$","2,693.7","","","$","2,962.3","","","$","(268.6)","","","(9.1)%"]] [[/GREPCENT_TABLE]] (1) We updated our global reporting product categories as a result of legacy sales being moved out of Other CSCA and into respective categories. These product categories have been adjusted retroactively to reflect the changes and have no impact on historical financial position, results of operations, or cash flows. Sales in each category were driven primarily by: •Upper Respiratory: Net sales of $500.3 million decreased 10.9% due primarily to 7.3 percentage points reduction from portfolio optimization actions and net lost distribution of lower margin products, in addition to lower consumer demand for cough cold and allergy products. These impacts more than offset strong growth of Nasonex® and Triamcinolone Acetonide in the category; 42 Perrigo Company plc - Item 7 CSCA •Digestive Health: Net sales of $497.4 million decreased 2.0% as higher volumes of antacid and laxative products, including Polyethylene Glycol, were more than offset by 3.4 percentage points reduction from exited product lines and portfolio optimization actions, lost distribution of lower margin products in U.S. Store Brand and lower volume of proton pump inhibitors, including Omeprazole, Esomeprazole and Lansoprazole, despite Perrigo share gains; •Nutrition: Net sales of $449.5 million decreased 20.2% as increases in net sales of infant formula products as the Company continues to refill store brand and contract customer inventories and regain market share was more than offset by lower shipments to customers in the first half of the year as the Company worked through its infant formula plant remediation plans and a 0.8 percentage points decline from exited product lines in the category; •Pain and Sleep-Aids: Net sales of $345.5 million decreased 13.0% due primarily to net lost distribution of lower margin products, purposeful SKU prioritization actions and exited product lines, which had an aggregate negative impact of 10.3 percentage points. In addition, inventory reductions by U.S. retail customers resulted in lower net sales of pain and sleep-aid products; •Healthy Lifestyle: Net sales of $306.8 million decreased 1.5% due primarily to lower category consumption compared to the prior year, partially offset by higher net sales of nicotine lozenges, including the new product launch of the Nicotine Ice Mint Lozenge, higher net sales of nicotine gums and market share gains; •Oral Care: Net sales of $275.4 million decreased 11.3% due primarily to lower distribution at specific retail customers and lower net sales of store brand whitening, partially offset by higher net sales of Reach® travel kits; •Skin Care: Net sales of $220.1 million decreased 8.5% due primarily to net lost distribution of lower margin products, portfolio optimization actions and exited product lines, which had an aggregate negative impact of 8.4 percentage points. These impacts more than offset strong growth of Mederma® and growth within the Minoxidil franchise; •Women's Health: Net sales of $81.1 million increased 67.0% due primarily to the new product launch of Opill® and higher net sales of feminine hygiene products, partially offset by 3.9 percentage point reduction from exited product lines; •VMS and Other: Net sales of $17.6 million decreased 20.4% due primarily to volume decline in Other and purposeful SKU prioritization actions. Operating income decreased $119.7 million, or 30.7%, due primarily to: •$129.3 million decrease in gross profit driven primarily by the impact of lower OTC net sales volumes resulting from a focus on production of higher margin products, including positive impacts from $27.1 million of new products, and lower infant formula volumes of $75.1 million within U.S. Nutrition driven by actions to augment and strengthen the infant formula network. These lower sales volumes led to lower manufacturing productivity of $111.4 million which was partially offset by the savings from strategic pricing benefits and savings achieved through Supply Chain Reinvention and Project Energize of $55.8 million. Gross profit as a percentage of net sales decreased 180 basis points compared to the prior year due to the same factors that impacted gross profit, partially offset by favorable product mix, including higher margin new products and lost distribution of lower margin products. •$9.6 million decrease in operating expenses due primarily to lower administrative and selling costs of $57.4 million due primarily to Project Energize and lower variable employee costs. These decreases were partially offset by impairment charges of $38.6 million, higher restructuring costs and higher advertising and promotion compared to the prior year, primarily for Opill®. 43 Perrigo Company plc - Item 7 CSCI CONSUMER SELF-CARE INTERNATIONAL Segment Financial Results [[GREPCENT_TABLE]] [["","Year Ended"],["(in millions, except percentages)","December 31, 2024","","December 31, 2023"],["Net sales","$","1,679.6","","","$","1,693.3"],["Gross profit","$","763.5","","","$","772.0"],["Gross profit %","45.5","%","","45.6","%"],["Operating income (loss)","$","105.0","","","$","(35.2)"],["Operating income %","6.3","%","","(2.1)","%"]] [[/GREPCENT_TABLE]] Net sales decreased $13.7 million, or 0.8% primarily due to: •$50.6 million decrease from the divestiture of the Rare Diseases and Hospital and Specialty Businesses and the sale of branded products; and •$10.0 million decrease from unfavorable foreign currency translation; partially offset by •$46.9 million, or 2.9%, net increase due primarily to approximately $154 million of strategic pricing actions and new products, partially offset by lower net sales across most product categories, primarily Upper Respiratory due to lower cough cold and allergy seasonal demand compared to the prior year. CSCI net sales by product category were as follows: [[GREPCENT_TABLE]] [["Sales","Year Ended"],["(in millions, except percentages)","December 31, 2024","","December 31, 2023 (1)","","$ Change","","% Change"],["Skin Care","$","410.0","","","$","372.5","","","$","37.5","","","10.1","%"],["Upper Respiratory","282.1","","","299.1","","","(17.0)","","","(5.7)","%"],["Healthy Lifestyle","225.8","","","225.7","","","0.1","","","\u2014","%"],["Pain and Sleep-Aids","222.2","","","222.9","","","(0.7)","","","(0.4)","%"],["VMS","173.5","","","185.5","","","(12.0)","","","(6.6)","%"],["Women's Health","132.8","","","119.7","","","13.1","","","11.0","%"],["Oral Care","99.4","","","101.5","","","(2.1)","","","(2.0)","%"],["Digestive Health","36.5","","","41.0","","","(4.5)","","","(11.0)","%"],["Other CSCI","97.3","","","125.4","","","(28.1)","","","(22.4)","%"],["Total CSCI","$","1,679.6","","","$","1,693.3","","","$","(13.7)","","","(0.8)%"]] [[/GREPCENT_TABLE]] (1) We updated our global reporting product categories as a result of our product portfolio reconfiguration. These product category updates have been adjusted retroactively to reflect the changes and have no impact on historical financial position, results of operations, or cash flows. Refer to Item 8. Note 2. Sales in each category were driven primarily by: •Skin Care: Net sales of $410.0 million increased 10.1%, inclusive of a 2.7% unfavorable effect of currency translation, driven primarily by strong growth in Compeed® driven by the new product launch of Compeed Spots, and strong sales within the Sebamed and ACO brand lines. The category also benefited from the absence of prior year distribution transitions; •Upper Respiratory: Net sales of $282.1 million decreased 5.7%, inclusive of a 1.1% favorable effect of currency translation, due primarily to lower net sales of cough cold products stemming from lower incidence of cough cold throughout the E.U. compared to the prior year, partially offset by higher net sales of Bronchenolo®, Bronchostop® and Coldrex® which benefited from category growth and market share gains; •Healthy Lifestyle: Net sales of $225.8 million remained flat, inclusive of a 3.4% unfavorable effect of currency translation, due primarily to higher net sales of anti-parasite offerings, including Paranix and Jungle Formula, were offset by lower category consumption in weight loss, impacting XLS Medical®; 44 Perrigo Company plc - Item 7 CSCI •Pain & Sleep-Aids: Net sales of $222.2 million decreased 0.4%, inclusive of a 1.8% favorable effect of currency translation, due primarily to lower net sales of QAH, partially offset by higher net sales of Solpadeine and store brand products; •VMS: Net sales of $173.5 million decreased 6.6%, inclusive of a neutral effect of currency translation, due primarily to lower net sales of Davitamon, Granufink and Arterin, stemming from lower consumption. These dynamics were partially offset by higher net sales of Vitamax; •Women's Health: Net sales of $132.8 million increased 11.0%, inclusive of a 0.3% unfavorable effect of currency translation, due primarily to higher net sales of contraceptive products including ellaOne®, driven by market share gains and the absence of prior year distribution transitions; •Oral Care: Net sales of $99.4 million decreased 2.0% inclusive of a 1.2% favorable effect of currency translation, due primarily to lower net sales of store brand oral care products and Plackers®; •Digestive Health and Other: Net sales of $133.8 million decreased 19.6%, inclusive of a 0.4% favorable effect of currency translation, due primarily to the divestiture of the Rare Diseases Business, partially offset by higher net sales of store brand digestive health products. Operating income increased $140.2 million, or 398.3%, due to: •$8.5 million decrease in gross profit due primarily to the impact of lower net sales volumes of $85.5 million, divested businesses and exited product lines of approximately $34 million, and negative impacts from cost of goods sold inflation. The impact of lower net sales volumes was partially offset by higher gross profit flow through from strategic pricing actions and new products of $141.5 million. Gross profit as a percentage of net sales remained flat compared to the prior year due to the same factors that impacted gross profit; and •$148.7 million decrease in operating expenses due primarily to lower selling and administrative costs of $110.8 million due primarily to Project Energize and lower variable employee costs, $39.6 million decrease in impairment charges compared to the prior year, and approximately $28 million of income recognized as a gain on the sale of branded products during the current year. These decreases were partially offset by increased restructuring expense of approximately $32 million. Unallocated Expenses Unallocated expenses are comprised of certain corporate services not allocated to our reporting segments and are recorded in Operating income on the Consolidated Statements of Operations. Unallocated expenses were as follows (in millions): [[GREPCENT_TABLE]] [["Year Ended"],["December 31, 2024","","December 31, 2023"],["$","262.1","","","$","202.5"]] [[/GREPCENT_TABLE]] The increase of $59.6 million in unallocated expenses during the year ended December 31, 2024 compared to the prior year period was due primarily to an increase in expenses for litigation as well as restructuring costs associated primarily with Project Energize. Interest expense, net, Other (income) expense, net and (Gain) Loss on extinguishment of debt (Consolidated) [[GREPCENT_TABLE]] [["","Year Ended"],["(in millions)","December 31, 2024","","December 31, 2023"],["Interest expense, net","$","187.8","","","$","173.8"],["Other (income) expense, net","$","(0.9)","","","$","(10.4)"],["(Gain) loss on extinguishment of debt","$","6.7","","","$","(3.2)"]] [[/GREPCENT_TABLE]] 45 Perrigo Company plc - Item 7 Unallocated, Interest, Other, and Taxes Interest Expense, net     The $14.0 million increase during the year ended December 31, 2024 compared to the prior year was due primarily to the de-designation of interest rate swap agreements. There were several derivative and debt transactions entered into over the course of the year to manage interest expense, refer to Item 8. Note 11 and Note 12 for details. Other (Income) Expense, net The $9.5 million decrease in income during the year ended December 31, 2024 compared to the prior year was due primarily to higher prior year milestone income related to legacy royalty rights. (Gain) loss on extinguishment of debt The $6.7 million loss on extinguishment of debt during the year ended December 31, 2024 is primarily related to the unamortized fees associated with the partial payment on the Term Loan B Facility (refer to Item 8. Note 12). The $3.2 million gain on extinguishment of debt during the year ended December 31, 2023 is related to the debt refinancing and tender offer activity during the fourth quarter of 2023. Income Taxes (Consolidated) The effective tax rates were as follows: [[GREPCENT_TABLE]] [["Year Ended"],["December 31, 2024","","December 31, 2023"],["(99.3)","%","","47.2","%"]] [[/GREPCENT_TABLE]] The effective tax rate on the pre-tax loss for the year ended December 31, 2024, increased when compared to the effective tax rate on the pre-tax loss for the year ended December 31, 2023, primarily due to the net impact of an intercompany intellectual property sale, and the establishment of a partial valuation allowance in the United States, offset by the impact of audit settlements in the prior year. FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES Overview We finance our operations with internally generated funds, supplemented by credit arrangements with third parties and capital market financing. We routinely monitor current and expected operational requirements and financial market conditions to evaluate other available financing sources including term and revolving bank credit and securities offerings. In determining our future capital requirements, we regularly consider, among other factors, known trends and uncertainties, such as the war in Ukraine and conflicts in the Middle East, inflation and interest rates, the status of material contingent liabilities, recent financial market volatility and other uncertainties. Additionally, we have considered investments in capital expenditures related to the progression of infant formula plant investments, our Supply Chain Reinvention Program, and Project Energize. Subject to relevant restrictions under our debt agreements, our cash requirements for other purposes and other factors management deems relevant, we may from time to time use available funds to redeem, repurchase or refinance our debt in privately negotiated or open market transactions, by tender offer or otherwise, in compliance with applicable laws, rules and regulations, at prices and on terms we deem appropriate (which may be below par). Based on the foregoing, management believes that our operations and borrowing resources are sufficient to provide for our short-term and long-term capital requirements, as described below. However, an adverse result with respect to our appeal of any material outstanding tax assessments or litigation, including securities or drug pricing matters and product liability cases, damages resulting from third-party claims, and related interest and/or penalties, could ultimately require the use of corporate assets to pay such assessments, and any such use of corporate assets would limit the assets available for other corporate purposes. As such, we continue to evaluate the impact of the above factors on liquidity and may determine that modifications to our capital structure are appropriate if market conditions deteriorate, favorable capital market opportunities become available, or any change in conditions relating to the war in Ukraine and conflicts in the Middle East, inflation and interest rates, the status of material contingent liabilities, financial market volatility or other uncertainties have a material impact on our capital requirements. 46 Perrigo Company plc - Item 7 Financial Condition, Liquidity and Capital Resources Cash, Cash Equivalents and Restricted Cash [[GREPCENT_TABLE]] [["","Year Ended"],["(in millions)","December 31, 2024","","December 31, 2023"],["Cash, cash equivalents and restricted cash(1)","$","558.8","","","$","751.3"],["Working capital(2)","$","915.3","","","$","935.9"]] [[/GREPCENT_TABLE]] (1)We had $7.0 million of restricted cash on the Consolidated Balance Sheets as of December 31, 2023. We had no restricted cash on the Consolidated Balance Sheets as of December 31, 2024. (2)Working capital represents current assets less current liabilities, excluding cash, cash equivalents and restricted cash and excluding current indebtedness. Cash, cash equivalents, restricted cash, cash flows from operations, and borrowings available under our credit facilities are expected to be sufficient to finance our liquidity and capital expenditures in both the short and long term. Although our lenders have made commitments to make funds available to us in a timely fashion under our revolving credit agreements and overdraft facilities, if economic conditions worsen or new information becomes publicly available impacting the institutions’ credit rating or capital ratios, these lenders may be unable or unwilling to lend money pursuant to our existing credit facilities. Should our outlook on liquidity requirements change substantially from current projections, we may seek additional sources of liquidity in the future. Cash Flows The following table includes summarized cash flow activities: [[GREPCENT_TABLE]] [["","Year Ended"],["(in millions)","December 31, 2024","","December 31, 2023","","$ Change"],["Net cash from operating activities","$","362.9","","","$","405.5","","","$","(42.6)"],["Net cash from (for) investing activities","78.8","","","(77.5)","","","156.3"],["Net cash from (for) financing activities","(611.0)","","","(187.2)","","","(423.8)"],["Effect of exchange rate changes on cash and cash equivalents","(23.2)","","","9.8","","","(33.0)"],["Net increase (decrease) in cash and cash equivalents","$","(192.5)","","","$","150.6","","","$","(343.1)"]] [[/GREPCENT_TABLE]] Net cash from Operating Activities The $42.6 million decrease in operating cash inflow was primarily driven by a decrease in cash flow from the change in net earnings after adjustments including deferred income taxes, restructuring charges, settlement of interest rate derivatives, the gain on sale of branded products in addition to higher working capital, primarily related to restructuring costs. Net cash (for) from Investing Activities The $156.3 million increase in cash from investing cash flow was due primarily to the proceeds from the sale of the Rare Diseases and Hospital & Specialty Businesses, proceeds from the sale of branded products in the current year, partially offset by the settlement of foreign currency derivatives and purchase of an intangible asset in the current year. Capital expenditures totaled $118.3 million in 2024. We anticipate 2025 capital expenditures to be between $120 million and $160 million, depending on the progression of infant formula plant investments, our Supply Chain Reinvention Program, Project Energize, and project timelines related to manufacturing productivity and efficiency upgrades, software and technology initiatives, and general plant maintenance. We expect to fund these estimated capital expenditures with funds from operating cash flows. 47 Perrigo Company plc - Item 7 Financial Condition, Liquidity and Capital Resources Net cash (for) from Financing Activities The $423.8 million decrease in financing cash flow was due to the pay down of the 2024 Notes utilizing cash on hand and proceeds from the sale of the Rare Diseases Business. Additionally, we redeemed in full $700 million in aggregate principal amount of the 4.375% senior notes due 2026 and made a principal prepayment of $391.0 million on the Term Loan B facility during the current year utilizing proceeds from debt issuances of approximately $1.1 billion from the 2032 Notes, as defined in Item 8. Note 12. Additionally, we increased our dividend payment by $2.8 million compared to the prior year. Share Repurchases In October 2018, our Board of Directors authorized up to $1.0 billion of share repurchases with no expiration date, subject to the Board of Directors’ approval of the pricing parameters and amount that may be repurchased under each specific share repurchase program. We did not repurchase any shares during the year ended December 31, 2024 or December 31, 2023. The future repurchase of shares, if any, is subject to the discretion of our Board of Directors. Dividends In January 2003, the Board of Directors adopted a policy of paying quarterly dividends. We paid dividends as follows: [[GREPCENT_TABLE]] [["","Year Ended"],["","December 31, 2024","","December 31, 2023"],["Dividends paid (in millions)","$","152.5","","","$","149.7"],["Dividends paid per share","$","1.10","","","$","1.09"]] [[/GREPCENT_TABLE]] The declaration and payment of dividends, if any, is subject to the discretion of our Board of Directors and will depend on our earnings, financial condition, availability of distributable reserves, capital and surplus requirements, and other factors our Board of Directors may consider relevant. Borrowings and Capital Resources Note Issuances On September 17, 2024, Perrigo Finance issued the 2032 Notes as defined in Item 8. Note 12. The 2032 Notes are fully and unconditionally guaranteed on a senior unsecured basis by Perrigo and its subsidiaries that provide guarantees under Perrigo's Senior Secured Credit Facilities (as defined below). Net proceeds from the 2032 Notes were used to prepay a portion of the Term Loan B Facility (as defined below) on September 19, 2024 and the remaining proceeds were used to fund the redemption of $700 million of the 4.375% Notes due 2026 on October 2, 2024. As a result of the redemption, we recognized an extinguishment loss of $6.7 million during the year. Credit Agreements On April 20, 2022, we and our indirect wholly-owned subsidiary, Perrigo Investments, LLC (the "Borrower") entered into the senior secured credit facilities, which consisted of (i) a $1.0 billion five-year revolving credit facility (the "Revolver"), (ii) a $500.0 million five-year Term Loan A facility (the "Term Loan A Facility" and the Term A Loans thereunder, the "Term A Loans"), and (iii) a $1.1 billion seven-year Term Loan B Facility (the "Term Loan B Facility" and the Term B Loans thereunder borrowed on April 20, 2022, the "2022 Term B Loans" and, together with the Revolver and Term Loan A Facility, the "Senior Secured Credit Facilities"), pursuant to a Term Loan and Revolving Credit Agreement (the "Credit Agreement"). On December 15, 2023, we and the Borrower entered into Amendment No. 1, an Incremental Assumption Agreement (the "Amendment") to the Credit Agreement. The Amendment provides for a fungible add on to the 2022 Term B Loans in an aggregate principal amount of $300.0 million (the "Incremental Term B Loans" and together with the 2022 Term B Loans, the “Term B Loans”). The terms of the Incremental Term B Loans, including pricing and maturity, are identical to the 2022 Term B Loans. The Term B Loans will mature on April 20, 2029. The net proceeds from the Incremental Term B Loans were used to settle the cash tender offer by Perrigo Finance for $300.0 million in aggregate principal amount of 3.900% Senior Notes due 2024 ("2024 Notes"). The tender offer was settled on 48 Perrigo Company plc - Item 7 Financial Condition, Liquidity and Capital Resources December 15, 2023, and Perrigo Finance accepted for purchase $300.0 million of the 2024 Notes and paid approximately $295.1 million in aggregate cash consideration (excluding accrued interest). In December 2024, we and the Borrower entered into Amendment No. 2, an Incremental Assumption Agreement to our Term Loan and Revolving Credit Agreement that provides for the refinancing of the Term B Loans outstanding under the Credit Agreement in the aggregate principal amount of $984.7 million. Refer to Item 8. Note 12. Our short term debt as of December 31, 2024 of $36.4 million is comprised of (i) amortization payments for the Term A Loans and the Term B Loans and (ii) lease payments. Term Loans and Notes As of December 31, 2024 and December 31, 2023, we had $1,429.1 million and $1,858.1 million, respectively, outstanding under our Term Loan A Facility and Term Loan B Facility. The interest rate net of derivatives results in a fixed rate on a substantial portion of our long-term debt, the earliest of which matures in April 2027. We are in compliance with all the covenants under our debt agreements as of December 31, 2024. Loans under the Credit Agreement bear interest at a rate equal to, at the Borrower’s option and depending on the currency borrowed, either the adjusted Term SOFR Rate, EURIBOR Rate, the prime lending rate or the daily simple RFR rate (each as defined in the Credit Agreement), in each case, plus an applicable margin. Applicable margins and fees are outlined below: [[GREPCENT_TABLE]] [["","Applicable Margins"],["","Term SOFR and EURIBOR Rates","","Prime Lending and Daily Simple RFR Rates","","Per Annum Commitment Fee(2)"],["Term A Loans(1)","2.000% - 1.750%","","1.000% - 0.750%","","\u2014"],["Term B Loans(1)","2.500% - 2.000%","","1.500% - 1.250%","","\u2014"],["Revolver(1)","2.000% - 1.375%","","1.000% - 0.375%","","0.250% - 0.175%"]] [[/GREPCENT_TABLE]] (1) Applicable margins are dependent upon our total net leverage ratio (2) Payable on the undrawn amount The Credit Agreement is guaranteed by us and certain of our wholly-owned subsidiaries organized in the U.S., Ireland, Belgium, England and Wales (subject to certain exceptions) (the “Guarantor Subsidiaries” and together with the Company, the “Guarantors” and together with the Borrower, the "Loan Parties"). The Loan Parties’ obligations under the Credit Agreement are secured, subject to customary permitted liens and other exceptions, by a security interest in all tangible and intangible assets of the Loan Parties, except for certain excluded assets. We may make voluntary prepayments at any time without payment of a premium or penalty, subject to certain exceptions, and are required to make certain mandatory prepayments of outstanding indebtedness under the Credit Agreement in certain circumstances. Principal repayments of the Term Loan B Facility, which are due quarterly, are equal to 1.0% per annum (adjusted, in the case of incremental loans, to enable fungibility), with any remaining balance payable on the maturity date. Principal repayments of the Term Loan A Facility, which are due quarterly, began in September 2022 and are equal to (i) for the first year anniversary of the Closing Date (as defined in the Credit Agreement), 2.5% per annum of the original principal amount of the Term Loan A Facility incurred and (ii) after the first year anniversary of the Closing Date, 5.0% per annum of the original principal amount of the Term Loan A Facility incurred, with any remaining balance payable on the maturity date. The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Borrower and its restricted subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of junior indebtedness and dividends and other distributions. The Credit Agreement contains financial covenants that require the Borrower and its restricted subsidiaries to (a) not exceed a maximum first lien secured net leverage ratio of 3.00 to 1.00 at the end of each fiscal quarter and (b) not fall below a minimum interest coverage ratio of 3.00 to 1.00 at the end of each fiscal quarter, provided that such covenants apply only to the Revolver and the Term Loan A Facility. The Credit Agreement also contains customary events of default relating to, among other things, failure to make payments, breach of covenants and breach of representations. If we consummate certain qualifying acquisitions during the term of the loan, the maximum first lien secured net leverage ratio covenant would increase to 3.25 to 1.00 for such quarter and the three following fiscal quarters thereafter. 49 Perrigo Company plc - Item 7 Financial Condition, Liquidity and Capital Resources Leases We had $195.1 million and $202.2 million of lease liabilities and $186.9 million and $197.3 million of lease assets as of December 31, 2024 and December 31, 2023, respectively. For information on our operating and finance lease obligations and the amount and timing of future payments refer to Item 8. Note 8. Available Resources We have overdraft facilities available that we use to support our cash management operations. We report any balances outstanding in "Other Financing" in Item 8. Note 12. There were no borrowings outstanding under the overdraft facilities as of December 31, 2024 and December 31, 2023. There were no borrowings outstanding under the Revolver as of December 31, 2024 or December 31, 2023. We are subject to certain financial covenants in the Revolver and Credit Agreement. As of December 31, 2024, we were in compliance with all such covenants under our debt agreements. Credit Ratings Our credit ratings on December 31, 2024 were Ba2 (negative), BB- (stable), and BB (negative), by Moody's Investor Services, S&P Global Ratings ("S&P"), and Fitch Ratings Inc. ("Fitch"), respectively. On March 25, 2024, S&P downgraded our issuer credit rating to BB- from BB, senior secured notes ratings to BB from BB+ and senior unsecured notes ratings to B+ from BB- and the rating outlooks remained stable. On April 16, 2024, Fitch downgraded our issuer credit rating to BB from BB+ and the rating outlooks remained negative. Due to the downgrade by S&P, the interest of the 3.150% Senior Notes due 2030 stepped up from 4.650% to 4.900% on payments made after June 15, 2024. There was no impact to our interest rates as a result of the Fitch downgrade. Future interest rate adjustments of the 3.150% Senior Notes due 2030 are subject to a 2.0% total cap above the original 3.150% interest rate which would result in an interest rate not to exceed 5.150% based on certain rating events as specified in the Note’s Supplemental Indenture No. 3, dated as of June 19, 2020, among Perrigo Finance Unlimited Company, Perrigo Company plc and Wells Fargo Bank, National Association, as trustee. Guarantor Financial Information As detailed in Item 8. Note 12, the Guarantor Subsidiaries and the Borrower provide full and unconditional guarantees, jointly and severally, on a senior unsecured basis, of the 5.300% Notes due 2043 issued by the Company, and the Loan Parties provide full and unconditional guarantees, jointly and severally, on a senior unsecured basis, of the 4.900% Notes due 2030, the 5.375% Euro Notes due 2032, the 6.125% USD Notes due 2032, and the 4.900% Notes due 2044 issued by Perrigo Finance. The guarantees of the Guarantor Subsidiaries, the Company and the Borrower are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The guarantees of the Guarantor Subsidiaries, the Company and the Borrower rank senior in right of payment to any future subordinated indebtedness of the Company, equal in right of payment with all of the Company’s existing and future senior indebtedness and effectively subordinated to any of the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing such indebtedness. Basis of Presentation The following tables include summarized financial information of the obligor groups of debt issued by Perrigo Finance and the Company. The summarized financial information of each obligor group is presented on a combined basis with balances and transactions within the obligor group eliminated. Investments in and the equity in earnings of non-guarantor subsidiaries, which would otherwise be consolidated in accordance with U.S. GAAP, are excluded from the below summarized financial information pursuant to SEC Regulation S-X Rule 13-01. 50 Perrigo Company plc - Item 7 Financial Condition, Liquidity and Capital Resources The summarized balance sheet information for the consolidated obligor group of debt issued by Perrigo Finance and the Company is presented in the table below: [[GREPCENT_TABLE]] [["","Year Ended"],["(in millions)","December 31, 2024","","December 31, 2023"],["Current assets","$","1,792.5","","","$","1,999.9"],["Non-current assets","$","4,284.5","","","$","4,596.2"],["Current liabilities","$","731.8","","","$","1,888.8"],["Non-current liabilities","$","12,144.5","","","$","11,498.4"],["Due to non-guarantors","$","8,131.3","","","$","7,355.3"]] [[/GREPCENT_TABLE]] The summarized results of operations information for the consolidated obligor group of debt issued by Perrigo Finance and the Company is presented in the table below: [[GREPCENT_TABLE]] [["","Year Ended"],["(in millions)","December 31, 2024","","December 31, 2023"],["Total revenues","$","3,118.4","","","$","3,308.8"],["Gross profit","$","944.6","","","$","979.2"],["Operating income (loss)","$","(27.8)","","","$","62.1"],["Net income (loss)","$","(147.5)","","","$","(10.9)"],["Revenue from non-guarantors","$","529.3","","","$","186.1"],["Operating expenses to non-guarantors","$","(1.8)","","","$","(1.1)"],["Other (income) expense to non-guarantors","$","(182.9)","","","$","(97.7)"]] [[/GREPCENT_TABLE]] Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have a material current effect or that are reasonably likely to have a material future effect on our financial condition, changes in financial condition, net sales or expenses, results of operations, liquidity, capital expenditures, or capital resources. Contractual Obligations Our enforceable and legally binding obligations as of December 31, 2024 are set forth in the following table. Some of the amounts included in this table are based on management’s estimates and assumptions about these obligations, including the duration, the possibility of renewal, anticipated actions by third parties and other factors. Because these estimates and assumptions are necessarily subjective, the enforceable and legally binding obligations actually paid in future periods may vary from the amounts reflected in the table (in millions): [[GREPCENT_TABLE]] [["","Payment Due"],["","2025","","2026-2027","","2028-2029","","After 2029","","Total"],["Short and long-term debt (1)","$","273.0","","","$","891.8","","","$","1,296.7","","","$","2,703.8","","","$","5,165.3"],["Finance lease obligations","2.0","","","3.2","","","3.2","","","7.4","","","15.8"],["Purchase obligations (2)","316.8","","","\u2014","","","\u2014","","","\u2014","","","316.8"],["Operating leases (3)","33.4","","","54.5","","","36.6","","","89.3","","","213.8"],["Other contractual liabilities reflected on the consolidated balance sheets:"],["Deferred compensation and benefits (4)","\u2014","","","\u2014","","","\u2014","","","41.7","","","41.7"],["Other (5)","115.2","","","98.2","","","1.8","","","\u2014","","","215.2"],["Total","$","740.4","","","$","1,047.7","","","$","1,338.3","","","$","2,842.2","","","$","5,968.6"]] [[/GREPCENT_TABLE]] (1)Short-term and long-term debt includes interest payments, which were calculated using the effective interest rate at December 31, 2024. (2)Consists of commitments for both materials and services. (3)Used in normal course of business, principally for warehouse facilities and computer equipment. 51 Perrigo Company plc - Item 7 Financial Condition, Liquidity and Capital Resources (4)Includes amounts associated with non-qualified plans related to deferred compensation, executive retention and post-employment benefits. Of this amount, we have funded $36.7 million, which is recorded in Other non-current assets on the balance sheet. These amounts are assumed payable after five years, although certain circumstances, such as termination, would require earlier payment. (5)Primarily includes consulting fees, legal settlements, restructuring accruals, insurance obligations, and electrical and gas purchase contracts, which were accrued in Other current liabilities and Other non-current liabilities at December 31, 2024 for all years. We fund our U.S. qualified profit-sharing and investment plan in accordance with the Employee Retirement Income Security Act of 1974 regulations for the minimum annual required contribution and Internal Revenue Service regulations for the maximum annual allowable tax deduction. We are committed to making the required minimum contributions, which we expect to be approximately $39.1 million over the next 12 months. Future contributions are dependent upon various factors, including employees’ eligible compensation, plan participation and changes, if any, to current funding requirements. Therefore, no amounts were included in the Contractual Obligations table above. We generally expect to fund all future contributions with cash flows from operating activities. As of December 31, 2024, we had approximately $309.8 million of liabilities for uncertain tax positions, including interest and penalties. These liabilities have been excluded from the Contractual Obligations table above, and the related tax benefits have not been recognized, due to uncertainty as to the amounts and timing of settlement with taxing authorities. Critical Accounting Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, which affect the reported earnings, financial position and various disclosures. Critical accounting estimates involve a significant level of uncertainty and could have a material impact on results. These estimates are based on judgment and available information. Actual results could differ materially from the estimates. Income Taxes We earn income in numerous countries and this income is subject to the laws of taxing jurisdictions within those countries. Significant judgement is required in determining our worldwide effective tax rate, provision for income taxes and recording the related deferred tax assets and liabilities. Our annual effective tax rate is determined based on our income, statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Also inherent in determining our annual effective tax rate are judgements and assumptions related to, among other things, the recoverability of certain deferred tax balances, primarily net operating loss and other carryforwards; our ability to uphold certain tax positions; adjustments to estimated taxes upon finalization of various tax returns; changes in available tax credits, grants and other incentives; changes in stock-based compensation expense; changes in U.S. GAAP; expiration of or the inability to renew tax rulings or tax holiday incentives; and the repatriation of earnings with respect to which we have not previously provided taxes. There are inherent uncertainties related to the interpretations of tax regulations in the jurisdictions in which we operate and our interpretation of transfer pricing standards. These judgments and estimates made at a point in time may change based on the outcome of tax audits and changes to, or further interpretations of, regulations. If such changes take place, there is a risk that our tax rate may increase or decrease in any period, which would impact our earnings. Future business results may affect deferred tax liabilities or the valuation of deferred tax assets over time. For the year ended December 31, 2024, we recorded a net increase in valuation allowances of $47.7 million comprised primarily of additional valuation allowance on certain non-deductible interest carryforward assets, which are no longer realizable. Additionally, the final determination with respect to any tax audit, and any related litigation, could be materially different from our estimates or from our historical income tax provisions and accruals. Future period earnings may also be adversely impacted by litigation costs, settlements, penalties, and/or interest assessments. Refer to Item 8. Note 18 for additional details on the Company's income taxes. Legal Contingencies We are involved in product liability, patent, commercial, regulatory and other legal proceedings that arise in the normal course of business. Other than loss contingencies that are assumed in business combinations for which we can reliably estimate the fair value, we record a liability when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range and no amount within that range is a better estimate, the minimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be 52 Perrigo Company plc - Item 7 Critical Accounting Estimates reasonably estimated, no liability is recorded. We evaluate our exposure to loss based on the progress of each contingency, experience in similar contingencies and consultation with our legal counsel and have established reserves for certain of our legal matters. We re-evaluate all contingencies as additional information becomes available and adjustments are made to ensure estimates reflect an accurate liability until the contingency in question is ultimately settled. We do not incorporate insurance recoveries into our reserves for legal contingencies. We separately record receivables for amounts due under insurance policies when we consider the realization of recoveries for claims to be probable, which may be different than the timing in which we establish the loss reserves. Given the uncertainties inherent in complex litigation and other contingencies, these evaluations can involve significant judgement about future events. The ultimate outcome of any litigation or other contingency may be material to our results of operations, financial condition and cash flows. At December 31, 2024 and 2023, the loss accrual for litigation contingencies reflected on the balance sheet in Other accrued liabilities was $76.8 million and $66.9 million, respectively. Refer to Item 8. Note 19 for additional details on the Company's contingencies. Acquisition Accounting We account for acquired businesses using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at fair value, with limited exceptions. Any excess of the purchase price over the fair value of the specifically identified assets is recorded as goodwill. If the acquired net assets do not constitute a business, or substantially all of the fair value is in a single asset or group of similar assets, the transaction is accounted for as an asset acquisition and no goodwill is recognized. In an asset acquisition, acquired IPR&D with no alternative future use is charged to expense at the acquisition date. Significant judgment is required in estimating the fair value of intangible assets and in assigning their respective useful lives. The acquired intangible assets can include customer relationships, trademarks, trade names, brands, developed product technology and IPR&D assets. For acquisitions accounted for as business combinations, IPR&D is considered to be an indefinite-lived intangible asset until the research is completed, at which point it then becomes a definite-lived intangible asset, or is determined to have no future use and is then impaired and charged to expense. There are several methods that can be used to determine the fair value of our intangible assets. We typically use an income approach to value the specifically identifiable intangible assets which is based on forecasts of the expected future cash flows. We have historically used a relief from royalty or multi-period excess earnings methodology. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management. We typically consult with an independent advisor to assist in the valuation of these intangible assets. Significant estimates and assumptions inherent in the valuations include discount rates, revenue growth assumptions and expected profit margins. We consider marketplace participant assumptions in determining the amount and timing of future cash flows along with the length of our customer relationships, attrition, product or technology life cycles, barriers to entry and the risk associated with the cash flows in concluding upon our discount rate. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, we may record adjustments to the purchase accounting. In addition, unanticipated market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and assumptions used at the time of the acquisition. Our assessment as to the useful lives of intangible assets is based on a number of factors including competitive environment, market share, trademark, brand history, underlying product life cycles, operating plans and the macroeconomic environment of the countries in which the trademarked or branded products are sold. Determining the useful life of an intangible asset requires judgement, as different assets will have different useful lives or may even have an indefinite life. Definite-lived intangible assets are amortized to expense over their estimated useful life. Goodwill Goodwill represents amounts paid for an acquisition of a business in excess of the fair value of net assets received. We perform annual goodwill impairment testing on the first day of the fourth quarter. As of December 31, 2024, we have two reporting units. Our CSCA operating segment is equivalent to our CSCA reporting unit, and following our divestiture of the Rare Diseases reporting unit on July 10, 2024, our CSCI operating segment is now equivalent to our CSCI reporting unit. The test for impairment requires us to make several significant assumptions that impact our estimate of the fair value of a reporting unit, including the perpetual growth rate and discount rate. These assumptions are considered critical due to the sensitivity of changes in these assumptions to the related estimate of fair value. The discount 53 Perrigo Company plc - Item 7 Critical Accounting Estimates rates used in testing each of our reporting units’ goodwill for impairment during our testing were based on the weighted average cost of capital determined for each of our reporting units. In our annual impairment test as of September 29, 2024, discount rates ranged from 10.00% to 11.25%, and perpetual growth rates were 2.50%. In our annual impairment test as of October 1, 2023, discount rates ranged from 10.75% to 12.00%, and perpetual growth rates were 2.50%. The cash flow forecasts used for our reporting units include assumptions about future activity levels in the near term and longer-term. If growth in our reporting units is lower than expected, we may experience deterioration in our cash flow forecasts that may indicate goodwill in one or more reporting units is impaired in future impairment tests. An increase in the discount rate could negatively impact the estimated fair value of the reporting units and lead to future impairment. Furthermore, our estimates of fair value give consideration to the level of implied control premium, which is the amount a buyer is willing to pay over the current market price of a company (i.e. market capitalization) to acquire a controlling interest. We may experience a sustained decrease in our market capitalization which could imply an impairment of one or more of our reporting units. We performed sensitivity analyses on the discounted cash flow valuations that were prepared to estimate the fair value of each reporting unit. Discount rates and perpetual revenue growth rates were increased and decreased by increments of 25 or 50 basis points. For the CSCI reporting unit, the fair value exceeded our carrying amount by less than 10% as of the annual testing date. Therefore, a 75 basis point increase in the discount rate, or a 50 basis point increase in the discount rate combined with a 25 basis point decrease in the perpetual growth rate, would indicate potential impairment for this reporting unit. For the CSCA reporting unit, the fair value exceeded our carrying amount by less than 20% as of the annual testing date. A 125 basis point increase in the discount rate, or a 100 basis point increase in the discount rate combined with a 125 basis point decrease in the perpetual growth rate, would indicate potential impairment for this reporting unit. Both the CSCI and CSCA reporting unit's fair value includes material benefits from our Corporate led initiatives, the Supply Chain Reinvention program, and Project Energize, and, as a result, the reporting unit is sensitive to changes in estimates related to the Supply Chain Reinvention Program and Project Energize. Reductions in the net projected benefits could represent a potential indicator of impairment requiring further impairment analysis. Based on the sensitivity of the discount rate assumptions on these analyses, an increase in the discount rate over the next twelve months could negatively impact the estimated fair value of the reporting units and lead to a future impairment. Certain macroeconomic factors which are not controlled by the reporting units, such as rising inflation or interest rates, could cause an increase in the discount rate to occur. Deterioration in performance of our reporting units over the next twelve months, such as lower than expected revenue or profitability that has a sustained impact on future periods, could also represent potential indicators of impairment requiring further impairment analysis. We have experienced significant decreases in our market capitalization. Given the sensitivity of assumptions on control premium, further decreases in our market capitalization in the next twelve months, could represent a potential impairment indicator requiring further impairment analysis. During the three months ending June 29, 2024, we recorded goodwill impairment charge of $22.1 million related to our now divested Rare Disease reporting unit. During the three months ended September 28, 2024, we recorded impairment charge of $5.4 million for our CSCI reporting unit related to the now divested Hospital & Specialty disposal group. During 2023, we recorded goodwill impairment charges of $90.0 million. We continue to monitor the progress of our reporting units and assess them for potential impairment should impairment indicators arise, as applicable, and at least annually during our fourth quarter impairment testing. See Item 8. Note 9 and Note 10 for further information. Recently Issued Accounting Standards Pronouncements See Item 8. Note 1 for information regarding recently issued accounting standards.