PetIQ Perrigo Acquisition 8-kA

Lin 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K/A

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):  July 7, 2019

 

PETIQ, INC.

(Exact name of registrant as specified in its charter)

 

Delaware
(State or other jurisdiction
of incorporation)

 

 

 

001-38163
(Commission
File Number)

 

 

 

35-2554312
(I.R.S. Employer
Identification No.)

 

   

 

223 S
(Address of principal executive offices)

 

 

 

 

 

 

923 S. Bridgeway Place

Eagle, Idaho
(Address of principal executive offices)

 

 

 

83616
(Zip Code)

 

 (208) 939-8900

(Registrant’s telephone number, including area code)

 

N/A

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

 Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

 Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

 Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act (17 CFR 240.12b-2)

 

 Indicate by check mark if the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act (17 CFR 240.13(a)-1)

 

 

 

Title of Each Class

Trading Symbol

Name of Exchange on Which Registered

Class A common stock, par value $0.001 per share

PETQ

NYSE

 

 

 

 

 

PetIQ, Inc. (the “Company”) hereby amends and supplements the Current Report on Form 8-K originally filed with the Securities and Exchange Commission on July 9, 2019 to include the information required by Item 9.01(a) and Item 9.01(b) on Form 8-K in connection with the acquisition of all of the outstanding capital stock of Sergeant’s Pet Care Products, Inc., including any assets related to Perrigo’s animal health business, which closed on July 8, 2019.

 

 

Item 9.01. Financial Statements and Exhibits

 

(a)

Financial Statements of Business Acquired

 

Audited combined financial statements of the Animal Health business of Perrigo Company plc which comprise the combined balance sheets as of December 31, 2018 and 2017, and the related combined statements of operations, equity, and cash flows for the years then ended, and the related notes to the combined financial statements, are attached hereto as Exhibit 99.1 and incorporated herein by reference.

 

Unaudited condensed combined financial statements of the Animal Health business of Perrigo Company plc which comprise the condensed combined balance sheets as of March 30, 2019 and December 31, 2018 and the related condensed combined statements of operations, equity, and cash flows for the three months ended March 30, 2019 and March 31, 2018, and the related notes to the condensed combined financial statements, are attached hereto as Exhibit 99.2 and incorporated herein by reference.

 

(b)

Pro Forma Financial Information

 

Unaudited pro forma condensed combined balance sheet as of March 31, 2019 and unaudited pro forma condensed combined statements of operations for the year ended December 31, 2018, and the three months ended March 31, 2019 of PetIQ, Inc. and Sergeant’s Pet Care Products, Inc. are attached hereto as exhibit 99.3 and incorporated herein by reference.  The unaudited pro forma condensed combined financial information is a presentation of historical results with accounting adjustments necessary to reflect the estimated pro forma effect of the acquisition and is presented for informational purposes only. The unaudited pro forma condensed combined financial information does not reflect the effects of any anticipated changes to be made to the operations of the combined companies in connection with the acquisitions, including synergies and cost savings and does not include one-time charges expected to result from the transaction. The unaudited pro forma condensed combined financial information should not be construed to be indicative of future results of operations or financial position.

 

 

(d)Exhibits:

 

Exhibit No.

 

Description

23.1

 

 

Consent of Ernst & Young LLP

99.1

 

Audited combined financial statements of the Animal Health business of Perrigo Company plc, which comprise the combined balance sheets as of December 31, 2018 and 2017 and the related combined statements of operations, equity, and cash flows for the years then ended, and the related notes to the combined financial statements

99.2

Un

Unaudited condensed combined financial statements of the Animal Health business of Perrigo Company plc, which comprise the condensed combined balance sheets as of March 30, 2019 and December 31, 2018 and the related combined statements of operations, equity, and cash flows for the three months ended March 30, 2019 and March 31, 2018, and the related notes to the condensed combined financial statements 

99.3

 

Unaudited pro forma condensed combined balance sheet as of March 31, 2019, and unaudited pro forma condensed combined statements of operations for the year ended December 31, 2018, and the three months ended March 31, 2019 of PetIQ, Inc. and Sergeant’s Pet Care Products, Inc.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

 

 

PETIQ, INC.

 

Dated: September 19, 2019 

By

/s/ John Newland

 

 

Name:

John Newland

 

 

Title:

Chief Financial Officer

 

petq_ex23.1

Exhibit 23.1

 

Consent of Independent Auditors

We consent to the incorporation by reference in the following Registration Statements:

1)

Registration Statement (Form S-3 No. 333-227186) of PetIQ Inc.,

2)

Registration Statement (Form S-8 No. 333-219455) pertaining to the PetIQ, Inc. 2017 Omnibus Incentive Plan,

3)

Registration Statement (Form S-8 No. 333-231795) pertaining to the PetIQ, Inc. Amended and Restated 2017 Omnibus Incentive Plan, and

4)

Registration Statement (Form S-8 No. 333-223635) pertaining to the PetIQ, Inc. 2018 Inducement and Retention Stock Plan for CVC Employees;

of our report dated July 2, 2019, with respect to the combined financial statements of the Animal Health business of Perrigo Company plc, included in this Current Report on Form 8-K/A.

/s/ Ernst & Young LLP

Grand Rapids, Michigan
September 19, 2019

 

petq_ex99.1

 

 

 

 

 

 

 

ANIMAL HEALTH BUSINESS OF PERRIGO COMPANY PLC

COMBINED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

As of and for the years ended

December 31, 2018 and 2017;

Report of Independent Auditors

 

 

 

ANIMAL HEALTH BUSINESS OF PERRIGO COMPANY PLC

 

 

 

 

 

PAGE
NUMBER

Report of Independent Auditors

3

 

 

 

Combined Statements of Operations

4

 

 

 

Combined Balance Sheets

5

 

 

 

Combined Statements of Cash Flows

6

 

 

 

Combined Statements of Equity

7

 

 

 

Notes to Combined Financial Statements

 

 

 

 

1

Basis of Presentation

8

 

 

 

2

Summary of Significant Accounting Policies

8

 

 

 

3

Related Party Transactions

15

 

 

 

4

Collaboration Agreements

16

 

 

 

5

Goodwill and Intangible Assets

16

 

 

 

6

Inventories

18

 

 

 

7

Income Taxes

18

 

 

 

8

Commitments and Contingencies

20

 

 

 

9

Subsequent Events

21

 

 

 

 

 

 

 

 

REPORT OF INDEPENDENT AUDITORS

 

To the Board of Directors of Perrigo Company plc

 

We have audited the accompanying combined financial statements of the Animal Health business of Perrigo Company plc, which comprise the combined balance sheets as of December 31, 2018 and 2017, and the related combined statements of operations, equity and cash flows for the years then ended, and the related notes to the combined financial statements.

 

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion.

 

An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of the Animal Health business of Perrigo Company plc at December 31, 2018 and 2017, and the combined results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

 

 

 

/s/ Ernst & Young LLP

 

Grand Rapids, Michigan

July 2, 2019

 

3

 

 

ANIMAL HEALTH BUSINESS OF PERRIGO COMPANY PLC

COMBINED STATEMENTS OF OPERATIONS

(in thousands)

 

 

 

 

 

 

 

 

 

December 31, 2018

 

December 31, 2017

Net sales

$

91,885

 

 

$

143,294

 

Cost of sales

65,399

 

 

95,205

 

Gross profit

26,486

 

 

48,089

 

 

 

 

 

Operating expenses

 

 

 

Selling

16,379

 

 

15,451

 

Administration

12,558

 

 

15,448

 

Distribution

4,178

 

 

4,305

 

Research and development

2,878

 

 

3,400

 

Impairment charges

172,451

 

 

-

 

Total operating expenses

208,444

 

 

38,604

 

 

 

 

 

Operating (loss) income

(181,958)

 

 

9,485

 

 

 

 

 

Other income

(250)

 

 

-

 

(Loss) income before income taxes

(181,708)

 

 

9,485

 

Income tax benefit

(13,569)

 

 

(5,554)

 

Net (loss) income

$

(168,139)

 

 

$

15,039

 

 

See accompanying Notes to Combined Financial Statements.

 

4

 

 

 ANIMAL HEALTH BUSINESS OF PERRIGO COMPANY PLC

COMBINED BALANCE SHEETS

(in thousands)

 

 

 

 

 

 

 

 

 

December 31,
2018

 

December 31,
2017

Assets

 

 

 

Cash

$

132

 

 

$

120

 

Accounts receivable, net

6,517

 

 

11,694

 

Inventories

17,052

 

 

20,913

 

Prepaid expenses and other current assets

1,755

 

 

1,846

 

Total current assets

25,456

 

 

34,573

 

Property, plant and equipment, net

10,909

 

 

11,891

 

Goodwill and indefinite-lived intangible assets

29,633

 

158,601

 

Definite-lived intangible assets, net

38,616

 

 

104,248

 

Other non-current assets

11

 

 

36

 

Total non-current assets

79,169

 

 

274,776

 

Total assets

$

104,625

 

 

$

309,349

 

Liabilities and Equity

 

 

 

Accounts payable

$

4,547

 

 

$

6,907

 

Payroll and related taxes

1,330

 

 

2,210

 

Accrued customer programs

4,259

 

 

3,610

 

Accrued liabilities

1,274

 

 

1,165

 

Total current liabilities

11,410

 

 

13,892

 

Deferred income taxes

-

 

 

13,569

 

Other non-current liabilities

524

 

 

406

 

Total non-current liabilities

                   524

 

 

13,975

 

Total liabilities

11,934

 

 

27,867

 

Commitments and contingencies - Refer to Note 8

 

 

 

Net parent investment

              92,691

 

 

281,482

 

Total liabilities and equity

$

104,625

 

 

$

309,349

 

 

See accompanying Notes to Combined Financial Statements.

 

 

5

 

ANIMAL HEALTH BUSINESS OF PERRIGO COMPANY PLC

COMBINED STATEMENTS OF CASH FLOWS

(in thousands)

 

December 31,
2018

 

December 31, 2017

Cash Flows From (For) Operating Activities

 

 

 

Net income (loss)

$

(168,139)

 

 

$

15,039

 

Adjustments to derive cash flows

 

 

 

Depreciation and amortization

23,424

 

 

34,917

 

Impairment charges

172,451

 

 

-

 

Deferred income taxes

(13,569)

 

 

(14,533)

 

Other non-cash adjustments

650

 

 

957

 

Subtotal

182,956

 

 

21,341

 

Increase (decrease) in cash due to:

 

 

 

Accounts receivable

5,177

 

 

2,397

 

Inventories

3,861

 

 

1,953

 

Prepaid expenses and other current assets

91

 

 

1,178

 

Accounts payable

(2,360)

 

 

2,041

 

Payroll and related taxes

(880)

 

 

277

 

Accrued customer programs

649

 

 

(580)

 

Accrued liabilities

109

 

 

(1,251)

 

Other, net

220

 

 

360

 

Subtotal

6,867

 

 

6,375

 

Net cash from operating activities

21,684

 

 

42,755

 

Cash Flows From (For) Investing Activities

 

 

 

Additions to property, plant and equipment

(395)

 

 

(1,137)

 

Proceeds from sale of assets

-

 

 

7,000

 

Net cash from (for) investing activities

(395)

 

 

5,863

 

Cash Flows For Financing Activities

 

 

 

Transfer to Parent

(21,277)

 

 

(48,766)

 

Net cash for financing activities

(21,277)

 

 

(48,766)

 

Net increase (decrease) in cash and cash equivalents

12

 

 

(148)

 

Cash, beginning of period

120

 

 

268

 

Cash, end of period

$

132

 

 

$

120

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Combined Financial Statements.

 

6

 

ANIMAL HEALTH BUSINESS OF PERRIGO COMPANY PLC

COMBINED STATEMENTS OF EQUITY

(in thousands)

 

Total Equity

Balance at January 1, 2017

$             314,655

 

Net income

                15,039

 

Transfer to Parent

(48,212)

 

Balance at December 31, 2017

281,482

 

Net loss

(168,139)

 

Transfer to Parent

(20,652)

 

Balance at December 31, 2018

$

92,691

 

 

See accompanying Notes to Combined Financial Statements.

 

7

 

 

NOTE 1 - BASIS OF PRESENTATION

 

The Company

 

Perrigo Company plc’s ("Perrigo" or the “Parent”) Animal Health reporting unit (“Animal Health business”) develops, manufactures, and markets a portfolio of pet health and wellness products in the U.S. These Combined Financial Statements reflect the Animal Health business of Perrigo.  The words "we", "us", "our" or the "Company" and similar words refer to the combined Animal Health business of Perrigo.

 

Basis of Presentation

 

The Animal Health business has not historically constituted a separate legal group. Stand-alone financial statements have not previously been prepared for the Animal Health business. The Combined Financial Statements as of and for the years ended December 31, 2018 and 2017 have been prepared on a stand-alone basis derived from the financial statements and related accounting records of the Parent. The accompanying Combined Financial Statements reflect the historical Statements of Operations, Balance Sheets, Statements of Cash Flows, and Statements of Equity of the Animal Health business as they were historically managed and are presented in conformity with the U.S. generally accepted accounting principles ("GAAP").

 

The Combined Balance Sheets reflect the assets and liabilities of the Parent that are either specifically identifiable or are directly attributable to the Animal Health business and its operations. The basis of the assets and liabilities attributable to the combined entity is historical cost. All intercompany transactions and accounts have been eliminated within the Animal Health business. All transactions between the Animal Health business and the Parent are considered to be effectively settled in the Combined Financial Statements at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions between the Animal Health business and the Parent is reflected in the Combined Statements of Cash Flows as a financing activity and in the Combined Balance Sheets as Net parent investment.

 

The Combined Financial Statements reflect allocations of direct and indirect expenses related to certain support functions including executive oversight, administration, legal, finance, operations, supply chain, information technology, quality, regulatory, compliance and employee-related costs that are provided on a centralized basis by the Parent. These expenses have been allocated to the Animal Health business based on direct usage or benefit where specifically identifiable, with the remaining allocated based on a  pro rata basis of revenue. Management believes the assumptions underlying the Combined Financial Statements, including the assumptions regarding allocation of expenses, are reasonable. However, the allocations may not be indicative of the actual expense that would have been incurred had the Company operated as an independent company for the periods presented. It is impractical to estimate what the standalone costs of the Animal Health business would have been in historical periods.

 

The income tax amounts in these Combined Financial Statements have been calculated based on a separate return method and presented as if the Animal Health business' operations were separate taxpayers in each respective jurisdiction.

 

The Animal Health business' Net parent investment in these Combined Financial Statements represents the excess of total assets over total liabilities. Net parent investment is primarily impacted by contributions from the Parent which are the result of treasury activities and net funding provided by or distributed to the Parent.

 

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

General Information

 

Use of Estimates

 

The preparation of the Combined Financial Statements in conformity with GAAP required us to make estimates and assumptions that affect the reported amounts and disclosures at the date of the Combined Financial Statements and the reported amounts of revenues and expenses during the reporting period. These estimates and underlying assumptions can

8

 

impact all elements of the Combined Financial Statements, including but not limited to allocations of costs and expenses from the Parent. The estimates and associated assumptions are based on historical experience, complex judgments and various other factors that are believed to be reasonable under the circumstances but are inherently uncertain and unpredictable. Actual results could differ from these estimates.

 

As future events and their effects cannot be determined with certainty, the estimates and assumptions may prove to be incomplete, inaccurate or unanticipated events and circumstances may occur that might cause a change in the estimates and assumptions. We are subject to risks and uncertainties that may cause actual results to differ from estimated amounts, such as changes in competition, litigation, legislation and regulations. We will adjust the estimates and assumptions when facts and circumstances indicate the need for change. Those changes generally will be reflected in our Combined Financial Statements on a prospective basis unless they are required to be treated retrospectively under relevant accounting standards. It is possible that others, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimates.

 

Revenues

 

Revenue Recognition

 

We adopted ASU 2014-09 Revenue from Contracts with Customers and its related amendments (collectively, "ASC 606") 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 to which we expect to be entitled to receive in exchange for these products. 

 

The adoption of ASC 606 has no impact to either reported Net sales to customers or Net income for the period ended December 31, 2018.

 

We generated all third-party revenue in the U.S. for the years ended December 31, 2018 and December 31, 2017.

 

Product Revenue

 

We recognize product revenue for our contract performance obligations at a point in time, when control has transferred to the customer. The transfer of title is the primary indicator that control has transferred which typically occurs upon shipment or delivery of products to customers. For customers upon which control transfers on delivery 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.

 

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, and promotional and slotting allowances recorded on the Combined Balance Sheets as Accrued customer programs and sales returns recorded on the Combined Balance Sheets as a reduction to 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. 

9

 

 

Other Revenue Policies

 

We receive payments from our customers based on the terms established in each contract.  Amounts are recorded as accounts receivable when our right to consideration is unconditional.  The timing of the unconditional right to payment aligns with shipment or delivery of the product and the recognition of revenue.

 

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.

 

Accounts Receivable

 

We maintain an allowance for doubtful accounts that reduces our receivables to amounts that are expected to be collected. In estimating the allowance, management considers factors such as current overall and industry-specific economic conditions, statutory requirements, historical and anticipated customer performance, historical experience with write-offs and the level of past-due amounts. Changes in these conditions may result in additional allowances. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The allowance for doubtful accounts is immaterial as of December 31, 2018 and December 31, 2017.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in first-out method. Costs include material and conversion costs. Inventory related to Research and Development ("R&D") is expensed at the point when it is determined the materials have no alternative future use.

 

We maintain reserves for estimated obsolete or unmarketable inventory based on the difference between the cost of the inventory and its estimated net realizable value. In estimating the reserves, management considers factors such as excess or slow-moving inventories, product expiration dating, products on quality hold, current and future customer demand and market conditions. Changes in these conditions may result in additional reserves.

 

Property, Plant and Equipment, net

 

Property, plant and equipment, net is recorded at cost and is depreciated using the straight-line method. Useful lives for financial reporting are 30 years for buildings and 1 to 15 years for machinery and equipment. Maintenance and repair costs are charged to earnings, while expenditures that increase asset lives are capitalized. Depreciation expense totaled $1,275 thousand and $1,540 thousand for the years ended December 31, 2018 and December 31, 2017, respectively.

 

We held the following property, plant and equipment, net (in thousands):

 

 

 

 

 

 

 

 

 

December 31,
2018

 

December 31,
2017

Land

$

1,885

 

 

$

1,788

 

Buildings

5,401

 

 

5,401

 

Machinery and equipment

11,393

 

 

11,916

 

Gross property, plant and equipment

18,679

 

 

19,105

 

Less accumulated depreciation

(7,770)

 

 

(7,214

)

Property, plant and equipment, net

$

10,909

 

 

$

11,891

 

 

 

 

 

 

 

 

 

We review buildings and machinery and equipment for impairment when indicators of impairment are evident by comparing the carrying value of the assets to their estimated future undiscounted cash flows.

10

 

Goodwill and Intangible Assets

 

Goodwill

 

Goodwill represents amounts paid for an acquisition in excess of the fair value of net assets received. Goodwill is tested for impairment annually on the first day of our fourth quarter, or more frequently if changes in circumstances or the occurrence of events suggest an impairment exists.

 

The test for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows and market valuation multiples. The estimates associated with the goodwill impairment tests are considered critical due to the judgments required in determining fair value amounts, including projected discounted future cash flows. Changes in these estimates may result in the recognition of an impairment loss.

 

Indefinite-lived Intangible Assets

 

We have indefinite-lived trademarks, trade names, and brands tested for impairment annually on the first day of our fourth quarter, or more frequently if changes in circumstances or the occurrence of events suggest an impairment exists. An impairment loss is recognized if the carrying amount of the asset is not recoverable and its carrying amount exceed its fair value.

 

Definite-lived Intangible Assets

 

We have definite-lived intangible assets acquired through various business acquisitions and include a portfolio of customer relationships and distribution networks, developed product technology,  formulations and product rights, distribution and license agreements and supply agreements, trademarks, trade names, and brands, and non-compete agreements.  The assets are typically initially valued using the relief from royalty method. The assets are amortized on either a straight-line basis or proportionately to the benefits derived from those relationships or agreements. Useful lives vary by asset type and are determined based on the period over which the intangible asset is expected to contribute directly or indirectly to our future cash flows.

 

Goodwill, indefinite-lived intangible asset and definite-lived intangible asset impairments of $172,451 thousand were recorded in Impairment charges on the Combined Statements of Operations for the year ended December 31, 2018.

 

Income Taxes

 

 We are included in the consolidated U.S. federal and certain state income tax returns of Perrigo, where applicable. The tax provision and current and deferred tax balances have been prepared on a separate-return basis as if the Company were a separate filer. Any differences between actual amounts paid or received by the Company have been reflected in Net parent investment.

 

We record deferred income tax assets and liabilities on the balance sheets as noncurrent based upon the difference between the financial reporting and the tax reporting basis of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period the new tax rate is enacted.

 

To the extent that available evidence raises doubt about the realization of a deferred income tax asset, a valuation allowance is established. In the event we determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes

 

We record reserves for uncertain tax positions to the extent it is more likely than not that the tax position will be sustained on audit, based on the technical merits of the position. Periodic changes in reserves for uncertain tax positions are reflected in the provision for income taxes. We include interest and penalties attributable to uncertain tax positions and income taxes as a component of our income tax provision.

 

11

 

Legal Contingencies

 

We are involved in product liability, patent, commercial, regulatory and other legal proceedings that arise in the normal course of business. 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 reasonably estimated, no liability is recorded. We established reserves for certain of our legal matters. We also separately record any insurance recoveries that are probable of occurring.

 

Research and Development

 

All R&D costs, including payments related to products under development and research consulting agreements, are expensed as incurred. We may continue to make non-refundable payments to third parties for new technologies and for R&D work that has been completed. These payments may be expensed at the time of payment depending on the nature of the payment made.

 

Collaboration Agreements

 

We may collaborate with other animal health companies to develop certain products. Our policy on accounting for costs of collaborations determines the timing of the recognition of development costs and determines whether the costs are classified as development expense or capitalized as an asset. Management is required to form judgments with respect to the commercial status of such products in determining whether development costs meet the criteria for immediate expense or capitalization.

 

Fair Value Measurements

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

 

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

 

Level 2:Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

 

Level 3:Valuations derived from valuation techniques in which one or more significant inputs are not observable.

 

There were no transfers among Level 1, 2, and 3 during the years ended December 31, 2018 or December 31, 2017. Our policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period.

 

The carrying amounts of our other financial instruments consisting of cash, accounts receivable, and accounts payable approximate their fair value.

 

12

 

Recent Accounting Standard Pronouncements

 

Below are recent accounting standard updates that we adopted or are still assessing to determine the effect on our Combined Financial Statements. We do not believe that any other recently issued accounting standards could have a material effect on our Combined Financial Statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

 

 

 

 

 

 

 

 

Recently Issued Accounting Standards Not Yet Adopted

 

 

 

 

Standard

 

Description

 

Effective Date

 

Effect on the Financial Statements or Other Significant Matters

ASU 2016-02 Leases (Topic 842) and subsequent amendments

 

This guidance was issued to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. For leases with a term of 12 months or less, lessees are permitted to make an election to not recognize right-of-use assets and lease liabilities. The guidance is required to be adopted using the modified retrospective approach.

 

January 1, 2019

 

We plan to adopt the standard using the modified retrospective approach on the effective date. Upon adoption, we intend to apply the transition package of practical expedients allowed by the standard and to transition to the standard by recognizing a cumulative-effect adjustment to the opening balance of retained earnings. We expect our financial statement disclosures to be expanded to present additional qualitative and quantitative details of our leasing arrangements.

 

We have substantially completed: (1) our identification of the global lease population, (2) the data migration to a lease integration tool that will support the accounting and disclosure requirements under the standard, (3) the testing and review phase of the tool, and (4) designing processes and internal controls over the post-implementation leasing activities.

 

Based on our current lease portfolio, in the period of adoption we anticipate recognizing operating lease liabilities and operating lease assets of approximately $11,200 to $11,500 thousand on our Combined Balance Sheets. We anticipate an immaterial impact on our Combined Statement of Operations.

 

 

13

 

ASU 2017-04 Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill

 

The objective of this update is to reduce the cost and complexity of subsequent goodwill accounting and simplify the impairment test by removing the Step 2 requirement to perform a hypothetical purchase price allocation when the carrying value of a reporting unit exceeds its fair value. If a reporting unit’s carrying value exceeds its fair value, an entity would record an impairment charge based on that difference, limited to the amount of goodwill attributed to that reporting unit. This will not change the guidance on completing Step 1 of the goodwill impairment test and would be applied prospectively. Early adoption is permitted

 

 

 

January 1, 2020

 

We are currently evaluating the implications of adoption on our Combined Financial Statements.

ASU 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement

 

This guidance amends ASC 820 to add, remove, and modify certain disclosure requirements for fair value measurements.

 

 

January 1, 2020

 

We are currently evaluating the implications of adoption on our Combined Financial Statements.

 

 

 

 

 

 

 

ASU 2018-18 Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606

 

This guidance amends ASC 808 to clarify that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. The proposed guidance would be applied retrospectively to the date of initial adoption of Topic 606.

 

January 1, 2020

 

We are currently evaluating the implications of adoption on our Combined Financial Statements.

ASU 2016-13: Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

 

ASU 2018-19 Codification Improvements for Topic 326: Measurement of Credit Losses on Financial Instruments

 

 

This guidance changes the impairment model for most financial assets and certain other instruments, replacing the current "incurred loss" approach with an "expected loss" credit impairment model, which will apply to most financial assets measured at amortized cost, and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities and off-balance sheet credit exposures such as letters of credit.

 

January 1, 2020

 

We are currently evaluating the implications of adoption on our Combined Financial Statements.

 

14

 

 

NOTE 3 - RELATED PARTY TRANSACTIONS

 

We have not historically operated as a standalone business and have various relationships with the Parent whereby the Parent provides services to us.

 

Corporate Overhead and Other Allocations from Perrigo

 

The following table summarizes corporate overhead and other allocations from Perrigo included in the Combined Financial Statements for the years ended December 31, 2018 and December 31, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

 

December 31, 2018

 

December 31, 2017

 

Cost of sales

 

$

679

 

 

$

1,111

 

 

Selling

 

1,370

 

 

1,853

 

 

Administration

 

4,721

 

 

3,950

 

 

 

 

$

6,770

 

 

$

6,914

 

 

 

Cash

 

The Parent uses a centralized approach to cash management and financing of operations for its subsidiaries. The Animal Health entities are party to the Parent’s cash pooling arrangements with certain financial institutions to maximize the availability of cash for general operating and investing purposes. Under these cash pooling arrangements, cash balances are swept regularly from the Animal Health business’ accounts. Certain treasury activities are recorded to reflect net cash collections as distributed to the Parent and net cash outlays as provided by the Parent and are reflected as elements of Net parent investment.

 

Debt

 

The Animal Health business is not the borrower or primary obligor for any third-party borrowing arrangements. Additionally, Perrigo’s third-party debt and the related interest expense have not been allocated to the Company for any of the periods presented as the Company was not the legal obligor of the debt and Perrigo borrowings were not directly attributable to the Company’s business.

 

Share-Based Awards

 

Our share-based compensation programs include grants to Animal Health business employees under the Parent’s share-based compensation plans. We measure and record compensation expense for all share-based awards based on estimated grant date fair values, and net of any estimated forfeitures over the vesting period of the awards. Forfeiture rates are estimated at the grant date based on historical experience and adjusted in subsequent periods for any differences in actual forfeitures from those estimates. Share-based compensation costs related to our employees were immaterial for the years ended December 31, 2018 and December 31, 2017.

 

Post Employment Plans

 

Our employees participate in a qualified profit-sharing and investment plan under Section 401(k) of the IRS sponsored by Perrigo.  Our contributions to the plan include an annual nondiscretionary contribution of 3% of an employee’s eligible compensation and a discretionary contribution at the option of the Perrigo Board of Directors. The costs of such plans related to the employees of the Animal Health business were immaterial for the years ended December 31, 2018 and December 31, 2017.

 

15

 

NOTE 4 – COLLABORATION AGREEMENTS

            

Effective March 19, 2018, we entered into a product development and asset purchase agreement with a third party for four product formulations in development by the third party.  We accounted for the transaction as an asset acquisition based on our assessment that we did not acquire any substantive processes related to the creation of outputs from the third party.  Upon signing the agreement, we paid a $250 thousand non-refundable upfront fee which was recorded in R&D expense because the in-process research and development product formulations have no alternative use.  We may make up to $24,300 thousand of additional payments over the course of the next several years contingent on achievement of certain development, regulatory approval, and sales milestones.  There can be no assurance that these products will be approved by the U.S. Food and Drug Administration (“FDA”) on the anticipated schedule or at all.  Consideration paid after FDA approval will be capitalized and amortized to cost of goods sold over the economic life of each product.

 

 

NOTE 5 - GOODWILL AND INTANGIBLE ASSETS

Goodwill

 

Changes in the carrying amount of goodwill were as follows (in thousands):

 

Goodwill

Balance at January 1, 2017

$

125,601

 

Impairment

-

 

Balance at December 31, 2017

125,601

 

Impairment

(95,968)

 

Balance at December 31, 2018

$

29,633

 

 

We had accumulated impairments of $113,164 thousand and $17,196 thousand for the years ended December 31, 2018 and December 31, 2017, respectively.

 

Intangible Assets

 

Intangible assets and the related accumulated amortization consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

December 31, 2017

 

 

Gross

 

Accumulated

Amortization

 

Gross

 

Accumulated

Amortization

 

Indefinite-lived intangibles:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks, trade names, and brands

$

-

 

 

$

-

 

 

$

33,000

 

 

$

-

 

 

Total Indefinite-lived intangibles

 

-

 

 

 

-

 

 

 

33,000

 

 

 

-

 

 

 

Definite-lived intangibles:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships and distribution networks

 

         18,700

 

 

 

6,512

 

 

 

18,700

 

 

 

5,519

 

 

Developed product technology, formulations, and product rights

           11,140

 

 

746

 

 

66,140

 

 

34,699

 

 

Distribution and license agreements

  and supply agreements

           10,000

 

 

556

 

 

141,000

 

 

87,530

 

 

Trademarks, trade names, and brands

             6,800

 

 

210

 

 

7,600

 

 

1,444

 

 

Non-compete agreements

             4,260

 

4,260

 

 

4,260

 

 

4,260

 

 

Total definite-lived intangibles

 

50,900

 

 

 

12,284

 

 

 

237,700

 

 

 

133,452

 

 

Total intangibles assets

$

50,900

 

 

$

12,284

 

 

$

270,700

 

 

$

133,452

 

 

 

16

 

The remaining weighted-average useful life for our amortizable intangible assets by asset class at December 31, 2018 was as follows:

Amortizable Intangible Asset Category

 

Remaining Weighted-Average Useful Life (Years)

Customer relationships and distribution networks

 

15

Developed product technology, formulations, and product rights

 

4

Distribution and license agreements and supply agreements

 

5

Trademarks, trade names, and brands

 

10

 

We recorded amortization expense of $22,149 thousand and  $33,377 thousand during the years ended December 31, 2018 and December 31, 2017, respectively.

 

Our estimated future amortization expense is as follows (in thousands):

 

 

 

 

 

Year

 

Amount

2019

 

$

6,777

 

2020

 

6,745

 

2021

 

6,732

 

2022

 

6,032

 

2023

 

2,296

 

Thereafter

 

10,030

 

 

Impairments

 

During the year ended December 31, 2018, the Animal Health business experienced declines in its year-to-date financial results and had indications of potential impairment due to changes in channel dynamics, a strategic decision to re-prioritize our brands, and a decline in the forecasted outlook of the business. Step one of the goodwill impairment test indicated that the fair value of the Animal Health business was below its net book value. We also performed a recoverability test of the definite-lived intangibles and determined a significant asset group was not recoverable and determined the fair value of the indefinite-lived intangible asset had fallen below its net book value. Based on our evaluation, we recorded $172,451 thousand in impairments comprised of a $95,968 thousand goodwill impairment, a brand indefinite-lived intangible asset impairment charge of $27,600 thousand, a developed product technology and distribution agreement definite-lived intangible asset impairment of $41,571 thousand, a supply agreement definite-lived intangible asset impairment of $2,784 thousand, and a trade name and trademark definite-lived intangible asset impairment of $4,528 thousand.

 

During the year ended December 31, 2018,  as a result of the strategic decision to re-prioritize a brand within the indefinite-lived asset, we reassessed the useful life of the indefinite-lived intangible asset and reclassified a $5,400 indefinite-lived intangible asset to a definite-lived asset.

 

When determining the fair value of our Animal Health business for the year ended December 31, 2018, we utilized a combination of comparable company market and discounted cash flow techniques. In our comparable company market approach, we considered observable market information and transactions for companies that we deemed to be of a comparable nature, scope, and size of animal health (Level 2 inputs). Our cash flow projections included revenue assumptions related to new products, product line extensions, and existing products, plus gross margin, advertising and promotion, and other operating expenses based on the growth plans (Level 3 inputs). In our discounted cash flow analysis, we utilized projected sales growth rate and discount rate assumptions of 2.5% and 9.8%, respectively. The discount rate correlates with the required investment return and risk that we believe market participants would apply to the projected growth. In addition, we burdened projected free cash flows with the capital spending deemed necessary to support the cash flows and applied the jurisdictional tax rate of 22.8%. We weighted indications of fair value resulting from the market approach and present value techniques, considering the reasonableness of the range of measurements and the point within the range that we determined was most representative of fair market.

17

 

 

When assessing our animal health indefinite-lived intangible asset for the year ended December 31, 2018, we utilized a multi-period excess earnings method ("MPEEM") to determine the fair value of the intangible asset. Our cash flow projections included revenue assumptions related to new products, product line extensions, and existing products. We utilized long-term growth rate and discount rate assumptions of (0.3)% and 9.8%, respectively, and we applied a jurisdictional tax rate of 22.8%.

 

When assessing our animal health definite-lived assets for impairment for the year ended December 31, 2018, we utilized a combination of MPEEM and relief from royalty methods to determine the fair values of definite-lived assets within the asset group. The projected financial information, inputs, and assumptions utilized were consistent with those utilized in the goodwill discounted cash flow analysis described above.

 

 

NOTE 6 - INVENTORIES

 

Major components of inventory were as follows (in thousands):

 

December 31,
2018

 

December 31,
2017

Raw materials

$

6,428

 

 

$

5,340

 

Work in process

1,187

 

 

1,980

 

Finished Goods

9,437

 

 

13,593

 

Total inventories

$

17,052

 

 

$

20,913

 

 

Inventories are net of reserves of $1,567 thousand and $3,383 thousand as of December 31, 2018 and December 31, 2017, respectively.

 

 

NOTE 7 - INCOME TAXES

 

The components of income tax expense (benefit) are summarized as follows (in thousands): 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

December 31,
2018

 

December 31,
2017

 

Federal

$                     -

 

 

$             8,745

 

 

State

-

 

 

234

 

 

Total current tax expense

-

 

 

            8,979

 

 

 

 

 

 

 

 

 

Federal

(12,201)

 

 

(14,165)

 

 

State

(1,368)

 

 

(368)

 

 

Total deferred tax benefit

 

(13,569)

 

 

 

(14,533)

 

 

Total income tax benefit

$

(13,569)

 

 

$

(5,554)

 

 

 

18

 

A reconciliation of the provision based on the statutory income tax rate to our effective income tax rate is as follows:

 

 

 

 

 

 

 

 

Year Ended

 

 

December 31,
2018

 

December 31,
2017

 

Statutory rate

21.0  %

 

 

                     35.0  %

 

State income taxes, net of federal benefit

         0.6 

 

 

           (8.1)

 

Tax law changes

            -

 

 

         (87.8)

 

Valuation allowance changes

         (9.3)

 

 

          9.1

 

Permanent differences

             -

 

 

          (6.8)

 

Impairment

         (4.9)

 

 

-

 

Effective income tax rate

7.4 %

 

 

 (58.6)  %

 

 

The effective income tax rate for the year ended December 31, 2018 increased in comparison to the prior year primarily due to the one-time benefit from the remeasurement of the deferred tax assets recorded in 2017 from 35% to 21% pursuant to the U.S. Tax Act, partially offset by additional valuation allowance recorded in 2018. 

 

Deferred income taxes arise from temporary differences between the financial reporting and the tax reporting basis of assets and liabilities and operating loss and tax credit carryforwards for tax purposes. The components of our net deferred income tax asset (liability) were as follows (in thousands):

 

Year Ended

 

December 31,
2018

 

December 31,
2017

Deferred income tax asset (liability):

 

 

 

Depreciation and amortization

$

14,985

 

 

$

(15,508

)

Loss and credit carryforwards

10,898

 

 

9,874

 

Inventory basis differences

580

 

 

971

 

Accrued liabilities

440

 

 

488

 

Other, net

(313)

 

 

(378)

 

Gross deferred income tax asset (liability)

 

26,590

 

 

 

(4,553)

 

Valuation allowance

(26,590)

 

 

            (9,016)

 

Net deferred income tax liability

$

-

 

 

$

(13,569)

 

The above amounts are classified on the Combined Balance Sheets as follows (in thousands):

 

Year Ended

 

December 31,
2018

 

December 31,
2017

Assets

$

-

 

 

$

-

 

Liabilities

-

 

 

(13,569)

 

Net deferred income tax liability

$

-

 

 

$

(13,569)

 

 

We have federal operating loss carryforwards of $28,243 thousand and $23,631 thousand at December 31, 2018 and December 31, 2017. We have state operating loss carryforwards of $33,336 thousand and $33,115 thousand, for the years ended December 31, 2018 and December 31, 2017, respectively. We have state credits of $2,970 thousand for the years ended December 31, 2018 and December 31, 2017. Operating loss carryforwards and credits have no expiration.

19

 

 

Perrigo files income tax returns in numerous jurisdictions and is therefore subject to audits by tax authorities in each jurisdiction. Although we believe that our tax estimates are reasonable and that we prepare our tax filings in accordance with all applicable tax laws, 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. The results of an audit or litigation could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, and/or interest assessments.

 

Perrigo has ongoing audits in multiple jurisdictions, the resolution of which remains uncertain. The IRS is currently auditing Perrigo’s U.S. federal tax years for the fiscal years ended June 29, 2013, June 28, 2014, and June 27, 2015.

 

Tax Law Changes

 

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (“U.S. Tax Act”). The U.S. Tax Act includes a number of significant changes to existing U.S. tax laws that impact us. These changes include a corporate income tax rate reduction from 35% to 21% and the elimination or reduction of certain U.S. deductions and credits including limitations on the U.S. deductibility of interest expense and executive compensation. The U.S. Tax Act also transitions the U.S. taxation of international earnings from a worldwide system to a modified territorial system. These changes were effective beginning in 2018. The U.S. Tax Act also includes a one-time mandatory deemed repatriation tax on accumulated U.S. owned foreign corporations’ previously untaxed foreign earnings (“Transition Toll Tax”). Perrigo paid our full Transition Toll Tax liability as of December 31, 2018.

 

For the year ended December 31, 2017, we recorded an income tax benefit of $8,325 thousand in connection with the remeasurement of certain deferred tax assets and liabilities. For the year ended December 31, 2018, we completed the accounting for the income tax effects of the U.S. Tax Act. Based on additional guidance issued by the IRS and updates to our calculations, no additional tax expense was recorded.

 

 

NOTE 8 - COMMITMENTS AND CONTINGENCIES

 

We lease certain assets, principally warehouse facilities and computer equipment, under agreements that expire at various dates through the year ended December 31, 2022. Certain leases contain provisions for renewal and purchase options and require us to pay various related expenses. Future non-cancelable minimum operating lease commitments are as follows (in thousands):

Due

 

Amount

2019

 

$

2,321

 

2020

 

2,239

 

2021

 

1,917

 

2022

 

30

 

 

Rent expense under all leases was $2,396 thousand and $2,483 thousand for the years ended December 31, 2018 and December 31, 2017, respectively.

 

At December 31, 2018, we had non-cancelable purchase obligations totaling $4,921 thousand consisting of contractual commitments to purchase materials. The obligations are expected to be paid within one year.

 

In view of the inherent difficulties of predicting the outcome of various types of legal proceedings, we cannot determine the ultimate resolution of the matters described below. We establish reserves for litigation and regulatory matters when losses associated with the claims become probable and the amounts can be reasonably estimated. The actual costs of resolving legal matters may be substantially higher or lower than the amounts reserved for those matters. For matters where the likelihood or extent of a loss is not probable or cannot be reasonably estimated as of December 31, 2018 and December 31, 2017 we have not recorded a loss reserve. If certain of these matters are determined against us, there could be a material adverse effect on

20

 

our financial condition, results of operations, or cash flows. We currently believe we have valid defenses to the claims in these lawsuits and intend to defend these lawsuits vigorously regardless of whether or not we have a loss reserve. Other than what is disclosed below, we do not expect the outcome of the litigation matters to which we are currently subject to, individually or in the aggregate, have a material adverse effect on our financial condition, results of operations, or cash flows.

 

Perrigo v. Merial (U.S. District Court – N.D. Georgia)

 

This case was brought by Perrigo in December 2014 for breach of a patent settlement agreement. Following a trial the week of March 4, 2019, the jury returned a verdict in Perrigo’s favor in the amount of $2,000 thousand. On April 5, 2019, Merial filed a motion for a judgment notwithstanding the verdict, and disposition of that motion is currently pending.  A related case in the Western District of Michigan has been dismissed, and Merial is seeking leave to appeal that dismissal.

 

NOTE 9 - SUBSEQUENT EVENTS

We evaluated subsequent events from the balance sheet through July 2, 2019, the date at which these Combined Financial Statements were available to be issued, and determined that there were no other material items to disclose.

21

 

petq_ex99.2

 

 

 

 

 

 

 

ANIMAL HEALTH BUSINESS OF PERRIGO COMPANY PLC

CONDENSED COMBINED FINANCIAL STATEMENTS 

(UNAUDITED)

 

 

 

 

 

 

 

As of March 30, 2019 and December 31, 2018

and for the three months ended

March 30, 2019 and March 31, 2018 

 

 

 

ANIMAL HEALTH BUSINESS OF PERRIGO COMPANY PLC

 

 

 

 

 

PAGE
NUMBER

Condensed Combined Statements of Operations

3

 

 

 

Condensed Combined Balance Sheets

4

 

 

 

Condensed Combined Statements of Cash Flows

5

 

 

 

Condensed Combined Statements of Equity

6

 

 

 

Notes to Condensed Combined Financial Statements

 

 

 

 

1

Basis of Presentation

7

 

 

 

2

Related Party Transactions

8

 

 

 

3

Collaboration Agreements 

9

 

 

 

4

Intangible Assets

9

 

 

 

5

Inventories

9

 

 

 

6

Leases

9

 

 

 

7

Income Taxes

11

 

 

 

8

Commitments and Contingencies

11

 

 

 

9

Subsequent Events

11

 

 

 

 

 

 

 

 

ANIMAL HEALTH BUSINESS OF PERRIGO COMPANY PLC

CONDENSED COMBINED STATEMENTS OF OPERATIONS

(in thousands, unaudited)

 

 

Three Months Ended

 

March 30, 2019

 

March 31, 2018

Net sales

$

19,569

 

 

$

26,311

 

Cost of sales

10,610

 

 

18,539

 

Gross profit

8,959

 

 

7,772

 

 

 

 

 

Operating expenses

 

 

 

Selling

4,018

 

 

3,403

 

Administration

3,332

 

 

1,935

 

Distribution

852

 

 

1,050

 

Research and development

482

 

 

580

 

Total operating expenses

8,684

 

 

6,968

 

 

 

 

 

Operating income

275

 

 

804

 

 

 

 

 

Other income

-

 

 

(250)

 

Income before income taxes

275

 

 

               1,054

 

Income tax expense

-

 

 

211

 

Net income 

$

275

 

 

$

843

 

 

See accompanying Notes to Condensed Combined Financial Statements.

 

 

 

 

3

 

ANIMAL HEALTH BUSINESS OF PERRIGO COMPANY PLC

CONDENSED COMBINED BALANCE SHEETS

(in thousands, unaudited)

 

March 30, 2019

 

December 31,
2018

Assets

 

 

 

Cash

$

116

 

 

 

$                132

 

Accounts receivable, net

14,731

 

 

6,517

 

Inventories

16,511

 

 

17,052

 

Prepaid expenses and other current assets

2,421

 

 

1,755

 

Total current assets

33,779

 

 

25,456

 

Property, plant and equipment, net

10,684

 

 

10,909

 

Operating lease assets

11,161

 

-

 

Goodwill

29,633

 

29,633

 

Definite-lived intangible assets, net

36,922

 

 

38,616

 

Other non-current assets

12

 

 

11

 

Total non-current assets

88,412

 

 

79,169

 

Total assets

$

122,191

 

 

$

104,625

 

Liabilities and Equity

 

 

 

Accounts payable

$

7,588

 

 

$

4,547

 

Payroll and related taxes

747

 

 

1,330

 

Accrued customer programs

3,602

 

 

4,259

 

Accrued liabilities

2,758

 

 

1,274

 

Total current liabilities

14,695

 

 

11,410

 

Operating lease liabilities

9,694

 

 

-

 

Other non-current liabilities

449

 

 

524

 

Total non-current liabilities

10,143

 

 

524

 

Total liabilities

24,838

 

 

11,934

 

Commitments and contingencies - Refer to Note 8

 

 

 

Net parent investment

97,353

 

 

92,691

 

Total liabilities and equity

$

122,191

 

 

$

104,625

 

 

See accompanying Notes to Condensed Combined Financial Statements.

 

4

 

ANIMAL HEALTH BUSINESS OF PERRIGO COMPANY PLC

CONDENSED COMBINED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

Three Months Ended

 

March 30, 2019

 

March 31, 2018

Cash Flows From (For) Operating Activities

 

 

 

Net income

$

275

 

 

$

843

 

Adjustments to derive cash flows

 

 

 

Depreciation and amortization

2,391

 

 

7,155

 

Deferred income taxes

-

 

 

(13,569)

 

Other non-cash adjustments

41

 

 

127

 

Subtotal

2,432

 

 

(6,287)

 

Increase (decrease) in cash due to:

 

 

 

Accounts receivable

(8,214)

 

 

(5,888)

 

Inventories

541

 

 

(3,345)

 

Prepaid expenses and other current assets

(666)

 

 

(939)

 

Accounts payable

3,041

 

 

2,312

 

Payroll and related taxes

(583)

 

 

(1,140)

 

Accrued customer programs

(657)

 

 

403

 

Accrued liabilities

3

 

 

711

 

Accrued income taxes

-

 

 

211

 

Operating leases

(375)

 

 

-

 

Other, net

(75)

 

 

(198)

 

Subtotal

(6,985)

 

 

(7,873)

 

Net cash for operating activities

(4,278)

 

 

(13,317)

 

Cash Flows For Investing Activities

 

 

 

Additions to property, plant and equipment

(84)

 

 

(154)

 

Net cash for investing activities

(84)

 

 

(154)

 

Cash Flows From Financing Activities

 

 

 

Transfer from Parent

4,346

 

 

13,469

 

Net cash from financing activities

4,346

 

 

13,469

 

Net decrease in cash and cash equivalents

(16)

 

 

(2)

 

Cash, beginning of period

132

 

 

120

 

Cash, end of period

$

116

 

 

$

118

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Combined Financial Statements.

5

 

ANIMAL HEALTH BUSINESS OF PERRIGO COMPANY PLC

CONDENSED COMBINED STATEMENTS OF EQUITY

(in thousands, unaudited)

 

Total Equity

Balance at January 1, 2019

$                92,691

 

Net income

275

 

Transfer from Parent

4,387

 

Balance at March 30, 2019

$               97,353

 

 

 

 

Balance at January 1, 2018

$             281,482

 

Net income

843

 

Transfer from Parent

13,593

 

Balance at March 31, 2018

$

295,918

 

 

See accompanying Notes to Condensed Combined Financial Statements.

 

6

 

NOTE 1 – BASIS OF PRESENTATION

 

The Company

 

Perrigo Company plc’s ("Perrigo" or the “Parent”) Animal Health reporting unit (“Animal Health business”) develops, manufactures, and markets a portfolio of pet health and wellness products in the U.S. These Condensed Combined Financial Statements reflect the Animal Health business of Perrigo.  The words "we", "us", "our" or the "Company" and similar words refer to the combined Animal Health business of Perrigo.

 

Basis of Presentation

 

The Animal Health business has not historically constituted a separate legal group. Stand-alone financial statements have not previously been prepared for the Animal Health business. The Condensed Combined Financial Statements as of March 30, 2019 and December 31, 2018 and for the three months ended March 30, 2019 and March 31, 2018 have been prepared on a stand-alone basis derived from the financial statements and related accounting records of the Parent. The accompanying Condensed Combined Financial Statements reflect the historical Statements of Operations, Balance Sheets, Statements of Cash Flows, and Statements of Equity of the Animal Health business as they were historically managed and are presented in conformity with the U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited Condensed Combined Financial Statements should be read in conjunction with the Combined Financial Statements and footnotes for the years ended December 31, 2018 and 2017.

 

The Condensed Combined Balance Sheets reflect the assets and liabilities of the Parent that are either specifically identifiable or are directly attributable to the Animal Health business and its operations. The basis of the assets and liabilities attributable to the combined entity is historical cost. All intercompany transactions and accounts have been eliminated within the Animal Health business. All transactions between the Animal Health business and the Parent are considered to be effectively settled in the Condensed Combined Financial Statements at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions between the Animal Health business and the Parent is reflected in the Condensed Combined Statements of Cash Flows as a financing activity and in the Condensed Combined Balance Sheets as Net parent investment.

 

The Condensed Combined Financial Statements reflect allocations of direct and indirect expenses related to certain support functions including executive oversight, administration, legal, finance, operations, supply chain, information technology, quality, regulatory, compliance and employee-related costs that are provided on a centralized basis by the Parent. These expenses have been allocated to the Animal Health business based on direct usage or benefit where specifically identifiable, with the remaining allocated based on a  pro rata basis of revenue. Management believes the assumptions underlying the Condensed Combined Financial Statements, including the assumptions regarding allocation of expenses, are reasonable. However, the allocations may not be indicative of the actual expense that would have been incurred had the Company operated as an independent company for the periods presented. It is impractical to estimate what the standalone costs of the Animal Health business would have been in historical periods.

 

The income tax amounts in these Condensed Combined Financial Statements have been calculated based on a separate return method and presented as if the Animal Health business' operations were separate taxpayers in each respective jurisdiction.

 

The Animal Health business' Net parent investment in these Condensed Combined Financial Statements represents the excess of total assets over total liabilities. Net parent investment is primarily impacted by contributions from the Parent which are the result of treasury activities and net funding provided by or distributed to the Parent.

 

 

 

7

 

NOTE 2 – RELATED PARTY TRANSACTIONS

 

We have not historically operated as a standalone business and have various relationships with the Parent whereby the Parent provides services to us.

 

Corporate Overhead and Other Allocations from Perrigo

 

The following table summarizes corporate overhead and other allocations from Perrigo included in the Condensed Combined Financial Statements for the three months ended March 30, 2019 and March 31, 2018 (in thousands):

 

 

  Three Months Ended

 

 

March 30, 2019

 

March 31, 2018

 

Cost of sales

 

$

230

 

 

$

203

 

 

Selling

 

377

 

 

416

 

 

Administration

 

585

 

 

229

 

 

 

 

$

1,192

 

 

$

848

 

 

 

Cash

 

The Parent uses a centralized approach to cash management and financing of operations for its subsidiaries. The Animal Health entities are party to the Parent’s cash pooling arrangements with certain financial institutions to maximize the availability of cash for general operating and investing purposes. Under these cash pooling arrangements, cash balances are swept regularly from the Animal Health business’ accounts. Certain treasury activities are recorded to reflect net cash collections as distributed to the Parent and net cash outlays as provided by the Parent and are reflected as elements of Net parent investment.

 

Debt

 

The Animal Health business is not the borrower or primary obligor for any third-party borrowing arrangements. Additionally, Perrigo’s third-party debt and the related interest expense have not been allocated to the Company for any of the periods presented as the Company was not the legal obligor of the debt and Perrigo borrowings were not directly attributable to the Company’s business.

 

Share-Based Awards

 

Our share-based compensation programs include grants to Animal Health business employees under the Parent’s share-based compensation plans. We measure and record compensation expense for all share-based awards based on estimated grant date fair values, and net of any estimated forfeitures over the vesting period of the awards. Forfeiture rates are estimated at the grant date based on historical experience and adjusted in subsequent periods for any differences in actual forfeitures from those estimates. Share-based compensation costs related to our employees were immaterial for the three months ended March 30, 2019 and March 31, 2018.

 

Post Employment Plans

 

Our employees participate in a qualified profit-sharing and investment plan under Section 401(k) of the IRS sponsored by Perrigo. Our contributions to the plan include an annual nondiscretionary contribution of 3% of an employee’s eligible compensation and a discretionary contribution at the option of the Perrigo Board of Directors. The costs of such plans related to the employees of the Animal Health business were immaterial for the three months ended March 30, 2019 and March 31, 2018.

8

 

NOTE 3 – COLLABORATION AGREEMENTS

            

Effective March 19, 2018, we entered into a product development and asset purchase agreement with a third party for four product formulations in development by the third party.  We accounted for the transaction as an asset acquisition based on our assessment that we did not acquire any substantive processes related to the creation of outputs from the third party.  Upon signing the agreement, we paid a $250 thousand non-refundable upfront fee which was recorded in R&D expense because the in-process research and development product formulations have no alternative use.  As of March 30, 2019, we paid $500 thousand of additional milestone payments which was recorded in R&D expense.  We may make up to $23,800 thousand of additional payments over the course of the next several years contingent on achievement of certain development, regulatory approval, and sales milestones.  There can be no assurance that these products will be approved by the U.S. Food and Drug Administration (“FDA”) on the anticipated schedule or at all.  Consideration paid after FDA approval will be capitalized and amortized to cost of goods sold over the economic life of each product. 

 

NOTE 4 – INTANGIBLE ASSETS

 

Intangible Assets

 

Intangible assets and the related accumulated amortization consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 30, 2019

 

December 31, 2018

 

 

Gross

 

Accumulated

Amortization

 

Gross

 

Accumulated

Amortization

 

Definite-lived intangibles:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships and distribution networks

$

         18,700

 

 

$

6,751

 

 

$

         18,700

 

 

$

6,512

 

 

Developed product technology, formulations, and product rights

           11,140

 

 

1,436

 

 

11,140

 

 

           746

 

 

Distribution and license agreements and supply agreements

           10,000

 

 

1,111

 

 

10,000

 

 

           556

 

 

Trademarks, trade names, and brands

             6,800

 

 

420

 

 

6,800

 

 

             210

 

 

Non-compete agreements

             4,260

 

4,260

 

 

4,260

 

 

4,260

            

 

Total definite-lived intangibles assets

$

50,900

 

 

$

13,978

 

 

$

50,900

 

 

$

12,284

 

 

 

 

We recorded amortization expense of $1,694 thousand and  $6,815 thousand during the three months ended March 30, 2019 and March 31, 2018, respectively.

 

 

NOTE 5 – INVENTORIES

 

Major components of inventory were as follows (in thousands):

 

March 30, 2019

 

December 31,
2018

Raw materials

$

5,391

 

 

$

6,428

 

Work in process

1,532

 

 

1,187

 

Finished Goods

9,588

 

 

9,437

 

Total inventories

$

16,511

 

 

$

17,052

 

 

NOTE 6 – LEASES

 

We adopted ASU 2016-02, Leases (Topic 842) and subsequent amendments, as of January 1, 2019, using the modified retrospective approach. There was no cumulative-effect adjustment to the opening balance of net parent investment as of the effective date. The financial results reported in periods prior to 2019 are unchanged. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.

9

 

 

Adoption of the new standard resulted in additional operating lease liabilities and operating lease assets of approximately $11,200 and $11,500 thousand, respectively, on our Condensed Combined Balance Sheet as of January 1, 2019. The standard did not materially impact our Condensed Combined Statement of Operations or Condensed Combined Statement of Cash Flows.

 

We lease certain office buildings, warehouse facilities, machinery and equipment. Lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

 

We evaluate arrangements at inception to determine if lease components are included. An arrangement includes a lease component if it identifies an asset and we have control over the asset. For new leases beginning January 1, 2019 or later, we have elected for all asset classes not to separate lease components from the non-lease components included in an arrangement when measuring the leased asset and leased liability.

 

Lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense for leases on a straight-line basis over the lease term. We apply the portfolio approach to certain groups of equipment when the term, classification, and asset type are identical. The discount rate selected is the incremental borrowing rate we would obtain for a secured financing of the lease asset over a similar term.

 

Certain of our leases include one or more options to extend the lease term. Certain leases also include options to terminate early or purchase the leased property, all of which are executed at our sole discretion. Optional periods may be included in the lease term and measured as part of the lease asset and lease liability if we are reasonably certain to exercise our right to use the leased asset during the optional periods. We generally consider renewal options to be reasonably certain of execution and included in the lease term when significant leasehold improvements have been made by us to the leased assets. The depreciable lives of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

 

Certain of our lease agreements include contingent rental payments based on per unit usage over contractual levels (e.g., square footage used).

 

The balance sheet location of our lease assets and liabilities were as follows (in thousands):

 

 

 

 

 

 

 

Balance Sheet Location

 

March 30, 2019

 

Operating lease assets

 

$

11,161

 

 

 

 

 

 

 

 

Accrued liabilities

 

$

1,481

 

 

Operating lease liabilities

 

 

9,694

 

 

     Total liabilities

 

$

11,175

 

 

 

 

 

 

 

 

Operating  lease expense for the three months ended March 30, 2019 was $548 thousand. 

 

The weighted-average remaining operating lease term was 7.1 years and the weighted-average discount rate was 4.4% as of March 30, 2019.

 

Cash paid for amounts included in the measurement of lease liabilities are classified as operating cash flows in the Condensed Combined Statement of Cash flows and was $562 thousand for the three months ended March 30, 2019.

 

10

 

The annual future maturities of our operating leases as of March 30, 2019 are as follows (in thousands):

 

 

Amount

 

2019

 

$

1,460

 

 

2020

 

1,911

 

 

2021

 

1,917

 

 

2022

 

1,620

 

 

2023

 

1,609

 

 

Thereafter

 

4,506

 

 

Total lease payments

 

13,023

 

 

Less: Interest

 

1,848

 

 

Present value of lease liabilities

 

$

11,175

 

 

 

 

NOTE 7 – INCOME TAXES

 

The effective tax rates were as follows:

   Three Months Ended

March 30, 2019

 

March 31, 2018

 

0.0

%

 

20.0%

 

 

 

The effective tax rate for the three months ended March 30, 2019 decreased compared to the prior year primarily due to additional valuation allowance recorded against deferred tax assets in the current year. 

 

NOTE 8 – COMMITMENTS AND CONTINGENCIES

 

In view of the inherent difficulties of predicting the outcome of various types of legal proceedings, we cannot determine the ultimate resolution of the matters described below. We establish reserves for litigation and regulatory matters when losses associated with the claims become probable and the amounts can be reasonably estimated. The actual costs of resolving legal matters may be substantially higher or lower than the amounts reserved for those matters. For matters where the likelihood or extent of a loss is not probable or cannot be reasonably estimated as of March 30, 2019 and December 31, 2018 we have not recorded a loss reserve. If certain of these matters are determined against us, there could be a material adverse effect on our financial condition, results of operations, or cash flows. We currently believe we have valid defenses to the claims in these lawsuits and intend to defend these lawsuits vigorously regardless of whether or not we have a loss reserve. Other than what is disclosed below, we do not expect the outcome of the litigation matters to which we are currently subject to, individually or in the aggregate, have a material adverse effect on our financial condition, results of operations, or cash flows.

 

Perrigo v. Merial (U.S. District Court – N.D. Georgia)

 

This case was brought by Perrigo in December 2014 for breach of a patent settlement agreement. Following a trial the week of March 4, 2019, the jury returned a verdict in Perrigo’s favor in the amount of $2,000 thousand. On April 5, 2019, Merial filed a motion for a judgment notwithstanding the verdict, and disposition of that motion is currently pending.  A related case in the Western District of Michigan has been dismissed, and Merial is seeking leave to appeal that dismissal.

 

NOTE 9 – SUBSEQUENT EVENTS

We evaluated subsequent events from the balance sheet through August 20, 2019, the date at which these Condensed Combined Financial Statements were available to be issued, and determined that there were no other material items to disclose.

11

 

petq_ex99.3

PETIQ, Inc.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

On July 7, 2019, PetIQ, Inc. (the “Company”), through its subsidiary PetIQ, LLC completed the acquisition of all the outstanding stock of Sergeant’s Pet Care Products, Inc. (“Sergeant’s”), dba Perrigo Animal Health, including any assets related to Perrigo Company plc’s animal health business (“Sergeant’s acquisition”).  Sergeant’s is now an indirect wholly-owned subsidiary of the Company. 

 

The following unaudited pro forma condensed combined financial information presents the unaudited pro forma condensed combined balance sheet as of March 31, 2019, and unaudited pro forma condensed combined statements of operations for the year ended December 31, 2018, and the three-months ended March 31, 2019 based on the historical financial statements of the Company and Sergeant’s, after giving effect to the following transactions (the “Transactions”):  

 

·

Conformance of Sergeant’s accounting policies to the Company’s

·

Application of the acquisition method of accounting to the Sergeant’s acquisition

·

Transaction costs directly attributable to the Sergeant’s acquisition;

·

Estimated impact of the July 8, 2019 amendment to the Company’s existing revolving credit agreement that increased the size of the revolving facility to $110 million with an accordion feature allowing for an additional increase up to $125 million and extending the maturity date of the revolving facility to July 8, 2024; and

·

Estimated impact of the July 8, 2019 amended and restated term loan credit agreement (the A&R Term Loan Credit Agreement”) providing for a secured term loan facility of $220 million, maturing on July 8, 2025, which proceeds were used to refinance the existing term loan facility and fund the acquisition.

 

The unaudited pro forma condensed combined balance sheet gives effect to the Transactions as if they had occurred on March 31, 2019.  The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2018  and the three-months ended March 31, 2019 gives effects to the Transactions as if they had been consummated on January 1, 2018. 

 

The unaudited pro forma condensed combined financial information has been prepared from (a) the audited consolidated financial statements of PetIQ, Inc. contained in its annual report on Form 10-K for the year ended December 31, 2018,  filed on March 12, 2019 and the unaudited consolidated financial statements of PetIQ, Inc. contained in its Quarterly Report on Form 10-Q for the three-months ended March 31, 2019, filed on May 5, 2019 and (b) the audited combined financial statements of Perrigo Company plc’s animal health business for the year ended December 31, 2018, included as exhibit 99.1 in this Form 8-K/A and the unaudited combined financial statements of Perrigo Company plc’s animal health business for the three-months ended March  30, 2019, included as exhibit 99.2 in this Form 8-K/A.  Historical results of Perrigo Company plc’s animal health business have been adjusted to reclassify certain amounts to conform with the Company’s presentation.

 

The unaudited pro forma condensed combined financial information is prepared in accordance with SEC Article 11 of Regulation S-X, using the assumptions set forth in the notes to the unaudited pro forma condensed combined financial information.  The unaudited pro forma condensed combined financial information has been prepared to reflect adjustments to our historical financial information that are (i)  directly attributable to the Transactions described above, (ii) factually supportable and, (iii) with respect to the Unaudited Pro Forma Condensed Combined Statement of Income (Loss), expected to have a continuing impact on our results.    

 

The unaudited pro forma condensed combined financial information is provided for informational purposes only and is not necessarily indicative of the operating results that would have occurred if the Transactions had been completed as of the dates set forth above, nor is it indicative of the future results of the Company.  The unaudited pro forma condensed financial information does not give effect to the potential impact of any anticipated synergies, operating efficiencies, or cost savings that may result from the Sergeant’s acquisition or any integration costs that do not have a continuing impact.  

 

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting in accordance with ASC 805, Business Combinations, with the Company considered the acquiring company.  Based on the acquisition method of accounting, the consideration paid for the Sergeant’s acquisition is allocated to its assets and liabilities based on their fair value as of the closing date of the acquisition,  July 7, 2019.   The Company has obtained preliminary third-party valuations of inventory, property plant and equipment, intangible assets, and certain other assets and liabilities.  The values of certain assets and liabilities are based on preliminary valuations, as allowed by

U.S. generally accepted accounting principles, and are subject to adjustment as additional information is obtained.  We cannot provide any assurances that such adjustments will not result in a material change to the accompanying unaudited pro forma condensed combined financial information and the combined company’s future results of operation and financial position.

 

The unaudited pro forma condensed combined financial information should be read in conjunction with the separate historical consolidated financial statements of the Company and combined financial statements of Perrigo Company plc’s animal health business.

Unaudited Pro Forma Condensed Combined Statements of Income (Loss)

For the three months ended:

Amounts in 000’s except for per share amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Historical

 

Pro Forma

 

 

March 31, 2019

 

March 30, 2019

 

 

 

 

 

 

 

 

 

 

 

As adjusted,

 

 

 

 

 

 

 

    

PetIQ

    

Sergeant's

 

Adjustments

    

Combined

Product sales

 

$

126,084

 

$

19,569

 

$

 —

 

$

145,653

Services revenue

 

 

22,352

 

 

 —

 

 

 —

 

 

22,352

Total net sales

 

 

148,436

 

 

19,569

 

 

 —

 

 

168,005

Cost of products sold

 

 

108,064

 

 

10,610