PERRIGO Co plc
For the period ended Jun 29, 2024. Filed Aug 2, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 29, 2024 · Filed Aug 2, 2024
Extracted filing text, with the paragraph anchors used by the comparison.
See the whole filing, with its images and exhibitsContents
Derivative Instruments and Hedging Activities
NOTE 10 -DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Interest Rate Swaps
In April 2022, to economically hedge the interest rate risk of the Senior Secured Credit Facilities (as defined in Note 11), we entered into five variable-to-fixed interest rate swap agreements. Three of the interest rate swaps were designated as cash flow hedges to fix the interest rate on a substantial portion of the Term Loan B Facility (as defined in Note 11). The interest rate swaps cover an interest period ranging from June 1, 2022, through April 1, 2029, on notional balances that decline from $1.0 billion to $812.5 million over the term. The othertwo interest rate swaps were designated as cash flow hedges to fix the interest rate on a substantial portion of the Term Loan A Facility (as defined in Note 11). The interest rate swaps covered an interest period ranging from June 1, 2022, through April 1, 2027, on notional balances that decline from $487.5 million to $387.5 million over the term.
In November 2023, to economically hedge the interest rate risk of the $300.0 million Term B Loan add-on (as defined in Note 11), we entered into four variable-to-fixed interest rate swap agreements. The interest rate swaps were designated as cash flow hedges to fix the interest rate on a substantial portion of the Term B Loans. The interest rate swaps cover an interest period from November 14, 2023 through April 20, 2029, on notional balances of $300.0 million over the term.
In May 2024, we cash settled the remaining notional of $712.5 million variable-to-fixed interest rate swap agreements at market rates. The termination resulted in cash proceeds of $41.2 million, for which the gain remains deferred in Other Comprehensive Income ("OCI") and will be recognized within Interest expense, net as interest is paid on the Senior Secured Credit Facilities. The proceeds are recognized as cash flows from operating activities within the Statement of Cash Flows for the six months ended June 29, 2024.
Additionally, to economically hedge the interest rate risk of the Term Loan B Facility, we entered into new variable-to-fixed interest rate swap agreements to replace the terminated interest rate swaps. The interest rate swaps were designated as cash flow hedges to fix the interest rate on a substantial portion of the Term Loan B Facility. The interest rate swaps cover an interest period ranging from May 9, 2024, through April 1, 2029, on notional balances of $712.5 million over the term.
As a designated cash flow hedge, gains and losses will be deferred in AOCI and recognized within Interest expense, net when interest is paid on the Senior Secured Credit Facilities.
Note 10
Cross-currency Swaps
In October 2022, we entered into three fixed-for-fixed cross currency interest rate swaps at market rates and designated the instruments as net investment hedges on our investment in European operations. As a designated net investment hedge, the loss related to the EUR spot exchange rate on the settled swaps was deferred within the Cumulative Translation Adjustment, a component of AOCI, and will not be recognized in the Statement of Operations until the hedged EUR net investment is substantially liquidated. The following are the terms and notional amounts outstanding:
$152.5 million notional amount outstanding from October 25, 2022 through December 15, 2024;
$700.0 million notional amount outstanding from October 25, 2022 through March 15, 2026; and
$100.0 million notional amount outstanding from October 25, 2022 through June 15, 2030.
On November 21, 2023, we entered into fixed-for-fixed cross currency interest rate swaps designated as net investment hedges to hedge the EUR currency exposure of our investment in European operations. The following are the terms and notional amount outstanding:
$300.0 million notional amount outstanding from November 21, 2023 through April 20, 2027.
In May 2024, we cash settled $547.5 million notional amount outstanding of the original $700.0 million cross currency interest rate swap outstanding from October 25, 2022 through December 15, 2024. The settlement resulted in cash outflows of $41.4 million recognized as part of cash flows for investing activities within the Statement of Cash Flows for the six months ended June 29, 2024. On August 2, 2024 we restructured the $152.5 million remaining notional amount outstanding of the original $700.0 million cross-currency interest rate swap to extend the maturity to April 2027. There was no cash outflow as a result of the restructuring.
On May 7, 2024, we entered into new fixed-for-fixed cross currency interest rate swaps designated as net investment hedges to hedge the EUR currency exposure of our investment in European operations. The following are the terms and notional amount outstanding:
$547.5 million notional amount outstanding from May 7, 2024 through April 20, 2027.
As a designated net investment hedge, gains and losses related to the EUR spot exchange rate will be deferred within the Cumulative Translation Adjustment, a component of AOCI, and recognized in the Statement of Operations when the hedged EUR net investment is substantially liquidated. Gains and losses on excluded components (e.g., interest differentials) will be recorded in Interest expense, net on a systemic and rational basis.
Note 10
Foreign Currency Forwards
Notional amounts of foreign currency forward contracts were as follows (in millions):
| June 29, 2024 | December 31, 2023 | |
|---|---|---|
| British Pound (GBP) | $123.6 | $72.4 |
| Swedish Krona (SEK) | 72.2 | 36.5 |
| European Euro (EUR) | 58.8 | 79.9 |
| Danish Krone (DKK) | 51.4 | 5.9 |
| United States Dollar (USD) | 50.9 | 22.1 |
| Canadian Dollar (CAD) | 29.9 | 7.1 |
| Chinese Yuan (CNH) | 22.9 | 14.1 |
| Polish Zloty (PLZ) | 18.8 | 3.8 |
| Norwegian Krone (NOK) | 4.2 | 4.4 |
| Hungarian Forint (HUF) | 3.7 | 3.9 |
| Other (1) | 3.0 | 3.5 |
| Total | $439.4 | $253.6 |
(1) Number consists of various currencies notional amounts, none of which individually exceed $10 million in either period presented.
The maximum term of our forward currency exchange contracts is 60 months.
Effects of Derivatives on the Financial Statements
The below tables indicate the effects of all derivative instruments on the Condensed Consolidated Financial Statements. All amounts exclude income tax effects. The balance sheet location and gross fair value of our derivative instruments were as follows (in millions):
| Balance Sheet Location | June 29, 2024 | December 31, 2023 | |
|---|---|---|---|
| Designated derivative assets: | |||
| Foreign currency forward contracts | Prepaid expenses and other current assets | $1.1 | $— |
| Foreign currency forward contracts | Other non-current assets | 0.3 | 0.4 |
| Cross-currency swap | Other non-current assets | 3.3 | — |
| Interest rate swap agreements | Other non-current assets | 14.9 | 30.5 |
| Total designated derivative assets | $19.6 | $30.9 | |
| Non-designated derivative assets: | |||
| Foreign currency forward contracts | Prepaid expenses and other current assets | $0.8 | $0.2 |
| Total non-designated derivative assets | $0.8 | $0.2 | |
| Designated derivative liabilities: | |||
| Foreign currency forward contracts | Other accrued liabilities | $2.1 | $— |
| Cross-currency swap | Other accrued liabilities | 12.3 | 75.1 |
| Cross-currency swap | Other non-current liabilities | 65.2 | 96.9 |
| Interest rate swap agreements | Other non-current liabilities | 11.1 | 11.7 |
| Total designated derivative liabilities | $90.7 | $183.7 | |
| Non-designated derivative liabilities: | |||
| Foreign currency forward contracts | Other accrued liabilities | $0.7 | $2.7 |
Note 10
The amounts of (income)/expense recognized in earnings related to our non-designated derivatives on the Consolidated Statements of Operations were as follows (in millions):
| Three Months Ended · Six Months Ended | |||||
|---|---|---|---|---|---|
| Non-Designated Derivatives | Income Statement Location | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 |
| Foreign currency forward contracts | Other expense (income), net | $(2.6) | $(3.1) | $(3.3) | $(4.3) |
| Interest expense, net | — | — | — | (0.6) | |
| $(2.6) | $(3.1) | $(3.3) | $(4.9) | ||
Note 10
The following tables summarize the effect of derivative instruments designated as hedging instruments in AOCI (in millions):
| Gain/(Loss) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Reclassified from AOCI into Earnings · Related to Amounts Excluded from Effectiveness Testing | ||||||||||
| Amount Recorded in OCI(1) · Classification · Amount(2) · Classification · Amount Recognized in Earnings on Derivatives | ||||||||||
| Cash flow hedges | ||||||||||
| Interest rate swap agreements | $6.6 | Interest expense, net | $8.6 | Interest expense, net | $— | |||||
| Foreign currency forward contracts | (0.5) | Net sales | — | Net sales | (0.2) | |||||
| Cost of sales | 0.1 | Cost of sales | (0.2) | |||||||
| Other (income) expense, net | — | |||||||||
| Total Cash flow hedges | $6.1 | $8.7 | $(0.4) | |||||||
| Net investment hedges | ||||||||||
| Cross-currency swap | $17.4 | Interest expense, net | $6.8 | |||||||
| Cash flow hedges | ||||||||||
| Interest rate swap agreements | $40.1 | Interest expense, net | $16.3 | Interest expense, net | $— | |||||
| Foreign currency forward contracts | (0.4) | Net sales | (0.1) | Net sales | (0.5) | |||||
| Cost of sales | 0.1 | Cost of sales | (0.4) | |||||||
| Other (income) expense, net | (0.1) | |||||||||
| Total Cash flow hedges | $39.7 | $16.3 | $(1.0) | |||||||
| Net investment hedges | ||||||||||
| Cross-currency swap | $66.3 | Interest expense, net | $14.1 | |||||||
| Cash flow hedges | ||||||||||
| Interest rate swap agreements | $28.9 | Interest expense, net | $5.5 | Interest expense, net | $— | |||||
| Foreign currency forward contracts | (5.8) | Net sales | (0.2) | Net sales | 0.2 | |||||
| Cost of sales | 0.4 | Cost of sales | 0.1 | |||||||
| Other expense (income), net | (0.6) | |||||||||
| Total Cash flow hedges | $23.1 | $5.7 | $(0.3) | |||||||
| Net investment hedges | ||||||||||
| Cross-currency swap | $(25.0) | Interest expense, net | $6.4 | |||||||
| Cash flow hedges | ||||||||||
| Interest rate swap agreements | $3.3 | Interest expense, net | $9.8 | Interest expense, net | $— | |||||
| Foreign currency forward contracts | (10.3) | Net sales | 0.2 | Net sales | 0.2 | |||||
| Cost of sales | 0.1 | Cost of sales | 0.1 | |||||||
| Other expense (income), net | (0.5) | |||||||||
| Total Cash flow hedges | $(7.0) | $10.1 | $(0.2) | |||||||
| Net investment hedges | ||||||||||
| Cross-currency swap | $(40.2) | Interest expense, net | $12.9 | |||||||
(1) Net income of $13.4 million is expected to be reclassified out of AOCI into earnings during the next 12 months.
(2) For additional details about the effect of the amounts reclassified from AOCI refer to Note 13.
Note 10
The classification and amount of gain/(loss) recognized in earnings on fair value and hedging relationships were as follows (in millions):
| Net Sales | Cost of Sales | Interest Expense, net | Other (Income) Expense, net | |
|---|---|---|---|---|
| Total amounts of income and expense line items presented on the Condensed Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded | $1,065.5 | $670.8 | $44.1 | $3.4 |
| Gain (loss) on cash flow hedging relationships | ||||
| Foreign currency forward contracts | ||||
| Amount of gain or (loss) reclassified from AOCI into earnings | $— | $0.1 | $— | $— |
| Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach | $(0.2) | $(0.2) | $— | $— |
| Interest rate swap agreements | ||||
| Amount of gain or (loss) reclassified from AOCI into earnings | $— | $— | $8.6 | $— |
| Total amounts of income and expense line items presented on the Condensed Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded | $2,147.5 | $1,395.1 | $87.1 | $3.8 |
| Gain (loss) on cash flow hedging relationships | ||||
| Foreign currency forward contracts | ||||
| Amount of gain or (loss) reclassified from AOCI into earnings | $(0.1) | $0.1 | $— | $— |
| Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach | $(0.5) | $(0.4) | $— | $(0.1) |
| Interest rate swap agreements | ||||
| Amount of gain or (loss) reclassified from AOCI into earnings | $— | $— | $16.3 | $— |
| Total amounts of income and expense line items presented on the Condensed Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded | $1,193.1 | $765.1 | $44.0 | $(9.7) |
| Gain (loss) on cash flow hedging relationships | ||||
| Foreign currency forward contracts | ||||
| Amount of gain or (loss) reclassified from AOCI into earnings | $(0.2) | $0.4 | $— | $— |
| Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach | $0.2 | $0.1 | $— | $(0.6) |
| Interest rate swap agreements | ||||
| Amount of gain or (loss) reclassified from AOCI into earnings | $— | $— | $5.5 | $— |
| Total amounts of income and expense line items presented on the Condensed Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded | $2,374.8 | $1,532.9 | $87.6 | $(9.0) |
| Gain (loss) on cash flow hedging relationships | ||||
| Foreign currency forward contracts | ||||
| Amount of gain or (loss) reclassified from AOCI into earnings | $0.2 | $0.1 | $— | $— |
| Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach | $0.2 | $0.1 | $— | $(0.5) |
| Interest rate swap agreements | ||||
| Amount of gain or (loss) reclassified from AOCI into earnings | $— | $— | $9.8 | $— |
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.