Attached files
| file | filename |
|---|---|
| EX-31.1 - EX-31.1 - LANNETT CO INC | lci-20191231ex311ceec4a.htm |
| EX-32 - EX-32 - LANNETT CO INC | lci-20191231xex32.htm |
| EX-31.2 - EX-31.2 - LANNETT CO INC | lci-20191231ex312c0a39f.htm |
| EX-10.62 - EX-10.62 - LANNETT CO INC | lci-20191231ex10628714f.htm |
| EX-10.61 - EX-10.61 - LANNETT CO INC | lci-20191231ex1061789c1.htm |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2019
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File No. 001-31298
LANNETT COMPANY, INC.
(Exact Name of Registrant as Specified in its Charter)
|
State of Delaware |
|
23-0787699 |
|
(State of Incorporation) |
|
(I.R.S. Employer I.D. No.) |
9000 State Road
Philadelphia, PA 19136
(215) 333-9000
(Address of principal executive offices and telephone number)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
Common Stock, $0.001 par value |
|
LCI |
|
New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer ☐ |
|
Accelerated filer ☒ |
|
|
|
|
|
Non-accelerated filer ☐ |
|
Smaller reporting company ☐ |
|
Emerging growth company ☐ |
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12B-12 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each class of the registrant’s common stock, as of the latest practical date.
|
Class |
|
Outstanding as of January 31, 2020 |
|
Common stock, par value $0.001 per share |
|
40,343,569 |
2
LANNETT COMPANY, INC.
(In thousands, except share and per share data)
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
December 31, 2019 |
|
June 30, 2019 |
||
|
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
119,176 |
|
$ |
140,249 |
|
Accounts receivable, net |
|
|
158,498 |
|
|
164,752 |
|
Inventories |
|
|
152,090 |
|
|
143,971 |
|
Prepaid income taxes |
|
|
6,949 |
|
|
— |
|
Assets held for sale |
|
|
3,757 |
|
|
9,671 |
|
Other current assets |
|
|
8,709 |
|
|
13,606 |
|
Total current assets |
|
|
449,179 |
|
|
472,249 |
|
Property, plant and equipment, net |
|
|
183,631 |
|
|
186,670 |
|
Intangible assets, net |
|
|
422,849 |
|
|
411,229 |
|
Operating lease right-of-use assets |
|
|
6,015 |
|
|
— |
|
Deferred tax assets |
|
|
111,514 |
|
|
109,305 |
|
Other assets |
|
|
7,896 |
|
|
7,960 |
|
TOTAL ASSETS |
|
$ |
1,181,084 |
|
$ |
1,187,413 |
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
|
$ |
30,883 |
|
$ |
13,493 |
|
Accrued expenses |
|
|
10,750 |
|
|
5,805 |
|
Accrued payroll and payroll-related expenses |
|
|
12,238 |
|
|
19,924 |
|
Rebates payable |
|
|
48,447 |
|
|
46,175 |
|
Royalties payable |
|
|
20,298 |
|
|
16,215 |
|
Restructuring liability |
|
|
515 |
|
|
2,315 |
|
Income taxes payable |
|
|
— |
|
|
2,198 |
|
Current operating lease liabilities |
|
|
1,848 |
|
|
— |
|
Short-term borrowings and current portion of long-term debt |
|
|
101,939 |
|
|
66,845 |
|
Other current liabilities |
|
|
2,851 |
|
|
3,652 |
|
Total current liabilities |
|
|
229,769 |
|
|
176,622 |
|
Long-term debt, net |
|
|
606,073 |
|
|
662,203 |
|
Long-term operating lease liabilities |
|
|
5,358 |
|
|
— |
|
Other liabilities |
|
|
14,712 |
|
|
14,547 |
|
TOTAL LIABILITIES |
|
|
855,912 |
|
|
853,372 |
|
Commitments (Note 12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Common stock ($0.001 par value, 100,000,000 shares authorized; 39,851,828 and 38,969,518 shares issued; 38,698,403 and 38,010,714 shares outstanding at December 31, 2019 and June 30, 2019, respectively) |
|
|
40 |
|
|
39 |
|
Additional paid-in capital |
|
|
317,012 |
|
|
317,023 |
|
Retained earnings |
|
|
25,002 |
|
|
32,075 |
|
Accumulated other comprehensive loss |
|
|
(578) |
|
|
(615) |
|
Treasury stock (1,153,425 and 958,804 shares at December 31, 2019 and June 30, 2019, respectively) |
|
|
(16,304) |
|
|
(14,481) |
|
Total stockholders’ equity |
|
|
325,172 |
|
|
334,041 |
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
$ |
1,181,084 |
|
$ |
1,187,413 |
The accompanying notes are an integral part of the consolidated financial statements.
3
LANNETT COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except share and per share data)
|
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
|
December 31, |
|
December 31, |
|
||||||||
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
||||
|
Net sales |
|
$ |
136,110 |
|
$ |
193,718 |
|
$ |
263,452 |
|
$ |
348,772 |
|
|
Cost of sales |
|
|
86,663 |
|
|
115,751 |
|
|
164,319 |
|
|
203,441 |
|
|
Amortization of intangibles |
|
|
8,153 |
|
|
8,157 |
|
|
15,181 |
|
|
16,380 |
|
|
Gross profit |
|
|
41,294 |
|
|
69,810 |
|
|
83,952 |
|
|
128,951 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
|
6,906 |
|
|
9,723 |
|
|
15,846 |
|
|
19,533 |
|
|
Selling, general and administrative expenses |
|
|
17,421 |
|
|
23,197 |
|
|
38,729 |
|
|
43,785 |
|
|
Restructuring expenses |
|
|
192 |
|
|
213 |
|
|
1,580 |
|
|
1,235 |
|
|
Asset impairment charges |
|
|
— |
|
|
— |
|
|
1,618 |
|
|
369,499 |
|
|
Total operating expenses |
|
|
24,519 |
|
|
33,133 |
|
|
57,773 |
|
|
434,052 |
|
|
Operating income (loss) |
|
|
16,775 |
|
|
36,677 |
|
|
26,179 |
|
|
(305,101) |
|
|
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt |
|
|
— |
|
|
— |
|
|
(2,145) |
|
|
— |
|
|
Investment income |
|
|
430 |
|
|
556 |
|
|
1,159 |
|
|
935 |
|
|
Interest expense |
|
|
(16,694) |
|
|
(21,512) |
|
|
(35,986) |
|
|
(42,945) |
|
|
Other |
|
|
(735) |
|
|
(712) |
|
|
199 |
|
|
(1,008) |
|
|
Total other loss |
|
|
(16,999) |
|
|
(21,668) |
|
|
(36,773) |
|
|
(43,018) |
|
|
Income (loss) before income tax |
|
|
(224) |
|
|
15,009 |
|
|
(10,594) |
|
|
(348,119) |
|
|
Income tax expense (benefit) |
|
|
(5,308) |
|
|
2,647 |
|
|
(3,521) |
|
|
(72,953) |
|
|
Net income (loss) |
|
$ |
5,084 |
|
$ |
12,362 |
|
$ |
(7,073) |
|
$ |
(275,166) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.13 |
|
$ |
0.33 |
|
$ |
(0.18) |
|
$ |
(7.30) |
|
|
Diluted (1) |
|
$ |
0.13 |
|
$ |
0.32 |
|
$ |
(0.18) |
|
$ |
(7.30) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
38,605,052 |
|
|
37,761,176 |
|
|
38,457,159 |
|
|
37,674,200 |
|
|
Diluted (1) |
|
|
40,557,503 |
|
|
39,112,547 |
|
|
38,457,159 |
|
|
37,674,200 |
|
|
(1) |
See Note 14 “Earnings (Loss) Per Common Share” for details on calculation. |
The accompanying notes are an integral part of the consolidated financial statements.
4
LANNETT COMPANY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(In thousands)
|
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
|
December 31, |
|
December 31, |
|
||||||||
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
||||
|
Net income (loss) |
|
$ |
5,084 |
|
$ |
12,362 |
|
$ |
(7,073) |
|
$ |
(275,166) |
|
|
Other comprehensive income (loss), before tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
83 |
|
|
7 |
|
|
37 |
|
|
13 |
|
|
Total other comprehensive income (loss), before tax |
|
|
83 |
|
|
7 |
|
|
37 |
|
|
13 |
|
|
Income tax related to items of other comprehensive income |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Total other comprehensive income (loss), net of tax |
|
|
83 |
|
|
7 |
|
|
37 |
|
|
13 |
|
|
Comprehensive income (loss) |
|
$ |
5,167 |
|
$ |
12,369 |
|
$ |
(7,036) |
|
$ |
(275,153) |
|
The accompanying notes are an integral part of the consolidated financial statements.
5
LANNETT COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands)
|
|
|
Three months ended December 31, 2019 |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional |
|
|
|
|
Other |
|
|
|
|
Total |
||||||
|
|
|
Shares |
|
|
|
|
Paid-In |
|
Retained |
|
Comprehensive |
|
Treasury |
|
Stockholders’ |
|||||
|
|
|
Issued |
|
Amount |
|
Capital |
|
Earnings |
|
Loss |
|
Stock |
|
Equity |
||||||
|
Balance, September 30, 2019 |
|
39,630 |
|
$ |
40 |
|
$ |
314,645 |
|
$ |
19,918 |
|
$ |
(661) |
|
$ |
(15,838) |
|
$ |
318,104 |
|
Shares issued in connection with share-based compensation plans |
|
222 |
|
|
— |
|
|
360 |
|
|
— |
|
|
— |
|
|
— |
|
|
360 |
|
Share-based compensation |
|
— |
|
|
— |
|
|
2,007 |
|
|
— |
|
|
— |
|
|
— |
|
|
2,007 |
|
Purchase of treasury stock |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(466) |
|
|
(466) |
|
Other comprehensive income, net of tax |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
83 |
|
|
— |
|
|
83 |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
5,084 |
|
|
— |
|
|
— |
|
|
5,084 |
|
Balance, December 31, 2019 |
|
39,852 |
|
$ |
40 |
|
$ |
317,012 |
|
$ |
25,002 |
|
$ |
(578) |
|
$ |
(16,304) |
|
$ |
325,172 |
|
|
|
Three months ended December 31, 2018 |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional |
|
|
|
|
Other |
|
|
|
|
Total |
||||||
|
|
|
Shares |
|
|
|
|
Paid-In |
|
Retained |
|
Comprehensive |
|
Treasury |
|
Stockholders’ |
|||||
|
|
|
Issued |
|
Amount |
|
Capital |
|
Earnings |
|
Loss |
|
Stock |
|
Equity |
||||||
|
Balance, September 30, 2018 |
|
38,665 |
|
$ |
39 |
|
$ |
310,135 |
|
$ |
16,654 |
|
$ |
(509) |
|
$ |
(14,295) |
|
$ |
312,024 |
|
Shares issued in connection with share-based compensation plans |
|
102 |
|
|
— |
|
|
237 |
|
|
— |
|
|
— |
|
|
— |
|
|
237 |
|
Share-based compensation |
|
— |
|
|
— |
|
|
1,950 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,950 |
|
Purchase of treasury stock |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(69) |
|
|
(69) |
|
Other comprehensive income net of tax |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
7 |
|
|
— |
|
|
7 |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
12,362 |
|
|
— |
|
|
— |
|
|
12,362 |
|
Balance, December 31, 2018 |
|
38,767 |
|
$ |
39 |
|
$ |
312,322 |
|
$ |
29,016 |
|
$ |
(502) |
|
$ |
(14,364) |
|
$ |
326,511 |
|
|
|
Six months ended December 31, 2019 |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional |
|
|
|
|
Other |
|
|
|
|
Total |
||||||
|
|
|
Shares |
|
|
|
|
Paid-In |
|
Retained |
|
Comprehensive |
|
Treasury |
|
Stockholders’ |
|||||
|
|
|
Issued |
|
Amount |
|
Capital |
|
Earnings |
|
Loss |
|
Stock |
|
Equity |
||||||
|
Balance, June 30, 2019 |
|
38,970 |
|
$ |
39 |
|
$ |
317,023 |
|
$ |
32,075 |
|
$ |
(615) |
|
$ |
(14,481) |
|
$ |
334,041 |
|
Shares issued in connection with share-based compensation plans |
|
882 |
|
|
1 |
|
|
595 |
|
|
— |
|
|
— |
|
|
— |
|
|
596 |
|
Share-based compensation |
|
— |
|
|
— |
|
|
6,466 |
|
|
— |
|
|
— |
|
|
— |
|
|
6,466 |
|
Purchase of treasury stock |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,823) |
|
|
(1,823) |
|
Other comprehensive income, net of tax |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
37 |
|
|
— |
|
|
37 |
|
Purchase of capped call |
|
— |
|
|
— |
|
|
(7,072) |
|
|
— |
|
|
— |
|
|
— |
|
|
(7,072) |
|
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
(7,073) |
|
|
— |
|
|
— |
|
|
(7,073) |
|
Balance, December 31, 2019 |
|
39,852 |
|
$ |
40 |
|
$ |
317,012 |
|
$ |
25,002 |
|
$ |
(578) |
|
$ |
(16,304) |
|
$ |
325,172 |
|
|
|
Six months ended December 31, 2018 |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional |
|
|
|
|
Other |
|
|
|
|
Total |
||||||
|
|
|
Shares |
|
|
|
|
Paid-In |
|
Retained |
|
Comprehensive |
|
Treasury |
|
Stockholders’ |
|||||
|
|
|
Issued |
|
Amount |
|
Capital |
|
Earnings |
|
Loss |
|
Stock |
|
Equity |
||||||
|
Balance, June 30, 2018 |
|
38,257 |
|
$ |
38 |
|
$ |
306,817 |
|
$ |
306,464 |
|
$ |
(515) |
|
$ |
(13,889) |
|
$ |
598,915 |
|
Shares issued in connection with share-based compensation plans |
|
510 |
|
|
1 |
|
|
520 |
|
|
— |
|
|
— |
|
|
— |
|
|
521 |
|
Share-based compensation |
|
— |
|
|
— |
|
|
4,985 |
|
|
— |
|
|
— |
|
|
— |
|
|
4,985 |
|
Purchase of treasury stock |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(475) |
|
|
(475) |
|
Other comprehensive income net of tax |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
13 |
|
|
— |
|
|
13 |
|
ASC 606 adjustment, net of tax |
|
— |
|
|
— |
|
|
— |
|
|
(2,282) |
|
|
— |
|
|
— |
|
|
(2,282) |
|
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
(275,166) |
|
|
— |
|
|
— |
|
|
(275,166) |
|
Balance, December 31, 2018 |
|
38,767 |
|
$ |
39 |
|
$ |
312,322 |
|
$ |
29,016 |
|
$ |
(502) |
|
$ |
(14,364) |
|
$ |
326,511 |
The accompanying notes are an integral part of the consolidated financial statements.
6
LANNETT COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
|
|
|
Six Months Ended |
||||
|
|
|
December 31, |
||||
|
|
|
2019 |
|
2018 |
||
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Net loss |
|
$ |
(7,073) |
|
$ |
(275,166) |
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
26,878 |
|
|
28,622 |
|
Deferred income tax benefit |
|
|
(2,209) |
|
|
(77,950) |
|
Share-based compensation |
|
|
6,466 |
|
|
4,985 |
|
Asset impairment charges |
|
|
1,618 |
|
|
369,499 |
|
Loss (gain) on sale/disposal of assets |
|
|
(1,195) |
|
|
644 |
|
Loss on extinguishment of debt |
|
|
2,145 |
|
|
— |
|
Amortization of debt discount and other debt issuance costs |
|
|
7,571 |
|
|
8,934 |
|
Other noncash expenses |
|
|
829 |
|
|
(510) |
|
Changes in assets and liabilities which provided (used) cash: |
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
6,254 |
|
|
(25,887) |
|
Inventories |
|
|
(8,119) |
|
|
2,156 |
|
Prepaid income taxes/income taxes payable |
|
|
(8,982) |
|
|
17,516 |
|
Other assets |
|
|
5,801 |
|
|
(678) |
|
Rebates payable |
|
|
2,272 |
|
|
(5,016) |
|
Royalties payable |
|
|
4,083 |
|
|
3,660 |
|
Restructuring liability |
|
|
(1,800) |
|
|
(1,013) |
|
Operating lease liability |
|
|
(716) |
|
|
— |
|
Accounts payable |
|
|
17,390 |
|
|
3,701 |
|
Accrued expenses |
|
|
4,988 |
|
|
(4) |
|
Accrued payroll and payroll-related expenses |
|
|
(7,686) |
|
|
8,501 |
|
Settlement liability |
|
|
— |
|
|
8,000 |
|
Deferred revenue |
|
|
— |
|
|
23,998 |
|
Other liabilities |
|
|
(801) |
|
|
— |
|
Net cash provided by operating activities |
|
|
47,714 |
|
|
93,992 |
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(8,796) |
|
|
(12,030) |
|
Proceeds from sale of property, plant and equipment |
|
|
6,288 |
|
|
14,091 |
|
Proceeds from sale of outstanding loan to Variable Interest Entity (“VIE”) |
|
|
— |
|
|
5,600 |
|
Advance to VIE |
|
|
(250) |
|
|
— |
|
Purchases of intangible assets |
|
|
(27,250) |
|
|
(2,000) |
|
Net cash provided by (used in) investing activities |
|
|
(30,008) |
|
|
5,661 |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
|
86,250 |
|
|
— |
|
Purchase of capped call |
|
|
(7,072) |
|
|
— |
|
Repayments of long-term debt |
|
|
(113,278) |
|
|
(33,422) |
|
Proceeds from issuance of stock |
|
|
596 |
|
|
521 |
|
Payment of deferred financing fees |
|
|
(3,489) |
|
|
(1,102) |
|
Purchase of treasury stock |
|
|
(1,823) |
|
|
(475) |
|
Net cash used in financing activities |
|
|
(38,816) |
|
|
(34,478) |
|
Effect on cash and cash equivalents of changes in foreign exchange rates |
|
|
37 |
|
|
13 |
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
(21,073) |
|
|
65,188 |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
140,249 |
|
|
98,586 |
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
119,176 |
|
$ |
163,774 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
Interest paid |
|
$ |
27,762 |
|
$ |
34,190 |
|
Income taxes paid (refunded) |
|
$ |
7,670 |
|
$ |
(11,993) |
|
Accrued purchases of property, plant and equipment |
|
$ |
2,304 |
|
$ |
2,416 |
The accompanying notes are an integral part of the consolidated financial statements.
7
LANNETT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Interim Financial Information
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for the presentation of interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited financial statements do not include all the information and footnotes necessary for a comprehensive presentation of the financial position, results of operations and cash flows for the periods presented. In the opinion of management, the unaudited financial statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Operating results for the three and six months ended December 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2020. These unaudited financial statements should be read in combination with the other Notes in this section; “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in Item 2; and the Consolidated Financial Statements, including the Notes to the Consolidated Financial Statements, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019. The Consolidated Balance Sheet as of June 30, 2019 was derived from audited financial statements.
Note 2. The Business And Nature of Operations
Lannett Company, Inc. (a Delaware corporation) and its subsidiaries (collectively, the “Company” or “Lannett”) primarily develop, manufacture, package, market and distribute solid oral and extended release (tablets and capsules), topical, nasal and oral solution finished dosage forms of drugs that address a wide range of therapeutic areas. Certain of these products are manufactured by others and distributed by the Company.
The Company operates pharmaceutical manufacturing plants in Carmel, New York and Seymour, Indiana. The Company’s customers include generic pharmaceutical distributors, drug wholesalers, chain drug stores, private label distributors, mail-order pharmacies, other pharmaceutical manufacturers, managed care organizations, hospital buying groups, governmental entities and health maintenance organizations.
Note 3. Summary of Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements have been prepared in conformity with U.S. GAAP.
Principles of consolidation
The Consolidated Financial Statements include the accounts of Lannett Company, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Business Combinations
Acquired businesses are accounted for using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective estimated fair values. The fair values and useful lives assigned to each class of assets acquired and liabilities assumed are based on, among other factors, the expected future period of benefit of the asset, the various characteristics of the asset and projected future cash flows. Significant judgment is employed in determining the assumptions utilized as of the acquisition date and for each subsequent measurement period. Accordingly, changes in assumptions described above could have a material impact on our consolidated results of operations.
8
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year financial statement presentation.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of revenue recognition and sales deductions for estimated chargebacks, rebates, returns and other adjustments including a provision for the Company’s liability under the Medicare Part D program. Additionally, significant estimates and assumptions are required when determining the fair value of long-lived assets, including intangible assets, income taxes, contingencies and share-based compensation.
Because of the inherent subjectivity and complexity involved in these estimates and assumptions, actual results could differ from those estimates.
Foreign currency translation
The Consolidated Financial Statements are presented in U.S. Dollars, the reporting currency of the Company. The financial statements of the Company’s foreign subsidiary are maintained in local currency and translated into U.S. dollars at the end of each reporting period. Assets and liabilities are translated at period-end exchange rates, while revenues and expenses are translated at average exchange rates during the period. The adjustments resulting from the use of differing exchange rates are recorded as part of stockholders’ equity in accumulated other comprehensive income (loss). Gains and losses resulting from transactions denominated in foreign currencies are recognized in the Consolidated Statements of Operations under Other income (loss). Amounts recorded due to foreign currency fluctuations are immaterial to the Consolidated Financial Statements.
Cash and cash equivalents
The Company considers all highly liquid investments with original maturities less than or equal to three months at the date of purchase to be cash and cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value, and consist of bank deposits and certificates of deposit that are readily convertible into cash. The Company maintains its cash deposits and cash equivalents at well-known, stable financial institutions. Such amounts frequently exceed insured limits.
Allowance for doubtful accounts
The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time balances are past due, the Company’s previous loss history, the customer’s current ability to pay its obligations to the Company and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they are determined to be uncollectible.
Inventories
Inventories are stated at the lower of cost or net realizable value by the first-in, first-out method. Inventories are regularly reviewed and write-downs for excess and obsolete inventory are recorded based primarily on current inventory levels, expiration date and estimated sales forecasts.
9
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the assets’ estimated useful lives. Repairs and maintenance costs that do not extend the useful life of the asset are expensed as incurred.
Intangible Assets
Definite-lived intangible assets are stated at cost less accumulated amortization. Amortization of definite-lived intangible assets is computed on a straight-line basis over the assets’ estimated useful lives which commences upon shipment of the product, generally for periods ranging from 10 to 15 years. The Company continually evaluates the reasonableness of the useful lives of these assets. Indefinite-lived intangible assets are not amortized, but instead are tested at least annually for impairment. Costs to renew or extend the term of a recognized intangible asset are expensed as incurred.
Valuation of Long-Lived Assets, including Intangible Assets
The Company’s long-lived assets primarily consist of property, plant and equipment and definite and indefinite-lived intangible assets. Property, plant and equipment and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances (“triggering events”) indicate that the carrying amount of the asset may not be recoverable. If a triggering event is determined to have occurred, the asset’s carrying value is compared to the future undiscounted cash flows expected to be generated by the asset. If the carrying value exceeds the undiscounted cash flows of the asset, then impairment exists. Indefinite-lived intangible assets are tested for impairment at least annually during the fourth quarter of each fiscal year or more frequently if events or triggering events indicate that the asset might be impaired.
An impairment loss is measured as the excess of the asset’s carrying value over its fair value, which in most cases is calculated using a discounted cash flow model. Discounted cash flow models are highly reliant on various assumptions which are considered Level 3 inputs, including estimates of future cash flows (including long-term growth rates), discount rates and the probability of achieving the estimated cash flows.
In-Process Research and Development
Amounts allocated to in-process research and development in connection with a business combination are recorded at fair value and are considered indefinite-lived intangible assets subject to impairment testing in accordance with the Company’s impairment testing policy for indefinite-lived intangible assets. As products in development are approved for sale, amounts will be allocated to product rights and will be amortized over their estimated useful lives. Definite-lived intangible assets are amortized over the expected lives of the related assets. The judgments made in determining the estimated fair value of in-process research and development, as well as asset lives, can materially impact our results of operations. The Company’s fair value assessments are highly reliant on various assumptions which are considered Level 3 inputs, including estimates of future cash flows (including long-term growth rates), discount rates and the probability of achieving the estimated cash flows.
10
Segment Information
The Company operates in one reportable segment, generic pharmaceuticals. As such, the Company aggregates its financial information for all products. The table below identifies the Company’s net sales by medical indication for the three and six months ended December 31, 2019 and 2018. The medical indication categories for the three and six months ended December 31, 2018 were reclassified to better align with industry standards and the Company’s peers.
|
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
(In thousands) |
|
December 31, |
|
December 31, |
|
||||||||
|
Medical Indication |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
||||
|
Analgesic |
|
$ |
2,111 |
|
$ |
2,547 |
|
$ |
3,995 |
|
$ |
4,376 |
|
|
Anti-Psychosis |
|
|
22,697 |
|
|
14,036 |
|
|
50,730 |
|
|
24,925 |
|
|
Cardiovascular |
|
|
23,972 |
|
|
25,680 |
|
|
45,579 |
|
|
47,450 |
|
|
Central Nervous System |
|
|
|||||||||||