Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Mar. 31, 2016 | Apr. 30, 2016 | |
Document and Entity Information | ||
Entity Registrant Name | LANNETT CO INC | |
Entity Central Index Key | 57,725 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --06-30 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 36,747,501 | |
Document Fiscal Year Focus | 2,016 | |
Document Fiscal Period Focus | Q3 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Mar. 31, 2016 | Jun. 30, 2015 |
Current assets: | ||
Cash and cash equivalents | $ 225,446 | $ 200,340 |
Investment securities | 12,959 | 13,467 |
Accounts receivable, net | 183,624 | 91,103 |
Inventories | 116,511 | 46,191 |
Prepaid income taxes | 15,253 | |
Deferred tax assets | 23,808 | 16,270 |
Other current assets | 23,995 | 3,175 |
Total current assets | 601,596 | 370,546 |
Property, plant and equipment, net | 220,199 | 94,556 |
Intangible assets, net | 598,418 | 29,090 |
Goodwill | 313,451 | 141 |
Deferred tax assets | 10,036 | 12,495 |
Other assets | 8,676 | 1,938 |
TOTAL ASSETS | 1,752,376 | 508,766 |
Current liabilities: | ||
Accounts payable | 33,038 | 19,195 |
Accrued expenses | 9,181 | 4,928 |
Accrued payroll and payroll-related expenses | 6,717 | 10,397 |
Rebates payable | 16,993 | 7,553 |
Royalties payable | 5,779 | |
Restructuring liability | 3,008 | |
Accrued interest payable | 10,823 | |
Settlement liability | 10,700 | |
Income taxes payable | 1,340 | |
Acquisition-related contingent consideration | 35,000 | |
Current portion of long-term debt | 45,640 | 135 |
Total current liabilities | 176,879 | 43,548 |
Long-term debt, net | 1,008,212 | 874 |
Restructuring liability | 77 | |
Settlement liability | 13,414 | |
Other liabilities | 6,268 | 578 |
TOTAL LIABILITIES | $ 1,204,850 | $ 45,000 |
Commitments and Contingencies (Note 13 and 14) | ||
STOCKHOLDERS' EQUITY | ||
Common stock ($0.001 par value, 100,000,000 shares authorized; 37,112,119 and 36,783,381 shares issued; 36,569,363 and 36,264,585 shares outstanding at March 31, 2016 and June 30, 2015, respectively) | $ 37 | $ 37 |
Additional paid-in capital | 279,874 | 236,178 |
Retained earnings | 274,784 | 233,573 |
Accumulated other comprehensive loss | (280) | (295) |
Treasury stock (542,756 and 518,796 shares at March 31, 2016 and June 30, 2015, respectively) | (7,277) | (6,080) |
Total Lannett Company, Inc. stockholders' equity | 547,138 | 463,413 |
Noncontrolling Interest | 388 | 353 |
Total stockholders' equity | 547,526 | 463,766 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 1,752,376 | $ 508,766 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Mar. 31, 2016 | Jun. 30, 2015 |
CONSOLIDATED BALANCE SHEETS | ||
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, authorized shares | 100,000,000 | 100,000,000 |
Common stock, issued shares | 37,112,119 | 36,783,381 |
Common stock, outstanding shares | 36,569,363 | 36,264,585 |
Treasury stock, shares | 542,756 | 518,796 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2016 | Mar. 31, 2015 | Mar. 31, 2016 | Mar. 31, 2015 | |
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
Net sales | $ 163,712 | $ 99,352 | $ 397,204 | $ 307,561 |
Settlement agreement | (23,598) | (23,598) | ||
Total net sales | 140,114 | 99,352 | 373,606 | 307,561 |
Cost of sales | 75,345 | 23,694 | 155,964 | 73,094 |
Amortization of intangibles | 7,278 | 20 | 11,079 | 61 |
Gross profit | 57,491 | 75,638 | 206,563 | 234,406 |
Operating expenses: | ||||
Research and development expenses | 16,495 | 9,159 | 32,092 | 23,358 |
Selling, general, and administrative expenses | 16,157 | 11,617 | 46,359 | 32,923 |
Acquisition and integration-related expenses | 1,473 | 587 | 23,000 | 2,656 |
Restructuring expenses | 4,749 | 4,749 | ||
Total operating expenses | 38,874 | 21,363 | 106,200 | 58,937 |
Operating income | 18,617 | 54,275 | 100,363 | 175,469 |
Other income (loss): | ||||
Investment income (loss) | 204 | (8) | 69 | 895 |
Interest expense | (26,988) | (8) | (38,820) | (119) |
Other | (46) | (26) | (76) | (6) |
Total other income (loss) | (26,830) | (42) | (38,827) | 770 |
Income (loss) before income tax | (8,213) | 54,233 | 61,536 | 176,239 |
Income tax expense (benefit) | (2,743) | 17,973 | 20,270 | 60,208 |
Net income (loss) | (5,470) | 36,260 | 41,266 | 116,031 |
Less: Net income attributable to noncontrolling interest | 20 | 27 | 55 | 55 |
Net income (loss) attributable to Lannett Company, Inc. | $ (5,490) | $ 36,233 | $ 41,211 | $ 115,976 |
Earnings (loss) per common share attributable to Lannett Company, Inc.: | ||||
Basic (in dollars per share) | $ (0.15) | $ 1.01 | $ 1.13 | $ 3.25 |
Diluted (in dollars per share) | $ (0.15) | $ 0.97 | $ 1.10 | $ 3.13 |
Weighted average common shares outstanding: | ||||
Basic (in shares) | 36,495,961 | 35,880,954 | 36,398,030 | 35,715,061 |
Diluted (in shares) | 36,495,961 | 37,210,138 | 37,383,742 | 37,082,138 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2016 | Mar. 31, 2015 | Mar. 31, 2016 | Mar. 31, 2015 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
Net income (loss) | $ (5,470) | $ 36,260 | $ 41,266 | $ 116,031 |
Other comprehensive income (loss), before tax: | ||||
Foreign currency translation gain (loss) | (11) | 35 | 15 | (231) |
Total other comprehensive income (loss), before tax | (11) | 35 | 15 | (231) |
Total other comprehensive income (loss), net of tax | (11) | 35 | 15 | (231) |
Comprehensive income (loss) | (5,481) | 36,295 | 41,281 | 115,800 |
Less: Total comprehensive income attributable to noncontrolling interest | 20 | 27 | 55 | 55 |
Comprehensive income (loss) attributable to Lannett Company Inc. | $ (5,501) | $ 36,268 | $ 41,226 | $ 115,745 |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - 9 months ended Mar. 31, 2016 - USD ($) shares in Thousands, $ in Thousands | Stockholders' Equity Attributable to Lannett Co., Inc. | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Noncontrolling Interest | Total |
Balance at Jun. 30, 2015 | $ 463,413 | $ 37 | $ 236,178 | $ 233,573 | $ (295) | $ (6,080) | $ 353 | $ 463,766 |
Balance (in shares) at Jun. 30, 2015 | 36,783 | |||||||
Increase (Decrease) in Shareholders' Equity | ||||||||
Shares issued in connection with share-based compensation plans | 3,788 | 3,788 | 3,788 | |||||
Shares issued in connection with share-based compensation plans (in shares) | 329 | |||||||
Share-based compensation | 8,423 | 8,423 | 8,423 | |||||
Excess tax benefits on share-based compensation awards | 1,565 | 1,565 | 1,565 | |||||
Purchase of treasury stock | (1,197) | (1,197) | (1,197) | |||||
Issuance of warrant | 29,920 | 29,920 | 29,920 | |||||
Distribution to noncontrolling interests | (20) | (20) | ||||||
Other comprehensive loss, net of income tax | 15 | 15 | 15 | |||||
Net income | 41,211 | 41,211 | 55 | 41,266 | ||||
Balance at Mar. 31, 2016 | $ 547,138 | $ 37 | $ 279,874 | $ 274,784 | $ (280) | $ (7,277) | $ 388 | $ 547,526 |
Balance (in shares) at Mar. 31, 2016 | 37,112 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 9 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
OPERATING ACTIVITIES: | ||
Net income | $ 41,266 | $ 116,031 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 20,075 | 4,020 |
Deferred income tax expense (benefit) | (123) | 828 |
Share-based compensation | 8,423 | 4,729 |
Excess tax benefits on share-based compensation awards | (1,565) | (7,802) |
Loss (gain) on sale of assets | 92 | (15) |
Loss (gain) on investment securities | 209 | (592) |
Amortization of debt discount and other debt issuance costs | 7,555 | 61 |
Settlement agreement | 23,598 | |
Other noncash expenses | 111 | |
Changes in assets and liabilities which provided (used) cash, net of acquisition: | ||
Accounts receivable, net | 50,903 | (18,390) |
Inventories | 13,280 | 2,370 |
Prepaid income taxes/Income taxes payable | (14,707) | (1,371) |
Other current assets and other assets | (9,675) | (2,663) |
Accounts payable | (5,405) | (3,988) |
Accrued expenses | (1,826) | (58) |
Accrued payroll and payroll-related expenses | (24,720) | (4,798) |
Rebates payable | (376) | 1,331 |
Royalties payable | 2,176 | |
Restructuring liability | 3,085 | |
Accrued interest payable | 10,823 | |
Net cash provided by operating activities | 123,199 | 89,693 |
INVESTING ACTIVITIES: | ||
Purchases of property, plant and equipment | (16,647) | (22,580) |
Proceeds from sale of property, plant and equipment | 16 | 76 |
Purchases of intangible assets | (300) | |
Acquisition, net of cash acquired | (929,581) | |
Proceeds from sale of investment securities | 32,406 | 61,334 |
Purchase of investment securities | (32,107) | (36,662) |
Net cash provided by (used in) investing activities | (945,913) | 1,868 |
FINANCING ACTIVITIES: | ||
Proceeds from issuance of debt | 910,610 | |
Repayments of debt | (34,225) | (96) |
Proceeds from issuance of stock | 3,788 | 4,164 |
Payment of debt issuance costs | (32,716) | |
Excess tax benefits on share-based compensation awards | 1,565 | 7,802 |
Purchase of treasury stock | (1,197) | |
Distribution to noncontrolling shareholders | (20) | (15) |
Net cash provided by financing activities | 847,805 | 11,855 |
Effect on cash and cash equivalents of changes in foreign exchange rates | 15 | (231) |
NET INCREASE IN CASH AND CASH EQUIVALENTS | 25,106 | 103,185 |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 200,340 | 105,587 |
CASH AND CASH EQUIVALENTS, END OF PERIOD | 225,446 | 208,772 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||
Interest paid | 20,357 | 123 |
Income taxes paid | 35,128 | $ 60,750 |
Issuance of unsecured 12.0% Senior Notes to finance KUPI acquisition | 200,000 | |
Issuance of a warrant to finance KUPI acquisition | 29,920 | |
Acquisition-related contingent consideration | $ 35,000 |
CONSOLIDATED STATEMENTS OF CAS8
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) | Mar. 31, 2016 | Nov. 25, 2015 |
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
Debt instrument, stated percentage | 12.00% | 12.00% |
Interim Financial Information
Interim Financial Information | 9 Months Ended |
Mar. 31, 2016 | |
Interim Financial Information | |
Interim Financial Information | Note 1. Interim Financial Information The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“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 nine months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2016. 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, 2015. |
The Business And Nature of Oper
The Business And Nature of Operations | 9 Months Ended |
Mar. 31, 2016 | |
The Business And Nature of Operations | |
The Business And Nature of Operations | Note 2. The Business And Nature of Operations Lannett Company, Inc. (a Delaware corporation) and its subsidiaries (collectively, the “Company” or “Lannett”) develop, manufacture, package, market, and distribute solid oral and extended release (tablets and capsules), topical, 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 also manufactures active pharmaceutical ingredients through its Cody Laboratories, Inc. (“Cody Labs”) subsidiary, providing a vertical integration benefit. Additionally, the Company distributes products under various distribution agreements, most notably the Jerome Stevens Distribution Agreement. On November 25, 2015, the Company completed the acquisition of Kremers Urban Pharmaceuticals Inc. (“KUPI”), the U.S. specialty generic pharmaceuticals subsidiary of global biopharmaceuticals company UCB S.A. KUPI is a specialty pharmaceuticals manufacturer focused on the development of products that are difficult to formulate or utilize specialized delivery technologies. Strategic benefits of the acquisition include expanded manufacturing capacity, a diversified product portfolio and pipeline, and complementary research and development expertise. The Company operates pharmaceutical manufacturing plants in Philadelphia, Pennsylvania, Cody, Wyoming, 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. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 9 Months Ended |
Mar. 31, 2016 | |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | Note 3. Summary of Significant Accounting Policies Principles of consolidation The Consolidated Financial Statements include the accounts of Lannett Company, Inc., and its wholly owned subsidiaries, as well as Cody LCI Realty, LLC (“Realty”), a variable interest entity (“VIE”) in which the Company has a 50% ownership interest. Noncontrolling interest in Realty is recorded net of tax as net income attributable to the noncontrolling interest. Additionally, 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. 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 goodwill and intangible assets, income taxes, contingencies, share-based compensation, and contingent consideration. 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 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. Investment securities The Company’s investment securities consist of publicly traded equity securities which are classified as trading investments. Investment securities are recorded at fair value based on quoted market prices from broker or dealer quotations or transparent pricing sources at each reporting date. Gains and losses are included in the Consolidated Statements of Operations under Other income (loss). 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 market determined by the first-in, first-out method. Inventories are regularly reviewed and provisions for excess and obsolete inventory are recorded based primarily on current inventory levels and estimated sales forecasts. 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. Depreciation expense for each of the three months ended March 31, 2016 and 2015 was $4.3 million and $1.4 million, respectively. Depreciation expense for each of the nine months ended March 31, 2016 and 2015 was $8.5 million and $4.0 million, respectively. 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, 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 flow 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 changes in circumstances 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. The judgments made in determining estimated fair values can materially impact our results of operations. In-Process Research and Development Amounts allocated to in-process research and development (“IPR&D”) 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. These valuations reflect, among other things, the impact of changes to the development programs, the projected development and regulatory time frames and the current competitive environment. Changes in any of the Company’s assumptions may result in a reduction to the estimated fair value of the IPR&D asset and could result in future impairment charges. Goodwill Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is tested for impairment on an annual basis during the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company first performs a qualitative assessment to determine if the quantitative impairment test is required. If changes in circumstances indicate an asset may be impaired, the Company performs the quantitative impairment test. In accordance with accounting standards, a two-step quantitative method is used for determining goodwill impairment. In the first step, the Company determines the fair value of our reporting unit (generic pharmaceuticals). If the net book value of our reporting unit exceeds its fair value, the second step of the impairment test which requires allocation of our reporting unit’s fair value to all of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations would then be performed. Any residual fair value is allocated to goodwill. An impairment charge is recognized only if the implied fair value of our reporting unit’s goodwill is less than its carrying amount. Segment Information The Company operates in one reportable segment, generic pharmaceuticals. As such, the Company aggregates its financial information for all products. The following table identifies the Company’s net sales by medical indication for the three and nine months ended March 31, 2016 and 2015: (In thousands) For the Three Months Ended March 31, For the Nine months Ended March 31, Medical Indication 2016 2015 2016 2015 Antibiotic $ $ $ $ Cardiovascular Central Nervous System — — Gallstone Gastrointestinal — — Glaucoma Gout Migraine Muscle Relaxant Obesity Pain Management Respiratory — — Thyroid Deficiency Urinary — — Other Contract manufacturing revenue — — Net sales Settlement agreement ) — ) — Total net sales $ $ $ $ Customer, Supplier and Product Concentration The following table presents the percentage of net sales, for the three and nine months ended March 31, 2016 and 2015, for certain of the Company’s products, defined as products containing the same active ingredient or combination of ingredients, which accounted for at least 10% of net sales in any of those periods: For the Three Months Ended March 31, For the Nine months Ended March 31, 2016 2015 2016 2015 Product 1 % % % % Product 2 % % % % Product 3 % % % % The following table presents the percentage of net sales, for the three and nine months ended March 31, 2016 and 2015, for certain of the Company’s customers which accounted for at least 10% of net sales in any of those periods: For the Three Months Ended March 31, For the Nine months Ended March 31, 2016 2015 2016 2015 Customer A % % % % Customer B % % % % The Company’s primary finished goods inventory supplier is Jerome Stevens Pharmaceuticals, Inc. (“JSP”), in Bohemia, New York. Purchases of finished goods inventory from JSP accounted for approximately 53% and 66% of the Company’s inventory purchases during the three months ended March 31, 2016 and 2015, respectively. Purchases of finished goods inventory from JSP accounted for approximately 59% and 68% of the Company’s inventory purchases during the nine months ended March 31, 2016 and 2015, respectively. See Note 22 “Material Contracts with Suppliers” for more information. Revenue Recognition The Company recognizes revenue when title and risk of loss have transferred to the customer and provisions for rebates, promotional adjustments, price adjustments, returns, chargebacks, and other potential adjustments are reasonably determinable. The Company also considers all other relevant criteria specified in Securities and Exchange Commission Staff Accounting Bulletin No. 104, Topic No. 13, “ Revenue Recognition ”, in determining when to recognize revenue. Net Sales Adjustments When revenue is recognized, a simultaneous adjustment to gross sales is made for chargebacks, rebates, returns, promotional adjustments, and other potential adjustments. These provisions are primarily estimated based on historical experience, future expectations, contractual arrangements with wholesalers and indirect customers, and other factors known to management at the time of accrual. Accruals for provisions are presented in the Consolidated Financial Statements as a reduction to gross sales with the corresponding reserve presented as a reduction of accounts receivable or included as rebates payable, depending on the nature of the reserve. The reserves, presented as a reduction of accounts receivable, totaled $144.8 million and $69.4 million at March 31, 2016 and June 30, 2015, respectively. Rebates payable at March 31, 2016 and June 30, 2015 were $17.0 million and $7.6 million, respectively, for certain rebate programs, primarily related to Medicare Part D and Medicaid, and certain sales allowances and other adjustments paid to indirect customers. Cost of Sales, including Amortization of Intangibles Cost of sales includes all costs related to bringing products to their final selling destination, which includes direct and indirect costs, such as direct material, labor, and overhead expenses. Additionally, cost of sales includes product royalties, depreciation, amortization and costs to renew or extend recognized intangible assets, freight charges and other shipping and handling expenses. Product royalties included in cost of sales for the three months ended March 31, 2016 and 2015 were $6.2 million and $44 thousand, respectively. Product royalties included in cost of sales for the nine months ended March 31, 2016 and 2015 were $10.6 million and $129 thousand, respectively. Research and Development Research and development costs are expensed as incurred, including all production costs until a drug candidate is approved by the Food and Drug Administration (“FDA”). Research and development expenses include costs associated with internal projects as well as costs associated with third-party research and development contracts. Contingencies Loss contingencies, including litigation-related contingencies, are included in the Consolidated Statements of Operations when the Company concludes that a loss is both probable and reasonably estimable. Legal fees related to litigation-related matters are expensed as incurred and included in the Consolidated Statements of Operations under the Selling, general and administrative line item. Contingent Consideration Contingent consideration resulting from the KUPI acquisition was recorded at its fair value on the acquisition date. The Company has agreed to a 50/50 split of the additional tax liabilities UCB will incur associated with the IRS Section 338(H)(10) tax election, up to $35.0 million. This election is expected to result in additional tax benefits to the Company of approximately $100.0 million. Decreases in the fair value of the contingent consideration will be recorded as gains in the Consolidated Statements of Operations. Decreases in the fair value of the contingent consideration obligation can result from lower tax liabilities incurred by UCB associated with the IRS Section 338(H)(10) tax election. These fair value measurements represent Level 3 measurements, as they are based on significant inputs not observable in the market. Restructuring Costs The Company records charges associated with approved restructuring plans to remove duplicative headcount and infrastructure associated with business acquisitions or to simplify business processes. Restructuring charges can include severance costs to eliminate a specified number of employees, infrastructure charges to vacate facilities and consolidate operations, and contract cancellation costs. The Company records restructuring charges based on estimated employee terminations, site closure and consolidation plans. The Company accrues severance and other employee separation costs under these actions when it is probable that benefits will be paid and the amount is reasonably estimable. Share-based Compensation Share-based compensation costs are recognized over the vesting period, using a straight-line method, based on the fair value of the instrument on the date of grant less an estimate for expected forfeitures. The Company uses the Black-Scholes valuation model to determine the fair value of stock options and the stock price on the grant date to value restricted stock. The Black-Scholes valuation model includes various assumptions, including the expected volatility, the expected life of the award, dividend yield, and the risk-free interest rate. These assumptions involve inherent uncertainties based on market conditions which are generally outside the Company’s control. Changes in these assumptions could have a material impact on share-based compensation costs recognized in the financial statements. Income Taxes The Company uses the asset and liability method to account for income taxes as prescribed by Accounting Standards Codification (“ASC”) 740, Income Taxes . Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. Deferred income tax assets and liabilities are adjusted to recognize the effects of changes in tax laws or enacted tax rates in the period during which they are signed into law. The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative standards issued by the Financial Accounting Standards Board (“FASB”) also provide guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The factors used to assess the likelihood of realization are the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Under ASC 740, Income Taxes , a valuation allowance is required when it is more likely than not that all or some portion of the deferred tax assets will not be realized through generating sufficient future taxable income. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company’s effective tax rate on future earnings. Earnings (Loss) Per Common Share Basic earnings (loss) per common share attributable to Lannett Company, Inc. is computed by dividing net income (loss) attributable to Lannett Company, Inc. common stockholders by the weighted average number of shares outstanding during the period. Diluted earnings (loss) per common share attributable to Lannett Company, Inc. is computed by dividing net income (loss) attributable to Lannett Company, Inc. common stockholders by the weighted average number of shares outstanding during the period including additional shares that would have been outstanding related to potentially dilutive securities. These potentially dilutive securities primarily consist of stock options, unvested restricted stock, and an outstanding warrant. Anti-dilutive securities are excluded from the calculation. Dilutive shares are also excluded in the calculation in periods of net loss because the effect of including such securities would be anti-dilutive. Comprehensive Income (Loss) Comprehensive income (loss) includes all changes in equity during a period except those that resulted from investments by or distributions to the Company’s stockholders. Other comprehensive income (loss) refers to revenues, expenses, gains and losses that are included in comprehensive income (loss), but excluded from net income as these amounts are recorded directly as an adjustment to stockholders’ equity. Recent Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers . The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The authoritative guidance is effective for annual reporting periods beginning after December 15, 2016. In July 2015, the FASB extended the effective date of the guidance by one year to December 15, 2017. The Company is currently in the process of assessing the impact this guidance will have on the consolidated financial statements. In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company has elected to early adopt ASU 2015-03 as of December 31, 2015. In July 2015, the FASB issued ASU 2015-11, Inventory — Simplifying the Measurement of Inventory . ASU 2015-11 requires inventory to be subsequently measured using the lower of cost and net realizable value, thereby eliminating the market value approach. Net realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.” ASU 2015-11 is effective for reporting periods beginning after December 15, 2016 and is applied prospectively. Early adoption is permitted. The Company is currently in the process of assessing the impact this guidance will have on the consolidated financial statements. In September 2015, the FASB issued ASU 2015-16, Business Combinations — Simplifying the Accounting for Measurement-Period Adjustments . ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 also requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. ASU 2015-16 is effective for reporting periods beginning after December 15, 2015 and is applied prospectively. Early adoption is permitted. The Company has elected to early adopt ASU 2015-16 as of March 31, 2016. In November 2015, the FASB issued ASU 2015-17, Income Taxes — Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires all deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The guidance may be applied either prospectively or retrospectively. ASU 2015-17 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company is currently in the process of assessing the impact this guidance will have on the consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires an entity to recognize right-of-use assets and liabilities on its balance sheet for all leases with terms longer than 12 months. Lessees and lessors are required to disclose quantitative and qualitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective application, with early adoption permitted. The Company is currently in the process of assessing the impact this guidance will have on the consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation: Improvements to Employee Share-Based Payment Accounting . ASU 2016-09 clarifies several aspects of accounting for share-based compensation including the accounting for excess tax benefits and deficiencies, accounting for forfeitures and the classification of excess tax benefits on the cash flow statement. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 and in interim periods within those fiscal years, with early adoption permitted. The Company is currently in the process of assessing the impact this guidance will have on the consolidated financial statements. |
Acquisitions
Acquisitions | 9 Months Ended |
Mar. 31, 2016 | |
Acquisitions | |
Acquisitions | Note 4. Acquisitions Kremers Urban Pharmaceuticals Inc. On November 25, 2015, the Company completed the acquisition of Kremers Urban Pharmaceuticals Inc. (“KUPI”), the U.S. specialty generic pharmaceuticals subsidiary of global biopharmaceuticals company UCB S.A., pursuant to the terms and conditions of a Stock Purchase Agreement. KUPI is a specialty pharmaceuticals manufacturer focused on the development of products that are difficult to formulate or utilize specialized delivery technologies. Strategic benefits of the acquisition include expanded manufacturing capacity, a diversified product portfolio and pipeline, and complementary research and development expertise. Pursuant to the terms of the Stock Purchase Agreement, Lannett purchased 100% of the outstanding equity interests of KUPI for total estimated consideration of approximately $1.21 billion, subject to a customary post-closing working capital adjustment. The following table summarizes the fair value of total consideration transferred to KUPI shareholders at the acquisition date of November 25, 2015: (In thousands) Cash purchase price paid to KUPI shareholders $ Estimated working capital adjustment ) Certain amounts reimbursable by UCB ) Total cash consideration transferred to KUPI shareholders Unsecured 12.0% Senior Notes issued to UCB Acquisition-related contingent consideration Warrant issued to UCB Total consideration to KUPI shareholders $ The Company funded the acquisition and transaction expenses with proceeds from the issuance of the $910.0 million Senior Secured Credit Facility, $22.8 million borrowings on the Revolving Credit Facility, the issuance of the $250.0 million Senior Notes (see Note 12 “Long-term Debt”) and cash on hand of $90.1 million. Lannett also issued a warrant with an estimated fair value of $29.9 million. As part of the acquisition, the Company and UCB have agreed to jointly make an election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, and under the corresponding provisions of state law, to treat the acquisition as a deemed purchase and sale of assets for income tax purposes. The Company has agreed to reimburse UCB for 50% of the incremental tax cost of making such election, subject to a reimbursement cap of $35.0 million. This liability has been recorded as Acquisition-related contingent consideration on the Consolidated Balance Sheet. This election is expected to result in additional tax benefits to the Company of approximately $100.0 million. The Company also agreed to contingent payments related to Methylphenidate ER provided the FDA reinstates the AB-rating and certain sales thresholds are met. The Company used the acquisition method of accounting to account for this transaction. Under the acquisition method of accounting, the assets acquired and liabilities assumed in the transaction were recorded at the date of acquisition at their respective fair values using assumptions that are subject to change. The Company has not finalized its valuation of certain assets and liabilities recorded in connection with this transaction. Thus, the estimated fair values recorded to date are subject to change and any changes will be recorded as adjustments to the fair value of those assets and liabilities and residual amounts will be allocated to goodwill. The final valuation adjustments may also require adjustment to the Consolidated Statements of Operations and Cash Flows. The preliminary purchase price has been allocated to the assets acquired and liabilities assumed for the KUPI business as follows: (In thousands) Preliminary Purchase Price Allocation as of December 31, 2015 (a) Measurement Period Adjustments (b) Preliminary Purchase Price Allocation as of March 31, 2016 Cash and cash equivalents $ $ — $ Accounts receivable, net of revenue-related reserves ) Inventories ) Other current assets ) Property, plant and equipment Product rights Trade name — Other intangible assets ) In-process research and development ) Goodwill Deferred tax assets — Other assets — Total assets acquired Accounts payable ) — ) Accrued expenses ) ) ) Accrued payroll and payroll-related expenses ) ) ) Rebates payable ) — ) Royalties payable ) ) Other long-term liabilities ) — ) Total net assets acquired $ — $ (a) As originally reported in the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2015. (b) The measurement period adjustments are for 1) certain working capital adjustments and 2) updated valuations on inventories, property, plant and equipment and intangible assets. These adjustments did not have a significant impact on the Company’s previously reported consolidated financial statements. Included in the preliminary purchase price allocation above are indemnification assets totaling approximately $15.3 million, of which $10.4 million relates to compensation-related payments and $4.9 million relates to unrecognized tax benefits. The inventory balance above includes $19.1 million to reflect fair value step-up adjustments. KUPI’s intangible assets primarily consist of product rights and in-process research and development. See Note 11 “Goodwill and Intangible Assets”. Amounts allocated to acquired in-process research and development represent an estimate of the fair value of purchased in-process technology for research projects that, as of the closing date of the acquisition, had not yet reached technological feasibility and had no alternative future use. The fair value of in-process research and development was based on the excess earnings method, which utilizes forecasts of expected cash inflows (including estimates for ongoing costs) and other contributory charges, on a project-by-project basis at the appropriate discount rate for the inherent risk in each project, and will be tested for impairment in accordance with the Company’s policy for testing indefinite-lived intangible assets. Goodwill of $313.3 million arising from the acquisition consists largely of the value of the employee workforce and the value of products to be developed in the future. The goodwill was assigned to the Company’s only reporting unit. Goodwill recognized is expected to be fully deductible for income tax purposes. The amounts of KUPI Revenue and Net income attributable to Lannett Company, Inc. included in the Company’s Consolidated Statements of Operations from November 25, 2015 to March 31, 2016 are as follows: For the Three Months Ended March 31, For the Nine Months Ended March 31, (In thousands, except per share data) 2016 2016 Revenues $ $ Net income (loss) attributable to Lannett Company, Inc. ) Earnings (loss) per common share attributable to Lannett Company, Inc.: Basic $ $ ) Diluted $ $ ) During the nine months ended March 31, 2016, the Company recorded $21.5 million of acquisition-related expenses directly related to the KUPI acquisition. Unaudited Pro Forma Financial Results The following supplemental unaudited pro forma information presents the financial results as if the acquisition of KUPI had occurred on July 1, 2014 for the three and nine months ended March 31, 2016 and 2015. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been made on July 1, 2014, nor are they indicative of any future results. For the Three Months Ended March 31, For the Nine Months Ended March 31, (In thousands, except per share data) 2016 2015 2016 2015 Revenues $ $ $ $ Net income attributable to Lannett Company, Inc. Earnings per common share attributable to Lannett Company, Inc.: Basic $ $ $ $ Diluted $ $ $ $ The supplemental pro forma earnings for the three months ended March 31, 2016 were adjusted to exclude $8.6 million of expense related to the amortization of fair value step-up adjustments to acquisition-date inventory. The supplemental pro forma earnings for the three months ended March 31, 2015 were adjusted to exclude $1.0 million of acquisition-related costs incurred by KUPI. The supplemental pro forma earnings for the nine months ended March 31, 2016 were adjusted to exclude $28.9 million of acquisition-related costs, of which $21.5 million was incurred by Lannett and $7.4 million was incurred by KUPI, and $14.4 million of expense related to the amortization of fair value adjustments to acquisition-date inventory. The supplemental pro forma earnings for the nine months ended March 31, 2015 were adjusted to include $30.7 million of acquisition-related costs, of which $21.5 million was incurred by Lannett and $9.2 million was incurred by KUPI, as well as $18.9 million of expense related to the amortization of fair value step-up adjustments to acquisition-date inventory. Silarx On June 1, 2015, the Company completed the acquisition of Silarx Pharmaceuticals, Inc., a New York corporation, and Stoneleigh Realty, LLC, a New York limited liability company (together “Silarx”), pursuant to the terms and conditions of a Stock Purchase Agreement. Silarx manufactures and markets high-quality liquid pharmaceutical products, including generic prescription and over-the-counter products. Silarx operates within a manufacturing facility located in Carmel, New York. Strategic benefits of the acquisition include an FDA-approved manufacturing facility, research and development expertise and added diversity to Lannett’s portfolio of existing and pipeline products. Pursuant to the terms of the Stock Purchase Agreement, Lannett purchased 100% of the outstanding equity interests of Silarx for cash consideration totaling $42.5 million, subject to a post-closing working capital adjustment. The Company used the acquisition method of accounting to account for this transaction. Under the acquisition method of accounting, the assets acquired and liabilities assumed in the transaction were recorded at the date of acquisition at their respective fair values using assumptions that are subject to change. Any adjustments, if necessary, will be recorded in the measurement period. The preliminary purchase price has been allocated to the assets acquired and liabilities assumed for the Silarx business as follows: (In thousands) Cash $ Accounts receivable, net of revenue-related reserves Inventories Other current assets Property, plant and equipment Product rights In-process research and development Goodwill Other assets Total assets acquired Accounts payable ) Income taxes payable ) Total net assets acquired $ Amounts allocated to acquired in-process research and development represent an estimate of the fair value of purchased in-process technology for research projects that, as of the closing date of the acquisition, had not yet reached technological feasibility and had no alternative future use. The fair value of in-process research and development was based on the excess earnings method, which utilizes forecasts of expected cash inflows (including estimates for ongoing costs) and other contributory charges, on a project-by-project basis at the appropriate discount rate for the inherent risk in each project, and will be tested for impairment in accordance with the Company’s policy for testing indefinite-lived intangible assets. Product rights totaling $10.0 million are comprised of currently marketed products that have an estimated useful life of 15 years. The goodwill of $141 thousand arising from the acquisition consists largely of the value of the employee workforce and the value of products to be developed in the future. The goodwill was assigned to the Company’s only reporting unit. Goodwill recognized is expected to be fully deductible for income tax purposes. Unaudited Pro Forma Financial Results The results of Silarx are included in the Company’s Consolidated Financial Statements from the date of acquisition. The pro forma results assuming the acquisition had occurred as of July 1, 2013 were not material to the Company’s revenues, net income, and earnings per share. |
Restructuring Charges
Restructuring Charges | 9 Months Ended |
Mar. 31, 2016 | |
Restructuring Charges. | |
Restructuring Charges | Note 5. Restructuring Charges 2016 Restructuring Program On February 1, 2016, in connection with the acquisition of Kremers, the Company formulated a plan related to the future integration of Kremers and the Company’s businesses. The integration plan focuses on the closure of Kremers corporate functions and the consolidation of manufacturing, sales, research and development, and distribution functions. The Company estimates that it will incur an aggregate of up to approximately $23.0 million in restructuring charges for actions that have been announced or communicated since the 2016 Restructuring Program began. Of this amount, approximately $14.0 million relates to employee separation costs, approximately $1.0 million relates to contract termination costs and approximately $8.0 million relates to facility closure costs and other actions. The expenses associated with the restructuring program included in restructuring expenses during the three and nine months ended March 31, 2016 were as follows: (In thousands) Three and Nine Months Ended March 31, 2016 Employee separation costs $ Contract termination costs Facility closure costs Total $ A reconciliation of the changes in restructuring liabilities associated with the 2016 Restructuring Program from June 30, 2015 through March 31, 2016 is set forth in the following table: (In thousands) Employee Separation Costs Contract Termination Costs Facility Closure Costs Total Balance at June 30, 2015 $ — $ — $ — $ — Restructuring Charges Payments ) — ) ) Balance at March 31, 2016 $ $ $ — $ |
Accounts Receivable
Accounts Receivable | 9 Months Ended |
Mar. 31, 2016 | |
Accounts Receivable | |
Accounts Receivable | Note 6. Accounts Receivable Accounts receivable consisted of the following components at March 31, 2016 and June 30, 2015: (In thousands) March 31, 2016 June 30, 2015 Gross accounts receivable $ $ Less Chargebacks reserve ) ) Less Rebates reserve ) ) Less Returns reserve ) ) Less Other deductions ) ) Less Allowance for doubtful accounts ) ) Accounts receivable, net $ $ For the three months ended March 31, 2016, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns, and other deductions of $185.2 million, $54.5 million, $3.5 million, and $11.7 million, respectively. For the three months ended March 31, 2015, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns, and other deductions of $74.3 million, $18.4 million, $5.9 million, and $7.8 million, respectively. For the nine months ended March 31, 2016, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns, and other deductions of $424.9 million, $124.6 million, $14.3 million, and $27.0 million, respectively. For the nine months ended March 31, 2015, the Company recorded a provision for chargebacks, rebates (including rebates presented as rebates payable), returns, and other deductions of $252.3 million, $58.2 million, $14.2 million, and $22.9 million, respectively. |
Inventories
Inventories | 9 Months Ended |
Mar. 31, 2016 | |
Inventories | |
Inventories | Note 7. Inventories Inventories at March 31, 2016 and June 30, 2015 consisted of the following: (In thousands) March 31, 2016 June 30, 2015 Raw materials $ $ Work-in-process Finished goods Total $ $ The reserve for excess and obsolete inventory was $3.9 million and $5.0 million at March 31, 2016 and June 30, 2015, respectively. |
Property, Plant and Equipment
Property, Plant and Equipment | 9 Months Ended |
Mar. 31, 2016 | |
Property, Plant and Equipment | |
Property, Plant and Equipment | Note 8. Property, Plant and Equipment Property, plant and equipment at March 31, 2016 and June 30, 2015 consisted of the following: (In thousands) Useful Lives March 31, 2016 June 30, 2015 Land — $ $ Building and improvements 10 - 39 years Machinery and equipment 5 - 10 years Furniture and fixtures 5 - 7 years Construction in progress — Property, plant and equipment, gross Less accumulated depreciation ) ) Property, plant and equipment, net $ $ |
Fair Value Measurements
Fair Value Measurements | 9 Months Ended |
Mar. 31, 2016 | |
Fair Value Measurements | |
Fair Value Measurements | Note 9. Fair Value Measurements The Company’s financial instruments recorded in the Consolidated Balance Sheets include cash and cash equivalents, accounts receivable, investment securities, accounts payable, accrued expenses, and debt obligations. Included in cash and cash equivalents are certificates of deposit with maturities less than or equal to three months at the date of purchase and money market funds. The carrying value of certain financial instruments, primarily cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, approximate their estimated fair values based upon the short-term nature of their maturity dates. The carrying amount of the Company’s debt obligations approximates fair value based on current interest rates available to the Company on similar debt obligations. The Company follows the authoritative guidance of ASC Topic 820 Fair Value Measurements and Disclosures . Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s financial assets and liabilities measured at fair value are entirely within Level 1 of the hierarchy as defined below: Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. Level 2 — Directly or indirectly observable inputs, other than quoted prices, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar instruments in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 — Unobservable inputs that are supported by little or no market activity and that are material to the fair value of the asset or liability. Financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation are examples of Level 3 assets and liabilities. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The Company’s assets and liabilities measured at fair value at March 31, 2016 and June 30, 2015, were as follows: March 31, 2016 (In thousands) Level 1 Level 2 Level 3 Total Assets Equity securities $ $ — $ — $ Total Assets $ $ — $ — $ Liabilities Acquisition-related contingent consideration $ — $ — $ $ Total Liabilities $ — $ — $ $ June 30, 2015 (In thousands) Level 1 Level 2 Level 3 Total Assets Equity securities $ $ — $ — $ Total Assets $ $ — $ — $ |
Investment Securities
Investment Securities | 9 Months Ended |
Mar. 31, 2016 | |
Investment Securities | |
Investment Securities | Note 10. Investment Securities The Company uses the specific identification method to determine the cost of securities sold, which consisted entirely of securities classified as trading. The Company had a net gain on investment securities of $125 thousand during the three months ended March 31, 2016, which included an unrealized gain related to securities still held at March 31, 2016 of $279 thousand. The Company had a net loss on investment securities of $103 thousand during the three months ended March 31, 2015, which included an unrealized loss related to securities still held at March 31, 2015 of $666 thousand. The Company had a net loss on investment securities of $209 thousand during the nine months ended March 31, 2016, which included an unrealized loss related to securities still held at March 31, 2016 of $125 thousand. The Company had a net gain on investment securities of $592 thousand during the nine months ended March 31, 2015, which included an unrealized loss related to securities still held at March 31, 2015 of $954 thousand. |
Goodwill and Intangible Assets
Goodwill and Intangible Assets | 9 Months Ended |
Mar. 31, 2016 | |
Goodwill and Intangible Assets | |
Goodwill and Intangible Assets | Note 11. Goodwill and Intangible Assets The changes in the carrying amount of goodwill for the nine months ended March 31, 2016 are as follows: (In thousands) Generic Pharmaceuticals Balance at June 30, 2015 $ Goodwill acquired Balance at March 31, 2016 $ Intangible assets, net as of March 31, 2016 and June 30, 2015, consisted of the following: Weighted Gross Carrying Amount Accumulated Amortization Intangible Assets, Net (In thousands) Avg. Life (Yrs.) March 31, 2016 June 30, 2015 March 31, 2016 June 30, 2015 March 31, 2016 June 30, 2015 Definite-lived: Cody Labs import license 15 $ $ $ ) $ ) $ $ KUPI product rights 15 — ) — — KUPI trade name 2 — ) — — KUPI other intangible assets 15 — ) — — Silarx product rights 15 ) ) Other product rights 14 ) ) Total definite-lived $ $ $ ) $ ) $ $ Indefinite-lived: KUPI in-process research and development — $ $ — $ — $ — $ $ — Silarx in-process research and development — — — Other product rights — — — Total indefinite-lived — — Total intangible assets, net $ $ $ ) $ ) $ $ For the three months ended March 31, 2016 and 2015, the Company incurred amortization expense of $7.6 million and $20 thousand, respectively. For the nine months ended March 31, 2016 and 2015, the Company incurred amortization expense of $11.6 million and $61 thousand, respectively. Future annual amortization expense consisted of the following as of March 31, 2016: (In thousands) Fiscal Year Ending June 30, Annual Amortization Expense 2016 $ 2017 2018 2019 2020 Thereafter $ |
Long-Term Debt
Long-Term Debt | 9 Months Ended |
Mar. 31, 2016 | |
Long-Term Debt | |
Long-Term Debt | Note 12. Long-Term Debt Secured Credit Facility On November 25, 2015, in connection with its acquisition of KUPI, Lannett entered into a credit and guaranty agreement (the “Credit and Guaranty Agreement”) among certain of its wholly-owned domestic subsidiaries, as guarantors, Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent, and other lenders providing for a secured credit facility (the “Senior Secured Credit Facility”). The Senior Secured Credit Facility consisted of Tranche A term loans in an aggregate principal amount of $275.0 million, Tranche B term loans in an aggregate principal amount of $635.0 million, and a Revolving Credit Facility providing for revolving loans in an aggregate principal amount of up to $125.0 million. As of March 31, 2016, the Company had $125.0 million available under the Revolving Credit Facility. On April 8, 2016, the Company drew down the full $125.0 million Revolving Credit Facility for working capital and other general purposes. The Term Loan A Facility will mature on November 25, 2020. The Tranche A Term Loans amortize in quarterly installments (a) through December 31, 2017 in amounts equal to 1.25% of the original principal amount of the Term Loan A Facility and (b) from January 1, 2018 through September 30, 2020 in amounts equal to 2.50% of the original principal amount of the Term Loan A Facility, with the balance payable on November 25, 2020. The Term Loan B Facility will mature on November 25, 2022. The Tranche B Term Loans amortize in equal quarterly installments in amounts equal to 1.25% of the original principal amount of the Term Loan B Facility with the balance payable on November 25, 2022. The Revolving Commitments will terminate and outstanding Revolving Loans will mature on November 25, 2020. The Secured Credit Facility is guaranteed by all of Lannett’s significant wholly-owned domestic subsidiaries (the “Subsidiary Guarantors”) and is collateralized by substantially all present and future assets of Lannett and the Subsidiary Guarantors. The interest rates applicable to the Term Loan Facility are based on a fluctuating rate of interest of the greater of an adjusted London Inter-bank Offered Rate (“LIBOR”) and 1.00%, plus a borrowing margin of 4.75% (for Tranche A Term Loans) or 5.375% (for Tranche B Term Loans). The interest rates applicable to the Revolving Credit Facility will be based on a fluctuating rate of interest of an adjusted LIBOR plus a borrowing margin of 4.75%. The interest rate applicable to the unused commitment for the Revolving Credit Facility is initially 0.50%. After Lannett delivers its financial statements for the fiscal quarter ending March 31, 2016, the interest margins and unused commitment fee on the Revolving Credit Facility will be subject to a leveraged based pricing grid. The Senior Secured Credit Facility contains a number of covenants that, among other things, limit the ability of Lannett and its restricted subsidiaries to: incur more indebtedness; pay dividends; redeem stock or make other distributions of equity; make investments; create restrictions on the ability of Lannett’s restricted subsidiaries that are not Subsidiary Guarantors to pay dividends to Lannett or make intercompany transfers; create negative pledges; create liens; transfer or sell assets; merge or consolidate; enter into sale leasebacks; enter into certain transactions with Lannett’s affiliates; and prepay or amend the terms of certain indebtedness. The Senior Secured Credit Facility contains a springing financial performance covenant that is triggered when the aggregate principal amount of outstanding Revolving Credit Loans and outstanding letters of credit as of the last day of the most recent fiscal quarter is greater than 30% of the aggregate commitments under the Revolving Credit Facility. The covenant provides that Lannett shall not permit its first lien net senior secured leverage ratio as of the last day of any four consecutive fiscal quarters (i) from and after December 31, 2015, to be greater than 4.25:1.00 (ii) from and after December 31, 2017 to be greater than 3.75:1.00 and (iii) from and after December 31, 2019 to be greater than 3.25:1.00. The Senior Secured Credit Facility also contains a financial performance covenant for the benefit of the Tranche A Term Loan lenders which provides that Lannett shall not permit its net senior secured leverage ratio as of the last day of any four consecutive fiscal quarters (i) prior to December 31, 2017, to be greater than 4.25:1.00, (ii) as of December 31, 2017 and prior to December 31, 2019 to be greater than 3.75:1.00 and (iii) as of December 31, 2019 and thereafter to be greater than 3.25:1.00. The Senior Secured Credit Facility also contains certain affirmative covenants, including financial and other reporting requirements. 12.0% Senior Notes due 2023 On November 25, 2015, Lannett issued $250.0 million aggregate principal amount of its unsecured 12.0% Senior Notes due 2023 under an Indenture. Interest on the Senior Notes accrues at the rate of 12.0% per annum and is payable semi-annually on June 15 and December 15 of each year. The Notes mature on December 15, 2023. The Notes are guaranteed by each of Lannett’s current and future domestic subsidiaries that guarantee Lannett’s obligations under the Secured Credit Facility. The Notes may be redeemed at par, in whole but not in part, at any time prior to October 1, 2016. The Indenture contains covenants that, among other things, limit the ability of Lannett and Lannett’s restricted subsidiaries to: incur additional indebtedness, guarantee indebtedness or issue certain preferred shares; pay dividends on, redeem or repurchase stock or make other distributions in respect of its capital stock; repurchase, prepay or redeem subordinated indebtedness; make loans and investments; create restrictions on the ability of Lannett’s restricted subsidiaries to pay dividends to Lannett or the Subsidiary Guarantors or make other intercompany transfers; create liens; transfer or sell assets; consolidate, merge or sell or otherwise dispose of all or substantially all of its assets; enter into certain transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries. Upon the occurrence of certain events constituting a change of control triggering event, Lannett is required to make an offer to repurchase all of the Notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any to the repurchase date. If Lannett sells assets under certain circumstances, it must use the proceeds to make an offer to purchase the Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. In connection with the Secured Credit Facility and the Senior Notes, the Company incurred an initial purchaser’s discount of $72.1 million and debt issuance costs of $32.7 million. These costs are recorded as a reduction of long-term debt in the Consolidated Balance Sheet. Citibank Line of Credit On November 25, 2015, in connection with the acquisition of KUPI, the Company terminated the Citibank Line of Credit. Long-term debt, net consisted of the following: March 31, June 30, (In thousands) 2016 2015 First National Bank of Cody mortgage $ $ Term Loan A due 2020 — Unamortized discount and other debt issuance costs ) — Term Loan A , net — Term Loan B due 2022 — Unamortized discount and other debt issuance costs ) — Term Loan B , net — Senior Notes due 2023, (includes $200.0 million of notes due to UCB (see Note 21)) — Unamortized debt issuance costs ) — Senior Notes, net — Total debt, net Less current portion ) ) Total long-term debt, net $ $ The Company is the primary beneficiary to a VIE called “Realty”. The VIE owns land and a building which is leased to Cody Labs. A mortgage loan with First National Bank of Cody has been consolidated in the Company’s financial statements, along with the related land and building. The mortgage requires monthly principal and interest payments of $15 thousand. As of March 31, 2016 and June 30, 2015, the effective interest rate was 4.5% per annum. The mortgage is collateralized by the land and building with a net book value of $1.5 million. Long-term debt amounts due for the twelve month periods ending March 31 were as follows: Amounts Payable (In thousands) to Institutions 2017 $ 2018 2019 2020 2021 Thereafter Total $ Weighted-average interest rates for the three and nine months ended March 31, 2016 was 9.2% and 9.4%, respectively. |
Legal and Regulatory Matters
Legal and Regulatory Matters | 9 Months Ended |
Mar. 31, 2016 | |
Legal And Regulatory Matters | |
Legal and Regulatory Matters | Note 13. Legal and Regulatory Matters Richard Asherman On April 16, 2013, Richard Asherman (“Asherman”), the former President of and a member in Realty, filed a complaint (“Complaint”) in Wyoming state court against the Company and Cody Labs. At the same time, he also filed an application for a temporary restraining order to enjoin certain operations at Cody Labs, claiming, among other things, that Cody Labs is in violation of certain zoning laws and that Cody Labs is required to increase the level of its property insurance and to secure performance bonds for work being performed at Cody Labs. Mr. Asherman claims Cody Labs is in breach of his employment agreement and is required to pay him severance under his employment agreement, including 18 months of base salary, vesting of unvested stock options and continuation of benefits. The Company estimates that the aggregate value of the claimed severance benefits is approximately $350 thousand to $400 thousand, plus the value of any stock options that he can prove was lost as a result of his termination. Mr. Asherman also asserts that the Company is in breach of the Realty Operating Agreement and, among other requested remedies, he seeks to have the Company (i) pay him 50% of the value of 1.66 acres of land that Realty previously agreed to donate to an economic development entity associated with the City of Cody, Wyoming, which contemplated transaction has since been avoided and cancelled. Although Mr. Asherman originally sought to require that Lannett acquire his interest in Realty for an unspecified price and/or to dissolve Realty, those claims have been dismissed. The Company strongly disputes the claims in the Complaint. If Mr. Asherman is successful on his claim for breach of his employment agreement, he would be entitled to his contractual severance — 18 months’ salary plus the vesting of any stock options which Mr. Asherman can prove were capable of being exercised and were actually exercised within three months of his termination. The Company does not believe that he is entitled to any payments with respect to the options, plus a continuation of benefits. At this time the Company is unable to reasonably estimate a range or aggregate dollar amount of Mr. Asherman’s claims or of any potential loss, if any, to the Company. The Company does not believe that the ultimate resolution of the matter will have a significant impact on the Company’s financial position, results of operations or cash flows. Connecticut Attorney General Inquiry In July 2014, the Company received interrogatories and subpoena from the State of Connecticut Office of the Attorney General concerning its investigation into pricing of digoxin. According to the subpoena, the Connecticut Attorney General is investigating whether anyone engaged in any activities that resulted in (a) fixing, maintaining or controlling prices of digoxin or (b) allocating and dividing customers or territories relating to the sale of digoxin in violation of Connecticut antitrust law. The Company maintains that it acted in compliance with all applicable laws and regulations and continues to cooperate with the Connecticut Attorney General’s investigation. Federal Investigation into the Generic Pharmaceutical Industry In fiscal year 2015, the Company and certain affiliated individuals each were served with a grand jury subpoena relating to a federal investigation of the generic pharmaceutical industry into possible violations of the Sherman Act. The subpoenas request corporate documents of the Company relating to corporate, financial, and employee information, communications or correspondence with competitors regarding the sale of generic prescription medications, and the marketing, sale, or pricing of certain products, generally for the period of 2005 through the dates of the subpoenas. Based on reviews performed to date by outside counsel, the Company currently believes that it has acted in compliance with all applicable laws and regulations and continues to cooperate with the federal investigation. Patent Infringement (Paragraph IV Certification) There is substantial litigation in the pharmaceutical industry with respect to the manufacture, use, and sale of new products which are the subject of conflicting patent and intellectual property claims. Certain of these claims relate to paragraph IV certifications, which allege that an innovator patent is invalid or would not be infringed upon by the manufacture, use, or sale of the new drug. Zomig® The Company filed with the Food and Drug Administration an Abbreviated New Drug Application (ANDA) No. 206350, along with a paragraph IV certification, alleging that the two patents associated with the Zomig® nasal spray product (U.S. Patent No. 6,750,237 and U.S. Patent No. 67,220,767) are invalid. In July 2014, AstraZeneca AB, AstraZeneca UK Limited, and Impax Laboratories, Inc. filed two patent infringement lawsuits in the United States District Court for the District of Delaware, alleging that the Company’s filing of ANDA No. 206350 constitutes an act of patent infringement and seeking a declaration that the two patents at issue are valid and infringed. In September 2014, the Company filed a motion to dismiss one patent infringement lawsuit for lack of standing and responded to the second lawsuit by denying that any valid patent claim would be infringed. In the second lawsuit, the Company also counterclaimed for a declaratory judgment that the patent claims are invalid and not infringed. The Court has consolidated the two actions and denied the motion to dismiss the first action without prejudice. In July 2015, the Company filed with the United States Patent and Trademark Office (USPTO) a Petition for Inter Partes Review of each of the patents in suit seeking to reject as invalid all claims of the patents in suit. The USPTO has issued a decision denying initiation of the Inter Partes Review. Thalomid® The Company filed with the Food and Drug Administration an Abbreviated New Drug Application (ANDA) No. 206601, along with a paragraph IV certification, alleging that the fifteen patents associated with the Thalomid drug product (U.S. Patent Nos. 6,045,501; 6,315,720; 6,561,976; 6,561,977; 6,755,784; 6,869,399; 6,908,432; 7,141,018; 7,230,012; 7,435,745; 7,874,984; 7,959,566; 8,204,763; 8,315,886; 8,589,188 and 8,626,53) are invalid, unenforceable and/or not infringed. On January 30, 2015, Celgene Corporation and Children’s Medical Center Corporation filed a patent infringement lawsuit in the United States District Court for the District of New Jersey, alleging that the Company’s filing of ANDA No. 206601 constitutes an act of patent infringement and seeking a declaration that the patents at issue are valid and infringed. The Company filed an answer and affirmative defenses to the complaint. The Company has responded to the complaint by filing a motion challenging personal jurisdiction. The court has decided to allow limited discovery on the issue of personal jurisdiction and has administratively terminated the motion while discovery is taken on the issue. Dilaudid® The Company filed with the Food and Drug Administration an Abbreviated New Drug Application (ANDA) No. 207108, along with a paragraph IV certification, alleging that US Patent 6,589,960 associated with the Dilaudid® (hydromorphone oral solution) would not be infringed by the Company’s proposed hydromorphone oral solution product and/or that the patent is invalid. On August 8, 2015, Purdue Pharmaceutical Products L.P, Purdue Pharma L.P, and Purdue Pharma Technologies Inc. filed a patent infringement lawsuit in the United States District Court for the District of New Jersey, alleging that the Company’s filing of ANDA No. 207108 constitutes an act of patent infringement and seeking a declaration that the patent at issue was infringed by the submission of ANDA No, 207108. The Company filed an answer and affirmative defenses to the complaint. Although the Company cannot currently predict the length or outcome of paragraph IV litigation, legal expenses associated with these lawsuits could have a significant impact on the financial position, results of operations and cash flows of the Company. KUPI Litigation In August 2015, KUPI received a letter from the Texas Office of the Attorney General alleging that they had inaccurately reported certain price information in violation of the Texas Medicaid Fraud Prevention Act. UCB, KUPI’s previous parent company is handling the defense and is evaluating the allegations and cooperating with the Texas Attorney General’s Office. Per the terms of the Stock Purchase Agreement the Company is fully indemnified for any losses associated with this matter. In conjunction with information received from UCB’s legal counsel, the Company is currently unable to estimate the timing or the outcome of this matter. KUPI Patent Infringement (Paragraph IV Certification) Nexium® KUPI was sued on December 5, 2013, by AstraZeneca AB, Aktiebolaget Hassle, AstraZeneca LP, KBI Inc., and KBI-E Inc., alleging infringement of U.S. Patent Nos. 5,714,504, 6,369,085, 7,411,070 and 8,466,175 through submission of an abbreviated new drug application (“ANDA”) to the U.S. Food and Drug Administration for approval to market 20 mg and 40 mg esomeprazole magnesium delayed-release tablets. Since the parties were note able to reach agreement on a settlement, KUPI answered the Complaint on July 8, 2015. Although the Company cannot currently predict the length or outcome of paragraph IV litigation, legal expenses associated with these lawsuits could have a significant impact on the financial position, results of operations and cash flows of the Company. AWP Litigation The Company and some of our competitors have been named as defendants in two lawsuits filed in 2016 alleging that the Company and a number of other generic pharmaceutical manufacturers caused the Average Wholesale Prices (AWPs) of our and their products to be inflated, thereby injuring government programs, entities and persons who reimbursed prescription drugs based on AWPs. The Company stopped using AWP as a basis for establishing prices in or around 2002 and dispute the allegations set forth in these lawsuits. The Company does not believe that the ultimate resolution of these lawsuits will have a significant impact on our financial position, results of operations or cash flows. Private Antitrust Litigation The Company and certain competitors have been named as defendants in four lawsuits filed in 2016 alleging that the Company and certain generic pharmaceutical manufacturers have conspired to fix prices of generic digoxin and doxycycline. The Company believes that we acted in compliance with all applicable laws and regulations. Accordingly, the Company disputes the allegations set forth in these class actions. The Company does not believe that the ultimate resolution of these lawsuits will have a significant impact on our financial position, results of operations or cash flows. Other Litigation Matters The Company is also subject to various legal proceedings arising out of the normal course of its business including, but not limited to, product liability, intellectual property, patent infringement claims, and antitrust matters. It is not possible to predict the outcome of these various proceedings. An adverse determination in any of these proceedings in the future could have a significant impact on the financial position, results of operations and cash flows of the Company. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Mar. 31, 2016 | |
Commitments and Contingencies | |
Commitments and Contingencies | Note 14. Commitments and Contingencies Leases The Company leases certain manufacturing and office equipment, in the ordinary course of business. These assets are typically renewed annually. Rental and lease expense was not material for all periods presented. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) for the remainder of Fiscal 2016 and the twelve month periods ending June 30 thereafter are as follows: (In thousands) Amounts Due Remainder of 2016 $ 2017 2018 2019 2020 Thereafter Total $ |
Accumulated Other Comprehensive
Accumulated Other Comprehensive Loss | 9 Months Ended |
Mar. 31, 2016 | |
Accumulated Other Comprehensive Loss. | |
Accumulated Other Comprehensive Loss | Note 15. Accumulated Other Comprehensive Loss The Company’s Accumulated Other Comprehensive Loss was comprised of the following components as of March 31, 2016 and 2015: (In thousands) March 31, 2016 March 31, 2015 Foreign Currency Translation Beginning Balance, July 1 $ ) $ ) Net gain (loss) on foreign currency translation (net of tax of $0 and $0) ) Reclassifications to net income (net of tax of $0 and $0) — — Other comprehensive income (loss), net of tax ) Ending Balance, March 31 ) ) Total Accumulated Other Comprehensive Loss $ ) $ ) |
Earnings Per Common Share
Earnings Per Common Share | 9 Months Ended |
Mar. 31, 2016 | |
Earnings Per Common Share | |
Earnings Per Common Share | Note 16. Earnings Per Common Share A dual presentation of basic and diluted earnings per common share is required on the face of the Company’s Consolidated Statement of Operations as well as a reconciliation of the computation of basic earnings per common share to diluted earnings per common share. Basic earnings per common share excludes the dilutive impact of potentially dilutive securities and is computed by dividing net income (loss) attributable to Lannett Company, Inc. by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is computed using the treasury stock method and includes the effect of potential dilution from the exercise of outstanding stock options and a warrant and treats unvested restricted stock as if it were vested. Potentially dilutive securities have been excluded in the weighted average number of common shares used for the calculation of earnings per share in periods of net loss because the effect of including such securities would be anti-dilutive. A reconciliation of the Company’s basic and diluted earnings per common share was as follows: Three Months Ended March 31, (In thousands, except share and per share data) 2016 2015 Net income (loss) attributable to Lannett Company, Inc. $ ) $ Basic weighted average common shares outstanding Effect of potentially dilutive stock options, warrants and restricted stock awards — Diluted weighted average common shares outstanding Earnings (Loss) per common share attributable to Lannett Company, Inc.: Basic $ ) $ Diluted $ ) $ Nine months Ended March 31, (In thousands, except share and per share data) 2016 2015 Net income attributable to Lannett Company, Inc. $ $ Basic weighted average common shares outstanding Effect of potentially dilutive stock options, warrants and restricted stock awards Diluted weighted average common shares outstanding Earnings per common share attributable to Lannett Company, Inc.: Basic $ $ Diluted $ $ The number of anti-dilutive shares that have been excluded in the computation of diluted earnings per share for the three months ended March 31, 2016 and 2015 were 4.4 million and 77 thousand, respectively. The number of anti-dilutive shares that have been excluded in the computation of diluted earnings per share for the nine months ended March 31, 2016 and 2015 were 2.6 million and 490 thousand, respectively. |
Warrant
Warrant | 9 Months Ended |
Mar. 31, 2016 | |
Warrants | |
Warrant | Note 17. Warrant In connection with the KUPI acquisition, Lannett issued to UCB Manufacturing a warrant to purchase up to a total of 2.5 million shares of Lannett’s common stock (the “Warrant”). The Warrant has a term of three years (expiring November 25, 2018) and an exercise price of $48.90 per share, subject to customary adjustments, including for stock splits, dividends, and combinations. The Warrant also has a “weighted average” anti-dilution adjustment provision. The estimated fair value included as part of the total consideration transferred to UCB at the acquisition date was $29.9 million. The fair value assigned to the Warrant was determined using the Black-Scholes valuation model. The Company concluded that the warrant was indexed to its own stock and therefore the Warrant has been classified as an equity instrument. |
Share-based Compensation
Share-based Compensation | 9 Months Ended |
Mar. 31, 2016 | |
Share-based Compensation | |
Share-based Compensation | Note 18. Share-based Compensation At March 31, 2016, the Company had four share-based employee compensation plans (the “2003 Plan,” the 2006 Long-term Incentive Plan (“LTIP”), or “2006 LTIP”, the “2011 LTIP” and the “2014 LTIP”). Together these plans authorized an aggregate total of 8.1 million shares to be issued. The plans have a total of 2.4 million shares available for future issuances. The Company issues share-based compensation awards with a vesting period ranging up to 3 years and a maximum contractual term of 10 years. The Company issues new shares of stock when stock options are exercised. As of March 31, 2016, there was $10.8 million of total unrecognized compensation cost related to non-vested share-based compensation awards. That cost is expected to be recognized over a weighted average period of 1.8 years. Stock Options The Company measures share-based compensation cost for options using the Black-Scholes option pricing model. The following table presents the weighted average assumptions used to estimate fair values of the stock options granted during the nine months ended March 31, 2016 and 2015, the estimated annual forfeiture rates used to recognize the associated compensation expense and the weighted average fair value of the options granted: Nine months Ended March 31, 2016 March 31, 2015 Risk-free interest rate % % Expected volatility % % Expected dividend yield % % Forfeiture rate % % Expected term 5.2 years 5.5 years Weighted average fair value $ $ Expected volatility is based on the historical volatility of the price of our common shares during the historical period equal to the expected term of the option. The Company uses historical information to estimate the expected term, which represents the period of time that options granted are expected to be outstanding. The risk-free rate for the period equal to the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The forfeiture rate assumption is the estimated annual rate at which unvested awards are expected to be forfeited during the vesting period. This assumption is based on our actual forfeiture rate on historical awards. Periodically, management will assess whether it is necessary to adjust the estimated rate to reflect changes in actual forfeitures or changes in expectations. Additionally, the expected dividend yield is equal to zero, as the Company has not historically issued, and has no immediate plans to issue, a dividend. A stock option roll-forward as of March 31, 2016 and changes during the nine months then ended is presented below: (In thousands, except for weighted average price and life data) Awards Weighted- Average Exercise Price Aggregate Intrinsic Value Weighted Average Remaining Contractual Life (yrs.) Outstanding at July 1, 2015 $ Granted $ Exercised ) $ $ Forfeited, expired or repurchased ) $ Outstanding at March 31, 2016 $ $ Vested and expected to vest at March 31, 2016 $ $ Exercisable at March 31, 2016 $ $ Restricted Stock The Company measures restricted stock compensation costs based on the stock price at the grant date less an estimate for expected forfeitures. The annual forfeiture rate used to calculate compensation expense was 6.5% for the nine months ended March 31, 2016 and 2015. A summary of restricted stock awards as of March 31, 2016 and changes during the nine months then ended, is presented below: (In thousands) Awards Weighted Average Grant - date Fair Value Aggregate Intrinsic Value Non-vested at July 1, 2015 $ Granted $ Vested ) $ $ Forfeited ) $ Non-vested at March 31, 2016 $ Employee Stock Purchase Plan In February 2003, the Company’s stockholders approved an Employee Stock Purchase Plan (“ESPP”). Employees eligible to participate in the ESPP may purchase shares of the Company’s stock at 85% of the lower of the fair market value of the common stock on the first day of the calendar quarter, or the last day of the calendar quarter. Under the ESPP, employees can authorize the Company to withhold up to 10% of their compensation during any quarterly offering period, subject to certain limitations. The ESPP was implemented on April 1, 2003 and is qualified under Section 423 of the Internal Revenue Code. The Board of Directors authorized an aggregate total of 1.1 million shares of the Company’s common stock for issuance under the ESPP. During the nine months ended March 31, 2016 and 2015, 30 thousand shares and 9 thousand shares were issued under the ESPP, respectively. As of March 31, 2016, 468 thousand total cumulative shares have been issued under the ESPP. The following table presents the allocation of share-based compensation costs recognized in the Consolidated Statements of Operations by financial statement line item: Three Months Ended Nine months Ended March 31, March 31, (In thousands) 2016 2015 2016 2015 Selling, general and administrative expenses $ $ $ $ Research and development expenses Cost of sales Total $ $ $ Tax benefit at statutory rate $ $ $ $ |
Employee Benefit Plan
Employee Benefit Plan | 9 Months Ended |
Mar. 31, 2016 | |
Employee Benefit Plan | |
Employee Benefit Plan | Note 19. Employee Benefit Plan The Company currently has multiple 401k defined contribution plans (the “Plan”) covering substantially all employees. Contributions to the Plan during the three months ended March 31, 2016 and 2015 were $629 thousand and $226 thousand, respectively. Contributions to the Plan during the nine months ended March 31, 2016 and 2015 were $1.1 million and $582 thousand, respectively. |
Income Taxes
Income Taxes | 9 Months Ended |
Mar. 31, 2016 | |
Income Taxes | |
Income Taxes | Note 20. Income Taxes The Company uses the liability method to account for income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. The federal, state and local income tax benefit for the three months ended March 31, 2016 was $2.7 million compared to income tax expense of $18.0 million for the three months ended March 31, 2015. During the three months ended March 31, 2016 and March 31, 2015, the effective rate was 33.4% and 33.1%, respectively. The federal, state and local income tax expense for the nine months ended March 31, 2016 and 2015 was $20.3 million and $60.2 million, respectively. The effective tax rate for the nine months ended March 31, 2016 was 32.9% compared to 34.2% for the nine months ended March 31, 2015. The effective tax rate for the nine months ended March 31, 2016 was lower compared to the nine months ended March 31, 2015 due primarily to higher benefits related to research and experimentation credits recorded as a result of a tax law extension passed in late 2015, with a retroactive January 1, 2015 effective date, the effect of changes in the Company’s state tax profile as result of the KUPI acquisition, partially offset by a lower domestic manufacturing deduction. The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of March 31, 2016 and June 30, 2015, the Company reported total unrecognized tax benefits of $5.8 million and $578 thousand, respectively. The increase was related to the acquisition of KUPI. As a result of the positions taken during the period, the Company has not recorded any interest and penalties for the period ended March 31, 2016 in the statement of operations and no cumulative interest and penalties have been recorded in the Company’s statement of financial position as of March 31, 2016 and June 30, 2015. The Company will recognize interest accrued on unrecognized tax benefits in interest expense and any related penalties in operating expenses. The Company does not believe that the total unrecognized tax benefits will significantly increase or decrease in the next twelve months. The Company files income tax returns in the United States federal jurisdiction and various states. The Company’s tax returns for Fiscal Year 2012 and prior generally are no longer subject to review as such years generally are closed. The Company believes that an unfavorable resolution for open tax years would not be material to the financial position of the Company. |
Related Party Transactions
Related Party Transactions | 9 Months Ended |
Mar. 31, 2016 | |
Related Party Transactions | |
Related Party Transactions | Note 21. Related Party Transactions The Company had sales of $1.3 million and $226 thousand during the three months ended March 31, 2016 and 2015, respectively, to a generic distributor, Auburn Pharmaceutical Company (“Auburn”). Sales to Auburn for the nine months ended March 31, 2016 and 2015 were $2.2 million and $1.3 million, respectively. Jeffrey Farber, Chairman of the Board, is the owner of Auburn. Accounts receivable includes amounts due from Auburn of $1.1 million and $727 thousand at March 31, 2016 and June 30, 2015, respectively. As part of the acquisition of KUPI, the Company issued $200.0 million unsecured 12.0% Senior Notes and a warrant with a fair value of $29.2 million to UCB. Accounts payables include amounts due to UCB of $2.1 million at March 31, 2016. Purchases of authorized generics from UCB totaled $4.3 million and $5.6 million for the three and nine months ended March 31, 2016, respectively. Accounts receivable includes amounts due from UCB of $3.0 million. Sales to UCB for the three and nine months ended March 31, 2016 were $3.0 million and $3.0 million, respectively. In the Company’s opinion, the terms of these transactions were not more favorable to Auburn or UCB than would have been to a non-related party. |
Material Contracts with Supplie
Material Contracts with Suppliers | 9 Months Ended |
Mar. 31, 2016 | |
Material Contracts with Suppliers | |
Material Contracts with Suppliers | Note 22. Material Contracts with Suppliers Jerome Stevens Pharmaceuticals Distribution Agreement: The Company’s primary finished goods inventory supplier is JSP, in Bohemia, New York. Purchases of finished goods inventory from JSP accounted for approximately 53 % and 66% of the Company’s inventory purchases in the three months ended March 31, 2016 and 2015, respectively. Purchases of finished goods inventory from JSP accounted for 59% and 68% of the Company’s inventory purchases in the nine months ended March 31, 2016 and 2015, respectively. On August 19, 2013, the Company entered into an agreement with JSP to extend its initial contract to continue as the exclusive distributor in the United States of three JSP products: Butalbital, Aspirin, Caffeine with Codeine Phosphate Capsules USP; Digoxin Tablets USP; and Levothyroxine Sodium Tablets USP. The amendment to the original agreement extends the initial contract, which was due to expire on March 22, 2014, for five years through March 2019. In connection with the amendment, the Company issued a total of 1.5 million shares of the Company’s common stock to JSP and JSP’s designees. In accordance with its policy related to renewal and extension costs for recognized intangible assets, the Company recorded a $20.1 million expense in cost of sales, which represents the fair value of the shares on August 19, 2013. If the parties agree to a second five year extension from March 23, 2019 to March 23, 2024, the Company is required to issue to JSP or its designees an additional 1.5 million shares of the Company’s common stock. Both Lannett and JSP have the right to terminate the contract if one of the parties does not cure a material breach of the contract within thirty (30) days of notice from the non-breaching party. During the renewal term of the agreement, the Company is required to use commercially reasonable efforts to purchase, in the aggregate, $31 million of products from JSP each year. There is no guarantee that the Company will be able to meet the minimum purchase requirement for Fiscal 2016 and in the future. If the Company does not meet the minimum purchase requirements, JSP’s sole remedy is to terminate the agreement. |
Cody Expansion Project
Cody Expansion Project | 9 Months Ended |
Mar. 31, 2016 | |
Cody Expansion Project | |
Cody Expansion Project | Note 23. Cody Expansion Project On December 20, 2012, the Company, through its subsidiaries Realty and Cody Labs, entered into an agreement (“the Agreement”) with the City of Cody, Wyoming (“City of Cody”) and Forward Cody Wyoming, Inc. (“Forward Cody”), an unrelated non-profit corporation, which involves the construction of a building of approximately 24,000 square feet (the “Project”). As part of the Agreement, Cody was obligated to make an additional capital investment in its existing facilities in the amount of $5.2 million and create an additional 45 full time positions within three years starting June 30, 2011; Realty was required to contribute 1.66 acres of land to Forward Cody and enter into a 25-year lease agreement with Forward Cody for the Project. Realty will make annual rent payments totaling $108 thousand beginning on the date a Certificate of Occupancy permit is issued by the City of Cody and the Project is legally available for occupancy. Cody will sublease the property from Realty. Upon the fifth anniversary of occupancy, Realty may, at its discretion, purchase the Project from Forward Cody. The purchase option continues until Realty purchases the Project. Nothing in the Agreement should be deemed to create any relationship between Forward Cody and Realty other than the relationship of landlord and tenant. In June 2014, the Company amended the Agreement including changing the size of the building, eliminating the requirements to contribute any land, and removing Realty as a party to the agreement. Additionally, Cody Labs is required to provide a capital contribution to the project in the amount of $565 thousand. None of the revisions are expected to be material to the Company’s results of operations or financial position. The Company’s 25 year lease with Forward Cody commenced in April 2015. |
Settlement Agreement
Settlement Agreement | 9 Months Ended |
Mar. 31, 2016 | |
Settlement Agreement | |
Settlement Agreement | Note 24. Settlement Agreement On March 7, 2016, Lannett Company, Inc. (“Lannett”) entered into a Settlement Agreement Release and Mutual Release (“Settlement Agreement”) with one of its former customers, pursuant to which Lannett and such customer resolved all disputes between the parties with respect to the termination of the direct sales business relationship by Lannett on December 31, 2013. Pursuant to the terms of the Settlement Agreement, Lannett will pay to one of its former customers the following amounts: (a) in calendar year 2016, $8.0 million in cash; (b) in calendar year 2017, at the discretion of the customer, either $8.0 million in cash or a $10.0 million credit memorandum to be applied against invoices for the purchase of products from Lannett or any of its subsidiaries by such customer; and (c) in calendar year 2018, at the discretion of the customer, either $10.0 million in cash or a $12.0 million credit memorandum to be applied against invoices for the purchase of products from Lannett or any of its subsidiaries by such customer. As a result of the settlement agreement, the Company recorded a reduction to net sales in the amount of $23.6 million, which represents the net present value of the future cash payments. |
Subsequent Events
Subsequent Events | 9 Months Ended |
Mar. 31, 2016 | |
Subsequent Events | |
Subsequent Events | Note 25. Subsequent Events On April 8, 2016, the Company drew down the full $125.0 million Revolving Credit Facility for working capital and other general purposes. |
Summary of Significant Accoun34
Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Mar. 31, 2016 | |
Summary of Significant Accounting Policies | |
Principles of consolidation | Principles of consolidation The Consolidated Financial Statements include the accounts of Lannett Company, Inc., and its wholly owned subsidiaries, as well as Cody LCI Realty, LLC (“Realty”), a variable interest entity (“VIE”) in which the Company has a 50% ownership interest. Noncontrolling interest in Realty is recorded net of tax as net income attributable to the noncontrolling interest. Additionally, all intercompany accounts and transactions have been eliminated. |
Business Combinations | 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. |
Reclassifications | Reclassifications Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. |
Use of estimates | 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 goodwill and intangible assets, income taxes, contingencies, share-based compensation, and contingent consideration. Because of the inherent subjectivity and complexity involved in these estimates and assumptions, actual results could differ from those estimates. |
Foreign currency translation | 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 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 | 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. |
Investment securities | Investment securities The Company’s investment securities consist of publicly traded equity securities which are classified as trading investments. Investment securities are recorded at fair value based on quoted market prices from broker or dealer quotations or transparent pricing sources at each reporting date. Gains and losses are included in the Consolidated Statements of Operations under Other income (loss). |
Allowance for doubtful accounts | 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 Inventories are stated at the lower of cost or market determined by the first-in, first-out method. Inventories are regularly reviewed and provisions for excess and obsolete inventory are recorded based primarily on current inventory levels and estimated sales forecasts. |
Property, Plant and Equipment | 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. Depreciation expense for each of the three months ended March 31, 2016 and 2015 was $4.3 million and $1.4 million, respectively. Depreciation expense for each of the nine months ended March 31, 2016 and 2015 was $8.5 million and $4.0 million, respectively. |
Intangible Assets | 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, 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 | 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 flow 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 changes in circumstances 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. The judgments made in determining estimated fair values can materially impact our results of operations. |
In-Process Research and Development | In-Process Research and Development Amounts allocated to in-process research and development (“IPR&D”) 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. These valuations reflect, among other things, the impact of changes to the development programs, the projected development and regulatory time frames and the current competitive environment. Changes in any of the Company’s assumptions may result in a reduction to the estimated fair value of the IPR&D asset and could result in future impairment charges. |
Goodwill | Goodwill Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is tested for impairment on an annual basis during the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company first performs a qualitative assessment to determine if the quantitative impairment test is required. If changes in circumstances indicate an asset may be impaired, the Company performs the quantitative impairment test. In accordance with accounting standards, a two-step quantitative method is used for determining goodwill impairment. In the first step, the Company determines the fair value of our reporting unit (generic pharmaceuticals). If the net book value of our reporting unit exceeds its fair value, the second step of the impairment test which requires allocation of our reporting unit’s fair value to all of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations would then be performed. Any residual fair value is allocated to goodwill. An impairment charge is recognized only if the implied fair value of our reporting unit’s goodwill is less than its carrying amount. |
Segment Information | Segment Information The Company operates in one reportable segment, generic pharmaceuticals. As such, the Company aggregates its financial information for all products. The following table identifies the Company’s net sales by medical indication for the three and nine months ended March 31, 2016 and 2015: (In thousands) For the Three Months Ended March 31, For the Nine months Ended March 31, Medical Indication 2016 2015 2016 2015 Antibiotic $ $ $ $ Cardiovascular Central Nervous System — — Gallstone Gastrointestinal — — Glaucoma Gout Migraine Muscle Relaxant Obesity Pain Management Respiratory — — Thyroid Deficiency Urinary — — Other Contract manufacturing revenue — — Net sales Settlement agreement ) — ) — Total net sales $ $ $ $ |
Customer, Supplier and Product Concentration | Customer, Supplier and Product Concentration The following table presents the percentage of net sales, for the three and nine months ended March 31, 2016 and 2015, for certain of the Company’s products, defined as products containing the same active ingredient or combination of ingredients, which accounted for at least 10% of net sales in any of those periods: For the Three Months Ended March 31, For the Nine months Ended March 31, 2016 2015 2016 2015 Product 1 % % % % Product 2 % % % % Product 3 % % % % The following table presents the percentage of net sales, for the three and nine months ended March 31, 2016 and 2015, for certain of the Company’s customers which accounted for at least 10% of net sales in any of those periods: For the Three Months Ended March 31, For the Nine months Ended March 31, 2016 2015 2016 2015 Customer A % % % % Customer B % % % % The Company’s primary finished goods inventory supplier is Jerome Stevens Pharmaceuticals, Inc. (“JSP”), in Bohemia, New York. Purchases of finished goods inventory from JSP accounted for approximately 53% and 66% of the Company’s inventory purchases during the three months ended March 31, 2016 and 2015, respectively. Purchases of finished goods inventory from JSP accounted for approximately 59% and 68% of the Company’s inventory purchases during the nine months ended March 31, 2016 and 2015, respectively. See Note 22 “Material Contracts with Suppliers” for more information. |
Revenue Recognition and Net Sales Adjustments | Revenue Recognition The Company recognizes revenue when title and risk of loss have transferred to the customer and provisions for rebates, promotional adjustments, price adjustments, returns, chargebacks, and other potential adjustments are reasonably determinable. The Company also considers all other relevant criteria specified in Securities and Exchange Commission Staff Accounting Bulletin No. 104, Topic No. 13, “ Revenue Recognition ”, in determining when to recognize revenue. Net Sales Adjustments When revenue is recognized, a simultaneous adjustment to gross sales is made for chargebacks, rebates, returns, promotional adjustments, and other potential adjustments. These provisions are primarily estimated based on historical experience, future expectations, contractual arrangements with wholesalers and indirect customers, and other factors known to management at the time of accrual. Accruals for provisions are presented in the Consolidated Financial Statements as a reduction to gross sales with the corresponding reserve presented as a reduction of accounts receivable or included as rebates payable, depending on the nature of the reserve. The reserves, presented as a reduction of accounts receivable, totaled $144.8 million and $69.4 million at March 31, 2016 and June 30, 2015, respectively. Rebates payable at March 31, 2016 and June 30, 2015 were $17.0 million and $7.6 million, respectively, for certain rebate programs, primarily related to Medicare Part D and Medicaid, and certain sales allowances and other adjustments paid to indirect customers. |
Cost of Sales, including amortization of intangibles | Cost of Sales, including Amortization of Intangibles Cost of sales includes all costs related to bringing products to their final selling destination, which includes direct and indirect costs, such as direct material, labor, and overhead expenses. Additionally, cost of sales includes product royalties, depreciation, amortization and costs to renew or extend recognized intangible assets, freight charges and other shipping and handling expenses. Product royalties included in cost of sales for the three months ended March 31, 2016 and 2015 were $6.2 million and $44 thousand, respectively. Product royalties included in cost of sales for the nine months ended March 31, 2016 and 2015 were $10.6 million and $129 thousand, respectively. |
Research and Development | Research and Development Research and development costs are expensed as incurred, including all production costs until a drug candidate is approved by the Food and Drug Administration (“FDA”). Research and development expenses include costs associated with internal projects as well as costs associated with third-party research and development contracts. |
Contingencies | Contingencies Loss contingencies, including litigation-related contingencies, are included in the Consolidated Statements of Operations when the Company concludes that a loss is both probable and reasonably estimable. Legal fees related to litigation-related matters are expensed as incurred and included in the Consolidated Statements of Operations under the Selling, general and administrative line item. |
Contingent Consideration | Contingent Consideration Contingent consideration resulting from the KUPI acquisition was recorded at its fair value on the acquisition date. The Company has agreed to a 50/50 split of the additional tax liabilities UCB will incur associated with the IRS Section 338(H)(10) tax election, up to $35.0 million. This election is expected to result in additional tax benefits to the Company of approximately $100.0 million. Decreases in the fair value of the contingent consideration will be recorded as gains in the Consolidated Statements of Operations. Decreases in the fair value of the contingent consideration obligation can result from lower tax liabilities incurred by UCB associated with the IRS Section 338(H)(10) tax election. These fair value measurements represent Level 3 measurements, as they are based on significant inputs not observable in the market. |
Restructuring Costs | Restructuring Costs The Company records charges associated with approved restructuring plans to remove duplicative headcount and infrastructure associated with business acquisitions or to simplify business processes. Restructuring charges can include severance costs to eliminate a specified number of employees, infrastructure charges to vacate facilities and consolidate operations, and contract cancellation costs. The Company records restructuring charges based on estimated employee terminations, site closure and consolidation plans. The Company accrues severance and other employee separation costs under these actions when it is probable that benefits will be paid and the amount is reasonably estimable. |
Share-based Compensation | Share-based Compensation Share-based compensation costs are recognized over the vesting period, using a straight-line method, based on the fair value of the instrument on the date of grant less an estimate for expected forfeitures. The Company uses the Black-Scholes valuation model to determine the fair value of stock options and the stock price on the grant date to value restricted stock. The Black-Scholes valuation model includes various assumptions, including the expected volatility, the expected life of the award, dividend yield, and the risk-free interest rate. These assumptions involve inherent uncertainties based on market conditions which are generally outside the Company’s control. Changes in these assumptions could have a material impact on share-based compensation costs recognized in the financial statements. |
Income Taxes | Income Taxes The Company uses the asset and liability method to account for income taxes as prescribed by Accounting Standards Codification (“ASC”) 740, Income Taxes . Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. Deferred income tax assets and liabilities are adjusted to recognize the effects of changes in tax laws or enacted tax rates in the period during which they are signed into law. The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The authoritative standards issued by the Financial Accounting Standards Board (“FASB”) also provide guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The factors used to assess the likelihood of realization are the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Under ASC 740, Income Taxes , a valuation allowance is required when it is more likely than not that all or some portion of the deferred tax assets will not be realized through generating sufficient future taxable income. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company’s effective tax rate on future earnings. |
Earnings (Loss) Per Common Share | Earnings (Loss) Per Common Share Basic earnings (loss) per common share attributable to Lannett Company, Inc. is computed by dividing net income (loss) attributable to Lannett Company, Inc. common stockholders by the weighted average number of shares outstanding during the period. Diluted earnings (loss) per common share attributable to Lannett Company, Inc. is computed by dividing net income (loss) attributable to Lannett Company, Inc. common stockholders by the weighted average number of shares outstanding during the period including additional shares that would have been outstanding related to potentially dilutive securities. These potentially dilutive securities primarily consist of stock options, unvested restricted stock, and an outstanding warrant. Anti-dilutive securities are excluded from the calculation. Dilutive shares are also excluded in the calculation in periods of net loss because the effect of including such securities would be anti-dilutive. |
Comprehensive Income (Loss) | Comprehensive Income (Loss) Comprehensive income (loss) includes all changes in equity during a period except those that resulted from investments by or distributions to the Company’s stockholders. Other comprehensive income (loss) refers to revenues, expenses, gains and losses that are included in comprehensive income (loss), but excluded from net income as these amounts are recorded directly as an adjustment to stockholders’ equity. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers . The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The authoritative guidance is effective for annual reporting periods beginning after December 15, 2016. In July 2015, the FASB extended the effective date of the guidance by one year to December 15, 2017. The Company is currently in the process of assessing the impact this guidance will have on the consolidated financial statements. In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company has elected to early adopt ASU 2015-03 as of December 31, 2015. In July 2015, the FASB issued ASU 2015-11, Inventory — Simplifying the Measurement of Inventory . ASU 2015-11 requires inventory to be subsequently measured using the lower of cost and net realizable value, thereby eliminating the market value approach. Net realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.” ASU 2015-11 is effective for reporting periods beginning after December 15, 2016 and is applied prospectively. Early adoption is permitted. The Company is currently in the process of assessing the impact this guidance will have on the consolidated financial statements. In September 2015, the FASB issued ASU 2015-16, Business Combinations — Simplifying the Accounting for Measurement-Period Adjustments . ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 also requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. ASU 2015-16 is effective for reporting periods beginning after December 15, 2015 and is applied prospectively. Early adoption is permitted. The Company has elected to early adopt ASU 2015-16 as of March 31, 2016. In November 2015, the FASB issued ASU 2015-17, Income Taxes — Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires all deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The guidance may be applied either prospectively or retrospectively. ASU 2015-17 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company is currently in the process of assessing the impact this guidance will have on the consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires an entity to recognize right-of-use assets and liabilities on its balance sheet for all leases with terms longer than 12 months. Lessees and lessors are required to disclose quantitative and qualitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective application, with early adoption permitted. The Company is currently in the process of assessing the impact this guidance will have on the consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation: Improvements to Employee Share-Based Payment Accounting . ASU 2016-09 clarifies several aspects of accounting for share-based compensation including the accounting for excess tax benefits and deficiencies, accounting for forfeitures and the classification of excess tax benefits on the cash flow statement. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 and in interim periods within those fiscal years, with early adoption permitted. The Company is currently in the process of assessing the impact this guidance will have on the consolidated financial statements. |
Summary of Significant Accoun35
Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Mar. 31, 2016 | |
Summary of Significant Accounting Policies | |
Schedule of the Company's net sales by medical indication | (In thousands) For the Three Months Ended March 31, For the Nine months Ended March 31, Medical Indication 2016 2015 2016 2015 Antibiotic $ $ $ $ Cardiovascular Central Nervous System — — Gallstone Gastrointestinal — — Glaucoma Gout Migraine Muscle Relaxant Obesity Pain Management Respiratory — — Thyroid Deficiency Urinary — — Other Contract manufacturing revenue — — Net sales Settlement agreement ) — ) — Total net sales $ $ $ $ |
Summary of products which accounted for at least 10% of net sales | For the Three Months Ended March 31, For the Nine months Ended March 31, 2016 2015 2016 2015 Product 1 % % % % Product 2 % % % % Product 3 % % % % |
Summary of customers which accounted for at least 10% of net sales | For the Three Months Ended March 31, For the Nine months Ended March 31, 2016 2015 2016 2015 Customer A % % % % Customer B % % % % |
Acquisitions (Tables)
Acquisitions (Tables) | 9 Months Ended |
Mar. 31, 2016 | |
KUPI | |
Acquisitions | |
Summary of fair value of total consideration transferred | (In thousands) Cash purchase price paid to KUPI shareholders $ Estimated working capital adjustment ) Certain amounts reimbursable by UCB ) Total cash consideration transferred to KUPI shareholders Unsecured 12.0% Senior Notes issued to UCB Acquisition-related contingent consideration Warrant issued to UCB Total consideration to KUPI shareholders $ |
Schedule of preliminary purchase price allocated to assets acquired and liabilities assumed | (In thousands) Preliminary Purchase Price Allocation as of December 31, 2015 (a) Measurement Period Adjustments (b) Preliminary Purchase Price Allocation as of March 31, 2016 Cash and cash equivalents $ $ — $ Accounts receivable, net of revenue-related reserves ) Inventories ) Other current assets ) Property, plant and equipment Product rights Trade name — Other intangible assets ) In-process research and development ) Goodwill Deferred tax assets — Other assets — Total assets acquired Accounts payable ) — ) Accrued expenses ) ) ) Accrued payroll and payroll-related expenses ) ) ) Rebates payable ) — ) Royalties payable ) ) Other long-term liabilities ) — ) Total net assets acquired $ — $ (a) As originally reported in the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2015. (b) The measurement period adjustments are for 1) certain working capital adjustments and 2) updated valuations on inventories, property, plant and equipment and intangible assets. These adjustments did not have a significant impact on the Company’s previously reported consolidated financial statements. |
Schedule of revenue, net income and earnings per common share included in Company's Condensed Consolidated Statements of Operations | For the Three Months Ended March 31, For the Nine Months Ended March 31, (In thousands, except per share data) 2016 2016 Revenues $ $ Net income (loss) attributable to Lannett Company, Inc. ) Earnings (loss) per common share attributable to Lannett Company, Inc.: Basic $ $ ) Diluted $ $ ) |
Schedule of unaudited pro forma information | For the Three Months Ended March 31, For the Nine Months Ended March 31, (In thousands, except per share data) 2016 2015 2016 2015 Revenues $ $ $ $ Net income attributable to Lannett Company, Inc. Earnings per common share attributable to Lannett Company, Inc.: Basic $ $ $ $ Diluted $ $ $ $ |
Silarx | |
Acquisitions | |
Schedule of preliminary purchase price allocated to assets acquired and liabilities assumed | (In thousands) Cash $ Accounts receivable, net of revenue-related reserves Inventories Other current assets Property, plant and equipment Product rights In-process research and development Goodwill Other assets Total assets acquired Accounts payable ) Income taxes payable ) Total net assets acquired $ |
Restructuring Charges (Tables)
Restructuring Charges (Tables) | 9 Months Ended |
Mar. 31, 2016 | |
Restructuring Charges. | |
Schedule of restructuring charges associated with restructuring program | (In thousands) Three and Nine Months Ended March 31, 2016 Employee separation costs $ Contract termination costs Facility closure costs Total $ |
Schedule of reconciliation of changes in restructuring liabilities associated with restructuring program | (In thousands) Employee Separation Costs Contract Termination Costs Facility Closure Costs Total Balance at June 30, 2015 $ — $ — $ — $ — Restructuring Charges Payments ) — ) ) Balance at March 31, 2016 $ $ $ — $ |
Accounts Receivable (Tables)
Accounts Receivable (Tables) | 9 Months Ended |
Mar. 31, 2016 | |
Accounts Receivable | |
Schedule of accounts receivable | (In thousands) March 31, 2016 June 30, 2015 Gross accounts receivable $ $ Less Chargebacks reserve ) ) Less Rebates reserve ) ) Less Returns reserve ) ) Less Other deductions ) ) Less Allowance for doubtful accounts ) ) Accounts receivable, net $ $ |
Inventories (Tables)
Inventories (Tables) | 9 Months Ended |
Mar. 31, 2016 | |
Inventories | |
Schedule of Inventories | (In thousands) March 31, 2016 June 30, 2015 Raw materials $ $ Work-in-process Finished goods Total $ $ |
Property, Plant and Equipment (
Property, Plant and Equipment (Tables) | 9 Months Ended |
Mar. 31, 2016 | |
Property, Plant and Equipment | |
Schedule of property, plant and equipment | (In thousands) Useful Lives March 31, 2016 June 30, 2015 Land — $ $ Building and improvements 10 - 39 years Machinery and equipment 5 - 10 years Furniture and fixtures 5 - 7 years Construction in progress — Property, plant and equipment, gross Less accumulated depreciation ) ) Property, plant and equipment, net $ $ |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 9 Months Ended |
Mar. 31, 2016 | |
Fair Value Measurements | |
Schedule of financial assets and liabilities measured at fair value on a recurring basis | March 31, 2016 (In thousands) Level 1 Level 2 Level 3 Total Assets Equity securities $ $ — $ — $ Total Assets $ $ — $ — $ Liabilities Acquisition-related contingent consideration $ — $ — $ $ Total Liabilities $ — $ — $ $ June 30, 2015 (In thousands) Level 1 Level 2 Level 3 Total Assets Equity securities $ $ — $ — $ Total Assets $ $ — $ — $ |
Goodwill and Intangible Assets
Goodwill and Intangible Assets (Tables) | 9 Months Ended |
Mar. 31, 2016 | |
Goodwill and Intangible Assets | |
Schedule of changes in the carrying amount of goodwill | (In thousands) Generic Pharmaceuticals Balance at June 30, 2015 $ Goodwill acquired Balance at March 31, 2016 $ |
Summary of intangible assets, net | Weighted Gross Carrying Amount Accumulated Amortization Intangible Assets, Net (In thousands) Avg. Life (Yrs.) March 31, 2016 June 30, 2015 March 31, 2016 June 30, 2015 March 31, 2016 June 30, 2015 Definite-lived: Cody Labs import license 15 $ $ $ ) $ ) $ $ KUPI product rights 15 — ) — — KUPI trade name 2 — ) — — KUPI other intangible assets 15 — ) — — Silarx product rights 15 ) ) Other product rights 14 ) ) Total definite-lived $ $ $ ) $ ) $ $ Indefinite-lived: KUPI in-process research and development — $ $ — $ — $ — $ $ — Silarx in-process research and development — — — Other product rights — — — Total indefinite-lived — — Total intangible assets, net $ $ $ ) $ ) $ $ |
Summary of future annual amortization expense | (In thousands) Fiscal Year Ending June 30, Annual Amortization Expense 2016 $ 2017 2018 2019 2020 Thereafter $ |
Long-Term Debt (Tables)
Long-Term Debt (Tables) | 9 Months Ended |
Mar. 31, 2016 | |
Long-Term Debt | |
Summary of long-term debt, net | March 31, June 30, (In thousands) 2016 2015 First National Bank of Cody mortgage $ $ Term Loan A due 2020 — Unamortized discount and other debt issuance costs ) — Term Loan A , net — Term Loan B due 2022 — Unamortized discount and other debt issuance costs ) — Term Loan B , net — Senior Notes due 2023, (includes $200.0 million of notes due to UCB (see Note 21)) — Unamortized debt issuance costs ) — Senior Notes, net — Total debt, net Less current portion ) ) Total long-term debt, net $ $ |
Summary of long-term debt amounts due | Amounts Payable (In thousands) to Institutions 2017 $ 2018 2019 2020 2021 Thereafter Total $ |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 9 Months Ended |
Mar. 31, 2016 | |
Commitments and Contingencies | |
Schedule of future minimum lease payments under noncancelable operating leases | (In thousands) Amounts Due Remainder of 2016 $ 2017 2018 2019 2020 Thereafter Total $ |
Accumulated Other Comprehensi45
Accumulated Other Comprehensive Loss (Tables) | 9 Months Ended |
Mar. 31, 2016 | |
Accumulated Other Comprehensive Loss. | |
Schedule of Accumulated Other Comprehensive Income (Loss) | (In thousands) March 31, 2016 March 31, 2015 Foreign Currency Translation Beginning Balance, July 1 $ ) $ ) Net gain (loss) on foreign currency translation (net of tax of $0 and $0) ) Reclassifications to net income (net of tax of $0 and $0) — — Other comprehensive income (loss), net of tax ) Ending Balance, March 31 ) ) Total Accumulated Other Comprehensive Loss $ ) $ ) |
Earnings Per Common Share (Tabl
Earnings Per Common Share (Tables) | 9 Months Ended |
Mar. 31, 2016 | |
Earnings Per Common Share | |
Summary of reconciliation of the Company's basic and diluted earnings per common share | Three Months Ended March 31, (In thousands, except share and per share data) 2016 2015 Net income (loss) attributable to Lannett Company, Inc. $ ) $ Basic weighted average common shares outstanding Effect of potentially dilutive stock options, warrants and restricted stock awards — Diluted weighted average common shares outstanding Earnings (Loss) per common share attributable to Lannett Company, Inc.: Basic $ ) $ Diluted $ ) $ Nine months Ended March 31, (In thousands, except share and per share data) 2016 2015 Net income attributable to Lannett Company, Inc. $ $ Basic weighted average common shares outstanding Effect of potentially dilutive stock options, warrants and restricted stock awards Diluted weighted average common shares outstanding Earnings per common share attributable to Lannett Company, Inc.: Basic $ $ Diluted $ $ |
Share-based Compensation (Table
Share-based Compensation (Tables) | 9 Months Ended |
Mar. 31, 2016 | |
Share-based Compensation | |
Schedule of weighted average assumptions used to estimate fair values of the stock options granted and the estimated annual forfeiture rates used to recognize the associated compensation expense and the weighted average fair value of the options granted | Nine months Ended March 31, 2016 March 31, 2015 Risk-free interest rate % % Expected volatility % % Expected dividend yield % % Forfeiture rate % % Expected term 5.2 years 5.5 years Weighted average fair value $ $ |
Summary of stock option award activity | (In thousands, except for weighted average price and life data) Awards Weighted- Average Exercise Price Aggregate Intrinsic Value Weighted Average Remaining Contractual Life (yrs.) Outstanding at July 1, 2015 $ Granted $ Exercised ) $ $ Forfeited, expired or repurchased ) $ Outstanding at March 31, 2016 $ $ Vested and expected to vest at March 31, 2016 $ $ Exercisable at March 31, 2016 $ $ |
Summary of nonvested restricted stock awards | (In thousands) Awards Weighted Average Grant - date Fair Value Aggregate Intrinsic Value Non-vested at July 1, 2015 $ Granted $ Vested ) $ $ Forfeited ) $ Non-vested at March 31, 2016 $ |
Schedule of allocation of share-based compensation costs recognized in the Consolidated Statements of Operations by financial statement line item | Three Months Ended Nine months Ended March 31, March 31, (In thousands) 2016 2015 2016 2015 Selling, general and administrative expenses $ $ $ $ Research and development expenses Cost of sales Total $ $ $ Tax benefit at statutory rate $ $ $ $ |
Summary of Significant Accoun48
Summary of Significant Accounting Policies - Consolidation and PP&E (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2016 | Mar. 31, 2015 | Mar. 31, 2016 | Mar. 31, 2015 | |
Property, Plant and Equipment | ||||
Depreciation expense | $ 4.3 | $ 1.4 | $ 8.5 | $ 4 |
Cody LCI Realty LLC ("Realty") | ||||
Principles of consolidation | ||||
Ownership percentage in VIE | 50.00% |
Summary of Significant Accoun49
Summary of Significant Accounting Policies - Intangible Assets (Details) | 9 Months Ended |
Mar. 31, 2016 | |
Minimum | |
Intangible assets | |
Estimated useful lives | 10 years |
Maximum | |
Intangible assets | |
Estimated useful lives | 15 years |
Summary of Significant Accoun50
Summary of Significant Accounting Policies - Segment Information (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2016USD ($) | Mar. 31, 2015USD ($) | Mar. 31, 2016USD ($)segment | Mar. 31, 2015USD ($) | |
Medical Indication Information | ||||
Contract manufacturing revenue | $ 10,111 | $ 12,382 | ||
Net sales | 163,712 | $ 99,352 | 397,204 | $ 307,561 |
Settlement agreement | (23,598) | (23,598) | ||
Total net sales | 140,114 | 99,352 | $ 373,606 | 307,561 |
Segment information | ||||
Number of reportable segments | segment | 1 | |||
Antibiotic | ||||
Medical Indication Information | ||||
Net sales | 3,160 | 3,005 | $ 8,716 | 9,355 |
Cardiovascular | ||||
Medical Indication Information | ||||
Net sales | 16,652 | 8,457 | 38,059 | 45,729 |
Central Nervous System | ||||
Medical Indication Information | ||||
Net sales | 14,264 | 20,351 | ||
Gallstone | ||||
Medical Indication Information | ||||
Net sales | 14,698 | 20,489 | 53,389 | 48,969 |
Gastrointestinal | ||||
Medical Indication Information | ||||
Net sales | 21,739 | 30,431 | ||
Glaucoma | ||||
Medical Indication Information | ||||
Net sales | 6,006 | 5,714 | 19,371 | 15,921 |
Gout | ||||
Medical Indication Information | ||||
Net sales | 59 | 1,453 | 206 | 6,743 |
Migraine | ||||
Medical Indication Information | ||||
Net sales | 5,090 | 6,722 | 16,338 | 19,455 |
Muscle Relaxant | ||||
Medical Indication Information | ||||
Net sales | 1,193 | 3,738 | 4,246 | 6,377 |
Obesity | ||||
Medical Indication Information | ||||
Net sales | 1,023 | 1,084 | 2,853 | 2,952 |
Pain Management | ||||
Medical Indication Information | ||||
Net sales | 7,178 | 4,286 | 23,386 | 18,508 |
Respiratory | ||||
Medical Indication Information | ||||
Net sales | 5,308 | 6,703 | ||
Thyroid Deficiency | ||||
Medical Indication Information | ||||
Net sales | 38,009 | 36,720 | 116,543 | 114,601 |
Urinary | ||||
Medical Indication Information | ||||
Net sales | 6,506 | 10,148 | ||
Other | ||||
Medical Indication Information | ||||
Net sales | $ 12,716 | $ 7,684 | $ 34,082 | $ 18,951 |
Summary of Significant Accoun51
Summary of Significant Accounting Policies - Revenue (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Mar. 31, 2016 | Mar. 31, 2015 | Mar. 31, 2016 | Mar. 31, 2015 | Jun. 30, 2015 | |
Revenue recognition | |||||
Reserves, net of accounts receivable | $ 144,800 | $ 144,800 | $ 69,400 | ||
Rebates payable | 16,993 | 16,993 | $ 7,553 | ||
Contingent Consideration | |||||
Acquisition related contingent consideration | 35,000 | ||||
Additional tax benefits | 100,000 | ||||
Cost of Sales | |||||
Product royalties | $ 6,200 | $ 44 | $ 10,600 | $ 129 | |
Net sales | Products | Product 1 | |||||
Concentration risk | |||||
Concentration risk (as a percent) | 23.00% | 37.00% | 29.00% | 37.00% | |
Net sales | Products | Product 2 | |||||
Concentration risk | |||||
Concentration risk (as a percent) | 9.00% | 21.00% | 13.00% | 16.00% | |
Net sales | Products | Product 3 | |||||
Concentration risk | |||||
Concentration risk (as a percent) | 4.00% | 7.00% | 5.00% | 13.00% | |
Net sales | Customers | Customer A | |||||
Concentration risk | |||||
Concentration risk (as a percent) | 22.00% | 27.00% | 25.00% | 30.00% | |
Net sales | Customers | Customer B | |||||
Concentration risk | |||||
Concentration risk (as a percent) | 17.00% | 15.00% | 16.00% | 10.00% | |
Inventory purchases | Suppliers | JSP | |||||
Concentration risk | |||||
Concentration risk (as a percent) | 53.00% | 66.00% | 59.00% | 68.00% |
Acquisitions (Details)
Acquisitions (Details) - USD ($) $ / shares in Units, $ in Thousands | Nov. 25, 2015 | Nov. 25, 2015 | Mar. 31, 2016 | Mar. 31, 2015 | Mar. 31, 2016 | Mar. 31, 2015 | Dec. 31, 2015 | Jun. 30, 2015 |
Fair value of total consideration transferred: | ||||||||
Unsecured 12.0% Senior Notes issued to UCB | $ 200,000 | |||||||
Acquisition-related contingent consideration | 35,000 | |||||||
Warrant issued to UCB | $ 29,920 | |||||||
Debt instrument, stated percentage | 12.00% | 12.00% | 12.00% | 12.00% | ||||
Additional tax benefits | $ 100,000 | |||||||
Purchase price allocation of the assets acquired and liabilities assumed | ||||||||
Goodwill | $ 313,451 | 313,451 | $ 141 | |||||
Revenues | 140,114 | $ 99,352 | 373,606 | $ 307,561 | ||||
Net income (loss) attributable to Lannett Company, Inc. | $ (5,490) | $ 36,233 | $ 41,211 | $ 115,976 | ||||
Earnings (loss) per common share attributable to Lannett Company, Inc.: | ||||||||
Basic (in dollars per share) | $ (0.15) | $ 1.01 | $ 1.13 | $ 3.25 | ||||
Diluted (in dollars per share) | $ (0.15) | $ 0.97 | $ 1.10 | $ 3.13 | ||||
Acquisition costs incurred by acquirer | ||||||||
Earnings (loss) per common share attributable to Lannett Company, Inc.: | ||||||||
Acquisition-related expenses | $ 21,500 | $ 21,500 | ||||||
Acquisition costs incurred by acquiree | ||||||||
Earnings (loss) per common share attributable to Lannett Company, Inc.: | ||||||||
Acquisition-related expenses | 7,400 | 9,200 | ||||||
KUPI | ||||||||
Acquisitions | ||||||||
Percentage of outstanding equity interest | 100.00% | 100.00% | ||||||
Fair value of total consideration transferred: | ||||||||
Cash purchase price paid to KUPI shareholders | $ 1,030,000 | |||||||
Estimated working capital adjustment | (46,202) | |||||||
Certain amounts reimbursable by UCB | (37,340) | |||||||
Total cash consideration transferred to KUPI shareholders | 946,458 | |||||||
Unsecured 12.0% Senior Notes issued to UCB | 200,000 | |||||||
Acquisition-related contingent consideration | 35,000 | |||||||
Warrant issued to UCB | 29,920 | |||||||
Total consideration to KUPI shareholders | $ 1,211,378 | |||||||
Debt instrument, stated percentage | 12.00% | 12.00% | ||||||
Incremental tax cost will be reimbursed (as a percent) | 50.00% | 50.00% | ||||||
Business combination recognized identifiable assets acquired and liabilities assumed cash on hand | $ 90,100 | $ 90,100 | ||||||
Additional tax benefits | 100,000 | |||||||
Purchase price allocation of the assets acquired and liabilities assumed | ||||||||
Cash and cash equivalents | $ 16,877 | 16,877 | $ 16,877 | |||||
Accounts receivable, net of revenue-related reserves | 143,019 | 143,019 | 149,209 | |||||
Inventories | 83,600 | 83,600 | 83,815 | |||||
Other current assets | 11,405 | 11,405 | 12,873 | |||||
Property, plant and equipment | 117,587 | 117,587 | 97,418 | |||||
In-process research and development | 129,000 | 129,000 | 232,000 | |||||
Goodwill | 313,310 | 313,310 | 240,575 | |||||
Deferred tax assets | 4,956 | 4,956 | 4,956 | |||||
Other assets | 4,859 | 4,859 | 4,859 | |||||
Total assets acquired | 1,276,533 | 1,276,533 | 1,274,502 | |||||
Accounts payable | (19,249) | (19,249) | (19,249) | |||||
Accrued expenses | (6,079) | (6,079) | (4,161) | |||||
Accrued payroll and payroll-related expenses | (21,040) | (21,040) | (20,731) | |||||
Rebates payable | (9,816) | (9,816) | (9,816) | |||||
Royalties payable | (3,602) | (3,602) | (3,798) | |||||
Other long-term liabilities | (5,369) | (5,369) | (5,369) | |||||
Total net assets acquired | 1,211,378 | 1,211,378 | 1,211,378 | |||||
Preliminary indemnification assets acquired | 15,300 | 15,300 | ||||||
Compensation related payments | 10,400 | 10,400 | ||||||
Unrecognized tax benefits | $ 4,900 | 4,900 | ||||||
Revenues | 69,933 | 96,064 | ||||||
Net income (loss) attributable to Lannett Company, Inc. | $ 2,260 | (4,047) | ||||||
Measurement Period Adjustments | ||||||||
Accounts receivable, net of revenue-related reserves | (6,190) | |||||||
Inventories | (215) | |||||||
Other current assets | (1,468) | |||||||
Property, plant and equipment | 20,169 | |||||||
In-process research and development | (103,000) | |||||||
Goodwill | 72,735 | |||||||
Total assets acquired | 2,031 | |||||||
Accrued expenses | (1,918) | |||||||
Accrued payroll and payroll-related expenses | (309) | |||||||
Royalties payable | $ 196 | |||||||
Earnings (loss) per common share attributable to Lannett Company, Inc.: | ||||||||
Basic (in dollars per share) | $ 0.06 | $ (0.11) | ||||||
Diluted (in dollars per share) | $ 0.06 | $ (0.11) | ||||||
Acquisition-related expenses | $ 21,500 | |||||||
Unaudited Pro Forma financial results | ||||||||
Revenues | $ 163,712 | $ 193,612 | 520,867 | 616,083 | ||||
Net income attributable to Lannett Company, Inc. | $ 896 | $ 29,889 | $ 55,596 | $ 89,527 | ||||
Earnings per common share attributable to Lannett Company, Inc.: | ||||||||
Basic | $ 0.02 | $ 0.83 | $ 1.53 | $ 2.50 | ||||
Diluted | $ 0.02 | $ 0.80 | $ 1.49 | $ 2.41 | ||||
Proforma earnings | $ 896 | $ 29,889 | $ 55,596 | $ 89,527 | ||||
KUPI | Acquisition-related Costs | ||||||||
Unaudited Pro Forma financial results | ||||||||
Net income attributable to Lannett Company, Inc. | (28,900) | (30,700) | ||||||
Earnings per common share attributable to Lannett Company, Inc.: | ||||||||
Proforma earnings | (28,900) | (30,700) | ||||||
KUPI | Acquisition costs incurred by acquiree | ||||||||
Unaudited Pro Forma financial results | ||||||||
Net income attributable to Lannett Company, Inc. | (1,000) | |||||||
Earnings per common share attributable to Lannett Company, Inc.: | ||||||||
Proforma earnings | $ (1,000) | |||||||
KUPI | Fair value set-up adjustment | ||||||||
Purchase price allocation of the assets acquired and liabilities assumed | ||||||||
Inventory fair value step-up adjustments | $ 19,100 | |||||||
Unaudited Pro Forma financial results | ||||||||
Net income attributable to Lannett Company, Inc. | 8,600 | 14,400 | 18,900 | |||||
Earnings per common share attributable to Lannett Company, Inc.: | ||||||||
Proforma earnings | 8,600 | 14,400 | $ 18,900 | |||||
Senior Notes due 2023 | ||||||||
Fair value of total consideration transferred: | ||||||||
Debt instrument, stated percentage | 12.00% | 12.00% | ||||||
Senior Notes due 2023 | KUPI | ||||||||
Fair value of total consideration transferred: | ||||||||
Amount of debt issuance for funding the acquisition and transaction expenses | $ 250,000 | |||||||
Senior secured credit facility | KUPI | ||||||||
Fair value of total consideration transferred: | ||||||||
Amount of debt issuance for funding the acquisition and transaction expenses | 910,000 | |||||||
Revolving Credit Facility | KUPI | ||||||||
Fair value of total consideration transferred: | ||||||||
Amount of debt issuance for funding the acquisition and transaction expenses | $ 22,800 | |||||||
Product rights | KUPI | ||||||||
Purchase price allocation of the assets acquired and liabilities assumed | ||||||||
Product Rights | 430,000 | 430,000 | 409,000 | |||||
Measurement Period Adjustments | ||||||||
Intangible assets | 21,000 | |||||||
Trade name | KUPI | ||||||||
Purchase price allocation of the assets acquired and liabilities assumed | ||||||||
Product Rights | 2,920 | 2,920 | 2,920 | |||||
Other Intangible Assets | KUPI | ||||||||
Purchase price allocation of the assets acquired and liabilities assumed | ||||||||
Product Rights | $ 19,000 | 19,000 | $ 20,000 | |||||
Measurement Period Adjustments | ||||||||
Intangible assets | $ (1,000) |
Acquisitions - Silarx Pharmaceu
Acquisitions - Silarx Pharmaceuticals (Details) - USD ($) $ in Thousands | Jun. 01, 2015 | Mar. 31, 2016 | Jun. 30, 2015 |
Purchase price allocation of the assets acquired and liabilities assumed | |||
Goodwill | $ 313,451 | $ 141 | |
Silarx | |||
Acquisitions | |||
Percentage of outstanding equity interest | 100.00% | ||
Total cash consideration | $ 42,500 | ||
Purchase price allocation of the assets acquired and liabilities assumed | |||
Cash | 664 | ||
Accounts receivable, net of revenue-related reserves | 4,396 | ||
Inventories | 2,705 | ||
Other current assets | 467 | ||
Property, plant and equipment | 7,247 | ||
Product Rights | 10,000 | ||
In-process research and development | 18,000 | ||
Goodwill | 141 | ||
Other assets | 9 | ||
Total assets acquired | 43,629 | ||
Accounts payable | (711) | ||
Income taxes payable | (392) | ||
Total net assets acquired | $ 42,526 | ||
Estimated useful lives | 15 years |
Restructuring Charges (Details)
Restructuring Charges (Details) - USD ($) | Feb. 01, 2016 | Mar. 31, 2016 | Mar. 31, 2016 |
Restructuring Charges | |||
Restructuring Charges | $ 4,749,000 | $ 4,749,000 | |
Reconciliation of the changes in restructuring liabilities | |||
Restructuring Charges | 4,749,000 | 4,749,000 | |
2016 Restructuring Program | |||
Restructuring Charges | |||
Restructuring Charges | 4,749,000 | ||
Aggregate total estimated restructuring charges | $ 23,000,000 | ||
Reconciliation of the changes in restructuring liabilities | |||
Restructuring Charges | 4,749,000 | ||
Payments | (1,664,000) | ||
Ending balance for the period | 3,085,000 | 3,085,000 | |
2016 Restructuring Program | Employee separation costs | |||
Restructuring Charges | |||
Restructuring Charges | 3,870,000 | ||
Aggregate total estimated restructuring charges | 14,000,000 | ||
Reconciliation of the changes in restructuring liabilities | |||
Restructuring Charges | 3,870,000 | ||
Payments | (1,486,000) | ||
Ending balance for the period | 2,384,000 | 2,384,000 | |
2016 Restructuring Program | Contract termination costs | |||
Restructuring Charges | |||
Restructuring Charges | 701,000 | ||
Aggregate total estimated restructuring charges | 1,000,000 | ||
Reconciliation of the changes in restructuring liabilities | |||
Restructuring Charges | 701,000 | ||
Ending balance for the period | $ 701,000 | 701,000 | |
2016 Restructuring Program | Facility closure costs | |||
Restructuring Charges | |||
Restructuring Charges | 178,000 | ||
Reconciliation of the changes in restructuring liabilities | |||
Restructuring Charges | 178,000 | ||
Payments | $ (178,000) | ||
2016 Restructuring Program | Facility closures costs and other actions | |||
Restructuring Charges | |||
Aggregate total estimated restructuring charges | $ 8,000,000 |
Accounts Receivable (Details)
Accounts Receivable (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Mar. 31, 2016 | Mar. 31, 2015 | Mar. 31, 2016 | Mar. 31, 2015 | Jun. 30, 2015 | |
Accounts receivable | |||||
Gross accounts receivable | $ 328,989 | $ 328,989 | $ 160,960 | ||
Less: reserve | (144,800) | (144,800) | (69,400) | ||
Less: Allowance for doubtful accounts | (539) | (539) | (374) | ||
Accounts receivable, net | 183,624 | 183,624 | 91,103 | ||
Chargebacks | |||||
Accounts receivable | |||||
Less: reserve | (63,064) | (63,064) | (35,801) | ||
Provision for rebates, chargebacks, returns and other deductions | 185,200 | $ 74,300 | 424,900 | $ 252,300 | |
Rebates | |||||
Accounts receivable | |||||
Less: reserve | (34,820) | (34,820) | (12,945) | ||
Provision for rebates, chargebacks, returns and other deductions | 54,500 | 18,400 | 124,600 | 58,200 | |
Returns | |||||
Accounts receivable | |||||
Less: reserve | (37,546) | (37,546) | (19,209) | ||
Provision for rebates, chargebacks, returns and other deductions | 3,500 | 5,900 | 14,300 | 14,200 | |
Other | |||||
Accounts receivable | |||||
Less: reserve | (9,396) | (9,396) | $ (1,528) | ||
Provision for rebates, chargebacks, returns and other deductions | $ 11,700 | $ 7,800 | $ 27,000 | $ 22,900 |
Inventories (Details)
Inventories (Details) - USD ($) $ in Thousands | Mar. 31, 2016 | Jun. 30, 2015 |
Inventories, net of reserves | ||
Raw materials | $ 45,769 | $ 22,385 |
Work-in-process | 22,293 | 5,246 |
Finished goods | 48,449 | 18,560 |
Net inventory | 116,511 | 46,191 |
Inventory reserves | $ 3,900 | $ 5,000 |
Property, Plant and Equipment57
Property, Plant and Equipment (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Mar. 31, 2016 | Jun. 30, 2015 | |
Property, Plant and Equipment | ||
Property, plant and equipment, gross | $ 268,354 | $ 134,994 |
Less accumulated depreciation | (48,155) | (40,438) |
Property, plant and equipment, net | 220,199 | 94,556 |
Land | ||
Property, Plant and Equipment | ||
Property, plant and equipment, gross | 7,041 | 5,891 |
Building and improvements | ||
Property, Plant and Equipment | ||
Property, plant and equipment, gross | $ 99,642 | 51,446 |
Building and improvements | Minimum | ||
Property, Plant and Equipment | ||
Useful Lives | 10 years | |
Building and improvements | Maximum | ||
Property, Plant and Equipment | ||
Useful Lives | 39 years | |
Machinery and equipment | ||
Property, Plant and Equipment | ||
Property, plant and equipment, gross | $ 110,760 | 47,681 |
Machinery and equipment | Minimum | ||
Property, Plant and Equipment | ||
Useful Lives | 5 years | |
Machinery and equipment | Maximum | ||
Property, Plant and Equipment | ||
Useful Lives | 10 years | |
Furniture and fixtures | ||
Property, Plant and Equipment | ||
Property, plant and equipment, gross | $ 4,072 | 1,748 |
Furniture and fixtures | Minimum | ||
Property, Plant and Equipment | ||
Useful Lives | 5 years | |
Furniture and fixtures | Maximum | ||
Property, Plant and Equipment | ||
Useful Lives | 7 years | |
Construction in progress | ||
Property, Plant and Equipment | ||
Property, plant and equipment, gross | $ 46,839 | $ 28,228 |
Fair Value Measurements (Detail
Fair Value Measurements (Details) - Recurring - USD ($) $ in Thousands | Mar. 31, 2016 | Jun. 30, 2015 |
Assets | ||
Total Assets | $ 12,959 | $ 13,467 |
Liabilities | ||
Acquisition-related contingent consideration | 35,000 | |
Total Liabilities | 35,000 | |
Equity securities | ||
Assets | ||
Total Assets | 12,959 | 13,467 |
Level 1 | ||
Assets | ||
Total Assets | 12,959 | 13,467 |
Level 1 | Equity securities | ||
Assets | ||
Total Assets | 12,959 | $ 13,467 |
Level 3 | ||
Liabilities | ||
Acquisition-related contingent consideration | 35,000 | |
Total Liabilities | $ 35,000 |
Investment Securities (Details)
Investment Securities (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2016 | Mar. 31, 2015 | Mar. 31, 2016 | Mar. 31, 2015 | |
Gain (loss) on investments | ||||
Gain (loss) on investment securities | $ 125 | $ (103) | $ (209) | $ 592 |
Unrealized gain (loss) related to securities still held | $ 279 | $ (666) | $ (125) | $ (954) |
Goodwill and Intangible Asset60
Goodwill and Intangible Assets (Details) $ in Thousands | 9 Months Ended |
Mar. 31, 2016USD ($) | |
Schedule of changes in the carrying amount of goodwill | |
Goodwill, Balance | $ 141 |
Goodwill, Balance | 313,451 |
Generic Pharmaceuticals | |
Schedule of changes in the carrying amount of goodwill | |
Goodwill, Balance | 141 |
Goodwill acquired | 313,310 |
Goodwill, Balance | $ 313,451 |
Goodwill and Intangible Asset61
Goodwill and Intangible Assets - Intangible Assets, Net (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Mar. 31, 2016 | Jun. 30, 2015 | |
Intangible Assets | ||
Gross Carrying Amount, Definite-lived Intangible Assets | $ 463,155 | $ 11,235 |
Gross Carrying Amount, intangible assets | 610,604 | 29,684 |
Accumulated Amortization | (12,186) | (594) |
Definite-lived Intangible Assets, Net | 450,969 | 10,641 |
Indefinite-Lived Intangible Assets, Net | 147,449 | 18,449 |
Intangible Assets, Net | 598,418 | 29,090 |
Other Product Right | ||
Intangible Assets | ||
Indefinite-Lived Intangible Assets, Net | 449 | 449 |
In-process Research and Development | KUPI | ||
Intangible Assets | ||
Indefinite-Lived Intangible Assets, Net | 129,000 | |
In-process Research and Development | Silarx | ||
Intangible Assets | ||
Indefinite-Lived Intangible Assets, Net | 18,000 | 18,000 |
Cody Labs Import License | ||
Intangible Assets | ||
Gross Carrying Amount, Definite-lived Intangible Assets | 582 | 582 |
Accumulated Amortization | (299) | (269) |
Definite-lived Intangible Assets, Net | $ 283 | 313 |
Weighted Avg. Life (Yrs.) | 15 years | |
Other Intangible Assets | ||
Intangible Assets | ||
Gross Carrying Amount, Definite-lived Intangible Assets | $ 19,000 | |
Accumulated Amortization | (445) | |
Definite-lived Intangible Assets, Net | $ 18,555 | |
Weighted Avg. Life (Yrs.) | 15 years | |
Product rights | KUPI | ||
Intangible Assets | ||
Gross Carrying Amount, Definite-lived Intangible Assets | $ 430,000 | |
Accumulated Amortization | (10,073) | |
Definite-lived Intangible Assets, Net | $ 419,927 | |
Weighted Avg. Life (Yrs.) | 15 years | |
Product rights | Other Product Right | Silarx | ||
Intangible Assets | ||
Gross Carrying Amount, Definite-lived Intangible Assets | $ 10,000 | 10,000 |
Accumulated Amortization | (555) | (56) |
Definite-lived Intangible Assets, Net | $ 9,445 | 9,944 |
Weighted Avg. Life (Yrs.) | 15 years | |
Trade name | KUPI | ||
Intangible Assets | ||
Gross Carrying Amount, Definite-lived Intangible Assets | $ 2,920 | |
Accumulated Amortization | (513) | |
Definite-lived Intangible Assets, Net | $ 2,407 | |
Weighted Avg. Life (Yrs.) | 2 years | |
Other Product Right | ||
Intangible Assets | ||
Gross Carrying Amount, Definite-lived Intangible Assets | $ 653 | 653 |
Accumulated Amortization | (301) | (269) |
Definite-lived Intangible Assets, Net | $ 352 | $ 384 |
Weighted Avg. Life (Yrs.) | 14 years |
Goodwill and Intangible Asset62
Goodwill and Intangible Assets - Future Annual Amortization Expense (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Mar. 31, 2016 | Mar. 31, 2015 | Mar. 31, 2016 | Mar. 31, 2015 | Jun. 30, 2015 | |
Goodwill and Intangible Assets | |||||
Amortization of Intangible Assets | $ 7,600,000 | $ 20,000 | $ 11,600,000 | $ 61,000 | |
Annual Amortization Expense | |||||
2,016 | 8,035,000 | 8,035,000 | |||
2,017 | 32,142,000 | 32,142,000 | |||
2,018 | 31,264,000 | 31,264,000 | |||
2,019 | 30,679,000 | 30,679,000 | |||
2,020 | 30,672,000 | 30,672,000 | |||
Thereafter | 318,177,000 | 318,177,000 | |||
Intangible assets, net | $ 450,969,000 | $ 450,969,000 | $ 10,641,000 |
Long-Term Debt (Details)
Long-Term Debt (Details) - USD ($) $ in Thousands | Apr. 08, 2016 | Nov. 25, 2015 | Mar. 31, 2016 | Mar. 31, 2016 | Jun. 30, 2015 |
Long-term debt, net | |||||
Total debt, gross | $ 1,149,533 | $ 1,149,533 | |||
Total debt, net | 1,053,852 | 1,053,852 | $ 1,009 | ||
Less current portion | (45,640) | (45,640) | (135) | ||
Total long-term debt, net | $ 1,008,212 | $ 1,008,212 | 874 | ||
Debt Additional Information | |||||
Debt instrument, stated percentage | 12.00% | 12.00% | 12.00% | ||
Initial purchaser's discount | $ 72,100 | ||||
Debt issuance costs | $ 32,700 | ||||
Net book value of land and building collateralized | $ 1,500 | $ 1,500 | |||
Long-term debt maturities | |||||
2,017 | 45,640 | 45,640 | |||
2,018 | 49,084 | 49,084 | |||
2,019 | 59,403 | 59,403 | |||
2,020 | 59,410 | 59,410 | |||
2,021 | 217,542 | 217,542 | |||
Thereafter | 718,454 | 718,454 | |||
Total debt, gross | 1,149,533 | 1,149,533 | |||
Revolving Credit Facility | |||||
Debt Additional Information | |||||
Amount available under the Revolving Credit Facility | 125,000 | 125,000 | |||
Effective interest rate (as a percent) | 4.75% | ||||
Unused commitment, fee rate (as a percent) | 0.50% | ||||
Minimum percentage of commitments under secured credit facility (as a percent) | 30.00% | ||||
Senior secured leverage ratio from and after 2015 | 4.25% | ||||
Senior secured leverage ratio from and after 2017 | 3.75% | ||||
Senior secured leverage ratio from and after 2019 | 3.25% | ||||
Revolving Credit Facility | Subsequent Event | |||||
Debt Additional Information | |||||
Drew down of revolving credit facility | $ 125,000 | ||||
Revolving Credit Facility | Maximum | |||||
Debt Additional Information | |||||
Aggregate principal amount | $ 125,000 | ||||
Term Loan A Facility due 2020 | |||||
Long-term debt, net | |||||
Total debt, gross | 271,563 | 271,563 | |||
Unamortized discount and other debt issuance costs | (23,614) | (23,614) | |||
Total debt, net | 247,949 | 247,949 | |||
Debt Additional Information | |||||
Aggregate principal amount | $ 275,000 | ||||
Contribution percentage of term loan on secured credit facility through 2017 (as a percent) | 1.25% | ||||
Contribution percentage of term loan on secured credit facility from 2018 to 2020 (as a percent) | 2.50% | ||||
Effective interest rate (as a percent) | 4.75% | ||||
Senior secured leverage ratio from and after 2015 | 4.25% | ||||
Senior secured leverage ratio from and after 2017 | 3.75% | ||||
Senior secured leverage ratio from and after 2019 | 3.25% | ||||
Long-term debt maturities | |||||
Total debt, gross | 271,563 | 271,563 | |||
Term Loan B Facility due 2022 | |||||
Long-term debt, net | |||||
Total debt, gross | 627,062 | 627,062 | |||
Unamortized discount and other debt issuance costs | (66,371) | (66,371) | |||
Total debt, net | 560,691 | 560,691 | |||
Debt Additional Information | |||||
Aggregate principal amount | $ 635,000 | ||||
Contribution percentage of term loan on secured credit facility on maturity (as a percent) | 1.25% | ||||
Effective interest rate (as a percent) | 5.375% | ||||
Long-term debt maturities | |||||
Total debt, gross | 627,062 | 627,062 | |||
Term Loan A and Term Loan B | |||||
Debt Additional Information | |||||
Spread rate (as a percent) | 1.00% | ||||
First National Bank of Cody mortgage | |||||
Long-term debt, net | |||||
Total debt, net | 908 | 908 | $ 1,009 | ||
Senior Notes due 2023 | |||||
Long-term debt, net | |||||
Total debt, gross | 250,000 | 250,000 | |||
Unamortized debt issuance costs | (5,696) | (5,696) | |||
Total debt, net | $ 244,304 | $ 244,304 | |||
Debt Additional Information | |||||
Aggregate principal amount | $ 250,000 | ||||
Debt instrument, stated percentage | 12.00% | ||||
Repurchase of notes, purchase price (as a percent) | 101.00% | ||||
Repurchase of notes under certain circumstances (as a percent) | 100.00% | ||||
Weighted-average interest rates (as a percent) | 9.20% | 9.40% | |||
Long-term debt maturities | |||||
Total debt, gross | $ 250,000 | $ 250,000 | |||
Senior Notes due 2023 | UCB | |||||
Long-term debt, net | |||||
Total debt, gross | 200,000 | 200,000 | |||
Long-term debt maturities | |||||
Total debt, gross | $ 200,000 | $ 200,000 | |||
Cody LCI Realty LLC ("Realty") | First National Bank of Cody mortgage | |||||
Debt Additional Information | |||||
Effective interest rate (as a percent) | 4.50% | 4.50% | 4.50% | ||
Monthly principal and interest payments | $ 15 |
Legal and Regulatory Matters (D
Legal and Regulatory Matters (Details) $ in Thousands | Apr. 16, 2013USD ($)a | Mar. 31, 2016item |
Breach of agreements | ||
Contingencies | ||
Severance compensation, period | 18 months | |
Estimated aggregate value of claimed severance benefits, minimum | $ | $ 350 | |
Estimated aggregate value of claimed severance benefits, maximum | $ | $ 400 | |
Amount as a percentage of value of land that Mr. Asherman seeks to have in the matter | 50.00% | |
Area of land | a | 1.66 | |
AWP Litigation | ||
Contingencies | ||
Number of lawsuits filed | item | 2 | |
Private Antitrust Litigation | ||
Contingencies | ||
Number of lawsuits filed | item | 4 |
Commitments and Contingencies65
Commitments and Contingencies (Details) $ in Thousands | Mar. 31, 2016USD ($) |
Future minimum lease payments | |
Remainder of 2016 | $ 353 |
2,017 | 1,718 |
2,018 | 1,080 |
2,019 | 1,080 |
2,020 | 1,080 |
Thereafter | 7,425 |
Total | $ 12,736 |
Accumulated Other Comprehensi66
Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands | 9 Months Ended | ||
Mar. 31, 2016 | Mar. 31, 2015 | Jun. 30, 2015 | |
Foreign Currency Translation | |||
Beginning Balance | $ (295) | $ (54) | |
Net gain (loss) on foreign currency translation (net of tax of $0 and $0) | 15 | (231) | |
Net gain (loss) on foreign currency translation, tax | 0 | 0 | |
Reclassifications to net income, tax | 0 | 0 | |
Other comprehensive income (loss), net of tax | 15 | (231) | |
Ending Balance | (280) | (285) | |
Total Accumulated Other Comprehensive Loss | $ (280) | $ (285) | $ (295) |
Earnings Per Common Share (Deta
Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2016 | Mar. 31, 2015 | Mar. 31, 2016 | Mar. 31, 2015 | |
Earnings Per Common Share | ||||
Net income (loss) attributable to Lannett Company, Inc. | $ (5,490) | $ 36,233 | $ 41,211 | $ 115,976 |
Basic weighted average common shares outstanding | 36,495,961 | 35,880,954 | 36,398,030 | 35,715,061 |
Effect of potentially dilutive stock options, warrants and restricted stock awards | 1,329,184 | 985,712 | 1,367,077 | |
Diluted weighted average common shares outstanding | 36,495,961 | 37,210,138 | 37,383,742 | 37,082,138 |
Earnings (loss) per common share attributable to Lannett Company, Inc.: | ||||
Basic (in dollars per share) | $ (0.15) | $ 1.01 | $ 1.13 | $ 3.25 |
Diluted (in dollars per share) | $ (0.15) | $ 0.97 | $ 1.10 | $ 3.13 |
Anti-dilutive shares excluded in the computation of diluted earnings per share | 4,400,000 | 77,000 | 2,600,000 | 490,000 |
Warrant (Details)
Warrant (Details) - USD ($) $ / shares in Units, $ in Thousands, shares in Millions | Nov. 25, 2015 | Mar. 31, 2016 |
Class of Warrant or Right | ||
Warrants Issued | $ 29,920 | |
KUPI | ||
Class of Warrant or Right | ||
Warrants Issued | $ 29,920 | |
KUPI | Warrant issued to UCB | ||
Class of Warrant or Right | ||
Number of common stock to be purchased under the warrant | 2.5 | |
Warrants expiration period | 3 years | |
warrants exercise price | $ 48.90 |
Share-based Compensation (Detai
Share-based Compensation (Details) shares in Millions, $ in Millions | 9 Months Ended |
Mar. 31, 2016USD ($)itemshares | |
Stock-based Compensation | |
Number of share-based employee compensation plans | item | 4 |
Aggregate number of shares authorized for issuance | 8.1 |
Shares for future issuances | 2.4 |
Maximum | |
Other disclosures | |
Share-based compensation awards vesting period | 3 years |
Share-based compensation awards maximum contractual term | 10 years |
Restricted stock | |
Other disclosures | |
Total unrecognized compensation cost related to non-vested share-based compensation awards granted under the Plans | $ | $ 10.8 |
Weighted average period during which the cost is expected to be recognized | 1 year 9 months 18 days |
Share-based Compensation - Assu
Share-based Compensation - Assumptions used and Rollforward (Details) - Stock options - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 9 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Weighted average assumptions used to estimate fair values of the stock options granted and the estimated annual forfeiture rates used to recognize the associated compensation expense and the weighted average fair value of the options granted | ||
Risk-free interest rate (as a percent) | 1.70% | 1.70% |
Expected volatility (as a percent) | 48.30% | 52.10% |
Expected dividend yield (as a percent) | 0.00% | 0.00% |
Forfeiture rate (as a percent) | 6.50% | 6.50% |
Expected term (in years) | 5 years 2 months 12 days | 5 years 6 months |
Weighted average fair value (in dollars per share) | $ 26.24 | $ 17.67 |
Awards | ||
Outstanding at the beginning of the period (in shares) | 1,975 | |
Granted (in shares) | 58 | |
Exercised (in shares) | (241) | |
Forfeited, expired or repurchased (in shares) | (42) | |
Outstanding at the end of the period (in shares) | 1,750 | |
Vested and expected to vest, Awards (in shares) | 1,721 | |
Exercisable at end of year (in shares) | 1,193 | |
Stock options, Weighted-Average Exercise Price | ||
Outstanding at the beginning of the period (in dollars per share) | $ 15.39 | |
Granted (in dollars per share) | 59.20 | |
Exercised (in dollars per share) | 12.94 | |
Forfeited, expired or repurchased (in dollars per share) | 32.61 | |
Outstanding at the end of the period (in dollars per share) | 16.76 | |
Vested and expected to vest, Weighted-Average Exercise Price (in dollars per share) | 16.46 | |
Exercisable at the end of the period (in dollars per share) | $ 10.55 | |
Aggregate Intrinsic Value | ||
Exercised (in dollars) | $ 5,975 | |
Outstanding at the end of the period (in dollars) | 12,369 | |
Vested and expected to vest, Aggregate Intrinsic Value | 12,341 | |
Exercisable at the end of the period (in dollars) | $ 11,508 | |
Weighted Average Remaining Contractual Life (yrs.) | ||
Outstanding at the end of the period (in years) | 6 years 6 months | |
Vested and expected to vest, Weighted Average Remaining Contractual Life | 6 years 6 months | |
Exercisable at the end of the period (in years) | 5 years 8 months 12 days |
Share-based Compensation - Roll
Share-based Compensation - Rollforward (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 9 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Employee Stock Purchase Plan | ||
Aggregate number of shares authorized for issuance | 8,100 | |
Restricted stock | ||
Stock Options and Restricted Stock | ||
Annual forfeiture rate used to calculate compensation expense (as a percent) | 6.50% | 6.50% |
Awards | ||
Nonvested at the beginning of the period (in shares) | 98 | |
Granted (in shares) | 141 | |
Vested (in shares) | (58) | |
Forfeited (in shares) | (8) | |
Nonvested at the end of the period (in shares) | 173 | |
Weighted Average Grant-date Fair Value | ||
Nonvested at the beginning of the period (in dollars per share) | $ 37.83 | |
Granted (in dollars per share) | 55.95 | |
Vested (in dollars per share) | 47.30 | |
Forfeited (in dollars per share) | 47.62 | |
Nonvested at the end of the period (in dollars per share) | $ 48.97 | |
Aggregate Intrinsic Value | ||
Vested | $ 3,339 | |
Employee stock purchase plan | ||
Employee Stock Purchase Plan | ||
Purchase price lower of the fair market value of the common stock on the first day of the calendar quarter or the last day of the calendar quarter (as a percent) | 85.00% | |
Percentage of the compensation authorized by the employee to be withheld | 10.00% | |
Aggregate number of shares authorized for issuance | 1,100 | |
Shares issued under the ESPP (in shares) | 30 | 9 |
Cumulative shares issued under the ESPP (in shares) | 468 |
Share-based Compensation - Allo
Share-based Compensation - Allocation Of Share-based Compensation Costs (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2016 | Mar. 31, 2015 | Mar. 31, 2016 | Mar. 31, 2015 | |
Share-based compensation costs recognized in the entity's Consolidated Statements of Operations | ||||
Share based compensation | $ 2,025 | $ 1,510 | $ 8,423 | $ 4,729 |
Tax benefit at statutory rate | 739 | 514 | 3,074 | 1,589 |
Selling, general and administrative expenses | ||||
Share-based compensation costs recognized in the entity's Consolidated Statements of Operations | ||||
Share based compensation | 1,511 | 1,195 | 6,891 | 3,805 |
Research and development expenses | ||||
Share-based compensation costs recognized in the entity's Consolidated Statements of Operations | ||||
Share based compensation | 195 | 133 | 584 | 390 |
Cost of sales | ||||
Share-based compensation costs recognized in the entity's Consolidated Statements of Operations | ||||
Share based compensation | $ 319 | $ 182 | $ 948 | $ 534 |
Employee Benefit Plan (Details)
Employee Benefit Plan (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2016 | Mar. 31, 2015 | Mar. 31, 2016 | Mar. 31, 2015 | |
Employee Benefit Plan | ||||
Contributions to the Plan | $ 629 | $ 226 | $ 1,100 | $ 582 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Mar. 31, 2016 | Mar. 31, 2015 | Mar. 31, 2016 | Mar. 31, 2015 | Jun. 30, 2015 | |
Income Taxes | |||||
Income tax expense (benefit) | $ (2,743) | $ 17,973 | $ 20,270 | $ 60,208 | |
Effective income tax rate (as a percent) | 33.40% | 33.10% | 32.90% | 34.20% | |
Unrecognized tax benefits | $ 5,800 | $ 5,800 | $ 578 | ||
Unrecognized tax benefits cumulative interest and penalties recorded | $ 0 | $ 0 | $ 0 |
Related Party Transactions (Det
Related Party Transactions (Details) - USD ($) $ in Thousands | Nov. 25, 2015 | Mar. 31, 2016 | Mar. 31, 2015 | Mar. 31, 2016 | Mar. 31, 2015 | Jun. 30, 2015 |
Related Party Transactions | ||||||
Unsecured 12.0% Senior Notes issued to UCB | $ 200,000 | |||||
Debt Instrument, Interest Rate, Stated Percentage | 12.00% | 12.00% | 12.00% | |||
Auburn | ||||||
Related Party Transactions | ||||||
Sales to a generic distributor | $ 1,300 | $ 226 | $ 2,200 | $ 1,300 | ||
Amounts due from the related party | 1,100 | 1,100 | $ 727 | |||
UCB | ||||||
Related Party Transactions | ||||||
Sales to a generic distributor | 3,000 | 3,000 | ||||
Amounts due from the related party | 3,000 | 3,000 | ||||
Fair Value of seller notes and warrants | $ 29,200 | |||||
Amounts due to related parties | 2,100 | 2,100 | ||||
Purchase from generic distributor | $ 4,300 | $ 5,600 | ||||
KUPI | ||||||
Related Party Transactions | ||||||
Unsecured 12.0% Senior Notes issued to UCB | $ 200,000 | |||||
Debt Instrument, Interest Rate, Stated Percentage | 12.00% |
Material Contracts with Suppl76
Material Contracts with Suppliers (Details) - JSP shares in Millions, $ in Millions | Aug. 19, 2013USD ($)itemshares | Mar. 31, 2016 | Mar. 31, 2015 | Mar. 31, 2016USD ($) | Mar. 31, 2015 |
Material Contracts with Suppliers | |||||
Number of shares of common stock issued in exchange for exclusive distribution rights | shares | 1.5 | ||||
Number of products under the exclusive distribution agreement | item | 3 | ||||
Extension term of the agreement | 5 years | ||||
Expense recorded in accordance with policy related to renewal and extension costs for recognized intangible assets | $ | $ 20.1 | ||||
Second extension term of the agreement | 5 years | ||||
Number of shares of common stock issued in exchange for extension of exclusive distribution rights agreement | shares | 1.5 | ||||
Period from notice within which if breach is not cured, non-breaching party has right to terminate contract | 30 days | ||||
Minimum purchase quantity required in each year | $ | $ 31 | ||||
Inventory purchases | Suppliers | |||||
Material Contracts with Suppliers | |||||
Purchases of finished goods inventory from JSP as a percentage of the company's inventory purchases | 53.00% | 66.00% | 59.00% | 68.00% |
Cody Expansion Project (Details
Cody Expansion Project (Details) $ in Thousands | Dec. 20, 2012ft²a | Jun. 30, 2011USD ($)item | Jun. 30, 2014USD ($) | Dec. 31, 2015USD ($) |
Cody Expansion Project | ||||
Area of facility | ft² | 24,000 | |||
Cody LCI Realty LLC ("Realty") | Forward Cody | ||||
Cody Expansion Project | ||||
Area of land | a | 1.66 | |||
Term of leases entered into for property contributed under expansion project | 25 years | |||
Cody LCI Realty LLC ("Realty") | City of Cody | ||||
Cody Expansion Project | ||||
Annual rent payments | $ 108 | |||
Cody Laboratories, Inc. | ||||
Cody Expansion Project | ||||
Capital expenditure obligation | $ 5,200 | |||
Number of additional full-time positions required to be hired under the agreement | item | 45 | |||
Maximum period to meet certain obligations under the agreement | 3 years | |||
Requirement to provide capital contribution to the project | $ 565 |
Settlement Agreement (Details)
Settlement Agreement (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Mar. 31, 2016USD ($) | Mar. 31, 2016USD ($) | Jun. 30, 2018USD ($) | Jun. 30, 2017USD ($) | Jun. 30, 2016USD ($) | Mar. 07, 2016customer | |
Settlement Agreement | ||||||
Reduction in net sales | $ 23,598 | $ 23,598 | ||||
Settlement Agreement | Settled litigation | ||||||
Settlement Agreement | ||||||
Number of customers involved in litigation settlement agreement | customer | 1 | |||||
Reduction in net sales | $ 23,600 | |||||
Settlement Agreement | Settled litigation | Forecast | ||||||
Settlement Agreement | ||||||
Settlement in cash | $ 10,000 | $ 8,000 | $ 8,000 | |||
Settlement in credit memorandum | $ 12,000 | $ 10,000 |
Subsequent Events (Details)
Subsequent Events (Details) $ in Millions | Apr. 08, 2016USD ($) |
Subsequent Event | Revolving Credit Facility | |
Subsequent events | |
Drew down of revolving credit facility | $ 125 |