March 29, 2017
Jim B. Rosenberg
Senior Assistant Chief Accountant
Office of Healthcare and Insurance
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street N.E.
Washington, D.C. 20549
RE: Lannett Company, Inc.
Form 8-K dated February 1, 2017
Filed February 2, 2017
File No. 001-31298
Dear Mr. Rosenberg:
We are providing you with this letter in response to your March 16, 2017 comment letter to Lannett Company, Inc. (the “Company”). For your convenience, we included your comment along with our corresponding response.
We trust you will find our responses to your comment letter to be consistent with our desire to best serve Lannett shareholders and the investment community as a whole.
SEC Comment
1. We acknowledge your response to prior comment 1 of our February 22, 2017 letter. Your revised presentation continues to be inconsistent with Question 102.10 of the Non-GAAP Compliance and Disclosures Interpretations. Notwithstanding the combining of certain line items within operating expenses and within other income (loss) and the omission of basic per share and weighted average common shares as compared to your GAAP consolidated statement of operations, the presentation continues to be that of a full non-GAAP income statement. We expect that, beginning with your next earnings release, you will exclude the full non-GAAP income statement and will include the following reconciliations:
· a reconciliation from the comparable GAAP measure to adjusted net income attributable to the Company; and
· a reconciliation from the comparable GAAP measure to adjusted earnings per diluted share.
Other non-GAAP measures, if any, should be reconciled in separate reconciliations consistent with the above.
The Company respectfully acknowledges the Staff’s comment and notes that the Company did not intend for its revised presentation to continue to be read as a non-GAAP income statement and had intended such revised presentation to provide investors with clear and consistent reconciliations of the Company’s GAAP to non-GAAP measures. The Company’s non-GAAP measures include, among others, Adjusted net income attributable to the Company, its components, as well as Adjusted earnings per diluted share. Notwithstanding the Company’s intentions, it will revise future filings to comply with Compliance & Disclosure Interpretations Question 102.10 by presenting separate reconciliations of each of its non-GAAP measures using the format attached as Exhibit A. Exhibit A shows the planned format and displays results for the six months ended December 31, 2016 and 2015 for illustrative purposes.
We look forward to working with you to address any additional questions or comments you may have.
Sincerely,
/s/ Arthur P. Bedrosian |
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Chief Executive Officer |
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/s/ Martin P. Galvan |
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Vice President of Finance, Chief Financial Officer and Treasurer |
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LANNETT COMPANY, INC.
RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)
(In thousands, except share and per share data)
Six months ended December 31, 2016
|
| Net sales |
| Cost of |
| Amortization |
| Gross |
| Gross |
| R&D |
| SGA |
| Acquisition and |
| Restructuring |
| Intangible asset |
| Operating |
| Other |
| Income (loss) |
| Income tax |
| Net income |
| Net income |
| Net income (loss) |
| Diluted |
| |
GAAP Reported |
| 332,503 |
| 145,974 |
| 16,624 |
| 169,905 |
| 51% |
| 22,310 |
| 39,329 |
| 2,418 |
| 3,764 |
| 88,084 |
| 14,000 |
| (44,542 | ) | (30,542 | ) | (9,340 | ) | (21,202 | ) | 34 |
| (21,236 | ) | $ | (0.58 | ) |
Adjustments: |
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Depreciation on Fixed Assets step-up (a) |
| — |
| (1,740 | ) | — |
| 1,740 |
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|
| — |
| — |
| — |
| — |
| — |
| 1,740 |
| — |
| 1,740 |
| — |
| 1,740 |
| — |
| 1,740 |
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Amortization of Inventory step-up (b) |
| — |
| (1,938 | ) | — |
| 1,938 |
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| — |
| — |
| — |
| — |
| — |
| 1,938 |
| — |
| 1,938 |
| — |
| 1,938 |
| — |
| 1,938 |
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Amortization of intangibles (c) |
| — |
| — |
| (16,624 | ) | 16,624 |
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|
| — |
| (730 | ) | — |
| — |
| — |
| 17,354 |
| — |
| 17,354 |
| — |
| 17,354 |
| — |
| 17,354 |
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Acquisition and integration-related expenses (d) |
| — |
| — |
| — |
| — |
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| — |
| — |
| (2,418 | ) | — |
| — |
| 2,418 |
| — |
| 2,418 |
| — |
| 2,418 |
| — |
| 2,418 |
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Restructuring expenses (e) |
| — |
| — |
| — |
| — |
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| — |
| — |
| — |
| (3,764 | ) | — |
| 3,764 |
| — |
| 3,764 |
| — |
| 3,764 |
| — |
| 3,764 |
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Intangible assets impairment charges (f) |
| — |
| — |
| — |
| — |
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|
| — |
| — |
| — |
| — |
| (88,084 | ) | 88,084 |
| — |
| 88,084 |
| — |
| 88,084 |
| — |
| 88,084 |
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Noncash interest (g) |
| — |
| — |
| — |
| — |
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|
| — |
| — |
| — |
| — |
| — |
| — |
| 10,273 |
| 10,273 |
| — |
| 10,273 |
| — |
| 10,273 |
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Other (h) |
| — |
| — |
| — |
| — |
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| — |
| (715 | ) | — |
| — |
| — |
| 715 |
| — |
| 715 |
| — |
| 715 |
| — |
| 715 |
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Tax adjustments (i) |
| — |
| — |
| — |
| — |
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| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 41,516 |
| (41,516 | ) | — |
| (41,516 | ) |
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Non-GAAP Adjusted |
| 332,503 |
| 142,296 |
| — |
| 190,207 |
| 57% |
| 22,310 |
| 37,884 |
| — |
| — |
| — |
| 130,013 |
| (34,269 | ) | 95,744 |
| 32,176 |
| 63,568 |
| 34 |
| 63,534 |
| $ | 1.69 |
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(a) |
| Relates to depreciation of a fair value step-up in property, plant and equipment related to the acquisition of Kremers Urban Pharmaceuticals, Inc. (“KUPI”) | ||||||||||||||||||||||||||||||||||||
(b) |
| Relates to amortization of a fair value step-up in inventory related to the acquisition of KUPI | ||||||||||||||||||||||||||||||||||||
(c) |
| Relates to amortization of purchased intangible assets primarily related to the acquisitions of KUPI and Silarx Pharmaceuticals, Inc. | ||||||||||||||||||||||||||||||||||||
(d) |
| Relates to acquisition and integration-related expenses primarily related to the acquisition of KUPI | ||||||||||||||||||||||||||||||||||||
(e) |
| To exclude expenses associated with the 2016 Restructuring Plan | ||||||||||||||||||||||||||||||||||||
(f) |
| To exclude an impairment charge related to a certain intangible asset acquired as part of the KUPI acquisition | ||||||||||||||||||||||||||||||||||||
(g) |
| To exclude non-cash interest expense primarily associated with debt issuance costs | ||||||||||||||||||||||||||||||||||||
(h) |
| Primarily relates to separation expenses associated with a former employee | ||||||||||||||||||||||||||||||||||||
(i) |
| The tax effect of the pre-tax adjustments included at applicable tax rates | ||||||||||||||||||||||||||||||||||||
(j) |
| The weighted average share number for the six months ended December 31, 2016 is 36,754,828 and 37,630,069 for the GAAP and non-GAAP EPS calculations, respectively. |
LANNETT COMPANY, INC.
RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)
(In thousands, except share and per share data)
Six months ended December 31, 2015
|
| Net sales |
| Cost of |
| Amortization |
| Gross |
| Gross |
| R&D |
| SGA |
| Acquisition and |
| Restructuring |
| Intangible asset |
| Operating |
| Other |
| Income before |
| Income tax |
| Net income |
| Net income |
| Net income |
| Diluted |
| |
GAAP Reported |
| 233,492 |
| 80,619 |
| 3,801 |
| 149,072 |
| 64% |
| 15,597 |
| 30,202 |
| 21,527 |
| — |
| — |
| 81,746 |
| (11,997 | ) | 69,749 |
| 23,013 |
| 46,736 |
| 35 |
| 46,701 |
| $ | 1.25 |
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Adjustments: |
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Amortization of Inventory step-up (a) |
| — |
| (5,900 | ) | — |
| 5,900 |
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| — |
| — |
| — |
| — |
| — |
| 5,900 |
| — |
| 5,900 |
| — |
| 5,900 |
| — |
| 5,900 |
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Amortization of intangibles (b) |
| — |
| — |
| (3,801 | ) | 3,801 |
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| — |
| (148 | ) | — |
| — |
| — |
| 3,949 |
| — |
| 3,949 |
| — |
| 3,949 |
| — |
| 3,949 |
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Acquisition and integration-related expenses (c) |
| — |
| — |
| — |
| — |
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| — |
| — |
| (21,527 | ) | — |
| — |
| 21,527 |
| — |
| 21,527 |
| — |
| 21,527 |
| — |
| 21,527 |
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Noncash interest (d) |
| — |
| — |
| — |
| — |
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| — |
| — |
| — |
| — |
| — |
| — |
| 2,663 |
| 2,663 |
| — |
| 2,663 |
| — |
| 2,663 |
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Other (e) |
| — |
| — |
| — |
| — |
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| — |
| (4,606 | ) | — |
| — |
| — |
| 4,606 |
| — |
| 4,606 |
| — |
| 4,606 |
| — |
| 4,606 |
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Tax adjustments (f) |
| — |
| — |
| — |
| — |
|
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| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 12,860 |
| (12,860 | ) | — |
| (12,860 | ) |
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Non-GAAP Adjusted |
| 233,492 |
| 74,719 |
| — |
| 158,773 |
| 68% |
| 15,597 |
| 25,448 |
| — |
| — |
| — |
| 117,728 |
| (9,334 | ) | 108,394 |
| 35,873 |
| 72,521 |
| 35 |
| 72,486 |
| $ | 1.94 |
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(a) |
| Relates to amortization of a fair value step-up in inventory related to the acquisition of KUPI | ||||||||||||||||||||||||||||||||||||
(b) |
| Relates to amortization of purchased intangible assets primarily related to the acquisitions of KUPI and Silarx Pharmaceuticals, Inc. | ||||||||||||||||||||||||||||||||||||
(c) |
| Relates to acquisition and integration-related expenses primarily related to the acquisition of KUPI | ||||||||||||||||||||||||||||||||||||
(d) |
| To exclude non-cash interest expense primarily associated with debt issuance costs | ||||||||||||||||||||||||||||||||||||
(e) |
| Primarily relates to separation expenses associated with former employees | ||||||||||||||||||||||||||||||||||||
(f) |
| The tax effect of the pre-tax adjustments included at applicable tax rates | ||||||||||||||||||||||||||||||||||||
(g) |
| The weighted average share number for the six months ended December 31, 2015 is 37,401,878 for both the GAAP and the non-GAAP EPS calculations. |