March 7, 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 February 22, 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. You present a full non-GAAP income statement when reconciling non-GAAP measures to the most directly comparable GAAP measures. Please reconcile without presenting a full non-GAAP income statement in your next earnings release. See Question 102.10 of the updated Non-GAAP Compliance and Disclosure Interpretations issued on May 17, 2016.
The Company respectfully acknowledges the Staff’s comment and notes that the Company did not intend for its reconciliation to be read as a non-GAAP income statement and had intended such presentation to provide investors with a clear and consistent reconciliation of the Company’s GAAP to non-GAAP metrics. Notwithstanding the Company’s intentions, in response to the Staff’s comment the Company will revise its reconciliation in future filings, including for prior period presentations included in such future filings, to comply with Compliance & Disclosure Interpretations Question 102.10 by presenting its reconciliation using the format attached as Exhibit A (which Exhibit A shows the planned format and displays results for the six months ended December 31, 2016 for illustrative purposes).
The Company acknowledges that:
· The Company is responsible for the adequacy and accuracy of the disclosure in the filings;
· Staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filings; and
· The Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
We look forward to working with you to address any additional questions or comments you may have.
Sincerely, |
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/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)
CERTAIN LINE ITEMS AND OTHER INFORMATION
(In thousands, except share and per share data)
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| Six months ended |
| Six months ended |
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| December 31, |
| December 31, |
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| GAAP |
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| Non-GAAP |
| GAAP |
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| Non-GAAP |
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| Reported |
| Adjustments |
| Adjusted |
| Reported |
| Adjustments |
| Adjusted |
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| 2016 |
| 2016 |
| 2016 |
| 2015 |
| 2015 |
| 2015 |
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Net sales |
| 332,503 |
| — |
| 332,503 |
| 233,492 |
| — |
| 233,492 |
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Cost of sales |
| 145,974 |
| (3,678 | )(a) | 142,296 |
| 80,619 |
| (5,900 | )(a) | 74,719 |
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Amortization of intangibles |
| 16,624 |
| (16,624 | )(b) | — |
| 3,801 |
| (3,801 | )(b) | — |
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Gross profit |
| 169,905 |
| 20,302 |
| 190,207 |
| 149,072 |
| 9,701 |
| 158,773 |
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Research and development expenses |
| 22,310 |
| — |
| 22,310 |
| 15,597 |
| — |
| 15,597 |
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Selling, general, and administrative expenses |
| 39,329 |
| (1,445 | )(c) | 37,884 |
| 30,202 |
| (4,754 | )(c) | 25,448 |
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Acquisition, integration, restructuring and other expenses |
| 94,266 |
| (94,266 | )(d) | — |
| 21,527 |
| (21,527 | )(d) | — |
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Operating income |
| 14,000 |
| 116,013 |
| 130,013 |
| 81,746 |
| 35,982 |
| 117,728 |
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Other income (loss): |
| (44,542 | ) | 10,273 | (e) | (34,269 | ) | (11,997 | ) | 2,663 | (e) | (9,334 | ) | ||||
Income (loss) before income tax |
| (30,542 | ) | 126,286 |
| 95,744 |
| 69,749 |
| 38,645 |
| 108,394 |
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Income tax expense (benefit) |
| (9,340 | ) | 41,516 | (f) | 32,176 |
| 23,013 |
| 12,860 | (f) | 35,873 |
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Net income (loss) |
| (21,202 | ) | 84,770 |
| 63,568 |
| 46,736 |
| 25,785 |
| 72,521 |
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Less: Net income attributable to noncontrolling interest |
| 34 |
| — |
| 34 |
| 35 |
| — |
| 35 |
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Net income (loss) attributable to Lannett Company, Inc. |
| (21,236 | ) | 84,770 |
| 63,534 |
| 46,701 |
| 25,785 |
| 72,486 |
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Diluted earnings (loss) per common share attributable to Lannett Company, Inc. |
| $ | (0.58 | ) |
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| $ | 1.69 |
| $ | 1.25 |
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| $ | 1.94 |
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Diluted weighted average common shares outstanding: |
| 36,754,828 |
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| 37,630,069 |
| 37,401,878 |
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| 37,401,878 |
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(a) To exclude amortization of a fair value step-up in inventory and depreciation of a fair value step-up in property, plant and equipment related to the acquisition of Kremers Urban Pharmaceuticals, Inc. (“KUPI”)
(b) To exclude amortization of purchased intangible assets primarily related to the acquisitions of KUPI and Silarx Pharmaceuticals, Inc.
(c) To exclude separation costs associated with a former employee and amortization of purchased intangibles related to the acquisition of KUPI
(d) To exclude acquisition, integration-related and impairment charges primarily related to the acquisition of KUPI as well as expenses associated with the 2016 Restructuring Plan
(e) To exclude non-cash interest expense primarily associated with debt issuance costs
(f) The tax effect of the pre-tax adjustments included above at applicable tax rates