Item 2.06 Material Impairments
As a result of the decision by Lannett Company, Inc. (the "Company") to
discontinue certain product lines and the reduction in net sales and gross
margin of certain other product lines, as more fully discussed in Item 8.01
below, the Company has determined that such decision represents a "triggering
event" under United States Generally Accepted Accounting Principles (US GAAP).
Accordingly, the Company began performing an analysis to determine the potential
for impairment of certain long-lived assets of the Company, primarily its
intangible assets. Based on the analysis performed to date, the Company
determined that a material impairment charge related to the Company's product
rights intangible assets acquired in connection with the acquisition of Kremers
Urban Pharmaceuticals, Inc. ("KUPI") is required and that no impairment charge
of its other long-lived assets is required at this time. The impairment charge
results from the decline in net sales and gross margin of certain product lines
acquired in connection with the KUPI acquisition, including those product lines
being discontinued. The expected impairment charge is estimated to be in the
range of $180 million to $210 million and will be reflected in the Company's
financial statements for the second quarter of fiscal 2021. The impairment
charge will not result in any cash expenditures.
Item 8.01 Other Events
On January 10, 2021, the Company decided to discontinue 23 lower gross margin
product lines, which contributed approximately $31 million and approximately $4
million of net sales in fiscal 2020 and in the first quarter of fiscal 2021,
respectively, including product lines that were acquired through various past
business and product acquisitions. As a result of the discontinuance of the
aforementioned product lines and the reduction in net sales and gross margin of
certain product lines since the time of such acquisitions, the Company commenced
the impairment analysis discussed in Item 2.06 above.
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