Note 23. Quarterly Financial Information (Unaudited)

Lannett’s quarterly consolidated results of operations are shown below:


	Fourth		Third		Second		First
(In thousands, except per share data)	Quarter		Quarter		Quarter		Quarter
Fiscal 2019
Net sales	$	133,841	$	172,794	$	193,718	$	155,054
Cost of sales		84,499		107,477		123,908		95,913
Gross profit		49,342		65,317		69,810		59,141
Operating expenses		39,940		31,939		33,133		400,919
Operating income (loss)		9,402		33,378		36,677		(341,778)
Other loss		(19,532)		(21,374)		(21,668)		(21,350)
Income tax expense (benefit)		(2,544)		1,359		2,647		(75,600)
Net income (loss)	$	(7,586)	$	10,645	$	12,362	$	(287,528)
Earnings (loss) per common share (1)
Basic	$	(0.20)	$	0.28	$	0.33	$	(7.65)
Diluted	$	(0.20)	$	0.27	$	0.32	$	(7.65)


	Fourth		Third		Second		First
(In thousands, except per share data)	Quarter		Quarter		Quarter		Quarter
Fiscal 2018
Net sales	$	170,911	$	174,386	$	184,305	$	154,961
Cost of sales		104,383		107,329		96,855		87,290
Gross profit		66,528		67,057		87,450		67,671
Operating expenses		57,926		33,777		40,315		26,992
Operating income		8,602		33,280		47,135		40,679
Other loss		(20,844)		(22,785)		(14,975)		(19,999)
Income tax expense (benefit)		(883)		(2,275)		18,138		7,423
Net income (loss)	$	(11,359)	$	12,770	$	14,022	$	13,257
Earnings (loss) per common share (1)
Basic	$	(0.30)	$	0.34	$	0.38	$	0.36
Diluted	$	(0.30)	$	0.33	$	0.37	$	0.35


	Fourth		Third		Second		First
(In thousands, except per share data)	Quarter		Quarter		Quarter		Quarter
Fiscal 2017
Net sales	$	139,118	$	165,720	$	170,944	$	161,559
Settlement agreement		—		(4,000)		—		—
Total net sales		139,118		161,720		170,944		161,559
Cost of sales		80,240		89,290		82,891		79,707
Gross profit		58,878		72,430		88,053		81,852
Operating expenses		30,069		28,793		53,747		102,158
Operating income (loss)		28,809		43,637		34,306		(20,306)
Other loss		(19,983)		(21,371)		(22,578)		(21,964)
Income tax expense (benefit)		3,100		7,337		3,542		(12,882)
Less: Net income attributable to noncontrolling interest		—		—		14		20
Net income (loss) attributable to Lannett Company, Inc.	$	5,726	$	14,929	$	8,172	$	(29,408)
Earnings (loss) per common share attributable to Lannett Company Inc. (1)
Basic	$	0.16	$	0.41	$	0.22	$	(0.80)
Diluted	$	0.15	$	0.40	$	0.22	$	(0.80)

(1)Due to differences in weighted average common shares outstanding, quarterly earnings per share may not add up to the totals reported for the full fiscal year.

The increase in net sales and gross profit in the second and third quarters of Fiscal 2019 is primarily due to increased sales of Levothyroxine as customer demand increased in anticipation of the transition of the product to Amneal. The subsequent decrease in net sales and gross profit in the fourth quarter of Fiscal 2019 is primarily due to the expiration of the JSP Distribution Agreement on March 23, 2019. The significant operating loss in the first quarter of Fiscal 2019 was mainly attributable to the full impairment of goodwill totaling $339.6 million as a result of JSP’s decision not to renew the JSP Distribution Agreement.

The increase in net sales and gross profit in the second quarter of Fiscal 2018 is primarily due to a temporary disruption of our competitor’s supplies in the Thyroid Deficiency and Migraine medical indications. The declines in operating income in the third and fourth quarters of Fiscal 2018 were primarily related to a loss on sale of an intangible asset and asset impairment charges as a result of the Cody Restructuring Plan as well as other activities related to the consolidation of the Company’s manufacturing facilities. Income tax expense in the second quarter of Fiscal 2018 was negatively impacted due to the adoption of 2017 Tax Reform which resulted in a revaluation of the Company’s net long term deferred tax assets.

The decline in operating income in the first and second quarters of Fiscal 2017 is primarily attributable to a $65.1 million and $23.0 million intangible assets impairment charge, respectively. Total net sales in the third and fourth quarters of Fiscal 2017 were negatively impacted by $4.5 million and $5.7 million, respectively, due to the Bipartisan Budget Act of 2015 which required drug manufacturers to pay additional rebates to state Medicaid programs. Total net sales in the third quarter of Fiscal 2017 was also negatively impacted by a $4.0 million adjustment to the Fiscal 2016 settlement agreement amount with a former customer.