CARSON, Calif., Nov 08, 2007 (BUSINESS WIRE) -- Leiner Health Products Inc. today announced its financial results for the second quarter of fiscal year 2008.
The Company reported a net loss of $26.3 million for the second quarter of fiscal 2008, compared to net income of $6.1 million for the same period in fiscal 2007.
Net sales for the second quarter of fiscal 2008 totaled $125.6 million compared to $198.0 million for the same period in fiscal 2007, a decrease of $72.4 million or 36.6%. U.S. net sales were $111.4 million in the second quarter of fiscal 2008, a decrease of $73.1 million, or 39.6%, from the same period in fiscal 2007. Canadian net sales were $14.2 million in the second quarter of fiscal 2008, an increase of $0.8 million, or 6.0%, from the same period in fiscal 2007. Net U.S. sales decreased principally due to the previously announced voluntary suspension of our U.S.-based over-the-counter pharmaceuticals (OTC) manufacturing and distribution during the latter part of March 2007. Additionally, the second quarter of fiscal 2008 included one less week than the second quarter of the prior year.
Gross profit was $17.6 million, 14.0% of net sales, in the second quarter of fiscal 2008, a decrease of $33.4 million, or 65.5%, from $51.0 million, or 25.8% of net sales in the same period in fiscal 2007. Second quarter gross margins were negatively affected by costs related to our response to the previously announced FDA inspection observations and an additional $8.9 million non-cash inventory reserve related to the write down of un-saleable OTC inventory, which was required due to the length of the product requalification process.
Robert Kaminski, Chief Executive Officer, commented, "We are pleased with the progress we have made toward re-entering the OTC category, including FDA's recent decision to allow us to begin to ship qualified inventory of previously manufactured OTC product and the potential we see in our recently announced OTC alliance with Wockhardt. We look forward to addressing the remaining challenges as we work to regain customer distribution and complete our manufacturing consolidation."
Credit Agreement EBITDA for the second quarter of fiscal 2008 was $26.6 million, compared to $26.1 million for the same period in fiscal 2007. Leiner was in compliance with all of its financial covenants as of September 29, 2007.
For the first six months of fiscal 2008, net sales totaled $233.0 million compared to $361.9 million in the first six months of fiscal 2007, a 35.6% decrease. The voluntary OTC suspension had a significant negative impact on gross margins and net income. For the first six months of fiscal 2008, Leiner realized a net loss of $53.8 million, compared to a net income of $8.1 million in the first six months of fiscal 2007.
Additional information regarding Leiner's second quarter fiscal 2008 performance will be contained in the Company's Quarterly Report on Form 10-Q, which will be posted on the company's website, www.leiner.com, by 5:00 p.m. Pacific Time, November 13, 2007. The Quarterly Report on Form 10-Q will also be available through the SEC's website, www.sec.gov.
Use of Non-GAAP Financial Measures
In our earnings release and conference call, we use and discuss non-GAAP financial measures as defined by SEC Regulation G. We use Credit Agreement EBITDA to measure our performance. Credit Agreement EBITDA is a non-GAAP measure that should not be considered as an alternative to income from operations or net income (loss) as a measure of operating results or cash flows as a measure of liquidity. Credit Agreement EBITDA is the basis for the calculation of significant financial covenants in the Company's credit facility, as amended, which requires Leiner to meet specified Consolidated Indebtedness to Credit Agreement EBITDA Leverage Ratio and a Credit Agreement EBITDA to Consolidated Interest Expense Ratio as such terms are defined in the Credit Agreement Amendment. Management believes that availability of Credit Agreement EBITDA will assist investors in evaluating Leiner's financial performance and our performance relative to credit agreement covenants. See the "Calculation of Credit Agreement EBITDA" in this release for a reconciliation of Credit Agreement EBITDA to net income (loss) computed under U.S. generally accepted accounting principles (GAAP).
About Leiner Health
Founded in 1973 and headquartered in Carson, Calif., Leiner Health Products is America's leading manufacturer of store brand vitamins, minerals, and nutritional supplements, as measured by retail sales, and supplies over-the-counter pharmaceuticals in the food, drug, mass merchant and warehouse club (FDMC) retail market. Leiner provides the leading FDMC retailers with over 3,000 products to help its customers create and market high-quality store brands at low prices. It is also the largest supplier of vitamins, minerals and nutritional supplements to the US military. Leiner markets its own brand of vitamins under YourLife(R) and sells over-the-counter pharmaceuticals under the Pharmacist's Formula(R) name. In 2006, Leiner distributed more than 31 billion doses that help offer consumers high quality, affordable choices to improve their health and wellness.
This press release contains "forward-looking statements" that are subject to risks and uncertainties. These statements often include words such as "may," "will," "could," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of such terms or similar expressions. These statements are only predictions. In addition to risks and uncertainties noted in this press release, there are risks and uncertainties that could cause the Company's actual operating results to differ materially from those anticipated by some of the statements made. Such risks and uncertainties include: (i) an FDA investigation into our OTC operations that has materially and adversely affected our operations; (ii) product recalls; (iii) failure to implement our consolidation plans on favorable terms, if at all; (iv) higher than expected consolidation expenses; (v) obtaining an unfavorable result in significant litigation; (vi) slow or negative growth in the vitamin, mineral, supplement or over-the-counter pharmaceutical industry; (vii) adverse publicity regarding the consumption of vitamins, minerals, supplements or over-the-counter pharmaceuticals; (viii) increased competition; (ix) increased costs; (x) increases in the cost of borrowings and/or unavailability of additional debt or equity capital on terms favorable to the Company or at all; (xi) changes in general worldwide economic and political conditions in the markets in which the Company may compete from time to time; (xii) the inability of the Company to gain and/or hold market share of its customers; (xiii) exposure to and expenses of defending and resolving product liability claims and other litigation; (xiv) the ability of the Company to successfully implement its business strategy; (xv) the inability of the Company to manage its operations efficiently; (xvi) consumer acceptance of the Company's products; (xvii) failure to comply with new federal, state, local or foreign legislation or regulation (including the new supplements cGMPs) or adverse determinations by regulators; (xviii) the mix of the Company's products and the profit margins thereon; and (xix) the availability and pricing of raw materials. The Company expressly disclaims any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.