CARSON, Calif., Aug 13, 2007 (BUSINESS WIRE) -- Leiner Health Products Inc. today announced its financial results for the first quarter of fiscal year 2008.
Net sales for the first quarter of fiscal 2008 totaled $107.4 million compared to $163.9 million for the same period in fiscal 2007, a decrease of $56.5 million or 34.4%. U.S. net sales were $95.4 million in the first quarter of fiscal 2008, a decrease of $56.6 million, or 37.2%, from the same period in fiscal 2007. Canadian net sales were $12.0 million in the first quarter of fiscal 2008, an increase of $0.1 million, or 0.1%, from the same period in fiscal 2007. Net U.S. sales decreased 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 and due to timing of promotional events, which had the effect of decreasing our Vitamin, Mineral and Supplement (VMS) sales.
Gross profit was $21.1 million, 19.7% of net sales, in the first quarter of fiscal 2008, a decrease of $18.8 million, or 47.0%, from $39.9 million, or 24.4% of net sales in the same period in fiscal 2007. First quarter gross profits were negatively affected by lower revenue and idle plant capacity due to the previously announced OTC product shipment suspension and Fort Mill consolidation.
The Company recorded total charges of $13.0 million in connection with the previously announced quality initiatives and the consolidation of its manufacturing and packaging operations. The charges consisted of restructuring expenses of $7.3 million, which reflects severance and other related costs related to the consolidation as well as operating expense of $5.7 million, included in general and administrative expenses, for consulting and legal costs relating to the FDA observations remediation.
The Company reported a net loss of $27.5 million for the first quarter of fiscal 2008, compared to net income of $2.0 million for the same period in fiscal 2007. Credit Agreement EBITDA for the first quarter of fiscal 2008 was $17.5 million, compared to $18.1 million for the same period in fiscal 2007. Leiner was in compliance with all of its financial covenants as of June 30, 2007.
Robert Kaminski, Chief Executive Officer, commented, "This has been a challenging, but productive quarter as we initiated our Fort Mill consolidation to align our cost structure with our revenue expectations. As a result, we expect total costs to be reduced by a targeted $50 million on an annualized basis. Our consolidation and OTC remediation plans continue to show progress, and we expect to emerge as a best-in-class, high quality OTC and VMS supplier of store brand products. As part of our efforts in this area, we recently recruited John M. Johnson to join Leiner's team as Senior Vice President, Quality and Compliance. John, who was most recently the senior quality executive for Mayne Pharma a global pharmaceutical company, has more than 30 years' experience and a demonstrated track record in successfully driving quality initiatives."
Additional information regarding Leiner's first 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. PT, August 14, 2007. Alternatively, 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, Leiner Health Products, headquartered in Carson, Calif., is America's leading manufacturer of store brand vitamins, minerals, and nutritional supplements and a leading supplier of over-the-counter pharmaceuticals in the food, drug, mass merchant and warehouse club (FDMC) retail market, as measured by retail sales. Leiner provides nearly 50 FDMC retailers with over 3,000 products to help its customers create and market high quality store brands at low prices. It also is 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; (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) introduction of new federal, state, local or foreign legislation or regulation 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.