Lifeway Foods Inc., (Nasdaq: LWAY), a leading supplier of cultured dairy products known as kefir and organic kefir, today announced results for the fourth quarter and full year ended Dec. 31, 2012.

Fourth quarter and full year 2012 highlights

"In 2012, we continued to execute on our strategic goals as we increased awareness and distribution of Lifeway's kefir products to report record sales and earnings results," said Julie Smolyansky, CEO of Lifeway Foods, Inc. "We are confident about our future growth and we expect 2013 to be another year of strong sales and profitability as new and existing consumers choose Lifeway Foods as a provider of wholesome, nutritious kefir products for themselves and their families. Additionally, we expect gross revenues for our first quarter 2013, which ended March 29, 2013, to be approximately 30 percent higher when compared to the same period in 2012, and we expect to continue this momentum throughout the year."

Fourth quarter results
Fourth quarter of 2012 gross sales increased 22 percent to $22.9 million compared to $18.7 million for the fourth quarter of 2011. This increase is primarily attributable to increased sales and awareness of the Company's flagship line, Kefir, as well as ProBugs® Organic Kefir for kids and BioKefir™.

Fourth quarter total consolidated net sales increased 24 percent to $20.8 million from $16.8 million in the fourth quarter of 2011. Net sales are recorded as gross sales less promotional activities such as slotting fees paid, couponing, spoilage and promotional allowances as well as early payment terms given to customers. The total allowance for promotions and discounts in the fourth quarter of 2012 was approximately $2.0 million or 10 percent of gross sales, compared to $2.0 million or 10.5 percent of gross sales in the same period last year.

Cost of goods sold as a percentage of net sales, excluding depreciation expense, were approximately 65 percent during the fourth quarter of 2012, compared to approximately 76 percent during the same period in 2011. Gross profit for the fourth quarter of 2012 increased 86 percent to approximately $6.8 million, compared to approximately $3.7 million in the fourth quarter of the prior year. The gross profit margin increased to 33 percent in the fourth quarter 2012 versus 22 percent in the fourth quarter of 2011. The increase was primarily attributable to lower costs of transportation and other petroleum-based production supplies, and the decreased cost of conventional milk, the Company's largest raw material. The total cost of milk was approximately 5 percent lower during the fourth quarter 2012 when compared to the same period in 2011.

Operating expenses as a percentage of net sales were approximately 24 percent during the fourth quarter of 2012, compared to approximately 25 percent during the same period in 2011. This was primarily attributable to an increase in selling expenses, which increased by $0.6 million to $3.2 million during the fourth quarter of 2012, from $2.6 million during the same period in 2011.

The Company reported income from operations of $1.80 million during the fourth quarter of 2012, an improvement of $2.3 million from a loss of $0.5 million during the same period in 2011.

Provision for income tax was $0.7 million or a 40 percent effective tax rate for the fourth quarter compared to a benefit of $0.1 million during the same period in 2011.

Total net income was $1.1 million, or $0.07 per diluted share, for the three-month period ended Dec. 31, 2012 compared to a net loss of $0.4 million, or a loss of $0.02 per diluted share, in the same period in 2011.

2012 year end results
Total consolidated gross sales increased 16 percent or $12.6 million to approximately $89.8 million during the twelve-month period ended Dec. 31, 2012 from $77.1 during the same twelve-month period in 2011. This increase is primarily attributable to increased sales and awareness of the Company's flagship line, Kefir, as well as ProBugs® Organic Kefir for kids and BioKefir™.

Total consolidated net sales increased 16 percent or $11.4 million to $81.4 million during the twelve-month period ended Dec. 31, 2012 from $70.0 million during the same twelve month period in 2011.

Cost of goods sold as a percentage of net sales, excluding depreciation expense, were approximately 64 percent during the twelve-month period ended Dec. 31, 2012, compared to approximately 67 percent during the same period in 2011. Gross profit for 2012 increased 29 percent to $27.4 million, compared to $21.3 million in 2011. The Company's gross profit margin increased to 34 percent versus 30 percent in 2011.

Total operating income increased $3.8 million, or approximately 74 percent, to $8.8 million during the twelve-month period ended Dec.31, 2012, from $5.1 million during the same period in 2011.

Total net income was $5.6 million, or $0.34 per share, for the twelve-month period ended Dec.31, 2012 compared to $2.9 million, or $0.17 per share, in the same period in 2011.

On March 29, 2013, the Company concluded that the consolidated statements of income for the year-to-date periods ended March 31, 2012, June 30, 2012 and Sept. 30, 2012, including comparatively presented periods, that were previously included in its Quarterly Reports on Forms 10-Q filed in 2012 should be restated as a result to update the accounting presentation of production activity within cost of goods sold from general and administrative operating expenses. These restatements result in increases in cost of goods sold and corresponding decreases in general and administrative operating expenses. These restatements had no impact on the Company's previously reported net income, condensed consolidated balance sheets or consolidated statements of cash flows. Further information regarding this restatement can be found in the Company's Form 8-K filing dated April 1, 2013.