CARSON, Calif., Jun 27, 2007 (BUSINESS WIRE) -- Leiner Health Products Inc. today announced its financial results for the fourth quarter and full year ended March 31, 2007.
Net sales for the fourth quarter of fiscal 2007 were $175.2 million compared to $173.8 million for the same period in fiscal 2006, a 0.8% increase. U.S. net sales were $162.4 million in the fourth quarter of fiscal 2007, an increase of $0.8 million, or 0.5%, from the same period in fiscal 2006. Canadian net sales were $12.8 million in the fourth quarter of fiscal 2007, an increase of $0.6 million, or 4.9%, from the same period in fiscal 2006. U.S. net sales increased marginally due to an increase in our contract manufacturing net sales, which was largely offset by the previously announced voluntary suspension of our U.S. based OTC manufacturing and distribution during the latter part of March 2007. U.S. net sales in the fourth quarter of fiscal 2007 were also adversely impacted by the recall reserves established as a result of certain voluntary OTC product recalls.
Gross margin in the fourth quarter of fiscal 2007 declined to 9.2% versus 24.5% in the fourth quarter of fiscal 2006. Fourth quarter gross margins were negatively affected by the previously announced OTC product shipment suspension, which resulted in a $27.4 million non-cash inventory reserve as well as the recall reserve mentioned above.
The Company reported a net loss of $39.2 million for the fourth quarter of fiscal 2007, compared to net income of $0.4 million for the same period in fiscal 2006. The aforementioned OTC suspension and the Fort Mill consolidation had a significant negative impact to gross margins and net income. In addition to the $27.4 million OTC non-cash inventory reserve, the Company incurred a non-cash charge of $16.5 million in the fourth quarter of fiscal 2007 for impairment of assets related to the restructuring of the Company's operations at its Fort Mill, South Carolina facility and increased its valuation allowance against its U.S. deferred tax assets by approximately $14.5 million.
For fiscal 2007, net sales totaled $735.2 million compared to $669.6 million in fiscal 2006, a 9.8% increase. Fiscal year 2007 included an additional week compared to the prior fiscal year. Net sales increased by approximately $13.0 million due to this additional week. In addition, fiscal 2006 net sales were negatively impacted by the establishment of return reserves related to certain branded products and inventory reductions carried out by the Company's biggest customers. U.S. net sales were $683.9 million in fiscal 2007, an increase of $69.2 million, or 11.3%, from fiscal 2006. U.S. net sales increased by approximately $12.0 million in fiscal 2007 as compared to fiscal 2006 due to the extra week. Canadian net sales were $51.3 million in fiscal 2007, a decrease of $3.6 million, or 6.5%, from fiscal 2006. Canadian net sales increased by approximately $1.0 million in fiscal 2007 as compared to fiscal 2006 due to the extra week. For fiscal 2007, the Company recorded a net loss of $22.3 million for the aforementioned reasons compared to a net loss of $3.8 million in fiscal 2006.
Credit Agreement EBITDA for the fourth quarter of fiscal 2007 was $18.1 million, compared to $20.8 million for the same period in fiscal 2006. For fiscal 2007, Credit Agreement EBITDA was $89.0 million, compared to $74.8 million for fiscal 2006. Leiner was in compliance with all of its financial covenants as of March 31, 2007. As previously announced, the Company's financial covenants were amended through approval of its secured lenders, effective June 22, 2007.
Robert Kaminski, Chief Executive Officer, commented, "An otherwise excellent year was negatively impacted by our OTC issues. Our fiscal 2007 sales were strong, with robust demand for our VMS products, specifically multivitamins, CoQ10 and fish oil products. The Company has challenged itself to react to the OTC situation in a way that enables us to preserve our core franchise while emerging as a best-in-class, highest quality OTC and VMS supplier of store brand products. We believe our recent actions position Leiner for long-term leadership in the markets we serve."
Additional information regarding Leiner's fiscal 2007 performance will be contained in the Company's Annual Report on Form 10-K, which will be posted on the Company's website, www.leiner.com, on June 29, 2007. Alternatively, the Annual Report on Form 10-K 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 U.S. 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) a delay in the implementation of the consolidation; (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.