Leiner Reports a 12.6% Increase in Sales

10/08/06 Leiner Health Products Inc. today announced its financial results for the first quarter ended June 24, 2006. Net sales for the quarter were $163.9 million compared to $145.6 million for the same period in fiscal 2006, a 12.6% increase. Net US sales increased 15.2% in the first quarter of 2007 compared to the same period in 2006, while net Canadian sales decreased by 13.0% in the same period. The net US sales increase resulted primarily from higher sales of joint care, coenzyme Q10, fish oil products, and the sales of PFI acquired products.

In addition, fiscal 2006 sales were impacted by the establishment of a $4.7 million reserve for customer returns of certain branded products and a reduction of sales due to inventory reductions by the company's biggest customers. Canadian sales continue to be impacted by the decision of a competitive OTC supplier to supply certain products directly to retail customers and lower sales of analgesics and multivitamins products to major customers in Canada.

Leiner reported net income of $2.0 million for the quarter, compared to net loss of $4.2 million for the same period in fiscal 2006. Gross margin improved in the first quarter of fiscal 2007 to 24.4% versus 15.3% in the first quarter of fiscal 2006 primarily due to higher sales of CoQ10 and fish oil products, continued stabilization of joint care margins, and better fixed cost absorption from better plant throughput. Gross margin in 2006 was negatively impacted by lower production throughput in the plants and higher raw material costs.

Credit Agreement EBITDA for the quarter was $18.1 million, compared to $9.2 million for the same period in fiscal 2006. Credit Agreement EBITDA is a financial measure used in the company's Credit Agreement, which required Leiner to have met a Consolidated Indebtedness to Credit Agreement EBITDA Leverage Ratio and a Credit Agreement EBITDA to Consolidated Interest Expense Ratio. Leiner was in compliance with these financial covenants as of June 24, 2006. As previously announced, the Company's financial covenants were amended through unanimous approval by its secured lenders, effective September 23, 2005 (Credit Agreement Amendment).

Credit Agreement EBITDA is a non-GAAP measure that should not be considered an alternative to income from operations or net income (loss) as a measure of operating results or cash flows as a measure of liquidity. See the "Calculation of Credit Agreement EBITDA" on page six for a reconciliation of Credit Agreement EBITDA to net income (loss) computed under U.S. generally accepted accounting principles (GAAP).

Robert Kaminski, Chief Executive Officer, commented, "The navigation of complex landscape changes over the past year has gone as planned. Today's product mix and inventory management situation are dramatically different than during the same period a year ago and create exciting opportunities for growth in each of our three business segments.

"The core, long-term stability in the company's business is evidence of strong partnerships between our customers, employees, and investors."