Via Facsimile and U.S. Mail
Mail Stop 6010
January 24, 2006
Mr. Robert Reynolds
Chief Financial Officer
Leiner Health Products Inc.
901 East 233rd Street
Carson, CA 90745
Re: Leiner Health Products Inc.
Form 10-K for Fiscal Year Ended March 26, 2005
Filed on June 24, 2005
File No. 333-33121
Dear Mr. Reynolds:
We have limited our review of your filing to those issues we
have addressed in our comments. In our comments, we ask you to
provide us with information so we may better understand your
disclosure. After reviewing this information, we may raise
additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comment or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the Fiscal Year Ended March 26, 2005
Item 6. Selected Financial Data, page 22
1. We do not believe it is appropriate to use EBITDA as a measure
of
operating performance since it attempts to eliminate recurring
items.
Question 8 of the Frequently Asked Questions regarding non-GAAP
information states that companies must demonstrate the burden of
the
usefulness of the information. Please explain to us the
usefulness
of the information taking into consideration the following in your
response:
a. The manner in which management uses the non-GAAP measure to
conduct or evaluate its business;
b. The economic substance behind management`s decision to use such
a
measure;
c. The material limitations associated with use of the non-GAAP
financial measure as compared to the use of the most directly
comparable GAAP financial measure;
d. The manner in which management compensates for these
limitations
when using the non-GAAP financial measure; and
e. The substantive reasons why management believes the non-GAAP
financial measure provides useful information to investors.
Item 7. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations
Critical Accounting Policies and Estimates
Revenue Recognition, page 34
2. We believe that your disclosure related to estimates that
reduce
gross revenue such as product returns and customer allowances
could
be improved upon. Please tell us, in disclosure-type format, the
following:
a. Disclose the nature and amount of each accrual at the balance
sheet date and the effect that could result from using other
reasonably likely assumptions than what you used to arrive at each
accrual such as a range of reasonably likely amounts or other type
of
sensitivity analysis.
b. Disclose the factors that you consider in estimating each
accrual
such as historical return of products, levels of inventory in the
distribution channel, estimated remaining shelf life, price
changes
from competitors and introductions of generics and/or new
products.
c. To the extent that information you consider in b) is
quantifiable,
disclose both quantitative and qualitative information and discuss
to
what extent information is from external sources (e.g., end-
customer
prescription demand, third-party market research data comparing
wholesaler inventory levels to end-customer demand). For example,
in
discussing your estimate of product that may be returned, consider
disclosing and discussing, preferably by product and in tabular
format, the total amount of product (in sales dollars) that could
potentially be returned as of the balance sheet date and
disaggregated by expiration period.
d. If applicable, discuss any shipments made as a result of
incentives and/or in excess of your customer`s ordinary course of
business inventory level. Discuss your revenue recognition policy
for such shipments.
e. You should consider disclosing a roll forward of the accrual
for
each estimate for each period presented showing the following:
* Beginning balance,
* Current provision related to sales made in current period,
* Current provision related to sales made in prior periods,
* Actual returns or credits in current period related to sales
made
in current period,
* Actual returns or credits in current period related to sales
made
in prior periods, and
* Ending balance.
f. In your discussion of results of operations for the period to
period revenue comparisons, discuss the amount of and reason for
fluctuations for each type of reduction of gross revenue, such as
product returns, chargebacks, customer rebates and other discounts
and allowances, including the effect that changes in your
estimates
of these items had on your revenues and operations.
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Note 1 Formation and Operations - General, F-7
3. Please tell us why your disclosure indicates that Vita is the
only
subsidiary that you consolidate. This disclosure appears to
contradict other disclosure in the filing such as Note 13 that
indicates there are multiple subsidiaries.
Note 10.Contingencies
Other, page F-21
4. We note from your disclosure that you have reserved up to your
insurance deductible amount of $2.0 million for the seven cases
involving the ingestion of Phenylpropanolamine containing
products.
Please tell us why you believe it is appropriate under US GAAP,
citing the specific references used, to only record a reserve for
the
deductible and not for the entire potential liability.
Note 13. Financial information for subsidiary guarantor and
subsidiary non-guarantor
5. We refer to your tabular disclosure where it appears that the
`Parent and Guarantor Subsidiaries` are both issuing the debt and
guaranteeing the debt. Please clarify for us which entity is
issuing
the debt and which entity is guaranteeing the debt. In addition
please tell us how you complied with the requirements of Rule 3-10
of
Regulation S-X. It appears based on your disclosure that you have
combined the financial information of the parent and guarantor
subsidiaries, when in fact they should be shown separately in
accordance with Rule 3-10.
* * * *
Please respond to the comments within 10 business days or
tell
us when you will provide us with a response. Please furnish a
letter
that keys your responses to our comments and provides requested
information. Detailed letters greatly facilitate our review.
Please
file your letter on EDGAR under the form type label CORRESP.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings to be certain that the
filing includes all information required under the Securities and
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comment, please provide,
in
your letter, a statement from the company acknowledging that
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Joseph Roesler, Staff Accountant, at (202)
551-
3628 if you have questions regarding the comments. In this regard,
do
not hesitate to contact me, at (202) 551-3679.
Sincerely,
Jim B. Rosenberg
Senior Assistant Chief
Accountant
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Mr. Robert Reynolds
Leiner Health Products Inc.
January 24, 2006
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