Exhibit 99.1
Leiner Health Products Reports First Quarter 2006 Results;
- Investments in product rotation impact Q1 results -
CARSON, Calif.--(BUSINESS WIRE)--Aug. 9, 2005--Leiner Health Products Inc.
today announced its financial results for the first quarter ended June 25, 2005.
Net sales for the quarter were $145.6 million compared to $156.0 million
for the same period in fiscal 2005, a 6.7% decrease. The decrease in net sales
for the quarter resulted primarily from a soft VMS and OTC market and
substantial inventory reductions by the company's customers in response to the
market. Additionally, the company reserved $4.7 million in anticipation of
potential returns of branded product not currently meeting minimum turnover
hurdle rates for the company's customers.
For the quarter, Leiner reported a net loss of $4.2 million, compared to a
net loss of $67.8 million for the same period in fiscal 2005. In the first
quarter of fiscal 2005 Leiner recognized $85.4 million of recapitalization
charges and a related tax impact of $13.5 million. Excluding these
recapitalization charges and their income tax impact, Leiner had net income of
$4.1 million for the first quarter of fiscal 2005. The decrease in net income
for the first quarter of fiscal 2006 resulted from negative gross margin impact
from three primary factors discussed further below: 1) the transition in product
mix from Vitamin E to joint care in the VMS category; 2) $5.6 million reserved
for returns and inventory write downs for branded products (which includes the
$4.7 million reserve noted above); and 3) lower plant volumes from the company's
inventory reduction initiative which began in the fourth quarter of fiscal 2005.
Consequently, gross profit for the first quarter of fiscal 2006 was $22.3
million compared to $40.9 million for the same period in fiscal 2005.
Credit Agreement EBITDA for the quarter was $9.2 million, compared to $19.7
million for the same period in fiscal 2005. 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 of 5.25 to 1.00 and a Credit Agreement EBITDA to Consolidated Interest
Expense Ratio of 2.25 to 1.00 on the last day of the first quarter. Leiner was
in compliance with these financial covenants as of June 25, 2005. However, due
to changes in the product landscape and the decrease in net sales and gross
margins in the first quarter of fiscal 2006 compared to the same period in
fiscal 2005, which trends may continue, and in connection with the
Pharmaceutical Formulations, Inc. ("PFI") acquisition and the narrow cushion in
its financial covenants, Leiner is seeking to negotiate amendments to its Credit
Agreement with its bank group during the second quarter of fiscal 2006. 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.
Robert Kaminski, Chief Executive Officer, commented, "We continue to
proactively navigate the transition in the product landscape changes in our VMS
category. Our progress is solid but not yet reflected in our financial results
in our first quarter. We expect the cost of transition to continue to result in
increased sales but lower gross margins in our fiscal 2006. In the first quarter
we continued to feel the effects of product rotation from the higher margin
vitamin E sales to the lower margin joint care products.
"The joint care category has been hit hard by rising raw material costs.
During the first quarter of this year we have successfully partnered with our
key customers to deal with the changing marketplace. The company's 'customer
first' philosophy has never been more evident. We have emerged as a leading
joint care supplier focusing on customer quality and in stock first, believing
our own rewards will follow. The benefit of our market share position will begin
to be realized during the second quarter.
"Additionally, our management team has been working to reduce the company's
investment in overall raw material and finished goods inventory. The associated
reduction in production volumes during the fourth quarter at Leiner's plants has
generated unabsorbed manufacturing costs. These costs have created higher
overall per unit product costs and lower gross profit margins in the first
quarter. As our production volumes return to normal levels in succeeding
quarters, we expect to see a lowering of our product costs as well.
"We continue the careful management of operating expenses, which are down
9.0% at $21.8 million during the first quarter of fiscal 2006 compared to $23.9
million in the first quarter of fiscal 2005. We believe that our discipline in
operating expense and working capital management will serve us well in future
periods.
"We are continuing to pursue the purchase of certain assets related to
PFI's OTC solid dose pharmaceutical products business. We are excited about this
opportunity to broaden our customer base, increase our manufacturing scale and
lower our costs. This acquisition positions the company well in the store brand
VMS and OTC pain management category as 40 million Americans turn 50 over the
next 20 years.
"Despite the near-term challenges in our industry, we will adhere to our
vision and core values and we remain very optimistic about our long-term growth
prospects."
Conference Call Information
Leiner will conduct a conference call on Wednesday, August 10, 2005 at 2:00
p.m. Eastern time to discuss first quarter-2006 results. The public is invited
to attend. The dial-in number for the call is 706-634-0167. The call is also
being webcast and can be accessed through the "Investor Information" section of
the company's website, www.leiner.com. For those who cannot listen to the live
broadcast, a telephone replay of the call will be available from August 10, at
5:00 p.m. Eastern Time through August 24, 2005, and can be accessed by dialing
706-645-9291, conference ID #7989119. An archived webcast will also be available
on Leiner's website.
Additional information regarding Leiner's fiscal 2006 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 Friday, August 12, 2005. The Quarterly
Report on Form 10-Q will also be available through the SEC's website,
www.sec.gov.
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 its second largest 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 40 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. Last year, Leiner produced 27 billion
doses that help offer consumers high quality, affordable choices to improve
their health and wellness.
Forward-looking Statement
This press release contains "forward-looking statements" that are subject
to risks and uncertainties. These statements often include words such as "may,"
"will," "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) slow or negative growth in the vitamin, mineral,
supplement or over-the-counter pharmaceutical industry; (ii) adverse publicity
regarding the consumption of vitamins, minerals, supplements or over-the-counter
pharmaceuticals; (iii) increased competition; (iv) increased costs; (v) our
inability to obtain the requested amendments from the senior lenders under a New
Credit Facility at favorable terms, or at all; (vi) increases in the cost of
borrowings and/or unavailability of additional debt or equity capital; (vii)
changes in general worldwide economic and political conditions in the markets in
which the company may compete from time to time; (viii) the inability of the
company to gain and/or hold market share of its customers; (ix) exposure to and
expenses of defending and resolving product liability claims and other
litigation; (x) the ability of the company to successfully implement its
business strategy; (xi) the inability of the company to manage its operations
efficiently; (xii) consumer acceptance of the company's products; (xiii)
introduction of new federal, state, local or foreign legislation or regulation
or adverse determinations by regulators; (xiv) the mix of the company's products
and the profit margins thereon; and (xv) 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.
LEINER HEALTH PRODUCTS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(dollars in thousands)
Three months ended
------------------------
June 26, June 25,
2004 2005
----------- -----------
Net sales $ 156,003 $ 145,587
Cost of sales 115,127 123,284
----------- -----------
Gross profit 40,876 22,303
Marketing, selling and distribution expenses 14,679 13,784
General and administrative expenses 9,250 7,981
Research and development expenses 1,283 1,090
Amortization of other intangibles 80 10
Recapitalization expenses 85,376 -
Other operating expense 430 642
----------- -----------
Operating loss (70,222) (1,204)
Interest expense, net 8,416 8,629
----------- -----------
Loss before income taxes (78,638) (9,833)
Benefit from income taxes (10,830) (5,638)
----------- -----------
Net loss (67,808) (4,195)
Accretion on preferred stock (39,211) -
----------- -----------
Net loss attributable to common shareholder $(107,019) $ (4,195)
=========== ===========
Pro forma Reconciliation
- ------------------------
Net loss $ (67,808) $ (4,195)
Recapitalization expenses 85,376 -
Income tax impact (13,476) -
----------- -----------
Pro forma net income (loss) $ 4,092 $ (4,195)
=========== ===========
LEINER HEALTH PRODUCTS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
March 26, June 25,
2005 2005
ASSETS --------- ---------
Unaudited
Current assets:
Cash and cash equivalents $ 16,951 $ 6,121
Accounts receivable, net of allowances of
$3,113 and $2,856 at March 26, 2005
and June 25, 2005, respectively 80,250 61,116
Inventories 164,910 160,225
Income tax receivable 2,310 7,850
Prepaid expenses and other current assets 17,492 18,020
--------- ---------
Total current assets 281,913 253,332
Property, plant and equipment, net 65,554 67,179
Goodwill 52,317 52,283
Other noncurrent assets 17,014 16,847
--------- ---------
Total assets $416,798 $389,641
========= =========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable $101,639 $ 85,525
Accrued compensation and benefits 9,634 7,918
Customer allowances payable 9,576 10,413
Accrued interest 9,093 5,556
Other accrued expenses 13,304 13,831
Current portion of long-term debt 5,536 4,191
--------- ---------
Total current liabilities 148,782 127,434
Long-term debt 390,990 389,737
Other noncurrent liabilities - 156
--------- ---------
Total liabilities 539,772 517,327
Commitments and contingencies
Common stock, $0.01 par value; 3,000,000 shares
authorized, 1,000 issued and outstanding at
March 26, 2005 and June 25, 2005 - -
Capital in excess of par value 469 474
Accumulated deficit (126,357) (130,552)
Accumulated other comprehensive income 2,914 2,392
--------- ---------
Total shareholder's deficit (122,974) (127,686)
--------- ---------
Total liabilities and shareholder's deficit $416,798 $389,641
========= =========
LEINER HEALTH PRODUCTS INC.
Calculation of Credit Agreement EBITDA
(dollars in thousands)
Three months ended
----------------------
June 26, June 25,
2004 2005
---------- ----------
Net loss $ (67,808) $ (4,195)
Benefit from income taxes (10,830) (5,638)
Interest expense, net 8,416 8,629
Depreciation and amortization 3,379 4,055
Recapitalization expenses (1) 85,376 -
Asset write-down (2) - 5,659
Non-cash stock compensation expense (3) - 5
Expenses related to permitted acquisition (4) - 22
Management fees (5) 1,118 672
========== ==========
Credit Agreement EBITDA (6) $ 19,651 $ 9,209
(1) Represents consulting, transaction, legal and accounting fees
associated with the May 2004 Recapitalization in fiscal 2005.
These fees were included as a separate item in the condensed
statement of operations and in operating activities in the
condensed consolidated statement of cash flows.
(2) Represents the establishment of a reserve for anticipated customer
returns and the reduction of the carrying value of inventory
related to certain branded products in the first quarter of fiscal
2006. This charge resulted in a reduction to gross profit in the
condensed consolidated statement of operations and in operating
activities in the condensed consolidated statement of cash flows
at June 25, 2005.
(3) Non-cash compensation expenses are included in the general and
administrative expenses in the condensed consolidated statement of
operations and in operating activities in the condensed
consolidated statement of cash flows.
(4) Internal expenses incurred in connection with the agreement to
purchase substantially all of the OTC assets of Pharmaceutical
Formulations, Inc. ("PFI") are included in the general and
administrative expenses in the condensed consolidated statement of
operations and in operating activities in the condensed
consolidated statement of cash flows.
(5) Management fees are included in other operating expenses in the
condensed consolidated statement of operations and in operating
activities in the condensed consolidated statement of cash flows.
(6) Credit Agreement EBITDA is calculated in accordance with the
definitions contained in our New Credit Facility as described
under "Credit Agreement EBITDA."
CONTACT: Leiner Health Products Inc.
Rob Reynolds, 310-952-1511
or
Lippert/Heilshorn & Assoc.
Jody Burfening/Harriet Fried
212-838-3777