Exhibit 99.1
Leiner Health Products Reports Fourth Quarter
and Full Year 2006 Results; Gross Margin Continues to Improve
CARSON, Calif.--(BUSINESS WIRE)--June 14, 2006--Leiner Health
Products Inc. today announced its financial results for the fourth
quarter and full year ended March 25, 2006.
Net sales for the quarter were $173.8 million compared to $174.6
million for the same period in fiscal 2005, a 0.4% decrease. Modest
growth in US sales in Q4 of fiscal 2006 was offset by a $5.4 million
sales decline in Canada. The US sales increase stems from the
continued growth of joint care products and sales from the PFI
acquisition. For the twelve months of fiscal 2006, net sales totaled
$669.6 million compared to $684.9 million in the same period of fiscal
2005, a 2.2% decrease. US sales increased by nearly $4 million in
fiscal 2006 but this was overshadowed by a $19.1 million decrease in
Canadian sales in the period, a 25.8% decline. The decline in year to
year Canadian sales resulted from the decision of a significant OTC
supplier to supply certain products directly to retail customers. US
sales were adversely impacted by the decline in sales of vitamin E,
which is a higher margin product, and the absence of branded new
product sales.
Leiner reported net income of $ .4 million for the quarter,
compared to net income of $6.4 million for the same period in fiscal
2005. Gross profit improved in Q4 of fiscal 2006 to 24.5% versus 24.0%
in Q4 of fiscal 2005. Despite the improvement in gross margin, net
income declined in Q4 FY06 primarily from higher restructuring
charges, interest expenses, and PFI integration costs.
For the twelve months of fiscal 2006, Leiner recognized a net loss
of $3.8 million, compared to a net loss of $47.9 million for the same
period of fiscal 2005, which included $88.0 million of
recapitalization charges. Gross profit declined to $136 million for
fiscal 2006 compared to $172 million in FY05, and gross margin was
20.4% for fiscal 2006, compared to 25.1% in fiscal 2005. Gross margin
in FY06 was diluted by the 16.5% margins in the first six months of
the fiscal year, resulting from the movement in product mix away from
higher margin vitamin E to joint care products, which experienced high
raw material costs due to changing market conditions. Unabsorbed fixed
manufacturing costs due to customer inventory reductions and reserves
for product returns also impacted gross profit in the first six months
of the fiscal year.
Credit Agreement EBITDA for the quarter was $20.8 million,
compared to $22.1 million for the same period in fiscal 2005. For the
twelve months of fiscal 2006, Credit Agreement EBITDA was $74.8
million, compared to $88.4 million for the same period of 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 and a Credit
Agreement EBITDA to Consolidated Interest Expense Ratio. Leiner was in
compliance with these financial covenants as of March 25, 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
reengineering accomplished in fiscal 2006 will serve the company well
in the future. Significant landscape changes have taken place during
fiscal 2006 in numerous areas including product mix, customer
inventories, global sourcing and quality initiatives, and a
substantial restructuring of the Leiner team. The principal drivers of
the company's return to more normal profitability include continued
benefits from its scale position in high quality global joint care raw
material sourcing and continued full utilization of the company's
manufacturing plants." Mr. Kaminski continued, "The fact that fourth
quarter gross margins have returned to 24.5% is evidence of the hard
work of the men and women of Leiner and the teamwork between Leiner
and its valued supplier partners."
Conference Call Information
Leiner will conduct a conference call on Thursday, June 15, 2006
at 11:00 a.m. Eastern Time to discuss fourth quarter and fiscal 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 June
15, at 2:00 p.m. Eastern Time through June 22, 2006, and can be
accessed by dialing 706-645-9291, conference ID #1222390. 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 Annual Report on Form 10-K, which will be
posted on the company's website, www.leiner.com, by 5:00 p.m. PST,
June 23, 2006. The Annual Report on Form 10-K 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 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 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 distributed over 28 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) increases in the cost of
borrowings and/or unavailability of additional debt or equity capital;
(vi) changes in general worldwide economic and political conditions in
the markets in which the company may compete from time to time; (vii)
the inability of the company to gain and/or hold market share of its
customers; (viii) exposure to and expenses of defending and resolving
product liability claims and other litigation; (ix) the ability of the
company to successfully implement its business strategy; (x) the
inability of the company to manage its operations efficiently; (xi)
consumer acceptance of the company's products; (xii) introduction of
new federal, state, local or foreign legislation or regulation or
adverse determinations by regulators; (xiii) the mix of the company's
products and the profit margins thereon; and (xiv) 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
(in thousands)
Three months ended Twelve months ended
-------------------- -------------------
March 26, March 25, March 26, March 25,
2005 2006 2005 2006
--------- --------- --------- ---------
Unaudited
Net sales $174,552 $173,796 $684,901 $669,561
Cost of sales 132,715 131,211 512,871 533,215
--------- --------- --------- ---------
Gross profit 41,837 42,585 172,030 136,346
Marketing, selling and
distribution expenses 14,662 15,054 58,532 58,444
General and administrative
expenses 7,310 10,134 34,134 35,725
Research and development
expenses 1,318 1,252 5,299 4,551
Amortization of other
intangibles 10 609 250 638
Restructuring charges - 2,531 - 3,836
Recapitalization expenses 19 - 87,982 -
Other operating expense 732 72 2,386 1,113
--------- --------- --------- ---------
Operating income (loss) 17,786 12,933 (16,553) 32,039
Interest expense, net 7,923 9,683 32,346 36,869
--------- --------- --------- ---------
Income (loss) before income
taxes 9,863 3,250 (48,899) (4,830)
Provision for (benefit from)
income taxes 3,497 2,887 (987) (1,062)
--------- --------- --------- ---------
Net income (loss) 6,366 363 (47,912) (3,768)
Accretion on preferred stock - - (39,212) -
--------- --------- --------- ---------
Net income (loss) attributable
to common shareholder $6,366 $363 $(87,124) $(3,768)
========= ========= ========= =========
Leiner Health Products Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except share data)
ASSETS March 26, March 25,
2005 2006
--------- ---------
Current assets:
Cash and cash equivalents $16,951 $7,731
Accounts receivable, net of allowances of $3,113
and $3,545 at March 26, 2005 and March 25, 2006,
respectively 80,250 73,211
Inventories 164,910 165,714
Income tax receivable 2,310 56
Prepaid expenses and other current assets 17,492 16,484
--------- ---------
Total current assets 281,913 263,196
Property, plant and equipment, net 65,554 72,618
Goodwill 52,317 58,245
Other noncurrent assets 17,014 22,039
--------- ---------
Total assets $416,798 $416,098
========= =========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable $101,639 $77,648
Accrued compensation and benefits 9,634 9,994
Customer allowances payable 9,576 10,522
Accrued interest 9,093 10,436
Other accrued expenses 13,304 17,214
Current portion of long-term debt 5,536 4,898
--------- ---------
Total current liabilities 148,782 130,712
Long-term debt 390,990 397,719
Other noncurrent liabilities - 2,749
--------- ---------
Total liabilities 539,772 531,180
Commitments and contingencies
Common stock, $0.01 par value; 3,000,000 shares
authorized, 1,000 issued and outstanding at
March 26, 2005 and March 25, 2006 - -
Capital in excess of par value 469 13,489
Accumulated deficit (126,357) (130,125)
Accumulated other comprehensive income 2,914 1,554
--------- ---------
Total shareholder's deficit (122,974) (115,082)
--------- ---------
Total liabilities and shareholder's deficit $416,798 $416,098
========= =========
Leiner Health Products Inc.
Calculation of Credit Agreement EBITDA
(in thousands)
Three months ended Twelve months ended
------------------ -------------------
March 26, March 25, March 26, March 25,
2005 2006 2005 2006
-------- -------- --------- --------
Unaudited
Net income (loss) $6,366 $363 $(47,912) $(3,768)
Interest expense, net 7,923 9,683 32,346 36,869
Provision for (benefit from)
income taxes 3,497 2,887 (987) (1,062)
Depreciation and amortization 3,513 4,972 13,722 16,634
Recapitalization expenses (1) 19 - 87,982 -
Asset write-down (2) - - - 5,659
Non-cash stock compensation
expense (3) 5 5 5 20
Expenses related to permitted
acquisition (4) - 498 - 1,937
Expenses related to joint care
and other products (5) - - - 12,400
Restructuring charges (6) - 1,695 - 3,000
Price difference between PFI's
purchased inventory and
Leiner's manufacturing cost (7) - 36 - 572
Expenses related to supplies to
customers of PFI (8) - 388 - 1,279
Management fees (9) 750 249 3,258 1,262
-------- -------- --------- --------
Credit Agreement EBITDA (10) $22,073 $20,776 $88,414 $74,802
======== ======== ========= ========
(1) Represents consulting, transaction, legal and accounting fees
associated with the May 2004 Recapitalization. These fees were
included as a separate item in the consolidated statement of
operations and in operating activities in the 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
consolidated statement of operations and in operating activities in
the consolidated statement of cash flows.
(3) Non-cash compensation expenses are included in the general and
administrative expenses in the consolidated statement of operations
and in operating activities in the consolidated statement of cash
flows.
(4) Represents internal expenses incurred in connection with the
PFI acquisition. These expenses are included in the general and
administrative expenses in the consolidated statement of operations
and in operating activities in the consolidated statement of cash
flows.
(5) Represents add back of expense incurred in connection with the
joint care customer in-stock investments, inventory reduction impact
and other expenses as stipulated in the Credit Agreement Amendment.
These expenses resulted in a reduction to gross profit in the
consolidated statement of operations for the year ended March 25,
2006.
(6) Represents severance and other related costs incurred in
connection with the reduction in workforce in fiscal 2006. The total
restructuring charges incurred were $3.8 million and this amount was
included as a separate line item in the consolidated statement of
operations and in operating activities in the consolidated statement
of cash flows. However, the restructuring charges allowed under the
Credit Agreement Amendment were $3.0 million.
(7) Represents the value of inventory purchased solely in
connection with the PFI acquisition for prices above our manufacturing
cost. This charge resulted in a reduction to gross profit in the
consolidated statement of operations and in operating activities in
the consolidated statement of cash flows
(8) Represents expenses incurred in connection with operating
facilities that prior to the PFI acquisition were operated by the PFI
business and to provide adequate inventory and to ensure continuous
supplies to customers of PFI business. This charge resulted in a
reduction to gross profit in the consolidated statement of operations
and in operating activities in the consolidated statement of cash
flows.
(9) Management fees, which include professional fees incurred in
connection with the Credit Agreement Amendment, are included in other
operating expenses in the consolidated statement of operations and in
operating activities in the consolidated statement of cash flows.
(10) Credit Agreement EBITDA is calculated in accordance with the
definitions contained in our Credit Agreement Amendment 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