CARSON, Calif.--(BUSINESS WIRE)--Feb. 15, 2002-- Company's Progress on Restructuring Continues
Leiner Health Products Inc. today reported financial and operating results for its third quarter ended December 31, 2001. The Company said that a number of factors including its restructuring initiative, which began in July 2000, and an improving U.S. private label vitamin, mineral and supplement (VMS) market, have continued to contribute to improving year-over-year results.
Attached as Exhibit I are the Company's Condensed Consolidated Statements of Operations and Balance Sheets. Attached as Exhibit II are Pro-Forma Consolidated Statements of Operations for the three months ended December 31, 2001 and the nine months ended December 31, 2001. The Pro-Forma reflects adjustments to the financial statements presented in the Company's 10-Q in order to more clearly present the improving trend in operating profits before non recurring items related to the restructuring and supplier settlement recoveries. The commentary that follows has been separated into two sections. The first represents commentary on the Company's results as published in the 10-Q (Exhibit I). The second section represents commentary on the Pro-Forma Statements (Exhibit II).
Comments to the Company's Condensed Consolidated Statements of Operations (Exhibit I).
Net sales for the third quarter were $146.4 million compared to $159.5 million through the same period a year ago. Gross profit was $29.1 million compared with the prior year period of $24.8 million representing an increase in the gross profit as a percentage of net sales from 15.6% to 19.9%. This improvement was due to a number of factors including improved plant efficiencies due to the Company's restructuring initiatives.
Operating expenses have been reduced from $31.5 million in the prior year quarter to $28.0 million in the current year quarter. The reduction was due primarily to lower advertising expenditures, reduced payroll spending and travel and entertainment related expenses offset by expenses related to the Company's financial and operational restructuring.
The Operating loss improved from $5.2 million in the prior year quarter to $2.5 million in the current year quarter. In the nine months ended December 31, 2001 the operating loss was $1.8 million against income of $5.5 million in the prior year period. The prior year period includes $20.0 million of settlement income arising from a supplier dispute. After exclusion of this non-recurring item the operating loss improved by $12.7 million.
Primarily as a result of the factors discussed above, the reported net loss for the quarter was $11.1 million compared with the prior year quarter's reported net loss of $9.6 million. The prior year quarter benefited from the recognition of $4.4 million of net settlement income and a $4.5 million income tax benefit. The current year quarter was negatively impacted by non-recurring expenses related to the Company's financial and operational restructuring. These include $3.2 million of professional fees and expenses, $1.2 million of severance payments and $0.8 million of employee retention bonuses.
Comments to Pro-Forma Consolidated Statements of Operations (Exhibit II).
Net sales for the third quarter were $146.4 million compared to $159.5 million during the same period a year ago. Gross profit was $31.0 million in the third quarter compared with the prior year period of $24.8 million. Gross profit as a percentage of net sales improved to 21.2% in the current quarter vs. 15.5% in the prior year period. This improvement was due to a number of factors including improved plant efficiencies as a result of the Company's restructuring initiatives.
Operating expenses in the current quarter have been reduced from $31.5 million in the prior year quarter to $23.6 million in the current year quarter. The reduction (3.6 percentage points of net sales) was due primarily to lower advertising expenditures, reduced payroll spending and travel and entertainment related expenses. The pro-forma reflects the exclusion of $4.4 million of restructuring related expenses incurred in the current quarter. These comprise $3.2 million of restructuring professional fees and expenses, $0.4 million of severance payments and $0.8 million of employee retention bonuses.
Operating Income before Restructuring Charges and Settlement Income for the quarter increased by $12.6 million from a loss of $8.3 million in the prior year quarter to a profit of $4.3 million. The improvement was due to improved gross profit dollars and reduced operating expenses.
In the nine months ended December 31, 2001 Operating Income Before Restructuring Charges and Settlement Income improved from a loss of $13.2 million in the prior year nine month period to $9.1 million of income in the current year nine month period. This $22.3 million improvement was due to a number of factors including improved plant efficiencies and $12.4 million of operating expense improvement due primarily to lower advertising expenditures, reduced payroll spending and travel and entertainment related expenses. The operating expense improvement is stated after exclusion of net restructuring related expenses of $10.5 million, which primarily comprise of restructuring professional fees and expenses.
Leiner's Operational Restructuring.
The reengineering of the Company's operations continued in the quarter. These have included the previously announced closure of three OTC drug manufacturing facilities, the reduction of approximately 3,200 of it's 6,700 SKUs and the elimination of more than 600 positions.
In addition to the improvement in gross profit margins, the company's reengineering has yielded significant working capital improvements in inventory turns and accounts receivable days' outstanding. These improvements have been realized while simultaneously improving customer service levels significantly during the nine months ended December 31, 2001 and reducing the U.S. outstanding order backlog during the quarter.
Commenting on the third quarter results, Robert M. Kaminski, chief executive officer of Leiner Health Products, said, "The improvements seen in our nine months results attest to the dedication and hard work of the men and women of Leiner. Their continued commitment to the Company remains important as we work to finalize the previously announced financial restructuring."
On January 30, 2002, Leiner began formally soliciting Senior Bank Lender and bondholder votes of its previously announced consensual prepackaged plan of reorganization. Ballots and disclosure statements were mailed on January 30, 2002 to the Company's Senior Bank Lenders and holders of its Senior Subordinated Notes.
The Company continues to make progress and, subject to a favorable vote on its proposed plan of reorganization, it currently intends to implement its financial restructuring through a consensual prepackaged plan of reorganization under Chapter 11 of the US Bankruptcy Code. Leiner said that under the proposed restructuring plan, suppliers will be unimpaired and normal business operations will continue. Also, Leiner's Canadian business would continue as usual and Vita Health's creditors will not be impaired.
Kaminski continued, "We continue to be gratified by the ongoing support we have received from our customers and suppliers throughout our restructuring. Their confidence in Leiner has helped to allow us to achieve significant progress in our efforts to restructure the Company's finances. Once finalized, the financial restructuring will enable Leiner to reduce its debt burden and gain access to new working capital." Kaminski added, "I look forward to putting the financial restructuring behind us and I am excited about the prospect of accelerating the growth of one of America's leading VMS suppliers."
Certain of the statements contained in this press release (other than statements of historical fact) are forward-looking statements, including statements regarding, without limitation, the Company's restructuring initiative, the Company's relationship with its lenders, trends in the Company's business, and the Company's future liquidity requirements and capital resources.
Forward-looking statements are made based upon management's current expectations and beliefs concerning future developments and their potential effects upon the Company. There can be no assurance that future developments will be in accordance with management's expectations or that the effect of future developments on the Company will be those anticipated by management. All forward-looking statements involve known and unknown risks and uncertainties (some of which are beyond the control of the Company) including, without limitation, the ability of the Company to restructure its long-term indebtedness, the ability of the Company to operate successfully during any reorganization proceeding and the ability of the Company to finalize a new credit agreement. If no such agreement is reached, or if the Company fails to reach definitive agreement with its subordinated debtholders or new equity investors, there can be no assurance that the current forbearance agreement will be extended beyond its limited period. If the bank lenders or the subordinated debt holders were to accelerate maturity of amounts due under the amended credit agreement or the subordinated notes, respectively, the Company would not have sufficient funds to repay its outstanding debt, and no assurance can be given that alternative sources of sufficient financing would be available on acceptable terms, or at all. The important factors described elsewhere in this press release and in the company's Form 10-K for the fiscal year ended March 31, 2001 and Form 10-Q for the three months ended December 31, 2001 on file with the Securities and Exchange Commission, could affect the Company's actual results and could cause such results to differ materially from estimates or expectations reflected in such forward-looking statements. In light of the factors, there can be no assurance that events anticipated by the forward-looking statements contained in this press release will in fact transpire. The Company undertakes no obligation to republish revised forward-looking statements to reflect the occurrence of unanticipated events.