CARSON, Calif., Feb 2, 2005 (BUSINESS WIRE) -- Leiner Health Products Inc. today announced its financial results for the third quarter ended December 25, 2004.
Net sales for the quarter were $189.3 million compared to $176.7 million for the same period in fiscal 2004, a 7% increase. The increase in sales resulted from new product introductions and strong off-shelf category promotions from the company's largest customers, partially offset by a continued soft retail market and the impact of negative media on Vitamin E sales. For the first nine months of fiscal 2005, net sales totaled $510.3 million compared to $492.2 million in the first nine months of fiscal 2004.
Leiner reported net income of $8.1 million for the quarter, compared to $10.2 million for the same period in fiscal 2004. The decrease in net income was affected by an increase in interest expense of $3.3 million from the company's recapitalized debt structure compared to the same period in fiscal 2004.
Credit Agreement EBITDA was $25.3 million for the quarter, compared to $23.8 million for the same period in fiscal 2004. For the first nine months of fiscal 2005, Credit Agreement EBITDA was $65.2 million compared to $64.2 million during the first nine months of fiscal 2004. 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 third quarter. Leiner was in compliance with these financial covenants as of December 25, 2004. 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 reconciliation between net income and Credit Agreement EBITDA.
For the first nine months of fiscal 2005, Leiner recognized $86.8 million of charges related to the May 2004 recapitalization and reported a net loss of $54.3 million. Excluding these recapitalization charges and their income tax impact, the company would have had net income of $18.2 million compared to $22.7 million reported in the first nine months of fiscal 2004. During the first nine months of fiscal 2005, interest expense increased by $10.2 million from the recapitalized debt level, and the company recorded $2.5 million in charges related to a series of organizational changes implemented primarily in the second quarter of fiscal 2005. See the Condensed Consolidated Statements of Operations on page four for a reconciliation of the difference between net income including and excluding recapitalization charges and their income tax effect.
Robert Kaminski, Chief Executive Officer, commented, "We are pleased with our sales growth and the record Credit Agreement EBITDA we achieved during the third quarter. Sales growth resulted from sales of new products and strong category promotions from our largest customers. As expected, the retailer inventory adjustments and label changes from our second quarter were managed with no impact on our third quarter.
"During the third quarter of fiscal 2005, we also made progress in a number of areas that are important to Leiner's future development, including executing an agreement with a major customer to become its exclusive supplier of store brand Glucosamine/Chondroitin. We believe joint care supplements are a safe and effective solution for millions of consumers suffering from arthritis pain. As a result, the company is well positioned to adjust to product landscape changes caused by recent negative media affecting Vitamin E and Naproxen sales.
"The company and its customers will focus on new alternatives for heart health and pain management products while passive and reactive users are on the sidelines. We expect our sales to reflect this transition over the next six months while consumers consult their health care professionals. We are continuing our new product initiatives in the fourth quarter and expect the performance of those products to fuel top-line growth despite the market transition.
"The careful management of operating expenses, which totaled 12.6% of net sales during the third quarter versus 14.4% of net sales in the prior-year period, will continue for the foreseeable future. At the same time, the company's gross margins will be impacted by product and customer mix changes and higher raw material costs during this transition period."
Additional information regarding Leiner's third quarter 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 Wednesday, February 9, 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 22 billion doses that help offer consumers high quality, affordable choices to improve their health and wellness.
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; (xiv) the availability and pricing of raw materials; and (xv) other factors beyond the company's control. 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.
(1) Represents consulting, transaction, legal and accounting fees
associated with the May 2004 recapitalization. Recapitalization
expenses for the third quarter and the first nine months of fiscal
2004 were 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.
Recapitalization expenses incurred in the third quarter and the first
nine months of fiscal 2005 were included as a separate item in the
condensed consolidated statement of operations.
(2) Management fees are included in other operating expenses in
the condensed consolidated starement of operations.
(3) Credit Agreement EBITDA as presented above is a financial
measure that is used in our new senior credit facility. Credit
Agreement EBITDA is not a defined term under U.S. generally accepted
accounting principles and should not be considered as an alternative
to income from operations or net income (loss) as a measure of
operating results or cash flows as a measure of liquidity. Credit
Agreement EBITDA differs from the term "EBITDA" (earnings before
interest expense, income tax expense, and depreciation and
amortization) as it is commonly used.