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Martek Announces Restructuring of Plant Operations and Updates Revenue Guidance

[A reduction in production capacity is not exactly bullish for a supposedly growth-oriented company. MATK claims that it can easily ramp production back up should the need arise.]

http://biz.yahoo.com/prnews/061026/dcth007.html?.v=67

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Thursday October 26, 9:05 am ET

COLUMBIA, Md., Oct. 26 /PRNewswire-FirstCall/ -- Martek Biosciences Corporation announced today plans for the restructuring of its plant operations following a review of the company's current production and cost structure. The restructuring, to be implemented immediately, is expected to reduce manufacturing costs and operating expenses starting in the first quarter (Q1) of fiscal year 2007 (FY'07). The cost savings will be realized in full by the company's second quarter of FY'07 and will come as a result of overall improved manufacturing efficiency and a reduction in Martek's workforce at its Winchester, Kentucky ("Winchester") site. When fully realized, the restructuring is expected to result in a gross profit margin improvement of approximately 300 basis points, primarily due to the elimination of the majority of idle facility charges resulting from the shifting of production to Martek's Kingstree, South Carolina ("Kingstree") site and a reduction in personnel. After planned increases in sales and marketing expenses in support of Martek's food and beverage market development efforts, the company anticipates an incremental net benefit to earnings as a result of the restructuring of between $0.05 and $0.07 per share on an annualized basis ($0.04 to $0.06 per share in FY'07 after taking into account the effect of the restructuring charges described below).

Under the restructuring, a substantial portion of production currently taking place at Martek's Winchester site will be transferred to its Kingstree site. Martek's production workforce in Winchester will be reduced by approximately 100 people, or approximately 15% of Martek's total employees. As a result of the restructuring plan, Martek expects to incur total charges of approximately $6.0 million, of which approximately $5.4 million will be recorded in the fourth quarter of fiscal year 2006 (FY'06), and substantially all of the remainder in Q1 FY'07. The charges are due to employee separation costs estimated at $3.0 million and a non-cash write-down of certain assets supporting production in Winchester estimated at $3.0 million.

Martek will maintain the essential redundancy of dual-plant production capacity and plans to retain the knowledge base of key Winchester personnel to continue its ability to expand to meet future demand from the infant formula, food and beverage, and other markets, and, as a result, the restructuring will not have any impact on Martek's ability to meet anticipated customer demand. After the restructuring, the production capacity of Martek will be approximately $500 million in annualized sales. In the future, it is expected that this capacity can be increased to annualized sales amounts of $750 million, or greater, by bringing the Winchester assets back to full production, which Martek believes can be accomplished in a matter of months. Winchester's packaging activities, development activities and certain downstream process operations will continue after the restructuring. In addition, Martek will assist the displaced employees by providing a transition period for compensation and benefits, severance payments, and professional outplacement services.

"These actions, while difficult, are essential to Martek becoming a more efficient and stronger company, and should enable the company to better serve its customers and capitalize on growth opportunities for years to come," said Steve Dubin, CEO of Martek Biosciences Corporation. "In part, this restructuring was made as a result of improvements in Martek's production processes over the last three years that have resulted in meaningful productivity improvements. I continue to be encouraged by overall demand for and development of new growth opportunities for Martek's products."

Revenue Guidance Update

Martek's fourth quarter revenue is now expected to be approximately $66 million, which is at the high-end of the previously provided guidance range of $63 million to $66 million. Total revenue for FY'06 is now expected to be near $269 million (+24% vs. fiscal year 2005), which is also at the high-end of the company's previously provided guidance range.

Further information concerning the matters discussed in this press release will be provided on the company's 2006 fourth quarter and fiscal year end conference call which is expected to take place in mid-December.

Martek Biosciences Corporation (Nasdaq: MATK ) is a leader in the innovation and development of DHA omega-3 products that promote health and wellness through every stage of life. The Company produces life'sDHA(TM), a sustainable vegetarian source of DHA omega-3, for use in foods, beverages, infant formula, and supplements, and ARA (arachidonic acid), an omega-6 fatty acid, for use in infant formula. For more information on Martek Biosciences, visit http://www.martek.com.
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