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Prestige Brands Holdings Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 5, 2011 01:44PM
Prestige Brands Holdings Inc. (PBH) filed Quarterly Report for the period ended 2011-06-30. Prestige Brands Holdings Inc. has a market cap of $544.2 million; its shares were traded at around $10.82 with a P/E ratio of 13.4 and P/S ratio of 1.6.
Highlight of Business Operations:
We have financed and expect to continue to finance our operations with a combination of borrowings and funds generated from operations. Our principal uses of cash are for operating expenses, debt service, acquisitions, working capital and capital expenditures. In March 2010, we issued $150.0 million of 8.25% Senior Notes due in 2018, entered into a senior secured term loan facility of $150.0 million maturing in 2016 and entered into a $30.0 million senior secured revolving credit facility maturing in 2015. In November 2010, we issued an additional $100.0 million of 8.25% Senior Notes due in 2018, and borrowed an additional $115.0 million under our existing Credit Agreement. In addition, in November 2010, we amended our Credit Agreement to increase our borrowing capacity under our Senior Secured Revolving Credit Facility by $10.0 million to $40.0 million. The proceeds from the preceding transactions, in addition to cash that was on hand, were used to purchase, redeem or otherwise retire all of the previously issued senior subordinated notes, to repay all amounts under our former credit facility and terminate the associated credit agreement, and fund the Blacksmith and Dramamine acquisitions.
Net cash used in financing activities was $22.7 million for the three months ended June 30, 2011 compared to $28.6 million for the three months ended June 30, 2010. During the three months ended June 30, 2011, we used cash from operating activities and cash on hand to repay $23.0 million of our outstanding debt. This decreased our outstanding indebtedness to $469.0 million at June 30, 2011 from $492.0 million at March 31, 2011.
The 2010 Senior Term Loan included a discount to the lenders of $1.8 million resulting in our receipt of net proceeds of $148.2 million. The 2010 Senior Notes were issued at an aggregate face value of $150.0 million with a discount to noteholders of $2.2 million and net proceeds to us of $147.8 million. The discount was offered to improve the yield to maturity to lenders reflective of market conditions at the time of the offering. In addition to the discount, we incurred $7.3 million of costs primarily related to fees of bank arrangers and legal advisors of which $6.6 million was capitalized as deferred financing costs and $0.7 million was expensed. The deferred financing costs are being amortized over the term of the loan and notes.
In connection with the acquisition of Blacksmith, on November 1, 2010, we amended our existing debt agreements and increased the amount borrowed thereunder. Specifically, on November 1, 2010, we amended our Credit Agreement in order to allow us to (i) borrow an additional $115.0 million as an incremental term loan, with the same maturity date and other terms and conditions as the 2010 Senior Term Loan (hereinafter all references to the 2010 Senior Term Loan shall also include the $115.0 incremental term loan) under our Senior Secured Term Loan Facility and (ii) increase our borrowing capacity under our 2010 Revolving Credit Facility by $10.0 million to $40.0 million. On November 1, 2010, we also issued an additional $100.0 million of 8.25% Senior Notes due in 2018 (hereinafter all references to the 2010 Senior Notes shall also include the $100.0 million issuance of 8.25% Senior Notes due 2018).
Estimates of costs of promotional programs are based on (i) historical sales experience, (ii) the current promotional offering, (iii) forecasted data, (iv) current market conditions, and (v) communication with customer purchasing/marketing personnel. At the completion of the promotional program, the estimated amounts are adjusted to actual results. Our related promotional expense for the fiscal year ended March 31, 2011 was $21.3 million and for the three months ended June 30, 2011 was $5.7 million. We believe that the estimation methodologies employed, combined with the nature of the promotional campaigns, make the likelihood remote that our obligation would be misstated by a material amount. However, for illustrative purposes, had we underestimated the promotional program rate by 10% for the fiscal year ended March 31, 2011, our sales and operating income would have been adversely affected by approximately $2.1 million. Net income would have been adversely affected by approximately $1.3 million. Similarly, had we underestimated the promotional program rate by 10% for the three months ended June 30, 2011, our sales and operating income would have been adversely affected by approximately $0.6 million. Net income would have been adversely affected by approximately $0.4 million for the three months ended June 30, 2011.
Many of our products are subject to expiration dating. As a general rule our customers will not accept goods with expiration dating of less than 12 months from the date of delivery. To monitor this risk, management utilizes a detailed compilation of inventory with expiration dating between zero and 15 months and reserves for 100% of the cost of any item with expiration dating of 12 months or less. Inventory obsolescence costs charged to operations were $0.2 million for the fiscal year ended March 31, 2011, while for the three months ended June 30, 2011, we recorded obsolescence costs of $1.0 million. A 1.0% increase in our allowance for obsolescence at March 31, 2011 would have adversely affected our reported operating income and net income for the fiscal year ended March 31, 2011 by approximately $0.4 million and $0.2 million, respectively. Similarly, a 1.0% increase in our allowance at June 30, 2011 would have adversely affected our reported operating income and net income for the three months ended June 30, 2011 by approxima
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