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Prestige Brands Holdings Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: February 8, 2013 11:36PM

Prestige Brands Holdings Inc. (PBH) filed Quarterly Report for the period ended 2012-12-31. Prestige Brands Holdings Inc has a market cap of $1.22 billion; its shares were traded at around $23.79 with a P/E ratio of 26.3852 and P/S ratio of 2.021.



Highlight of Business Operations:

During the three months ended December 31, 2012, as a result of our significant debt repayments, we accelerated a portion of the deferred financing costs and original issue discount related to our 2012 Term Loan. As a result, during the three months ended December 31, 2012, we recorded a $7.7 million pre-tax charge to interest expense related to this non-cash acceleration. Of the $7.7 million, $3.0 million relates to the prior three quarters. Had the timing of the accelerated amortization been properly recorded, pre-tax earnings for the three and nine months ended December 31, 2012 would have been higher by $3.0 million ($1.9 million after tax or $0.03 per diluted share) and $1.1 million ($0.7 million after tax or $0.01 per diluted share), respectively; pre-tax earnings in the first and second quarters of 2013 would have been lower by $1.2 million ($0.7 million after tax or $0.02 per diluted share) and $0.7 million ($0.5 million or $0.01 per diluted share), respectively; and pre-tax earnings in the fourth quarter of 2012 and the year-ended March 31, 2012 would have been lower by $1.1 million ($0.7 million after tax or $0.01 per diluted share). We do not believe the amounts were material to the consolidated financial statements for any prior period and the cumulative amount is not material to the estimated results of operations for the year ended March 31, 2013. Furthermore, the adjustments had no impact to our cash flows from operations or total cash flows.

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, 2012 was $32.2 million. For the three and nine months ended December 31, 2012, our related promotional expense was $9.0 million and $26.3 million, respectively. 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, 2012, our sales and operating income would have been adversely affected by approximately $3.2 million. Net income would have been adversely affected by approximately $1.9 million. Similarly, had we underestimated the promotional program rate by 10% for the three and nine months ended December 31, 2012, our sales and operating income would have been adversely affected by approximately $0.9 million and $2.6 million, respectively. Net income would have been adversely affected by approximately $0.5 million and $1.6 million, respectively, for the three and nine months ended December 31, 2012.

We construct our returns analysis by looking at the previous year's return history for each brand. Subsequently, each month, we estimate our current return rate based upon an average of the previous six months' return rate and review that calculated rate for reasonableness, giving consideration to the other factors described above. Our historical return rate has been relatively stable; for example, for the fiscal years ended March 31, 2012, 2011 and 2010, returns represented 2.9%, 2.7% and 3.8%, respectively, of gross sales. For the three and nine months December 31, 2012, product returns represented 3.7% and 2.8% of gross sales, respectively. At December 31, 2012 and March 31, 2012, the allowance for sales returns was $4.3 million and $3.3 million, respectively.

While we utilize the methodology described above to estimate product returns, actual results may differ materially from our estimates, causing our future financial results to be adversely affected. Among the factors that could cause a material change in the estimated return rate would be significant unexpected returns with respect to a product or products that comprise a significant portion of our revenues. Based upon the methodology described above and our actual returns experience, management believes the likelihood of such an event remains remote. Over the last three years, our actual product return rate has stayed within a range of 2.5% to 3.8% of gross sales. However, a hypothetical increase of 0.1% in our estimated return rate as a percentage of gross sales would have adversely affected our reported sales and operating income for the fiscal year ended March 31, 2012 by approximately $0.5 million. Net income would have been adversely affected by approximately $0.3 million. A hypothetical increase of 0.1% in our estimated return rate as a percentage of gross sales for the three and nine months ended December 31, 2012 would have adversely affected our reported sales and operating income by approximately $0.2 million and $0.5 million, respectively, while our net income would have been adversely affected by approximately $0.1 million and $0.3 million, respectively.

While management believes that it is diligent in its evaluation of the adequacy of the allowance for doubtful accounts, an unexpected event, such as the bankruptcy filing of a major customer, could have an adverse effect on our future financial results. A hypothetical increase of 0.1% in our bad debt expense as a percentage of sales during the fiscal year ended March 31, 2012 would have resulted in a decrease in reported operating income of approximately $0.4 million and a decrease in our reported net income of approximately $0.3 million. Similarly, a hypothetical increase of 0.1% in our bad debt expense as a percentage of sales for the three and nine months ended December 31, 2012 would have resulted in a decrease in reported operating income of $0.2 million and $0.5 million, respectively, and a decrease in our reported net income of less than $0.1 million and $0.2 million, respectively.

Read the The complete Report



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