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Prestige Brands Holdings Inc. Reports Operating Results (10-Q)

August 06, 2010 | About:
10qk

10qk

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Prestige Brands Holdings Inc. (PBH) filed Quarterly Report for the period ended 2010-06-30.

Prestige Brands Holdings Inc. has a market cap of $408.9 million; its shares were traded at around $8.17 with a P/E ratio of 11.3 and P/S ratio of 1.3. PBH is in the portfolios of Donald Yacktman of Yacktman Asset Management Co., Murray Stahl of Horizon Asset Management, Donald Yacktman of Yacktman Asset Management Co., John Keeley of Keeley Fund Management, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Net cash used for financing activities was $28.6 million for the three month period ended June 30, 2010 compared to $17.0 million for the comparable period in 2009. During the three month period ended June 30, 2010, we redeemed the remaining $28.1 million of Senior Subordinated Notes that bore interest at 9.25%, and paid the required principal amount on the 2010 Senior Term Loan of $375,000. This reduced our outstanding indebtedness to $299.6 million at June 30, 2010 from $328.1 million at March 31, 2010.

On March 24, 2010, we entered into a $150.0 million 2010 Senior Term Loan with a discount to the lenders of $1.8 million and net proceeds of $148.2 million. The Senior Notes were issued at an aggregate face value of $150.0 million with a discount to bondholders 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 bank arrangers fee and legal advisors of which $6.6 million was capitalized as deferred financing costs and $0.7 million expensed. The deferred financing costs are being amortized over the term of the loan and notes.

At June 30, 2010, we had $149.6 million outstanding under the 2010 Senior Term Loan which matures in April 2016. We are obligated to make quarterly principal payments on the loan equal to $375,000, representing 0.25% of the initial principal amount of the term loan. We also have the ability to borrow an additional $30.0 million under a revolving credit facility and $200.0 million pursuant to the 2010 Senior Term Loan “accordion” feature.

Estimates of costs of promotional programs are based on (i) historical sales experience, (ii) the current 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 year ended March 31, 2010 was $18.3 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 year ended March 31, 2010, our sales and operating income would have been adversely affected by approximately $1.8 million. Net income would have been adversely affected by approximately $1.1 million. Similarly, had we underestimated the promotional program rate by 10% for the three month period ended June 30, 2010, our sales and operating income would have been adversely affected by approximately $471,000. Net income would have been adversely affected by approximately $291,000 for the three month period ended June 30, 2010.

made based upon historical redemption rates for that particular product, information provided as a result of the clearing house's experience with coupons of similar dollar value, the length of time the coupon is valid, and the seasonality of the coupon drop, among other factors. During the year ended March 31, 2010, we had 25 coupon events. The amount recorded against revenues and accrued for these events during the year was $1.3 million. Cash settlement of coupon redemptions during the year was $1.3 million. During the three month period ended June 30, 2010, we had 10 coupon events. The amount recorded against revenue and accrued for these events during the three month period ended June 30, 2010 was $431,000. Cash settlement of coupon redemptions during the three month period ended June 30, 2010 was $350,000.

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. At June 30, 2010 and March 31, 2010, the allowance for obsolete and slow moving inventory was $2.2 million and $2.0 million, representing 7.4% and 6.4%, respectively, of total inventory. Inventory obsolescence costs charged to operations were $1.7 million for the year ended March 31, 2010, while for the three month period ended June 30, 2010, the Company recorded obsolescence costs of $257,000. A 1.0% increase in our allowance for obsolescence at March 31, 2010 would have adversely affected our reported operating income and net income for the year ended March 31, 2010 by approximately $312,000 and $194,000, respectively. Similarly, a 1.0% increase in our allowance at June 30, 2010 would have adversely affected our reported operating income and net income for the three month period ended June 30, 2010 by approximately $303,000 and $187,000, respectively.

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