Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

Current Report

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 18, 2012

 

 

PRESTIGE BRANDS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-32433   20-1297589

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

90 North Broadway

Irvington, New York 10533

(Address of Principal Executive Offices, including Zip Code)

(914) 524-6810

(Registrant’s telephone number, including area code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 2.02 Results of Operations and Financial Condition.

Preliminary Financial Results for the Three Month and Nine Month Periods Ended December 31, 2011

On January 18, 2012, Prestige Brands Holdings, Inc. (the “Company”) provided the following preliminary financial results for its fiscal quarter ended December 31, 2011. Based on the preliminary financial results for the third quarter of fiscal 2012, which ended December 31, 2011, the Company’s net revenues increased approximately 17% as compared to the third quarter of fiscal 2011, primarily due to continued growth in its core OTC brands and the acquisitions of the OTC portfolio of Blacksmith Brands Holdings, Inc., which included Efferdent, Effergrip, PediaCare, Luden’s and NasalCrom (the “Blacksmith brands”) and Dramamine. For the nine-month period ended December 31, 2011, net revenues increased approximately 28% as compared to the nine-month period ended December 31, 2010, primarily due to continued growth in the Company’s core OTC brands and the acquisitions of the Blacksmith brands (as defined below) and Dramamine.

Gross margin, for the three month period ended December 31, 2011, excluding one-time items and costs related to acquisitions, increased approximately 16% as compared to the third quarter of fiscal 2011, primarily due to sales increases in the Company’s core OTC brands and the acquisition of the Blacksmith brands and Dramamine. For the nine month period ended December 31, 2011, gross margin increased approximately 24% as compared to the nine month period ended December 31, 2010.

Contribution margin, for the three month period ended December 31, 2011, excluding one-time items and costs related to acquisitions, increased approximately 15% as compared to the third quarter of fiscal 2011, primarily due to sales increases in the Company’s core OTC brands and the acquisition of the Blacksmith brands and Dramamine. For the nine month period ended December 31, 2011, contribution margin increased approximately 21% as compared to the nine month period ended December 31, 2010.

As of December 31, 2011, the Company had $4 million of cash and cash equivalents and $434 million of total debt.

The preliminary financial data included in this Current Report on Form 8-K has been prepared by, and is the responsibility of, management of the Company. While management believes this information to be accurate, it is subject to change in connection with finalizing the Company’s financial statements for the third quarter of fiscal 2012. PricewaterhouseCoopers LLP has not audited, reviewed, compiled or performed any procedures with respect to the accompanying preliminary financial data. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.

 

Item 7.01. Regulation FD Disclosure.

Proposed Notes Offering

On January 18, 2012, the Company issued a press release announcing that its wholly-owned subsidiary, Prestige Brands Inc., intends to offer, subject to market and other conditions, up to $290 million in aggregate principal amount of senior notes due 2020 (the “notes”) in a private offering. The notes will be senior unsecured obligations of Prestige Brands Inc. and will be guaranteed by the Company and certain of its domestic subsidiaries.

The Company intends to use the net proceeds from the offering, together with additional senior secured bank debt, to finance the previously announced acquisition of certain North American over-the-counter healthcare brands owned by GlaxoSmithKline plc and its affiliates (the “GSK Brands”), to repay its existing senior secured credit facilities, to pay fees and expenses incurred in connection with these transactions and for general corporate purposes.

The notes and related guarantees are being offered only to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended or, outside the United States, to persons other than “U.S. persons” in compliance with Regulation S under the Securities Act. This Current Report on Form 8-K does not constitute an offer to sell or the solicitation of an offer to buy the notes and related guarantees. Any offers of the notes and related guarantees will be made only by means of a private


offering memorandum. The notes and related guarantees have not been registered under the Securities Act, or the securities laws of any other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from registration requirements.

The press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

In addition, the Company intends to enter into new senior secured credit facilities. The new senior secured credit facilities will consist of (i) a $620 million term loan facility with a seven-year maturity (the “New Term Loan Facility”) and (ii) a $50 million asset-based revolving credit facility with a five-year maturity. In addition, the Company has agreed to secure its existing 8.25% Senior Notes due 2018 ratably with the New Term Loan Facility.

Financial Information

In connection with the proposed financing transaction, the Company provided potential investors with unaudited pro forma combined financial information as of September 30, 2011 and for the fiscal year ended March 31, 2011, for the nine months ended September 30, 2011 and the twelve months ended September 30, 2011. The unaudited pro forma combined financial information is derived from the historical financial statements of the Company and the GSK Brands, adjusted to give effect to the proposed acquisition pursuant to which the Company will acquire the GSK Brands and certain related financing transactions. In addition, the acquisition of the Blacksmith brands and the Dramamine asset acquisition have been included as if the business and assets were acquired by the Company at the beginning of the respective periods. The pro forma adjustments are preliminary and have been made solely for informational purposes. As a result, the pro forma combined information is not intended to represent and does not purport to be indicative of what the combined company’s financial condition or results of operations would have been had the acquisition or the related financing transactions occurred at an earlier date. In addition, the pro forma combined financial information does not purport to project the future financial condition and results of operations of the combined company. The actual results of the combined company may differ significantly from those reflected in the pro forma combined financial information. The unaudited pro forma combined financial information is attached hereto as Exhibit 99.2 and is incorporated herein by reference.


The GSK Brands’ Discussion and Analysis

 

The Company is furnishing the following information that was prepared in connection with the proposed offering:

Overview

GSK is one of the world’s leading research-based pharmaceutical and healthcare companies. As part of the Acquisition, GSK will dispose of the following seventeen OTC brands to Prestige: BC, Goody’s, Beano, FiberChoice, Ecotrin, Nytol®, Sominex, Debrox, Tagamet, Gaviscon, Phazyme, Massengill®, Stanback®, Chap-et®, Gly-Oxide, R&C Shampoo® and Kwellada-P®. See “The Transactions.”

Critical Accounting Policies and Estimates

Basis of Preparation and Accounting Policies

The GSK Brands and related net assets to be sold are not within separate legal entities and historically GSK has not maintained separate records for the GSK Brands. The statements of net assets to be sold and statements of revenue and direct operating expenses, including the accompanying notes (collectively referred to as the “Financial Statements”) have been derived from the consolidated statements and underlying accounting records of GSK.

The accompanying Financial Statements included elsewhere in this offering memorandum, were prepared to present the net assets to be sold pursuant to the two business sale and purchase agreements between GSK and Prestige dated December 20, 2011 and the related revenue and direct operating expenses. The basis of preparation describes how the Financial Statements have been prepared in conformity with International Accounting Standards (“IAS”), IFRS-related interpretations, as issued by the IASB, as applicable, to the items included in the Financial Statements. The Financial Statements are not intended to be a complete presentation of assets, revenues and expenses of the GSK Brands.

The statements of net assets to be sold have been prepared on a basis which includes only those assets which are directly attributable to the GSK Brands and are identified in the two business sale and purchase agreements as being transferred to Prestige as described in Clause 2.1 of the two business sale and purchase agreements. Statements of revenue and direct operating expenses include revenue and expenses that are directly attributable to the GSK Brands and certain allocations of other direct expenses incurred by GSK attributable to the GSK Brands as discussed below.

Accounting Convention and Financial Period

The financial statements of the GSK Brands have been prepared using the historical cost convention. The financial statements of the GSK Brands cover the fiscal years ended December 31, 2008, 2009 and 2010, as well as the nine months ended September 30, 2010 and 2011.

The financial statements of the GSK Brands are reported in United States dollars. It is assumed for the preparation of the financial statements of the GSK Brands that the functional currency for revenue, expenses and assets is the same as that previously adopted by GSK. Any currency exchange differences arising from restating the functional currencies to a U.S. dollar presentation are recognized under International Financial Reporting Standards in other comprehensive income and, consequently, are not presented as part of the financial statements of the GSK Brands. It is also assumed that all foreign currency transactions were settled in local markets at the rate in force at the date the transaction arose and, as such, no transactional exchange differences have been recognized or presented in the financial statements of the GSK Brands. Manufacturing of the products


that comprise the GSK Brands is largely in the U.S. with some sourcing from Canada, and sales of these brands are in the U.S. and/or Canada. U.S. sales are reported locally in the U.S. dollar with some additional sales in Canada in the Canadian dollar. Accordingly, there is minimal currency exposure related to the brands sold in Canada. Such sales in Canadian dollars have been translated into the U.S. dollar.

Revenue

Revenue is recognized when title and risk of loss is passed to the customer, reliable estimates can be made of relevant deductions and all relevant obligations have been fulfilled, such that the earnings process is regarded as being complete.

Gross turnover is reduced by rebates, discounts, allowances and product returns given or expected to be given, which vary by product arrangements and buying groups. These arrangements with purchasing organizations are dependent upon the submission of claims some time after the initial recognition of the sale.

Accruals are made at the time of sale for the estimated rebates, discounts or allowances payable or returns to be made, based on available market information and historical experience.

Since the amounts are estimated they may not fully reflect the final outcome, and the amounts are subject to change dependent upon, among other things, the types of buying group and product sales mix.

The level of accrual is reviewed and adjusted regularly in the light of contractual and legal obligations, historical trends, past experience and projected market conditions. Market conditions are evaluated using wholesaler and other third-party analyses, market research data and internally generated information. Future events could cause the assumptions on which the accruals are based to change, which could affect the future results of the GSK Brands.

Legal and Other Disputes

The GSK Brands provide for anticipated settlement expenses where an outflow of resources is considered probable and a reliable estimate may be made of the likely outcome of the dispute and legal and other expenses arising from claims against the GSK Brands.

GSK management, after receiving legal advice, established provisions after taking into account the relevant facts and circumstances of each matter and in accordance with accounting requirements. In respect of product liability claims related to certain products a provision is made when there is evidence of claims made and settlements to enable management to make a reliable estimate of the provision required to cover unasserted claims. In certain cases, an actuarial technique is used to determine this estimate. The GSK Brands may become involved in legal proceedings in respect of which it is not possible to make a reliable estimate of the expected financial effect, if any, that could result from the ultimate resolution of the proceedings. Accordingly, no provision should be made for any such proceedings. At December 31, 2010 and September 30, 2011, there were no material provisions for legal and other disputes.

The ultimate liability for legal claims may vary from the amounts provided and is dependent upon the outcome of litigation proceedings, investigations and possible settlement negotiations. The position could change over time and, therefore, there can be no assurance that any losses that result from the outcome of any legal proceedings will not exceed the amount of the provisions reported in the financial statements of the GSK Brands by a material amount.

Intangible Assets

Where intangible assets are acquired by the GSK Brands from third parties, the costs of acquisition are capitalized. The brands acquired with businesses are capitalized independently where they are separable and have


an expected life of more than one year. The brands are amortized on a straight-line basis over their estimated useful lives, not exceeding 20 years, except where the end of the useful economic life cannot be foreseen. Where brands are not amortized, they are tested annually for impairment applying a value in use methodology, generally using four year post-tax cash flow forecasts with a terminal value calculation and a discount rate equal to the GSK North American post-tax discount rate of 7%. The main assumptions include future sales price and volume growth, product contribution and the future expenditure required to maintain the product’s marketability and registration in the relevant jurisdictions. These assumptions are based on past experience and are reviewed as part of management’s budgeting and strategic planning cycle for changes in market conditions and sales erosion through competition. The terminal growth rates applied of between 0% and 2.5% are management’s estimates of future long-term average growth rates of the relevant markets.

Licenses to compounds in development are amortized from the point at which they are available for use, over their estimated useful lives, which may include periods of non-exclusivity. Estimated useful lives are reviewed annually and impairment tests are undertaken if events occur which call into question the carrying values of the assets. Both initial valuations and valuations for subsequent impairment tests are based on established market multiples or risk-adjusted future cash flows discounted using appropriate interest rates reflecting GSK’s risk profile. These future cash flows are based on business forecasts and are therefore inherently judgmental. Future events could cause the assumptions used in these impairment analyses to change with a consequent adverse effect on the future results of the GSK Brands.

Related Party Transactions

The GSK Brands enter into a significant number of transactions with entities of GSK for sales and purchase transactions and other support services provided by GSK.

Cost of Sales

The various GSK entities supply the GSK Brands with inventory. These transactions have been recorded at transfer cost. Amounts of $42.8 million, $41.8 million and $44.4 million are included in cost of sales in the Statements of Revenue and Direct Operating Expenses for these transactions for the fiscal years ended December 31, 2010, 2009 and 2008, respectively.

Cost Allocation

The various GSK entities provide various services to the GSK Brands. These services include selling and distribution, marketing, administration, and medical administration. Costs of these services are allocated on the basis of advertising and promotion spend. The total expenses allocated to the GSK Brands for these services were $23.0 million, $29.2 million and $31.6 million for the fiscal years ended December 31. 2010, 2009 and 2008, respectively. The total expenses allocated to the GSK Brands for these services were $18.5 million and $18.3 million for the periods ended September 30, 2011 and September 30, 2010, respectively. These costs are included in Selling, General and Administrative Expenses in the Statements of Revenue and Direct Operating Expenses.

The other operating income (expense) allocated to the GSK Brands for items such as bad debt expense, corporate cost including product liabilities, franchise tax and sundry expenses and income were $(0.3 million), $(0.6 million) and $0.1 million for the fiscal years ended December 31, 2010, 2009 and 2008, respectively, and are included in the Statements of Revenue and Direct Operating Expenses.

Corporate overhead incurred for services such as GSK insurance, legal, finance, human resources and the executive management function are not allocated to the GSK Brands because they were not historically allocated to individual businesses and are not directly associated with operations of the GSK Brands.


Remuneration of Key Management Personnel

The GSK Brands operate as part of the overall Consumer Healthcare business within GSK and were historically not managed on a standalone basis. As a result, there are no key management personnel identified for the GSK Brands.

Commitments and Contingencies

The GSK Brands are involved in various legal matters and product liability claims arising in the ordinary course of business. Although the outcome of these matters cannot be presently determined, based on our due diligence and the representations and warranties we have received from GSK, we believe the disposition of these matters will not have a material adverse effect on the revenues or direct operating expenses of the GSK Brands.

Historical Results of Operations

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010

The following table sets forth, for the periods indicated, revenue of the GSK Brands, as well as the percentage change:

 

     Nine Months Ended September 30,  

(in thousands, except percentages)

   2011      2010      %
Change
 

BC/Goody’s

   $ 62,687       $ 62,998         (0.5 )% 

Beano

     19,687         21,369         (7.9

Gaviscon

     12,104         9,080         33.3   

Debrox

     9,761         8,897         9.7   

Other Brands

     52,625         55,149         (4.6
  

 

 

    

 

 

    

 

 

 

Total revenue

   $ 156,864       $ 157,493         (0.4 )% 
  

 

 

    

 

 

    

 

 

 

Revenue for the nine months ended September 30, 2011 were $156.9 million, a decline of $0.6 million, or 0.4%, from $157.5 million for the nine months ended September 30, 2010. The slight decline in revenue was driven primarily by declines in revenue from FiberChoice ($3.1 million or an 18% decline), Beano ($1.7 million or a 7.9% decline) and Ecotrin ($0.8 million or a 7% decline), partially offset by increased revenue from certain other brands, specifically Gaviscon ($3 million or 33.3% increase) and Tagamet ($1.9 million or 30.2% increase). FiberChoice revenue has continued to decline due to a decline in volume resulting from a general decline in the bulk fiber market and competitive pricing pressures. The decline in revenue from Beano was driven by increased discounting used to counteract declining demand while the decline in Ecotrin revenue was driven by lost distribution from one of the GSK Brands’ largest customers. Gaviscon revenue increased primarily due to a decline in competitive pressures resulting from one of its competitor’s supply chain issues coupled with continued investment in television advertising focused on Gaviscon’s fast relief. Tagamet revenue increased primarily due to new customer distribution. Revenue for the GSK Brands’ top selling brands, BC and Goody’s, was relatively flat period over the period.


Gross Profit

The following table sets forth, for the periods indicated, gross profit of the GSK Brands, as well as the percentage change and the percentage relationship to total revenue:

 

     Nine Months Ended September 30,  

(in thousands, except percentages)

   2011     2010     %
Change
 

BC/Goody’s

   $ 46,423      $ 45,486        2.1

Beano

     13,423        14,464        (7.2

Gaviscon

     7,891        5,278        49.5   

Debrox

     8,810        7,822        12.6   

Other Brands

     30,459        36,647        (16.9
  

 

 

   

 

 

   

 

 

 

Total gross profit

   $ 107,006      $ 109,697        (2.5 )% 
  

 

 

   

 

 

   

 

 

 

% of total revenue

     68.2     69.7  

Gross profit for the nine months ended September 30, 2011 was $107 million, a decline of $2.7 million, or 2.5%, from $109.7 million for the nine months ended September 30, 2010. The decline in gross profit was driven primarily by a decline in revenue from FiberChoice, Ecotrin and Beano, which were offset by increased revenue from Gaviscon as discussed above. As a percentage of revenue, gross profit declined to 68.2% for the nine months ended September 30, 2011 compared to 69.7% for the nine months ended September 30, 2010. The reduction in gross profit percentage was driven primarily by a reduction in Ecotrin gross profit primarily due to increased manufacturing costs as a result of a higher manufacturing standard cost charge for Ecotrin, effective January 1, 2011, and a reduction in FiberChoice gross profit due to price reductions and increased discounting.

Contribution Margin

The following table sets forth, for the periods indicated, contribution margin of the GSK Brands, as well as the percentage change and the percentage relationship to total revenue:

 

     Nine Months Ended
September 30,
 

(in thousands, except percentages)

   2011     2010     %
Change
 

BC/Goody’s

   $ 36,873      $ 35,522        3.8

Beano

     9,822        9,514        3.2   

Gaviscon

     4,646        2,472        87.9   

Debrox

     8,087        6,386        26.6   

Other Brands

     18,869        27,293        (30.9
  

 

 

   

 

 

   

 

 

 

Total contribution margin

   $ 78,297      $ 81,203        (3.6 )% 
  

 

 

   

 

 

   

 

 

 

% of total revenue

     49.9     51.6  

Contribution margin, defined as gross profit less advertising and promotional expenses, declined $2.9 million, or 3.6%, for the nine months ended September 30, 2011 compared to the comparable period in 2010. The decline in contribution margin was primarily driven by a $5.4 million decline in contribution margin from FiberChoice, which was largely offset by increased contribution margin from Gaviscon ($2.2 million increase). FiberChoice contribution margin declined due to a decrease in gross profit as discussed above combined with an increase in advertising and promotional expense. During the first six months of 2011, the GSK Brands increased advertising and promotional expense for FiberChoice to promote lower pricing and launched a new television advertising campaign. For the nine months ended September 30, 2011, the GSK Brands’ sales volumes had not been significantly impacted by the increased advertising and promotional expense. Contribution margin from Gaviscon increased due to the increase in revenue and gross profit as discussed above, as advertising and promotional expense for Gaviscon remained relatively flat over the period.


Selling, General and Administrative Expenses

The following table sets forth, for the periods indicated, the selling, general and administrative expenses of the GSK Brands, as well as the percentage change:

 

     Nine Months Ended September 30,  

(in thousands, except percentages)

           2011                      2010              %
Change
 

Total selling, general and administrative

   $ 47,208       $ 46,810         0.9

Brand specific costs

        

Advertising

     17,391         16,749         3.9   

Promotion

     11,319         11,745         (3.6
  

 

 

    

 

 

    

 

 

 

Total brand specific costs

   $ 28,710       $ 28,494         0.8
  

 

 

    

 

 

    

 

 

 

Allocated selling, general and administrative

   $ 18,498       $ 18,316         1.0

Allocated selling, general and administrative expenses are comprised of selling and distribution expenses and other marketing and administrative expenses. Selling and distribution expenses are local, market-incurred expenses. These expenses have decreased in line with the market expenses. Other marketing and administrative costs are allocated costs from GSK. Due to the allocated nature of these costs, these costs have remained relatively flat period over period consistent with the share of the GSK Brands’ revenues compared to GSK’s revenues for each respective period.

Amortization and Impairment

Amortization and impairment expenses in the nine months ended September 30, 2011 of $0.4 million were unchanged from the nine months ended September 30, 2010. Brands are amortized over their estimated useful lives of up to 20 years, except where they are considered indefinite-lived brands.

Fiscal Year Ended December 31, 2010 Compared to Fiscal Year Ended December 31, 2009

Revenue

The following table sets forth, for the periods indicated, net revenue of the GSK Brands, as well as the percentage change:

 

     Year Ended December 31,  

(in thousands, except percentages)

   2010      2009      %
Change
 

BC/Goody’s

   $ 82,327       $ 81,188         1.4

Beano

     29,426         30,854         (4.6

Gaviscon

     12,842         10,491         22.4   

Debrox

     10,601         10,687         (0.8

Other Brands

     72,146         82,771         (12.8
  

 

 

    

 

 

    

 

 

 

Total revenue

   $ 207,342       $ 215,991         (4.0 )% 
  

 

 

    

 

 

    

 

 

 

Revenue for fiscal year 2010 was $207.3 million, a decline of $8.7 million, or 4%, from $216 million in fiscal year 2009. The decline in revenue was driven primarily by a decline in FiberChoice revenue. FiberChoice revenue declined approximately $7.5 million, or 25.5%, from fiscal year 2009 due to a decline in volume resulting from a general decline in the bulk fiber market, competitive pricing pressures and reductions in advertising and promotional support. Further contributing to the overall decline in revenues was increased discounting on brands like BC and Beano to counteract declining levels of demand. Goody’s revenues recovered slightly in fiscal year 2010 following increased volume from a distribution expansion into Dollar General and Family Dollar.


Gross Profit

The following table sets forth, for the periods indicated, gross profit of the GSK Brands, as well as the percentage change and the percentage relationship to total revenue:

 

     Year Ended December 31,  

(in thousands, except percentages)

   2010     2009     %
Change
 

BC/Goody’s

   $ 59,362      $ 59,976        (1.0 )% 

Beano

     20,226        21,545        (6.1

Gaviscon

     7,343        5,957        23.3   

Debrox

     9,097        9,228        (1.4

Other Brands

     46,638        54,015        (13.7
  

 

 

   

 

 

   

 

 

 

Total gross profit

   $ 142,666      $ 150,721        (5.3 )% 
  

 

 

   

 

 

   

 

 

 

% of total revenue

     68.8     69.8  

Gross profit for fiscal year 2010 was $142.7 million, a decline of $8 million, or 5.3%, from $150.7 million in fiscal year 2009. The decline in gross profit dollars was driven primarily by the decline in FiberChoice revenue as discussed above. As a percentage of revenues, gross profit declined to 68.8% in fiscal year 2010 from 69.8% in fiscal year 2009. The decline in gross profit percentage was due primarily to declines in gross profit percentage with respect to the BC and Goody’s brands. Gross profit percentage was down from BC and Goody’s primarily as a result of increased discounting reflecting a shift in spend from advertising and promotion to trade allowances and consumer discounts.

Contribution Margin

The following table sets forth, for the periods indicated, contribution margin of the GSK Brands, as well as the percentage change and the percentage relationship to total revenue:

 

     Year Ended December 31,  

(in thousands, except percentages)

   2010     2009     %
Change
 

BC/Goody’s

   $ 46,306      $ 43,693        6.0

Beano

     13,773        14,049        (2.0

Gaviscon

     3,008        3,055        (1.5

Debrox

     7,223        8,082        (10.6

Other Brands

     35,635        38,087        (6.4
  

 

 

   

 

 

   

 

 

 

Total contribution margin

   $ 105,945      $ 106,966        (1.0 )% 
  

 

 

   

 

 

   

 

 

 

% of total revenue

     51.1     49.5  

Contribution margin, defined as gross profit less advertising and promotional expenses, declined $1 million, or 1%, in fiscal year 2010 from fiscal year 2009. The decline was due to an $8 million decline in gross profit discussed above, partially offset by a $7 million, or 16.1%, reduction in advertising and promotional expense. The decline in advertising and promotional expense was driven by GSK’s decision to reduce its investment in the brand portfolio comprising the GSK Brands. As a result, GSK shifted spend from advertising and promotion to trade allowances and consumer discounts in an attempt to maintain contribution margin with minimal investment.


Selling, General and Administrative Expenses

The following table sets forth, for the periods indicated, the selling, general and administrative expenses of the GSK Brands, as well as the percentage change:

 

     Year Ended December 31,  

(in thousands, except percentages)

   2010      2009      %
Change
 

Total selling, general and administrative

   $ 59,719       $ 72,987         (18.2 )% 

Brand specific costs

        

Advertising

     20,625         22,950         (10.1

Promotion

     16,096         20,804         (22.6
  

 

 

    

 

 

    

 

 

 

Total brand specific costs

   $ 36,721       $ 43,754         (16.1 )% 
  

 

 

    

 

 

    

 

 

 

Allocated selling, general and administrative

   $ 22,998       $ 29,233         (21.3 )% 

Allocated selling, general and administrative expenses are comprised of selling and distribution expenses and other marketing and administrative expenses. Selling and distribution expenses are local, market-incurred expenses. These expenses have decreased in line with the market expenses. Other marketing and administrative costs are allocated costs from GSK. Due to the allocated nature of these costs, the decline in these costs reflects both the decreasing share of the GSK Brands’ revenues compared to GSK’s revenues and efficiencies gained over GSK’s revenues as a whole, which resulted in lower costs being allocated to the GSK Brands.

Amortization and Impairment

Amortization and impairment expense was $10.3 million in fiscal year 2010, an increase of $9.8 million from fiscal year 2009. The increase was due to a $9.8 million impairment charge recorded in the quarterly period ended December 31, 2010 on the indefinite-lived intangible assets associated with the acquisition of the FiberChoice brand. The impairment charge was triggered by our decision to enact a significant price reduction in 2011 after several years of declining sales performance. It is anticipated that the price reduction will improve the products market competitiveness and as such further impairments are not expected.

Other Operating Income (Expense)

Other operating income (expense) includes primarily bad debt expense and other sundry items. Other operating income (expense) declined $0.3 million in fiscal year 2010 from fiscal year 2009 due primarily to a $0.3 million decline in bad debt expense allocated from GSK, which has been allocated based on the proportion of total sales attributable to the GSK Brands.

Fiscal Year Ended December 31, 2009 Compared to Fiscal Year Ended December 31, 2008

Revenue

The following table sets forth, for the periods indicated, net revenue of the GSK Brands, as well as the percentage change:

 

     Year Ended December 31,  

(in thousands, except percentages)

   2009      2008      %
Change
 

BC/Goody’s

   $ 81,188       $ 83,274         (2.5 )% 

Beano

     30,854         30,498         1.2   

Gaviscon

     10,491         9,758         7.5   

Debrox

     10,687         10,842         (1.4

Other Brands

     82,771         99,363         (16.7
  

 

 

    

 

 

    

 

 

 

Total net revenue

   $ 215,991       $ 233,735         (7.6 )% 
  

 

 

    

 

 

    

 

 

 


Revenue for fiscal year 2009 was $216 million, a decline of $17.7 million, or 7.6%, from $233.7 million in fiscal year 2008. The decline in revenue was driven primarily by a decline in revenue from Ecotrin ($3.8 million or an 18.8% decline), FiberChoice ($4.7 million or 13.9% decline), and other individually insignificant brands that collectively resulted in a decline in revenue of approximately $7.4 million or 11.4%. Ecotrin revenue declined due to lower volumes resulting from lost market share to a competitor combined with increased discounting in an attempt to limit lost volume. FiberChoice revenue declined from fiscal year 2008 primarily due to a change in product mix as consumers switched from premium priced products to less expensive products. The decline in the other brands is driven by Massengill, which declined as a result general market declines in the category, and Phazyme, which declined due to a reduction in the number of stock keeping unit, or SKU’s, offered.

Gross Profit

The following table sets forth, for the periods indicated, gross profit of the GSK Brands, as well as the percentage change and the percentage relationship to total revenue:

 

     Year Ended December 31,  

(in thousands, except percentages)

   2009     2008     %
Change
 

BC/Goody’s

   $ 59,976      $ 61,178        (2.0 )% 

Beano

     21,545        21,007        2.6   

Gaviscon

     5,957        5,419        9.9   

Debrox

     9,228        9,707        (4.9

Other Brands

     54,015        66,892        (19.2
  

 

 

   

 

 

   

 

 

 

Total gross profit

   $ 150,721      $ 164,203        (8.2 )% 
  

 

 

   

 

 

   

 

 

 

% of total revenue

     69.8     70.3  

Gross profit for fiscal year 2009 was $150.7 million, a decline of $13.5 million, or 8.2%, from $164.2 million in fiscal year 2008. The decline in gross profit dollars was driven primarily by the decline in revenue from Ecotrin, FiberChoice, Massengill, and Phazyme as discussed above. As a percentage of revenues, gross profit declined to 69.8% in fiscal year 2009 from 70.3% in fiscal year 2008, primarily as a result of increased discounting generally across all brands reflecting a shift in spend from advertising and promotion to trade allowances and consumer discounts.

Contribution Margin

The following table sets forth, for the periods indicated, contribution margin of the GSK Brands, as well as the percentage change and the percentage relationship to total revenue:

 

     Year Ended December 31,  

(in thousands, except percentages)

   2009     2008     %
Change
 

BC/Goody’s

   $ 43,693      $ 41,443        5.4   

Beano

     14,049        14,935        (5.9

Gaviscon

     3,055        2,595        17.7   

Debrox

     8,082        8,070        0.1   

Other Brands

     38,087        46,323        (17.8
  

 

 

   

 

 

   

 

 

 

Total contribution margin

   $ 106,966      $ 113,366        (5.6 )% 
  

 

 

   

 

 

   

 

 

 

% of total revenue

     49.5     48.5  


Contribution margin, defined as gross profit less advertising and promotional expenses, declined $6.4 million, or 5.6%, in fiscal year 2009 from fiscal year 2008. The decline was due to the $13.5 million decline in gross profit discussed above, partially offset by a $7.1 million, or 13.9%, reduction in advertising and promotion. The decline in advertising and promotional expense was driven by GSK’s decision to reduce its investment in the GSK Brands. As a result, GSK shifted spend from advertising and promotion to trade allowances and consumer discounts in an attempt to maintain contribution margin with minimal investment.

General and Administrative Expenses

The following table sets forth, for the periods indicated, the selling, general and administrative expenses of the GSK Brands, as well as the percentage change:

 

     Year Ended December 31,  

(in thousands, except percentages)

   2009      2008      %
Change
 

Total selling, general and administrative

   $ 72,987       $ 82,483         (11.5 )% 

Brand specific costs

        

Advertising

     22,950         28,003         (18.0

Promotion

     20,804         22,834         (8.9
  

 

 

    

 

 

    

 

 

 

Total brand specific costs

   $ 43,754       $ 50,837         (13.9 )% 
  

 

 

    

 

 

    

 

 

 

Allocated selling, general and administrative

   $ 29,233       $ 31,646         (7.6 )% 

Allocated selling, general and administrative expenses are comprised of selling and distribution expenses and other marketing and administrative expenses. Selling and distribution expenses are local, market-incurred expenses. These expenses have decreased in line with the market expenses. Other marketing and administrative costs are allocated costs from GSK. Due to the allocated nature of these costs, the decline in these costs reflects both the decreasing share of the GSK Brands’ revenues compared to GSK’s revenues and efficiencies gained over GSK’s revenues as a whole, which resulted in lower costs being allocated to the GSK Brands.

Amortization and Impairment

Amortization and impairment expenses in fiscal year 2009 of $0.6 million were unchanged from fiscal year 2008. Brands are amortized over their estimated useful lives of up to 20 years, except where they are considered indefinite-lived brands.

Research and Development

The GSK Brands incurred $0.6 million of research and development costs in fiscal year 2008. These expenses related specifically to FiberChoice and reflected the expenditures on both the initial research following acquisition of the FiberChoice brand and research and development expenses on the possibility of reformulation and new formats. No such expenditures were made in fiscal year 2009.

Other Operating Income (Expense)

Other operating income (expense) includes primarily bad debt expense and other sundry items. Other operating income (expense) increased $0.7 million in fiscal year 2009 from fiscal year 2008, primarily due to an increase in bad debt expense of $0.4 million allocated from GSK, which has been allocated based on the proportion of total sales attributable to the GSK Brands and a decrease in other income of $0.3 million.

This information is furnished pursuant to Item 7.01 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Forward-Looking Statements

This Current Report on Form 8-K contains “forward-looking statements” within the meaning of the federal securities laws and is intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. “Forward-looking statements” generally can be identified by the use of the forward-looking terminology such as “assumptions,” “target,” “guidance,” “outlook,” “plans,” “projection,” “may,” “will,” “would,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” “continue,” (or the negative of other derivatives of each of these terms) or similar terminology. The “forward-looking statements” include, without limitation, statements regarding our acquisition of the GSK Brands and Prestige Brands, Inc.’s issuance of the notes and the entry into a new senior secured bank facilities. These statements are based on management’s estimates and assumptions with respect to future events, which include uncertainty as to our ability to consummate the offering of the notes, failure to realize the anticipated benefits of the acquisition of the GSK Brands, including as a result of a delay in completing the


acquisition of the GSK Brands or a delay or difficulty in integrating the GSK Brands, the expected amount and timing of cost savings and operating synergies, current capital and debt market conditions, the Company’s ability to obtain new debt financing on acceptable terms, the anticipated terms of the notes, and the anticipated use of proceeds from the proposed offering, which estimates are believed to be reasonable, though are inherently uncertain and difficult to predict. Actual results could differ materially from those projected as a result of certain factors. A discussion of factors that could cause actual results to vary is included in the Company’s Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission.

 

Item 9.01. Financial Statements and Exhibits

(d) Exhibits.

 

Exhibit
No.

  

Description of Exhibit

99.1    Press Release of Prestige Brands Holdings, Inc. dated January 18, 2012.
99.2    Unaudited Pro Forma Combined Financial Information as of September 30, 2011 and for the fiscal year ended March 31, 2011, for the nine months ended September 30, 2011 and the twelve months ended September 30, 2011.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  PRESTIGE BRANDS HOLDINGS, INC.
Date: January 18, 2012   By:  

/s/ Eric S. Klee

    Name:    Eric S. Klee
    Title:      Secretary and General Counsel


EXHIBIT INDEX

 

Exhibit
No.

  

Description of Exhibit

99.1    Press Release of Prestige Brands Holdings, Inc. dated January 18, 2012.
99.2    Unaudited Pro Forma Combined Financial Information as of September 30, 2011 and for the fiscal year ended March 31, 2011, for the nine months ended September 30, 2011 and the twelve months ended September 30, 2011.
Press Release

Exhibit 99.1

Prestige Brands, Inc. Announces Offering of $290 Million Senior Notes

Irvington, NY, January 18, 2012— Prestige Brands Holdings, Inc. (NYSE: PBH) (the “Company”) announced today that its wholly-owned subsidiary, Prestige Brands, Inc. (“Prestige Brands”), intends to offer, subject to market and other conditions, up to $290 million in aggregate principal amount of new senior notes due 2020 (the “Notes”) in a private offering. The Notes will be senior unsecured obligations of Prestige Brands and will be guaranteed by the Company and certain of its domestic subsidiaries.

The Company intends to use the net proceeds from the offering, together with additional senior secured bank debt, to finance the previously announced acquisition of certain North American over-the-counter healthcare brands owned by GlaxoSmithKline plc and its affiliates (the “GSK Brands”), to repay its existing senior secured credit facilities, to pay fees and expenses incurred in connection with these transactions and for general corporate purposes.

The Notes and related guarantees are being offered only to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended or, outside the United States, to persons other than “U.S. persons” in compliance with Regulation S under the Securities Act. This press release does not constitute an offer to sell or the solicitation of an offer to buy the Notes and related guarantees. Any offers of the Notes and related guarantees will be made only by means of a private offering memorandum. The Notes and related guarantees have not been registered under the Securities Act, or the securities laws of any other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from registration requirements.

In addition, the Company intends to enter into new senior secured credit facilities. The new senior secured credit facilities will consist of (i) a $620 million term loan facility with a seven-year maturity (the “New Term Loan Facility”) and (ii) a $50 million asset-based revolving credit facility with a five-year maturity. In addition, the Company has agreed to secure its existing 8.25% Senior Notes due 2018 ratably with the New Term Loan Facility.

About the Company

Prestige Brands, Inc. markets and distributes brand name over-the-counter healthcare and household cleaning products throughout the United States, Canada, and certain international markets. Key brands include Chloraseptic® sore throat treatments, Clear Eyes® eye care products, Compound W® wart removers, the PediaCare® and Little Remedies® lines of children’s over-the-counter products, The Doctor’s® NightGuard® dental protector, Luden’s® throat drops, Efferdent® denture care products, Dramamine® motion sickness treatment, and the Comet® line of household cleaning products.


Forward-Looking Statements

This news release contains “forward-looking statements” within the meaning of the federal securities laws and is intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. “Forward-looking statements” generally can be identified by the use of the forward-looking terminology such as “assumptions,” “target,” “guidance,” “outlook,” “plans,” “projection,” “may,” “will,” “would,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” “continue,” (or the negative of other derivatives of each of these terms) or similar terminology. The “forward-looking statements” include, without limitation, statements regarding Prestige Brands’ acquisition of the GSK Brands, issuance of the Notes and the entry into new senior secured bank facilities. These statements are based on management’s estimates and assumptions with respect to future events, which include uncertainty as to our ability to consummate the offering of the notes, failure to realize the anticipated benefits of the acquisition of the GSK Brands, including as a result of a delay in completing the acquisition of the GSK Brands or a delay or difficulty in integrating the GSK Brands, the expected amount and timing of cost savings and operating synergies, current capital and debt market conditions, the Company’s ability to obtain new debt financing on acceptable terms, the anticipated terms of the Notes, and the anticipated use of proceeds from the proposed offering, which estimates are believed to be reasonable, though are inherently uncertain and difficult to predict. Actual results could differ materially from those projected as a result of certain factors. A discussion of factors that could cause actual results to vary is included in the Company’s Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission.

Contact: Dean Siegal

(914) 524-6819

 

2

Unaudited Pro Forma Combined Financial Information as of September 30, 2011

Exhibit 99.2

UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following tables which have been prepared in accordance with GAAP, except GSK Brands data, which have been prepared in accordance with IFRS, set forth unaudited pro forma combined financial data as of September 30, 2011 and for the fiscal year ended March 31, 2011, for the nine months ended September 30, 2011 and the twelve months ended September 30, 2011. The unaudited pro forma balance sheet as of September 30, 2011 gives effect to the Transactions as if they had occurred on that date. The unaudited pro forma combined statement of operations for the fiscal year ended March 31, 2011, for the nine months ended September 30, 2011 and the twelve months ended September 30, 2011 have been prepared to illustrate the effects of the Transactions, as if they had occurred at the beginning of the respective periods. The pro forma data has been derived from the audited financial statements of Prestige for the fiscal year ended March 31, 2011, the unaudited financial statements of Prestige for the six months ended September 30, 2010 and September 30, 2011, the unaudited financial statements for the nine months ended December 31, 2010, the audited financial statements of the GSK Brands for the fiscal year ended December 31, 2010 and the unaudited financial statements of the GSK Brands for the nine months ended September 30, 2010 and 2011. For purposes of the pro forma combined financial information for the nine months ended September 30, 2011, the unaudited financial statements of Prestige for the three months ended March 31, 2011 were combined with the unaudited financial statements of Prestige for the six months ended September 30, 2011. The GSK Brands have historically used a December 31 fiscal year end. For purposes of the pro forma combined financial information for the fiscal year ended March 31, 2011 herein, the historical December 31, 2010 period was used for the GSK Brands. The pro forma balance sheet as of September 30, 2011 gives effect to the Transactions as if they had occurred on that date. Additionally, the acquisition of the Blacksmith brands and the Dramamine asset acquisition have been included as if the business and assets were acquired by Prestige at the beginning of the respective periods.

The unaudited pro forma combined financial data and accompanying notes are provided for informational purposes only and are not necessarily indicative of the operating results that would have occurred had the Transactions been consummated prior to April 1, 2010, nor are they necessarily indicative of our future results of operations.

Certain pro forma adjustments were based on a preliminary assessment of the value of tangible and intangible assets acquired as part of the Acquisition. However, changes to adjustments included in the pro forma consolidated financial data are expected as valuations of assets and liabilities are finalized and additional information is available. The final purchase price allocations for the Acquisition will be based on a formal valuation analysis by an outside appraisal firm and may include an adjustment to the amounts recorded for the value of inventory, identifiable intangible assets and goodwill. Final valuations will be obtained after the completion of the Acquisition.

The adjustments to the unaudited pro forma combined financial data are based upon available information and certain assumptions that we believe are reasonable and exclude certain non-recurring charges that will be incurred in connection with the Transactions and recognized in the twelve months following, including: (1) amortization of estimated inventory fair value step-up of approximately $2 million expected to impact the cost of sales in fiscal year 2013; (2) the estimated costs of approximately $3 million related to the integration of the GSK Brands and Prestige; and (3) the write-off of deferred financing charges in connection with our Existing Term Loan Facility of approximately $3 million.

The following information should be read in conjunction with the “Capitalization,” “Unaudited Pro Forma Combined Financial Data,” “Selected Historical Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Prestige,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the GSK Brands,” and the financial statements and notes thereto included elsewhere in this offering memorandum.

 

1


Prestige Brands Holdings, Inc. and Subsidiaries

Unaudited Pro Forma Combined Balance Sheet

As of September 30, 2011

 

(in thousands)

   Prestige      GSK
Brands

(IFRS)
     Adjustments
Related to the
Transactions(a)
    Pro Forma  

ASSETS

          

CURRENT ASSETS:

          

Cash and cash equivalents

   $ 7,961       $       $ (7,961 )(a)    $   

Net receivables

     49,445                        49,445   

Inventories

     46,408         14,986         2,200 (b)      63,594   

Prepaid expenses

     3,018                        3,018   

Deferred income taxes

     5,549                        5,549   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     112,381         14,986         (5,761     121,606   

Long-term assets:

          

Net, property plant and equipment

     1,379                        1,379   

Goodwill

     153,696                        153,696   

Intangible assets

     781,615         211,303         431,511 (b)      1,424,429   

Other long-term assets

     6,070                 26,300 (a)      32,370   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,055,141       $ 226,289       $ 452,050      $ 1,733,480   
  

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

          

Current liabilities:

          

Accounts payable

   $ 25,184       $       $      $ 25,184   

Accrued expenses

     28,730                        28,730   

Current portion of long term debt

                     24,839        24,839   

Income taxes payable

     2,217                        2,217   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     56,131                 24,839        80,970   
  

 

 

    

 

 

    

 

 

   

 

 

 

Long-term liabilities:

          

Long-term debt

     447,403                 670,800 (a)      1,118,203   

Deferred income Tax

     160,152                        160,152   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     663,686                 695,639        1,359,325   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     391,455         226,289         (243,589 )(c)      374,155   
  

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 1,055,141       $ 226,289       $ 452,050      $ 1,733,480   
  

 

 

    

 

 

    

 

 

   

 

 

 

See accompanying notes to the unaudited pro forma combined statement of operations.

 

2


  (a)   The unaudited pro forma combined balance sheet gives effect to the following pro forma adjustments and reflects incurrence of debt, payment of acquisition consideration to GSK, repayment of historical debt, and fees and expenses incurred in connection with the acquisition of the GSK Brands, all presented as if they occurred on September 30, 2011.

 

Source of funds (in thousands)

  

New Senior Secured Credit Facilities(1):

  

New Term Loan Facility(2)

     620,000   

New ABL Revolving Credit Facility(2)

     39   

Existing Cash on Balance Sheet

     7,961   

Notes offered hereby(3)

     290,000   
  

 

 

 

Total source of funds

   $ 918,000   
  

 

 

 

Use of funds (in thousands)

  

Purchase price(4)

     660,000   

Existing Senior Secured Credit Facilities(2)(5)

     202,000   

Fees and expenses(6)

     56,000   
  

 

 

 

Total use of funds

   $ 918,000   
  

 

 

 

 

  (1)   The New Senior Secured Credit Facilities will consist of (i) the $620 million New Term Loan Facility with a seven-year maturity and (ii) the $50 million New ABL Revolving Credit Facility with a five-year maturity.
  (2)   The Existing Senior Secured Credit Facilities had a principal amount outstanding at December 31, 2011 of $184 million. Accordingly, we do not expect to be drawn under the New ABL Revolving Credit Facility at the closing of the Transactions.
  (3)   Represents the principal amount of the notes offered hereby, excluding any original issue discount.
  (4)   Represents cash paid, based upon the estimated purchase price of the assets of the GSK Brands, subject to a purchase price adjustment, if any, based on the value of inventory delivered upon the consummation of the Acquisition. The purchase price reflected above represents our estimate of the purchase price and adjustments as of the consummation of the Acquisition.
  (5)   Based upon the aggregate principal amount outstanding as of September 30, 2011 of the Existing Senior Secured Credit Facilities. At September 30, 2011, the average interest rate on the Existing Senior Secured Credit Facilities was 4.75%.
  (6)   Represents estimated fees and expenses payable by us associated with the Transactions, of which $29 million ($26 million net of existing debt issuance costs to be written off) relates to debt issuance costs to be capitalized and $12 million relates to expected original issue discount.

 

  (b)   Assumes the acquisition of the GSK Brands had been consummated on September 30, 2011 and was accounted for as a purchase in accordance with ASC 805, “Business Combinations.” Under purchase accounting, the estimated acquisition consideration is allocated to assets and liabilities based on their relative fair values. The pro forma adjustments are based upon a preliminary assessment of value and will be adjusted when valuations are finalized.

 

Total acquisition consideration allocation (in thousands)

  

Consideration paid to GSK

     660,000   

Less book value of assets acquired

     226,289   
  

 

 

 

Step-up to be allocated

   $ 433,711   
  

 

 

 

Preliminary allocation (in thousands)

  

Inventory

     2,200   

Identifiable intangible assets

     431,511   
  

 

 

 

Preliminary allocation

   $ 433,711   
  

 

 

 

 

  (c)   Represents the elimination of equity accounts for the GSK Brands upon the application of purchase accounting and certain expenses payable by us associated with the Transactions, which were not capitalized.

 

3


Prestige Brands Holdings, Inc. and Subsidiaries

Unaudited Pro Forma Combined Statement of Operations

Fiscal Year Ended March 31, 2011

 

(in thousands)

  Prestige     GSK Brands
(Fiscal Year
Ended
December 31,
2010)
    Blacksmith
Acquisition
Adjustments
    Dramamine
Acquisition
Adjustments
    Adjustments
Related to
the
Transactions
    Combined
Pro Forma
for the
Transactions
Fiscal Year
Ended
March 31,
2011(a)
 

Net sales

  $ 333,715      $ 207,342      $ 56,476 (e)    $ 13,945 (e)    $      $ 611,478   

Other revenue

    2,795                                    2,795   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    336,510        207,342        56,476        13,945               614,273   

Cost of revenue

    165,632        64,676        26,318 (e)      4,441 (e)             261,067   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    170,878        142,666        30,158        9,504               353,206   

Advertising and promotional expenses

    42,897        36,721        4,592 (e)                    84,210   

General and administrative expenses

    41,960        22,998        839 (e),(f)      (508 )(f)      (219 )     65,070   

Amortization of intangibles

    9,876        10,311        284 (b)      (b)      (7,335 )(b)      13,136   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    94,733        70,030        5,715        (508     (7,554     162,416   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    76,145        72,636        24,443        10,012        7,554        190,790   

Interest expense, net

    27,317               3,908 (c)             61,069 (c)      92,294   

Other non—operating income (expense)

    (300     (295                          (595
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses

    27,617        295        3,908               61,069        92,889   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre—tax income

    48,528        72,341        20,535        10,012        (53,515     97,901   

Provision for income taxes

    19,349               8,214 (d)      4,005 (d)      7,530 (d)      39,098   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    29,179        72,341        12,321        6,007        (61,045     58,803   

Income (loss) from discontinued operations, net of income tax

    591                                    591   

Loss on sale of discontinued operations, net of income tax

    (550                                 (550
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 29,220      $ 72,341      $ 12,321      $ 6,007      $ (61,045   $ 58,844   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the unaudited pro forma combined statement of operations.

 

4


Prestige Brands Holdings, Inc. and Subsidiaries

Unaudited Pro Forma Combined Statement of Operations

Nine Months Ended September 30, 2011

 

    Nine Months Ended
September 30, 2011
    Blacksmith
Acquisition
Adjustments
    Dramamine
Acquisition
Adjustments
    Adjustments
Related to the
Transactions
    Combined Pro
Forma
for the
Transactions
Nine Months

Ended
September 30,
2011(a)
 

(in thousands)

  Prestige     GSK Brands          

Net sales

  $ 294,508      $ 156,864      $      $ (e)    $      $ 451,372   

Other revenue

    2,694                                    2,694   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    297,202        156,864                             454,066   

Cost of revenue

    147,123        49,858               (e)             196,981   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    150,079        107,006                             257,085   

Advertising and promotional expense

    37,428        28,709                             66,137   

General and administrative

    29,730        18,499               (508 )(f)      (164     47,557   

Amortization of intangibles

    7,660        413               (b)      2,508        10,581   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    74,818        47,621               (508     2,344        124,275   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    75,261        59,385               508        (2,344     132,810   

Interest expense, net

    25,666                             42,828 (c)      68,494   

Other non—operating income (expense)

    5,063        58                             5,121   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

    20,603        (58                   42,828        63,373   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre—tax income

    54,658        59,443               508        (45,172     69,437   

Provision for income taxes

    20,527                      203 (d)      5,708 (d)      26,438   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    34,131        59,443               305        (50,880     42,999   

Income (loss) from discontinued operations, net of income tax

                                         

Loss on sale of discontinued operations, net of income tax

                                         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 34,131      $ 59,443      $      $ 305      $ (50,880   $ 42,999   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the unaudited pro forma combined statement of operations.

 

5


Prestige Brands Holdings, Inc. and Subsidiaries

Unaudited Pro Forma Combined Statement of Operations

Last Twelve Months Ended September 30, 2011

 

     Twelve Months Ended
September 30, 2011
    Blacksmith
Acquisition
Adjustments
    Dramamine
Acquisition
Adjustments
    Adjustments
Related to
the
Transactions
    Combined
Pro Forma
for the
Transactions
Twelve
Months
Ended

September 30,
2011(a)
 

(in thousands)

   Prestige      GSK
Brands
         

Net sales

   $ 384,584       $ 206,713      $ 9,907 (e)    $ 3,431 (e)    $      $ 604,635   

Other revenue

     3,226                                     3,226   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     387,810         206,713        9,907        3,431               607,861   

Cost of revenue

     193,719         66,738        5,536 (e)      1,280 (e)             267,273   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     194,091         139,975        4,371        2,152               340,588   

Advertising and promotional expense

     50,477         36,935        1,116 (e)                    88,528   

General and administrative

     45,156         23,182        (5,102 )(e),(f)      (508 )(f)      (219     62,509   

Amortization of intangibles

     10,173         10,311        41 (b)      (b)      (7,335     13,190   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     105,806         70,428        (3,945     (508     (7,554     164,227   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     88,285         69,547        8,316        2,659        (7,554     176,361   

Interest expense, net

     33,340                558 (c)             58,396 (c)      92,294   

Other non—operating income (expense)

     5,063         (334                          4,729   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     28,277         334        558               58,396        87,565   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre—tax income

     60,008         69,213        7,558        2,659        (50,842     88,796   

Provision for income taxes

     23,731                3,103 (d)      1,064 (d)      7,348 (d)      35,246   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     36,277         69,213        4,655        1,595        (58,190     53,550   

Income (loss) from discontinued operations, net of income tax

     32                                     32   

Loss on sale of discontinued operations, net of income tax

                                           
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 36,309       $ 69,213      $ 4,655      $ 1,595      $ (58,190   $ 53,582   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the unaudited pro forma combined statement of operations.

 

6


Prestige Brands Holdings, Inc. and Subsidiaries

Notes to the Unaudited Pro Forma Combined Statement of Operations

(dollars in thousands)

 

(a) The unaudited pro forma consolidated financial statements have been prepared to reflect the asset acquisition of Dramamine and the application of purchase accounting under ASC 805, “Business Combinations,” for the acquisitions of the Blacksmith brands and the GSK Brands. The unaudited pro forma combined statement of operations for the fiscal year ended March 31, 2011, for the nine months ended September 30, 2011, and the twelve months ended September 30, 2011 have been prepared to illustrate the effects of the Transactions, the acquisitions of the Blacksmith brands and the acquisition of the Dramamine assets as if they had occurred at the beginning of each respective period. The GSK Brands have historically used a December 31 fiscal year end. For purposes of the fiscal year ended March 31, 2011 data presented herein, a historical December 31, 2010 period was used for the GSK Brands.

 

(b) These adjustments represent the amortization expense related to the purchase price and amortizable intangible assets for the acquisition of the Blacksmith brands, the acquisition of the Dramamine assets and the GSK Brands. The expenses associated with the GSK Brands have been estimated based upon the following assumptions:

 

(in thousands)

   Annual Estimate  

Preliminary allocation:

  

Inventory

   $ 17,186   

Brand intangibles—non-amortizable

     589,803   

Brand intangibles—amortizable

     53,011   
  

 

 

 

Illustrative consideration

   $ 660,000   
  

 

 

 

Amortization of intangibles:

  

Total acquired intangibles

   $ 632,177   

Non-amortizable intangibles

     589,803   
  

 

 

 

Amortizable intangibles

     53,011   

Estimated useful life

     19   
  

 

 

 

Pro forma amortization

   $ 2,757   
  

 

 

 

Incremental amortization expenses related to the amortizable intangible assets have been included for the acquisition of the Blacksmith brands because our reported amortization expenses for the fiscal year ended March 31, 2011 included five months of amortization expense for the acquisition of the Blacksmith brands. The acquisition of the Blacksmith brands was completed on November 1, 2010. Accordingly, the pro forma adjustments for the fiscal year ended March 31, 2011 represents an additional seven months of amortization expense and the pro forma adjustments for the twelve months ended September 30, 2011 represents an additional one month of amortization expense. The Dramamine brand was assigned an indefinite life and as such there is no pro forma adjustment for the amortization expense related to the Dramamine asset acquisition.

 

7


(c) Reflects the interest expense as a result of the acquisition of the GSK Brands, which is calculated as follows:

 

(in thousands)    Fiscal Year
Ended
March 31,
2011
    Nine Months
Ended
September 30,
2011
    Twelve Months
Ended
September 30,
2011
 

Total cash interest from the debt requirements of the Transaction (1)

   $ 85,985      $ 63,762      $ 85,985   

Amortization of deferred financing costs (2)

     6,309        4,732        6,309   
  

 

 

   

 

 

   

 

 

 

Total pro-forma interest expense

   $ 92,294        68,494      $ 92,294   

Less: Historical interest expense

     (27,317     (25,666     (33,340

Less: Pro forma interest for the Blacksmith Acquisition

     (3,908            (558
  

 

 

   

 

 

   

 

 

 

Net adjustment to interest expense

   $ 61,069      $ 42,828      $ 58,396   
  

 

 

   

 

 

   

 

 

 

 

(1)   Represents the interest on the outstanding and unused balance on the New Senior Secured Credit Facilities (variable rate), the 2018 Senior Notes, and the notes offered hereby, together assuming a weighted average interest rate of 7.8%. An increase (decrease) of 25 basis points in the assumed interest rate would result in an increase (decrease) of $2.9 million per year in total interest expense.

 

(2)   Represents annual amortization expense on estimated $32.4 million of deferred financing fees, utilizing a weighted average maturity of 7.1 years, which approximates amortization under the effective interest rate method.

 

(d) Reflects the tax effect of the pro forma adjustments and the pro forma impact of inclusion of a tax provision for the operating results of the GSK Brands, each at an estimated 40% effective tax rate.

 

(e) The acquisition of the Blacksmith brands and the Dramamine asset acquisition were completed on November 1, 2010 and January 6, 2011, respectively. This adjustment records the impact to revenue and expenses as if these acquisitions occurred on April 1, 2010 (the first day of our fiscal year ended March 31, 2011).

 

(f) In conjunction with the acquisition of the Blacksmith brands and the Dramamine asset acquisition, we incurred certain costs that were specific to each of the respective transactions (e.g., banker and professional fees), and these costs have been removed as a pro forma adjustment.

 

8

Primary IR Contact

Irinquiries@prestigebrands.com
Prestige Consumer Healthcare Inc.
660 White Plains Road – Ste 250
Tarrytown, NY 10591
Telephone: 914-524-6819

Transfer Agent

AST
6201 15th Avenue
Brooklyn, NY 11219
Telephone: (800) 937-5449
help@astfinancial.com
https://www.astfinancial.com

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