Physicians Formula Holdings, Inc. Announces Completion of Subordinated Debt Refinancing
November 15 2011 - 8:00AM
Company Completes Refinancing of $8.9 Million of
Subordinated Debt With a $4.0 Million Term Loan and $4.9
Million From Its Existing Line of Credit
At Current Market Rates, Interest Expense is
Estimated to be Reduced by $1.5 Million for the First Twelve Months
After Completion of the Refinancing
Physicians Formula Holdings, Inc. (Nasdaq:FACE) ("Physicians
Formula" or the "Company") today announced it completed the
previously announced refinancing of its subordinated debt held by
Mill Road Capital ("Mill Road") on November 10, 2011.
The Company refinanced $8.9 million of subordinated debt
principal, accrued paid-in-kind interest, accrued interest expense,
and pre-payment penalties under the Mill Road subordinated debt
with proceeds from its previously announced $4.0 million Term Note
("new Term Note") with Wells Fargo Business Credit ("Wells Fargo")
and borrowings of $4.9 million under its existing line of credit
with Wells Fargo.
This refinancing lowers the Company's interest expense and
extends debt maturities. The Company noted that the primary,
specific benefits of the refinancing to the Company are as
follows:
- The effective, annualized borrowing rate on the new Term Note
is LIBOR plus 3.5%, or approximately 3.9% using the 3-month LIBOR
rate as of November 11, 2011. This is significantly lower than
the cost of the Mill Road subordinated debt, which was 14.1% when
including the impact of annually compounded paid-in-kind interest
expense.
- The borrowing rate on the line of credit with Wells Fargo has
been reduced from LIBOR plus 3.5% to LIBOR plus 2.75%.
- The maturity date on the line of credit with Wells Fargo has
been extended by three years, from November 2012 to November
2015. The Term Note also expires in November 2015 versus the
Mill Road subordinated debt's maturity of November 2014.
Given current rates and the borrowing costs noted above, the
Company expects to save approximately $1.5 million in interest
expense in the first twelve months following the refinancing,
before the impact of one-time refinancing costs. This translates to
approximately $0.06 of earnings per diluted common share, net of
tax.
The Company incurred $1.3 million of one-time expenses
associated with the refinancing on November 10, 2011. The
Company noted that it expects another $0.1 million of
refinancing-related legal fees in the coming months. In total,
these one-time expenses are expected to be the equivalent of
$(0.06) of earnings per diluted common share, net of tax, and will
be reflected on the Company's fourth quarter 2011 profit and loss
statement.
The Company noted in its third quarter 2011 earnings release
that it had guided to the more favorable end of its $(0.04) to
$(0.14) earnings per common share guidance range for the full year
2011, before the impact of these one-time costs.
Ingrid Jackel, Chairwoman and Chief Executive Officer, stated,
"The completion of our refinancing is an important step in the
improvement of Physicians Formula's cost of capital and financial
flexibility, and will help ensure that we have the financial
resources necessary to execute our growth strategies. The
significant savings that will be generated, coupled with the
success we have seen in our 2011 investment strategy, has set the
foundation for both growth and profitability in 2012."
For full details of the refinancing transaction, as well as the
cost savings benefits and one-time costs, please refer to the press
release issued by the Company as well as the Company's Form 8-K
filing from October 6, 2011.
About Physicians Formula Holdings, Inc.
Physicians Formula is an innovative cosmetics and skin care
company operating in the mass market prestige, or "masstige",
market. Under its Physicians Formula brand name, created in 1937,
the Company develops, markets and distributes innovative,
premium-priced products for the mass market channel. Physicians
Formula differentiates itself by addressing skin imperfections
through a problem-solving approach, rather than focusing on
changing fashion trends. Currently, Physicians Formula products are
sold in 25,700 stores including those operated by Wal-Mart, Target,
CVS and Rite Aid.
Safe Harbor
Statement
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. In some cases, forward-looking statements can be
identified by words such as "anticipates," "estimates," "expects,"
"believes," "plans," "predicts," and similar terms. In particular,
this press release may include forward-looking statements about
management's expectations regarding the Company's refinancing,
strategy, liquidity, financial performance and outlook. These
forward-looking statements are based on current expectations,
estimates and projections about the Company's business and its
industry, based on management's beliefs and assumptions.
Forward-looking statements are not guarantees of future performance
and the Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that
might cause such differences include, but are not limited to: the
loss of any significant retailer customers; the demand for the
Company's products; the Company's ability to expand its product
offerings; the competitive environment in the Company's business;
the Company's operations and ability to achieve cost savings; the
effect of technological and regulatory changes; the Company's cash
needs and financial performance; the Company's ability to comply
with the financial covenants in its debt agreements; changes in
general economic or market conditions; and other factors discussed
in the Company's filings with the Securities and Exchange
Commission (the "SEC"), including the Risk Factors contained in the
Company's filings with the SEC, and available at
www.physiciansformula.com and the SEC's website at www.sec.gov. You
are urged to consider these factors carefully in evaluating the
forward-looking statements in this release and are cautioned not to
place undue reliance on such forward-looking statements, which are
qualified in their entirety by this cautionary statement. Unless
otherwise required by law, the Company expressly disclaims any
obligation to update publicly any forward-looking statements,
whether as result of new information, future events or
otherwise.
(FACE/F)
CONTACT: Anne Rakunas
ICR, Inc.
(310) 954-1100
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