Company Reports $(0.02) Loss per Share for Third Quarter 2009
 Generates Net Cash from Operating Activities of $2.9 Million in
  the Third Quarter and $8.7 Million for the First Nine Months of
                               2009
    Company Announces It Has Reached Agreement with Wells Fargo
 Business Credit, a Division of Wells Fargo Bank N.A., to Provide a
 Senior Secured, Asset Based Loan of up to $25 Million and with
        Mill Road Capital to Provide $8M in Junior Capital

AZUSA, Calif., Nov. 5, 2009 (GLOBE NEWSWIRE) -- Physicians Formula Holdings, Inc. (Nasdaq:FACE) ("Physicians Formula" or the "Company") today announced financial results for the three months ended September 30, 2009.

Results for the Third Quarter of 2009

Net sales were $14.2 million for the third quarter of 2009, compared to $20.3 million for the same period in 2008. Net loss for the third quarter of 2009 was $(0.3) million, or $(0.02) per diluted common share. This compares to net income of $1.7 million, or $0.12 per diluted common share, for the third quarter of 2008.

Net sales were down in the third quarter of 2009 versus the prior year period primarily due to two factors: first, the previously announced loss of a major customer, and second, lower Canadian sales relative to the strong increases in distribution that the Company achieved in Canada in 2008. The Company's planned reduction in promotional pre-pack sales, as discussed in both the first and second quarter earnings releases, was also a contributor. The Company also noted that the third quarter has historically been a seasonally low net sales period.

Ingrid Jackel, Chairwoman and CEO of Physicians Formula, stated, "Overall results for the third quarter of 2009 were in line with our expectations and we are on track to deliver our full year 2009 guidance. I am pleased that the operational initiatives we implemented throughout the year have allowed us to stabilize our profits and generate positive cash flow. I also believe our third quarter performance demonstrates the resiliency of our brand and our ability to effectively navigate the challenges caused by the loss of a major customer, the tough consumer environment and the liquidity constraints we faced during 2009."

Ms. Jackel continued, "We are also pleased that the Company's 2010 innovative and meaningfully different new product initiatives have been very well received by our retail partners and, with our impending new financing, we believe we will be well positioned to execute our strategic plan for 2010."

Refinancing

The Company reached agreement today to refinance its current line of credit borrowings with Union Bank and its current bridge loan financing with Mill Road Capital. The Company expects to close the refinancing tomorrow, November 6, 2009.

As part of the refinancing, the Company will enter into a senior secured asset-based loan with Wells Fargo Business Credit ("Wells Fargo") that will provide borrowings of up to $25 million, subject to a borrowing base formula, and an $8 million senior subordinated loan with Mill Road Capital ("Mill Road"), the Company's largest shareholder.

At closing, the Company will borrow $14.7 million under the maximum $25 million Wells Fargo line, after application of the borrowing base formula, and $8 million of junior capital under a senior subordinated loan from Mill Road, for total borrowings of $22.7 million. These proceeds will be used in part to repay $7.7 million of current borrowings from Union Bank, net of cash and cash equivalents and restricted cash, and $4.2 million of bridge loan financing from Mill Road. The Company will also pay $1.8 million in one-time transaction fees. Therefore, the Company expects to have an additional $6.0 million of availability under the Wells Fargo line, after giving effect to $3.0 million in reserves that will be required under the credit agreement with Wells Fargo. Upon completion of the refinancing, the Company may use borrowings under the Wells Fargo line and the Mill Road loan for general corporate purposes, including the funding of growth initiatives in the Company's long-range plan.

Ms. Jackel continued, "I am pleased at the anticipated closing of our refinancing tomorrow. This will allow us to put the liquidity issues experienced in 2009 behind us. This new financing should allow us to execute our long-range plan, including the introduction of exciting new product platforms and our efforts to expand sales into new channels and international markets. We are also pleased at the prospect of partnering with Wells Fargo Business Credit and continuing our relationship with Mill Road Capital, both of which are very supportive of our long-term plans to expand our brand awareness and sales."

Other Liquidity Considerations

Net cash provided by operating activities for the third quarter of 2009 was $2.9 million and for the first nine months of 2009 was $8.7 million. Net cash used in operating activities for the third quarter of 2008 was $(2.1) million, and net cash provided by operating activities for the first nine months of 2008 was $13.9 million.

As of September 30, 2009, net debt was $12.1 million, which consisted of $9.3 million of line of credit borrowings and the $4.2 million of bridge financing, net of $1.4 million of cash and cash equivalents and restricted cash. As of September 30, 2008, net debt was $12.2 million, which consisted of $2.0 million of line of credit borrowings and $11.3 million of term loans, net of $1.1 million in cash and cash equivalents.

Ms. Jackel continued, "We made substantial progress in improving our cash flow generation in the third quarter. We have implemented improved inventory and overall cash management policies, which led to a $5.0 million increase in operating cash flow during the third quarter of 2009 over the prior year period."

Outlook

Overall results for the third quarter of 2009 were in line with expectations and the Company is on track to deliver the full year 2009 guidance issued last quarter.